10-K 1 f10k2004_roanoke.txt ANNUAL REPORT FOR YEAR ENDING 10/31/04 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM 10-K ---------------------------------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------- ----------------- Commission File Number 0-26715 ROANOKE TECHNOLOGY CORP. (Exact name of registrant as specified in its charter) Florida 22-3558993 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2720 North Wesleyan Blvd. Rocky Mount, North Carolina 27804 (Address of principal executive offices) (Zip Code) (252) 428-0200 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: None Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- ------------------- ----------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value ------------------------------- (Title of class) ------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) Revenues for year ended October 31, 2004: $795,923 Aggregate market value of the voting common stock held by non-affiliates of the registrant as of February 23, 2005 was: $1,061,667 Number of shares of the registrant's common stock outstanding as of February 23, 2005 was: 2,946,524,239 Transfer Agent as of February 23, 2005: Interwest Transfer Co. 1981 East Murray Holladay Road, Suite 100 Salt Lake City, Utah 84117 PART I Item 1. Description of Business Business Development. We were incorporated in Florida on December 11, 1997 under the name Suffield Technologies Corp. We did not have any significant revenues until we purchased all of the issued and outstanding shares of Top 10 Promotions, Inc., a Virginia corporation with its principal place of business in North Carolina, in accordance with a Stock Purchase Agreement and Share Exchange dated and effective May 28, 1998. Top 10 was incorporated in Virginia on November 18, 1997. We maintain our principal offices at 2720 North Wesleyan Blvd., Rocky Mount, North Carolina, 27804 and our telephone number is (252) 428-0200. 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 Rocky Mount, 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; $2,628,779 for the year ended October 31, 2003 and $12,728,290 for the year ended October 31, 2004. 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 websites on the Internet. 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. o When a customer purchases the "Premium Plan" we begin the following procedures: o Identify appropriate key words or terms for the customer's website. The Premium Plan allows for 6 terms. o Identify the unique characteristics and patterns associated with each search engine's robot and indexing practices. o Create a customer web page for each term. Each contract will require a creation of approximately 6 to 24 pages. o The created web pages are then moved to the customer's website or server. o We analyze the customer's website for any characteristics that may be detrimental to their rankings on the search engines and make the appropriate changes to their website. These changes typically include modification of text and metatags on the home page and occasionally we modify the navigation through their site. o We verify the placement of the web pages and create a site map for the customers' site. We submit the new content pages to the search engines that do not automatically crawl the site. o Approximately 4 weeks after we 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: Our services will secure no less than ten (10) placements somewhere within the top 20 positions somewhere across the top search engines that we target. ss. The engines we target consist of Yahoo, AskJeeves, Teoma, Excite, Infoseek, HotBot, Lycos, iWon, NBCi, AOL NetFind, LookSmart, AltaVista, Google, Netscape, MSN, Northern Light, Webcrawler, Wisenut, Splatsearch, Overture, ScrubTheWeb, 7Search, All The Web and Open Directory Project. Top-10 Promotions may target different search engines than those listed in this agreement as market conditions change. ss. The placements will consist of existing pages on the customers site as well as the new pages we made. The listings may appear on any single engine, all the engines, or spread across any number of the engines listed above. ss. We will not promote keywords that contain registered trademarks of other companies. Client assumes all responsibility for submitting keywords that contain registered trademarks of other companies. ss. We are not agreeing to increase traffic to the customer's site. That is a function of demand for the customer's product or service. The agreement is only for placement of the customer's URL(s) in the search engine indexes. ss. In the event of our failure to meet this agreement, 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 websites indexed by the key search engines and changes in the way these sites are indexed by the search engines, the visibility of the websites that we have enhanced tends to decline over time. We re-solicit prior customers periodically and offer them the opportunity to renew their website visibility. The renewal process is the same as described above and with the same guarantee. 