Item 1. Description of Business
Business Development. We were incorporated in Florida on December 11, 1997 under the name Suffield Technologies Corp. We did not have any significant revenues until we purchased all of the issued and outstanding shares of Top 10 Promotions, Inc., a Virginia corporation with its principal place of business in North Carolina, in accordance with a Stock Purchase Agreement and Share Exchange dated and effective May 28, 1998. Top 10 was incorporated in Virginia on November 18, 1997. We maintain our principal offices at 539 Becker Drive, Roanoke Rapids, North Carolina, 27870 and our telephone number is (252) 537- 9222.
We have not been involved in any bankruptcy, receivership or similar proceeding. We have not been involved in any material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets not in the ordinary course of business.
Business of Issuer. Roanoke Technology Corp. is headquartered in Roanoke Rapids, North Carolina. We are a developer and marketer of a service designed to maximize and promote Internet web site presence. To put it simply, our primary business function is to make our customers' Internet web sites easy to find. Most persons searching the Web for a product or service use a search engine. Web sites often use television and print media advertising in an attempt to direct traffic to their web sites, but we utilize our own proprietary software products and knowledge regarding search engine indexing algorithms to alter our customer's web sites in ways which make the sites more appealing to the top search engines. If our customers wish to generate business from the Internet, it is important that their Web sites appear in the top 10 or 20 positions of targeted search engine indices. Basically, that is what we do. In addition, we utilize a suite of custom computer programs that allow our users to analyze and track their Web Sites "visibility". Our proprietary software analyzes high ranked sites on the targeted search engines to determine the most important key words, phrases, and other design characteristics of those sites. Our customers' web sites are then changed to reflect the preferences of those search engines and thus increase the probability that their web site will appear in the top 10 or 20 sites listed by the search engine when those search characteristics are used. Since most Web surfers ignore search results beyond the first hundred listed sites, a higher ranking almost always translates to higher visitor hits for our customers. This results in greater exposure for our customers, improved results for their web presence, and increased customer reliance on our services.
The sweeping transition of the Internet from being primarily an information and entertainment platform to becoming a medium for e-commerce is well under way. Web sites are no longer perceived just for informational content or to simply establish Internet presence. In order to fully capitalize on the opportunity that the Internet represents, today's companies require implementation of a proven Internet promotional strategy to maintain traffic and develop sales. In order for companies to fully realize the potential of the Internet, companies must effectively market their web sites beyond standard print and media advertising.
We have a history of significant losses. We had a loss of $305,545 from December 11, 1997 (inception) through October 31, 1998; $2,686,404 for the year ended October 31, 1999; $1,065,244 for the year ended October 31, 2000, $1,879,379 for the year ended October 31, 2001; $1,550,334 for the year ended October 31, 2002, and _____________ for the year ended October 31, 2003.
FORMATION
On December 11, 1997, we were formed in Florida as a C corporation under the name Suffield Technologies Corp. We did not have any significant revenues until we purchased all of the issued and outstanding shares of Top 10 Promotions, Inc. a Virginia corporation with its principal place of business in North Carolina, in accordance with a Stock Purchase Agreement and Share Exchange dated and effective May 28, 1998. Top 10 was incorporated in Virginia on November 18, 1997.
Since the closing of the share exchange, the operations of Top 10 has represented 100% of our revenues to date. Based on the share exchange, we undertook the following: (i) on June 11, 1998, we filed an amendment to our incorporation document in Florida changing our name to Roanoke Technology Corp.; (ii) on July 20, 1998, we were issued a Certificate of Authority to do business in North Carolina; (iii) on July 22, 1998, the State of Virginia issued a Certificate of Merger whereby Top 10 merged into us; and (iv) on September 4, 1998, we filed a Certificate of Assumed Name in Halifax County, North Carolina to do business under the name Top 10 Promotions.
SERVICES
Our services are designed to improve the visibility of our customer's web sites on the Internet.
Sales of the "Premium Plan" and its derivatives accounted for 82.6% of revenues for the fiscal year 2001 and approximately 80% of revenues for 2002. This plan is sold for $2,195. This plan was originally sold for $1,295. It was increased to $1,495 effective May 4, 2000, $1,649 effective January 1, 2002, and $2,195 effective August 7, 2002. Its goal is not to get the web site listed by the search engines, but to increase the probability that the site will be one of the first 20 sites listed by the search engines when appropriate key words are used.
Since many key word searches can return hundreds, if not thousands, of matches, it is important that those attempting to generate business from their Internet listing assure that their site is listed in the first one or two pages returned by the search engine.
When a customer purchases the "Premium Plan" we begin the following procedures:
- - Identify appropriate key words or terms for the customer's web site. The Premium Plan allows for 6 terms.
- - Identify the unique characteristics and patterns associated with each search engine's robot and indexing practices.
- - Create a customer web page for each term. Each contract will require a creation of approximately 6 to 24 pages.
- - The created web pages are then moved to the customer's web site or server.
- - Create a "referring domain" and web site for the customer that is hosted by RTC Hosting, a subsidiary of Roanoke Technology Corporation. This referring domain will attract many of the search engine robots within two weeks of its creation. The robots will follow links on the referring domain site to the customer's original site and to the new content pages that were created and placed on their site as part of our process.
- - We verify the placement of the web pages and create a sitemap for the clients site. We submit the new content pages and the referring domain site pages to the search engines that do not automatically crawl the site.
- - We also utilize pay for inclusion services offered by the search engine companies. For a fee, they will prioritize our customers' web sites in their editorial queue. This allows us to obtain rankings much faster than if we waited for their standard review of the sites.
- - Approximately 4 weeks after we have created the referring domain site and have completed the applicable submissions, preliminary results will be noticed. In most cases 60 days after the pages are placed on the server the customer will be able to check the results at the customer's section of our web.
As part of the Premium Plan, we will continue to monitor and furnish Visibility Reports for each customer for up to 6 months. The reports are compiled every two weeks and are made available to our customers via their own private portal into our customer service application.
We commit to the following for our Premium Plan:
- - We will secure for our customer no less than 10 placements within the top 20 positions somewhere across the top search engines. The engines we target consist of the following: Yahoo, Teoma, Excite, Infoseek, HotBot, Lycos, iWon, NBCi, AOL Netfind, LookSmart, AltaVista, Google, Northern Light, Magellan, All The Web, Open Directory Project, Netscape, Web Crawler, Direct Hit, MSN, WiseNut, SplatSearch, Overture, AskJeeves and PC Beacon.
