As filed with the Securities and Exchange Commission on
July 25, 1999
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 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.
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INTRODUCTION
Headquartered in Roanoke Rapids, North Carolina, we are a
developer and marketer of a service designed 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. In addition, we utilize a suite of proprietary
computer programs which allow our users to analyze and track their
Web Sites "visibility". 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 have a history of significant losses and operate in a highly
competitive market.
FORMATION
On December 11, 1997, we were formed in Florida as a C
corporation under the name Suffield Technologies Corp. We did not
have any significant revenues until we purchased all of the issued
and outstanding shares of Top 10 Promotions, Inc. ("Top 10"), a
Virginia corporation with its principal place of business in North
Carolina, in accordance with a Stock Purchase Agreement and Share
Exchange dated and effective May 28, 1998 ("Share Exchange"). Top
10 was incorporated in Virginia on November 18, 1997.
Since the closing of the Share Exchange, the operations of Top 10
has represented 100% of our revenues to date. Based on the Share
Exchange, we undertook the following: (i) on June 11, 1998, we
filed an amendment to our incorporation document in Florida
changing our name to Roanoke Technology Corp.; (ii) on July 20,
1998, we were issued a Certificate of Authority to do business in
North Carolina; (iii) on July 22, 1998, the State of Virginia
issued a Certificate of Merger whereby Top 10 merged into the
Company; and (iv) 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.
In accordance with the Share Exchange, David L. Smith, Jr., the
sole shareholder, officer and director of Top 10 was paid the
following consideration: (i) 500,000 restricted common shares of
the Company; (ii) the ability to borrow up to 25% of the retained
earnings of the operating company (Top 10) in fiscal year 1998
(the Company has an October 31 fiscal year end) or the first two
quarters of fiscal year 1999. Any repayment of such borrowings
would be for a 2 year period at an annual interest rate of 5%. In
addition, the operating company, Top 10, was given $50,000 at
closing and $17,500 per month for an 11 month period commencing 30
days after closing (an aggregate of $192,500).
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.
When a customer purchases the "Premium Plan" we begin the
following procedures:
(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 characteristics and patterns preferred
by 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 2% 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. 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
are not aware of any specific studies which count the number of
extant business-oriented web sites, but we believe that about half
of the registered domains relate to businesses and have the
potential to become customers. 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%.
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:
_ 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
We incur programming costs to maintain and improve the computer
programs used internally in the conduct of our business. Most of
this work has been undertaken by salaried personnel.
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
Total $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. We expect to continue to add
salespersons and hope to add two more by the end of the fiscal
year.
ITEM 2. FINANCIAL INFORMATION
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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.
<TABLE>
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SUMMARY OPERATIONS DATA
December 11, 1997
Nine Months Ended Six Months Ended (Inception)
July 31, 1999 April 30, 1999 through October 31, 1998
------------------ ----------------- ------------------------
Revenue $873,772 $452,450 $109,809
Net Gain (Loss) (225,536) (180,961) (131,590)
Net loss per share $0.03 $0.027 $ 0.04
Weighted Average Shares
Used in Computation 8,121,084 8,103,721 3,159,400
SUMMARY BALANCE SHEET DATA
December 11, 1997
Nine Months Ended Six Months Ended (Inception)
July 31, 1999 April 30, 1999 through October 31, 1998
------------------ ----------------- ------------------------
Total Assets $1,004,533 $953,673 $ 92,585
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 15,085 7,150 66,645
Shareholders' Equity
(Surplus) 934,445 953,673 17,386
</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 with
$242,386 accounted for as contributions of capital and
$19,614attributed 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. Prior to the merger with us, Top-10
Promotions, Inc. was in the business of servicing Internet web
sites with new technology. 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.
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Nine Months Percent of Six Months Ended Percent of From Inception To Percent of
Ended Gross 04-30-99 Gross 10-31-98 Gross
(Unaudited) Revenue Revenue Revenue
07/31/99
----------- ---------- ----------------- ----------- ----------------- ----------
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 341,074 75.4% 195,625 178.2% 195,625 (178.2%)
EBITDA (1) (180,845) (40.0%) (141,899) (192.2%) (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.
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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
EBITDA Calculation
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 60,241 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 increases 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.
