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, 2007
or
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
Commission
File Number 0-28541
(Exact
name of registrant as specified in its charter)
California
|
77-0505346
|
(State
or other jurisdiction
|
(I.R.S.
Employer
|
of
incorporation or organization)
|
Identification
No.)
|
17951
Lyons Circle
Huntington
Beach, CA 92647
(Address
of principal executive offices)
Registrant's
telephone number: 714-848-7741
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
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
At
November 14, 2007, a total of 214,723,622 shares of registrant's Common Shares
were outstanding.
Transitional
Small Business Disclosure Format: Yes o No x
QUINTEK
TECHNOLOGIES, INC.
FORM
10-QSB
For
the Fiscal Quarter Ended September 30, 2007
Part
I
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Page
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Item
1. Financial Statements (unaudited)
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3
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Item
2. Management's Discussion and Analysis or Plan of
Operations
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18
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Item
3. Controls and Procedures
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23
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Part
ll
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Item
1. Legal Proceedings
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24
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Item
2. Unregistered Sale of Equity Securities and Use of
Proceeds
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24
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Item
3. Defaults Upon Senior Securities
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25
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Item
4. Submission of Matters to a Vote of Security Holders
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25
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Item
5. Other Information
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25
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Item
6. Exhibits
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25
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Item
1. Financial Statements
QUINTEK
TECHNOLOGIES, INC. AND SUBSIDIARY
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CONSOLIDATED
BALANCE SHEET
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AS
OF SEPTEMBER 30, 2007
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(Unaudited)
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$
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60,991
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Accounts
receivable, net of allowance for doubtful accounts of
$4,496
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322,863
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Total
current assets
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383,854
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Property
and equipment, net
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259,059
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Deposits
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102,914
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Other
assets
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883
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Total
Assets
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$
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746,711
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LIABILITIES
AND STOCKHOLDERS' DEFICIT
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Current
liabilities:
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Accounts
payable and accrued expenses
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$
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1,968,734
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Factoring
payable
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188,490
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Payroll
and payroll taxes payable
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65,428
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Payroll
taxes assumed in merger
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66,529
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Advances
from lenders
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36,736
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Loans
payable
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180,604
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Convertible
bonds
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62,495
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Convertible
debentures
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210,674
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Convertible
notes
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45,450
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Warrant
liability
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40,189
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Deferred
revenue
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17,548
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Dividend
payable
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51,755
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Total
current liabilities
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2,934,631
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Long-term
debt
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1,054,090
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Stockholders'
deficit:
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Preferred
stock, convertible, no par value, 50,000,000 shares
authorized,
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4,154,750
shares issued and outstanding
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1,281,605
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Common
stock, $0.001 par value, 500,000,000 shares authorized,
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194,323,622
shares issued and outstanding
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194,323
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Additional
paid-in capital
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32,698,743
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Shares
to be issued
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5,000
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Stock
subscription receivable
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(776,250
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)
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Accumulated
deficit
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(36,645,431
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)
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Total
stockholders' deficit
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(3,242,010
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)
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Total
liabilities and stockholders' deficit
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$
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746,711
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The
accompanying notes are an integral part of these unaudited consolidated
financial statements
QUINTEK
TECHNOLOGIES, INC. AND SUBSIDIARY
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CONSOLIDATED
STATEMENTS OF OPERATIONS
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(Unaudited)
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For
the three months ended
September
30,
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2007
|
|
2006
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|
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Net
revenue
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$
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575,225
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$
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411,728
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Cost
of revenue
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356,391
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318,489
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Gross
margin
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218,833
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93,240
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Operating
expenses:
|
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Selling,
general and administrative
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386,132
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854,155
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Stock-based
compensation
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-
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600,000
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Stock-based
consulting fees
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-
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94,227
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Total
operating expenses
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386,132
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1,548,383
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Loss
from operations
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(167,299
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)
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(1,455,143
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)
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Non-operating
income (expense):
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Other
income
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6,181
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3,095
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Uncollectible
from former officers
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613
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(2,720
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)
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Finance
expense
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(69,381
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)
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-
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Change
in fair value of warrants
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1,098,866
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621,748
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Interest
income
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-
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2,592
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Interest
expense
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(83,850
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)
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(61,345
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)
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Total
non-operating income
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952,430
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563,370
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Income
(Loss) before provision for income taxes
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785,131
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(891,772
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)
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Provision
for income taxes
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800
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|
|
800
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Net
income (loss)
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784,331
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(892,572
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)
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Dividend
requirement for preferred stock
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3,698
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4,014
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Net
income (loss) applicable to common shareholders
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780,633
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(896,587
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)
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Other
comprehensive (loss)/gain:
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Reclassification
adjustment
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-
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-
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Unrealized
gain for the period
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-
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-
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Comprehensive
income (loss)
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$
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780,633
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$
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(896,587
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)
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Net
income (loss) per share :
|
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Basic
|
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$
|
0.00
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|
$
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(0.01
|
)
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Diluted
|
|
$
|
0.00
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|
$
|
(0.01
|
)
|
|
|
|
|
|
|
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Weighted
average number of shares outstanding
|
|
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Basic
|
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179,964,994
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150,442,028
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Diluted
|
|
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214,670,308
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150,442,028
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The
accompanying notes are an integral part of these unaudited consolidated
financial statements
QUINTEK
TECHNOLOGIES, INC. AND SUBSIDIARY
|
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CONSOLIDATED
STATEMENT OF CASH FLOWS
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(Unaudited)
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For
the three months ended
September
30,
|
|
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|
2007
|
|
2006
|
|
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OPERATING
ACTIVITIES
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
784,331
|
|
$
|
(892,572
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)
|
Adjustments
to reconcile net income (loss) to net cash used in
operations:
|
|
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|
|
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|
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Depreciation
and amortization
|
|
|
32,951
|
|
|
43,310
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|
Amortization
of the prepaid consulting
|
|
|
-
|
|
|
94,227
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|
Stock
based compensation
|
|
|
-
|
|
|
600,000
|
|
Bad
Debts
|
|
|
-
|
|
|
2,720
|
|
Uncollectible
from former officers
|
|
|
613
|
|
|
-
|
|
Change
in Fair value of Warrants
|
|
|
(1,098,866
|
)
|
|
(621,748
|
)
|
Amortization
of the Unamortized discount
|
|
|
79,773
|
|
|
63,268
|
|
Changes
in current assets and liabilities:
|
|
|
|
|
|
|
|
Increase
in accounts receivable
|
|
|
(4,727
|
)
|
|
(57,968
|
)
|
Increase
in other current assets
|
|
|
100
|
|
|
-
|
|
Increase
in accounts payable
|
|
|
129,246
|
|
|
322,685
|
|
Decrease
in payroll taxes payable
|
|
|
(17,878
|
)
|
|
(12,941
|
)
|
Increase
(Decrease) in deferred revenue
|
|
|
12,508
|
|
|
(11,400
|
)
|
Net
cash used in operating activities
|
|
|
(81,949
|
)
|
|
(470,420
|
)
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
Acquisition
of equipment
|
|
|
5,226
|
|
|
-
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds
from factor
|
|
|
51,768
|
|
|
-
|
|
Payments
on leases
|
|
|
(6,115
|
)
|
|
(36,130
|
)
|
Proceeds
from related parties
|
|
|
-
|
|
|
11,103
|
|
Expenses
related to Issuance of Debenture
|
|
|
-
|
|
|
150,000
|
|
Payments
of notes payable
|
|
|
-
|
|
|
(7,484
|
)
|
Net
cash provided by financing activities
|
|
|
45,653
|
|
|
117,489
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(31,071
|
)
|
|
(352,931
|
)
|
Cash
and cash equivalents, beginning balance
|
|
|
92,062
|
|
|
410,007
|
|
Cash
and cash equivalents, ending balance
|
|
$
|
60,991
|
|
$
|
57,076
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
7,229
|
|
$
|
-
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE FOR NON-CASH INVESTING AND FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
Common
Stock issued for conversion of debenture
|
|
$
|
200,000
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements
QUINTEK
TECHNOLOGIES, INC. & SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
On
February 24, 2000, the Company acquired all of the outstanding common stock
of
Juniper Acquisition Corporation ("Juniper"). For accounting purposes, the
acquisition was treated as a capitalization of the Company with the Company
as
the acquirer (reverse acquisition).