- - The listings may appear on any single search engine, all the search engines or spread across any number of the search engines listed above.
- - The placements will consist of existing pages on our customer's sites as well as the new pages we make for our customers.
- - Over the last 12 months our customers have averaged more than 50 placements in the top 20 positions across the top search engines. However, we do not guarantee this.
- - We do not guarantee traffic to a customer's web site. That is a function of demand for the product or service. The customer's commitment is only for placements of their URL(s) in the search engine indices.
- - In the event of our failure to meet our commitment within 90 days from the date the last submissions were made to the search engines, Top-10 Promotions will repeat the service at no charge.
We also offer silver and gold plans. The same processes are followed except we promote 12 or 24 keywords respectively. We also guarantee 20 new placements in the search engines for the silver plan and 30 placements for the gold plan.
Our sales efforts rely primarily upon our proprietary software programs to generate sales leads that are then followed up with e-mail and telemarketing efforts. Due to the increasing number of web sites indexed by the key search engines and changes in the way these sites are indexed by the search engines, the visibility of the web sites that we have enhanced tends to decline over time. We re-solicit prior customers periodically and offer them the opportunity to renew their web site visibility. The renewal process is the same as described above and with the same guarantee. We discount renewals by 25% of the original promotion price.
In July 2002, we entered into an agreement with Overture, the leader in pay-for-performance search on the Internet. We are now an Overture Ambassador, which puts us in a position to manage our customers' advertising campaigns with Overture. Benefits of being an Overture Ambassador include: ability to manage multiple customer accounts from one central portal, a dedicated account representative and prioritization in Overture's editorial queue. We charge our customers a monthly fee to manage their campaigns. Fees are based on the number of keywords we manage and the number of times we monitor their bids during a 24-hour period. Monthly fees range from $80 to $580. Currently we have two customers utilizing this service.
RTCHOSTING CORP
RTCHosting Corp., or RTCH, is our wholly owned subsidiary that was formed in June 2000. We currently offer two forms of hosting for our customers. The first form gives the client the option of using a template driven web-site creation process or using standard ftp uploads of html pages. This package is $19.99 per month. The second form of hosting is a template driven system with e-commerce capabilities built in. This hosting package is $49.95 per month. Both packages allow for add-on services and packages to suit the customers needs.
TRADEMARKS
"Top 10 and Design" and "PC Beacon" are both registered trademarks with the United States Patent and Trademark Office. A trademark application for "RTCHosting" has been filed with the United States Patent and Trademark Office as well. The opposition period is completed and a notice of allowance has been issued.
PERSONNEL
We currently employ 14 full time employees. They fall into 4 different categories: 1 management, 5 sales, and 9 support personnel. Sales personnel are compensated on a base pay plus commission basis.
COMPETITION
There are numerous Internet promotion companies that promote web sites. They all use one of three distinctly different methodologies for promoting their customer's web sites. The vast majority simply submit the URL of the customer's "Home Page" to hundreds of search engines. This is the least effective way because this method has the following built-in problems: (a) most of the search engines are search engines in name only, and are really directories. The user must know the name of the company to have any degree of success; (b) over 82% of the search engine traffic is driven by the most popular search engines. This renders the vast majority of the others very ineffective; (c) this method can not work successfully because it is almost impossible to make a web page appeal to more than 1 or 2 search engines. Each search engine employs different indexing practices. To date, the only successful method of obtaining consistent rankings in the search engines is to make pages for each "keyword phrase" for each engine.
The second method of promoting a site in the search engines is to purchase positions within the indices or to purchase advertising space on the site in the form of banner advertisements. The cost of this method is extremely expensive and not practical for most small business owners.
The third way is to prepare pages for each "keyword phrase" for each search engine. We utilize this method. We have no knowledge of any other company that has the ability to effectively track what characteristics appeal to the major search engines and to make pages based on those characteristics.
The following are the only web sites that we have found that can be deemed to compete with us: WebPosition Gold; SubmitIt; Did-it.com.:
WebPosition Gold states that for $349 it will provide the following services: generate HTML pages designed to rank near the top of the search results; analyze your existing Web pages and give advice on how to improve them; provide a simple, built-in HTML editor for fast and easy changes; assist in uploading your new and changed pages; automatically submit your pages to the major search engines; report your position on each search engine for each keyword you are targeting; and track the number of visitors to your site, where they came from and what keywords they used to find you.
SubmitIt States that for $49 annually it will provide the following: analyze 1 web address; submit 1 web address to the top 400 search engines; send automatic updates of submission status and ranking reports.
Did-it.com states that for $399 plus $.29 per click- through it will boost site rankings for the major search engines using up to 100 keywords or particular search phrases chosen by the customer for Alta Vista, AOL Search, Google, GoTo, Excite, HotBot, Infoseek, iWon, Yahoo Web, Lycos, MSN.com, SNAP and Webcrawler. It guarantees that the customer will receive additional search engine traffic exclusively due to its efforts as a result of increased search engine position for a link that leads to your site.
The market for a worldwide on-line commerce web site is relatively new, quickly evolving and subject to rapid change. There are few substantial barriers to entry, and we expect to have additional competition from existing competitors and new entrants in the future. It is our belief, however, that we represent the leading edge of the industry.
GENERAL BUSINESS CONDITIONS
There is no apparent seasonality in our business but weekly or monthly sales volume can be impacted by holidays and popular vacation periods which impair the ability of our telemarketers to reach potential customers. Our business is not dependent upon any single customer or type of business. Since we have no subcontractors, we are not dependent upon an outside sales force. All work is performed in house. This includes the creation and development of our software.
CUSTOMERS
Our potential market or customer base consists of every business-oriented web site in the world. Our largest single customer accounts for less than one percent of our total revenues and no particular industry accounts for more than two percent of our revenues.
The following is a partial list of what types of businesses a few of our customers are involved with:
_ Real Estate _ Insurance _ Telephone Equipment _ Auto Supplies _ Plastic Surgeon _ Print Media _ Financial Advisory _ Pet Supplies _ Police Supplies _ e-commerce _ Pump Sprayers _ Farm Equipment _ Printing Supplies _ Recycling _ Clothing _ Autoclave Equipment _ Industrial Equipment Supplier _ Material Manufacturers _ Material Brokers _ Business Consultants _ Time Management Consultants _ Advertising Agency _ Personnel Placement Agency _ Pilot Supplies _ Medical Supplies _ Pool Supplies _ Golf Equipment _ Travel Agency _ Recreation Equipment
MATERIAL PROGRAMMING COSTS
We incur programming costs to maintain and improve the computer programs used internally in the conduct of our business. Most of this work has been undertaken by salaried personnel[need to update].
