UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number 0-26715
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.)
539 Becker Drive
Roanoke Rapids, North Carolina 27870
(Address of principal executive offices) (Zip Code)
(252) 537-9222
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which registered
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
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(Title of class)
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ( )
Revenues for year ended October 31, 2003: $
Aggregate market value of the voting common stock held by non-affiliates of the
registrant as of February 13, 2004, was: $6,971,970
Number of shares of the registrant's common stock outstanding as of February 13,
2004 was:1,001,024,239
Transfer Agent as of February 13, 2004:
Interwest Transfer Co.
1981 East Murray Holladay Road, Suite 100
Salt Lake City, Utah 84117
PART I
Item 1. Description of Business
Business Development. We were incorporated in Florida on December 11, 1997 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., 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. Top 10 was incorporated in Virginia on
November 18, 1997. We maintain our principal offices at 539 Becker Drive,
Roanoke Rapids, North Carolina, 27870 and our telephone number is (252) 537-
9222.
We have not been involved in any bankruptcy, receivership or similar proceeding.
We have not been involved in any material reclassification, merger,
consolidation, or purchase or sale of a significant amount of assets not in the
ordinary course of business.
Business of Issuer. Roanoke Technology Corp. is 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 often use television and print media advertising in an attempt to direct
traffic to their web sites, but we utilize our own proprietary software products
and knowledge regarding search engine indexing algorithms 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 indices. Basically, that is what we do. In addition, we
utilize a suite of custom computer programs that 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 customers'
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. We had a loss of $305,545 from December
11, 1997 (inception) through October 31, 1998; $2,686,404 for the year ended
October 31, 1999; $1,065,244 for the year ended October 31, 2000, $1,879,379 for
the year ended October 31, 2001; $1,550,334 for the year ended October 31, 2002,
and _____________ for the year ended October 31, 2003.
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.
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. 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 us; 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.
SERVICES
Our services are designed to improve the visibility of our customer's web sites
on the Internet.
Sales of the "Premium Plan" and its derivatives accounted for 82.6% of revenues
for the fiscal year 2001 and approximately 80% of revenues for 2002. This plan
is sold for $2,195. This plan was originally sold for $1,295. It was increased
to $1,495 effective May 4, 2000, $1,649 effective January 1, 2002, and $2,195
effective August 7, 2002. Its goal is not to get the web site listed by the
search engines, but to increase the probability that the site will be one of the
first 20 sites listed by the search engines 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 generate business from their Internet
listing assure that their site is listed in the first one or two pages returned
by the search engine.
When a customer purchases the "Premium Plan" we begin the following procedures:
- - Identify appropriate key words or terms for the customer's web site. The
Premium Plan allows for 6 terms.
- - Identify the unique characteristics and patterns associated with each
search engine's robot and indexing practices.
- - Create a customer web page for each term. Each contract will require a
creation of approximately 6 to 24 pages.
- - The created web pages are then moved to the customer's web site or server.
- - Create a "referring domain" and web site for the customer that is hosted by
RTC Hosting, a subsidiary of Roanoke Technology Corporation. This referring
domain will attract many of the search engine robots within two weeks of
its creation. The robots will follow links on the referring domain site to
the customer's original site and to the new content pages that were created
and placed on their site as part of our process.
- - We verify the placement of the web pages and create a sitemap for the
clients site. We submit the new content pages and the referring domain site
pages to the search engines that do not automatically crawl the site.
- - We also utilize pay for inclusion services offered by the search engine
companies. For a fee, they will prioritize our customers' web sites in
their editorial queue. This allows us to obtain rankings much faster than
if we waited for their standard review of the sites.
- - Approximately 4 weeks after we have created the referring domain site and
have completed the applicable submissions, preliminary results will be
noticed. In most cases 60 days after the pages are placed on the server the
customer will be able to check the results at the customer's section of our
web.
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 two
weeks and are made available to our customers via their own private portal into
our customer service application.
We commit to the following for our Premium Plan:
- - We will secure for our customer no less than 10 placements within the top
20 positions somewhere across the top search engines. The engines we target
consist of the following: Yahoo, Teoma, Excite, Infoseek, HotBot, Lycos,
iWon, NBCi, AOL Netfind, LookSmart, AltaVista, Google, Northern Light,
Magellan, All The Web, Open Directory Project, Netscape, Web Crawler,
Direct Hit, MSN, WiseNut, SplatSearch, Overture, AskJeeves and PC Beacon.
- - The listings may appear on any single search engine, all the search engines
or spread across any number of the search engines listed above.
- - The placements will consist of existing pages on our customer's sites as
well as the new pages we make for our customers.
- - 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.
- - We do not guarantee traffic to a customer's web site. That is a function of
demand for the product or service. The customer's commitment is only for
placements of their URL(s) in the search engine indices.
- - In the event of our failure to meet our commitment within 90 days from the
date the last submissions were made to the search engines, Top-10
Promotions will repeat the service at no charge.
We also offer silver and gold plans. The same processes are followed except we
promote 12 or 24 keywords respectively. We also guarantee 20 new placements in
the search engines for the silver plan and 30 placements for the gold plan.
Our sales efforts rely primarily upon our proprietary software programs to
generate sales leads that 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 that we have enhanced tends to decline over
time. We re-solicit 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. We discount renewals by 25% of the original
promotion price.
In July 2002, we entered into an agreement with Overture, the leader in
pay-for-performance search on the Internet. We are now an Overture Ambassador,
which puts us in a position to manage our customers' advertising campaigns with
Overture. Benefits of being an Overture Ambassador include: ability to manage
multiple customer accounts from one central portal, a dedicated account
representative and prioritization in Overture's editorial queue. We charge our
customers a monthly fee to manage their campaigns. Fees are based on the number
of keywords we manage and the number of times we monitor their bids during a
24-hour period. Monthly fees range from $80 to $580. Currently we have two
customers utilizing this service.
RTCHOSTING CORP
RTCHosting Corp., or RTCH, is our wholly owned subsidiary that was formed in
June 2000. We currently offer two forms of hosting for our customers. The first
form gives the client the option of using a template driven web-site creation
process or using standard ftp uploads of html pages. This package is $19.99 per
month. The second form of hosting is a template driven system with e-commerce
capabilities built in. This hosting package is $49.95 per month. Both packages
allow for add-on services and packages to suit the customers needs.
