U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
<P>
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
<P>
For the quarterly period ended January 31, 2000
<P>
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
<P>
For the transition period from to
<P>
Commission File No. 0-26715
<P>
ROANOKE TECHNOLOGY CORP.
(Name of Small Business Issuer in Its Charter)
<P>
Florida 22-3558993
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
<P>
1433 Georgia Avenue, Roanoke Rapids, North Carolina 27870
(Address of Principal Executive Offices) (Zip Code)
<P>
(252) 537-9222
(Issuer's Telephone Number, Including Area Code)
<P>
Check whether the issuer: (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period
that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past 90 days.
<P>
Yes X No
-----
<P>
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date: As of March 14, 2000, the Company had
11,150,685 shares of Common Stock outstanding, $0.0001
par value.
<P>
ROANOKE TECHNOLOGY CORP.
Form 10-Q Quarterly Report
For the Period Ended January 31, 2000
<P>
<TABLE>
<S> <C>
Page
Part I - FINANCIAL INFORMATION
<P>
Item 1. Financial Statements 3
<P>
Unaudited Balance Sheets at January 31, 2000 6-7
and for the Year Ended October 31, 1999
<P>
Unaudited Statements of Operations for the Three 8-9
Months Ended January 31, 2000 and January 31, 1999
<P>
Unaudited Statement of Stockholder's Equity as of 10
January 31, 2000.
<P>
Unaudited Cash Flow Statement for the Three Months 11-12
Ended January 31, 2000 and January 31, 1999
<P>
Notes to Condensed Financial Statements 13-21
<P>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21-23
<P>
PART II - OTHER INFORMATION 24
<P>
Item 1. Legal Proceedings 24
<P>
Item 2. Changes in Securities 24
<P>
Item 3. Defaults Upon Senior Securities 24
<P>
Item 4. Submission of Matters to a Vote of Security Holders 24
<P>
Item 5. Other Information 24
<P>
Signatures 25
<P>
</TABLE>
<P>
PART I - FINANCIAL INFORMATION
<P>
Item 1. Financial Statements:
---------------------
<P>
BASIS OF PRESENTATION
<P>
The accompanying unaudited financial statements are
presented in accordance with generally accepted
accounting principles for interim financial information
and the instructions to Form 10-Q and item 310 under
subpart A of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. The accompanying statements should
be read in conjunction with the audited financial
statements for the year ended October 31, 2000. In the
opinion of management, all adjustments (consisting only
of normal occurring accruals) considered necessary in
order to make the financial statements not misleading,
have been included. Operating results for the three
months ended January 31, 2000 are not necessarily
indicative of results that may be expected for the year
ending October 31, 2000. The financial statements are
presented on the accrual basis.
<P>
<P>
ROANOKE TECHNOLOGY CORPORATION
Financial Statements Table of Contents
FINANCIAL STATEMENTS Page #
<TABLE>
<S> <C>
Accountant's Report 1
<P>
Balance Sheets 2 - 3
As of January 31, 2000
And the Year Ended October 31, 1999
<P>
Statements of Operations 4
For the Three Months Ended
January 31, 2000 and 1999
<P>
Statement of Equity 5
As of January 31, 2000
<P>
Cash Flow Statements 6
For the Three Months Ended
January 31, 2000 and 1999
<P>
Notes to the Financial Statements 7-11
<P>
</TABLE>
VARMA & ASSOCIATES
Bob A. Varma 610 Crown Oak Centre Drive
James P. Gately Longwood, Florida 32750
Office (407) 834-7344
Fax (407) 834-7814
<P>
Review Report of Independent
Certified Public Accountant
<P>
To the Shareholder and Board of Directors
of Roanoke Technologies Corporation
<P>
We have reviewed the accompanying balance sheet of
Roanoke Technology Corporation as of January 31, 2000,
and the related statements of operations, stockholder's
equity and cash flows for the quarters ending January 31,
2000 and 1999, in accordance with statements on Standards
for Accounting and Review Services issued by the American
Institute of Certified Public Accountants. All
information in these statements is the representation of
management.