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. However, as can be seen in the cash flows
from operations in the Statement of Cash Flows, we experienced a
much smaller loss from cash used in operations of $12,763 for the
nine months ended July 31,1999 than in the preceeding fiscal year.
We are currently operating at approximately cash breakeven and
believe that cash on hand and cash expected to be generated from
operations will be adequate to permit continued operations for at
least the next twelve months without recourse to outside
financing. 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
The Company's costs incurred to date regarding Year 2000 issues
have had an immaterial effect on expenses. The Company has
addressed Information Technology ("IT") and Non-IT areas that may
negatively impact the Company. These costs include a separate
redundancy station at a distant location for business
continuation, power generators in case of power failure, and
additional data storage redundancy and back up. These costs would
have been incurred as a safety measure to ensure business
continuation, regardless of Year 2000 issues. At this time the
Company's management believes it has taken all steps reasonably
expected in order to be in a state of readiness. However, given
the strong interdependence of computer systems today, there is no
guarantee that there will be no business interruption. The
Company has taken reasonable steps to become knowledgeable of such
contingencies.
As the Company does not sell software to the public, the Company
foresees no costs regarding the Year 2000 with its customers. The
Company can not take responsibility for its customer's software
and hardware in relation to the services it provides, nor its
customers support systems - both IT and non-IT. Therefore, the
Company anticipates no contingent liabilities regarding the
service it provides.
The Company has addressed Year 2000 issues with all of the vendors
that would reasonably have a material impact on the Company's
activities. At this time there has been no indication that there
will be any interruption in services provided to the Company.
Reasonable steps taken have been to request, in writing,
statements on Year 2000 issues from its vendors.
The Company can not estimate the costs involved with being assured
that any of the local infra-structure will have problems, or that
the Company will have to take alternative measures regarding
failed infra-structure, even with a redundant remote location.
As the Company has reviewed its own systems for Year 2000
readiness, the Company's management recognizes that a worse case
scenario would be that the Company would have to establish a new
location in an area where the location's infra-structure had not
been effected as greatly as its present site. The costs of such
an event would be relocation costs that may include the cost of
physical relocation of assets, breaking current location leases,
relocation of employees and the cost of down-time regarding
relocation and possible employee recruitment.
The Company has established a redundant remote location; however,
there is no complete guarantee that this site will operate as
intended. If this were the case, the Company would need
additional capital in order to overcome these obstacles.
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:
<TABLE>
<S> <C> <C>
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
</TABLE>
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
Annual Compensation
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Name and
Principal
Position Other Annual Long Term All other
Year Salary Bonus Compensation Compensation Compensation
----- ------- ----- ------------- ------------- ------------
David L. Smith, Jr.(1) 1999 $120,000 None None None None
Chief Executive Officer, 1998 $ 75,888.67 None None None None
Director
Glenn Canady 1999 $ 53,076.98 (2)(3) None None (2)
Vice President Plus $1,182
for overtime
1998 None None None None None
Edwin Foster (4) 1999 $ 18,000 None None None None
Vice President 1998 None None None None None
James Lee (5) 1999 None None None None None
Chief Executive Officer 1998 None None None None $58,500
Secretary and Treasurer
</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) Glenn's salary was based on $60,000 per year until June 3,
1999. He commenced employment during fiscal year 1999. Adjusted
to $80,000 per year as of June 4, 1999. Adjusted to $100,000 per
year as of August 27, 1999. Glenn also receives sales
commissions. He received $500 commission in 1999 for writing an
article. 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) Ed's salary was based on $52,000 per year for fiscal year
1999. He commenced employment during fiscal year 1999.
(5) In 1998, our original officer 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.
In exchange for David tendering his Top 10 shares to us, he
received 500,000 of our "restricted" shares valued at $19,500.
Top 10 merged into us and received funds 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. In addition, based on the Stock Agreement, we established
an office and qualified to do business, in North Carolina. David
Smith operates such office and filed to do business as "Top-10
Promotions" in the North Carolina county in which we now operate.
David Smith 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.
We will clear the account by this fiscal year end to reconcile
with the compensation agreement.
