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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended
October 31, 2000
Commission File # 0-26715
ROANOKE TECHNOLOGY CORP.
(Exact name of registrant as specified in its charter)
Florida
(State or other jurisdiction of incorporation or
organization)
22-3558993
(IRS Employer Identification Number)
539 Becker Drive, Roanoke Rapids, North Carolina 27870
(Address of principal executive offices ) (Zip Code)
(252)537-9222
(Registrant's telephone no., 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
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
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-B not contained in this
form, and no disclosure will be contained, to the best of
the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form
10-KSB. ( )
Revenues for year ended October 31, 2000: $1,999,103
Aggregate market value of the voting common stock held by
non-affiliates of the registrant as of February 9, 2001,
was: $1,104,365
Number of shares of the registrant's common stock
outstanding as of February 9, 2001 was: 12,686,677
Transfer Agent as of December 31, 2000:
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. ("Top 10"), a Virginia corporation with its
principal place of business in North Carolina, in accordance
with a Stock Purchase Agreement and Share Exchange dated and
effective May 28, 1998 ("Share Exchange"). Top 10 was
incorporated in Virginia on November 18, 1997. 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. (the
"Company")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 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. Simply put, that is what we do. In addition, we
utilize a suite of proprietary computer programs which allow
our users to analyze and track their Web Sites "visibility".
Our proprietary software analyzes high ranked sites on the
targeted search engines to determine the most important key
words, phrases, and other design characteristics of those
sites. Our customer's web sites are then changed to reflect
the preferences of those search engines and thus increase
the probability that their web site will appear in the top
10 or 20 sites listed by the search engine when those search
characteristics are used. Since most Web surfers ignore
search results beyond the first hundred listed sites, a
higher ranking almost always translates to higher visitor
hits for our customers. This results in greater exposure for
our customers, improved results for their web presence, and
increased customer reliance on our services.
The sweeping transition of the Internet from being primarily
an information and entertainment platform to becoming a
medium for e-commerce is well under way. Web sites are no
longer perceived just for informational content or to simply
establish Internet presence. In order to fully capitalize
on the opportunity that the Internet represents, today's
companies require implementation of a proven Internet
promotional strategy to maintain traffic and develop sales.
In order for companies to fully realize the potential of the
Internet, companies must effectively market their web sites
beyond standard print and media advertising.
We have a history of significant losses. We had a loss of
$305,545 from December 11, 1997 (inception) through October
31, 1998 and $2,686,404 for the year ended October 31, 1999
and $165,244 for the year ended October 31, 2000 making an
accumulated deficit of $3,157,193.
FORMATION
On December 11, 1997, we were formed in Florida as a C
corporation under the name Suffield Technologies Corp. We
did not have any significant revenues until we purchased all
of the issued and outstanding shares of Top 10 Promotions,
Inc. ("Top 10"), a Virginia corporation with its principal
place of business in North Carolina, in accordance with a
Stock Purchase Agreement and Share Exchange dated and
effective May 28, 1998 ("Share Exchange"). Top 10 was
incorporated in Virginia on November 18, 1997.
Since the closing of the Share Exchange, the operations of
Top 10 has represented 100% of our revenues to date. Based
on the Share Exchange, we undertook the following: (i) on
June 11, 1998, we filed an amendment to our incorporation
document in Florida changing our name to Roanoke Technology
Corp.; (ii) on July 20, 1998, we were issued a Certificate
of Authority to do business in North Carolina; (iii) on
July 22, 1998, the State of Virginia issued a Certificate of
Merger whereby Top 10 merged into the Company; and (iv) on
September 4, 1998, we filed a Certificate of Assumed Name in
Halifax County, North Carolina to do business under the name
Top 10 Promotions.
In accordance with the Share Exchange, David L. Smith, Jr.,
the sole shareholder, officer and director of Top 10 was
paid the following consideration: (i) 500,000 restricted
common shares of the Company; (ii) the ability to borrow up
to 25% of the retained earnings of the operating company
(Top 10) in fiscal year 1998 (the Company has an October 31
fiscal year end) or the first two quarters of fiscal year
1999. Any repayment of such borrowings would be for a 2
year period at an annual interest rate of 5%. In addition,
the operating company, Top 10, was given $50,000 at closing
and $17,500 per month for an 11 month period commencing 30
days after closing (an aggregate of $192,500). The funding
for these amounts was provided by a loan from Tamana Ltd.,
an unaffiliated corporation.
SERVICES
Our services are designed to improve the visibility of our
customer's web sites in the Internet. The first level of
service, the "Starter Plan" consists of getting the
customer's web sites registered on about 800 of the most
significant search engines. This service sells for $99, is
not actively promoted by us, and does not carry any
visibility commitment. It has accounted for .2% of our
revenues during the fiscal year 2000.
Sales of the "Premium Plan" and its derivatives accounted
for 97.6% of revenues for the fiscal year 2000. This plan
is sold for $1,495. This plan was originally sold for
$1,295. It was increased to $1,495 effective May 4, 2000.
It differs from the Starter Plan in that 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 engine when appropriate
key words are used. Since many key word searches can return
hundreds, if not thousands, of matches, it is important that
those attempting to generate business from their Internet
listing assure that their site is listed in the first one or
two pages returned by the search engine. If the customer
has more than one web site we will promote these sites for
half price of $747.50 each. We originally charged $647.50,
but increased the price to $747.50 effective May 4, 2000.
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
and up to 6 additional terms may be purchased for $150 each.
Sale of additional terms to customers purchasing the Premium
Plan accounted for 5.5% of revenues during the 12 months
ended October 31, 2000.
- Identify the unique characteristics and patterns
associated with each search engine's robot and indexing
practices.
- Create a customer web page for each term for each
search engine (usually 4 or 5 pages are needed for each
term). Each contract will require a creation of
approximately 120 - 300 pages. The pages actually consist
of sets of about 20 pages per search engine.
- The created web pages are then moved to the
customer's web site or server.
- We verify the placement of the web pages. We submit
them to each search engine. Due to search engines'
different operating procedures, this process takes about
30 working days.
- Approximately 4 weeks after we have completed the
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 7 to 10 working days
and are electronically mailed to each customer. The results
are also available on our web site.
We commit to the following for our Premium Plan:
- We will secure for our customer no less than 10
placements somewhere within the top 20 positions somewhere
across the top search engines. The engines we target
consist of the following: Yahoo, Excite, Infoseek,
HotBot, Lycos, iWon, Snap, AOL Netfind, LookSmart,
AltaVista, Google, Northern Light, Magellan, All The Web,
Open Directory Project, Netscape, Web Crawler, Direct Hit,
MSN 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
your site 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 to
our customers.
- 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 of the last submissions were
made to the search engines, Top-10 Promotions will repeat
the service at no charge.