TRADEMARKS
"Top 10 and Design" and "PC Beacon" are both registered trademarks with the
United States Patent and Trademark Office. A trademark application for
"RTCHosting" has been filed with the United States Patent and Trademark Office
as well. The opposition period is completed and a notice of allowance has been
issued.
PERSONNEL
We currently employ 14 full time employees. They fall into 4 different
categories: 1 management, 5 sales, and 9 support personnel. Sales personnel are
compensated on a base pay plus commission basis.
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 indices 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 following are the only web sites that we have found that can be deemed to
compete with us: WebPosition Gold; SubmitIt; Did-it.com.:
WebPosition Gold states that for $349 it will provide the following services:
generate HTML pages designed to rank near the top of the search results; analyze
your existing Web pages and give advice on how to improve them; provide a
simple, built-in HTML editor for fast and easy changes; assist in uploading your
new and changed pages; automatically submit your pages to the major search
engines; report your position on each search engine for each keyword you are
targeting; and track the number of visitors to your site, where they came from
and what keywords they used to find you.
SubmitIt States that for $49 annually it will provide the following: analyze 1
web address; submit 1 web address to the top 400 search engines; send automatic
updates of submission status and ranking reports.
Did-it.com states that for $399 plus $.29 per click- through it will boost site
rankings for the major search engines using up to 100 keywords or particular
search phrases chosen by the customer for Alta Vista, AOL Search, Google, GoTo,
Excite, HotBot, Infoseek, iWon, Yahoo Web, Lycos, MSN.com, SNAP and Webcrawler.
It guarantees that the customer will receive additional search engine traffic
exclusively due to its efforts as a result of increased search engine position
for a link that leads to your site.
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.
GENERAL BUSINESS CONDITIONS
There is no apparent seasonality in our 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. Our largest single customer accounts for less than one
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
_ 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[need to update].
Material programming costs are:
Year Ending Year Ending Year Ending
Oct. 31, 2003 October 31, 2001 Oct. 31, 2001
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Total $ $323,680 $255,274
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are considered a continual process and are
expensed when incurred. When we can associate specific costs to a computer
software product that has technological feasibility and research and development
activities have been completed, we will capitalize those costs as an asset.
Item 2. Description of Property
On June 12, 2001, we entered into a seven year lease with an option to purchase
1.2 acres of land located at 539 Becker Drive, Roanoke Rapids, North Carolina.
In addition, we have an option to rent the premises for an additional seven
years. The two story building located on the property is 100 ft. by 100 ft. and
was the former Roanoke Athletic Club. It was modified to meet our immediate
needs and we took possession on October 1, 2000. A section of the building
measuring 50 ft. by 100 ft. has been carpeted and tiled and is primarily used by
local civic organizations for meetings and activities. This section will be
modified into office spaces as needed by us with expansion. The other section of
the building comprises roughly 10,000 square feet of office space. The space is
divided into 46 working cubicles and four private offices. This section also has
a reception area, kitchen and conference room. We have an emergency generator to
power us during any power outage.
Item 3. Legal Proceedings
Sprint Communications Company Limited Partnership vs. Roanoke Technology Corp.,
was filed in the State of North Carolina, County of Halifax Superior Court
Division. On February 20, 2003 a complaint was filed which that we are indebted
to the plaintiff for a total of $179,150.16 and costs of the action brought
forward. We have filed a counter-claim in response to this action. Our
representation has not determined the likeliness that the plaintiff will be
successful with the complaint. Our management asserts that the complaint will
not have a material adverse affect on our results of operations, financial
position or liquidity.
Gordon & Rees, LLP v. Roanoke Technology-Superior Court of California, County of
San Francisco, San Francisco Judicial District Civil Division: Case No:
CGC-03-423362. Gordon & Rees, LLP a law firm located in San Francisco,
California, claims that we owe them $106,719.64 for legal services rendered.
They claim we were served on September 12, 2003. we have not filed a responsive
pleading in this matter and the Plaintiff is attempting to perfect a default
judgment in this matter.
AJW Offshore, Ltd, AJW Qualified Partners, LLC, New Millenium Capital Partners
II and AJW Partners, LLC, the holders of our convertible debentures, have
threatened to commence a lawsuit against us for failure to file the necessary
documents to have our SB-2 Registration Statement declared effective by the SEC.
The purpose of the registration statement is to register additional shares of
our common stock due the holders upon conversion of the conversion of the
convertible debentures. To date no action has been commenced.
We are not currently aware of any other pending, past or present litigation that
would be considered to have a material effect on us. There are no known
bankruptcy or receivership issues outstanding and has no known securities law
violations. Additionally, we have no known legal proceedings in which certain
corporate insiders or affiliates of the issuer are in a position that is adverse
to the issuer.
Item 4. Submission of Matters to a Vote of Security Holders
On August 22, 2003 a majority of the shareholders voted to amend the articles of
to increase our authorized shares of Common Stock from 150,000,000 shares to
1,000,000,000 shares.
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder
Matters
On February 13, 2004, based on information received from brokers and others in
fiduciary capacities, we estimate that the total number of shareholders of our
common stock exceeds 500. Our common stock is available for trading through
electronic trading services via the OTC Bulletin Board.
The following table sets forth, for the periods indicated, the range of high and
low closing bid prices for our common stock through October 31, 2003 and as
available through electronic trading services subsequent to such date.
Common Stock Bid
Fiscal Quarter High Low
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January 31, 2001 $ 0.45 $ 0.15
April 30, 2001 $ 0.15 $ 0.05
July 31, 2001 $ 0.10 $ 0.02
October 31, 2001 $ 0.02 $ 0.01
January 31, 2002 $ 0.17 $ 0.01
April 30, 2002 $ 0.19 $ 0.05
July 31, 2002 $ 0.15 $ 0.03
October 31, 2002 $ 0.04 $ 0.01
January 31, 2003 $ 0.07 $ 0.01
April 30, 2003 $ 0.01 $0.002
July 31, 2003 $ 0.01 $0.002
October 31, 2003 $ 0.01 $0.002
Dividends
We currently intend to retain future earnings, if any to support our growth. Any
payment of cash dividends in the future will be dependent upon: the amount of
funds legally available therefore; our earnings; financial condition; capital
requirements; and other factors which our Board of Directors deems relevant.