Material programming costs are:
Year Ending Year Ending Year Ending Oct. 31, 2003 October 31, 2001 Oct. 31, 2001 ------------- ---------------- ------------- Total $ $323,680 $255,274
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are considered a continual process and are expensed when incurred. When we can associate specific costs to a computer software product that has technological feasibility and research and development activities have been completed, we will capitalize those costs as an asset.
Item 2.
Item 2. Description of Property
On June 12, 2001, we entered into a seven year lease with an option to purchase 1.2 acres of land located at 539 Becker Drive, Roanoke Rapids, North Carolina. In addition, we have an option to rent the premises for an additional seven years. The two story building located on the property is 100 ft. by 100 ft. and was the former Roanoke Athletic Club. It was modified to meet our immediate needs and we took possession on October 1, 2000. A section of the building measuring 50 ft. by 100 ft. has been carpeted and tiled and is primarily used by local civic organizations for meetings and activities. This section will be modified into office spaces as needed by us with expansion. The other section of the building comprises roughly 10,000 square feet of office space. The space is divided into 46 working cubicles and four private offices. This section also has a reception area, kitchen and conference room. We have an emergency generator to power us during any power outage.
Item 3.
Item 3. Legal Proceedings
Sprint Communications Company Limited Partnership vs. Roanoke Technology Corp., was filed in the State of North Carolina, County of Halifax Superior Court Division. On February 20, 2003 a complaint was filed which that we are indebted to the plaintiff for a total of $179,150.16 and costs of the action brought forward. We have filed a counter-claim in response to this action. Our representation has not determined the likeliness that the plaintiff will be successful with the complaint. Our management asserts that the complaint will not have a material adverse affect on our results of operations, financial position or liquidity.
Gordon & Rees, LLP v. Roanoke Technology-Superior Court of California, County of San Francisco, San Francisco Judicial District Civil Division: Case No: CGC-03-423362. Gordon & Rees, LLP a law firm located in San Francisco, California, claims that we owe them $106,719.64 for legal services rendered. They claim we were served on September 12, 2003. we have not filed a responsive pleading in this matter and the Plaintiff is attempting to perfect a default judgment in this matter.
AJW Offshore, Ltd, AJW Qualified Partners, LLC, New Millenium Capital Partners II and AJW Partners, LLC, the holders of our convertible debentures, have threatened to commence a lawsuit against us for failure to file the necessary documents to have our SB-2 Registration Statement declared effective by the SEC. The purpose of the registration statement is to register additional shares of our common stock due the holders upon conversion of the conversion of the convertible debentures. To date no action has been commenced.
We are not currently aware of any other pending, past or present litigation that would be considered to have a material effect on us. There are no known bankruptcy or receivership issues outstanding and has no known securities law violations. Additionally, we have no known legal proceedings in which certain corporate insiders or affiliates of the issuer are in a position that is adverse to the issuer.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
On August 22, 2003 a majority of the shareholders voted to amend the articles of to increase our authorized shares of Common Stock from 150,000,000 shares to 1,000,000,000 shares.
PART II
Item 5.
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters
On February 13, 2004, based on information received from brokers and others in fiduciary capacities, we estimate that the total number of shareholders of our common stock exceeds 500. Our common stock is available for trading through electronic trading services via the OTC Bulletin Board.
The following table sets forth, for the periods indicated, the range of high and low closing bid prices for our common stock through October 31, 2003 and as available through electronic trading services subsequent to such date.
Common Stock Bid
Fiscal Quarter High Low ---- --- January 31, 2001 $ 0.45 $ 0.15 April 30, 2001 $ 0.15 $ 0.05 July 31, 2001 $ 0.10 $ 0.02 October 31, 2001 $ 0.02 $ 0.01
January 31, 2002 $ 0.17 $ 0.01 April 30, 2002 $ 0.19 $ 0.05 July 31, 2002 $ 0.15 $ 0.03 October 31, 2002 $ 0.04 $ 0.01
January 31, 2003 $ 0.07 $ 0.01 April 30, 2003 $ 0.01 $0.002 July 31, 2003 $ 0.01 $0.002 October 31, 2003 $ 0.01 $0.002
Dividends
We currently intend to retain future earnings, if any to support our growth. Any payment of cash dividends in the future will be dependent upon: the amount of funds legally available therefore; our earnings; financial condition; capital requirements; and other factors which our Board of Directors deems relevant.
Item 6.
Item 6. Selected Financial Data
Twelve Months Twelve Months Ended October Ended October 31, 2003 31, 2002 STATEMENT OF OPERATIONS DATA:
Total revenues $ 1,715,387 Operating expenses 1,040,707 Gross profit from operations 674,680 General and administrative 1,831,183 expenses Income (loss) from operations 1,480,183 Other income (expense) (70,151) Net Loss $(1,550,334)
OTHER DATA:
EBITDA (1) $(1,362,675) Net cash provided (used) by (447,540) operating activities Net cash provided (used) by (35,408) investing activities Net cash provided (used) in 501,500 financing activities Net book value per share (.02) Basic earnings (loss) per share (.04)
BALANCE SHEET DATA:
Cash and cash equivalents $18,587 Total assets $409,275 Current liabilities $1,077,349 Total liabilities $1,736,008 Stockholders' equity $(1,326,733) Total liability and equity $409,275
Please note that EBITDA is provided for analysis purposes. One may review this calculation to determine the earnings of the Company as calculated before interest, depreciation and amortization costs have been deducted. EBITDA as presented is not prepared in accordance with generally accepted accounting principles and may not be comparable to similarly titled measures reported by other companies.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Fiscal 2003 Compared with Fiscal 2002
In fiscal 2003 sales decreased ____% from the previous year, from $1,715,387 to $____________. Our reduction in staff and overhead is the primary reason for this decrease, but we feel that the decrease in expenditures offset the reduction in sales.
Cost of sales decreased ___% to $___________, or ___% of sales, from $1,040,707, or 61% of sales. The decrease was due to the aggressive cost cutting campaign we instituted during the course of the fiscal year.