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 16 full time employees. They fall into 4 different categories: 2 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.: 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. Material programming costs are: Year Ending Year Ending Year Ending Oct. 31, 2004 October 31, 2003 Oct. 31, 2002 ------------- ---------------- ------------- Total $ 89,082 $120,537 $323,680 RESEARCH AND DEVELOPMENT EXPENSES Research and development costs are considered a continual process and are expensed when incurred. When we can associate specific costs to a computer software product that has technological feasibility and research and development activities have been completed, we will capitalize those costs as an asset. Item 2. Description of Property We do not own any real estate. Instead we lease space for our executive offices and business operations. Our offices are located at 2720 N. Wesleyan Boulevard, Rocky Mountains, North Carolina. On March 1, 2004 we entered into a five-year lease for 1.6 acres of land on which our offices are located. In addition, we have an option to lease the premises for an additional five years. The one story pre-engineered steel building located on the property is 9000 square feet in size. The building has an emergency generator and we believe it contains sufficient space for our ongoing operations. Our lease payments for the space are for 5 years and call for monthly payments of $3,500 for the first year, $4,000 for the second and third years, and $4,500 for the fourth and fifth years. The lease contract also calls for us to pay for any leasehold improvements. Item 3. Legal Proceedings Gordon & Rees, LLP v. Roanoke Technology Corp.; Top-10 Promotions, Inc. San Francisco County Superior Court, Case Number CGC-03-423362. The complaint was filed on August 12, 2003 and was "purportedly" served on September 12, 2003. On October 15, 2003, we received a Notice of Intention to Enter Default and Default Judgment. Plaintiff has not been able to provide the court documentation to support a default judgment. The default judgment was for $106,719.64 plus 10% of interest from 8/26/02 and attorney's fees of $26,679.91. On May 27, 2004 we entered into a settlement agreement whereby we would pay $19,000 by June 11, 2004 to allow a dismissal of the lawsuit. Such amount was paid and this case was settled in full. Sancor Industries Ltd. v. Sun-Mar Corporation, Top-10 Promotions, Inc. and Roanoke Technology Corp. Ontario Superior Court of Justice, Court File No. 99-CV-172600 CMA. A judgment was granted against us for unauthorized insertion of the plaintiffs trademarks in our mega-tags. The specific judgment amount was not listed. On February 20, 2003 a complaint, Sprint Communications Company Limited Partnership vs. Roanoke Technology Corp., was filed in the State of North Carolina, County of Halifax Superior Court Division. The complaint asserts that we are indebted to the plaintiff for a total of $179,150.16 and costs of the action brought forward. We have filed a counter-claim in response to this action. Our legal counsel has not determined the likeliness that the plaintiff will be successful with the complaint. This matter was settled in full for $10,000. AJW Partners, LLC. AJQ Offshore, Ltd., AJW Qualified Partners, LLC and New Millenium Capital Partners II, LLC v. Roanoke Technology Corp., Supreme Court of the State of New York, Index No. 04-600698. The complaint was filed on March 16, 2004 and served on March 19, 2004. The lawsuit was commenced based upon stock purchase agreement comprised of convertible debenture bonds with attached warrants with the plaintiffs. The plaintiffs claim that a total of $775,000 is still owed under the convertible debentures. A full settlement was reached in this matter. We are not currently aware of any other pending, past or present litigation that would be considered to have a material effect on us. There are no known bankruptcy or receivership issues outstanding and has no known securities law violations. Additionally, we have no known legal proceedings in which certain corporate insiders or affiliates of the issuer are in a position that is adverse to the issuer. Item 4. Submission of Matters to a Vote of Security Holders On August 22, 2003 a majority of the shareholders voted to amend the articles of to increase our authorized shares of Common Stock from 150,000,000 shares to 1,000,000,000 shares. PART II Item 5. Market for Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities On February 23, 2005, 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, 2004 and as available through electronic trading services subsequent to such date. Common Stock Bid Fiscal Quarter High Low ---- --- 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 $ 0.01 July 31, 2003 $ 0.01 $ 0.01 October 31, 2003 $ 0.01 $ 0.01 January 31, 2004 $ 0.01 $ 0.01 April 30, 2004 $ 0.01 $ 0.01 July 31, 2004 $ 0.01 $ 0.01 October 31, 2004 $ 0.01 $ 0.01 Dividends We currently intend to retain future earnings, if any to support our growth. Any payment of cash dividends in the future will be dependent upon: the amount of funds legally available therefore; our earnings; financial condition; capital requirements; and other factors which our Board of Directors deems relevant. Item 6. Selected Financial Data