Our sales efforts rely primarily upon our proprietary
software programs to generate sales leads which are then
followed up with e-mail and telemarketing efforts. Due to
the increasing number of web sites indexed by the key search
engines and changes in the way these sites are indexed by
the search engines, the visibility of the web sites which we
have enhanced tends to decline over time. We 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.
The renewal price is $747.50 and an additional $150 for each
key word or phrase over six. Renewals accounted for 3.8% of
our revenues in the fiscal year ended October 31, 2000. We
expect renewals to become a somewhat larger percentage of
total revenues as our customer base grows.
RTCHOSTING CORP
RTCHosting Corp ("RTCH") is our wholly owned subsidiary
which was formed in June 2000. RTCH was formed to address a
specific problem faced by many small to medium-sized
businesses. The rapid growth in the use of the Internet for
purchasing components, supplies and services is changing the
competitive environment. The obstacle keeping most small to
medium-sized businesses from enjoying these savings-which
are necessary for their long term survival-is the research
and development costs of putting together an on line
procurement system.
RTCH is in the final stages of completing development of an
online procurement system (OPS). The first customer went
online in late September 2000. The OPS is, in effect, an
automated system which e-mails requests for quotes along
with required delivery dates, terms, and delivery
instructions (collectively, RFQ's) to selected suppliers.
When a supplier responds with an offer, the other suppliers
previously sent the same RFQ are informed of the price that
they must beat and this process continues until the
purchaser ends the auction and selects a supplier.
Key features of the system include:
1. Automation of the competitive procurement system
and elimination of unnecessary telephone and fax
communications;
2. Capability to show RFQ's only to selected
venders; venders cannot see the purchaser's
whole shopping list;
3. Capability to limit authority of the various
purchasing agents working for the purchaser;
4. Capability for use by purchasing agents at
remote locations;
5. Capability to show cost trends by item and by
suppliers over time;
6. Capability to vary limits by which bids must
change;
7. Capability to provide individual personalized
sites from a secure server. This eliminates the
ability of competitors to access purchasing
activity which could provide significant
competitive information; and
8. Capability to show productivity and
effectiveness of individual purchasing agents.
All of the software required to operate OPS has been
developed or is being developed by us. The web hosting
services of the OPS will be supplied through a server
located in Roanoke Rapids, North Carolina and two located in
London, England but plans are underway to relocate the
London servers to Rocky Mount, N.C.
Current plans call for the OPS to be offered free of all
charges for a 90 day trial period. During the trial period
RTCH personnel will contact the users to offer assistance
and solve any problems that develop. At the end of the
trial period, RTCH personnel will contact the users and
attempt to convert them to paying customers. The charge
will be an initial payment of $6000 and subsequent monthly
payments of $600 per month regardless of usage.
We believe that any organization can become a customer.
Initially, sales efforts will be undertaken primarily by
David Smith who has begun to target local and regional
business groups and associations in an attempt to develop
master programs under which they would make RTCH available
to all of their members who choose to participate. Under
certain conditions, commissions might be paid to individual
business or business groups, which are instrumental in
aiding the marketing of RTCH. Our preliminary plans
call for paying a commission of $1000 per customer plus a
continuing fee of $50 per month for each customer signed up.
After getting customers to accept a free trial, our
personnel will contact these persons to help them get
started on the system and follow up when the trial period is
over to attempt to finalize the sale. We currently have
two full time employees of Roanoke Technology Corp. who are
assigned to work as support personnel and sales closers. If
business develops as anticipated, the number of employees
doing this type of fulfillment work will increase.
On October 2, 2000 RTCH entered into an agreement with
Roanoke Electric Cooperative, a member of a regional
association of energy utility cooperatives. The agreement
provides that Roanoke Electric Cooperative will publicize
the availability of RTCH to its members and partners,
provide RTCH with contact information for each of the
members who might be interested in the service, and make
efforts to assist RTCH in securing the member's
participation in the program. However, no contract has yet
been signed; there can be no assurance that any contract
will be signed; if a contract is signed there can be no
assurance that any revenues will result.
RTCH will conduct business as RFQ Hosting (RFQH). It is
anticipated that billing and collecting will be fully
automated by RAKE. Initially current RAKE personnel will
handle the function, but it is anticipated that one to two
additional people may be required as volume builds.
RFQ currently has 3 customers that have signed contracts and
are using the system. Additionally, 20 other customers are
in the 90 day free trial period, but no significant revenues
will be generated until at least some time during the 2nd
quarter of the calendar year 2001, if ever.
RFQH competes with traditional personnel-intensive
telephone, mail, and fax communications-based purchasing
operations and newer business to business Internet
communication systems. While most of the known business to
business Internet based purchasing systems are still
relatively new and in the development stage, most are funded
by organizations with significantly greater financial and
personnel resources than our company.
TRADEMARKS
Trademark applications have been filed with the United
States Patent and Trademark Office for the names "Top 10 and
Design," "PC Beacon" "RTCHosting and Design" and
"RFQHosting."
PERSONNEL
We currently employ 28 full time employees. They fall into 4
different categories: 3 management, 10 sales, 4
programmers, and 11 support personnel. Sales personnel are
compensated on a base pay plus commission basis.
We expect to continue to add salespersons.
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 $19.99 per month it will
provide the following: submit 10 web addresses per month to
top 400 search engines; check the search engine for 10 web
addresses per month; advertise with 5,000 banner ads per
month; and keep in touch with customers by sending 5,000 e-
mails per month.
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 the company's business
but weekly or monthly sales volume can be impacted by
holidays and popular vacation periods which impair the
ability of our telemarketers to reach potential customers.
Our business is not dependent upon any single customer or
type of business. Since we have no subcontractors, we are
not dependent upon an outside sales force. All work is
performed in house. This includes the creation and
development of our software.
CUSTOMERS
Our potential market or customer base consists of every
business-oriented web site in the world. As of September
2000 there were approximately 17.5 million ".com" and 3.0
million ".net" web sites contained in the zone files for
ICANN (The Internet Corporation for Assigned Names and
Numbers). Net new registrations for Network Solutions'
registrar services, or NSI registrar, during the year ended
December 31, 1999 were 5,037,000 as compared to 1,911,000
during the year ended December 31, 1998, an increase of
164%. Due in part to the addition of nearly 40
international partners, 1,543,000, or 31%, of net new
registrations were international registrations for the year
ended December 31, 1999. This is an increase in
international registrations of 190% over the 532,000 net new
registrations for the year ended December 31, 1998. Non-NSI
registrars registered an additional 890,000 names through
such registry services, bringing the total net new
registrations for the year ended December 31, 1999 in .com,
.net and .org top level domains to 5,927,000. Growth in net
registrations continues to be driven by the widespread use
and adoption by businesses of the Internet and intranets on
a global basis. Cumulative net registrations for the NSI
registrar as of December 31, 1998 were 3,362,000 as compared
to 8,055,000 as of December 31, 1999, for a 140% increase.
Our largest single customer accounts for less than two
percent of our total revenues and no particular industry
accounts for more than two percent of our revenues.