General and Administration costs were at $__________ for fiscal 2003 and $1,831,183 for fiscal 2001, a decrease of ___%. The decrease was due to cutting unnecessary expenditures, reduction in our staff to a core group of individuals, and renegotiation of contracts with our vendors.
The Company decreased its research and development of new services during the year ended October 31, 2003. These costs decreased ___% from $323,680 to $_______.
Interest expense for the Company increased ___%, from $70,151 to $______, for the year due to the interest with regard to the issuance of convertible debenture bonds and additional finance costs with its Small Business Administration loan.
The net loss of the Company had an ___% decrease as compared to the prior year, or $______ for fiscal 2003 and $(1,550,334) for fiscal 2002.
LIQUIDITY AND CAPITAL RESOURCES
Selected Financial Data
Cash flow from operating activities was $(________) as compared to a deficit of $(447,540) in the preceding year.
Outlook
During the past year, much attention has been placed on reducing expenses and increasing revenues. We eliminated one senior management position, eliminated 14 sales-support positions that represents a 48% reduction in force, and we reduced our R&D staff by three programmers. It is our opinion that we have trimmed expenses to an acceptable level without adversely affecting our ability to operate. We continue to monitor our expenses, however, and we will diligently scrutinize all expenditures.
Top-10 Promotions sales were down over last year, however, our reduced expenses more than offset our this decline. Our sales staff has been cut to core personnel, which has lowered the total number of new clients but dramatically reduced our cost of generating the sales. In the coming year we are planning on expanding our sales force with quality personnel. This will be made possible by our relocation to our new facility in Rocky Mount, NC. The Rocky Mount area has a substantially larger employee pool to draw from with more qualified applicants than our current location. We expect to see Top-10 revenues reach $1.6 million to $1.8 million this year.
We have added other revenue sources through our affiliate programs with Rent.com and Google as well as our expanded B2B service offerings that include expanded hosting, website design and optimization services.
We have also signed an inducement agreement with Carolinas Gateway Partnership. The purpose of this partnership is to add incentive for RTC to relocate its Headquarters operations in the Nash County, NC area. CGP has offered a cash inducement to RTC once the attainment of target employment goals are met. These funds are to assist in the leasing, improvement, expansion, upfitting and equipping of RTC Headquarter facilities. The cash incentives offered in this partnership will help offset the cost of the companies headquarters relocation and are indicative of the willingness of the Nash County Community to work with our company.
Our consultant, Graceleyne Financial Inc., is in the process of acquiring a $12 million corporate bond sale for RTC. Upon completion of the bond issuance, RTC plans to use a portion of the money to eliminate several debts incurred by the company, initiate a buyback of RTC stock, and increase R&D for upcoming projects substantially over the coming years.
We estimate our expenses to be in the neighborhood of $__________. We are expecting to see revenue reach $1.8 million. If our revenue projections remain accurate, Roanoke Technology Corporation will post its first profit since going public.
Item 7A.
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.
Item 8. Financial Statements and Supplementary Data
Our financial statements, together with the report of auditors, are included in this report after the signature pages.
FINANCIAL STATEMENTS
For the information required by this Item, refer to the Index to Financial Statements appearing on page of the registration statement.
Item 9.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Our accountant is Gately & Associates, LLC of Florida. We do not presently intend to change accountants. At no time has there been any disagreements with such accountant regarding any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
Item 9A.
Item 9A. Controls and Procedures
As required by Rule 13a-14 under the Exchange Act, within 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer. Based upon that evaluation, the Company's Chief Executive Officer concluded that the Company's controls and procedures are effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out this evaluation.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer as appropriate, to allow timely decisions regarding disclosures.
The Company has confidence in its internal controls and procedures and has expanded its efforts to develop and improve its controls. Nevertheless, the Company's management, including the Chief Executive Officer, does not expect that the Company's disclosure procedures and controls, or its internal controls, will necessarily prevent all error or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect the fact that the Company is subject to resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all internal control issues or instances of fraud, if any, within the Company be detected.
PART III
Item 10.
Item 10. Directors, Executive Officers, Promoters and Control Persons: Compliance With Section 16(a) of the Exchange Act
Our directors and officers, as of January 28, 2004, are set forth below. The directors hold office for their respective term and until their successors are duly elected and qualified. Vacancies in the existing Board are filled by a majority vote of the remaining directors. The officers serve at the will of the Board of Directors.
Name Age With Company - ---- --- Position
David L. Smith, Jr.(1) 47 President, Chief Financial Officer Chief Executive Officer, and Director
(1) David L. Smith, Jr. was appointed as our President on January 29, 2003
Our sole director will hold office until the next annual meeting of our stockholders and until his successor is elected and qualified or until his earlier resignation or removal. Each officer serves at the discretion of our Board of Directors.
David L. Smith, Jr., RTC Founder, President, CFO, CEO and Director
David L. Smith, Jr. was born and raised in Durham, North Carolina. In 1973 he received an athletic scholarship in wrestling to East Carolina University where he majored in business with a minor in physical education. From 1992 through 1995, David was the owner of DJ Distributors, a sole proprietorship based in Roanoke Rapids, North Carolina. The company was a direct sales organization involved in reselling vacuum cleaners. In 1995, DJ Distributors was no longer involved in direct sales and David used the company to start an Internet business to develop web sites for businesses. In October 1997, David formed Top 10 Promotions, Inc., a North Carolina corporation to continue the business of DJ Distributors. On May 28, 1998, Roanoke Technology Corporation acquired all the shares of Top-10 Promotions, which became a wholly owned subsidiary and David was appointed President, Chief Executive Officer and one of the directors. Along with customary Chief Executive responsibilities, David also is responsible for RTC's sales effort.
COMMITTEES OF THE BOARD
We presently do not have any committees.
All officers and directors listed above will remain in office until the next annual meeting of our stockholders, and until their successors have been duly elected and qualified. There are no agreements with respect to the election of Directors. We have not compensated our Directors for service on our Board of Directors, any committee thereof, or reimbursed for expenses incurred for attendance at meetings of our Board of Directors and/or any committee of our Board of Directors. Officers are appointed annually by our Board of Directors and each Executive Officer serves at the discretion of our Board of Directors. We do not have any standing committees. Our Board of Directors may in the future determine to pay Directors' fees and reimburse Directors for expenses related to their activities.
