UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2004
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.
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(Exact name of registrant as specified in its charter)
State of California 77-0505346
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
537 Constitution Ave., Suite B
Camarillo, California 93012
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(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 May 11, 2004 a total of 48,749,994 shares of the registrant's common stock
were issued and outstanding.
Transitional Small Business Disclosure
Format: Yes [ ] No [X]
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. 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 14
Item 3 Disclosure Controls and Procedures 15
PART II OTHER INFORMATION 15
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 18
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
QUINTEK TECHNOLOGIES, INC.
BALANCE SHEET
MARCH 31, 2004
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 50,135
Accounts receivable (net of allowance
for doubtful accounts of $17,684) 7,020
Inventory 13,038
Prepaid expenses 1,553
---------------
Total current assets 71,747
PROPERTY AND EQUIPMENT, net 26,184
OTHER ASSETS:
Deposits 2,395
Intangible assets, net 23,455
Investments 28,778
Other assets 889
---------------
$ 153,447
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable & accrued expenses $ 315,026
Factoring Payables 20,000
Payroll and payroll taxes payable 210,175
Payroll taxes assumed in merger 96,661
Loans payable-stockholders 244,056
Note Payable - Other 19,484
Convertible Bonds 62,495
Convertible Notes 300,000
Unearned Revenue 100,184
Liabilities in process of conversion to stock 470,629
---------------
Total current liabilities 1,838,711
Long Term Debt , net of current portion 25,729
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, .001 par value; Authorized shares 50,000,000
Issued and outstanding shares 48,749,994 487,500
Additional paid in capital 20,471,680
Prepaid consulting fees (39,442)
Accumulated deficit (22,630,731)
---------------
Total stockholders' deficit (1,710,992)
---------------
$ 153,447
===============
The accompanying notes are an integral part
of these unaudited financial statements.
4
QUINTEK TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THREE MONTHS AND NINE MONTHS ENDING MARCH 31, 2004 AND 2003
(Unaudited)
Three months Nine months
ended March 31, ended March 31,
2004 2003 2004 2003
-------------- -------------- ------------- --------------
Net revenue $ 46,775 $ 100,838 $ 232,200 $ 323,449
Cost of revenue 38,300 56,510 151,883 169,463
-------------- -------------- ------------- --------------
Gross profit 8,475 44,328 80,317 153,986
Operating expenses
Selling, general and administrative 203,312 161,645 615,770 393,277
Stock based compensation for services -- 151,000 15,000 223,013
-------------- -------------- ------------- --------------
Total operating expenses 203,312 312,645 630,770 616,290
-------------- -------------- ------------- --------------
Loss from operations (194,837) (268,317) (550,453) (462,304)
Non-Operating Income (expense):
Investment Income 16 -- 16 --
Other Income (282) (3,351) 5,564.17 30,665
Interest expense (5,696) (13,440) (22,524) (37,286)
-------------- -------------- ------------- --------------
Total non-operating (5,962) (16,791) (16,943) (6,621)
income (expense
-------------- -------------- ------------- --------------
Loss before income tax (200,799) (285,108) (567,397) (468,925)
Provision for income tax 800 -- 800 --
-------------- -------------- ------------- --------------
Net loss $ (201,599) $ (285,108) $ (568,197) $ (468,925)
============== ============== ============= ==============
Basic and diluted net loss per share $ (0.004) $ (0.006)$ (0.012)$ (0.011)
============== ============== ============= ==============
Basic and diluted weighted average
shares outstanding 48,749,994 44,577,008 47,798,721 44,577,008
============== ============== ============= ==============
* Weighted average number of shares used to compute basic and diluted loss per
share is the same since the effect of dilutive securities is anti-dilutive.
The accompanying notes are an integral part
of these unaudited financial statements.
