UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
-----------
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-29719
QUINTEK TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
State of California 77-0505346
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
537 Constitution Ave., Suite B
Camarillo, California 93012
---------------------------------------
(Address of principal executive office)
Registrant's telephone number: 805-383-3914
Check 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be
filed by Section 12,13, or 15(d) of the Securities Exchange Act of 1934 after
the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
On November 19, 2003 a total of 48,884,994 shares of the registrant's common
stock were issued and outstanding. Transitional Small Business Disclosure
Format:
Yes [ ] No [X]
1
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
Statement of Operations
Statements of Cashflows
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
Item 3. Disclosure Controls and Procedures
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
2
Index
PART I FINANCIAL INFORMATION 4
Item 1 Financial Statements 4
Item 2 Management's Discussion and Analysis 16
Item 3 Disclosure Controls and Procedures 16
PART II OTHER INFORMATION 17
Item 1 Legal Proceedings 17
Item 2 Changes in Securities 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 18
Signatures
Exhibits 19
3
PART I --- FINANCIAL INFORMATION
Item 1. Financial Statements
QUINTEK TECHNOLOGIES, INC.
BALANCE SHEETS AT SEPTEMBER 30, 2003
AND JUNE 30, 2003
June 30,
2003 September 30,
A S S E T S Unaudited 2003
----------- --------- -------------
Current assets:
Cash 4,556 21,162
Accounts receivable (net of allowance for doubtful
accounts of $24,422 and $26,498) 5,989 73,118
Inventory 5,755 4,371
Other 6,997 8,617
-------- --------
Total current assets 23,297 107,268
Property and equipment, at cost:
Equipment 102,881 102,881
Computer and office equipment 102,389 93,297
Furniture and fixtures 33,518 33,518
-------- --------
238,788 229,696
Less-accumulated depreciation (209,457) (206,687)
-------- --------
Net fixed assets 29,331 23,009
Other assets:
Deposits 2,395 2,395
Intangible assets (net of accumulated amortization
of $95,604 and $87,100) 40,469 48,973
Investments 28,762 28,762
Employee receivables, net 3,600 3,599
-------- --------
Total other assets 75,226 83,729
-------- --------
Total assets 127,854 214,006
======== ========
The accompanying notes are an integral part of the financial statements.
4
June 30,
2003 September 30,
LIABILITIES AND STOCKHOLDERS' (DEFICIT) Unaudited 2003
--------------------------------------- --------- -------------
Current liabilities:
Accounts payable 197,133 200,315
Factoring payable 20,000 146,890
Payroll and payroll taxes payable 143,761 136,115
Payroll taxes assumed in merger 107,950 123,272
Accrued expenses 114,281 116,609
Notes payable-stockholders 132,300 32,300
Current portion of long-term debt 15,690 12,330
Other liabilities 29,519 29,135
Convertible bonds 151,695 151,695
Unearned revenue 87,498 41,034
Liabilities in process of conversion to stock 470,629 468,669
----------- -----------
Total current liabilities 1,470,456 1,458,364
Long-term debt, net of current portion 40,122 24,659
----------- -----------
Total liabilities 1,510,578 1,483,023
COMMITMENTS AND CONTINGENCIES -- --
Stockholders' (deficit):
Common stock-$0.01 par value, 50,000,000 shares
authorized, 46,762,008 and 46,762,008 issued
and outstanding 467,620 467,620
Additional paid-in capital 20,326,780 20,326,780
Retained (deficit) (22,176,241) (22,062,534)
----------- -----------
(1,381,841)
Less-subscriptions receivable (883) (883)
----------- -----------
Total stockholders' (deficit) (1,382,724) (1,269,017)
----------- -----------
Total liabilities and stockholders' (deficit) 127,854 214,006
=========== ===========
The accompanying notes are an integral part of the financial statements.