None of our Officers and/or Directors have filed any bankruptcy petition, been convicted of or been the subject of any criminal proceedings or the subject of any order, judgment or decree involving the violation of any state or federal securities laws within the past five (5) years.
Certain Legal Proceedings
No director, nominee for director, or executive officer has appeared as a party in any legal proceeding material to an evaluation of his ability or integrity during the past five years.
Compliance with Section 16(a) of the Exchange Act
We have not filed Form 5's for our fiscal year ending October 31, 2003.
Item 11.
Item 11. Executive Compensation
The following table sets forth the annual and long-term compensation for services in all capabilities to the Company.
(1) In October 2003, David received 270,000 shares pursuant to his amended employment agreement with us. On April 9, 2003 we issued a total of 1,313,268 shares to David L. Smith, Jr. based upon his amended employment agreement for bonuses owed for the years ended December 31, 2000, December 31, 2001 and December 31, 2002. The shares were issued in the following manner based on one (1%) percent of the issued and outstanding shares at the end of each of years set forth above: 126,687 shares for December 31, 2000, 364,381 shares for December 31, 2001 and 822,020 shares for December 31, 2002.In fiscal 2000, David received 1,500,000 of our restricted common shares per his employment agreement. The shares were valued at $.60 per shares for a total of $900,000. Since the beginning of fiscal 2000, David has received 1,500,000 of our restricted shares pursuant to his execution of a new 3 year employment agreement with us in August 2000. Such shares received by him would normally be valued at the trading price at the time he received the shares ($0.25) in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." However, this standard considers the discounting of stock when such stock is restricted; our stock was thinly traded and the number of shares to be traded on the market (1,500,000) would greatly devalue the stock. Therefore, the method used was as follows: Initial price of $0.25; discounted 10% in lieu of the restriction. Based on this, the value is $337,500.
Compensation of Directors
Our Directors do not receive compensation for their services as directors but may be reimbursed for their reasonable expenses for attending Board meetings.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of January 26, 2004, information with respect to the beneficial ownership of our common stock by (i) each person known by us to own beneficially 5% or more of such stock, (ii) each director who owns any of our common stock, and (iii) all directors and officers as a group, together with their percentage of beneficial holdings of the outstanding shares.
The persons named in the table have sole voting and investment power with respect to all shares of common stock.
Item 13.
Item 13. Certain Relationships and Related Transactions.
None.
Item 14.
Item 14. Principal Accounting Fees and Services
Audit Fees
For the Company's fiscal year ended October 31, 2003, we were billed approximately $1000.00 and $0.00 for professional services rendered for the audit of our financial statements, respectively. We also were billed approximately $0.00 and $0.00 for the review of financial statements included in our periodic and other reports filed with the Securities and Exchange Commission for our year ended December 31, 2002, respectively.
Tax Fees
For the Company's fiscal year ended October 31, 2003, we were billed approximately $0.00 and $0.00, respectively, for professional services rendered for tax compliance, tax advice, and tax planning.
All Other Fees
The Company did not incur any other fees related to services rendered by our principal accountant for the fiscal year ended October 31, 2003.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PART IV
Item 14. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial statements; see index to financial statement and schedules immediately following the signature pages of this report.
2. Financial statement schedules; see index to financial statements and schedules immediately following the signature pages of this report.
3. Exhibits:
The following exhibits are filed with this Form 10-KSB and are identified by the numbers indicated: see index to exhibits immediately following financial statements and schedules of this report.
3.1 Certificate of Incorporation, as amended (1)
3.2 Bylaws, as amended (1)
(1) Incorporated by reference to the Registrant's Form 10-SB, filed on July 15, 1999 (SEC File No. 000-26715).
(b) Reports on Form 8-K
On February 4, 2003 we filed a form 8-K for Item 5 Other Events announcing that we removed Jack Webb as President and CEO and a member of our Board of Directors effective January 29, 2003.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
ROANOKE TECHNOLOGY CORP.
By: /s/ David L. Smith -------------------------------- DAVID L. SMITH President, Chief Executive Officer and Director
Dated: February 13, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
FINANCIAL STATEMENTS
For the information required by this Item, refer to the Index to Financial Statements appearing on page of the registration statement.
ROANOKE TECHNOLOGY CORPORATION Financial Statements Table of Contents
FINANCIAL STATEMENTS Page #
Audit Report 1
Balance Sheets 2 - 3 As of October 31, 2003 and October 31, 2002
Statements of Operations 4 For the Twelve Months Ended October 31, 2003 and 2002
Statement of Stockholders'Equity 5 - 6 As of October 31, 2003
Statements of Cash Flow 7 For the Twelve Months Ended October 31, 2003 and 2002
Notes to the Financial Statements 8 - 14
Independent Auditors Report
To the Board of Directors and Stockholders Roanoke Technology Corporation Roanoke Rapids, North Carolina
We have audited the accompanying balance sheet of Roanoke Technology Corporation, as of October 31, 2003 and 2002, and the related statements of operations, capital surplus and cash flows for the twelve months then ended October 31, 2003 and 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Roanoke Technology Corporation, as of October 31, 2003 and 2002, and the results of its operations and its cash flows for the months then ended in conformity with generally accepted accounting principles.
/s/Gately & Associates, LLC Gately & Associates, LLC CertifiedPublic Accountants Orlando, Florida November 25, 2003
ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY BALANCE SHEETS As of October 31, 2003 and October 31, 2002
ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY STATEMENTS OF OPERATIONS For the Twelve Months Ended October 31, 2003 and 2002
* Less than (.01) per share
ROANOKE TECHNOLOGY CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY As of October 31, 2003
ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY STATEMENTS OF CASH FLOWS For the Twelve Months ending October 31, 2003 and 2002
ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
1. Summary of significant accounting policies: -------------------------------------------
Industry - Roanoke Technology Corporation (The Company) - -------- was incorporated December 11, 1997 as Suffield Technologies Corp., its original name, under the laws of the State of Florida. The Company is headquartered in Roanoke Rapids, North Carolina and does business as Top-10 Promotions, Inc. The Company is engaged in the design, development, production, and marketing of technology to provide enhanced internet marketing capabilities.