5
QUINTEK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR NINE MONTH PERIODS ENDING MARCH 31, 2004 AND 2003
(Unaudited)
2004 2003
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (568,197) $ (468,925)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 35,755 27,880
Stock based compensation for services 15,000 223,013
Warrants used for services 41,572 --
Liabilities in process of conversion 1,960 --
(Increase) decrease in current assets:
Receivables 66,098 (126,269)
Inventory (8,667) 25,043
Other Assets 7,728 --
Prepaid Expenses (40,995) --
Investments (16) --
Increase (decrease) in current liabilities:
Payroll Payables 47,449 126,370
Unearned Revenues 59,150
Other liabilities and accrued expenses (164,852) (18,195)
Accounts payable 133,911 (5,358)
------------- --------------
Total Adjustments 194,093 252,484
------------- --------------
Net cash used in operating activities (374,104) (216,441)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property & equipment (13,412) (4,000)
Decrease in other assets - 2,599
Increase) decrease in employer receivables 3,599 (8,010)
------------- --------------
Net cash used in investing activities (9,813) (9,411)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Factored Payables (126,890) --
Proceeds from factor - 40,000
Loans Payable - Stockholders 211,756 68,900
Notes Payable 8,224 --
Convertible Bonds (89,200) --
Convertible Notes 300,000 --
Proceed from issuance of common stock 109,000 120,200
------------- --------------
Net cash provided by financing activities 412,890 229,100
------------- --------------
NET INCREASE IN CASH & CASH EQUIVALENTS 28,973 3248
CASH & CASH EQUIVALENTS, BEGINNING BALANCE 21,162 2602
------------- --------------
CASH & CASH EQUIVALENTS, ENDING BALANCE $ 50,135 $ 5850
============= ==============
The accompanying notes are an integral part
of these unaudited financial statements.
6
QUINTEK TECHNOLOGIES, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. Description 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 no 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 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.
2. 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 March 31, 2004, the results of operations for the nine
months ended March 31, 2004 and 2003, and cash flows for the nine months ended
March 31, 2004 and 2003. The results of operations for the nine months ended
March 31, 2004 and 2003, 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.
7
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.
Major Customers
The Company had one customer that accounted for 54% of revenue for the nine
month period ended March 31, 2004. Accounts receivable from this major customer
was $-0- at March 31, 2004.
The Company had two customers that accounted for more than 67% of revenue for
the nine months ended March 31, 2003. Accounts receivable from these major
customers was approximately $137,649 at March 31, 2003.
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.
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 March 31, 2004 is $96,661.
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 nine
month period ended March 31, 2004 was $5,022. The amount charged to operations
for research and development for the nine month period ended March 31, 2003 was
$42,375.
Advertising
The Company expenses advertising costs as they are incurred. Advertising expense
was $143 and $11,572 for the nine month periods ended March 31, 2004 and 2003,
respectively.
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 $2,560,000 as of March 31, 2004. 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.
Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
financial instruments:
8
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 March 31, 2004,
approximate fair value.
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 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 47,595,959 and 44,577,008 for the nine month periods ended
March 31, 2004 and 2003, 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.
9
5. Convertible Bonds
------------------------------------------------------------------- -------------
Bonds payable with interest at 9%, due on various dates in 2001 $ 21,354
and 2002, convertible to shares of common stock in increments of
$1,000 or more.
------------------------------------------------------------------- -------------
Bonds payable with interest at 12%, due July 2002, convertible to 41,141
shares of common stock in increments of $500 or more.
------------------------------------------------------------------- -------------
$ 62,495
------------------------------------------------------------------- -------------
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 March 31, 2004, 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.
6. Convertible Notes
The company issued $ 200,000 convertible notes during the quarter ending March
31, 2004. Each note shall bear a simple interest rate of 10%. Notes will be
convertible at six cents into the common stock of the company. The total
convertible notes at March 31, 2004 amounted to $ 300,000.
7. Loans Payable - Stockholder
The Company has borrowed monies from the stockholders. The company borrowed
$111,756 from the stockholders during the quarter ending March 31, 2004. The
total loans payable to the stockholder at 03/31/2004 amounts to $ 244,056.
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 nine months ended March 31, 2004,
rent expense for these operating leases totaled $ 38,070.
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 March 31,
2004, 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.
10
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.
9. Stockholders' Deficit
a. Common Stock and Warrants
The Company has authorized 50 million shares of common stock with a par value of
$0.01 per share. 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 March 31, 2003, there were 47,027,008 shares of common stock issued
and outstanding. During the three months ended March 31, 2003, the Company
established the Class L warrants and initiated the process of establishing the
Class A Preferred stock which underlies these warrants.