On
May 5,
2005, the Company formed Sapphire Consulting Services to focus its efforts
on
the Supply Chain Services market. Sapphire provides back office services and
solutions to improve efficiencies within organizations. The Company accomplishes
this through out-sourcing/in-sourcing services, consulting services and solution
sales.
Quintek
provides business process outsourcing services to Fortune 500, Russell 2000
companies and public sector organizations. The Company’s business process
includes outsourcing services range from consulting, digitizing, indexing,
and
uploading of source documents through simple customer-specific, rules-based
decision making.
Since
1991, the Company’s primary business focus and source of revenue was sales of
hardware, software and service related to a patented, chemical-free desktop
microfilm printer used for printing aperture cards directly from electronic
files used for document management and archival storage. The patents on this
technology were set to begin expiring in 2007. In November of 2005, the Company
entered into a purchase agreement wherein all rights, title, and interest in
assets, equipment, and inventory relating to the chemical-free desktop microfilm
printer for aperture cards were sold to an interested party. The Company’s
continuing focus is on BPO document management services.
2.
BASIS OF PRESENTATION
The
accompanying unaudited financial statements of the Company have been prepared
in
accordance with the rules and regulations of the Securities and Exchange
Commission for the presentation of interim financial information, but do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited financial statements of the Company
include all adjustments (consisting only of normal recurring adjustments)
considered necessary to present fairly its financial position as of September
30, 2007, the results of operations for the three months ended September 30,
2007 and 2006, and cash flows for the three months ended September 30, 2007
and
2006. The operating results for the three month period ended September 30,
2007
are not necessarily indicative of the results that may be expected for the
year
ending June 30, 2008. The audited financial statements for the year ended June
30, 2007 were filed on October 15, 2007 with the Securities and Exchange
Commission and is hereby referenced. 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 2007 Form
10-KSB.
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.
Accounts
Receivable
The
Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate
the
adequacy of these reserves. Reserves are recorded primarily on a specific
identification basis. Allowance for doubtful debts amounted to $4,496 as at
September 30, 2007.
QUINTEK
TECHNOLOGIES, INC. & SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Property
& Equipment
Property
and equipment are stated at cost. Expenditures for maintenance and repairs
are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When property and equipment are retired or otherwise disposed
of,
the related cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations. Depreciation of
property and equipment is provided using the straight-line over the estimated
useful lives (3-7 years) of the assets.
Accounts
Payable & Accrued Expenses
Accounts
payable and accrued expenses consist of the following as of September 30,
2007:
Accounts
payable
|
|
$
|
718,362
|
|
Accrued
interest
|
|
|
614,456
|
|
Accrued
legal fees
|
|
|
50,250
|
|
Accrued
legal settlement
|
|
|
472,625
|
|
Other
accrued expenses
|
|
|
113,041
|
|
|
|
$
|
1,968,734
|
|
Income
Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes." Deferred taxes are provided for on a liability method for
temporary differences between the financial reporting and tax basis of assets
and liabilities that will result in taxable or deductible amounts in the future.
Deferred tax assets and liabilities are adjusted for the effects of changes
in
tax laws and rates on the date of enactment. 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 be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes
in
tax laws and rates on the date of enactment.
Stock-based
compensation
The
Company adopted SFAS No. 123 (Revised 2004), Share
Based Payment (“SFAS
No. 123R”), under the modified-prospective transition method on
January 1, 2006. SFAS No. 123R requires companies to measure and
recognize the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value. Share-based compensation
recognized under the modified-prospective transition method of SFAS
No. 123R includes share-based compensation based on the grant-date fair
value determined in accordance with the original provisions of SFAS
No. 123, Accounting
for Stock-Based Compensation, for
all
share-based payments granted prior to and not yet vested as of January 1,
2006 and share-based compensation based on the grant-date fair-value determined
in accordance with SFAS No. 123R for all share-based payments granted after
January 1, 2006. SFAS No. 123R eliminates the ability to account for
the award of these instruments under the intrinsic value method prescribed
by
Accounting Principles Board (“APB”) Opinion No. 25, Accounting
for Stock Issued to Employees,
and
allowed under the original provisions of SFAS No. 123. Prior to the
adoption of SFAS No. 123R, the Company accounted for our stock option plans
using the intrinsic value method in accordance with the provisions of APB
Opinion No. 25 and related interpretations.
There
were no options issued for the three month period ending September 30, 2007
and
2006.
Basic
and diluted net loss per share
Net
loss
per share is calculated in accordance with the Statement of financial accounting
standards No. 128 (SFAS No. 128), "Earnings per share". SFAS No. 128 superseded
Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for
all
periods presented has been restated to reflect the adoption of SFAS No. 128.
Basic net loss per share is based upon the weighted average number of common
shares outstanding. Diluted net loss per share is based on the assumption that
all dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.
QUINTEK
TECHNOLOGIES, INC. & SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations:
For
the three months ended September 30, 2007
|
|
Net
Income
|
|
Shares
|
|
Per
Share
|
|
Basic
earnings per share:
|
|
$
|
780,633
|
|
|
179,964,994
|
|
$
|
0.00
|
|
Dividend
to preferred shareholders
|
|
|
3,698
|
|
|
|
|
|
|
|
Interest
on convertible debts
|
|
|
57,362
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
Convertible
Bonds
|
|
|
|
|
|
9,356,218
|
|
|
|
|
Convertible
Debentures
|
|
|
|
|
|
1,496,250
|
|
|
|
|
Convertible
Preferred Shares
|
|
|
|
|
|
23,852,846
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
841,693
|
|
|
214,670,308
|
|
$
|
0.00
|
|
For
the three months ended September 30, 2006
|
|
Net
Income
|
|
Shares
|
|
Per
Share
|
|
Basic
earnings per share:
|
|
$
|
(896,587
|
)
|
|
150,442,028
|
|
$
|
(0.01
|
)
|
Net
income available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities *
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
(896,587
|
)
|
|
150,442,028
|
|
$
|
(0.01
|
)
|
*
As
there is a loss, these securities are anti-dilutive. The basic and diluted
earnings per share is the same for the three months ended September 30,
2006
Revenue
Recognition
The
Company recognizes its revenue in accordance with the Securities and Exchange
Commissions (“SEC”) Staff Accounting Bulletin No. 104, “Revenue Recognition in
Financial Statements” (“SAB 104”). Revenue from services rendered are recognized
when a formal arrangement exists, the price is fixed or determinable, the
services are rendered, no other significant obligations of the Company exist
and
collectibility is reasonably assured.
Derivative
Instruments
In
June
1998, the Financial Accounting Standards Board issued SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities.” SFAS No. 133, as amended by
SFAS No. 137, is effective for fiscal years beginning after June 15, 2000.
SFAS
No. 133 requires the Company to recognize all derivatives as either assets
or
liabilities and measure those instruments at fair value. It further provides
criteria for derivative instruments to be designated as fair value, cash flow
and foreign currency hedges and establishes respective accounting standards
for
reporting changes in the fair value of the derivative instruments. After
adoption, the Company is required to adjust hedging instruments to fair value
in
the balance sheet and recognize the offsetting gains or losses as adjustments
to
be reported in net income or other comprehensive income, as appropriate.
Reporting
segments
Statement
of financial accounting standards No. 131, Disclosures about segments of an
enterprise and related information (SFAS No. 131), which superseded statement
of
financial accounting standards No. 14, Financial reporting for segments of
a
business enterprise, establishes standards for the way that public enterprises
report information about operating segments in annual financial statements
and
requires reporting of selected information about operating segments in interim
financial statements regarding products and services, geographic areas and
major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performances. Currently, SFAS 131 has no
effect on the Company's financial statements as substantially all of the
Company's operations are conducted in one industry segment.
Reclassifications
Certain
comparative amounts have been reclassified to conform to the current period
presentation.
QUINTEK
TECHNOLOGIES, INC. & SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recent
Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.” This statement clarifies the definition of fair value,
establishes a framework for measuring fair value and expands the disclosures
on
fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. Management has not determined the
effect, if any, the adoption of this statement will have on the financial
statements.
