10-Q 1 f10q403_roanoke.txt QUARTERLY REPORT FOR APRIL 30, 2003 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2003 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-26715 ROANOKE TECHNOLOGY CORP. (Exact name of registrant as specified in its charter) Florida 22-3558993 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 539 Becker Drive, Roanoke Rapids, North Carolina 27870 (Address of principal executive offices) (Zip Code) (252) 537-9222 (Registrant's telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of June 19, 2003, we had 149,994,835 shares of common stock outstanding, $0.0001 par value. ROANOKE TECHNOLOGY CORP. PART I - FINANCIAL INFORMATION Item 1. Financial Statements: --------------------- BASIS OF PRESENTATION The accompanying unaudited financial statements are presented in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying statements should be read in conjunction with the audited financial statements for the year ended October 31, 2002. In the opinion of management, all adjustments (consisting only of normal occurring accruals) considered necessary in order to make the financial statements not misleading, have been included. Operating results for the six months ended April 30, 2003 are not necessarily indicative of results that may be expected for the year ending October 31, 2003. The financial statements are presented on the accrual basis. FINANCIAL STATEMENTS AND EXHIBITS. ---------------------------------- FINANCIAL STATEMENTS For the information required by this Item, refer to the Index to Financial Statements appearing on page F-1 of the registration statement. FINANCIAL STATEMENTS For the information required by this Item, refer to the Index to Financial Statements appearing on page F-1 of the registration statement. ROANOKE TECHNOLOGY CORPORATION Financial Statements Table of Contents FINANCIAL STATEMENTS Page # Balance Sheets 1 - 2 As of April 30, 2003 and 2002 Statements of Operations 3 For the Three Months Ended April 30, 2003 and 2002 Statement of Stockholders'Equity 4 - 5 As of April 30, 2003 Statements of Cash Flow 6 For the Three Months Ended April 30, 2003 and 2002 Notes to the Financial Statements 7 - 12

* Less than (.01) per share

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: For the quarter ended October 31, 2002 For the year ended October 31, 2001 YEAR AMOUNT YEAR AMOUNT 2003 69,993 2002 35,411 2004 38,180 2003 35,746 2005 42,764 2004 38,180 2006 47,898 2005 42,764 2007 53,648 2006 47,898