Item 6. Selected Financial Data
Twelve Months Twelve Months
Ended October Ended October
31, 2003 31, 2002
STATEMENT OF OPERATIONS DATA:
Total revenues $ 1,715,387
Operating expenses 1,040,707
Gross profit from operations 674,680
General and administrative 1,831,183
expenses
Income (loss) from operations 1,480,183
Other income (expense) (70,151)
Net Loss $(1,550,334)
OTHER DATA:
EBITDA (1) $(1,362,675)
Net cash provided (used) by (447,540)
operating activities
Net cash provided (used) by (35,408)
investing activities
Net cash provided (used) in 501,500
financing activities
Net book value per share (.02)
Basic earnings (loss) per share (.04)
BALANCE SHEET DATA:
Cash and cash equivalents $18,587
Total assets $409,275
Current liabilities $1,077,349
Total liabilities $1,736,008
Stockholders' equity $(1,326,733)
Total liability and equity $409,275
Please note that EBITDA is provided for analysis purposes. One may review this
calculation to determine the earnings of the Company as calculated before
interest, depreciation and amortization costs have been deducted. EBITDA as
presented is not prepared in accordance with generally accepted accounting
principles and may not be comparable to similarly titled measures reported by
other companies.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Fiscal 2003 Compared with Fiscal 2002
In fiscal 2003 sales decreased ____% from the previous year, from $1,715,387 to
$____________. Our reduction in staff and overhead is the primary reason for
this decrease, but we feel that the decrease in expenditures offset the
reduction in sales.
Cost of sales decreased ___% to $___________, or ___% of sales, from $1,040,707,
or 61% of sales. The decrease was due to the aggressive cost cutting campaign we
instituted during the course of the fiscal year.
General and Administration costs were at $__________ for fiscal 2003 and
$1,831,183 for fiscal 2001, a decrease of ___%. The decrease was due to cutting
unnecessary expenditures, reduction in our staff to a core group of individuals,
and renegotiation of contracts with our vendors.
The Company decreased its research and development of new services during the
year ended October 31, 2003. These costs decreased ___% from $323,680 to
$_______.
Interest expense for the Company increased ___%, from $70,151 to $______, for
the year due to the interest with regard to the issuance of convertible
debenture bonds and additional finance costs with its Small Business
Administration loan.
The net loss of the Company had an ___% decrease as compared to the prior year,
or $______ for fiscal 2003 and $(1,550,334) for fiscal 2002.
LIQUIDITY AND CAPITAL RESOURCES
Selected Financial Data
Year Ended
Oct. 31, 2003 Oct. 31, 2002
-------------- -------------
Net cash provided (used) by $ $ (447,540)
continuing operating activities
Net cash provided (used) by $ $ (35,408)
investing activities
Net cash provided (used) by $ $ 501,500
financing activities
Working Capital $ $ (1,036,419)
Total Debt $ $ 1,736,008
Shareholder's equity $ $ (1,326,733)
Cash flow from operating activities was $(________) as compared to a deficit of
$(447,540) in the preceding year.
Outlook
During the past year, much attention has been placed on reducing expenses and
increasing revenues. We eliminated one senior management position, eliminated 14
sales-support positions that represents a 48% reduction in force, and we reduced
our R&D staff by three programmers. It is our opinion that we have trimmed
expenses to an acceptable level without adversely affecting our ability to
operate. We continue to monitor our expenses, however, and we will diligently
scrutinize all expenditures.
Top-10 Promotions sales were down over last year, however, our reduced expenses
more than offset our this decline. Our sales staff has been cut to core
personnel, which has lowered the total number of new clients but dramatically
reduced our cost of generating the sales. In the coming year we are planning on
expanding our sales force with quality personnel. This will be made possible by
our relocation to our new facility in Rocky Mount, NC. The Rocky Mount area has
a substantially larger employee pool to draw from with more qualified applicants
than our current location. We expect to see Top-10 revenues reach $1.6 million
to $1.8 million this year.
We have added other revenue sources through our affiliate programs with Rent.com
and Google as well as our expanded B2B service offerings that include expanded
hosting, website design and optimization services.
We have also signed an inducement agreement with Carolinas Gateway Partnership.
The purpose of this partnership is to add incentive for RTC to relocate its
Headquarters operations in the Nash County, NC area. CGP has offered a cash
inducement to RTC once the attainment of target employment goals are met. These
funds are to assist in the leasing, improvement, expansion, upfitting and
equipping of RTC Headquarter facilities. The cash incentives offered in this
partnership will help offset the cost of the companies headquarters relocation
and are indicative of the willingness of the Nash County Community to work with
our company.
Our consultant, Graceleyne Financial Inc., is in the process of acquiring a $12
million corporate bond sale for RTC. Upon completion of the bond issuance, RTC
plans to use a portion of the money to eliminate several debts incurred by the
company, initiate a buyback of RTC stock, and increase R&D for upcoming projects
substantially over the coming years.
We estimate our expenses to be in the neighborhood of $__________. We are
expecting to see revenue reach $1.8 million. If our revenue projections remain
accurate, Roanoke Technology Corporation will post its first profit since going
public.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position,
results of operations or cash flows due to adverse changes in market prices and
rates. We are exposed to market risk because of changes in foreign currency
exchange rates as measured against the U.S. dollar. We do not anticipate that
near-term changes in exchange rates will have a material impact on our future
earnings, fair values or cash flows. However, there can be no assurance that a
sudden and significant decline in the value of European currencies would not
have a material adverse effect on our financial conditions and results of
operations.
Our short-term bank debt bears interest at variable rates; therefore our results
of operations would only be affected by interest rate changes to the short-term
bank debt outstanding. An immediate 10 percent change in interest rates would
not have a material effect on our results of operations over the next fiscal
year.
Item 8. Financial Statements and Supplementary Data
Our financial statements, together with the report of auditors, are included in
this report after the signature pages.
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.