In
September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
employer to recognize the over-funded or under-funded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an asset or
liability in its statement of financial position and to recognize changes in
that funded status in the year in which the changes occur through comprehensive
income of a business entity or changes in unrestricted net assets of a
not-for-profit organization. This Statement also improves financial reporting
by
requiring an employer to measure the funded status of a plan as of the date
of
its year-end statement of financial position, with limited exceptions. An
employer with publicly traded equity securities is required to initially
recognize the funded status of a defined benefit postretirement plan and to
provide the required disclosures as of the end of the fiscal year ending after
December 15, 2006. An employer without publicly traded equity securities is
required to recognize the funded status of a defined benefit postretirement
plan
and to provide the required disclosures as of the end of the fiscal year ending
after June 15, 2007. However, an employer without publicly traded equity
securities is required to disclose the following information in the notes to
financial statements for a fiscal year ending after December 15, 2006, but
before June 16, 2007, unless it has applied the recognition provisions of this
Statement in preparing those financial statements:
|
1.
|
A
brief description of the provisions of this Statement
|
|
2.
|
The
date that adoption is required
|
|
3.
|
The
date the employer plans to adopt the recognition provisions of this
Statement, if earlier.
|
The
requirement to measure plan assets and benefit obligations as of the date of
the
employer’s fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008.
In
February of 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement No.
115.” The statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The statement is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007.
The
management is currently evaluating the effect of this pronouncement on financial
statements.
3. PRINCIPLES
OF CONSOLIDATION
The
accompanying consolidated financial statements for the three months ended
September 30, 2007 included the accounts of Quintek Technologies, Inc. and
its
wholly owned subsidiary Sapphire Consulting Services. All significant
inter-company accounts and transactions have been eliminated in
consolidation.
4.
PROPERTY AND EQUIPMENT
Property
and equipment at September 30, 2007, consists of the following:
Computer
and office equipment
|
|
$
|
839,232
|
|
Other
depreciable assets
|
|
|
102,881
|
|
Furniture
and fixture
|
|
|
40,653
|
|
|
|
|
982,766
|
|
Accumulated
depreciation
|
|
|
(723,707
|
)
|
|
|
$
|
259,059
|
|
The
depreciation expense was $32,951 and $43,310 for the three month periods ended
September 30, 2007 & 2006 respectively.
QUINTEK
TECHNOLOGIES, INC. & SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5.
OTHER ASSETS
Other
assets comprised of following at September 30, 2007:
Subscription
Receivable
|
|
$
|
58,349
|
|
Allowance
on Subscription Receivable
|
|
|
(57,466
|
)
|
|
|
$
|
883
|
|
6.
FACTORING PAYABLE
A. |
The
Company entered into an agreement with a factoring company ("the
Factor")
to factor purchase orders with recourse. The Factor funded 97% or
90%
based upon the status of the purchase order. The Factor agreed to
purchase
up to $4,800,000 of qualified purchase orders over the term of the
agreement; however, the Factor did not have to purchase more than
$200,000
in any given month. The term of the agreement term was from June
2, 2003
to June 2, 2005. The Company agreed to 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 would be discounted 50%
in
computing the shares to be issued in payment of the late
fee.
|
Pursuant
to the terms of the factor agreement, the Factor is entitled to 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. The warrants are exercisable over a five year period.
The Company has not issued any bonus warrants during the three months ending
September 30, 2007.
There
were no purchases of purchase orders for this factor during the three months
ending September 30, 2007. At September 30, 2007, the Company had a factoring
payable balance of $116,722 associated with this factor. The Company has accrued
$194,886 interest for late payments of this factor payable as of September
30,
2007.
B |
The
Company also had a factoring balance associated with two individual
factors totaling $20,000. The Company has accrued $14,801 for interest
of
these factoring payables as of September 30, 2007.
|
C. |
On
September 19, 2007, the Company entered into an invoice factoring
agreement with one individual. On September 30, 2007, the Company
had a
balance of $51,768 in regard to this
factor.
|
The
total
factoring payable as of September 30, 2007 was $188,490.
7.
PAYROLL TAXES-ASSUMED IN MERGER
The
Company assumed $205,618 of payroll tax liabilities in the merger with Pacific
Diagnostic Technologies, Inc. The balance was $66,529 at September 30, 2007.
The
Company is delinquent on payments of these payroll tax liabilities.
A.
Loan
Payable as of September 30, 2007, consists of the following:
Capital
Leases payable, interest at 7.9% to 20%,
|
|
|
|
|
due
various dates in 2005 to 2008 (Refer to Note 8(B) below)
|
|
$
|
145,435
|
|
Lease
payable due in 2002
|
|
|
2,028
|
|
Note
payable, interest at 5.75%, due July 30, 2006
|
|
|
|
|
(the
company is in default and default interest is 12%)
|
|
|
6,080
|
|
Notes
payable, interest at 8%, due 2006
|
|
|
|
|
(the
company is in default of these notes)
|
|
|
27,061
|
|
|
|
$
|
180,604
|
|
B.
Capital Lease Obligations:
The
Company leases various equipments under capital leases expiring in various
years
through 2008. The assets and liabilities under capital leases are recorded
at
the lower of the present value of the minimum lease payments or the fair value
of the asset. The assets are depreciated over the lesser of their related lease
terms or their estimated productive lives and are secured by the assets
themselves. Depreciation of assets under capital leases is included in
depreciation expense for the three months ended September 30, 2007.
QUINTEK
TECHNOLOGIES, INC. & SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Capital
lease obligations represent the following at September 30, 2007:
|
|
2008
|
|
Total
minimum lease payments
|
|
$
|
168,817
|
|
Interest
expense relating to future periods
|
|
|
(23,382
|
)
|
Present
value of the minimum lease payments
|
|
|
145,435
|
|
Less:
current portion
|
|
|
(145,435
|
)
|
Non-current
portion
|
|
$
|
-
|
|
Following
is a summary of fixed assets held under capital leases at September 30,
2007
|
|
2008
|
|
Computers
and production equipment
|
|
$
|
381,843
|
|
Less:
accumulated depreciation
|
|
|
(226,203
|
)
|
Net
|
|
$
|
155,640
|
|
9.
ADVANCES FROM LENDER
On
August
2, 2004 the Company signed a convertible debenture agreement with an accredited
investor whereby the Company has received an advance totaling $905,000 for
prepayment of warrants to be exercised as of March 31, 2007. The agreement
expired on August 2, 2006. The accredited investor has exercised 868,264
warrants into common shares valued at $868,264 as of the three month period
ended September 30, 2006. The remaining balance of $36,736 is recorded as
advances from lender in the accompanying financial statements as of September
30, 2007.
10.
CONVERTIBLE BONDS
Convertible
bonds at September 30, 2007, consist of the following:
Bonds
payable with interest at 9%, due on October 2001convertible to
shares of
common stock in increments of $1,000 or more
|
|
$
|
21,354
|
|
|
|
|
|
|
Bonds
payable with interest at 12%, due July 2001, convertible to shares
of
common stock in increments of $500 or more.
|
|
|
41,141
|
|
|
|
|
|
|
|
|
$
|
62,495
|
|
The
above
convertible bonds have matured as of July 2001 and October 2001. 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. The Company
has recorded the $62,495 convertible bonds as a current liability in the
accompanying financial statements as of September 30, 2007. The Company has
accrued $46,662 interest for these convertible bonds as of September 30,
2007.
11.
CONVERTIBLE DEBENTURES
A. |
The
Company raised $300,000 through the issuance of convertible debentures
as
of June 30, 2005. The term of the convertible debentures are as follows:
pursuant to the terms of conversion, debenture in the amount of $300,000
pays interest at 5 ¾% interest and includes 3,000,000 warrants to purchase
common stock for a period of three years at the exercise price of
$1.00.