Revenue Recognition and Service Warranty - Revenues - ---------------------------------------- resulting from technology consulting services are recognized as such services are performed and paid. A deferred revenue account had been established in the financial statements during 1999 to account for revenue and costs of revenue to be recognized in the income statement at the end of the service agreement period. During February of 2000 the service agreement was changed thus not requiring a deferred revenue account. Services are most often paid for in advance of the service being performed. The services performed are completed by software programs leaving the time when a service is paid for and the time the service is performed immaterial. The Company has no extended maintenance contracts and warrants its consulting services to meet the consulting service contract guarantee. No provision for estimated future costs relating warranties have been made as these costs have been historically immaterial.
Cash and Cash Equivalents - The Company considers cash on - ------------------------- hand and amounts on deposit with financial institutions which have original maturities of three months or less to be cash and cash equivalents.
Basis of Accounting- The Company's financial statements - ------------------- are prepared in accordance with generally accepted accounting principles. All costs associated with software development and advancement are expensed as a cost of sales through an ongoing research and development program.
Property and Equipment - Property and equipment are - ---------------------- recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of assets as follows:
Machinery and equipment 2 to 10 years Furniture and fixtures 5 t0 10 years
Leasehold improvements are amortized on the straight-line basis over the lessor of the life of the asset or the term of the lease. Maintenance and repairs, as incurred, are charged to expenses; betterments and renewals are capitalized in plant and equipment accounts. Cost and accumulated depreciation applicable to items replaced or retired are eliminated from the related accounts; gain or loss on the disposition thereof is included as income.
Long-lived Assets - Long lived assets, including property and - ----------------- equipment and certain intangible assets to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Impairment losses are recognized if expected future cash flows of the related assets are less than their carrying values. Measurement of an impairment loss is based on the fair value of the asset. Long-lived assets and certain identifiable intangibles to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Intangibles - Goodwill represents the excess of purchase - ----------- price over the fair value of business acquired and is amortized on a straight-line basis over 3 years.
Other acquired intangibles principally include core technology in the form of software programs and are amortized over their estimated lives of primarily 3 to 5 years., existing Organization costs are being amortized by the straight-line method over 5 years.
Research and Development - Research and development costs - ------------------------ incurred in the discovery of new knowledge and the resulting translation of this new knowledge into plans and designs for new services, prior to the attainment of the related products' technological feasibility, are recorded as expenses in the period incurred.
Income Taxes - The Company utilizes the asset and - ------------ liability method to measure and record deferred income tax assets and liabilities. Deferred tax assets and liabilities reflect the future income tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Fair Value of Financial Instruments - The Company's - ----------------------------------- financial instruments include cash and cash equivalents, short-term investments, accounts receivable, accounts payable and liabilities to banks and shareholders. The carrying amount of long-term debt to banks approximates fair value based on interest rates that are currently available to The Company for issuance of debt with similar terms and remaining maturities. The carrying amounts of other financial instruments approximate their fair value because of short-term maturities.
Earnings Per Share - Basic earnings per share ("EPS") is - ------------------ computed by dividing earnings available to common shareholders by the weighted-average number of common shares outstanding for the period as required by the Financial Accounting Standards Board (FASB) under Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Shares". Diluted EPS reflects the potential dilution of securities that could share in the earnings.
Concentrations of Risk - Financial instruments - ---------------------- which potentially expose The Company to concentrations of credit risk consist principally of operating demand deposit accounts. The Company's policy is to place its operating demand deposit accounts with high credit quality financial institutions.
No customer represented 10 % or more of The Company's total sales as of the current reporting period.
The Company has a concentration of revenue dependancy on a limited number of services.
Stock-Based Compensation - In accordance with the - ------------------------ recommendations in SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123"), The Company's management has considered adopting this optional standard for disclosure purposes, along with Accounting Principles Board opinion no. 25. The Company may consider using full implementation of SFAS No. 123 at a future date. The Company accounted for stock bonus' during the years ending October 31, 2000 and 1999 of 1,500,00 shares and 850,000 shares of restricted stock, respectively, given to the President of the company as compensation. The bonus was accounted for in the periods in order to match the compensation expense with the time in which it was earned. In accordance with the tax accounting, the compensation will not be deductible until the President sells those shares. The shares are restricted from sale for a period of two years from the date of issuance and are accounted for at their fair value.
2. Going Concern: --------------
The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has suffered losses from operations and may require additional capital to continue as a going concern as The Company develops its new markets. Management believes The Company will continue as a going concern in its current market and is actively marketing its services which would enable The Company to meet its obligations and provide additional funds for continued new service development. In addition, management is currently negotiating several additional contracts for its services. Management is also embarking on other strategic initiatives to expand its business opportunities. However, there can be no assurance these activities will be successful. There is also uncertainty with regard to managements projected revenue being in excess of its operating expenditures for the fiscal year ending October 31, 2003.
Items of uncertainty include the Company's liabilities with regard to its payroll tax liability in excess of $700,000 and its Small Business Administration loan with a principal balance of $270,807 plus accrued interest. The Company is currently in default of these liabilities and is in negotiations regarding resolution of these matters. The outcome of these negotiations is uncertain as of October 31, 2002. If the Company is not successful in these negotiations, there is substantial doubt as to the ability of the Company to continue as a going concern.
3. Accounts Receivable and Customer Deposits: ------------------------------------------
Accounts receivable historically have been immaterial as The Company's policy is to have the internet services provided paid for in advance. As of the balance sheet date there were no deposits paid in advance.
4. Use of Estimates: -----------------
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
5. Revenue and Cost Recognition: -----------------------------
The Company uses the accrual basis of accounting for financial statement reporting. Revenues are recognized when services are performed and expenses realized when obligations are incurred.
6. Accounts payable and accrued expenses: --------------------------------------
Accounts payable and accrued expenses consist of trade payables and accrued payroll and payroll taxes created from normal operations of the business.
7. Long-term debt: ---------------
Long - term debt consists of:
On May 31, 2002, The Company entered into a stock purchase agreement which was comprised of convertible debenture bonds with attached warrants. The bonds provide interest in the amount of 12% per year. The offering involved attached warrants for the purchase of 3,600,000 shares. The total offering is in the amount of $600,000 of which $501,500 has been issued.