<P>
A review consists principally of inquiries of company
personnel and analytical procedures applied to financial
data. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
<P>
Based on my review, we are not aware of any material
modifications that should be made to the accompanying
financial statements in order for them to be in
conformity with generally accepted accounting principles.
<P>
Varma & Associates
March 15, 2000
<P>
ROANOKE TECHNOLOGY CORPORATION
BALANCE SHEETS
As of January 31, 2000 and October 31, 1999
ASSETS
<TABLE>
<S> <C> <C>
January 31, October 31,
2000 1999
----------- -----------
CURRENT ASSETS
Cash $ 91,383 $ 77,904
----------- -----------
Total Current Assets 91,383 77,904
<P>
PROPERTY AND EQUIPMENT
<P>
Equipment and leasehold improvements 175,961 164,498
Less: accumulated depreciation 37,280 26,929
--------------------
<P>
Total Property and Equipment 138,681 137,569
<P>
OTHER ASSETS
<P>
Organization costs 1,000 1,000
Goodwill 19,614 19,614
Software 622,000 622,000
Less: Accumulated amortization 137,511 84,003
----------- ----------
Net intangibles 505,103 558,611
Deposits 1,500 1,500
------------ ---------
Total Other Assets 506,603 560,111
TOTAL ASSETS $ 736,667 $ 775,584
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<P>
Accounts payable and accrued expenses $ 35,570 $ 37,415
Current maturity of long-term debt 7,1 6,760
----------- ------------
Total current liabilities 42,710 44,175
<P>
LONG TERM LIABILITIES
<P>
Long term debt 20,052 22,548
Less: current portion 7,140 6,760
----------- ------------
Total long term liabilities 12,912 15,788
<P>
Deferred Revenue 44,025 44,025
----------- ------------
TOTAL LIABILITIES 99,647 103,988
<P>
STOCKHOLDERS' EQUITY
--------------------
<P>
STOCKHOLDERS' EQUITY
<P>
Common stock - $.0001 par value;
50,000,000 shares authorized;
11,330,183 issued
and outstanding 1,133 1,133
Additional paid-in capital 3,360,988 3,360,988
Retained earnings (2,725,101) (2,690,525)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 637,020 671,596
----------- ------------
<P>
TOTAL LIABILITIES AND EQUITY $ 736,667 $ 775,584
============= =============
</TABLE>
<P>
ROANOKE TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
For the There Months Ending January 31, 2000 and 1999
<TABLE>
<S> <C> <C>
2000 1999
------------ ---------
REVENUE
Sales $ 520,679 $ 138,127
Cost of sales 260,488 46,559
------------ ---------
GROSS PROFIT 260,191 91,568
<P>
GENERAL AND ADMINISTRATIVE EXPENSES
Advertising 1,435 1,516
Auto 413 0
Bank charges 74 90
Depreciation and amortization 63,859 5,650
Dues and subscriptions 444 185
Legal and accounting 8,250 5,950
Maintenance and repairs 500 777
Marketing 36,293 0
Meals and entertainment 771 1,224
Office and occupancy expense 87,628 54,548
Rent 44,400 3,300
Officers salaries and compensation 75,200 1,155,650
Telephone 17,243 4,246
Travel 4,123 0
-------- ----------
Total general and administrative expenses 296,235 1,233,136
-------- ----------
INCOME (LOSS) FROM OPERATION (36,044) (1,141,568)
<P>
OTHER INCOME AND (EXPENSE)
<P>
Interest - net 1,468 166
-------- ----------
Total other income and expense 1,468 166
-------- ----------
<P>
NET INCOME (LOSS) $ (34,576) $ (1,141,402)
============ ===============
<P>
NET EARNINGS PER SHARE
Basic and Diluted
Net loss per share Less than(.01) (.12)
<P>
Basic and Diluted Weighted Average
Number of Common Shares Outstanding 10,330,206 9,418,750
<P>
</TABLE>
<P>
ROANOKE TECHNOLOGY CORPORATION
STATEMENT OF STOCKHOLDER'S EQUITY
As of January 31, 2000
<P>
<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
Third offering 880,000 88 87,912 88,000
Stock compensation 3,175,000 318 123,507 123,825
Net loss for the year (305,545) (305,545)
----------------------------------------------------------------
Balance at October 31, 1998 7,880,000 $ 788 $360,012 $ (305,545)$ 55,256