The “Conversion Price shall be equal to the lesser of (i) $0.50, or (ii)
75% of the average of the 5 lowest Volume Weighted Average Prices
during
the 20 trading days prior to Holder’s election to convert, or (iii) 75% of
the Volume Weighted Average Price on the trading day prior to the
Holders
election to convert market price of the Company’s common stock prior to
conversion. Upon conversion of the debenture, the holder is obligated
to
simultaneously exercise the $1.00 warrants providing added funding
to the
Company. The warrant must be exercised concurrently with the conversion
of
this debenture in an amount equal to ten times the dollar amount
of the
Debenture conversion. On August 2, 2007 the unexercised warrants
attached
to this convertible debenture expired. Upon execution of the securities
purchase agreement, $225,000 of the purchase price was due and paid
to the
Company. The remaining $75,000 was paid to the Company on February
7, 2005
upon effectiveness of the Securities and Exchange Commission’s
Registration Statement. As of September 30, 2007, the Holder of the
debenture has converted $89,326 of the debenture amount into 14,555,964
common shares of the Company and exercised 893,264
warrants.
|
QUINTEK
TECHNOLOGIES, INC. & SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
Company allocated the proceeds from the debenture between the warrant and the
debt based on relative fair value of the warrant and the debt. The value of
the
warrant was calculated using the Black-Scholes model using the following
assumptions: Discount rate of 3.4%, volatility of 100% and expected term of
one
year. The amount allocated to the warrant was amortized over the term of the
debt. The Company calculated a beneficial conversion feature of $279,652. The
Company amortized the beneficial conversion feature in accordance with the
conversion terms of the note. At September 30, 2007, the convertible debenture
of $210,674 is presented in the accompanying financial statements as a current
liability with the unamortized beneficial conversion feature and unamortized
discount fully amortized.
Principal
payments on these convertible debentures are as follows:
Three
months ended September 30, |
|
|
|
|
|
$
|
210,674
|
|
B. |
On
May 19, 2006, the Company entered into a Securities Purchase Agreement
with YA Global Investments, L.P. (formerly, Cornell Capital Partners,
L.P.) (“YA Global Investments”). The Company entered into a convertible
debenture with a total commitment value of $2,000,000. The term of
the
convertible debenture is for 36 months from the date of issuance.
The
conversion price in effect on any Conversion Date shall be, at the
sole
option of the Holder, equal to either (a) $0.0662 (the “Fixed Conversion
Price”) or (b) ninety five percent (95%) of the lowest Volume
Weighted Average Price of the Common Stock during the thirty (30)
trading
days immediately preceding the Conversion Date as quoted by Bloomberg,
LP
(the “Market Conversion Price”). The Investor shall not be able to convert
the debentures into an amount that would result in the Investor
beneficially owning in excess of 4.99% of the outstanding shares
of common
stock of the Company. Pursuant to the terms of debenture, the debenture
bears interest at 10% interest per
year.
|
Upon
execution of the securities purchase agreement, $750,000 of the purchase price
was due and paid to the Company on May 17, 2006. On September 15, 2006, an
additional $150,000 was paid to the Company upon the signing of the second
debenture. On October 23, 2006, an additional $600,000 was disbursed to the
Company prior to the filing of the Securities and Exchange Commission’s
Registration Statement and the final $500,000 was disbursed on February 12,
2007
upon effectiveness of the Securities and Exchange Commission’s Registration
Statement.
As
part
of the financing, the Company issued 17,857,000 warrants to purchase common
stock at an exercise price of $0.05, 15,625,000 warrants to purchase common
stock at an exercise price of $0.055, 12,500,000 warrants to purchase common
stock at an exercise price of $0.065, and 10,416,666 warrants to purchase common
stock at an exercise price of $0.08, all warrants are for a term of five years.
The exercise of the attached warrants is at the sole option of the Holder.
As
of
September 30, 2007 the Holder has converted $425,000 of the debenture amount
into 27,779,781 common shares of the Company.
Per
EITF
00-19, paragraph 4, these convertible debentures do not meet the definition
of a
“conventional convertible debt instrument” since the debt is not convertible
into a fixed number of shares. The debt can be converted into common stock
at a
conversions price that is a percentage of the market price; therefore the number
of shares that could be required to be delivered upon “net-share settlement” is
essentially indeterminate. Therefore, the convertible debenture is considered
“non-conventional,” which means that the conversion feature must be bifurcated
from the debt and shown as a separate derivative liability. The derivative
conversion liability is as follows:
Funding
Dates
|
|
Funding
Amount
|
|
Conversion
Liability Amount
|
|
|
|
|
|
|
|
May
17, 2006
|
|
$
|
750,000
|
|
$
|
-
|
|
September
15, 2006
|
|
|
150,000
|
|
|
22,790
|
|
October
23, 2006
|
|
|
600,000
|
|
|
23,683
|
|
February
12, 2007
|
|
|
500,000
|
|
|
70,436
|
|
|
|
$
|
2,000,000
|
|
$
|
116,909
|
|
In
addition, since the convertible debenture is convertible into an indeterminate
number of shares of common stock, it is assumed that the Company could never
have enough authorized and unissued shares to settle the conversion of the
warrants into common stock. Therefore, the warrants issued in connection with
this transaction having a fair value of $1,935,904 at May 19, 2006 are shown
as
a portion of the warrant liability. The value of the warrant was calculated
using the Black-Scholes model using the following assumptions: Discount rate
of
3.93%, volatility of 100% and expected term of five year. The fair value of
the
conversion liability and the warrant liability will be adjusted to fair value
each balance sheet date with the change being shown as a component of net
income.
QUINTEK
TECHNOLOGIES, INC. & SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
fair
value of the derivative liability and the warrants at the inception of these
convertible debentures were shown as a debt discount with any discount greater
than the face amount of the debt being recorded as financing costs in the year
ended June 30, 2006.
Funding
Date
|
|
Amount
of Debt
|
|
Fair
Value of Warrants
|
|
Fair
Value of Derivative Liability
|
|
Amount
Applied to Debt Discount
|
|
Recorded
as Financing Cost
|
|
May
17, 2006
|
|
$
|
750,000
|
|
$
|
1,935,904
|
|
$
|
-
|
|
$
|
750,000
|
|
$
|
1,185,904
|
|
September
15, 2006
|
|
|
150,000
|
|
|
-
|
|
|
22,790
|
|
|
22,790
|
|
|
-
|
|
October
23, 2006
|
|
|
600,000
|
|
|
-
|
|
|
23,683
|
|
|
23,683
|
|
|
-
|
|
February
12, 2007
|
|
|
500,000
|
|
|
-
|
|
|
70,436
|
|
|
70,436
|
|
|
-
|
|
|
|
$
|
2,000,000
|
|
$
|
1,935,904
|
|
$
|
116,909
|
|
$
|
866,909
|
|
$
|
1,185,904
|
|
At
September 30, 2007, the fair value of the warrants and conversion liabilities
were $40,189 and $0 respectively. During the three month period ended
September 30, 2007 and 2006, the income due to change in fair value of
derivative liabilities (warrant and conversion) was recorded as $1,098,866
and
$621,748, respectively.
As
of
September 30, 2007, the convertible debenture is as follows:
Face
Value of the Convertible Debenture as of June 30, 2007
|
|
$
|
1,775,000
|
|
Less
: Conversion in Common Stock for period ended September 30,
2007
|
|
|
(200,000
|
)
|
Balance
|
|
|
1,575,000
|
|
Less
: Unamortized Discount
|
|
|
(432,022
|
)
|
Less
: Unamortized Debt raising expenses
|
|
|
(88,888
|
)
|
Convertible
Debenture, net
|
|
|
1,054,090
|
|
Less
: Current portion
|
|
|
-
|
|
Long
term Convertible Debenture
|
|
$
|
1,054,090
|
|
Principal
payments on the convertible debentures are as follows:
Year
ending June 30,
|
|
|
|
|
2008
|
|
$
|
-
|
|
2009
|
|
|
650,000
|
|
2010
|
|
|
925,000
|
|
|
|
$
|
1,575,000
|
|
12.
CONVERTIBLE NOTE
The
Company raised capital through the issuance of a convertible note for $50,500
issued on May 10, 2006. The note bears interest at the rate of 10% per annum
compounded annually. All principal and interest was due and payable at the
earlier of occurrence of Company’s first round of financing (whether debt or
equity) after May 31, 2006 involving the receipts of at least $200,000 or more,
or on November 10, 2006. The note holder will receive such number of fully
paid
and non assessable common stock as shall equal the outstanding amount of
principal and interest due under this note being converted, divided by 80%
of
the price per share at which the Company next sells the shares of its common
stock. The note holder has agreed to extend the note pursuant to being paid
10%
of the principal and accrued interest through November 10, 2006. On December
27,
2006, the 10% principal and accrued interest were forwarded to the note holder.
The remaining principal balance of the note of $45,450 is recorded in the
accompanying financial statements as of September 30, 2007. The Company has
accrued $2,864 interest for this note as of September 30, 2007.