Upon surrender of either a Class J or L warrant, the holder is entitled to
purchase one share of the Company's stock at the designated exercise price. For
each warrant class, the number of warrants outstanding, the exercise price, the
type of underlying stock, and the expiration dates are defined as follows:
Class J - 6,458,384 warrants to purchase common restricted stock with an
exercise price of $1.00 per share expired 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 March 31, 2003, holders of Class J warrants to purchase
5,686,861 shares of common stock have agreed to exchange their warrants for
2,843,431 Class L Warrants (i.e. a two for one exchange ratio).
11
At March 31, 2003, the outstanding warrants of classes A, B, C, D, E, F, G, H,
and I have expired.
No shares were issued for the quarter ended March 31, 2004.
b. Common Stock Reserved
At March 31, 2003, common stock was reserved for the following reasons:
Conversion of bonds 1,763,585 shares
Exercise of Class J warrants
classified as stock options 195,000 shares
Exercise of Class J warrants 576,523 shares
c. Stock Option Agreements
The Company previously had granted stock options to employees through Class J
warrants. As of March 31, 2004 no options were outstanding to employees;
however, 195,000 Class J warrants remain outstanding to former employees. The
Company did not issue any option in the three month period ended March 31, 2004
and 2003.
The Company applies APB Opinion 25 in accounting for its fixed stock
compensation. Compensation cost charged to operations for the nine months ended
March 31, 2004 and 2003 was $-0-.
The company issued 200,000 warrants during the quarter for consulting services
to be provided over the period of three years beginning February 2004. The fair
value of the warrants is estimated on the grant date using the Black-Scholes
Model. The following assumptions were made in estimating fair value.
Annual rate of quarterly dividends 0.00%
Discount rate - Bond Equivalent Yield 3.50%
Expected life 3 years
Expected volatility 294%
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.
12
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. A shareholder meeting is scheduled for later this
year to vote on this and other corporate matters.
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.
10. Related Party Transactions
There are no related party transactions during the quarter ending March 31, 2004
and March 31, 2003.
Factoring payable at March 31, 2004 comprises of $20,000 due to a stockholder.
There has been no change in Factoring Payable during the quarter ending March
31, 2004.
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 purchasing 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.
13
Item 2. Management's Discussion and Analysis
2.1 Results of Operations
Our revenues totaled $232,200 and $323,449 for the 9 months ended March 31, 2004
and 2003, respectively, a decrease of $91,249 (39%) in 2004, primarily due to a
decrease in machine sales. Revenues in 2003 resulted primarily from sales of
equipment, aperture card media, and maintenance services.
For the nine months ended March 31, 2004 and 2003, cost of sales was $151,883
and 169,463, respectively, an decrease of $17,580 (10%) in 2003. The cost of
sales for both periods consisted primarily of labor and production costs.
Operating expenses totaled $ 630,770 for the nine month period ended March 31,
2004 as compared to $ 616,290 for the six month period ended March 31, 2003, a
$14,480(2%) increase in 2004, primarily due to a increase in overhead expenses.
During the three months ended March 31, 2004, we sold 14,000 aperture cards, and
renewed 1 maintenance contracts completed 3 network upgrades and sold 1 software
upgrade.
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 March 31, 2004, we
had cash on hand of $50,135 and working capital of ($1,766,964) as compared to
cash on hand of $5,850 and working capital of ($1,230,506) at period-ending
March 31, 2003.
Net cash used in operating activities of ($374,104) and ($216,441) for the nine
months ended March 31, 2004 and 2003, respectively, is attributed primarily to
payroll, payables and accounts receivable.
Net cash used for investing activities of ($9,813) for the nine months ended
March 31, 2004 and ($9,411) for the nine months ended March 31, 2003.
Net cash provided by financing activities of $412,890 for the nine months ended
March 31, 2004 is based primarily on proceeds from convertible notes. Net cash
provided by financing activities of $229,100 for the Nine months ended March 31,
2003 is based primarily on proceeds from common stock and convertible bonds
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
to 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.
