SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 31, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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.)
2720 N. Wesleyan Blvd., Rocky Mount, North Carolina 27804
(Address of principal executive offices) (Zip Code)
(252) 428-0200
(Registrant's telephone number, including area code)
539 Becker Drive, Roanoke Rapids, North Carolina 27870
(Former name, former address and former fiscal year,
if changed since last report)
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 |_|
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 22, 2005, we had
2,946,524,239 shares of common stock outstanding, $0.0001 par value.
ROANOKE TECHNOLOGY CORP.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
---------------------
BASIS OF PRESENTATION
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. 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,
2004. 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, 2005 are not necessarily indicative of results that may
be expected for the year ending October 31, 2005. The financial statements are
presented on the accrual basis.
FINANCIAL STATEMENTS AND EXHIBITS.
- ----------------------------------
FINANCIAL STATEMENTS
For the information required by this Item, refer to the Index to Financial
Statements appearing on page F-1 of the registration statement.
ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 2005
ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY
CONTENTS
PAGE 1 CONDENSED CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 2005
PAGE 2 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED JANUARY 31, 2005 AND 2004
PAGE 3 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED JANUARY 31, 2005 AND 2004
PAGES 4 -9 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JANUARY 31, 2005
----------------------
ASSETS
------
CURRENT ASSETS
Cash $ 39,363
Accounts receivable, net 18,105
Prepaid expenses and other current assets 5,723
--------------------
Total Current Assets 63,191
PROPERTY AND EQUIPMENT, NET 305,473
OTHER ASSETS
Deposits 8,150
--------------------
TOTAL ASSETS $ 376,814
====================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 95,709
Payroll tax and penalty payable 754,215
Loan from officer 494,273
--------------------
Total Current Liabilities 1,344,197
--------------------
LONG-TERM LIABILITIES
Notes payable 829,306
--------------------
Total Long-Term Liabilities 829,306
--------------------
TOTAL LIABILITIES 2,173,503
--------------------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $0.0001 par value, 10,000,000 shares authorized,
none issued and outstanding -
Class A common stock, $0.0001 par value, 100,000,000 shares authorized,
100,000,000 shares issued and outstanding 10,000
Common stock, $0.0001 par value, 5,000,000,000 shares authorized,
2,729,651,286 shares issued and outstanding 272,965
Additional paid in capital 21,055,116
Accumulated deficit (23,134,770)
--------------------
Total Stockholders' Deficiency (1,796,689)
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 376,814
====================
See accompanying notes to condensed consolidated financial statements.
1
ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 2005 AND 2004
----------------------------------------------------
2005 2004
-------------------- -------------------
REVENUE $ 194,984 $ 236,503
COST OF SALES 104,691 169,686
-------------------- -------------------
GROSS PROFIT 90,293 66,817
OPERATING EXPENSES
General and administrative 183,075 538,560
Research and development - 39,290
-------------------- -------------------
Total Operating Expenses 183,075 577,850
-------------------- -------------------
LOSS FROM OPERATIONS (92,782) (511,033)
OTHER EXPENSE
Interest income 1 -
Interest expense (47,524) (18,965)
-------------------- -------------------
Total Other Expense (47,523) (18,965)
-------------------- -------------------
NET LOSS $ (140,305) $ (529,998)
==================== ===================
Net loss per share - basic and diluted $ - $ -
==================== ===================
Weighted average number of shares outstanding
during the period - basic and diluted 2,729,651,286 769,151,286
==================== ===================
See accompanying notes to condensed consolidated financial statements.
2
ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2005 AND 2004
----------------------------------------------------
2005 2004
---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (140,305) $ (529,998)
Adjustments to reconcile net loss to net cash used in operating
activities:
Amortization of discount on notes payable 31,042 -
Depreciation and amortization 14,226 16,114
In-kind contribution of interest expense 6,250 -
Compensation in the form of stock - 412,500
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,022) (15,159)
(Increase) decrease in prepaid expenses and other current assets (1,973) (1,260)
(Increase) decrease in deposits - (2,000)
Increase (decrease) in accounts payable and accrued expenses 4,809 (9,393)
Increase (decrease) in employee loan - (5,090)
---------------- -----------------
Net Cash Provided By (Used In) Operating Activities (87,973) (134,286)
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for equipment - (30,041)
---------------- -----------------
Net Cash Used In Investing Activities - (30,041)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) officer loan (5,727) 175,000
Proceeds from note payable 300,000 -
Proceeds from beneficial conversion 75,000 -
Payments of principal on note payable (268,099) (9,374)
---------------- -----------------
Net Cash Provided By Financing Activities 101,174 165,626
---------------- -----------------
NET INCREASE IN CASH 13,201 1,299
CASH AT BEGINNING OF PERIOD 26,162 18,306
---------------- -----------------
CASH AT END OF PERIOD $ 39,363 $ 19,605
================ =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- -------------------------------------------------
Cash paid for interest expense $ - $ -
================ =================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
- -----------------------------------------------------------------------
During November 2004, the Company exchanged 100,000,000 shares of common stock
for 100,000,000 shares of Class A common stock.