Please note that EBITDA is provided for analysis purposes. One may review this calculation to determine the earnings of the Company as calculated before interest, depreciation and amortization costs have been deducted. EBITDA as presented is not prepared in accordance with generally accepted accounting principles and may not be comparable to similarly titled measures reported by other companies. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2004 Compared with Fiscal 2003 In fiscal 2004 sales decreased 36% from the previous year, from $1,236,805 to $795,923. Our reduction in 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 38% to $625,647 or 79% of sales, from $1,003,158, or 81% of sales. General and Administration costs were at $12,521,993 for fiscal 2004 and $2,651,390 for fiscal 2003, an increase of 472%. The increase was mainly due to compensation in the form of stock which amounted to $12,215,450 during 2004. Without the stock compensation, the Company would have had a decrease in these costs of $131,106 due to cutting measures. The Company decreased its research and development of new services during the year ended October 31, 2004. These costs decreased 37% from $141,274_ to $89,082. Interest expense for the Company increased 32%, from $69,762 to $102,177, 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 a 473% increase as compared to the prior year, or $(12,440,799) for fiscal 2004 and $(2,628,779) for fiscal 2003. LIQUIDITY AND CAPITAL RESOURCES Selected Financial Data Year Ended Oct. 31, 2004 Oct. 31, 2003 -------------- ------------- Net cash provided (used) by $ (564,066) $ (194,815) continuing operating activities Net cash provided (used) by $ (40,602) $ (43,493) investing activities Net cash provided (used) by $ 612,524 $ 238,027 financing activities Working Capital $ $ (1,256,309) Total Debt $ 2,137,015 $ (1,774,004) Shareholder's equity $ (1,763,171) $ (1,430,331) Cash flow from operating activities was $(564,066) as compared to a deficit of $(194,815) in the preceding year. Outlook During the past year, much attention has been placed on reducing expenses and increasing revenues. It is our opinion that we have trimmed expenses to an acceptable level without adversely affecting our ability to operate. We continue to monitor our expenses, however, and we will diligently scrutinize all expenditures. 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. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in market prices and rates. We are exposed to market risk because of changes in foreign currency exchange rates as measured against the U.S. dollar. We do not anticipate that near-term changes in exchange rates will have a material impact on our future earnings, fair values or cash flows. However, there can be no assurance that a sudden and significant decline in the value of European currencies would not have a material adverse effect on our financial conditions and results of operations. Our short-term bank debt bears interest at variable rates; therefore our results of operations would only be affected by interest rate changes to the short-term bank debt outstanding. An immediate 10 percent change in interest rates would not have a material effect on our results of operations over the next fiscal year. Item 8. Financial Statements and Supplementary Data Our financial statements, together with the report of auditors, are included in this report after the signature pages. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure Our accountant is Gately & Associates, LLC of Florida. At no time has there been any disagreements with such accountant regarding any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. Item 9A. Controls and Procedures As required by Rule 13a-14 under the Exchange Act, within 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer. Based upon that evaluation, the Company's Chief Executive Officer concluded that the Company's controls and procedures are effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out this evaluation. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer as appropriate, to allow timely decisions regarding disclosures. The Company has confidence in its internal controls and procedures and has expanded its efforts to develop and improve its controls. Nevertheless, the Company's management, including the Chief Executive Officer, does not expect that the Company's disclosure procedures and controls, or its internal controls, will necessarily prevent all error or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect the fact that the Company is subject to resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all internal control issues or instances of fraud, if any, within the Company be detected. PART III Item 10. Directors, Executive Officers, Promoters and Control Persons: Compliance With Section 16(a) of the Exchange Act Our directors and officers, as of February 23, 2005, 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) 48 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, 2004. 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 270,000,000 shares pursuant to his amended employment agreement with us. On April 9, 2003 we issued a total of 1,313,268 shares to David L. Smith, Jr. based upon his amended employment agreement for bonuses owed for the years ended December 31, 2000, December 31, 2001 and December 31, 2002. The shares were issued in the following manner based on one (1%) percent of the issued and outstanding shares at the end of each of years set forth above: 126,687 shares for December 31, 2000, 364,381 shares for December 31, 2001 and 822,020 shares for December 31, 2002.In fiscal 2000, David received 1,500,000 of our restricted common shares per his employment agreement. The shares were valued at $.60 per shares for a total of $900,000. Since the beginning of fiscal 2000, David has received 1,500,000 of our restricted shares pursuant to his execution of a new 3 year employment agreement with us in August 2000. Such shares received by him would normally be valued at the trading price at the time he received the shares ($0.25) in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." However, this standard considers the discounting of stock when such stock is restricted; our stock was thinly traded and the number of shares to be traded on the market (1,500,000) would greatly devalue the stock. Therefore, the method used was as follows: Initial price of $0.25; discounted 10% in lieu of the restriction. Based on this, the value is $337,500. Compensation of Directors Our Directors do not receive compensation for their services as directors but may be reimbursed for their reasonable expenses for attending Board meetings. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth as of February 23, 2005, 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. Certain Relationships and Related Transactions. None. Item 14. Principal Accounting Fees and Services Audit Fees For the Company's fiscal year ended October 31, 2004 and 2003, we were billed approximately $7,500 and $4,800 for professional services rendered for the audit of our financial statements, respectively. We also were billed approximately $4,300 and $4,800 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, 2004 and 2002, respectively. Tax Fees For the Company's fiscal year ended October 31, 2004, we were not billed 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, 2004. 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 15. 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 None 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 23, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. ~~By: /s/ David L. Smith, Jr. Chairman of the Board of Dated: February 23, 2005 -------------------------------- Directors, Chief Executive David L.Smith, Jr. Officer~~

ROANOKE TECHNOLOGY CORPORATION Financial Statements Table of Contents FINANCIAL STATEMENTS Page # Independent Auditors Report 1 Balance Sheets 2 - 3 As of October 31, 2004 and2003 Statements of Operations 4 For the twelve Months Ended October 31, 2004 and 2003 Statement of Stockholders' Equity 5 - 6 As of October 31, 2004 Statements of Cash Flows 7 For the twelve Months Ended October 31, 2004 and 2003 Notes to the Financial Statements 8 - 14 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTING FIRM The Board of Directors and Shareholders Roanoke Technology Corporation Rocky Mount, North Carolina We have audited the accompanying balance sheet of Roanoke Technology Corporation as of October 31, 2004 and 2003 and the related statements of operations, stockholder's equity and cash flows for the twelve months ending October 31, 2004 and 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on the audit. We conducted the audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). These 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 the 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, 2004 and the results and its cash flows for the twelve months ending October 31, 2004 and 2003, in conformity with U.S. generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the footnotes to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Gately & Associates, LLC Altamonte Springs, Florida January 15, 2005 ROANOKE TECHNOLOGY CORPORATION BALANCE SHEET As of October 31, 2004 and 2003