The following is a partial list of what types of businesses
a few of our customers are involved with:
_ Real Estate
_ Insurance
_ Telephone Equipment
_ Auto Supplies
_ Plastic Surgeon
_ Print Media
_ Financial Advisory
_ Pet Supplies
_ Police Supplies
_ e-commerce
_ Pump Sprayers
_ Farm Equipment
_ Printing Supplies
_ Recycling
_ Clothing
_ Autoclave Equipment
_ Industrial Equipment Supplier
_ Material Manufacturers
_ Material Brokers
_ Business Consultants
_ Time Management Consultants
_ Advertising Agency
_ Personnel Placement Agency
_ Pilot Supplies
_ Medical Supplies
_ Pool Supplies
_ Golf Equipment
_ Travel Agency
_ Recreation Equipment
MATERIAL PROGRAMMING COSTS
We incur programming costs to maintain and improve the
computer programs used internally in the conduct of our
business. Most of this work has been undertaken by salaried
personnel.
Material programming costs are:
Year Ending Year Ending Year Ending
October 31, 2000 Oct. 31, 1998 Oct. 31, 1999
---------------- -------------- -------------
Total $171,706 $35,612 $52,729
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are considered a continual
process and are expensed when incurred. When the Company
can associate specific costs to a computer software product
that has technological feasibility and research and
development activities have been completed, the Company 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 Road, 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
- --------------------------
(1) Craig (Plaintiff) v. Top-10 Promotions, Inc., Glenn
Canady and Kelly Allen (collectively, the Defendants);
Sonoma County Superior (Limited Civil), California, Case No.
163579 filed on June 21, 2000. Plaintiff, Gary Craig,
operates a web site which dispenses information about a
therapeutic technique and offers instructional material for
a fee. Plaintiff purchased our product known as "Premium
Service" in order to secure at least 10 placements for his
web site URL within the top 20 positions somewhere across
the Internet's top search engines. The product performed as
expected. However, in working with his web site, Plaintiff
caused his site specific search engine to become unusable.
Despite this fact, Plaintiff filed suit claiming that it was
not his own actions, but rather our "Premium Service"
which caused his site to become unusable. Plaintiff seeks
$16,295 plus punitive damages, interest, attorneys fees and
costs. Although we are disclosing this lawsuit, we do not
deem it to be material.
(2) Oyster Software, Inc. (Plaintiff) v. Roanoke Technology
Corp. (Defendant and Cross-Defendant), Forms Processing,
Inc. (Defendant) and Barry Matz (Defendant); United States
District Court, Northern District of California, Case No.
C000724 filed on March 1, 2000. Plaintiff, Oyster Software,
Inc. claims trademark and copyright infringement,
misappropriation and unfair competition based on the
placement of its trademarks and copyrighted material into
HTML web pages utilized by defendant Forms Processing, Inc.
(FPI). FPI claims that it had no knowledge of this fact and
that the web pages were created for it by us as part of the
purchase of the product known as "Premium Service." We deny
placing the allegedly infringing material into FPI's web
pages. Plaintiff's complaint seeks declaratory relief, an
injunction, an accounting, damages in excess of $1,600,000
and an award of attorneys fees and costs. Through its
cross-complaint, FPI seeks declaratory relief and indemnity.
We are presently defending such lawsuit.
(3) Peter Barry (Plaintiff) v. Top-10 Promotions,
Inc.(Defendant);Ramsey County District Court, Minnesota in
November 2000. Plaintiff, Peter Barry, claims that
this action arises under the federal statute prohibiting
unsolicited facsimile transmissions and seeks damages,
injunctive relief and certification as a class action. We
have denied liability in this matter ad believe that we have
a good faith defense against this action and against
certification of a class action. This suit was only
recently instituted and no discovery has occurred at this
point. This action was commenced after October 31, 2000 but
arose from events occurring prior to October 31, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
On August 22, 2000, a majority of our shareholders, by
written consent authorized the issuance of 1,500,000 of our
restricted common shares to David L. Smith, Jr. pursuant to
his Amended Employment Agreement with us dated August
22, 2000. Such shares were restricted in accordance with
Rule 144 of the Securities Act of 1933 and were issued in
accordance with Section 4(2).
PART II
- -------
Item 5. Market for Registrants's Common Equity and Related
Stockholder Matters
- ----------------------------------------------------------
On February 9, 2001, we had 125 shareholders of record
of our common stock. Based on information received
from brokers and others in fiduciary capacities, we
estimate that the total number of shareholders of our
common stock does not exceed 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 the
Company's common stock through October 31, 2000 and as
available through electronic trading services subsequent to
such date.
Common Stock Bid
High Low
---- ---
Fiscal Quarter High Low
---- ---
January 31, 1999 $ 7.125 $1.875
April 30, 1999 $10.00 $6.375
July 31, 1999 $11.00 $8.00
October 31, 1999 $ 9.00 $4.50
January 31, 2000 $ 5.12 $3.37
April 30, 2000 $ 3.50 $0.75
July 31, 2000 $ 1.50 $0.05
October 31, 2000 $ 1.01 $0.125
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. Financial Statements
- ----------------------------
The financial statements of the Company, together with the
report of auditors, are included in this report after the
signature pages.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ----------------------------------------------------------
Results of Operations
Statement of Earnings - Selected Data
Year Ended
----------
From Inception to
Oct. 31, Oct. 31, Oct. 31,
2000 Change 1999 Change 1998
------------------------------------------------------------
Sales 1,999,103 +74.7% 1,144,122 NMF 54,032
Cost of Sales 1,055,268 +56.4% 593,909 NMF 15,170
Gross Profit 943,835 +101.1% 550,213 NMF 38,862
Percentage of Sales 47.2% 48.1% 71.2%
General & Administrative
Expense 2,001,328 -36.5% 3,152,748 NMF 320,581
Percentage of Sales 100.1% 275.6% 493.3%
Research and Development 115,023 +42.2% 80,915 NMF 13,315
Percentage of Sales 5.7% 7.1% 24.6%
Depreciation & Amortization 155,500 9.4% 142,112 NMF 9,814
Percentage of Sales 7.8% 12.4% 18.2%
Operating Income (loss) (1,172,516) (2,683,450) NMF (304,848)
Percentage of Sales 58.65% 209.7% 564.2%
Gain on Sale of Investment 108,000
Net Interest Expense 730 2,954 697
Net Income (Loss) (1,065,244) (2,686,404) (305,545)
Fiscal 2000 Compared with Fiscal 1999
Our sales increased from $1.144 million to $1.999 million, a
gain of 74.7%. On May 4, 2000, the selling price of our
principal product, the "Premium Plan" was increased from
$1,295 to $1,495. This accounted for approximately $82,000
or 9.6% of the year's revenue gain. The remainder of the
sales gain is attributable to an increase in the number of
sales and sale support personnel.