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:
<TABLE>
<S> <C> <C> <C>
FIRST OFFERING
Investors Date of Issuance Common Consideration
Stock Sold
- ---------- ---------------- ----------- -------------
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
-------- --------
-------- --------
</TABLE>
SECOND OFFERING
- ---------------
<TABLE>
<S> <C> <C> <C>
Investors Date of Issuance Common Consideration
Stock Sold
- ---------- ---------------- ----------- -------------
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:
<TABLE>
<S> <C> <C> <C>
THIRD OFFERING
Investors Date of Issuance Common Consideration
Stock Sold
- ---------- ---------------- ----------- -------------
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. The value of such legal services was at par value
consideration of our common stock, since additional compensation
in the form of cash was paid to Mr. Anslow for 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.
In exchange for David tendering his Top 10 shares to us, he
received 500,000 of our "restricted" shares. Top 10 merged into
us. In addition, based on the Stock Agreement, we established an
office, and qualified to do business, in North Carolina. David
Smith operates such office and filed to do business as "Top 10
Promotions" in the North Carolina County in which we now operate.
Such operations 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)." The value of this transaction was set at
$242,500 for all the outstanding shares of Top 10. 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.
The value of this transaction is $630,000. The estimated derived
benefit of these assets during the first year after the
acquisition is $761,168. There were 4 computers valued at $4,000
each and 2 software program codes valued at an aggregate of
$614,000.
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 value of such consulting services is set at $25,000 based on
the fair value at services provided. 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.
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 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 Technology Corporation, as 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 Associate
Certified Public Accountants
Longwood, FL
March 3, 1999
ROANOKE TECHNOLOGY CORPORATION
Financial Statements Table of Contents
From December 11, 1997 (inception) through October 31, 1998
<TABLE>
<S> <C>
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 7-12
</TABLE>
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 6,860
------------
Total Other Assets 22,159 22,159
TOTAL ASSETS $ 92,585
------------
------------
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 (131,590)
-----------
Total stockholders' equity 17,386 17,386
--------
TOTAL LIABILITIES AND EQUITY $ 92,585
------------
------------
PLEASE READ AUDITOR'S REPORT
</TABLE>
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
Depreciation and amortization 9,814
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 205,439 205,439
--------
INCOME (LOSS) FROM OPERATION (151,713)
OTHER INCOME AND (EXPENSE)
Interest expense (697)
--------
Total other income and expense (697) (697)
--------
INCOME (LOSS) BEFORE TAX BENEFIT (152,610)
Tax benefit 20,820
-----------
NET INCOME (LOSS) $(131,590)
------------
------------
NET EARNINGS PER SHARE
Basic and Diluted
Net earnings per share (.04)
Basic and Diluted Weighted Average
Number of Common Shares Outstanding 3,159,400
PLEASE READ AUDITOR'S REPORT
</TABLE>
ROANOKE TECHNOLOGY CORPORATION
STATEMENT OF CAPITAL SURPLUS
As of October 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
ADDITIONAL
COMMON STOCK PAID
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------------------------------------------------------------
Issuance of common stock 3,825,00 $ 383 $148,593 $ - $ 148,976
Net loss for the year (131,590) (131,590)
----------------------------------------------------------------
Balance at October 31, 1998 3,825,00 $ 383 $148,593 $(131,590) $ 17,386
----------------------------------------------------------------
----------------------------------------------------------------
PLEASE READ AUDITOR'S REPORT
</TABLE>
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) $(131,590)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization $ 9,814
(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) (9836)
-----------
Net cash provided by (used in) operating activities (136,212)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures on purchase of
company 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 ac 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
------------
------------
PLEASE READ AUDITOR'S REPORT
</TABLE>
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 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 3 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 accounts
for stock-based compensation to match the compensation expense
with the time in which 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.
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.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(See Audit Report)
1. Summary of significant accounting policies - continued:
- -----------------------------------------------------------
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.
The Company has suffered losses from operations and may
require additional capital to continue as a going concern as the
company develops its new markets. 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.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(See Audit Report)
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 principles. 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.
7. Long - Term Debt:
- --------------------
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 under a month-to-month
operating lease agreement and a twelve-month operating lease
arrangement in the amounts of $900 and $450, respectively. 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. 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
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 cancelled.
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. The operations of Top-10 Promotions, Inc.,
as of the prior fiscal year, have been included as The Company's.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(See Audit Report)
10. Acquisitions continued:
- --------------------------------
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 value of the 500,000 shares of The
Company exchanged for 100 shares of TOP-10 Promotions, Inc. is
$19,500. The fair value of the assets and liabilities assumed was
$(114) and therefore goodwill was recorded at $19,614 and
attributed to the method of business and internally developed
software. 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 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.