See accompanying notes to condensed consolidated financial statements.
3
ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 2005
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in The
United States of America and the rules and regulations of the Securities
and Exchange Commission for interim financial information. Accordingly,
they do not include all the information necessary for a comprehensive
presentation of financial position and results of operations.
It is management's opinion, however that all material adjustments
(consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statements presentation. The results for the
interim period are not necessarily indicative of the results to be expected
for the year.
(B) Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reported period.
Actual results could differ from those estimates.
(C) Consolidation
The accompanying consolidated financial statements for 2005 and 2004
include the accounts of Roanoke Technology Corporation and its wholly owned
subsidiary TOP-10 Promotions, Inc. All material intercompany transactions
and balances have been eliminated in the consolidation.
(D) Income Taxes
The Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement
109"). Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
(E) Loss Per Share
Basic and diluted net loss per common share is computed based upon the
weighted average common shares outstanding as defined by Financial
Accounting Standards No. 128, "Earnings Per Share." As of January 31, 2005
and 2004, the effect of common share equivalents was anti-dilutive and not
included in the calculation of diluted net loss per share.
(F) Business Segments
The Company operates in one segment and therefore segment information is
not presented.
(G) Recent Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory
Costs - an amendment of ARB No. 43, Chapter 4" SFAS No. 152, "Accounting
for Real Estate Time-Sharing Transactions - an amendment of FASB Statements
No. 66 and 67," SFAS No. 153, "Exchanges of Non-monetary Assets - an
amendment of APB Opinion No. 29," and SFAS No. 123 (revised 2004),
"Share-Based Payment," were recently issued. SFAS No. 151, 152, 153 and 123
(revised 2004) have no current applicability to the Company and have no
effect on the financial statements.
NOTE 2 CONVERTIBLE NOTES PAYABLE
In September 2004 and December 2004, the Company received $692,500 and
$300,000, respectively of proceeds, net of offering costs and beneficial
conversion feature, from the issuance of $825,000 and $375,000 notes
payable, respectively of 5% convertible promissory notes due three years
from the date of issuance. The debentures are convertible at the holder's
option any time up to maturity at a conversion price equal to the lower of
(1) 120% of the volume weighted average price of the common stock on the
date of the debentures or (2) 80% of the volume weighted average price of
the common stock of the Company for five trading days immediately preceding
the conversion date. The offering costs are being amortized over the life
of the convertible notes payable of three years. The principal and accrued
interest are due in full on the maturity date. The convertible notes
payable are secured by all the assets and property of the Company.
Note payable - Face $ 1,200,000
Note payable - Discount 370,694
-------------------
$ 829,306
===================
NOTE 3 LOAN FROM OFFICER
During 2004, the Company received a non-interest bearing loan from its
President. The loan is unsecured and due on demand. During the three months
ended January 31, 2005, the Company repaid $5,727 of principal. In
addition, the Company recorded an in-kind contribution of $6,250 for the
fair value of interest contributed by its President. The total outstanding
principal at January 31, 2005 was $494,273.
NOTE 4 STOCKHOLDERS' EQUITY
(A) Class A Common Stock
During 2004, the Company's President exchanged 100,000,000 shares of common
stock for 100,000,000 shares of Class A common stock. The Company is
authorized to issue 100,000,000 shares of Class A common stock. Each share
of Class A common stock is convertible into 10 shares of common stock.
(B) Proceeds from Beneficial Conversion
During 2005, the Company allocated $75,000 from the convertible notes
payable to additional-paid in capital to account for the beneficial
conversion feature of the convertible notes payable.
(C) In-Kind Contribution
During 2005, the Company received an in-kind contribution of $6,250 for the
fair value of interest contributed by its President (See Notes 3 and 5).
NOTE 5 RELATED PARTY TRANSACTIONS
During 2004, the Company's President exchanged 100,000,000 shares of common
stock for 100,000,000 shares of Class A common stock.
During the three months ended January 31, 2005, the Company repaid $5,727
of principal.
During 2005, the Company received an in-kind contribution of $6,250 for the
fair value of interest contributed by its President (See Notes 3 and 5).
NOTE 6 GOING CONCERN
As reflected in the accompanying financial statements, the Company has a
negative working capital of $1,281,006, a stockholders' deficiency of
$1,796,689 and has a negative cash flow from operations of $87,973. This
raises substantial doubt about its ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on
the Company's ability to raise additional capital and implement its
business plan. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
Management believes that actions presently being taken to obtain additional
funding and implement its strategic plans provide the opportunity for the
Company to continue as a going concern.
NOTE 7 SUBSEQUENT EVENT
During 2005, the Company received an additional $100,000 convertible note
payable on the same terms as the previous two notes (See Note 2).