QUINTEK
TECHNOLOGIES, INC. & SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13.
STOCKHOLDERS' DEFICIT
a.
Common Stock and Warrants
The
Company has increased its authorized common stock from 200 million shares to
500
million shares and reduced the par value from $0.01 to $0.001 per share. The
Company received the acceptance from the State of California, for the reduction
in the par value of shares, on October 19, 2006. 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.
During
the three month period ended September 30, 2007, the Company issued 1,838,235
common shares pursuant to conversion of a debenture from a prior period;
25,941,546 common shares pursuant to debenture conversion of
$200,000.
b. Outstanding
Warrants:
|
|
|
|
Weighted
|
|
Aggregate
|
|
|
|
Number
of
|
|
Average
|
|
Intrinsic
|
|
|
|
Warrants
|
|
Exercise
Price
|
|
Value
|
|
Outstanding
June 30, 2007
|
|
|
79,667,280
|
|
$
|
0.0901
|
|
$
|
|
|
Issued
during the period
|
|
|
—
|
|
|
|
|
|
|
|
Expired
|
|
|
(4,322,958
|
)
|
$
|
0.5500
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
Outstanding
September 30, 2007
|
|
|
75,344,322
|
|
$
|
0.0851
|
|
$
|
|
|
Warrants
to be issued
|
|
|
4,639,842
|
|
|
|
|
|
|
|
Total
|
|
|
79,984,164
|
|
|
|
|
|
|
|
Following
is a summary of the status of warrants outstanding at September 30, 2007:
Range
of Exercise Prices
|
|
Total
Warrants Outstanding
|
|
Weighted
Average Remaining Life (Years)
|
|
Total
Weighted Average Exercise Price
|
|
Warrants
Exercisable
|
|
Weighted
Average Exercise Price of Exercisable Warrants
|
|
$0.01
- $0.09
|
|
|
47,435,476
|
|
|
2.08
|
|
|
0.042
|
|
|
47,435,476
|
|
|
0.042
|
|
$0.10
- $0.20
|
|
|
27,908,846
|
|
|
1.20
|
|
|
0.043
|
|
|
27,908,846
|
|
|
0.043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,344,322
|
|
|
3.28
|
|
|
0.085
|
|
|
75,344,322
|
|
|
0.085
|
|
At
September 30, 2007, common stock was reserved for the following
reasons:
Outstanding
convertible bonds 151,918 shares
|
d.
|
Stock
Option Agreements
|
The
number and weighted average exercise prices of options granted by the Company
are as follows:
|
|
Options
Outstanding
|
|
Weighted
Average Exercise
Price
|
|
Aggregate
Intrinsic Value
|
|
Outstanding
June 30, 2007
|
|
|
23,152,994
|
|
$
|
0.014
|
|
$
|
—
|
|
Granted
during the period
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
Expired/forfeited
|
|
|
|
|
|
-
|
|
|
|
|
Outstanding
September 30, 2007
|
|
|
23,152,994
|
|
$ |
0.023
|
|
$
|
|
|
QUINTEK
TECHNOLOGIES, INC. & SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Following
is a summary of the status of options outstanding at September 30, 2007:
Range
of Exercise Prices
|
|
Total
Options Outstanding
|
|
Weighted
Average Remaining Life (Years)
|
|
Total
Weighted Average Exercise Price
|
|
Options
Exercisable
|
|
Weighted
Average Exercise Price
|
|
$0.01
- $0.09
|
|
|
20,099,932
|
|
|
1.00
|
|
|
0.009
|
|
|
18,699,932
|
|
|
0.009
|
|
$0.10
- $0.20
|
|
|
3,053,062
|
|
|
0.14
|
|
|
0.014
|
|
|
3,053,062
|
|
|
0.014
|
|
|
|
|
23,152,994
|
|
|
1.14
|
|
|
0.023
|
|
|
21,752,994
|
|
|
0.023
|
|
3,530,000
three year options calculated using the Black Scholes option pricing model
using
the following assumptions
Risk-free
interest rate
|
|
|
3.40
|
%
|
Dividend
yield
|
|
|
0
|
%
|
Volatility
|
|
|
100
|
%
|
19,310,994
five year options calculated using the Black Scholes option pricing model using
the following assumptions
Risk-free
interest rate
|
|
|
3.40
|
%
|
Dividend
yield
|
|
|
0
|
%
|
Volatility
|
|
|
100
|
%
|
312,000
three year options calculated using the Black Scholes option pricing model
using
the following assumptions
Risk-free
interest rate
|
|
|
3.93
|
%
|
Dividend
yield
|
|
|
0
|
%
|
Volatility
|
|
|
100
|
%
|
Series
A Preferred Stock
The
general terms of the Series A Preferred Stock is as follows: No par value;
Liquidation Preference - $0.25 per share plus any unpaid accumulated dividends;
Dividends - cumulative annual rate of $0.005 per share when and as declared
by
the Board of Directors; Conversion Rights - convertible to common stock at
a 1:1
ratio ; 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 thereon at the dividend rate of $0.005 annually
per share; Voting Rights - one vote per share on all matters requiring
shareholder vote. At September 30, 2007 the Company had 3,047,531 shares of
Series A Preferred stock outstanding valued at $526,506. The Company has
recorded a cumulative dividend of $54,487 for the Series A Preferred
stockholders as of September 30, 2007 in the accompanying financial
statements.
Series
B Preferred Stock
The
general terms of the Series B Preferred Stock is as follows: No par Value;
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
the Board of Directors; Conversion Rights - convertible to common stock at
a 1:5
ratio (i.e. 1 share of Series B Preferred stock is convertible into 5 shares
of
common stock); 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 thereon at the dividend rate of $0.0005
annually per share; Voting Rights - one vote per share on all matters requiring
shareholder vote. At September 30, 2007, the Company had 89,271 shares of Series
B Preferred Stock outstanding valued at $86,888. The Company has recorded a
cumulative dividend of $240 for the Series B Preferred Stockholders as of
September 30, 2007 in the accompanying financial statements.
Series
C Preferred Stock
The
general terms of the Series C Preferred Stock is as follows: No par value;
Liquidation Preference - $1.00 per share plus any unpaid accumulated dividends;
Dividends - cumulative annual rate of $0.0005 per share when as declared by
the
Board of Directors; Conversion Rights - 1:20 ratio (i.e. 1 share of Preferred
Series C stock is convertible into 20 shares of common stock); Redemption Rights
- the Company has the right to redeem part or all of the stock upon 30 days
written notice at the rate of $1.00 per share plus all accumulated and unpaid
dividends thereon at the dividend rate of $0.0005 annually per share.; Voting
Rights - one vote per share on all matters requiring shareholder vote. At
September 30, 2007, the Company had 17,948 shares of Series C Preferred Stock
outstanding valued at $68,211. The Company has recorded a cumulative dividend
of
$27 for the Series C Preferred Stockholders as of September 30, 2007 in the
accompanying financial statements.
.
QUINTEK
TECHNOLOGIES, INC. & SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Series
D Preferred Stock
The
general terms of the Series D Preferred Stock is as follows: No par value;
Liquidation Preference - $0.10 per share plus any unpaid accumulated dividends;
Dividends - if declared by the Board of Directors, holders shall be entitled
to
receive dividends as if they had converted such preferred stock into common
stock as of the dividend date; Conversion Rights - 1:20 ratio (i.e. 1 share
of
Preferred Series D stock is convertible into 20 shares of common stock) so
long
as the closing bid price of our common stock is at least $0.10 on any date
subsequent to issuance; Redemption Rights - none; Voting Rights - fifty votes
per share on all matters requiring shareholder vote. At September 30, 2007,
the
Company had 1,000,000 shares of Series D Preferred Stock outstanding valued
at
$600,000. The Company has recorded no accumulative dividend for the Series
D
Preferred Stockholders as of September 30, 2007 in the accompanying financial
statements.
The
Company has recorded a cumulative dividend of $3,698 for the preferred
stockholders for the three month period ended September 30, 2007, in the
accompanying financial statements.
14. COMMITMENTS
AND CONTINGENCIES
a)
Operating Leases
Effective
July 1, 2004 the Company relocated their executive offices to Huntington Beach,
California and entered into a four year lease agreement. The agreement contains
a base rent escalation clause. The Company leases its Idaho office facility
under a month-to-month rental agreement at $675 per month. For the three months
ended September 30, 2007 rent expense for these operating leases totaled
$26,018.