5
QUINTEK TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2003 AND 2002
Three Months Ended
September 30
(Unaudited)
--------------------
2003 2002
-------- --------
Sales 108,177 150,390
Cost of sales 52,910 69,909
-------- --------
Gross margin 55,267 80,481
Operating expenses:
Selling, general and administrative 165,898 118,836
Stock-based compensation for services -- 10,333
-------- --------
Total operating expenses 165,898 129,169
-------- --------
Loss from operations (110,631) (48,688)
Other income (expenses):
Other income 2,982 19,878
Interest expense (6,060) (19,939)
-------- --------
Total other income (expenses) (3,078) (61)
-------- --------
Net (loss) before income taxes (113,709) (48,749)
Provision for income taxes -- --
-------- --------
Net (loss) (113,709) (48,749)
======== ========
Net loss per share:
Basic and diluted ($ 0.00) ($ 0.00)
The accompanying notes are an integral part of the financial statements.
6
QUINTEK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED SEPTEMBER 31, 2003 AND 2002
(Unaudited)
September 30,
2003 2002
-------- --------
Cash flows from operating activities:
Net (loss) (113,709) (48,749)
Adjustments to reconcile net (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 11,274 9,720
Stock-based compensation for services -- 10,333
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable 67,129 (132,432)
(Increase) decrease in inventory (1,384) 19,541
(Increase) decrease in other current assets 1,620 (2,143)
(Decrease) in accounts payable (1,222) (37,730)
(Decrease) increase in payroll payables (7,676) 74,491
Increase (decrease) in other liabilities and accrued expenses 44,520 (42,657)
-------- --------
Total adjustments 114,261 (100,877)
-------- --------
Net cash provided (used) by operating activities 552 (149,626)
Cash flows from investing activities:
(Increase) in other assets (9,092) (4,000)
(Increase) in employer receivables -- (7,927)
-------- --------
Net cash (used) by investing activities (9,092) (11,927)
Cash flows from financing activities:
Factoring payable (126,890) 58,500
Notes payable-stockholders 100,000 68,900
Convertible bonds -- 5,935
Notes payable 18,824 --
Proceeds from common stock -- 30,200
-------- --------
Net cash (used) provided by financing activities (8,066) 163,535
-------- --------
Net increase (decrease) in cash (16,606) 1,982
Cash-beginning of period 21,162 2,602
-------- --------
Cash-end of period 4,556 4,584
======== ========
The accompanying notes are an integral part of the financial statements.
7
QUINTEK TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
(Unaudited)
1. Basis of Presentation
In the opinion of management, the accompanying unaudited financial
statements of Quintek Technologies, Inc. (the "Company") include all
adjustments (consisting only of normal recurring adjustments) considered
necessary to present fairly its financial position as of September 30,
2003, the results of operations for the three months ended September 30,
2003 and 2002, and cash flows for the three months ended September 30,
2003 and 2002. The results of operations for the three months ended
September 30, 2003 and 2002, are not necessarily indicative of the
results to be expected for the full year or for any future period. The
information included in this Form 10-QSB should be read in conjunction
with Management's Discussion and Analysis and financial statements and
notes thereto included in the Company's 2003 Form 10-KSB.
2. Summary of Significant Accounting Policies
a) Nature of Business
The Company was originally incorporated under the laws of the State
of California on April 16, 1993, as Quintek Electronics, Inc. On
January 14, 1999, the Company merged with Pacific Diagnostic
Technologies, Inc. in a business combination accounted for as a
purchase. The acquisition took place under a plan of
reorganization. Quintek Electronics, Inc. ("QEI") became public
when it was acquired by Pacific Diagnostic Technologies, Inc.
("PDX") through a reverse merger and Chapter 11 Plan of
Reorganization. Under the plan, all assets of QEI were sold to PDX,
all PDX management resigned once the Plan was confirmed, and QEI's
management and operating plan were adopted by the new operating
entity. Shortly after the confirmation of the plan, the name of the
reorganized debtor was changed to Quintek Technologies, Inc.
("QTI"). QTI assumed the assets, liabilities, technology and public
position of both QEI and PDX. At the time of the merger, PDX was a
non-operating public entity and QTI has no intention of carrying on
the former operations of PDX.
The plan was structured to compensate all related parties with
common stock and units. Each unit consisted of one share of common
stock, one Class A warrant, one Class B warrant, one Class C
warrant and one Class D warrant. PDX shareholders received
unrestricted units at a ratio of one QTI unit for 25 shares of PDX
stock, resulting in a distribution of 310,535 units. PDX creditors
received unrestricted QTI units at a ratio of one QTI unit for $3
of previous PDX debt, resulting in a net distribution of 885,549
units. Chapter 11 administrators and consultants received
approximately 610,000 unrestricted QTI shares, attorneys received
220,000 unrestricted units and market-makers received 200,000
unrestricted units. QEI shareholders received 11,096,167 shares of
restricted common stock.