<P>
Third offering 1,349,572 135 354,635 354,770
Issuance for consulting fees 250,000 25 24,975 25,000
Officer Compensation 850,000 85 1,991,165 1,991,250
Asset acquisition 999,111 99 629,901 630,000
Stock issued for services 1,500 300 300
Net loss for the year (2,384,980) (2,384,980)
---------------------------------------------------------------
Balance at October 31,1999 11,330,183 $1,133 $3,360,988 $(2,690,525) $ 671,596
<P>
Net loss for the quarter (34,576) (34,576)
<P>
Balance at January 31, 2000 11,330,183 $1,133 $3,360,988 $(2,725,101) $ 637,020
===============================================================
</TABLE>
ROANOKE TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
For the Three Months ending January 31, 2000 and 1999
<P>
<TABLE>
<S> <C> <C>
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<P>
Net income (loss) $ (34,576) $(1,141,402)
<P>
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
<P>
Depreciation and amortization 63,859 5,650
Stock issued for services 0 1,181,250
(Increase) decrease in employee advance 0 (300)
(Increase) decrease in stock subscriptions 0 53,000
Increase (decrease) in accrued expenses 1,845 0
Increase (decrease) in credit card payable 0 (5,450)
---------- -----------
Total adjustments to net income 62,014 1,238,314
---------- -----------
<P>
Net cash flows from operations 27,438 96,912
<P>
CASH FLOWS FROM INVESTING ACTIVITIES
<P>
Cash paid on stockholder loan 0 (40,566)
Capital expenditures on equipment and deposits (11,463) (22,662)
----------- -----------
Net cash flows from investing (11,463) (63,228)
----------- -----------
<P>
CASH FLOWS FROM FINANCING ACTIVITIES
<p>
Payments on notes (2,496) (165)
----------- ----------
Net cash flows from financing (2,496) (165)
----------- ----------
CASH RECONCILIATION
<P>
Net increase (decrease) in cash 13,479 33,519
Cash at beginning of year 77,904 13,795
---------- ----------
CASH BALANCE AT END OF QUARTER $ 91,383 $ 47,314
=========== ==========
<P>
</TABLE>
ROANOKE TECHNOLOGY CORPORATION
<P>
NOTES TO THE FINANCIAL STATEMENTS
<P>
(See Audit Report)
<P>
1. Summary of significant accounting policies:
-------------------------------------------
<P>
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.
<P>
Revenue Recognition and Service Warranty Revenues
----------------------------------------
resulting from technology consulting services is
recognized as such services are performed, paid and
complete the service guarantee of 90 days. A deferred
revenue account has been established in the financial
statements to account for revenue and costs of revenue to
be recognized in the income statement at the end of the
service agreement period. 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.
<P>
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.
<P>
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.
<P>
Basis of Accounting- The Company's financial statements
-------------------
are prepared in accordance with generally accepted
accounting principles. All costs associated with
software development are expensed as Research and
Development costs.
<P>
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:
<P>
Machinery and equipment 2 to 10 years
Furniture and fixtures 5 t0 10 years
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
No customer represented 10 % or more of The Company's
total sales as of the current reporting period.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
2. Related Party Transactions and Going Concern:
----------------------------------------------
<P>
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 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. Management is also embarking on other
strategic initiatives to expand its business
opportunities. However, there can be no assurance these
activities will be successful.