On November 7, 2000, The Company entered into a loan agreement with First International Bank, Hartford, CT. The U.S. Small Business Administration is the guarantor on this loan in the amount of $290,000. The initial interest rate, a variable rate, was 11.50% per year and has since been renegotiated with Aurora Loan Services, Inc. to 8.50%. The note was originated with a term of seven years with a late fee of up to four percent of the unpaid portion of the regularly scheduled payment. The President of The Company maintains a life insurance policy as required by the loan agreement and has used personal as well as Company assets as collateral. The Company is currently in 22 months in default on the note and is currently renegotiating terms in order to prevent foreclosure of the note payable. , During the July quarter of 1998, the Company entered into a note payable to a finance company which bears interest at 16.53%. The note is collateralized by equipment and requires that monthly payments of $197 be made through the maturity date of June, 2003.
During the April quarter of 1999, the Company entered into a capital Lease with a finance company which bears an interest rate of 13.61%. The lease is collateralized by equipment and requires that monthly payments of $534 be made through the maturity date of April, 2002.
Aggregate maturities of long - term debt over the next five years are as follows:
8. Operating Lease Agreements: ---------------------------
The Company rents office space with monthly payments of $6,000. The lease term for this space is seven years beginning on October 1, 2000. This lease includes an option to purchase whereby $1,000 of each month's rent may be applied to the purchase price.
The Company rented a house for the convenience of Company employees that are relocating to the area and out of town business guests. The house also served as a satellite office as added security for computer system continuation in the event that the main office should encounter problems with their system. The house had monthly payments of $1,200. The lease term was on a month to month basis and expired during the year 2002.
The Company also leases its phone systems, internet lines and various equipment. The lease terms are month to month leases. For this reason, The Company considers all of these types of lease arrangements as operating. Currently the lease costs are at $33,800 per year and shown as part of cost of sales.
9. Stockholders' Equity: ---------------------
Preferred Stock - ---------------
The Company has been authorized 10,000,000 shares of preferred stock at $.0001 par value. As of October 31, 2000, none of these shares had been issued and the limitations, rights, and preferences were yet to be determined by the Board of Directors.
Common Stock - ------------
During the fiscal year end October 31, 2002, the Company converted debenture bond principal and interest into 4,321,460 common shares for a value of $47,172. The Company continues to convert debenture bond principal and interest into common shares subsequent to fiscal year end.
On October 28, 2002 the Company entered into consulting agreements with Nicole Leigh Van Coller, John A. Palmer, Jeremy Leigh Van Coller, Christopher Ebersole and Mary Gimmelli for financial consulting services over a six month term. As compensation, the Company issued 12,000,000 shares of common stock for a value of $156,000. The shares were registered on Form S-8 with the U.S. Securities and Exchange Commission.
On January 7, 2002 the Company entered into a settlement agreement regarding litigation. The Company agreed to issue 100,000 shares of common stock for a value of $17,000.
On February 15, 2002 the Company entered into a consulting agreement for services regarding tax representation with Byron Rambo. The Company issued 700,000 shares of common stock for a value of $31,920. The shares were registered on Form S-8 with the U.S. Securities and Exchange commission.
On February 22, 2002 the Company entered into a settlement agreement regarding litigation. The Company agreed to issue 2,000,000 shares of common stock for a value of $140,000 and a payment in cash of $20,000.
The shares will be issued in amounts of 500,000 each six months until expired. The Company also issued stock options for the purchase of 2,000,000 shares of common stock in the amount of $.04 per share with an expiration date of 20 years from the date of the agreement.
On April 4, 2002 the Company entered into a consulting agreement with Nicole Leigh Van Coller for financial consulting services. As compensation, the Company issued 1,000,000 shares of common stock for a value of $120,000. The shares were registered on Form S-8 with the U.S. Securities and Exchange commission.
On August 14, 2001, the Company received proceeds of a loan from the Company's President in the amount of $20,000 with a provision of conversion of the loan to 20,000,000 shares of restricted common stock after a 15 day period if not repayed. The loan was converted by the Company as called for in the agreement for a value of $20,000.
On August 27, 2001, the Company issued 2,500,000 shares of common stock as compensation for a one year consulting contract valued at $52,500. The compensation is amortized to expense over the contract term from an allowance account as can be reviewed in the statement of equity.
During the quarter ended July 31, 2001, the Company filed S-8 stock registrations for consulting services for a value of $364,534 and the issuance of 3,519,000 common shares. Of these shares, 2,000,000 common shares per the agreement call for the purchase of these shares at a value of a 40% discount on the bid price when purchased. The discount has been accounted for as an expense for consulting services. The term of services per the registrations range from five months to a year from the contract agreement date. The stock has been accounted for as issued and an allowance account has been set against this stock account to amortize the costs over the term as an expense over the service term as can be reviewed in the statement of equity.
On April 12, 2001, the Company issued 5,200,000 shares of common stock to the president of the Company valued at market price in the amount of $812,240. These shares were issued in accordance with the compensation agreement.
On March 15, 2001, the Company elected a 7 for 1 reverse stock split. The statements of operations have been adjusted to reflect this split with the earnings per share calculation.
During the quarter ended January 31, 2001, The Company filed an SB-2 filing with the U.S. Securities and Exchange Commission. The filing called for 2,000,000 common shares to be offered at a price of $.05 per share. 1,000,000 common shares have been sold for cash and 1,000,000 (142,857 after the 7 for 1 reverse stock split) shares were issued for services.
During the period ending October 1998, the Board of Directors issued 1,525,000 shares of restricted common stock to The Company's officer's, and legal counsel in exchange for services, and issued 500,000 shares of restricted common stock in the acquisition of Top-10 Promotions, Inc.
In addition to the restricted shares issued, The Company sold common stock through two separate private offerings during the period. In the initial offering 800,000 shares were sold each at a price of $0.025. In the second offering 1,000,000 shares were sold each at a price of $0.05.
On October 15, 1998, the majority shareholders of The Company undertook a Regulation - D, Rule 504, offering whereby it sold 2,000,000 shares of common stock, $.0001 par value per share or an aggregate of $200,000. In addition, each investor in the offering received an option to purchase, for a twelve month period commencing on the date of this offering, an additional one share of The Company at $1.00 per share for each eight (8) shares purchased in the original offering (or $250,000). In addition, each investor received an option to purchase for an eighteen month period commencing on the date of this offering an additional one (1) share of The Company for each 8.88 shares previously purchased at $2.00 per share or an aggregate of 225,000 shares (or $450,000).
The Company also approved of the investment by Arthur Harrison & Associates in the offering provided that such investment in The Company was in lieu of monies owed to Arthur Harrison & Associates by The Company for two (2) promissory notes dated September 22, 1998 and October 10, 1998. Further more, Arthur Harrison & Associates agreed to waive its rights to any interest on promissory notes.