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
Our accountant is Gately & Associates, LLC of Florida. We do not presently
intend to change accountants. At no time has there been any disagreements with
such accountant regarding any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
Item 9A. Controls and Procedures
As required by Rule 13a-14 under the Exchange Act, within 90 days prior to the
filing date of this report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer. Based upon that evaluation, the Company's Chief Executive
Officer concluded that the Company's controls and procedures are effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date the Company carried out this evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in the Company's
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include controls and procedures designed to ensure that information required to
be disclosed in Company reports filed under the Exchange Act is accumulated and
communicated to management, including the Company's Chief Executive Officer as
appropriate, to allow timely decisions regarding disclosures.
The Company has confidence in its internal controls and procedures and has
expanded its efforts to develop and improve its controls. Nevertheless, the
Company's management, including the Chief Executive Officer, does not expect
that the Company's disclosure procedures and controls, or its internal controls,
will necessarily prevent all error or intentional fraud. An internal control
system, no matter how well-conceived and operated, can provide only reasonable,
but not absolute, assurance that the objectives of such internal controls are
met. Further, the design of an internal control system must reflect the fact
that the Company is subject to resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in all internal control systems, no evaluation of controls can
provide absolute assurance that all internal control issues or instances of
fraud, if any, within the Company be detected.
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons:
Compliance With Section 16(a) of the Exchange Act
Our directors and officers, as of January 28, 2004, are set forth below. The
directors hold office for their respective term and until their successors are
duly elected and qualified. Vacancies in the existing Board are filled by a
majority vote of the remaining directors. The officers serve at the will of the
Board of Directors.
Name Age With Company
- ---- ---
Position
David L. Smith, Jr.(1) 47 President, Chief Financial Officer
Chief Executive Officer,
and Director
(1) David L. Smith, Jr. was appointed as our President on January 29, 2003
Our sole director will hold office until the next annual meeting of our
stockholders and until his successor is elected and qualified or until his
earlier resignation or removal. Each officer serves at the discretion of our
Board of Directors.
David L. Smith, Jr., RTC Founder, President, CFO, CEO and Director
David L. Smith, Jr. was born and raised in Durham, North Carolina. In 1973 he
received an athletic scholarship in wrestling to East Carolina University where
he majored in business with a minor in physical education. From 1992 through
1995, David was the owner of DJ Distributors, a sole proprietorship based in
Roanoke Rapids, North Carolina. The company was a direct sales organization
involved in reselling vacuum cleaners. In 1995, DJ Distributors was no longer
involved in direct sales and David used the company to start an Internet
business to develop web sites for businesses. In October 1997, David formed Top
10 Promotions, Inc., a North Carolina corporation to continue the business of DJ
Distributors. On May 28, 1998, Roanoke Technology Corporation acquired all the
shares of Top-10 Promotions, which became a wholly owned subsidiary and David
was appointed President, Chief Executive Officer and one of the directors. Along
with customary Chief Executive responsibilities, David also is responsible for
RTC's sales effort.
COMMITTEES OF THE BOARD
We presently do not have any committees.
All officers and directors listed above will remain in office until the next
annual meeting of our stockholders, and until their successors have been duly
elected and qualified. There are no agreements with respect to the election of
Directors. We have not compensated our Directors for service on our Board of
Directors, any committee thereof, or reimbursed for expenses incurred for
attendance at meetings of our Board of Directors and/or any committee of our
Board of Directors. Officers are appointed annually by our Board of Directors
and each Executive Officer serves at the discretion of our Board of Directors.
We do not have any standing committees. Our Board of Directors may in the future
determine to pay Directors' fees and reimburse Directors for expenses related to
their activities.
None of our Officers and/or Directors have filed any bankruptcy petition, been
convicted of or been the subject of any criminal proceedings or the subject of
any order, judgment or decree involving the violation of any state or federal
securities laws within the past five (5) years.
Certain Legal Proceedings
No director, nominee for director, or executive officer has appeared as a party
in any legal proceeding material to an evaluation of his ability or integrity
during the past five years.
Compliance with Section 16(a) of the Exchange Act
We have not filed Form 5's for our fiscal year ending October 31, 2003.
Item 11. Executive Compensation
The following table sets forth the annual and long-term compensation for
services in all capabilities to the Company.
Name & Position Year Salary Bonus Other Annual Long Term
Compensation Compensation
- ------------------------------------------------------------------------------------------------------------
David L. Smith Jr. (1) 2003 $120,000 -0- -0- -0-
President, CEO and
Director
2002 $185,602 -0- (1) -0-
Edwin Foster, Jr. 2002 $133,268 -0- -0- -0-
Former Secretary
And Director
Ryan Brown 2002 $ 72,588 -0- -0- -0-
Programmer and
Former Director
Jack Webb 2002 $110,384
Former President, Former COO
Former Secretary, Former Treasurer
and Former Director
(1) In October 2003, David received 270,000 shares pursuant to his amended
employment agreement with us. On April 9, 2003 we issued a total of 1,313,268
shares to David L. Smith, Jr. based upon his amended employment agreement for
bonuses owed for the years ended December 31, 2000, December 31, 2001 and
December 31, 2002. The shares were issued in the following manner based on one
(1%) percent of the issued and outstanding shares at the end of each of years
set forth above: 126,687 shares for December 31, 2000, 364,381 shares for
December 31, 2001 and 822,020 shares for December 31, 2002.In fiscal 2000, David
received 1,500,000 of our restricted common shares per his employment agreement.
The shares were valued at $.60 per shares for a total of $900,000. Since the
beginning of fiscal 2000, David has received 1,500,000 of our restricted shares
pursuant to his execution of a new 3 year employment agreement with us in August
2000. Such shares received by him would normally be valued at the trading price
at the time he received the shares ($0.25) 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; our stock was thinly
traded and the number of shares to be traded on the market (1,500,000) would
greatly devalue the stock. Therefore, the method used was as follows: Initial
price of $0.25; discounted 10% in lieu of the restriction. Based on this, the
value is $337,500.
Compensation of Directors
Our Directors do not receive compensation for their services as directors but
may be reimbursed for their reasonable expenses for attending Board meetings.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of January 26, 2004, information with respect
to the beneficial ownership of our common stock by (i) each person known by us
to own beneficially 5% or more of such stock, (ii) each director who owns any of
our common stock, and (iii) all directors and officers as a group, together with
their percentage of beneficial holdings of the outstanding shares.