Cost of Sales rose 56.4% from $593,909 or 51.9% of sales to
$1,055,268 or 52.8% of sales. This is the result of an
increase in the number of sales personnel partially offset
by a reduction in sales force productivity. The reduced
productivity was the result of a de-emphasizing the use of
e-mail to generate sales leads. This was made necessary by
consumer objections to non-requested e-mail sales
solicitations.
General and administrative expenses declined 36.5% falling
from $3,152,748 or 275.6% of sales to $2,001,328 or 100.1%
of sales. Included in general and administrative expense is
stock-based compensation to David Smith in the amount of
$900,000 in 2000 and $1,991,250 in 1999. Excluding this
compensation to David Smith, general and administrative
expenses decreased from $1,161,498 to $1,101,328, a decrease
of 5.2% and was 101.5% of sales in 1999 and 55.1% of sales
in 2000. This improvement is due primarily to spreading
these costs over a higher sales volume.
Research and development expenses increased 42.2% rising
from $90,915 to $155,500 but declined from 7.9% of sales to
7.8% of sales. This increase, most of which occurred in the
latter half of the fiscal year, is attributable to costs
incurred in developing our RFQ product. All research and
development expenses to date have been expensed.
In fiscal 2000, we realized a profit of $108,000 from the
sale of a portion of the stock of a subsidiary. We still
had a 20% interest in the stock of this entity, but it is
carried on the books at no cost and, so far as we know, the
business has no operations at the current time.
Our net loss declined to $1,065,244 in 2000 as compared to
$2,686,206 in 1999. The primary factors in the loss
reduction were (1) the gain in the amount of $108,000 on the
sale of a portion of the stock of a subsidiary and (2)
decrease of a stock-based compensation charge of $900,000 in
2000 and $1,991,250 in 1999 with respect to payments of
David Smith.
1999 COMPARED WITH 1998
Comparisons of fiscal 1999 with fiscal 1998 are of little
significance since we were formed in the latter year and
spent most of our time developing our systems, acquiring
equipment and facilities, and hiring and training personnel.
Sales increased significantly in 1999 due to the addition of
sales persons and increased sales productivity.
Gross profit increased sharply, but declined as a percentage
of revenues as we added to corporate support personnel.
General and administrative expenses increased $2,382,167.
Of this amount, $1,991,250 was in the form of stock-based
compensation paid to David Smith. Excluding this item,
general and administrative expenses increased from $320,581
to $1,961,498. This was attributable primarily to a move to
larger office space and a higher employee count.
Depreciation and amortization increased primarily due to an
increase in the number of computer work stations needed by
sales personnel, but also to a decision to write off
purchased computer programs more rapidly.
Net Loss increased from $(304,848) to $(2,868,404). This
was due primarily to the stock based compensation of
$1,961,498 paid to David Smith.
LIQUIDITY AND CAPITAL RESOURCES
Selected Financial Data
Year Ended
Oct. 31, 2000 Oct. 31, 1999
-------------------------------------------
Net cash provided (used) by
continuing operating activities $ 82,036 $ (229,254)
Net cash provided (used) by
investing activities $ (110,251) $ (104,140)
Net cash provided (used) by
financing activities $ (8,695) $ 397,503
Working Capital $ (146,836) $ 33,729
Total Debt $ 13,853 $ 22,548
Shareholder's equity $ 216,441 $ 381,685
Cash flow from operating activities was $82,036 as compared
to a deficit of $229,254 in the preceding year. The
improvement was the result of a reduced operating loss in
fiscal 2000 and profit of $108,000 from the sale of 80% of
the stock of its subsidiary, Global GPP Corporation.
Expenses during fiscal 2000 included $104,179 related to the
marketing of Global GPP. These expenses have been
discontinued.
Cash flows from investing related primarily to the purchase
of equipment during the period. The equipment purchased was
primarily computer work stations, a back up power generator,
and Internet hosting equipment.
Cash flows from financing activities included $8,695 for
debt repayment.
Outlook
Subsequent to the close of the fiscal year, we entered into
an SBA-guaranteed bank loan in the amount of $290,000. All
of our physical assets were offered as security for this
loan. The proceeds were used to increase working capital
and to reduce accounts payable that had increased to finance
a move to a new facility. We moved into our present
facilities in October 2000. This new facility presently has
14,500 square feet as compared to 3,000 in the prior
facility. We believe that it has sufficient room to
increase our present staff from 28 to approximately 100 and
that it will be adequate for the foreseeable future.
Our general method of operation calls for cash payments in
advance of performing most web site visibility enhancement
services. As a result, we usually have only minimal
inventories and receivables. This facilitates financing
growth. We expect growth of our web site visibility
enhancement product to result primarily from additions to
our sales force. We plan to increase our sales support
staff from the current level of 28 to approximately 35 by
the end of the current fiscal year. It generally takes
three to six months for newly hired sales personnel to
become productive and to cover the cost of their base wage,
insurance, and related expenses. The rate of sales force
additions may be scaled back if cash flow from operations
and/or external financing are not available to finance the
expansion.
We have in place the necessary computer equipment and
programs to serve the new RTC Hosting and RFQ products.
Sales efforts for these products are being conducted
primarily by David Smith and several other employees. Our
programming staff is continuing to work to improve and
maintain these products. As is the case with our web site
visibility programs, payments for RTC Hosting and RFQ are
required at the time of sale and we expect that there will
be little investment required for inventories or
receivables. However, since our business model calls for a
three month trial period before completion of the sale it
may be a number of months before we generate significant
revenues from these products, even if a large number of
companies sign up for the program.
If we continue to operate at a loss during the current year,
additional debt or equity financing will be required and
there can be no assurance that such financing will be
available.
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
- ------------------------------------------------------------
The financial statements of the Company, together with the
report of auditors, are included in this report after the
signature pages.
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
- -----------------------------------------------------------
The Company's accountant is James Gately, C.P.A. of Florida.
The Company does not presently intend to change accountants.
At no time has there been any disagreements with such
accountants regarding any matter of accounting principles or
practices, financial statement disclosure, or auditing scope
or procedure.
PART III
- --------
Item 10. Directors, Executive Officers, Promoters and
Control Persons: Compliance With Section 16(a) of
the Exchange Act
- ------------------------------------------------------------
The directors and officers of the Company and its
subsidiaries, as of October 31, 2000, 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.
With Company
Name Age Position
- -------------------- -----------------------------
David L. Smith, Jr. 44 Chief Executive Officer,
President and Director
Glenn L. Canady 36 Vice President-Operations,
Director
Edwin E. Foster, Jr. 51 Secretary and Director
Each of our directors will hold office until the next annual
meeting of our stockholders and until his or her successor
is elected and qualified or until his or her earlier
resignation or removal. Each officer serves at the
discretion of our Board of Directors.