On February 24, 2000, the Company acquired all of the outstanding
common stock of Juniper Acquisition Corporation ("Juniper"). For
accounting purposes, the acquisition has been treated as a
capitalization of the Company with the Company as the acquirer
(reverse acquisition). The historical financial statements prior to
February 24, 2000 are those of the Company.
8
QUINTEK TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
(Unaudited)
The Company was established for the primary purpose of developing,
manufacturing, and distributing the 4300 Aperture Card Imaging
System technologies, used for recording digital images on aperture
card media ("the 4300 system"). Aperture cards are small,
rectangular cards each of which contains a 35mm strip of microfilm,
which is used for storing visual information. The 4300 system is
intended to eliminate the problems of conventional aperture card
manufacturing by producing aperture card media with a chemical free
process. The chemistry and fumes involved with conventional
photographic film development may be hazardous and the waste
material resulting from the chemical process may be considered
hazardous material. The Company's 4300 system does not use a
chemical process and does not produce any hazardous material.
b) Basis of Accounting
The Company reports on the accrual basis of accounting for both
financial statement and income tax purposes. Revenue from product
sales is recognized upon shipment of the product. Revenue from
services is recognized as the service is provided using the
straight-line method over the life of the contract. A related
liability is recorded for the unearned portion of service revenue
received.
c) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect 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.
d) Major Customers
The Company had one customer that accounted for 54% of revenue. For
the three months ended September 30, 2003, revenues from the
Company's major customer amounted to approximately $58,500.
Accounts receivable from this major customer was approximately $-0-
at September 30, 2003.
e) Major Suppliers
There are currently only two known suppliers of aperture cards that
use dry silver film. A continued supply of aperture card media is
crucial to the success of the Company because without cards,
customers have no use for the Company's equipment, services and
software.
g) Accounts Receivable
The allowance for bad debt is established through a provision for
bad debt charged to expense. Receivables are charged off against
the allowance when management believes that the collectibility of
the account is unlikely. Recoveries of amounts previously charged
off are credited to the allowance.
h) Property, Equipment and Depreciation
Property and equipment are recorded at cost. Depreciation of
property and equipment is provided using the straight-line and
accelerated methods over the following estimated useful lives:
Equipment-5 years, computers and office equipment-3-7 years and
furniture and fixtures-7 years.
9
QUINTEK TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
(Unaudited)
Expenditures and maintenance and repairs are charged against
operations when incurred. Major renewals and betterments are
capitalized.
i) Intangible Assets
The cost of patents and purchased proprietary processes acquired
are being amortized using the straight-line method over their
remaining useful lives of 4 years.
j) Payroll Taxes-Assumed in Merger
The Company assumed $205,618 of payroll tax liabilities in the
merger with Pacific Diagnostic Technologies, Inc. The balance at
September 30, 2003 is $107,950.
k) Research and Development
Research and development costs are charged to operations when
incurred and are included in operating expenses. The amount charged
to operations for the three months ended September 30, 2003 was
$12,406.
l) Advertising
The Company expenses advertising costs as they are incurred.
Advertising expense was $143 for the three months ended September
30, 2003.
m) Income Taxes
The Company accounts for income taxes using the liability approach
to financial accounting and reporting. Current income taxes are
based on the year's income taxable for federal and state reporting
purposes.
The Company has a deferred tax asset due to net operating loss
carry-forwards and temporary taxable differences due to stock-based
compensation for income tax purposes. The deferred tax asset is
$2,480,092 as of December 31, 2002. However, due to the ongoing
nature of the losses and the potential inability of the Company to
ever realize the benefit, a valuation allowance has been
established for 100% of the deferred tax asset. Net operating loss
carry-forwards expire at various times through the year 2021.
3. Going Concern
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern; however, the Company has
sustained substantial operating losses. In view of this matter,
realization of a major portion of the assets in the accompanying balance
sheet is dependent upon continued operations of the Company, which in
turn is dependent upon the Company's ability to meet its financing
requirements, and the success of its future operations.