The accompanying footnotes are an integral part of these financial statements. F-2 ROANOKE TECHNOLOGY CORPORATION BALANCE SHEET As of October 31, 2004 and 2003

The accompanying footnotes are an integral part of these financial statements. F-3 ROANKOE TECHNOLOGY CORPORATION STATEMENTS OF OPERATIONS For the twelve months ending October 31, 2004 and 2003 10/31/2004 10/31/2003 ----------------------------------- REVENUE $ 795,923 $ 1,236,805 ------- COST OF SERVICES 625,647 1,003,158 ---------------- ----------------------------------- GROSS PROFIT OR (LOSS) 170,276 233,647 ---------------------- ----------------------------------- EXPENSES -------- General and administrative 12,521,993 2,651,390 Research and development 89,082 141,274 ----------------------------------- TOTAL EXPENSE 12,611,075 2,792,664 ----------------------------------- OPERATING INCOME (12,440,799) (2,559,017) ---------------- ----------------------------------- OTHER INCOME (EXPENSE) Other income - gain from litigation settlement 110,698 - Other expense - Settlement on bond retirement (296,012) - Interest expense (102,177) (69,762) ----------------------------------- TOTAL OTHER INCOME (EXPENSE) (287,491) (69,762) ----------------------------------- NET INCOME (LOSS) $ (12,728,290) $(2,628,779) ----------------- =================================== Earnings (loss) per share $ (0.01) $ (0.02) ------------------------- Weighted average number of common shares 1,795,901,286 124,478,481 ----------------------------------------

The accompanying footnotes are an integral part of these financial statements. F-4 ROANOKE TECHNOLOGY CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY As of October 31, 2004

The accompanying footnotes are an integral part of these financial statements. F-5 ROANOKE TECHNOLOGY CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY As of October 31, 2004

The accompanying footnotes are an integral part of these financial statements. F-6 ROANOKE THECKNOLOGY CORPORATION STATEMENTS OF CASH FLOWS For the twelve months ending October 31, 2004 and 2003 CASH FLOWS FROM OPERATING ACTIVITIES 10/31/2004 10/31/2003 ------------------------------------ ----------------------------------- Net income (loss) $ (12,728,290) $ (2,628,779) ----------------------------------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 56,903 64,456 Compensation in the form of stock 12,215,450 2,213,741 Stock issued in bond retirement 180,000 - Gain on litigation sttlement 110,698 - (Increase) Decrease in accounts receivable (16,083) 7,024 (Increase) Decrease in employee advance (3,750) 10,530 (Increase) Decrease in prepaid expense - 13,289 (Increase) Decrease in deposits (2,900) - Increase (Decrease) in payables and accrued expenses (371,004) 59,842 Increase (Decrease) in employee loan (5,090) 5,090 Increase (Decrease) in accrued interest - 69,776 Increase (Decrease) in credit card payable - (9,784) ----------------------------------- Total adjustments to net income 12,164,224 2,433,964 ----------------------------------- Net cash provided by (used in) operating activities (564,066) (194,815) ----------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES ------------------------------------ Cash paid for equipment (40,602) (43,493) ----------------------------------- Net cash flows provided by (used in) investing activities (40,602) (43,493) ----------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES ------------------------------------ Proceeds from loan from officer 479,816 - Proceeds from loan on bond retirement loan 92,500 - Proceeds from debenture bond 238,027 Cash paid on SBA loan 40,208 - ----------------------------------- Net cash provided by (used in) financing activities 612,524 238,027 ----------------------------------- CASH RECONCILIATION ------------------- Net increase (decrease) in cash 7,856 (281) Cash - beginning balance 18,306 18,587 ----------------------------------- ENDING CASH BALANCE $ 26,162 $ 18,306 -------------------- ===================================