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1st Quarter 2005 Compared with 1st Quarter 2004
Revenues for the first quarter of fiscal years 2005 and 2004 were $194,984 and
$236,503, respectively. Depreciation and amortization expenses decreased to
$14,226 from $16,114 because of certain assets that have been completely
depreciated or amortized. Research and development costs decreased to $0.00 from
$39,290.
Top-10 Promotions sales were down as compared to the same quarter in the
previous 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. Our relocation to our new facility in Rocky Mount, NC will help
facilitate this expansion. The Rocky Mount area has a substantially larger
employee pool to draw from with more qualified applicants than our current
location. We have added other revenue sources through our affiliate programs
with Commission Junction and Google as well as our expanded B2B service
offerings that include expanded hosting, website design and optimization
services.
LIQUIDITY AND CAPITAL RESOURCES
Cash outflows from operating activities were ($87,973) for the three months
ended January 31, 2005 as compared with cash outflows of ($134,286) in the prior
year's quarter. Cash Flows from Investing Activities were $0 as compared with
($30,041) in the prior year's quarter.
Outlook
During the past quarter, much attention has been placed on reducing expenses and
increasing revenues. 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. Management believes that, even though our auditors have expressed
doubt about our ability to continue as a going concern, due to our reduced cash
requirements, our increase in experienced sales staff, and our addition of new
revenue sources, we will be able to satisfy our cash requirements for at least
the next twelve months.
Management basis its belief that it has sufficient cash for the next twelve
months on the reduced operating expenses that have resulted from dramatic cuts
in non-essential personnel as well as the elimination of unnecessary leased
equipment and services.
Item 3. 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 4. Controls and Procedures
- --------------------------------
(a) Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Chief Financial Officer (collectively the
"Certifying Officers") maintain a system of disclosure controls and procedures
that is designed to provide reasonable assurance that information, which is
required to be disclosed, is accumulated and communicated to management timely.
Under the supervision and with the participation of management, the Certifying
Officers evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule [13a-14(c)/15d-14(c)]
under the Exchange Act) within 90 days prior to the filing date of this report.
Based upon that evaluation, the Certifying Officers concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relative to our company required to be disclosed in our
periodic filings with the SEC.
(b) Changes in internal controls.
Our Certifying Officers have indicated that there were no significant changes in
our internal controls or other factors that could significantly affect such
controls subsequent to the date of their evaluation, and there were no such
control actions with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Gordon & Rees, LLP v. Roanoke Technology Corp.; Top-10 Promotions, Inc. San
Francisco County Superior Court, Case Number CGC-03-423362. The complaint was
filed on August 12, 2003 and was "purportedly" served on September 12, 2003. On
October 15, 2003, we received a Notice of Intention to Enter Default and Default
Judgment. Plaintiff has not been able to provide the court documentation to
support a default judgment. The default judgment was for $106,719.64 plus 10% of
interest from 8/26/02 and attorney's fees of $26,679.91. On May 27, 2004 we
entered into a settlement agreement whereby we would pay $19,000 by June 11,
2004 to allow a dismissal of the lawsuit. Such amount was paid and this case was
settled in full.
Sancor Industries Ltd. v. Sun-Mar Corporation, Top-10 Promotions, Inc. and
Roanoke Technology Corp. Ontario Superior Court of Justice, Court File No.
99-CV-172600 CMA. A judgment was granted against us for unauthorized insertion
of the plaintiffs trademarks in our mega-tags. A settlement agreement was
entered into and we currently owe a totals of $97,470 under the terms of the
Agreement.
On February 20, 2003 a complaint, Sprint Communications Company Limited
Partnership vs. Roanoke Technology Corp., was filed in the State of North
Carolina, County of Halifax Superior Court Division. The complaint asserts 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 legal counsel has not determined the likeliness that the plaintiff
will be successful with the complaint. This matter was settled in full for
$10,000.
AJW Partners, LLC. AJQ Offshore, Ltd., AJW Qualified Partners, LLC and New
Millenium Capital Partners II, LLC v. Roanoke Technology Corp., Supreme Court of
the State of New York, Index No. 04-600698. The complaint was filed on March 16,
2004 and served on March 19, 2004. The lawsuit was commenced based upon stock
purchase agreement comprised of convertible debenture bonds with attached
warrants with the plaintiffs. The plaintiffs claim that a total of $775,000 is
still owed under the convertible debentures. A full settlement was reached in
this matter.
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 2 - Changes in Securities
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits
33.1 Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002
33.2 Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002
b. Reports on Form 8-K.
On November 19, 2004, the Company filed an 8K based upon unregistered sales
of Equity securities.
SIGNATURES
Pursuant to the requirements 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.
ROANOKE TECHNOLOGY CORP.
By: /s/ David L. Smith
-------------------------------------
DAVID L. SMITH
Chairman of the Board of Directors
CEO and CFO
Dated: March 22, 2005