Name of Beneficial Owner/ Number of Shares of
Identity of Group Common Stock % of Beneficial
Beneficially Owned Ownership
- ---------------------------------------------------------------------------------------------
CEDE & Co. 632,815,753 63.22%
David L. Smith, Jr. 288,513,268 28.82%
President, CFO, CEO and Director
All current executive officers 288,513,268 28.82%
And directors as a group (1 persons)
The persons named in the table have sole voting and investment power with
respect to all shares of common stock.
Item 13. Certain Relationships and Related Transactions.
None.
Item 14. Principal Accounting Fees and Services
Audit Fees
For the Company's fiscal year ended October 31, 2003, we were billed
approximately $1000.00 and $0.00 for professional services rendered for the
audit of our financial statements, respectively. We also were billed
approximately $0.00 and $0.00 for the review of financial statements included in
our periodic and other reports filed with the Securities and Exchange Commission
for our year ended December 31, 2002, respectively.
Tax Fees
For the Company's fiscal year ended October 31, 2003, we were billed
approximately $0.00 and $0.00, respectively, for professional services rendered
for tax compliance, tax advice, and tax planning.
All Other Fees
The Company did not incur any other fees related to services rendered by our
principal accountant for the fiscal year ended October 31, 2003.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PART IV
Item 14. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial statements; see index to financial statement and schedules
immediately following the signature pages of this report.
2. Financial statement schedules; see index to financial statements and
schedules immediately following the signature pages of this report.
3. Exhibits:
The following exhibits are filed with this Form 10-KSB and are identified by the
numbers indicated: see index to exhibits immediately following financial
statements and schedules of this report.
3.1 Certificate of Incorporation, as amended (1)
3.2 Bylaws, as amended (1)
(1) Incorporated by reference to the Registrant's Form 10-SB, filed on
July 15, 1999 (SEC File No. 000-26715).
(b) Reports on Form 8-K
On February 4, 2003 we filed a form 8-K for Item 5 Other Events
announcing that we removed Jack Webb as President and CEO and a
member of our Board of Directors effective January 29, 2003.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, there unto duly authorized.
ROANOKE TECHNOLOGY CORP.
By: /s/ David L. Smith
--------------------------------
DAVID L. SMITH
President, Chief Executive Officer
and Director
Dated: February 13, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ David L. Smith, Jr. Chairman of the Board of Dated: February 13, 2004
- ------------------------------------ Directors, Chief Executive
David L.Smith, Jr. Officer
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.
ROANOKE TECHNOLOGY CORPORATION
Financial Statements Table of Contents
FINANCIAL STATEMENTS Page #
Audit Report 1
Balance Sheets 2 - 3
As of October 31, 2003 and
October 31, 2002
Statements of Operations 4
For the Twelve Months Ended
October 31, 2003 and 2002
Statement of Stockholders'Equity 5 - 6
As of October 31, 2003
Statements of Cash Flow 7
For the Twelve Months Ended
October 31, 2003 and 2002
Notes to the Financial Statements 8 - 14
Independent Auditors Report
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, 2003 and 2002, and the related statements of
operations, capital surplus and cash flows for the twelve months then ended
October 31, 2003 and 2002. 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 October 31, 2003 and 2002, and the results of its operations and its cash
flows for the months then ended in conformity with generally accepted accounting
principles.
/s/Gately & Associates, LLC
Gately & Associates, LLC
CertifiedPublic Accountants
Orlando, Florida
November 25, 2003
1
ROANOKE TECHNOLOGY CORPORATION
AND SUBSIDIARY
BALANCE SHEETS
As of October 31, 2003 and October 31, 2002
ASSETS
------
2003 2002
------------ ------------
CURRENT ASSETS
Cash $ 1,536 $ 18,587
Accounts receivable 0 10,524
Less: allowance for doubtful accounts 0 (3,500)
Prepaid Insurance 0 13,289
Employee advances 0 2,030
------------ ------------
Total Current Assets 1,536 40,930
PROPERTY AND EQUIPMENT
Equipment and leasehold improvements 552,628 552,628
Less: accumulated depreciation (262,489) (198,033)
------------ ------------
Total Property and Equipment 290,139 354,595
OTHER ASSETS
Deposits 5,250 5,250
Officers' receivable 0 8,500
------------ ------------
Total Other Assets 5,250 13,750
TOTAL ASSETS $ 296,925 $ 409,275
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 255,708 $ 396,662
Payroll tax and penalty payable 755,247 600,910
Credit card payable 1,616 9,784
Current maturity of long-term debt 270,807 9,993
------------ ------------
Total current liabilities 1,283,378 1,077,349
2
LONG TERM LIABILITIES
Long term debt 270,807 290,652
Debenture bond principal 393,003 438,000
Less: current portion (270,807) (69,993)
------------ ------------
Total long term liabilities 393,003 658,659
------------ ------------
TOTAL LIABILITIES 1,677,057 1,736,008
STOCKHOLDERS' EQUITY
- --------------------
STOCKHOLDERS' EQUITY
Common stock - $.0001 par value;
150,000,000 shares authorized;
127,572,716 and 59,059,057 issued
and outstanding, respectively 12,757 5,906
Additional paid-in capital 6,683,180 6,307,696
Allowance for long-term
Stock compensation (6,857) (153,429)
Retained earnings (7,957,489) (7,486,906)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (1,268,408) (1,326,733)
------------ ------------
TOTAL LIABILITIES AND EQUITY $ 296,925 $ 409,275
============ ============
3
ROANOKE TECHNOLOGY CORPORATION
AND SUBSIDIARY
STATEMENTS OF OPERATIONS
For the Twelve Months Ended October 31, 2003 and 2002
2003 2002
------------ ------------
REVENUE
Sales $1,202,192 $ 1,715,387
Cost of sales (1,083,867) (1,040,707)
------------ ------------
GROSS PROFIT 118,325 674,680
GENERAL & ADMINISTRATIVE EXPENSES (631,944) (1,831,183)
RESEARCH & DEVELOPMENT (120,537) (323,680)
------------ ------------
INCOME (LOSS) FROM OPERATION (422,882) (1,480,183)
OTHER INCOME AND (EXPENSE)
Interest - net (47,701) (70,151)
------------ ------------
Total Other (47,701) (70,151)
------------ ------------
NET INCOME (LOSS) $ (470,583) $(1,550,334)
============ ============
NET EARNINGS PER SHARE
Basic Net loss per share (*) (.04)
Fully diluted Net Loss per share (*) (.03)
Basic and fully diluted Weighted Average
Number of Common Shares Outstanding 113,809,057 36,697,129
* Less than (.01) per share
4