8. Operating Lease Agreements: --------------------------- The Company rents office space with monthly payments of $6,000. The lease term for this space is seven years beginning on October 1, 2000. This lease includes an option to purchase whereby $1,000 of each month's rent may be applied to the purchase price. The Company rented a house for the convenience of Company employees that are relocating to the area and out of town business guests. The house also served as a satellite office as added security for computer system continuation in the event that the main office should encounter problems with their system. The house had monthly payments of $1,200. The lease term was on a month to month basis and expired during the year 2002. The Company also leases its phone systems, internet lines and various equipment. The lease terms are month to month leases. For this reason, The Company considers all of these types of lease arrangements as operating. Currently the lease costs are at $33,800 per year and shown as part of cost of sales. 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Gross revenues refer to fees earned in the design, development, production, and marketing of technology to provide enhanced Internet marketing capabilities. We earn revenue when we provide Internet services that improve an Internet site's ranking when searched on the leading Internet search engines. Generally, the payment terms require payment to us at, or prior to, the time that the services are performed. Historically, we have not experienced substantial problems with unpaid accounts or had to refund significant monies. Our premium service and renewals of the same account for 97.5% of our business. We have technological expertise in preparing and submitting web site pages with "key search words" to the targeted search engines. The web site page is configured so that when these key search words are entered into a search engine, the search will most likely hit on this web page. Primarily as a result of the acquisition of Top-10 Promotions, Inc. on May 28, 1998, our revenue has been generated from the sale of services of Top-10 Promotions, Inc. as of the date of acquisition. The acquisition was accounted for using the purchase method of accounting and the results of operations of Top-10 Promotions, Inc. from the date of purchase are included in the financial statements. In the first year of business activity, we were building a sales team and experienced gross revenue of $54,032. During the years ended October 31, 1999, 2000, 2001, and 2002 we had gross revenue of $1,144,122, $1,999,103, $1,551,609, and $1,715,387 respectively. THE THREE MONTHS ENDED APRIL 30, 2002 COMPARED TO THE THREE MONTHS ENDED APRIL 30, 2001 Revenues for the quarter of fiscal years 2003 and 2002 were $303,629 and $463,538, respectively. Management attributes this decline primarily to be immaterial. We have engaged consultants to assist with our growth. Cost of sales was $193,735 or 63% of revenues as compared to $292,587 or 63% of revenues in the prior year. The stability as a percentage of sales is attributable primarily to the constancy of our sales personnel. General and administrative costs decreased from $485,731 or 105% of revenues in the prior year quarter to $233,429 or 77% of revenues. This reduction is a direct result of a decrease in administrative overhead in the form of salaries paid. LIQUIDITY AND CAPITAL RESOURCES Cash outflows from operating activities were ($81,370) for the three months ended April 30, 2003 as compared with cash outflows of ($4,261) in the prior year's quarter. Cash Flows from Investing Activities were $0 as compared with ($0) in the prior year's quarter. Outlook Considerable effort has been put into concentrating on two key areas since the close of our fiscal year: increasing sales and reducing expenses. Several non-revenue positions have either been eliminated or moved to revenue-producing activities. We continue to look at every opportunity to reduce our cost structure without sacrificing the quality of our service offering. Our hardware infrastructure is adequate to support our projected growth and we do not anticipate any major expenditure in this area during the 2002-2003 fiscal year. We are continuing to give attention to increasing the productivity of our sales force. Training sessions are conducted daily with all newly hired employees that help them become a contributor to our revenues in a much shorter time frame than they had historically. By focusing on increasing sales of our flagship product, Top-10 Promotions, introducing our newest modules of RTC Hosting, and by introducing RTC FunDrive, we expect to enjoy increased sales over the same previous periods for the foreseeable future. By examining every opportunity to reduce cost, we are making significant improvements in our cost to serve. The combination of improvements to these two key areas will continue to be our driving force in order that we can provide a fair return to all of our stockholders. Item 3. Quantitative and Qualitative Disclosures About Market Risk --------------------------------------------------------------------- Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in market prices and rates. We are exposed to market risk because of changes in foreign currency exchange rates as measured against the U.S. dollar. We do not anticipate that near-term changes in exchange rates will have a material impact on our future earnings, fair values or cash flows. However, there can be no assurance that a sudden and significant decline in the value of European currencies would not have a material adverse effect on our financial conditions and results of operations. Our short-term bank debt bears interest at variable rates; therefore our results of operations would only be affected by interest rate changes to the short-term bank debt outstanding. An immediate 10 percent change in interest rates would not have a material effect on our results of operations over the next fiscal year. Item 4. Controls and Procedures -------------------------------- (a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer (collectively the "Certifying Officers") maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management timely. Under the supervision and with the participation of management, the Certifying Officers evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule [13a-14(c)/15d-14(c)] under the Exchange Act) within 90 days prior to the filing date of this report. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures are effective in timely alerting them to material information relative to our company required to be disclosed in our periodic filings with the SEC. (b) Changes in internal controls. Our Certifying Officers have indicated that there were no significant changes in our internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation, and there were no such control actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION Item 1 - Legal Proceedings 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. On January 31, 2003 we received notice from Gordon & Rees, LLP a law firm located in San Francisco, California, that they were owed a total of $106,719.64 for services rendered to us. To date, no litigation has been served upon us for such amount. Item 2 - Changes in Securities None. Item 3 - Defaults Upon Senior Securities None. Item 4 - Submission of Matters to a Vote of Security Holders None. Item 5 - Other Information None. Item 6 - Exhibits and Reports on Form 8-K a. Exhibits 99.1 Certification of David L. Smith, Jr., CEO and CFO b. Reports on Form 8-K None. No reports on Form 8-K were filed for this quarter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROANOKE TECHNOLOGY CORP. /s/ David L. Smith By: ------------------------------------- DAVID L. SMITH Chairman of the Board of Directors, CEO and CFO Dated: June 19, 2003 /s/ Russell J. Jones By: ------------------------------------- Russell J. Jones Secretary Dated: June 19, 2003 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, David L. Smith certify that: 1. I have reviewed this quarterly report on Form 10-Q of Roanoke Technology Corp. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in the quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, if any, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in the quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: June 19, 2003 /s/ David L. Smith ------------------------------------------------ David L. Smith Chief Executive Officer, Chief Financial Officer

ROANOKE TECHNOLOGY CORP 10-Q