The accompanying footnotes are an integral part of these financial statements. F-7 ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY NOTES TO THE FINANCIAL STATEMENTS 1. Summary of significant accounting policies: ------------------------------------------- Industry - Roanoke Technology Corporation (The Company) was incorporated -------- December 11, 1997 as Suffield Technologies Corp., its original name, under the laws of the State of Florida. The Company is headquartered in Rocky Mount, 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 - Revenues resulting from technology consulting services are ------------------- recognized as such services are performed in accordance with generally accepted accounting principles. 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. 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. F-8 ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY NOTES TO THE FINANCIAL STATEMENTS 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 dependency 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. 2. Going Concern Uncertainties: ---------------------------- 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, 2004. On December 25, 2003 the Company negotiated an installment agreement with the Internal Revenue Service with regard to its payroll tax liability. The agreement calls for payments of $5,000 per month for 48 months with a balloon payment for the balance owed at the end of that period. The Company's President, Dave Smith, signed for personal liability of the Trust Fund portion in the amount of $321,840 plus penalties and interest should the Company default on these payments. Should the Company default on these payments and any other current tax compliance, the Company's property can be taken to satisfy the liability. 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. The Company has set up an allowance for doubtful accounts for those accounts that The Company has uncertainty for collection. 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. F-9 ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY NOTES TO THE FINANCIAL STATEMENTS 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, accrued interest, accrued payroll and payroll taxes created from normal operations of the business. 7. Long-term debt: --------------- Long - term debt consists of: On September 30, 2004, The Company entered into an agreement for funding with Cornell Capital Partners, LP upon which the terms of the funding are now in negotiation. The initial funding has retired The Company's bond liability for the year ended October 31, 2004 and retired The Company's U.S. Small Business Administration loan in its second funding dated December 3, 2004. The settled liabilities are discussed below. 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 the agreement was considered modified and now has a total balance loaned in the amount of $740,000. The outstanding balance for these bonds is $393,000 for the year ended October 31, 2003 plus accrued interest. 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%. Aggregate maturities of long - term debt over the next five years are as follows: For the year ended October 31, 2003 YEAR AMOUNT 2004 164,421 2005 36,222 2006 36,424 2007 42,909 2008 46,701 8. Operating Lease Agreements: --------------------------- In January of 2004, The Company paid $10,000 to buy out its lease contract and move to a less expensive building in Rocky Mount, NC. The new lease is for 5 years and calls for monthly payments of $3,500 for the first year, $4,000 for the second and third years, and $4,500 for the fourth and fifth years. The lease contract also calls for The Company to pay for any leasehold improvements. The Company also leases its phone systems, internet lines and various equipment. The lease terms are month to month leases and others are longer term that are upgradable. For this reason, The Company considers all of these types of lease arrangements as operating. Currently the lease costs are at $54,000 for line services and $23,000 for equipment rental per year and shown as part of cost of sales. F-10 ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY NOTES TO THE FINANCIAL STATEMENTS 9. Stockholders' Equity: --------------------- Preferred Stock --------------- The Company has been authorized 10,000,000 shares of preferred stock at $.0001 par value. None of these shares have been issued and the limitations, rights, and preferences were yet to be determined by the Board of Directors. Class A Common Stock -------------------- The Company has authorized 100,000,000 shares of Class A common stock at a par value of $.0001 which has the right to vote at a rate equivalent to (10) shares of common stock for each share of Class A common stock held. On November 19, 2004 the Company entered into an agreement with David Smith, President, in which David Smith agreed to return 100,000,000 shares of the Company's common stock in consideration for the issuance of 10,000,000 shares of the Company's Class A Common Stock. Common Stock ------------ The Company has been authorized 20,000,000,000 shares of common stock at $.0001 par value. The Company amended its articles of incorporation effective September 29, 2004 for this number of shares authorized. The Company had originally authorized 150,000,000 common shares at its inception. On November 19, 2004, the Company entered into an agreement with David Smith, President, in which David Smith agreed to return 100,000,000 shares of the Company's common stock to the company in consideration for the issuance of 10,000,000 shares of the Company's Class A