The Company's management is unable to determine how long its cash flow
will sustain its operations or whether certain creditors will initiate
actions to collect amounts due. Accordingly, the Company will require an
additional capital infusion or revenues from additional sales to continue
operations. Management is not certain if additional capital or sales
10
QUINTEK TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
(Unaudited)
proceeds will become available and is considering other strategic
alternatives, which may include a merger, asset sale, or another
comparable transaction, or financial restructuring. If unsuccessful in
completing a strategic transaction, the Company may be required to cease
operations.
4. Net Loss Per Share
Basic net loss per share is based on the weighted average number of
common shares outstanding of 46,762,008 and 40,455,008, for the three
month periods ended September 30, 2003 and 2002, respectively. The basic
and diluted net loss per share calculations are the same because
potential dilutive securities would have had an antidilutive or
immaterial effect.
5. Inventory
Inventory consists of aperture cards, parts and supplies, and completed
machines, and is stated at the lower of cost or market. Cost is
determined on a FIFO (first-in, first-out) basis.
Inventories are as follows:
9/30/03 6/30/03
-------- --------
Parts and supplies 303,399 302,015
Reserve for obsolescence (297,644) (296,644)
-------- --------
5,755 4,371
======== ========
11
QUINTEK TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
(Unaudited)
6. Convertible Bonds
Bonds payable with interest at 9%, due on various
dates in 2001 and 2002, convertible to shares of
common stock in increments of $1,000 or more 110,554
Bonds payable with interest at 12%,
due July 2002, convertible to
shares of common stock in incre-
ments of $500 or more 41,141
-------
151,695
Certain of the outstanding convertible bonds have matured as of December
31, 2002. The holders of the matured bonds do not wish to renew the bonds
and have asked for payment; however, the Company does not have the cash
to repay these bonds.
Bondholders have been asked to exchange their bonds for Series B
preferred stock. As of September 30, 2003, holders of $198,000 of the
bonds including accrued interest had acted on this. The $198,000 is
included in the liability section of the financials under "Liabilities in
Process of Conversion to Stock," since the preferred stock has not been
issued.
7. Notes Payable
Notes payable, due on demand, unsecured,
with interest at 12% per annum. 132,300
=======
8. Commitments and Contingencies
a) Operating Leases
The Company leases its California office facility under a
non-cancelable operating lease that requires total monthly rental
payments of $2,846. The lease expired on March 31, 2002 and the
Company has exercised the option to extend the lease an additional
24 months. The lease contains a rental payment escalation clause.
The Company leases its Idaho office facility under a month-to-month
rental agreement at $1,384 per month.
For the three months ended September 30, 2003, rent expense for
these operating leases totaled $11,876.
Minimum future rental payments under the non-cancelable operating
lease is as follows:
Year ended June 30,
2004 25,614
=======
12
QUINTEK TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
(Unaudited)
b) Purchase Obligation
The Company has established a licensing agreement with Qtek
Aperture Card AB. Under the agreement, the Company is required to
purchase at least 25 of the Q4305 units at approximately $18,000
each before June 30, 2004. As of September 30, 2003, the Company
had purchased 15 units under the agreement.
c) Income Tax Return Filings
The Company has not filed income tax returns for several years. Due
to operating losses, income tax liability and penalties would not
be substantial. However, the State of California could potentially
revoke the Company's charter if the Company does not become current
on its income tax return filings.
d) Securities and Exchange Commission Inquiry
On September 17, 2002, the Company was advised by the staff of the
U.S. Securities and Exchange Commission that they will recommend
that the Commission file civil injunctive lawsuits against the
Company and its president, Thomas W. Sims. The suits would allege
that the Company violated Section 17(a) of the Securities Act of
1933 and Sections 10(b) and 13(a) of the Securities Exchange Act of
1934 and Rules 10b-5, 13a-1, and 13a-13, based on false and
misleading statements in press releases disseminated by the Company
on October 22, 2001 and October 25, 2001, regarding the Company's
investment in PanaMed Corp. and the press releases disseminated on
January 8, 2002 and March 20, 2002, and failure to timely file
annual and quarterly reports with the Commission.