David L. Smith, Jr. was born and raised in Durham, North
Carolina. He attended East Carolina University from 1973 to
1976 where he majored in business with a minor in physical
education. He received an athletic scholarship in wrestling
to East Carolina University and left school prior to
obtaining his college degree to train for the 1976 Summer
Olympics. From 1992 through 1995, David was the sole owner
of a company called DJ Distributors, a sole proprietorship
based in Roanoke Rapids, North Carolina. This company was a
direct sales organization involved in reselling vacuum
cleaners. In 1995, DJ Distributors was no longer involved
in direct sales. David used this company to start an
Internet business developing web sites for companies. In
October of 1997, David formed Top 10 Promotions, Inc., a
Virginia corporation to continue the business of DJ
Distributors. Effective May 28, 1998, we acquired all the
shares of Top 10 Promotions, Inc. (which became our wholly
owned subsidiary) and appointed David our President, Chief
Executive Officer and one of our directors.
Glenn L. Canady began working for us as Vice President on
March 1, 1999. In 1986, he received his Bachelor of Science
Degree in Mechanical Engineering from Louisiana Tech
University. In 1987, he received a Masters in Mechanical
Engineering from Georgia Tech University. He started his
professional career in 1988 as an Engineer with General
Dynamics in Fort Worth, Texas. His responsibilities
included system integration and design support for several
secret military aircraft using sophisticated CAD/CAM
systems. He was promoted to Senior Engineer in 1989 during
his work on the computerized mock-up of the A-12 prototype
bomber for the United States Navy. In 1992, Glenn formed
and was the owner of a company called Ultragrafix Unlimited
Inc. based in Arlington, Texas. Ultragrafix developed,
manufactured and marketed a series of prints, software, and
books using computer designed random dot stereograms. In
1996, Ultragrafix was acquired by a company, Global Tech
2000, based in Arlington, Texas. Global Tech 2000 marketed
products and services on the Internet. In 1998, Global Tech
2000 started selling web site promotions for us and quickly
became our number one reseller. Glenn resigned his position
as President of Global Tech 2000 in February 1999.
Edwin E. Foster, Jr. began working for us as Secretary in
June 1999. In 1970, he received a Bachelor of Science
Degree in Biology from Syracuse University. In 1971, he
graduated from the Simmons School of Funeral Service in
Syracuse, New York. For the next 10 years, he worked in the
funeral services industry. In 1980, he started working in a
placement service firm in the Wall Street area of New York
City. Thereafter, he formed a personnel services company
with 3 other shareholders under the name FMD&J, Inc. He
worked for this company for approximately 8 years. In 1990,
he took a position in a pharmaceutical research consulting
firm called NJC Enterprises, Ltd. In 1993, the company
moved to Research Triangle Park in North Carolina. He was
in charge of the entire company relocation including, but
not limited to, office site selection, equipment purchasing,
move and set up, staffing and computer network
establishment. In 1995, he became the Vice President of
Administration and Finance. Ed retired from the company in
1997 and continued his retirement until he assumed his
duties with Roanoke Technology Corp. in June, 1999.
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 of
the Company 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
- -------------------------------------------------
On January 16, 2001, we filed Form 3's for Messrs. Smith,
Canady and Foster. Such Form 3's were filed late. A Form 5
will not be filed for our fiscal year ended October 31, 2000
since all reportable transactions for this fiscal year were
reported on Form 3's filed with the Commission.
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) 2000 $150,000 -0- (1) -0-
President and Director 1999 $120,000 -0- (1) -0-
Glenn Canady 2000 $120,000 -0- -0- -0-
Vice President and
Director 1999 $ 53,077 (2)(3) $1,000 -0-
Edwin Foster, Jr.(4)(5) 2000 $ 72,020 -0- -0- -0-
Secretary and Director 1999 $ 18,000 -0- -0- -0-
Ryan Brown(6) 2000 $ 92,923 -0- -0- -0-
Programer 1999 $ 33,461 -0- -0- -0-
(1)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. In fiscal 1999, David received 750,000 of our
restricted shares due to the fact that we exceeded $200,000
in revenues for the first 3 month period of 1999 and 100,00
of our restricted shares due to the Company surpassing
$1,000,000 in gross revenues for such fiscal year pursuant
to the terms of his employment agreement. Such shares
received by him would normally be valued at the trading
price at the time he received the shares ($1.75) in
accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees." However, this standard considers the
discounting of stock when such stock is restricted; the
company's stock was thinly traded and the number of shares
to be traded on the market (750,000) would greatly devalue
the stock. Therefore, the method used was as follows:
Initial price of $1.75; discounted 10% in lieu of the 2 year
restriction. Based on this, the value is $1,181,250.
In addition, David Smith received 100,000 shares of
restricted common stock. The trading price was $9.00 per
share discounted by 10% for a total value of $180,000.
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.
(2) Glenn's salary was based on $60,000 per year until
June 3, 1999. He commenced employment during fiscal year
1999. Increased to $80,000 per year as of June 4, 1999.
Further increased to $100,000 per year as of August 27,
1999. On June 30, 2000 his salary was adjusted per his
employment agreement to $120,000 as we had revenues of
$2,000,000 over the preceding 12 month period. Glenn also
received sales commissions of $29,027.63 in 1999 and
$9862.50 in 2000. He is no longer eligible to receive sales
commission compensation. He received $1000 in fees in 1999
for writing two articles.
(3) Glenn's employment agreement provides for the option
of purchasing 200,000 shares of common stock at $1.00 per
share as follows: The option shall accrue in equal annual
increments for each 12 months of service over the next 4
years from the agreement dated March 1, 1999. Each annual
increment shall relate to 50,000 shares. All shares are
restricted for a 1 year period from when we issue the shares
to Glenn. Thereafter, the shares can be sold in accordance
with Rule 144 of the 1933 Securities Act.
(4) Ed's salary was based on $52,000 per year for fiscal
year 1999. Effective December 1, 1999, Ed's salary was
increased to $72,020 per year. Effective October 1, 2000,
Ed's salary was increased to $82,160 per year. In January
2000, Ed entered into a Stock Option Agreement with the
Company whereby he was granted options to purchase 100,000
shares of the Company's common stock at an exercise price of
$1.00 each. To date he has not exercised any such options.
(5) The Company made loans to Ed during May and June
2000 totaling $22,932. The loans accrue interest at the
rate of 7.5% per annum and all accrued interest and
principal are payable in full on or before October 31, 2001.
(6) Ryan's employment commenced June 24, 1999. He
worked full time through August 1999 and resumed his
educational studies in September 1999. He is presently
required to work thirty hours per week. His salary is based
on $60,000 per year. Ryan has a stock option agreement
which provides for the option of purchasing 200,000 shares
of common stock at $1.00 per share as follows: The option
shall accrue in equal annual increments for each 12 months
of service over the next 4 years commencing July 1999. Each
annual increment shall relate to 50,000 shares. All shares
are restricted for a 1 year period from when we issue the
shares to Ryan. Thereafter, the shares can be sold in
accordance with Rule 144 of the 1933 Securities Act.