common stock. The shares returned have been retired. On September 30, 2004 the Company issued 100,000,000 shares of common stock to the holders of the Company's debenture bond liability in a settlement to retire the bond issue. The shares were issued at a value of $180,000, or $0.0018 per share. On September 14, 2004, the Company issued 10,000,00 shares of common stock to Barry Clark for consulting services for a value of $21,000, or $0.0021 per share. On September 14, 2004, the Company issued to Russell Jones, an employee, 4,000,000 shares of stock for services for a value of $8,400, or $0.0021 per share. On August 18, 2004 the Company issued 7,500,000 shares of common stock to J. Powell for consulting services for a value of $17,250, or $0.0023 per share. On July 12, 2004 the Company issued 2,000,000 shares of common stock to J. Saldi for consulting services for a value of $5,400, or $0.0027 per share. On July 12, 2004 the Company issued 2,000,000 shares of common stock to Dan Smith, an employee, for services for a value of $5,400, or $0.0027 per share. On June 15, 2004 the Company issued 50,000,000 shares of common stock to T. Bojadzijev for consulting services for a value of $220,000, or $0.0044 per share. On June 15, 2004 the Company issued 20,000,000 shares of common stock to J. Randall Hicks for consulting services for a value of $88,000, or $0.0044 per share. On May 3, 2004 the Company issued 20,000,000 shares of common stock to J. Randall Hicks for consulting services for a value of $120,000, or $0.006 per share. On May 3, 2004 the Company issued 50,000,000 shares of common stock to T. Bojadzijev for consulting services for a value of $300,000, or $0.006 per share. F-11 ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY NOTES TO THE FINANCIAL STATEMENTS On May 3, 2004 the Company issued 20,000,000 shares of common stock to Barry Clark for consulting services for a value of $120,000, or $0.006 per share. On May 24, 2004 the Company issued 1,250,000,000 shares of common stock to the Company's President in compliance with the President's compensation agreement. These shares were issued in compliance with the anti-dilution clause of this agreement for a value of $6,750,000, or $0.0054 per share. The shares were accounted for at the value of the trading price close of day on that date. On November 7, 2003 the company entered into a consulting Agreement with Barry Clark. As compensation, the Company Issued 100,000,000 common shares for a value of $510,000, or $.0051 per share. On November 19, 2003 the Company entered into a consulting agreement with Tom Bojadzijev. As compensation, the Company issued 300,000,000 common shares for a value of $1,650,000, or $.0055 per share. Also, on December 30, 2003 the Company entered into an additional consulting agreement and issued 400,000,000 common shares for a value of $2,400,000, or $.006 per share. During the fiscal year end October 31, 2003, the Company converted debenture bond principal and interest into 85,501,001 common shares for a value of $311,440. On October 27, 2003 the Company issued 270,000,000 restricted common shares to David Smith, President, in compliance with his employment agreement for a value of $1,620,000, or $.006 per share. The shares represent a bonus for services rendered and consideration for extension on his employment agreement as amended on October 27, 2003. On September 18, 2003 the Company issued 277,960 restricted common shares to David Smith, President, in compliance with his employment agreement for a value of $1,140, or .0041 per share. The employment agreement bonus term is 5 years from the date the agreement was amended, October 27, 2003. On April 8, 2003 the Company issued 1,313,268 restricted common shares to David Smith, President, in compliance with his employment agreement for a value of $6,172, or .0047 per share. The shares represent a retroactive and continuing bonus whereby the amended employment agreement calls for a stock bonus of 1% of the outstanding common shares of the Company determined each year on December 31. The employment agreement bonus term is 5 years from the date the agreement was amended, October 27, 2003. On February 15, 2003 the Company entered into a consulting agreement with Byron Rambo to have assistance with the negotiations with the Internal Revenue Service regarding its past due payroll tax liability. As compensation, the Company issued 1,000,000 shares of common stock for a value of $12,000 or $0.012 per share, the trading value of the stock the day the agreement was entered into. During the year, 2003, the Company entered into consulting agreements with Barry Clark to provide advice to undertake for and consult with the Company concerning management of sales and marketing resources, consulting, strategic planning, corporate organization and structure, financial matters in connection with connection with the