The
future minimum lease payments under non-cancelable leases are as
follows:
b)
Litigation
The
Company was served with a summons as a defendant in a case filed on September
15, 2006 in Superior Court of California, County of San Diego. The complaint
was
filed by Golden Gate Investors for Breach of Contract relating to the financing
agreements executed between the Company and Golden Gate Investors in August
2004. Golden Gate Investors is claiming damages in excess of $725,136 in
relation to the case. The Company retained counsel to defend itself in this
matter and filed a response and counter claim for undisclosed damages. On August
4, 2007, the Company counsel filed and was granted an order granting attorney’s
motion to be relieved as counsel. The answers filed and the cross
complaint were stricken and the trial date of October 19, 2007 cancelled for
failure to procure counsel to represent on September 21, 2007. There are
currently no dates on record. The next action is for the GGI counsel to set
a
prove-up hearing date. The Company has recorded payables and an accrued
legal expense totaling $725,136.
The
Company was served with a summons as a defendant in a case filed on October
24,
2006 in Superior Court of California, County of Orange by Single Source Partners
for failure to pay commissions and installment payments. Single Source Partners
is seeking judgment in the amount of $51,206. The Company retained counsel
to
defend itself in this matter and filed a response and counter claim for
undisclosed damages. On August 7, 2007, the Company counsel filed and was
granted an attorney’s motion to be relieved as counsel. On September 11,
2007 a motion to strike defendant’s answer to the complaint, to dismiss
defendant’s cross-complaint and to enter default was continued to October 9,
2007. The action has been assigned a trial date of October 24, 2007. The Company
has recorded payables and an accrued partnership fee totaling $56,605. On
October 31, 2007, we agreed to a stipulated judgment in the amount of $75,000
payable to Single Source Partners and are currently awaiting final paperwork
for
execution and filing with the courts.
We
were
served with a summons as a defendant in a case filed on October 9, 2007 in
Superior Court of California, County of Orange by Tri-State Financial Press
LLC
for failure to pay an open book account. Tri-State Financial is seeking judgment
in the amount of $5,195. We have recorded payables totaling $5,195.
QUINTEK
TECHNOLOGIES, INC. & SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
15.
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. This basis of accounting contemplates the recovery
of the Company's assets and the satisfaction of its liabilities in the normal
course of business. Through September 30, 2007, the Company had incurred
cumulative losses of $36,645,431 and its current liabilities exceed its current
assets by $2,550,776. In view of the matters described in the preceding
paragraph, recoverability of a major portion of the recorded asset amounts
shown
in the accompanying balance sheet is dependent upon continued operations of
the
Company, which in turn is dependent upon the Company's ability to raise
additional capital, obtain financing and to succeed in its future operations.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Management
has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with
the
ability to continue as a going concern. Management devoted considerable effort
during the period ended September 30, 2007, towards (i) obtaining additional
equity financing and (ii) evaluation of its distribution and marketing methods.
16.
SUBSEQUENT EVENTS
On
October 3, October 8, and October 12, 2007, we issued 20,400,000 common shares
pursuant to a debenture conversion valued at $51,000.
Item
2. Management's Discussion and Analysis
This
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements that reflect
Management's current views with respect to future events and financial
performance. You can identify these statements by forward-looking words such
as
“may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or
similar words. Those statements include statements regarding the intent, belief
or current expectations of us and members of its management team as well as
the
assumptions on which such statements are based. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risk and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking
statements.
Readers
are urged to carefully review and consider the various disclosures made by
us in
this report and in our other reports filed with the Securities and Exchange
Commission. Important factors currently known to Management could cause actual
results to differ materially from those in forward-looking statements. We
undertake no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
in the future operating results over time. We believe that our assumptions
are
based upon reasonable data derived from and known about our business and
operations. No assurances are made that actual results of operations or the
results of our future activities will not differ materially from its
assumptions. Factors that could cause differences include, but are not limited
to, expected market demand for our services, fluctuations in pricing for
materials, and competition.
Overview
We
address the growing needs of industry’s desire for timely access to relevant
information. We do this by designing and providing a service-based solution
for
the customer around our core competencies of high speed high volume document
scanning, inbound mailroom outsourcing, data capture, ASP hosting, workflow
automation, and consulting services.
We
charge
our customers for deliverable services, consultative services and products.
Products are invoiced upon shipping to our customer. Services are billed upon
completion of a project or on a monthly basis, whichever is sooner. Many of
our
projects are for customers under long-term service agreements.
Deliverable
services include scanned documents, captured data and hosted images. These
are
delivered to the customer in electronic format via electronic transmission
via
email or encrypted FTP transfer or physical media such as CD ROMs or Microfilm.
Consultative services include document preparation, systems integration,
software configuration, automated workflow design, and maintenance.
In
the
opinion of management, the following relationship, trends, events or
uncertainties are important in understanding our operations and results as
they
have had, or can reasonably be expected to have a material effect on the net
sales and/or income from operations.
|
·
|
Over
the past decade, businesses have invested considerable capital in
technology hardware and software. Receiving relevant information
into
these systems in a timely manner is becoming more valuable and important
to companies. We provide services to capture data and images and
transfer
them into information systems. Larger organizations are focused on
enterprise wide systems to shorten turnaround time, lower cost of
doing
business and increase management analytics. Smaller organizations
are
finding it more difficult to compete unless they adopt similar strategies.
This is creating increased demand for the services we provide to
large and
small organizations alike.
|
|
·
|
The
expansion of the internet to a worldwide resource has made workers
available to process and catalogue information in other countries.
This
has made the labor arbitrage of outsourcing of information services
overseas a growing and attractive business. It is a growing business
to
outsource from areas in the world where there is a high cost for
educated
labor to areas of the world where there is a lower cost of educated
labor.
We provide timely access to relevant information to the overseas
information worker. A shift in this trend could impact our business
|
|
·
|
Sapphire
Consulting Service, our wholly owned subsidiary, accounted for 38%
of our
revenue and totaled $218,485 for the three months ending September
30,
2007. The loss of key personnel or relationships needed to fulfill
and
obtain new business could adversely impact our financial
results.
|
|
·
|
Fed-Ex/Kinko’s—We
were a subcontractor for services to FedEx Kinko’s customers. Revenue from
our relationship with FedEx Kinko’s totaled $150,555 and represented 26%
of the total revenue for the three months ended September 30, 2007.
The
recent loss of this relationship as disclosed on our Form 8-K dated
November 6, 2007 has adversely impacted our financial condition.
|
|
·
|
Increased
Sales and Marketing -We have been applying funds raised from a recent
financing with Cornell Capital to increase sales and marketing efforts.
The result has been an increased awareness of us and our services.
This
increased awareness has led to an increasing amount of new proposals
we
have submitted for new business. Management does not believe that
we will
be able to convert a portion of these proposals into new business
due to
recent reductions in sales force and loss of a major client. The
inability
to obtain new business will adversely impact our financial
results.
|
Results
of Operations for the Three Months ended September 30, 2007 Compared to the
Three Months Ended September 30, 2006
Revenues
Our
revenues totaled $575,225 and $411,728 for the three months ended September
30,
2007 and 2006, respectively, an increase of $163,497 for the three months ended
September 30, 2007. The increase in revenues was primarily due to increase
in
data entry services and product sales.
Cost
of Revenue
Cost
of
revenue for the three months ended September 30, 2007 and 2006 were $356,391
and
$318,489, respectively, an increase of $37,902. The increase in cost of revenue
consisted primarily of increased outsourcing and product costs.
Expenses
Operating
expenses totaled $386,132 and $1,548,383 for the three month period ended
September 30, 2007 and 2006, respectively, a decrease of $1,162,251. The
decrease resulted primarily from a decrease of $695,000 in stock-based
compensation for officers, directors, employees and consultants and a decrease
in litigation expenses.
Non-operating
income totaled $952,430 and $563,370 for the three months ended September 30,
2007 and September 30, 2006, respectively, an increase of $389,060. The increase
was primarily due to changes in the fair value of issued warrants of $477,118.
Interest
expense totaled $83,850 and $61,345 for the three months ended September 30,
2007 and 2006, respectively.