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 asset in the amount of $21,960 that is
derived from a net operating tax loss carryforward that will
expire during the fiscal year ended 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 $697.00
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 tax income 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
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.
15. 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.
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 to the Financial Statements 7-17
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
income, 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 19,494
-----------
Net tangibles 623,120
Deposits 1,500
Stockholder loan 62,324
------------
Total Other Assets 686,944 686,944
---------
TOTAL ASSETS $ 953,673
-----------
-----------
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; 50,000,000 shares
authorized; 9,000,000 issued and outstanding 900
Additional paid-in capital 1,221,228
Retained earnings (312,551)
------------
Total stockholders' equity 909,577 909,577
---------
TOTAL LIABILITIES AND EQUITY $ 953,673
-----------
-----------
PLEASE READ AUDITOR'S REPORT AND ACCOMPANYING FOOTNOTES
</TABLE>
ROANOKE TECHNOLOGY CORPORATION
STATEMENT 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 26,478
Dues and subscriptions 1,357
Insurance 5,038
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 367,552 367,552
----------
INCOME (LOSS) FROM OPERATION (207,323)
OTHER INCOME AND (EXPENSE)
Interest expense (1,609)
----------
INCOME (LOSS) BEFORE TAX BENEFIT (208,932)
Tax benefit 27,971
----------
NET INCOME (LOSS) $(180,961)
-----------
-----------
NET EARNINGS PER SHARE
Basic and Diluted
Net earnings per share $(0.02)
Basic and Diluted Weighted Average
Number of Common Shares Outstanding 8,103,721
PLEASE READ AUDITOR'S REPORT AND ACCOMPANYING FOOTNOTES
</TABLE>
ROANOKE TECHNOLOGY CORPORATION
STATEMENT OF CAPITAL SURPLUS
As of April 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
ADDITIONAL
COMMON STOCK PAID
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------------------------------------------------------------
Issuance for services 1,525,000 $ 153 $ 59,323 $ 0 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 (131,590) (131,590)
----------------------------------------------------------------
Balance at October 31, 1998 3,825,000 $ 383 $148,593 $(131,590) $ 17,386
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 (180,961) (180,961)
---------------------------------------------------------------
Balance at April 30, 1999 $9,000,000 $900 $1,221,228 $ (312,551) $ 909,577
---------------------------------------------------------------
---------------------------------------------------------------
PLEASE READ AUDITOR'S REPORT AND ACCOMPANYING FOOTNOTES
</TABLE>
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) $(180,961)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization $ 26,478
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 168,198 168,198
---------
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 ac 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
-----------
-----------
PLEASE READ AUDITOR'S REPORT AND ACCOMPANYING FOOTNOTES
</TABLE>
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 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 5 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.
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 for disclosure purposes, along with Accounting
Principles Board opinion no. 25. The Company may consider using
full implementation of SFAS No. 123 at a future date. 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 and are accounted for at their fair value of $150,000.
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
(See Audit Report)
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, when
needed is not expected to 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, when needed, 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 new markets. Management believes The Company will
continue as a going concern in its current market 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 will clear the account by
this fiscal year end to reconcile with the compensation
agreement..
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 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.
Stock Incentive Plans
- ---------------------
On March 1, 1999, The Company entered into a stock option
agreement with the Director of Operation, Glenn Canady, as noted
in footnote number eleven. The Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations in accounting for
its employee stock options.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(See Audit Report)
9. Stockholders' Equity continued:
- ------------------------------------
Pro forma information regarding net income and earnings per share
is required by SFAS 123, and has been determined as if The Company
had accounted for its employee stock options under the fair value
method of SFAS 123. As of the balance sheet date, there is no
material effect on earnings and earnings per share.
10. Acquisitions:
- -----------------
On March 30, 1999 The Company acquired certain 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.
The assets included were comprised of four computers valued at
$8,000 and two software programs valued at $622,000. The value of
these assets was determined on the basis of the company's
management estimation and the value of stock, if The Company were
to issue stock to raise the capital to purchase these items.