On March 25, 2003, the Company signed, without admitting or denying
the allegations, a proposed settlement agreement with the U.S.
Securities and Exchange Commission, which permanently restrains and
enjoins the Company from engaging in acts which would constitute
violations of these regulations in the future.
On August 6, 2003, a final judgment was entered by the U.S.
District Court, Central District of California, against the Company
which permanently enjoined the Company from violating Section 10(b)
of the Exchange Act and Rule 10b-5 promulgated thereunder by using
any means or instrumentality of interstate commerce, or of the
mails, or of any national securities exchange: (A) to employ any
device, scheme or artifice to defraud; (B) to make any untrue
statement of a material fact or omitting to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading; or (C) to
engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any person, in
connection with the purchase or sale of any security. Further, the
final judgment permanently enjoined the Company from violating
Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13
promulgated thereunder, by failing to file with the Commission in
accordance with Commission rules and regulations, information and
documents required by the Commission to keep current information
and documents required in or with an application or registration
statement filed pursuant to Section 12 of the Exchange Act or
annual or quarterly reports as the Commission has prescribed.
13
QUINTEK TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
(Unaudited)
e) Lawsuit
On September 19, 2002, First Horizon Loan Corp. filed suit for
damages for breach of a lease agreement for the Company's former
sales offices in Fairfax, Virginia. The suit alleges that the
Company breached the lease when the Fairfax office was closed in
July 2000 and lease payments were stopped. In May 2003, the Company
and First Horizon reached a settlement in which the total sum of
$20,000 is to be paid to First Horizon over a nine-month period of
time.
9. Stockholders' Deficit
a. Common Stock and Warrants
The Company has authorized 50 million shares of $0.01 par value
common stock. Each share entitles the holder to one vote. There are
no dividend or liquidation preferences, participation rights, call
prices or rates, sinking fund requirements, or unusual voting
rights associated with these shares. At June 30, 2003, there were
46,762,008 shares of common stock issued and outstanding. During
the year ended June 30, 2003, the Company established the Class L
warrants and initiated the process of establishing the Series A
Preferred stock which underlies these warrants.
During the third quarter of the fiscal year ended June 30, 2003,
the Company established the Class L warrants with the following
general terms; 1) exercise price of 25 cents per share, 2)
expiration date of January 14, 2005, and 3) Series A Preferred
stock designated as underlying stock. During this same period, the
Company initiated an exchange program with the existing Class J
Warrant holders in which the Company offered to exchange one Class
L Warrant for two Class J warrants, with the exchange number
rounded up to the next whole number in cases where an odd number of
Class J warrants were submitted for exchange. For each class, the
number of warrants outstanding, the strike price and the expiration
dates are as follows:
Class J- 6,458,384 warrants on restricted stock with a strike
price of $1.00 per share, expiring on January 14, 2004.
Class L- warrants were established in March 2003, with an
exercise price of $.25 per share, an expiration date of
January 14, 2005 and Series A Preferred as underlying stock.
As of June 30, 2003, holders of Class J warrants totaling
6,126,861 shares of common stock have agreed to exchange their
warrants for 3,063,431 Class L warrants (a two for one
exchange ratio).
Warrants E, F, G, and I expired on March 31, 2002. Warrants B, C,
and D expired on July 31, 2002. Warrants H expired October 1, 2002.
b. Common Stock Reserved
At September 30, 2003, common stock was reserved for the following
reasons:
Conversion of bonds 1,695,728 shares
14
QUINTEK TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
(Unaudited)
c. Stock Option Agreements
The Company has granted fixed employee stock-based compensation
options. The fixed option agreements typically have a maximum term
of 5 years and are fully vested at the date of grant. The fair
value of each option granted is estimated on the grant date using
the Black-Scholes Model. The following assumptions were made in
estimating fair value.
Fixed
Options
-------
Dividend yield 0.00%
Risk-free interest rate 3.40%
Expected life 5 years
Expected volatility 180%
Had compensation cost been determined on the basis of fair value
pursuant to FASB Statement No. 123, net loss and loss per share
would not have been reduced because no options were issued during
the years ended June 30, 2003 and 2002.