Compensation of Directors
The Directors of our Company 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 February 9, 2001,
information with respect to the beneficial ownership of the
Company's Common Stock by (i) each person known by the
Company to own beneficially 5% or more of such stock, (ii)
each Director of the Company who owns any Common Stock, and
(iii) all Directors and Officers as a group, together with
their percentage of beneficial holdings of the outstanding
shares.
Number of Shares of
Name of Beneficial Owner/ Common Stock % of Beneficial
Identity of Group Beneficially Owned Ownership
- --------------------------------------------------------------------------------
David L. Smith, Jr. 6,853,732(1) 46.14%
Glenn Canady 20,000(1) *%
Edwin E. Foster, Jr 500(2) *%
All executive officers and 6,874,232 46.27%
directors as a group (3 persons)
*Less than 1%.
(1) David acquired his shares as follows: 500,000 on May
28, 1998 in accordance with the acquisition of Top-10
Promotions, Inc. David was the sole shareholder of Top-10;
2,000,000 on October 1, 1998 as compensation for services
rendered; 750,000 on November 1, 1998 as compensation for
services rendered per agreement with us; 2,650,000 on May
11, 1999 based on a purchase of shares from James Lee, the
founder of our Company; 100,000 on September 2, 1999 as
compensation for services rendered per agreement with us;
and 1,500,000 on August 22, 2000 as compensation for
services rendered per David agreeing to sign an amended
employment agreement. Subsequently on June 18, 1999, in a
private transaction, David transferred 15,000 shares to
Glenn at a price of $1.00 per share; on August 5, 1999, in
private transactions, David transferred the following
additional shares: (i) 5,000 shares to Glenn at a price of
$1.00 per share; (ii) 15,000 shares to Mark Canady (Glenn's
brother) and one of our employees at a price of $1.00 per
share; and 11,268 shares to Davin McAteer, one of our
employees at a price of $4.25 per share.
The persons named in the table have sole voting and
investment power with respect to all shares of Common Stock.
Edwin Foster, Jr. purchased his shares on the open market.
The addresses for the above individuals is c/o Roanoke
Technology Corp., 539 Becker Drive, Roanoke Rapids, NC
27870.
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The Company made loans to Ed during May and June 2000
totaling $22,932. The loans accrue interest at the rate of
7.5% per annum and all accrued interest and principal are
payable in full on or before October 31, 2001.
Our legal counsel, Richard I. Anslow represented both
Offshore Software Development Corp. and us in an Asset
Purchase Agreement in March 1999. Offshore and the Company
both signed waivers of such conflict of interest
so that Mr. Anslow could represent both parties. Mr. Anslow
received an additional 22,500 of our shares based on the
Asset Purchase Agreement since he previously held 25,000
shares of Offshore prior to the Asset Purchase Agreement.
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(i) 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
We did not file any reports on Form 8-K for the
fiscal year ended October 31, 2000.
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, Jr.
-----------------------------
David L. Smith, Jr.
President, Chief Executive
Officer and Director
Dated: February 14, 2001
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.
Name Title Date
/s/ David L. Smith, Jr. President, Chief Executive Officer, February 13, 2001
- ----------------------- and Director
/s/ Glenn L. Canady Vice President of Operations, February 13, 2001
- ----------------------- and Director
/s/ Edwin E. Foster, Jr. Secretary and Director February 13, 2001
- ------------------------
ROANOKE TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
OCTOBER 31, 2000
ROANOKE TECHNOLOGY CORP.
TABLE OF CONTENTS
FINANCIAL STATEMENTS Page #
Independent Auditors Report 1
Balance Sheets 2 - 3
As of October 31, 2000 and 1999
Statements of Operations 4
For the Twelve Months Ended
October 31, 2000 and 1999
Statement of Stockholders' Equity 5
As of October 31, 2000 and 1999
Statements of Cash Flow 6
For the Twelve Months Ended
October 31, 2000 and 1999
Notes to the Financial Statements 7-12
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, 2000 and 1999, and
the related statements of operations, capital surplus and
cash flows for the twelve months then ended October 31, 2000
and 1999. 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,
2000 and 1999, 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
Certified Public Accountants
Orlando, Florida
December 15, 1999
ROANOKE TECHNOLOGY CORPORATION
AND SUBSIDIARY
BALANCE SHEETS
As of October 31, 2000 and October 31, 1999
ASSETS
2000 1999
----------- -----------
CURRENT ASSETS
Cash $ 40,994 $ 77,904
Accounts receivable 57,860 0
Less: allowance for doubtful accounts 2,900 0
----------- -----------
Total Current Assets 95,954 77,904
PROPERTY AND EQUIPMENT
Equipment and leasehold improvements 274,749 164,498
Less: accumulated depreciation 65,956 21,490
----------- -----------
Total Property and Equipment 208,793 143,008
OTHER ASSETS
Organization costs 1,000 1,000
Goodwill 19,614 19,614
Software 313,000 313,000
Less: Accumulated amortization 181,386 70,353
----------- ----------
Net intangibles 152,228 263,261
Deposits 8,950 1,500
------------ ---------
Total Other Assets 161,178 264,761
TOTAL ASSETS $ 465,925 $ 485,673
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 235,630 $ 37,415
Current maturity of long-term debt 7,200 6,760
----------- ----------
Total current liabilities 242,830 44,175
LONG TERM LIABILITIES
Long term debt 13,853 22,548
Less: current portion 7,200 6,760
----------- ----------
Total long term liabilities 6,654 15,788
Deferred Revenue 0 44,025
----------- ----------
TOTAL LIABILITIES 249,484 103,988
STOCKHOLDERS' EQUITY
- --------------------
STOCKHOLDERS' EQUITY
Common stock - $.0001 par value;
50,000,000 shares authorized;
12,830,183 issued
and outstanding 1,283 1,133
Additional paid-in capital 4,272,351 3,372,501
Retained earnings (4,057,193) (2,991,949)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 216,441 381,685
----------- ------------
TOTAL LIABILITIES AND EQUITY $ 465,925 $ 485,673
============= =============
ROANOKE TECHNOLOGY CORPORATION
AND SUBSIDIARY
STATEMENTS OF OPERATIONS
For the Twelve Months Ended October 31, 2000 and 1999
2000 1999
---------- -----------
REVENUE
Sales $ 1,999,103 $ 1,144,122
Cost of sales 1,055,268 593,909
---------- -----------
GROSS PROFIT 943,835 550,213
GENERAL & ADMINISTRATIVE EXPENSES 2,001,328 3,152,748
RESEARCH & DEVELOPMENT 115,023 80,915
---------- -----------
INCOME (LOSS) FROM OPERATION (1,172,516) (2,683,450)
OTHER INCOME AND (EXPENSE)
Interest - net (728) (2,954)
Gain on sale of stock 108,000 0
---------- -----------
Total Other 107,272 (2,954)
---------- -----------
NET INCOME (LOSS) $(1,065,244) $(2,686,404)
========== ===========
NET EARNINGS PER SHARE
Basic and Diluted
Net loss per share (.01) (.26)
Basic and Diluted Weighted Average
Number of Common Shares Outstanding 11,580,183 10,330,206
ROANOKE TECHNOLOGY CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
As of October 31, 2000
ADDITIONAL
COMMON STOCK PAID
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------------------------------------------------------------
Issuance for services 1,525,000 $ 153 $ 59,323 $ 0 $ 59,476
Acquisition 500,000 50 19,450 19,500
First offering 800,000 80 19,920 20,000
Second offering 1,000,000 100 49,900 50,000
Third offering 880,000 88 87,912 88,000
Stock compensation 3,175,000 318 123,507 123,825
Net loss for the year (305,545) (305,545)
----------------------------------------------------------------
Balance at October 31, 1998 7,880,000 $ 788 $360,012 $ (305,545)$ 55,256