Management's estimate of fair value was made by estimating the
purchase price of the computers, the estimated man hours to
produce the software and a consideration of the productivity
savings that The Company would experience. 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, consisting of the four computers and the rights to the
program code for two software products, are intended to enhance
The Company's ability to market and increase the speed of computer
operations.
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 cancelled. The 100
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. The value of the share exchanged by both parties
was determined to be $19,500, including a value of $(114)
attributed to the fair value of assets and liabilities, and
$19,614 of goodwill attributed to the method of doing business and
the internally developed software.
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.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(See Audit Report)
10. Acquisitions - continued:
- ------------------------------
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 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.
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.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(See Audit Report)
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,
after each year's service, for a four year period. Such shares
will be restricted for a two year period from the date of
issuance.
The Company will account for these options during the time that
they are earned in accordance with APB Opinion No. 25. At the
present time, the fair value of these options are not in excess of
the exercise price and not exercisable; therefore there is no
compensation expense to record. A determination of the fair value
of these options may be extended to the end of the current fiscal
year. 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 a
deferred tax assets in the amount of $48,791 that is derived from
a net operating tax loss carryforward. 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.
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.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(See Audit Report)
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 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 6-16
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 50,397
----------
Net tangibles 592,217
Deposits 1,500
Stockholder loan 62,324
-----------
Total Other Assets 656,041 656,041
----------
TOTAL ASSETS $1,004,533
-----------
-----------
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 (357,126)
------------
Total stockholders' equity 934,445 934,445
----------
TOTAL LIABILITIES AND EQUITY $1,004,533
-------------
-------------
</TABLE>
ROANOKE TECHNOLOGY CORPORATION
STATEMENT 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 61,229
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 8,699
Travel 6,505
------------
Total general and administrative expenses 581,200 581,200
INCOME (LOSS) FROM OPERATION (264,864)
OTHER INCOME AND (EXPENSE)
Interest expense (2,270)
-----------
INCOME (LOSS) BEFORE TAX BENEFIT (267,134)
Tax benefit 41,598
-----------
NET INCOME (LOSS) $(225,536)
-----------
-----------
NET EARNINGS PER SHARE
Basic and Diluted
Net earnings per share $(0.03)
Basic and Diluted Weighted Average
Number of Common Shares Outstanding 8,121,084
</TABLE>
ROANOKE TECHNOLOGY CORPORATION
STATEMENT OF CAPITAL SURPLUS
As of July 31, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
ADDITIONAL
COMMON STOCK PAID
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------------------------------------------------------------
Issuance for services 1,525,000 $ 153 $ 59,323 $ 0 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 (131,590) (131,590)
----------------------------------------------------------------
Balance at October 31, 1998 3,825,000 $ 383 $148,593 $(131,590) $ 17,386
Officer Compensation 750,000 75 149,925 150,000
Asset acquisition 999,111 99 629,901 630,000
Issuance of common stock 3,495,339 343 362,252 362,595
Net loss for the year (225,536) (225,536)
---------------------------------------------------------------
Balance at July 31, 1999 $9,069,450 $907 $1,290,671 $ (357,126) $ 934,445
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
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) $(225,536)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization $ 61,229
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
Capital expenditures on equipment (92,068)
Loan to Stockholder (62,324)
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>
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 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 5 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.
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 for disclosure purposes, along with Accounting
Principles Board opinion no. 25. The Company may consider using
full implementation of SFAS No. 123 at a future date. 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 and are accounted for at their fair value of $150,000.
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
(See Audit Report)
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, when
needed is not expected to 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, when needed, 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 new markets. Management believes The Company will
continue as a going concern in its current market 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 will clear the account by
this fiscal year end to reconcile with the compensation
agreement..
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 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.
Stock Incentive Plans
- ---------------------
On March 1, 1999, The Company entered into a stock option
agreement with the Director of Operation, Glenn Canady, as noted
in footnote number eleven. The Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations in accounting for
its employee stock options.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(See Audit Report)
9. Stockholders' Equity continued:
- ------------------------------------
Pro forma information regarding net income and earnings per share
is required by SFAS 123, and has been determined as if The Company
had accounted for its employee stock options under the fair value
method of SFAS 123. As of the balance sheet date, there is no
material effect on earnings and earnings per share.
10. Acquisitions:
- ------------------
On March 30, 1999 The Company acquired certain 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.