Net
Income/Loss
The
net
income of $784,331 and net loss of $892,572 for the three months ended September
30, 2007 and 2006, respectively, reflect an increase of $1,676,903. The
increased net gain resulted from increased fair value of issued warrants and
decreased operating expenses.
Liquidity
and Capital Resources
At
September 30, our total assets were $746,711 compared to $811,944 as of June
30,
2007. Total current liabilities at September 30, 2007 were $2,934,631 compared
to $3,860,271 as of June 30, 2007. We owe $66,529 in payroll withholding taxes
that were assumed in a merger and are past due. Also, we are currently in
default on two outstanding convertible bonds totaling $62,495. Interest
continues to accrue against the principal. The notes are unsecured. 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
the funds to repay the indebtedness. It is not known whether we will be able
to
repay or renegotiate this debt. Additionally, our current liabilities exceeded
our current assets by $2,187,920 at September 30, 2007. As a result of recurring
losses from operations of $167,299, including net losses of $2,458,633 and
$4,440,623 for the fiscal years ending June 30, 2007 and 2006 our auditors,
in
their report dated October 15, 2007, have expressed substantial doubt about
our
ability to continue as going concern. We continue to experience losses from
operations.
Net
cash
used in operating activities for the three months ended September 30, 2007
was
$81,949, primarily attributable to the increase in accounts receivable and
other
current assets of $4,727, an increase in accounts payable of $129,246, a
decrease in payroll taxes payable of $17,878, and an increase in deferred
revenue of $12,508.
Net
cash
used in investing activities for the three months ended September 30, 2007,
was
$5,226, attributable to acquisition of equipment.
Net
cash
provided by financing activities for the three months ended September 30, 2007
was $45,653, which was from the proceeds from factoring of $51,768 and payments
on leases totaling $6,115.
As
a
result of the above activities, we experienced a net decrease in cash and cash
equivalents of $31,071 as of September 30, 2007 as compared to a $352,931 net
decrease in cash as of September 30, 2006. Our ability to continue as a going
concern is still dependent on our success in obtaining additional financing
from
institutional investors or by selling our common shares and fulfilling our
business plan. Other than as described below, we do not have any commitments
for
capital and we cannot give any assurances that capital will be available on
terms we deem favorable or at all.
Our
principal capital requirements during the fiscal year 2008 are to fund our
internal operations and possibly seek merger or acquisition candidates. We
currently do not have any agreements or commitments for any mergers or
acquisitions. We will need to obtain additional capital in order to expand
operations. If we decide to make any acquisitions, we may need additional
financing. In order to obtain capital, we may need to sell additional shares
of
our common stock or borrow funds from private lenders. We cannot assure you
that
we will be successful in obtaining additional funding. We have historically
financed operations from the sale of our common stock and the conversion of
common stock warrants. At September 30, 2007, we had cash on hand of $60,991
as
compared to cash on hand of $92,062 at June 30, 2007.
Financing
transactions may include the issuance of equity or debt securities, obtaining
credit facilities, or other financing mechanisms. However, the trading price
of
our common stock and a downturn in the U.S. stock and debt markets could make
it
more difficult to obtain financing through the issuance of equity or debt
securities. Even if we are able to raise the funds required, it is possible
that
we could incur unexpected costs and expenses, fail to collect significant
amounts owed to us, or experience unexpected cash requirements that would force
us to seek alternative financing. Further, if we issue additional equity or
debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our
operations.
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with YA Global Investments, L.P. (formerly, Cornell Capital Partners
L.P.), an accredited investor, on May 17, 2006, and amended on September 15,
2006, for the sale of $2,000,000 in secured convertible debentures and warrants.
The investors provided us with an aggregate of $2,000,000 as follows:
|
·
|
$750,000
was disbursed on May 17, 2006;
|
|
·
|
$150,000
was disbursed on September 15,
2006;
|
|
·
|
$600,000
was disbursed on October 23, 2006;
and
|
|
·
|
$500,000
was disbursed on February 12, 2007
|
Out
of
the $2 million in gross proceeds we received from YA Global Investments upon
issuance of the secured convertible debentures, the following fees payable
in
cash were deducted in connection with the transaction:
|
·
|
$200,000
fee payable to Yorkville Advisors LLC, the general partner of YA
Global
Investments;
|
|
·
|
$20,000
fee payable to Yorkville Advisors LLC, the general partner of YA
Global
Investments;
|
|
·
|
$20,000
structuring fee payable to Yorkville Advisors LLC, the general partner
of
YA Global Investments; and
|
|
·
|
$5,000
due diligence fee payable to YA Global
Investments.
|
Thus,
we
received net proceeds of $1,755,000 from the issuance of secured convertible
debentures to YA Global Investments, prior to any other expenses we incurred
in
connection with the transaction. As of November 14, 2007, $476,000 of secured
convertible debentures have been converted into 59,770,146 shares of our common
stock and $1,524,000 our secured convertible debentures remain
outstanding.
The
secured convertible debentures bear interest at 10%, mature three years from
the
date of issuance, and are convertible into our common stock, at the investor's
option, at the lower of (i) $0.0662 or (ii) 95% of the lowest daily volume
weighted average price of our common stock, as quoted by Bloomberg, LP, during
the 30 trading days immediately preceding the date of conversion. Accordingly,
there is no limit on the number of shares into which the secured convertible
debentures may be converted. As of November 14, 2007, the lowest intraday
trading price for our common stock during the preceding 30 trading days as
quoted by Bloomberg, LP was $0.0011 and, therefore, the conversion price for
the
secured convertible debentures was $0.001045. Based on this conversion price,
the $1,524,000 in secured convertible debentures remaining outstanding,
excluding interest, were convertible into 1,458,373,206 shares of our common
stock. The conversion price of the secured convertible debentures will be
adjusted in the following circumstances:
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· |
If
we pay a stock dividend, engage in a stock split, reclassify our
shares of
common stock or engage in a similar transaction, the conversion price
of
the secured convertible debentures will be adjusted proportionately;
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· |
If
we issue rights, options or warrants to all holders of our common
stock
(and not to YA Global Investments) entitling them to subscribe for
or
purchase shares of common stock at a price per share less than $0.0662
per
share, other than issuances specifically permitted be the securities
purchase agreement, then the conversion price of the secured convertible
debentures will be adjusted on a weighted-average
basis;
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· |
If
we issue shares, other than issuances specifically permitted be the
securities purchase agreement, of our common stock or rights, warrants,
options or other securities or debt that are convertible into or
exchangeable for shares of our common stock, at a price per share
less
than $0.0662 per share, then the conversion price will be adjusted
to such
lower price on a full-ratchet
basis;
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· |
If
we distribute to all holders of our common stock (and not to YA Global
Investments) evidences of indebtedness or assets or rights or warrants
to
subscribe for or purchase any security, then the conversion price
of the
secured convertible debenture will be adjusted based upon the value
of the
distribution as a percentage of the market value of our common stock
on
the record date for such
distribution;
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If
we reclassify our common stock or engage in a compulsory share exchange
pursuant to which our common stock is converted into other securities,
cash or property, YA Global Investments will have the option to either
(i)
convert the secured convertible debentures into the shares of stock
and
other securities, cash and property receivable by holders of our
common
stock following such transaction, or (ii) demand that we prepay the
secured convertible debentures; and
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If
we engage in a merger, consolidation or sale of more than one-half
of our
assets, then YA Global Investments will have the right to (i) demand
that
we prepay the secured convertible debentures, (ii) convert the secured
convertible debentures into the shares of stock and other securities,
cash
and property receivable by holders of our common stock following
such
transaction, or (iii) in the case of a merger or consolidation, require
the surviving entity to issue to a convertible debenture with similar
terms.