ROANOKE TECHNOLOGY CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
As of October 31, 2003
ADDITIONAL
COMMON STOCK PAID
SHARES AMOUNT CAPITAL ALLOWANCES DEFICIT TOTAL
----------------------------------------------------------------------------
Issuance for services 1,525,000 $ 153 $ 59,323 $ 0 $ 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 $ 789 $ 360,012 $ 0 $ (305,545) $ 55,256
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 11,813 11,813
Net loss for the year (2,686,404)(2,686,404)
---------------------------------------------------------------------------
Balance at October 31,1999 11,330,183 $1,133 $3,372,501 $ 0 $ (2,991,949)$ 381,685
Officer compensation 1,500,000 150 899,850 900,000
Net loss for the year (1,065,244)(1,065,244)
---------------------------------------------------------------------------
Balance at October 31, 2000 12,830,183 $1,283 $4,272,351 $ 0 $ (4,057,193)$ 216,441
Stock issued for cash 5,000,000 500 49,500 50,000
Reverse stock split (11,854,443) (1,185) 1,185 0
Stock issued for cash 3,000,000 300 174,700 175,000
Officer compensation 5,200,000 520 811,720 812,240
Stock issued for services 4,161,857 416 455,189 455,605
Stock issued to retire
short-term note payable 20,000,000 2,000 18,000 20,000
Allowance for deferred
stock compensation
for services (205,199)
Net loss for the year (1,879,379)(1,879,379)
---------------------------------------------------------------------------
5
Balance at October 31, 2001 38,337,597 $3,834 $5,782,645 $ (205,199) $ (5,936,572)$ (355,292)
---------------------------------------------------------------------------
Stock issued for services 14,300,000 1,430 321,520
322,950
Stock issued in debenture
bond conversion 4,321,460 432 46,741 47,173
Stock issued for
Litigation settlement 2,100,000 210 156,790 157,000
Allowance for deferred
stock compensation 51,770 51,770
Net Loss (1,550,334) (1,550,334)
---------------------------------------------------------------------------
Balance at October 31, 2002 59,059,057 5,906 6,307,696 (153,429) (7,486,906) (1,326,733)
Stock issued in debenture
bond conversion 60,513,659 6,051 266,284 272,335
Stock issued for services 8,000,000 800 109,200 110,000
Allowance for deferred
Stock compensation 146,572 146,572
Net Loss (470,583) (470,583)
---------------------------------------------------------------------------
Balance at October 31, 2003 127,572,716 $ 12,757 $6,683,180 $ (6,587) $(7,957,489) $(1,385,057)
===========================================================================
6
ROANOKE TECHNOLOGY CORPORATION
AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
For the Twelve Months ending October 31, 2003 and 2002
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (470,583) $(1,550,334)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 64,456 117,508
Compensation in the form of stock 110,000 531,720
(Increase) decrease in accounts receivable 7,024 27,574
(Increase) decrease in employee advance 2,030 3,464
(Increase) decrease in officers' receivable 0 67,868
(Increase) decrease in prepaid expense 13,289 (13,289)
(Increase) decrease in deposits 14,600
Increase (decrease) in payables & accrued expenses 50,225 295,487
Increase (decrease) in credit card payable (9,784) (7,804)
Increase (decrease) in accrued interest 65,666
Increase (decrease) in officer loan 0 0
------------ ------------
Total adjustments to net income 369,175 1,102,794
------------ ------------
Net cash flows from operations (100,590) (447,540)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures on equipment 0 (35,408)
------------ ------------
Net cash flows from investing 0 (35,408)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debenture bond 88,000 501,500
Payments of principal on note payable 0 0
------------ ------------
Net cash flows from financing 88,000 501,500
------------ ------------
CASH RECONCILIATION
Net increase (decrease) in cash (17,051) 18,552
Cash at beginning of year 18,587 35
------------ ------------
CASH BALANCE AT OCTOBER 31, 2003 AND 2002 $ 1,536 $ 18,587
============ ============
7
ROANOKE TECHNOLOGY CORPORATION
AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
-------------------------------------------
Industry - Roanoke Technology Corporation (The Company)
- --------
was incorporated December 11, 1997 as Suffield Technologies Corp., its original
name, under the laws of the State of Florida. The Company is headquartered in
Roanoke Rapids, North Carolina and does business as Top-10 Promotions, Inc. The
Company is engaged in the design, development, production, and marketing of
technology to provide enhanced internet marketing capabilities.
Revenue Recognition and Service Warranty - Revenues
- ----------------------------------------
resulting from technology consulting services are recognized as such services
are performed and paid. A deferred revenue account had been established in the
financial statements during 1999 to account for revenue and costs of revenue to
be recognized in the income statement at the end of the service agreement
period. During February of 2000 the service agreement was changed thus not
requiring a deferred revenue account. Services are most often paid for in
advance of the service being performed. The services performed are completed by
software programs 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. All
costs associated with software development and advancement are expensed as a
cost of sales through an ongoing research and development program.
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 t0 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.
Long-lived Assets - Long lived assets, including property and
- -----------------
equipment and certain intangible assets to be held and used by the Company are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value of the assets may not be recoverable. Impairment losses
are recognized if expected future cash flows of the related assets are less than
their carrying values. Measurement of an impairment loss is based on the fair
value of the asset. Long-lived assets and certain identifiable intangibles to be
disposed of are reported at the lower of carrying amount or fair value less
costs to sell.
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.
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 services, prior to the attainment
of the related products' technological feasibility, are recorded as expenses in
the period incurred.
8
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.
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 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.
The Company has a concentration of revenue dependancy on a limited number of
services.