The assets included were comprised of four computers valued at
$8,000 and two software programs valued at $622,000. The value of
these assets was determined on the basis of the company's
management estimation and the value of stock, if The Company were
to issue stock to raise the capital to purchase these items.
Management's estimate of fair value was made by estimating the
purchase price of the computers, the estimated man hours to
produce the software and a consideration of the productivity
savings that The Company would experience. 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, consisting of the four computers and the rights to the
program code for two software products, are intended to enhance
The Company's ability to market and increase the speed of computer
operations.
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 cancelled. The 100
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. The value of the share exchanged by both parties
was determined to be $19,500, including a value of $(114)
attributed to the fair value of assets and liabilities, and
$19,614 of goodwill attributed to the method of doing business and
the internally developed software.
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.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(See Audit Report)
10. Acquisitions - continued:
- -----------------------------
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 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.
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.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(See Audit Report)
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,
after each year's service, for a four year period. Such shares
will be restricted for a two year period from the date of
issuance.
The Company will account for these options during the time that
they are earned in accordance with APB Opinion No. 25. At the
present time, the fair value of these options are not in excess of
the exercise price and not exercisable; therefore there is no
compensation expense to record. A determination of the fair value
of these options may be extended to the end of the current fiscal
year. 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. 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.
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.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(See Audit Report)
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.
TOP-10 PROMOTIONS, INC.
Financial Statements Table of Contents
From November 17, 1997 (Inception) through May 28, 1998
FINANCIAL STATEMENTS Page #
Independent Auditor's Report 1
Balance Sheet 2
Statement of Operations and Retained Deficit 3
Cash Flow Statement 4
Notes to the Financial Statements 5-9
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS
To the Board of Directors and Stockholders
TOP-10 Promotions, Inc.
Roanoke Rapids, North Carolina
We have audited the accompanying balance sheet of Top-10 Promotions,
Inc. as of May 28, 1998, and the related statements of operations
and retained earnings, and cash flows from November 17, 1997
(inception) through May 28, 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 Top-10
Promotions, Inc., as of May 28, 1998 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
November 15, 1999
TOP-10 PROMOTIONS, INC.
BALANCE SHEET
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 STOCKHOLDER'S EQUITY
- -------------------------------------
CURRENT LIABILITIES
Accrued expenses $ 2,564
Stockholder loan 7,800
---------------
Total Current Liabilities 10,364 10,364
STOCKHOLDER'S EQUITY
Capital stock - no par value; 100,000 shares
authorized; 100 issued and outstanding 100
Retained earnings (4,330)
----------------
Total stockholder's equity (4,230) (4,230)
--------
TOTAL LIABILITIES AND EQUITY $ 6,134
----------
The accompanying notes are an integral part of these financial statements.
</TABLE>
TOP-10 PROMOTIONS, INC.
STATEMENT OF OPERATIONS
From November 17, 1997 (Inception) Through May 28, 1998
<TABLE>
<S> <C> <C>
REVENUE
Sales $ 168,836
Cost of sales 58,562
----------
GROSS PROFIT 110,274 $ 110,274
GENERAL AND ADMINISTRATIVE EXPENSES
Advertising 151
Bank charges 165
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 8,050
Salaries - officer 50,673
Supplies 713
Telephone 6,215
Travel 914
Utilities 3,524
------------
Total general and administrative expenses 114,604 114,604
-----------
INCOME (LOSS) FROM OPERATION $ (4,330)
Retained Earnings, Beginning Balance 0
-----------
RETAINED EARNINGS, ENDING BALANCE $ (4,330)
NET EARNINGS PER SHARE
Basic and Diluted
Net earnings per share $(43.30)
Basic and Diluted Weighted Average
Number of Common Shares Outstanding 100
The accompanying notes are an integral part of these financial statements.
</TABLE>
TOP-10 PROMOTIONS, INC.
STATEMENT OF CASH FLOWS
From November 17, 1997 (Inception) Through May 28, 1998
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (4,330)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation $ 894
Increase (decrease) in payables for expense 2,564
----------
Total adjustments to net income 3,458 3,458
----------
Net cash provided by (used in) operating activities (872)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures on equipment (5,843)
Loan from Stockholder 7,800
----------
Net cash flows provided by (used in)
investing activities 1,957 1,957
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 100
-----------
Net cash provided by (used in) financing activities 100 100
CASH RECONCILIATION
Net increase (decrease) in cash 1,185
Cash at beginning of year 0
---------
CASH BALANCE AT END OF YEAR $ 1,185
-------------
-------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
TOP-10 PROMOTIONS, INC.