10. Acquisitions: -------------
On March 30, 1999 The Company acquired assets of Offshore Software Development Ltd. ("Offshore") in an exchange of assets for 999,111 shares of The Company issued to the shareholders of that company. The Company's management has valued the transaction at $630,000.
The assets included were comprised of four computers valued at $8,000 and two software programs valued at $622,000. The value of these assets was determined on the basis of the management's estimation.
An unusual impairment loss of $257,075 was recorded in October of 1999 to reflect an impairment of the intangible assets resulting from the acquired "Offshore" assets on March 30, 1999. The impairment resulted from the Company's revised forecast of the cash inflows expected from intangible assets. Amortization expenses will drop by $8,583 per month.
Effective May 29, 1998, The Company acquired all the outstanding common stock of Top-10 Promotions, Inc., consisting of 100 shares, effective. These shares were redeemed and canceled. The 100 shares of Top-10 Promotions, Inc. were acquired in exchange for 500,000 "restricted" shares of The Company's common stock issued to David Smith, the sole shareholder of Top-10 Promotions, Inc. This transaction has been accounted for using the purchase method of accounting. The value of the share exchanged by both parties was determined to be $19,500, including a value of $(114) attributed to the fair value of assets and liabilities, and $19,614 of goodwill attributed to the method of doing business and the internally developed software.
Simultaneous with the acquisition, The Company purchased all of the remaining authorized shares of Top-10 Promotions, Inc. for $50,000 payable at closing and $17,500 per month payable over an eleven month period as other consideration. The Company borrowed funds for this transaction and later, upon agreement with the lender, converted a portion of the amount due as capital contributed to The Company.
Also, the former owner of Top-10 Promotions, Inc. was given the right to borrow up to 25% of retained earnings of Roanoke Technology Corporation in fiscal year 1998 or the first two quarters of fiscal 1999. Such borrowings shall be secured by his restricted stock received in the acquisition at a 75% discount value to market. Repayment shall be for a two- year period at a 5% annual interest rate. The Company also entered into an employment contract with the former owner of Top-10 Promotions.
11. Employment Contract and Incentive Commitments: -----------------------------------------------
The Company has entered into a five year employment contract with the former owner of Top-10 Promotions as amended on April 12, 2001. The contract provides for a salary of $150,000; a stock bonus of 5,200,000 restricted common shares; a stock bonus of 1,000,000 common shares per year for each year that the Company generates a profit during the five year term; quarterly bonus of 30% of the net income before income tax of The Company; standard non-competition clause; an option to renew the employment agreement for an additional two year term (provided he is not in default under the employment agreement); and annually, with approval of the Board of Directors, receive up to one percent of the issued and outstanding shares of the Company determined on December 31st of each year.
On November 1, 1998 The Company's management approved the issuance of 750,000 shares of restricted common shares of The Company to the former owner of Top-10 Promotions for attaining gross revenues in excess $200,000.00 or more in sales for the first three month period of 1999. The shares have been issued at a market value of $1,181,250. An additional 1,500,000 shares of restricted were issued in accordance with the revised employment agreement during the year ended October 31, 2000 for a value of $900,000.
12. Deferred Tax Assets and Liabilities: -----------------------------------
The Company accrues payroll and income taxes. The Company, currently a C-Corporation, accounts for income taxes in accordance with Statements on Financial Accounting Standards 109. As of October 31, 2002, The Company had a deferred tax asset in the amount of approximately $1,871,726 that is derived from a net operating tax loss carryforward. A portion of this carryforward is associated with stock compensation to officers and is deductible for tax purposes when the stock is sold by the officers. The deferred tax assets will expire during the years ending October 31, 2013 through 2022 if not used to offset taxable income.
13. Required Cash Flow Disclosure for Interest and Taxes Paid: ----------------------------------------------------------
The Company paid interest in the amount of $3,434 during the quarter ended January 31, 2003. The Company had no income tax payments due and did not pay any income tax amounts during the period.
14. Litigation, claims and assessments: -----------------------------------
There are various lawsuits and claims pending against The Company. Management believes that any ultimate liability resulting from those actions or claims will not have a material adverse affect on The Company's results of operations, financial position or liquidity.
On February 20, 2003 a complaint, Sprint Communications Company Limited Partnership vs. Roanoke Technology Corp., was filed in in the State of North Carolina, County of Halifax Superior Court Division. The complaint asserts that The Company is indebted to the plaintiff for a total of $179,150.16 and costs of the action brought forward. The Company has filed a counter-claim in response to this action. Representation for The Company has not determined the likeliness that the plaintiff will be successful with the complaint. The management of The Company asserts that the complaint will not have a material adverse affect on The Company's results of operations, financial position or liquidity.
15. Condensed consolidating financial statements: ---------------------------------------------
RTCHosting Corp (RTCH) is a wholly owned subsidiary of The Company. RTCH was incorporated on June 12, 2000 in the state of North Carolina. RTCH has 1,000 common shares authorized with no par value and 100 common shares outstanding. The Company has determined that separate financial statements and other disclosures concerning RTCH are not material to investors. RTCH was formed to hold the copyrights of an on line procurement system being developed by The Company. The Company has expensed all research and development costs. The only costs incurred by RTCH has been its incorporation and start-up costs which have been expensed in the amount of $3,050. RTCH currently has no material values of assets, liabilities or equity.
RFQHosting Corp (RFQ) is a 35% owned joint venture in Roanoke Online, LLC. The Company and Roanoke Energy Resources, Inc., a subsidiary of Roanoke Electric Cooperative, entered into a joint venture whereby the Company, through RFQ, receives 35% of the gross revenues of Roanoke Online, LLC, a business to business online procurement service. The Company is responsible for providing software maintenance and support personnel. Roanoke Energy Resources, Inc. is responsible for the day to day management and marketing of RFQ.
16. Employee stock option: ----------------------
The Company originated employee stock option plans with 2 of its employees during fiscal year end October 31, 2001. The plan calls for 300,000 option shares to vest on May 2, 2001 for a conversion price of $.001 per share. The plan continues to ratably vest 470,000 option shares over a 4 year period that are convertable for $.001 per share. The intrinsic value of these vested shares is $0 and a fair value compensation value of $6,750 if exercised at the vesting dates.