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 stock bonus' during the years ending
October 31, 2000 and 1999 of 1,500,00 shares and 850,000 shares of restricted
stock, respectively, given to the President of the company as compensation. The
bonus was accounted for in the periods 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.
9
2. 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 in its current
market and is actively marketing its services which would enable The Company to
meet its obligations and provide additional funds for continued new service
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. There is also uncertainty with
regard to managements projected revenue being in excess of its operating
expenditures for the fiscal year ending October 31, 2003.
Items of uncertainty include the Company's liabilities with regard to its
payroll tax liability in excess of $700,000 and its Small Business
Administration loan with a principal balance of $270,807 plus accrued interest.
The Company is currently in default of these liabilities and is in negotiations
regarding resolution of these matters. The outcome of these negotiations is
uncertain as of October 31, 2002. If the Company is not successful in these
negotiations, there is substantial doubt as to the ability of the Company to
continue as a going concern.
3. Accounts Receivable and Customer Deposits:
------------------------------------------
Accounts receivable historically have been immaterial as The Company's policy is
to have the internet services provided 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 services are performed 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:
On May 31, 2002, The Company entered into a stock purchase agreement which was
comprised of convertible debenture bonds with attached warrants. The bonds
provide interest in the amount of 12% per year. The offering involved attached
warrants for the purchase of 3,600,000 shares. The total offering is in the
amount of $600,000 of which $501,500 has been issued.
10
On November 7, 2000, The Company entered into a loan agreement with First
International Bank, Hartford, CT. The U.S. Small Business Administration is the
guarantor on this loan in the amount of $290,000. The initial interest rate, a
variable rate, was 11.50% per year and has since been renegotiated with Aurora
Loan Services, Inc. to 8.50%. The note was originated with a term of seven years
with a late fee of up to four percent of the unpaid portion of the regularly
scheduled payment. The President of The Company maintains a life insurance
policy as required by the loan agreement and has used personal as well as
Company assets as collateral. The Company is currently in 22 months in default
on the note and is currently renegotiating terms in order to prevent foreclosure
of the note payable.
,
During the July quarter of 1998, the Company entered into 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.
During the April quarter of 1999, the Company entered into a 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:
For the quarter ended October 31, 2002 For the year ended October 31, 2001
YEAR AMOUNT YEAR AMOUNT
2003 69,993 2002 35,411
2004 38,180 2003 35,746
2005 42,764 2004 38,180
2006 47,898 2005 42,764
2007 53,648 2006 47,898
8. Operating Lease Agreements:
---------------------------
The Company rents office space with monthly payments of $6,000. The lease term
for this space is seven years beginning on October 1, 2000. This lease includes
an option to purchase whereby $1,000 of each month's rent may be applied to the
purchase price.
The Company rented a house for the convenience of Company employees that are
relocating to the area and out of town business guests. The house also served 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 had monthly payments of $1,200. The lease term was on a month to month
basis and expired during the year 2002.
The Company also leases its phone systems, internet lines and various equipment.
The lease terms are month to month leases. 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.
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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, 2000, 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 fiscal year end October 31, 2002, the Company converted debenture
bond principal and interest into 4,321,460 common shares for a value of $47,172.
The Company continues to convert debenture bond principal and interest into
common shares subsequent to fiscal year end.
On October 28, 2002 the Company entered into consulting agreements with Nicole
Leigh Van Coller, John A. Palmer, Jeremy Leigh Van Coller, Christopher Ebersole
and Mary Gimmelli for financial consulting services over a six month term. As
compensation, the Company issued 12,000,000 shares of common stock for a value
of $156,000. The shares were registered on Form S-8 with the U.S. Securities and
Exchange Commission.
On January 7, 2002 the Company entered into a settlement agreement regarding
litigation. The Company agreed to issue 100,000 shares of common stock for a
value of $17,000.
On February 15, 2002 the Company entered into a consulting agreement for
services regarding tax representation with Byron Rambo. The Company issued
700,000 shares of common stock for a value of $31,920. The shares were
registered on Form S-8 with the U.S. Securities and Exchange commission.
On February 22, 2002 the Company entered into a settlement agreement regarding
litigation. The Company agreed to issue 2,000,000 shares of common stock for a
value of $140,000 and a payment in cash of $20,000.
The shares will be issued in amounts of 500,000 each six months until expired.
The Company also issued stock options for the purchase of 2,000,000 shares of
common stock in the amount of $.04 per share with an expiration date of 20 years
from the date of the agreement.
On April 4, 2002 the Company entered into a consulting agreement with Nicole
Leigh Van Coller for financial consulting services. As compensation, the Company
issued 1,000,000 shares of common stock for a value of $120,000. The shares were
registered on Form S-8 with the U.S. Securities and Exchange commission.
On August 14, 2001, the Company received proceeds of a loan from the Company's
President in the amount of $20,000 with a provision of conversion of the loan to
20,000,000 shares of restricted common stock after a 15 day period if not
repayed. The loan was converted by the Company as called for in the agreement
for a value of $20,000.
On August 27, 2001, the Company issued 2,500,000 shares of common stock as
compensation for a one year consulting contract valued at $52,500. The
compensation is amortized to expense over the contract term from an allowance
account as can be reviewed in the statement of equity.
During the quarter ended July 31, 2001, the Company filed S-8 stock
registrations for consulting services for a value of $364,534 and the issuance
of 3,519,000 common shares. Of these shares, 2,000,000 common shares per the
agreement call for the purchase of these shares at a value of a 40% discount on
the bid price when purchased. The discount has been accounted for as an expense
for consulting services. The term of services per the registrations range from
five months to a year from the contract agreement date. The stock has been
accounted for as issued and an allowance account has been set against this stock
account to amortize the costs over the term as an expense over the service term
as can be reviewed in the statement of equity.
On April 12, 2001, the Company issued 5,200,000 shares of common stock to the
president of the Company valued at market price in the amount of $812,240. These
shares were issued in accordance with the compensation agreement.
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On March 15, 2001, the Company elected a 7 for 1 reverse stock split. The
statements of operations have been adjusted to reflect this split with the
earnings per share calculation.