As of May 28, 1998
(See Audit Report)
1. Summary of significant accounting policies:
- -----------------------------------------------
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
markets the service by offering a free downloadable 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.
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.
Basis of Accounting - The Company's financial statements
-------------------
are prepared in accordance with generally accepted accounting
principles.
TOP-10 PROMOTIONS, INC.
As of May 28, 1998
(See Audit Report)
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
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 - Intangibles principally include core
------------
technology in the form of software programs and are amortized over
their estimated lives of primarily 3 to 5 years.
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.
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.
TOP-10 PROMOTIONS, INC.
As of May 28, 1998
(See Audit Report)
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. At this
time The Company has no deposits that are at risk.
No customer represented 10 % or more of The Company's
total sales as of the current reporting period.
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.
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 principles. 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.
TOP-10 PROMOTIONS, INC.
As of May 28, 1998
(See Audit Report)
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.
7. Operating Lease Agreements:
- ------------------------------
The Company rents office space under a twelve-month
operating lease arrangement in the amount of $900. All long - term
leases regarding phones and office equipment 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.
8. Stockholder's Equity:
- ------------------------
Common Stock includes 100,000 shares authorized at no par
value and 100 shares outstanding.
9. Subsequent event:
- ---------------------
Effective May 29, 1998, Roanoke Technology Corporation
(The Company) acquired all the outstanding common stock of Top-10
Promotions, Inc., consisting of 100 shares, effective. These
shares were redeemed and cancelled. 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.
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
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.
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 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.
TOP-10 PROMOTIONS, INC.
As of May 28, 1998
(See Audit Report)
9. Subsequent event continued:
- --------------------------------
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.
10. 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.
At this time, The Company considers the effects of accounting for
deferred tax assets and liabilities to be immaterial to the
financial statements.
11. Required Cash Flow Disclosure for Interest and Taxes Paid:
- --------------------------------------------------------------
The company has paid no amounts for federal income taxes
and interest.
12. 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.
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: November 29, 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 for Roanoke Technology Corp.
27.1 Financial Data Schedule for Top-10 Promotions, Inc.
* Filed with initial filing of Form 10 on July 15, 1999
</TABLE>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE FOR ROANOKE TECHNOLOGY
- -------------------------------------------------------------
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.
[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> 592,217
[DEPOSITS] 1,500
<STOCKHOLDER LOAN> 62,324
[TOTAL-ASSETS] 1,004,533
[CURRENT-LIABILITIES] 55,003
<LONG TERM LIABILITIES> 15,085
[COMMON] 907
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 934,445
[TOTAL-LIABILITY-AND-EQUITY] 1,004,533
[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] <267,134>
<INCOME-TAX BENEFIT> 41,598
[INCOME-CONTINUING] <225,536>
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] <225,536>
[EPS-BASIC] <.03>
[EPS-DILUTED] <.03>
FINANCIAL DATA SCHEDULE FOR TOP-10 PROMOTIONS, INC.
- ---------------------------------------------------
[DESCRIPTION] ART. 5 FDS FOR QUARTER 10
[ARTICLE] 5
[MULTIPLIER] 1,000
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] NOV-17-1997 (INCEPTION)
[PERIOD-END] MAY-28-1998
[CASH] 1,185
[SECURITIES] 0
[RECEIVABLES] 0
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 1,185
[PP&E] 5,843
[DEPRECIATION] <894>
[TOTAL-ASSETS] 6,134
[CURRENT-LIABILITIES] 10,364
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 100
[OTHER-SE] 4,330
[TOTAL-LIABILITY-AND-EQUITY] 6,134
[SALES] 168,836
[TOTAL-REVENUES] 168,836
[CGS] 58,562
[TOTAL-COSTS] 58,562
[OTHER-EXPENSES] 114,604
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] <4,330>
[INCOME-TAX] 0
[INCOME-CONTINUING] <4,330>
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] <4,330>
[EPS-BASIC] <43.3>
[EPS-DILUTED] <43.3>