The Company applies APB Opinion 25 in accounting for its fixed
stock compensation. Compensation cost charged to operations for the
three months ended September 30, 2003 was $-0-.
Following is a summary of the status of the stock option agreements
during the year ended June 30, 2003 and September 30, 2003:
Number of Weighted Average
Shares Exercise Price
--------- ----------------
Outstanding at July 1, 2002 2,015,000 $ 1.01
Granted -- --
Exercised -- --
Forfeited -- --
--------- ---------
Outstanding at June 30, 2003 2,015,000 1.01
--------- ---------
Options exercisable at September 30, 2003 2,015,000 1.01
========= =========
Following is a summary of the status of the stock option agreements
outstanding at September 30, 2003:
Weighted Average Weighted
Remaining Average
Exercise Price Range Number Contractual Life Exercise Price
-------------------- ------ ---------------- --------------
$1.00 - $4.00 2,015,000 19 months $1.01
15
QUINTEK TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
(Unaudited)
Pending stock transactions needing shareholder approval:
--------------------------------------------------------
Series A Preferred Stock
During the third quarter of the fiscal year ended June 30, 2003,
the board of directors allocated 7,000,000 shares out of an
authorized 10,000,000 shares of Preferred stock to be used to
establish Series A Preferred stock with general terms as defined
below: Par value - $0.00; Liquidation Preference - $0.25 per share
plus any unpaid accumulated dividends; Dividends - cumulative
annual rate of $0.005 per share; Conversion Rights - convertible to
common stock at a 1:1 ratio if and when a majority of the Company's
shareholders vote to approve an increase in authorized common
shares from 50,000,000 to 200,000,000; Redemption Rights - the
Company has the right to redeem part or all of the stock upon 30
days written notice at a rate of $0.25 per share plus all
accumulated and unpaid dividends; Voting Rights - one vote per
share on all matters requiring shareholder vote.
Prior to issuing the Series A Preferred stock, the Company will
need to modify its articles of incorporation and obtain approval on
such changes from a majority of the shareholders. A shareholder
meeting is scheduled for later this year to vote on this and other
corporate matters.
Series B Preferred Stock
During the third quarter of fiscal year ended June 30, 2003, the
board of directors allocated 1,613,680 shares out of a remaining
authorized 3,000,000 shares of Preferred stock to be used to
establish Series B Preferred stock with the following terms: Par
Value - $0.00; Liquidation Preference - $0.25 per share plus any
unpaid accumulated dividends; Dividends - cumulative annual rate of
$0.0005 per share when and as declared by our Board of Directors;
Conversion Rights - convertible to common stock at a 1:5 ratio
(i.e. 1 share of Preferred Series B stock is convertible to 5
shares of common stock) if and when a majority of the Company's
shareholders vote to approve an increase in authorized common
shares from 50,000,000 to 200,000,000; Redemption Rights - the
Company has the right to redeem part or all of the stock upon 30
days written notice at a rate of $0.25 per share plus all
accumulated and unpaid dividends; Voting Rights - one vote per
share on all matters requiring shareholder vote.
Prior to issuing the Series B Preferred stock, the Company will
need to modify its articles of incorporation and obtain approval on
such changes from a majority of the shareholders.
Liabilities in process of conversion to stock:
The Company has entered into agreements with various vendors and
employees to convert their liabilities into the above, two
preferred series of stock pending approval of same. The conversion
rate varies.
16
QUINTEK TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
(Unaudited)
10. Related Party Transactions
During the year ended June 30, 2003, the Company sold aperture cards to
Qtek Aperture Card AB, a related party, for $13,397.
During the year ended June 30, 2002, the Company sold aperture cards to
Qtek Aperture Card AB, a related party, for $1,884.
Included in factoring payable at September 30, 2003 is $20,000 due to a
stockholder.
11. Factoring Payable
The Company has entered into an agreement with a factoring company ("the
Factor") to factor purchase orders with recourse. The Factor funds 97% or
90% based upon the status of the purchase order. The Factor has agreed to
purchase up to $4,800,000 of qualified purchase orders over the term of
the agreement; however, the Factor does not have to purchase more than
$200,000 in any given month. The agreement term is from June 2, 2003 to
June 2, 2005. The Company will pay a late fee of 3% for payments not made
within 30 days and 5% for those not made in 60 days. At the option of the
Factor, the late fees may be paid with Company stock. If paid by Company
stock, the stock bid price will be discounted 50% in computing the shares
to be issued in payment of the late fee.