During the quarter ended January 31, 2001, The Company filed an SB-2 filing with
the U.S. Securities and Exchange Commission. The filing called for 2,000,000
common shares to be offered at a price of $.05 per share. 1,000,000 common
shares have been sold for cash and 1,000,000 (142,857 after the 7 for 1 reverse
stock split) shares were issued for services.
During the period ending October 1998, the Board of Directors issued 1,525,000
shares of restricted common stock to The Company's officer's, and legal counsel
in exchange for services, and issued 500,000 shares of restricted common stock
in the acquisition of Top-10 Promotions, Inc.
In addition to the restricted shares issued, The Company sold common stock
through two separate private offerings during the period. In the initial
offering 800,000 shares were sold each at a price of $0.025. In the second
offering 1,000,000 shares were sold each at a price of $0.05.
On October 15, 1998, the majority shareholders of The Company undertook a
Regulation - D, Rule 504, offering whereby it sold 2,000,000 shares of common
stock, $.0001 par value per share or an aggregate of $200,000. In addition, each
investor in the offering received an option to purchase, for a twelve month
period commencing on the date of this offering, an additional one share of The
Company at $1.00 per share for each eight (8) shares purchased in the original
offering (or $250,000). In addition, each investor received an option to
purchase for an eighteen month period commencing on the date of this offering an
additional one (1) share of The Company for each 8.88 shares previously
purchased at $2.00 per share or an aggregate of 225,000 shares (or $450,000).
The Company also approved of the investment by Arthur Harrison & Associates in
the offering provided that such investment in The Company was in lieu of monies
owed to Arthur Harrison & Associates by The Company for two (2) promissory notes
dated September 22, 1998 and October 10, 1998. Further more, Arthur Harrison &
Associates agreed to waive its rights to any interest on promissory notes.
10. Acquisitions:
-------------
On March 30, 1999 The Company acquired assets of Offshore Software Development
Ltd. ("Offshore") in an exchange of assets for 999,111 shares of The Company
issued to the shareholders of that company. 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 management's estimation.
An unusual impairment loss of $257,075 was recorded in October of 1999 to
reflect an impairment of the intangible assets resulting from the acquired
"Offshore" assets on March 30, 1999. The impairment resulted from the Company's
revised forecast of the cash inflows expected from intangible assets.
Amortization expenses will drop by $8,583 per month.
Effective May 29, 1998, The Company acquired all the outstanding common stock of
Top-10 Promotions, Inc., consisting of 100 shares, effective. These shares were
redeemed and canceled. The 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 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.
Also, the former owner of Top-10 Promotions, Inc. was given the right to borrow
up to 25% of retained earnings of Roanoke Technology 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.
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11. Employment Contract and Incentive Commitments:
-----------------------------------------------
The Company has entered into a five year employment contract with the former
owner of Top-10 Promotions as amended on April 12, 2001. The contract provides
for a salary of $150,000; a stock bonus of 5,200,000 restricted common shares; a
stock bonus of 1,000,000 common shares per year for each year that the Company
generates a profit during the five year term; 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 annually,
with approval of the Board of Directors, receive up to one percent of the issued
and outstanding shares of the Company determined on December 31st of each year.
On 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 at a
market value of $1,181,250. An additional 1,500,000 shares of restricted were
issued in accordance with the revised employment agreement during the year ended
October 31, 2000 for a value of $900,000.
12. 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. As of October 31, 2002, The Company had a
deferred tax asset in the amount of approximately $1,871,726 that is derived
from a net operating tax loss carryforward. A portion of this carryforward is
associated with stock compensation to officers and is deductible for tax
purposes when the stock is sold by the officers. The deferred tax assets will
expire during the years ending October 31, 2013 through 2022 if not used to
offset taxable income.
13. Required Cash Flow Disclosure for Interest and Taxes Paid:
----------------------------------------------------------
The Company paid interest in the amount of $3,434 during the quarter ended
January 31, 2003. The Company had no income tax payments due and did not pay any
income tax amounts during the period.
14. Litigation, claims and assessments:
-----------------------------------
There are various lawsuits and claims pending against The Company. Management
believes that any ultimate liability resulting from those actions or claims will
not have a material adverse affect on The Company's results of operations,
financial position or liquidity.
On February 20, 2003 a complaint, Sprint Communications Company Limited
Partnership vs. Roanoke Technology Corp., was filed in in the State of North
Carolina, County of Halifax Superior Court Division. The complaint asserts that
The Company is indebted to the plaintiff for a total of $179,150.16 and costs of
the action brought forward. The Company has filed a counter-claim in response to
this action. Representation for The Company has not determined the likeliness
that the plaintiff will be successful with the complaint. The management of The
Company asserts that the complaint will not have a material adverse affect on
The Company's results of operations, financial position or liquidity.
15. Condensed consolidating financial statements:
---------------------------------------------
RTCHosting Corp (RTCH) is a wholly owned subsidiary of The Company. RTCH was
incorporated on June 12, 2000 in the state of North Carolina. RTCH has 1,000
common shares authorized with no par value and 100 common shares outstanding.
The Company has determined that separate financial statements and other
disclosures concerning RTCH are not material to investors. RTCH was formed to
hold the copyrights of an on line procurement system being developed by The
Company. The Company has expensed all research and development costs. The only
costs incurred by RTCH has been its incorporation and start-up costs which have
been expensed in the amount of $3,050. RTCH currently has no material values of
assets, liabilities or equity.
RFQHosting Corp (RFQ) is a 35% owned joint venture in Roanoke Online, LLC. The
Company and Roanoke Energy Resources, Inc., a subsidiary of Roanoke Electric
Cooperative, entered into a joint venture whereby the Company, through RFQ,
receives 35% of the gross revenues of Roanoke Online, LLC, a business to
business online procurement service. The Company is responsible for providing
software maintenance and support personnel. Roanoke Energy Resources, Inc. is
responsible for the day to day management and marketing of RFQ.
16. Employee stock option:
----------------------
The Company originated employee stock option plans with 2 of its employees
during fiscal year end October 31, 2001. The plan calls for 300,000 option
shares to vest on May 2, 2001 for a conversion price of $.001 per share. The
plan continues to ratably vest 470,000 option shares over a 4 year period that
are convertable for $.001 per share. The intrinsic value of these vested shares
is $0 and a fair value compensation value of $6,750 if exercised at the vesting
dates.
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