<P>
During the months of August through October of 1998, The
Company borrowed money from James Lee, a former officer
of The Company in the amount of $35,000. The borrowing
was in the form of demand notes that were used to fund
the acquisition of Top-10 Promotions, Inc. In addition
The Company borrowed from Tamana, Ltd., a corporation,
$70,000 in the form of a demand note. The amount
borrowed was also used to fund the purchase of Top-10
Promotions Inc. The amounts were paid back with money
and a conversion of $35,000 from a demand note to a
contribution of capital. An amount of approximately
$25,000 was outstanding as of October 31, 1998 with that
balance paid during the first quarter of the year ending
October 31, 1999.
<P>
3. Accounts Receivable and Customer Deposits:
------------------------------------------
<P>
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.
<P>
4. Use of Estimates:
-----------------
<P>
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.
<P>
5. Revenue and Cost Recognition:
-----------------------------
<P>
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.
<P>
6. Accounts Payable and accrued expenses:
--------------------------------------
<P>
Accounts payable and accrued expenses consist of trade
payables and accrued payroll and payroll taxes created
from normal operations of the business.
<P>
Long term debt consists of:
<P>
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.
<P>
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.
<P>
Aggregate maturities of long term debt over the next
five years are as follows:
<P>
<TABLE>
<S> <C> <C> <C>
For the quarter ending January 31, 2000 For the quarter ending January 31, 1999
YEAR AMOUNT YEAR AMOUNT
2000 7,140 2000 26,450
2001 8,241 2001 1,725
2002 3,292 2002 2,075
2003 1,379 2003 2,400
</TABLE>
<P>
8. Operating Lease Agreements:
---------------------------
<P>
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.
<P>
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.
<P>
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.
<P>
9. Stockholders' Equity:
---------------------
<P>
Preferred Stock
---------------
<P>
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.
<P>
Common Stock
------------
<P>
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.
<P>
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.
<P>
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).
<P>
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.
<P>
Stock Incentive Plans
<P>
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.
<P>
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.
<P>
10. Acquisitions:
-------------
<P>
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.
<P>
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.
<P>
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.
<P>
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 as
other consideration. The Company borrowed funds for this
transaction and later, upon agreement with the lender,
converted a portion of the amount due as capital
contributed to The Company. <P>
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.
<P>
11. Employment Contract and Incentive Commitments:
-----------------------------------------------
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
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.
<P>
12. Payroll Taxes Payable and Deferred Tax Assets and
Liabilities:
--------------------------------------------------
<P>
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. As of January 31, 2000, The
Company had a deferred tax assets in the amount of
$440,000 that is derived from a net operating tax loss
carryforward associated with stock compensation. The
deferred tax assets will expire during the years ending
October 31, 2018 and 2019 in the amounts of $40,000 and
$400,000 respectively. It is uncertain as to when this
compensation will be deductible as it can only be
deducted for tax purposes when the officers sell the
respective shares.
<P>
13. Required Cash Flow Disclosure for Interest and Taxes
Paid:
----------------------------------------------------
<P>
The Company paid interest in the amount of $2,954 during
the twelve months ending October 31, 1999. The Company
at October 31, 1999 has no income tax payments due and
did not pay any income tax amounts during the period.
<P>
Non-cash transactions include stock based employee
compensation as listed in the financial statements, the
acquisition of the assets of Offshore Software
Development Ltd. for stock in The Company and the
retirement of note payables of the initial funding of
The Company upon acquisition of Top-10 as a contribution
to additional paid in capital .
<P>
14. Contingent Liabilities:
-----------------------
<P>
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.
<P>
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
------------------------------------------------
<P>
Forward-Looking Statements
---------------------------
<P>
Forward-looking statements, based on management's current
views and assumptions, are made throughout the
Management's Discussion and Analysis and elsewhere in
this report to stockholders. These statements are subject
to certain risks and uncertainties that could cause
actual results to differ materially from historical
results and those presently anticipated or projected.