The Company has agreed to issue the Factor 1,500,000 warrants to purchase
the Company's stock as a fee for the factoring agreement. The stock
issued under the warrants can be purchased at the average closing price
of the Company's stock for the 90 days prior to the factoring agreement.
The Company has also issued the Factor bonus warrants. The Factor will
receive two (2) bonus warrants for each dollar of purchase orders
purchased. The bonus warrants will be exercisable at the average closing
price of the Company's common stock for the 90 days prior to the purchase
order transactions they represent or a 50% discount to the closing price
of the Company's stock at the time exercised at the option of the Factor.
Both warrants are for a five year period.
At September 30, 2003, the Company had a factoring payable balance of
$20,000.
12. Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of financial instruments:
Cash and Cash Equivalents. The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Accounts Receivable and Accounts Payable. The carrying amount of accounts
receivable and accounts payable in the balance sheet approximates fair
value.
Short-Term and Long-Term Debt (including factoring payable). The carrying
amount of the revolving credit facility approximates fair value.
The carrying amounts of the Company's financial instruments at September
30, 2003, approximate fair value.
17
Item 2. Management's Discussion and Analysis
2.1 Results of Operations
Our revenues totaled $108,177 and $150,390 for the three months ended September
30, 2003 and 2002, respectively, a decrease of $42,213 (28%) in 2003, primarily
due to a decrease in machine sales. Revenues in both periods resulted primarily
from sales of equipment, aperture card media, and maintenance services.
For the three months ended September 30, 2003 and 2002, cost of sales was
$52,910 and $69,909, respectively, a decrease of $16,999 (24%) in 2003. The cost
of sales for both periods consisted primarily of labor and production costs.
Operating expenses totaled $165,898 for the three month period ended September
30, 2003 as compared to $129,169 for the three month period ended September 30,
2002, a $36,729 (28%) increase in 2003, primarily due to a increase in overhead
expenses.
During the three months ended September 30, 2003, we sold one Q4400 system for
installation at a domestic site, we sold 44,000 aperture cards, and we renewed 8
maintenance contracts.
2.2 Liquidity and capital resources
We have historically financed operations from the issuance of debt, the sale of
common stock and the conversion of common stock warrants. On September 30, 2003,
we had cash on hand of $ 4,556 and working capital of ($1,447,159) as compared
to cash on hand of $21,162 and working capital of ($1,351,366) at period-ending
June 30, 2003. 10
Net cash used in operating activities of $552 and ($149,626) for three months
ended September 30, 2003 and 2002, respectively, is attributed primarily to
payroll, payables and accounts receivable.
Net cash used for investing activities of ($9,092) for the three months ended
September 30, 2003 and $(11,927) for the three months ended September 30, 2002
is primarily related to an increase in other assets.
Net cash provided by financing activities of $(8,066) for the three months ended
September 30, 2003 is based primarily on proceeds from factoring offset by notes
payable to stockholders. Net cash provided by financing activities of $163,535
for the three months ended September 30, 2002 is based primarily on notes
payable-stockholders and factoring payable.
We assumed certain payroll tax liabilities as the result of the merger with
Pacific Diagnostic Technologies, Inc., on January 14, 1999. We have negotiated a
payment plan with the Internal Revenue Service to pay the payroll taxes assumed
in the merger.
We believe that the receipt of net proceeds from the issuance of debt, the sale
of the common stock and the exercise of common stock warrants plus cash
generated internally from sales will be sufficient to satisfy our future
operations, working capital and other cash requirements for the remainder of the
fiscal year. However, if we are unable to raise sufficient capital, we may need
sell certain assets, enter into new strategic partnerships, reorganize the
company, or merge with another company to effectively maintain operations. Our
audit for the years ended June 30, 2003 and 2002 contained a going concern
qualification.