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 $(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 $3,372,501 $(3,157,343) $ 216,441
===============================================================
ROANOKE TECHNOLOGY CORPORATION
AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
For the Twelve Months ending October 31, 2000 and 1999
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (1,065,244) $(2,686,404)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Loss on impaired asset 0 275,075
Depreciation and amortization 155,500 142,112
Stock issued for services 900,000 2,028,063
(Increase) decrease in employee advance 1,000
(Increase) decrease in accounts receivable (54,960) 0
Increase (decrease) in payables & accrued expenses 198,215 28,900
Increase (decrease) in deposits (7,450) 0
Increase (decrease) in deferred revenue (44,025) 0
---------- -----------
Total adjustments to net income 1,147,280 2,457,150
---------- -----------
Net cash flows from operations 82,036 (229,254)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures on equipment (110,251) (104,140)
----------- -----------
Net cash flows from investing (110,251) (104,140)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 0 407,770
Payments on notes (8,695) (10,267)
----------- ----------
Net cash flows from financing (8,695) 397,503
----------- ----------
CASH RECONCILIATION
Net increase (decrease) in cash (36,910) 64,109
Cash at beginning of year 77,904 13,795
---------- ----------
CASH BALANCE AT OCTOBER 31, 2000 $ 40,994 $ 77,904
=========== ==========
ROANOKE TECHNOLOGY CORPORATION
AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
(See Independent Auditor's Report)
1. Summary of significant accounting policies:
-------------------------------------------
Industry Roanoke Technology Corporation (The Company)
- --------
was incorporated December 11, 1997 as Suffield
Technologies Corp., its original name, under the laws of
the State of Florida. The Company is headquartered in
Roanoke Rapids, North Carolina and does business as Top-10
Promotions, Inc. The Company is engaged in the
design, development, production, and marketing of
technology to provide enhanced internet marketing
capabilities.
Revenue Recognition and Service Warranty Revenues
- ----------------------------------------
resulting from technology consulting services are
recognized as such services are performed and paid. 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.
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 current 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.
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.
3. Accounts Receivable and Customer Deposits:
------------------------------------------
Accounts receivable historically have been immaterial as
The Company's policy is to have the software that it
sells paid for in advance. As of the balance sheet date
there were no deposits paid in advance.
4. Use of Estimates:
-----------------
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that effect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
5. Revenue and Cost Recognition:
-----------------------------
The Company uses the accrual basis of accounting for
financial statement reporting. Revenues are recognized
when 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:
Note payable to a finance company which bears interest at
16.53%. The note is collateralized by equipment and
requires that monthly payments of $197 be made through
the maturity date of June, 2003.
Capital Lease with a finance company which bears an
interest rate of 13.61%. The lease is collateralized by
equipment and requires that monthly payments of $534 be
made through the maturity date of April, 2002.
Aggregate maturities of long term debt over the next
five years are as follows:
For the quarter ending October 31, 2000 For the year ending October 31, 1999
YEAR AMOUNT YEAR AMOUNT
2001 7,200 2000 6,760
2002 4,995 2001 7,803
2003 1,659 2002 5,710
2004 0 2003 2,275
2005 0 2004 0
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 also rents a house for the convenience of
Company employees that are relocating to the area and out
of town business guests. The house also serves as a
satellite office as added security for computer system
continuation in the event that the main office should
encounter problems with their system. The house has
monthly payments of $1,200. The lease term is eighteen
months beginning March 1, 1999 and ending on August 31,
2001.
The Company also leases its phone systems, internet lines
and various equipment . The lease terms range from month
to month leases to leases with a term of sixty months.
All long - term leases include an upgrade clause of which
management intends to upgrade technology when available.
For this reason, The Company considers all of these types
of lease arrangements as operating. Currently the lease
costs are at $33,800 per year and shown as part of cost
of sales.
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 period ending October 1998, the Board of
Directors issued 1,525,000 shares of restricted common
stock to The Company's officer's, and legal counsel in
exchange for services, and issued 500,000 shares of
restricted common stock in the acquisition of Top-10
Promotions, Inc.
In addition to the restricted shares issued, The Company
sold common stock through two separate private offerings
during the period. In the initial offering 800,000
shares were sold each at a price of $0.025. In the
second offering 1,000,000 shares were sold each at a
price of $0.05.
On October 15, 1998, the majority shareholders of The
Company undertook a Regulation D, Rule 504, offering
whereby it sold 2,000,000 shares of common stock, $.0001
par value per share or an aggregate of $200,000. In
addition, each investor in the offering received an
option to purchase, for a twelve month period commencing
on the date of this offering, an additional one share of
The Company at $1.00 per share for each eight (8) shares
purchased in the original offering (or $250,000). In
addition, each investor received an option to purchase
for an eighteen month period commencing on the date of
this offering an additional one (1) share of The Company
for each 8.88 shares previously purchased at $2.00 per
share or an aggregate of 225,000 shares (or $450,000).
The Company also approved of the investment by Arthur
Harrison & Associates in the offering provided that such
investment in The Company was in lieu of monies owed to
Arthur Harrison & Associates by The Company for two (2)
promissory notes dated September 22, 1998 and October 10,
1998. Further more, Arthur Harrison & Associates agreed
to waive its rights to any interest on promissory notes.
Stock Incentive Plans
On March 1, 1999, The Company entered into a stock option
agreement with the Director of Operation, Glenn Canady,
as noted in footnote number eleven. The Company applies
Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock
options.
Pro forma information regarding net income and earnings
per share is required by SFAS 123, and has been
determined as if The Company had accounted for its
employee stock options under the fair value method of
SFAS 123. As of the balance sheet date, there is no
material effect on earnings and earnings per share.
10. Acquisitions:
-------------
On March 30, 1999 The Company acquired 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 Technologies Corporation in fiscal year 1998
or the first two quarters of fiscal 1999. Such borrowings
shall be secured by his restricted stock received in the
acquisition at a 75% discount value to market. Repayment
shall be for a two-year period at a 5% annual interest rate.
The Company also entered into an employment contract with the
former owner of Top-10 Promotions.