Among the factors that may affect operating results are
the following: success of the Company's change in focus;
competitive environment; and general economic conditions.
Our Form 10 for the year ended October 31, 1999 contains
further discussion of these matters.
<P>
Result of Operations
--------------------
<P>
Losses from operations decreased to $36,044 for the three
months ended January 31, 2000 as compared for the three
months ended January 31, 1999. The decrease in losses
was due in part by increased sales staff and a decrease
in officer stock compensation. In addition the company
is actively seeking additional marketing capabilities
outside of the United States.
<P>
Selling, general and administrative expenses increased
due to additional marketing costs, website development
costs and amortization for additional operating
resources. These same costs were decreased, as compared
to the prior year quarter, by officer compensation in the
form of stock.
<P>
Liquidity
----------
<P>
Net cash flows from operating activities decreased for
the quarter ending January 31, 2000 as compared to the
quarter ending January 31, 1999. This decrease is due to
the increased sales staff and marketing costs that is
needed to generate future sales growth in the United
States and abroad.
<P>
The Company has maintained a positive working capital
balance due to its limited amount of debt and its ability
to fund operations through its stock offerings. Working
capital increased from $12,349 in the first quarter of
1999 to $48,674 in the first quarter of 2000.
<P>
Future Outlook
--------------
<P>
During the quarter ended January 31, 2000 the Company was
actively marketing a new website along with its current
services provided. The Company is actively marketing its
technology within the United States, as well as in
Europe. The Company is also considering at this time
contractual agreements that will enable the Company to
increase the visibility in broader markets. There is no
guarantee that such efforts will produce expected
results, however; the Company is pleased with its results
to date as these result have fallen in line with the
Company's expectations.
<P>
Forward-looking statements, based on management's current
views and assumptions, are made throughout the
Management's Discussion and Analysis and elsewhere in
this report to stockholders. These statements are subject
to certain risks and uncertainties that could cause
actual results to differ materially from historical
results and those presently anticipated or projected.
Among the factors that may affect operating results are
the following: success of the Company's change in focus;
competitive environment; and general economic conditions.
Our Form 10-K for the year ended October 31, 2000 will
contain further discussion of these matters.
<P>
PART II - OTHER INFORMATION
<P>
Item 1. Legal Proceedings. Not applicable
<P>
Item 2. Changes in Securities. None
<P>
Item 3. Defaults Upon Senior Securities. Not Applicable
<P>
Item 4. Submission of Matters to a Vote of Security
Holders. None
<P>
Item 5. Other Information. None
<P>
Item 6. Exhibits and Reports of Form 8-K. None
<P>
Exhibit 27 - Financial Date Schedule - Electronic Filing
Only
SIGNATURES
<P>
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has
duly caused this 10-Q report to be signed on its behalf
by the undersigned thereunto duly authorized.
<P>
ROANOKE TECHNOLOGY CORP.
(Registrant)
<P>
Date: March 15, 2000 /s/ Edwin E. Foster, Jr.
------------------------
Edwin E. Foster, Jr.
Secretary
<P>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<P>
FINANCIAL DATA SCHEDULE
------------------------------------
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-00
<PERIOD-END> JAN-31-00
<CASH> 91,383
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 91,383
<PP&E> 175,961
<DEPRECIATION> 37,280
<TOTAL-ASSETS> 736,667
<CURRENT-LIABILITIES> 42,710
<BONDS> 0
0
0
<COMMON> 1,133
<OTHER-SE> 635,887
<TOTAL-LIABILITY-AND-EQUITY> 736,667
<SALES> 520,679
<TOTAL-REVENUES> 520,679
<CGS> 260,488
<TOTAL-COSTS> 260,488
<OTHER-EXPENSES> 296,235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,468
<INCOME-PRETAX> <34,576>
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> <34,576>
<EPS-BASIC> <.003>
<EPS-DILUTED> <.003>
</TABLE>