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In
connection with the securities purchase agreement, as amended, we agreed to
issue YA Global Investments warrants to purchase an aggregate of 56,397,000
shares of our common stock, exercisable for a period of five years; including
warrants to purchase 17,857,000 shares at an exercise price of $0.05, warrants
to purchase 15,625,000 shares at an exercise price of $0.055, warrants to
purchase 12,500,000 shares at an exercise price of $0.065 and warrants to
purchase 10,415,000 shares at an exercise price of $0.08. All of the warrants
were issued upon closing. We have the option to force the holder to exercise
the
warrants, as long as the shares underlying the warrants are registered pursuant
to an effective registration statement, if the closing bid price of our common
stock trades above certain levels. In the event that the closing bid price
of
our common stock is greater than or equal to $0.10 for a period of 20
consecutive days prior to the forced conversion, we can force the warrant holder
to exercise the $0.05 warrants. In the event that the closing bid price of
our
common stock is greater than or equal to $0.11 for a period of 20 consecutive
days prior to the forced conversion, we can force the warrant holder to exercise
the $0.055 warrants. In the event that the closing bid price of our common
stock
is greater than or equal to $0.13 for a period of 20 consecutive days prior
to
the forced conversion, we can force the warrant holder to exercise the $0.065
warrants. In the event that the closing bid price of our common stock is greater
than or equal to $0.16 for a period of 20 consecutive days prior to the forced
conversion, we can force the warrant holder to exercise the $0.08
warrants.
We
have
the right, at our option, with three business days advance written notice,
to
redeem a portion or all amounts outstanding under the secured convertible
debentures prior to the maturity date if the closing bid price of our common
stock is less than $0.0662 at the time of the redemption. In the event of
redemption, we are obligated to pay an amount equal to the principal amount
being redeemed plus a 20% redemption premium, and accrued interest.
In
connection with the securities purchase agreement, we also entered into a
registration rights agreement providing for the filing, by September 29, 2006,
of a registration statement with the Securities and Exchange Commission
registering the common stock issuable upon conversion of the secured convertible
debentures and warrants. We are obligated to use our best efforts to cause
the
registration statement to be declared effective no later than 90 days after
September 29, 2006 and to insure that the registration statement remains in
effect until the earlier of (i) all of the shares of common stock issuable
upon
conversion of the secured convertible debentures have been sold or (ii) May
17,
2008. In the event of a default of our obligations under the registration rights
agreement, including our agreement to file the registration statement no later
than September 29, 2006, or if the registration statement is not declared
effective by December 29, 2006, we are required to pay YA Global Investments,
as
liquidated damages, for each month that the registration statement has not
been
filed or declared effective, as the case may be, either a cash amount or shares
of our common stock equal to 2% of the liquidated value of the secured
convertible debentures. The registration statement was declared effective on
February 14, 2007. YA Global Investments has agreed to waive subsequent damages
from the delays related to the registration statement.
In
connection with the securities purchase agreement, we, and each of our
subsidiaries, executed a security agreement in favor of the investor granting
them a first priority security interest in all of our goods, inventory,
contractual rights and general intangibles, receivables, documents, instruments,
chattel paper, and intellectual property. The security agreement states that
if
an event of default occurs under the secured convertible debentures or security
agreements, the investor has the right to take possession of the collateral,
to
operate our business using the collateral, and have the right to assign, sell,
lease or otherwise dispose of and deliver all or any part of the collateral,
at
public or private sale or otherwise to satisfy our obligations under these
agreements.
The
investor has contractually agreed to restrict its ability to convert the
debentures or exercise the warrants and receive shares of our common stock
such
that the number of shares of common stock held by it and its affiliates after
such conversion does not exceed 4.99% of the then issued and outstanding shares
of common stock.
ITEM
3. CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.
Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934
as
of September 30, 2007. In designing and evaluating the disclosure controls
and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource
constraints and that management is required to apply its judgment in evaluating
the benefits of possible controls and procedures relative to their costs.
Based
on our evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are designed at a
reasonable assurance level and were effective as of September 30, 2007 to
provide reasonable assurance that information required to disclosed in reports
filed or submitted under the Exchange Act is recorded, processed, summarized
and
reported within the time periods specified in Securities and Exchange Commission
rules and forms, and that such information was accumulated and communicated
to
our management, including our chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required
disclosure.
(b)
Changes in internal control over financial reporting.
We regularly
review our system of internal control over financial reporting and make changes
to our processes and systems to improve controls and increase efficiency, while
ensuring that we maintain an effective internal control environment. Changes
may
include such activities as implementing new, more efficient systems,
consolidating activities, and migrating processes.
There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Quarterly Report on Form 10-QSB that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART
II — OTHER
INFORMATION
Item
1. Legal Proceedings
From
time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. Except as disclosed below,
we are currently not aware of any such legal proceedings or claims that we
believe will have, individually or in the aggregate, a material adverse affect
on our business, financial condition or operating results.
Index
Number: GIC872522 -
Superior Court of California, County of San Diego
We
were
served with a summons as a defendant in a case filed on September 15, 2006
in
Superior Court of California, County of San Diego. The complaint was filed
by
Golden Gate Investors for Breach of Contract relating to the financing
agreements executed between us and Golden Gate Investors in August 2004. Golden
Gate Investors is claiming damages in excess of $725,136 in relation to the
case. We retained counsel to defend ourselves in this matter and we have filed
a
response and counter claim for undisclosed damages. On August
4, 2007, our counsel filed and was granted an order granting attorney’s motion
to be relieved as counsel. The answers filed and the cross complaint were
stricken and the trial date of October 19, 2007 was cancelled on September
21,
2007 for failure to procure counsel to represent us. There are currently
no dates on record. The next action is for the GGI counsel to set a prove-up
hearing date. We have recorded payables and an accrued legal expense
totaling $725,136.
Index
Number: 06CC11306 - Superior Court of California, County of
Orange
We
were
served with a summons as a defendant in a case filed on October 24, 2006 in
Superior Court of California, County of Orange by Single Source Partners for
failure to pay commissions and installment payments. Single Source Partners
is
seeking judgment in the amount of $51,206. We retained counsel to defend
ourselves in this matter and we have filed a response and counter claim for
undisclosed damages. On August 7, 2007, our counsel filed and was granted an
attorney’s motion to be relieved as counsel. On September 11, 2007, a
motion to strike defendant’s answer to the complaint, to dismiss defendant’s
cross-complaint and to enter default was continued to October 9, 2007. The
action has been assigned a trial date of October 24, 2007. On October 31, 2007,
we agreed to a stipulated judgment in the amount of $75,000 payable to Single
Source Partners and are currently awaiting final paperwork for execution and
filing with the courts.
Index
Number: 07WL06810 - Superior Court of California, County of
Orange
We
were
served with a summons as a defendant in a case filed on October 9, 2007 in
Superior Court of California, County of Orange by Tri-State Financial Press
LLC
for failure to pay an open book account. Tri-State Financial is seeking judgment
in the amount of $5,195 plus interest. We have recorded payables totaling
$5,195.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
On
July
11, 2007, we issued 1,838,235 shares of common stock to YA Global Investments
(formerly, Cornell Capital Partners) upon conversion of outstanding debentures
in the amount of $25,000 from a previous period.
On
July
24, 2007, August 10, 2007, August 22, 2007, and September 14, 2007, we issued
an
aggregate of 25,941,546 shares of common stock to YA Global Investments
(formerly, Cornell Capital Partners) upon conversion of outstanding debentures
in the amount of $200,000.
Unless
otherwise noted, the sales set forth above involved no underwriter's discounts
or commissions and are claimed to be exempt from registration with the
Securities and Exchange Commission pursuant to Section 4 (2) of the Securities
Act of 1933, as amended, as transactions by an issuer not involving a public
offering, the issuance and sale by the Company of shares of its common stock
to
financially sophisticated individuals who are fully aware of the Company's
activities, as well as its business and financial condition, and who acquired
said securities for investment purposes and understood the ramifications of
same.
Item
3. Defaults Upon Senior Securities
On
August
3, 2004, we entered into a financing arrangement with Golden Gate Investors,
Inc. and executed a two year convertible debenture for $300,000. We are in
default of the debenture balance in the amount of $210,674.
On
July
and October 2001, two convertible bonds matured. The bond holders do not wish
to
renew these bonds and do not wish to convert to common stock. We are in default
of these bonds in the amount of $62,495.
Item
4. Submission of Matters to a Vote of Security Holders
None
Item
5. Other Information
None
Item
6. Exhibits
31.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
|
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (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 (Chief Financial
Officer)
|
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.
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QUINTEK
TECHNOLOGIES, INC. |
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Date:
November 19, 2007
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By: |
/s/
JAMES KERNAN |
|
James
Kernan
Chief
Executive Officer (Principal Executive Officer) and
Director
|
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By: |
/s/
ANDREW HAAG |
|
Andrew
Haag
Chief
Financial Officer (Principal Financial Officer and Principal
Accounting
Officer) and
Director
|