Item 3. Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer (collectively, the
"Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures for the Company. Such officers have concluded
(based on their evaluation of these controls and procedures as of a date within
18
90 days of the filing of this report) that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in this report is accumulated and communicated to the Company's
management, including its principal executive officers as appropriate, to allow
timely decisions regarding required disclosure. The Certifying Officers also
have indicated that there were no significant changes in the Company's internal
controls or other factors that could significantly affect such controls
subsequent to the date of their evaluation, and there were no corrective actions
with regard to significant deficiencies and material weaknesses.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
On September 17, 2002, we were advised by the staff of the U.S. Securities and
Exchange Commission that they will recommend that the Commission file a civil
injunctive lawsuit against us, alleging that we violated Section 17(a) of the
Securities Act of 1933 and Sections 10(b) and 13(a) of the Securities Exchange
Act of 1934 and Rules 10b-5, 13a-1, and 13a-13. On March 25, 2003, we signed,
without admitting or denying the allegations, a proposed settlement agreement
with the U.S. Securities and Exchange Commission, which permanently restrains
and enjoins the Company from engaging in acts which would constitute violations
of these regulations in the future. On August 6, 2003, a final judgment was
entered by the U.S. District Court, Central District of California, against the
Company which permanently enjoined the Company from violating Section 10(b) of
the Exchange Act and Rule 10b-5 promulgated thereunder by using any means or
instrumentality of interstate commerce, or of the mails, or of any national
securities exchange: (A) to employ any device, scheme or artifice to defraud;
(B) to make any untrue statement of a material fact or omitting to state a
material fact necessary in order to make the statements made, in the light of
the circumstances under which they were made, not misleading; or (C) to engage
in any act, practice, or course of business which operates or would operate as a
fraud or deceit upon any person, in connection with the purchase or sale of any
security. Further, the final judgment permanently enjoined the Company from
violating Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13
promulgated thereunder, by failing to file with the Commission in accordance
with Commission rules and regulations, information and documents required by the
Commission to keep current information and documents required in or with an
application or registration statement filed pursuant to Section 12 of the
Exchange Act or annual or quarterly reports as the Commission has prescribed.
Item 2. Changes in Securities
Common Stock Transactions
During the three month period ending September 30, 2003, we issued no shares of
our common stock.
Item 3. Defaults Upon Senior Securities
During the three month period ended March 31, 2003, we made offers to all
holders of our promissory notes and convertible bonds to convert their bond
principal and accrued interest into Series B Preferred stock at a rate of 25
cents per share. As of September 30, 2003, we received commitments to convert
$188,268 of debt ($149,000 in principal + $39,268 in accumulated interest) into
753,072 shares of Series B Preferred stock. During October 2003, a convertible
bond in the principal amount of $89,200 and with all interest ($17,221.71) was
converted into common stock. The balance of related debt, consisting of $82,495
in principal and $18,287 in accrued interest, still remains outstanding.
19
Interest continues to accrue against the principal of all outstanding bonds.
The convertible bonds are unsecured, general obligations of the Company which
are convertible into common stock at the option of the holders. The holders of
the bonds that are in default have indicated that they do not want to convert
their debt to stock and wish to be repaid in cash. At present we do not have
funds to repay the indebtedness. We do not know whether we will be able to repay
or renegotiate the debt. If we are unable to cure the default or renegotiate our
debt, we may not be able to continue as a going concern.
Item 4. Submission of Matters to a Vote of Security Holders
During the three month period ending September 30, 2003, no matters were
submitted to a vote of security holders.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification pursuant to Rule 13a-14 of the Securities Exchange
Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, of the Chief Executive Officer
31.2 Certification pursuant to Rule 13a-14 of the Securities Exchange
Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, of the Chief Financial Officer
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the
Chief Executive Officer
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the
Chief Financial Officer
(b) Reports on Form 8-K -
On July 14, 2003 we filed a Report on Form 8-K that described (a) a purchase
order financing agreement we entered into on June 2, 2003, and (b) a press
release dated June 10, 2003 describing the purchase order financing agreement.
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.
QUINTEK TECHNOLOGIES, INC.
Date: November 19, 2003 /s/ ROBERT STEELE
--------------------------------------------
Robert Steele, President & CEO
Date: November 19, 2003 /s/ ANDREW HAAG
--------------------------------------------
Andrew Haag, Chief Financial Officer
20