operation of the businesses of the Company, expansion of services, acquisitions and business opportunities, and shall review and advise the Company regarding its overall progress, needs, and condition. The following lists the compensation in the form of common stock provided by the agreements: on January 29, 2003 7,000,000 shares for $98,000 or $0.014 per share, on March 31, 2003 14,000,000 shares for $64,000 or $0.0046, on June 12, 2003 14,000,000 shares for $77,000 or $0.0055 per share, on September 9, 2003 14,000,000 shares for $70,000 or $0.005 per share and on October 3, 2003 28,000,000 shares for $112,000 or $0.004 per share. All shares were valued at the trading value of common shares on the dates that the agreements were entered into. 11. Employment Contract and Incentive Commitments: ---------------------------------------------- The Company has entered into a five year employment contract with the President, Dave Smith, as amended on August 22, 2000, April 12, 2001 and October 27, 2003. F-12 ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY NOTES TO THE FINANCIAL STATEMENTS As amended on October 27, 2003, the contract provides for a salary of $150,000; a stock bonus of 270,000,000 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; receive up to one 1% of the issued and outstanding shares of the Company which amount will be determined as of December 31st of each year; an anti dilution clause that the employee shall be issued additional shares to ensure that he retains at least 51% of the issued and outstanding shares of the Company; standard non-competition clause during this term and for a period of 2 years after; automatic renewal of the employment agreement for additional one year terms (provided he is not in default under the employment agreement) after the 5 year term of the contract from October 27, 2003. 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, 2004 and 2003, The Company had a deferred tax asset in the amount of approximately $2,023,140 and $2,545658, respectively, that is derived from a net operating tax loss. 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 2024 if not used to offset taxable income. There is uncertainty about whether the Company will be in a position of using these tax assets therefore an allowance has been set up to offset these assets. 13. Required Cash Flow Disclosure for Interest and Taxes Paid: ---------------------------------------------------------- The Company paid interest in the amount of $12,100 during the fiscal year ended October 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. Gordon & Rees, LLP v. Roanoke Technology Corp.; Top-10 Promotions, Inc. San Francisco County Superior Court, Case Number CGC-03-423362. The complaint was filed on August 12, 2003 and was "purportedly" served on September 12, 2003. On October 15, 2003, we received a Notice of Intention to Enter Default and Default Judgment. Plaintiff has not been able to provide the court documentation to support a default judgment. The default judgment was for $106,719.64 plus 10% of interest from 8/26/02 and attorney's fees of $26,679.91. On May 27, 2004 we entered into a settlement agreement whereby we would pay $19,000 by June 11, 2004 to allow a dismissal of the lawsuit. Such amount was paid and this case was settled in full. Sancor Industries Ltd. v. Sun-Mar Corporation, Top-10 Promotions, Inc. and Roanoke Technology Corp. Ontario Superior Court of Justice, Court File No. 99-CV-172600 CMA. A judgment was granted against us for unauthorized insertion of the plaintiffs trademarks in our mega-tags. The specific judgment amount was not listed. On February 20, 2003 a complaint, Sprint Communications Company Limited Partnership vs. Roanoke Technology Corp., was filed in the State of North Carolina, County of Halifax Superior Court Division. The complaint asserts that we are indebted to the plaintiff for a total of $179,150.16 and costs of the action brought forward. We have filed a counter-claim in response to this action. Our legal counsel has not determined the likeliness that the plaintiff will be successful with the complaint. This matter was settled in full for $10,000. F-13 ROANOKE TECHNOLOGY CORPORATION AND SUBSIDIARY NOTES TO THE FINANCIAL STATEMENTS AJW Partners, LLC. AJQ Offshore, Ltd., AJW Qualified Partners, LLC and New Millenium Capital Partners II, LLC v. Roanoke Technology Corp., Supreme Court of the State of New York, Index No. 04-600698. The complaint was filed on March 16, 2004 and served on March 19, 2004. The lawsuit was commenced based upon stock purchase agreement comprised of convertible debenture bonds with attached warrants with the plaintiffs. The plaintiffs claim that a total of $775,000 is still owed under the convertible debentures. A full settlement was reached in this matter. 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. F-14

ROANOKE TECHNOLOGY CORP 10-K