14
Item 3. 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
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
None.
Item 2. Changes in Securities
None.
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 Preferred stock. As of March 31, 2004, we
received commitments to convert $198,268 of debt ($159,000 in principal +
$39,268 in accumulated interest) into 724,077 shares of Series A Preferred stock
and 648,256 shares of Series B Preferred stock. During October 2003, a
convertible bond with a principal amount of $89,200 and accumulated interest of
$17,222 was converted into 1,773,695 shares of common stock. The balance of
related debt, consisting of $82,495 in principal and $26,768 in accrued
interest, still remains outstanding. 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 March 31, 2004, no matters were submitted
to a vote of security holders.
Item 5. Other Information
The Company, through its wholly owned subsidiary, Quintek Services, Inc. (QSI),
has entered the multi-billion dollar Business Process Outsourcing (BPO) services
industry. This space is estimated to be growing significantly faster than the
overall IT market and is currently valued anywhere from $100-$200 billion
annually by a number of independent research firms.
The Company has been in the document management space for over ten years as a
manufacturer and distributor of patented hardware, software and related
services. The Company has many Fortune 1000 customers, and the new expansion is
expected to bring rapid and substantial revenue growth,
15
The Company has drafted a business plan to expand nationally and grow to 38
sales representatives and 20 facilities nationwide The Company has recently
signed a number of business development deals to grow and expand this line of
business. The Company expects to continue to execute business developments and
grow operations along the lines of this plan.
The Company has recently added a number of key employees to facilitate this
business expansion. The Company executed an employment agreement as of March 12,
2004 with Bob Brownell, an industry veteran, to serve as President of Quintek
Technologies, Inc. Mr Brownell has 25 years sales experience and helped to build
operations start business in the same and related industries from the ground
upMr Brownell has served in management level positions with companies generating
over $400 million from the sales of related services. The Company executed an
employment agreement with Chris deLapp as Senior Sales Executive. Mr deLapp has
worked with Affiliated Computer Systems (NYSE:ACS), a multi-billion dollar
provider of related products and services, for more than 9 years. The Company
has executed an employment agreement with Sam Contreras, to serve as Senior
Operations Manager. Mr. Contreras has significant relevant experience in setting
up and maintaining operations for various companies providing related services
nationwide. The Company has executed an employment agreement with other
administrative personnel with experience in efficiency evaluations for companies
providing related services nationwide.
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 January 14, 2004 we filed a Report on Form 8-K that described our Board of
Directors decision to repeal our existing corporate Bylaws and adopt an entire
set of new Bylaws which are better suited for use by a public company.
On February 9, 2004 we filed a Report on Form 8-K that described a recent
presentation to the Southern California Investors Association in which we
disclosed future plans for expanding the business, which includes; positioning
our company as a mass storage vendor, acquiring an experienced mass storage
sales force, integrating our product line with other products, forming new
partnerships, and acquiring existing service bureau operations.
16
On March 25, 2004 we filed a Report on Form 8-K that described the resignation
of Heard, McElroy & Vestal ("HMV") as the Company's its independent public
accountants. The decision to resign by HMV did not involve a dispute with the
Company over accounting policies or practices. On March 24, 2004, the Company
appointed Kabani & Company, Inc., Certified Public Accountants("Kabani") as its
new independent public accountants. The decision to retain Kabani was made by
the Company's Board of Dirctors.
On March 31, 2004 we filed a Report on Form 8-K that described a letter to
shareholders and customers that announced the Company's expansion, through its
subsidiary, Quintek Services, Inc. ("QSI"), into the service industry as a
'Business Process Outsourcing' (BPO) services provider. The letter announced
employment of a new President of QSI and also disclosed a Company strategy to
develop a complete information lifecycle management (ILM) solution for
cradle-to-grave document storage.
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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: May 20, 2004 /s/ ROBERT STEELE
--------------------------------------------
Robert Steele, Chairman
and Chief Executive Officer
Date: May 20, 2004 /s/ ANDREW HAAG
--------------------------------------------
Andrew Haag, Chief Financial Officer
18