11. Employment Contract and Incentive Commitments:
-----------------------------------------------
The Company has entered into a two year employment
contract with the former owner of Top-10 Promotions.
The contract provides for: salary not to exceed $10,000
per month (with not more than a 3% salary increase
provided The Company is profitable by at least twice the
amount of the salary increase); quarterly bonus of 30% of
the net income before income tax of The Company; standard
non-competition clause; an option to renew the employment
agreement for an additional two year term (provided he is
not in default under the employment agreement); and the
following management incentives: for fiscal year ending
September 30, 1999 (a) 100,000 "restricted" shares if the
surviving corporation has $2 million in gross revenues;
(b) 100,000 "restricted" shares if The Company has
$400,000 in after tax earnings. The shares have been issued
at a
market value of $810,000.
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.
The Company has entered into an employment agreement with
The Company's Director of Operations on March 1, 1999.
The agreement calls for a contract period of four years
upon which The Director will be paid an annual salary of
$60,000 with standard company commissions and bonuses.
The salary will adjust to $80,000 at June 4th 1999. In
addition the director's salary shall increase to $100,000
at the time The Company's gross revenues exceed
$1,000,000 during any twelve month period and $120,000
once The Company's gross revenues exceed $2,000,000
during any twelve month period. Upon the director's
salary increasing to $80,000 or above, the director shall
no longer be entitled to commissions and bonuses.
In addition to the above mentioned, the director will be
granted stock options in The Company at an exercise price
of $1.00 per share of common stock in the amount of
50,000 shares per year, after each year's service, for a
four year period. Such shares will be restricted for a
two year period from the date of issuance.
The Company will account for these options during the
time that they are earned in accordance with APB Opinion
No. 25. At the present time, the fair value of these
options are not in excess of the exercise price and not
exercisable; therefore there is no compensation expense
to record. A determination of the fair value of these
options may be extended to the end of the current fiscal
year. Other conditions are included in this employment
agreement, but remain immaterial to the financial
statements.
12. Payroll Taxes Payable and Deferred Tax Assets and
Liabilities:
--------------------------------------------------
The Company accrues payroll and income taxes. The
Company, currently a C-Corporation, accounts for income
taxes in accordance with Statements on Financial
Accounting Standards 109. As of October 31, 2000, The
Company had a deferred tax asset in the amount of
approximately $440,000 that is derived from a net operating
tax loss carryforward associated with stock compensation.
The deferred tax assets will expire during the years ending
October 31, 2018 and 2019 in the amounts of $40,000 and
$400,000 respectively. It is uncertain as to when this
compensation will be deductible as it can only be
deducted for tax purposes when the officers sell the
respective shares.
13. Required Cash Flow Disclosure for Interest and Taxes
Paid:
----------------------------------------------------
The Company paid interest in the amount of $2,882 during the
twelve months ended October 31, 2000 and $2,954 during
the twelve months ending October 31, 1999. The Company had
no income tax payments due and did not pay any income tax
amounts during the period. The Company issued 1,500,000
shares of common stock as compensation to the president.
This transaction represents a non-cash charge of $900,000.
Non-cash transactions include stock based employee
compensation as listed in the financial statements, the
acquisition of the assets of Offshore Software
Development Ltd. for stock in The Company and the
retirement of note payables of the initial funding of
The Company upon acquisition of Top-10 as a contribution
to additional paid in capital.
The Company acquired assets from "Offshore" by the issuance
of stock for a value of $630,000. An 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
flows expected from intangible assets. Amortization expenses
will drop by $8,583 per month. This impairment loss was a
non-cash loss.
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. The following
is management's disclosure regarding litigation, claims and
assessments:
Craig (Plaintiff) v. Top-10 Promotions, Inc., Glenn Canady
and Kelly Allen (collectively, the Defendants); Sonoma County
Superior (Limited Civil), California, Case No. 163579 filed
on June 21, 2000. Plaintiff, Gary Craig, operates a web site
which dispenses information about a therapeutic technique and
offers instructional material for a fee. Plaintiff purchased
our product known as "Premium Service" in order to secure at
least 10 placements for his web site URL within the top 20
positions somewhere across the Internet's top search engines.
The product performed as expected. However, in working with
his web site, plaintiff caused his site specific search
engine to become unusable. Despite this fact, Plaintiff
filed suit claiming that it was not his own actions, but
rather defendants "Premium Service" which caused his site to
become unusable. Plaintiff seeks $16,295 plus punitive
damages, interest, attorneys fees and costs. Although we are
disclosing this lawsuit, we do not deem it to be material.
Oyster Software, Inc. (Plaintiff) v. Roanoke Technology Corp.
(Defendant and Cross-Defendant), Forms Processing, Inc.
(Defendant) and Barry Matz (Defendant); United States
District Court, Northern District of California, Case No.
C000724 filed on March 1, 2000. Plaintiff, Oyster Software,
Inc. claims trademark and copyright infringement,
misappropriation and unfair competition based on the
placement of its trademarks and copyrighted material into
HTML web pages utilized by defendant Forms Processing, Inc.
(FPI). FPI claims that it had no knowledge of this fact and
that the web pages were created for it by Roanoke Technology
Corp. as part of the purchase of the product known as
"Premium Service." We deny placing the allegedly infringing
material into FPI's web pages. Plaintiff's complaint seeks
declaratory relief, an injunction, an accounting, damages in
excess of $1,600,000 and an award of attorneys fees and
costs. Through its cross-complaint, FPI seeks declaratory
relief and indemnity. We are presently defending such
lawsuit
Peter Barry (Plaintiff) v. Top-10 Promotions,
Inc.(Defendant);Ramsey County District Court, Minnesota in
November 2000. Plaintiff, Peter Barry, claims that this
action arises under the federal statute prohibiting
unsolicited facsimile transmissions and seeks damages,
injunctive relief and certification as a class action. We
have denied liability in this matter and believe that we have
a good faith defense against this action and against
certification of a class action. This suit was only recently
instituted and no discovery has occurred at this point. This
action was commenced after October 31, 2000 but arose from
events occurring prior to October 31, 2000.
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 assets, liabilities or
owners
16. Subsequent event:
-----------------
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, is 11.50% per year. This initial rate is the
prime rate on the date The U.S. Small Business Administration
received the loan application, plus two percent. The Company
must pay principal and interest payments of $5,042.08 every
month, beginning two months from the date of the note.
Payments will be made on the first calendar day in the months
that they are due. The note has 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 loan
agreement. The following is a schedule of the intended use
of funds received:
Leasehold improvements $120,000
Fixtures 109,000
Equipment 47,000
Working capital 14,000
---------
Total $ 290,000
17. Reclassification:
-----------------
The Company's management has decided to reclassify certain
items in the Statements of Operations. The Company has
reclassified certain amounts as research and development
costs. These costs have been shown separately from general
and administrative costs. The costs are generally comprised
of software development costs. General and administrative
costs have also been reclassified as a one line item in the
Statement of Operations.