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 March 31, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-29719
QUINTEK TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
State of California 77-0505346
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
537 Constitution Ave., Suite B
Camarillo, California 93012
---------------------------------------
(Address of principal executive office)
Registrant's telephone number: 805-383-3914
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes |X| No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |X| No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be
filed by Section 12,13, or 15(d) of the Securities Exchange Act of 1934 after
the distribution of securities under a plan confirmed by a court. Yes |X| No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
On May 15, 2003 a total of 46,627,008 shares of the registrant's common stock
were issued and outstanding.
Transitional Small Business Disclosure Format Yes [ ] No [X]
1
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Plan
of Operations 10
Item 3. Disclosure Controls and Procedures 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 13
Item 4. Exhibits and Reports on Form 8-K
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 15
Signatures
2
PART I --- FINANCIAL INFORMATION
Item 1. Financial Statements
QUINTEK TECHNOLOGIES, INC.
BALANCE SHEETS AT MARCH 31, 2003
AND JUNE 30, 2002
March
31, 2003 June 30,
A S S E T S Unaudited 2002
----------- --------- ---------
Current assets:
------------------------------------------------------
Cash 5,850 2,602
Accounts receivable (net of allowance for doubtful
accounts of $20,498) 153,481 27,212
Inventory 32,383 57,426
Other 1,380 2,038
-------- --------
Total current assets 193,094 89,278
Property and equipment, at cost:
Equipment 102,881 102,881
Computer and office equipment 92,492 88,492
Furniture and fixtures 32,526 32,526
-------- --------
227,899 223,899
Less-accumulated depreciation (207,676) (192,210)
----------------------------------------------------- -------- --------
Net fixed assets 20,223 31,689
Other assets:
-----------------------------------------------------
Deposits 2,395 4,994
Intangible assets (net of accumulated amortization
of $67,796 and $53,082) 68,277 82,985
Investments -- 28,762
Employee receivables, net 10,410 2,400
-------- --------
Total other assets 81,082 119,141
-------- --------
Total assets 294,399 240,108
======== ========
The accompanyhing notes are an integral part of these financial statments.
3
QUINTEK TECHNOLOGIES, INC.
BALANCE SHEETS AT MARCH 31, 2003
AND JUNE 30, 2002
March
31, 2003 June 30,
LIABILITIES AND STOCKHOLDERS' (DEFICIT) Unaudited 2002
--------------------------------------- --------- --------
Current liabilities:
Accounts payable 241,977 207,335
Payroll and payroll taxes payable 181,678 307,522
Payroll taxes assumed in merger 123,272 123,272
Accrued expenses 127,618 134,521
Notes payable-stockholders 105,300 36,400
Other liabilities 2,028 48,594
Convertible bonds 161,695 330,505
Unearned revenue 39,550 27,886
Liabilities In Process Of Conversion To Stock 440,482 --
Total current liabilities 1,423,600 1,216,035
COMMITMENTS AND CONTINGENCIES -- --
Stockholders' (deficit):
Common stock-$0.01 par value, 50,000,000 shares
authorized, 46,026,008 and 40,162,008 issued
and outstanding 460,260 401,620
Additional paid-in capital 20,241,828 19,997,017
Retained (deficit) (21,830,406) (21,361,481)
----------- -----------
(1,128,318) (962,844)
Less-subscriptions receivable (883) (13,083)
-------------------------------------------------- ----------- -----------
Total stockholders' (deficit) (1,129,201) (975,927)
----------- -----------
Total liabilities and stockholders' (deficit) 294,399 240,108
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
QUINTEK TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS
ENDED MARCH 31, 2003 AND 2002
Three Months Ended Nine Months Ended
March 31 March 31
--------------------- --------------------
(Unaudited) (Unaudited)
2003 2002 2003 2002
-------- -------- -------- --------
Sales 100,838 121,084 323,449 333,472
--------
Cost of sales 56,510 35,831 169,463 141,195
------------- -------- -------- -------- --------
Gross margin 44,328 85,253 153,986 192,277
------------
Operating expenses:
------------------
Selling, general and
administrative 161,645 136,554 393,277 522,962
Stock-based compensation
for services 151,000 -- 223,013 343,414
-------- -------- -------- --------
Total operating expenses 312,645 136,554 616,290 866,376
-------- -------- -------- --------
Loss from operations (268,317) (51,301) (462,304) (674,099)
--------------------
Other income (expenses):
-----------------------
Other income (3,351) 6,659 30,665 16,364
Interest expense (13,440) (21,601) (37,286) (50,124)
Share of net loss in unconsoli-
dated affiliate -- (183,276) -- (186,201)
-------- -------- -------- --------
Total other income
(expenses) (16,791) (198,218) (6,621) (219,961)
-------- -------- -------- --------
Net (loss) before income taxes (285,108) (249,519) (468,925) (894,060)
------------------------------
Provision for income taxes -- 800 -- 800
-------------------------- -------- -------- -------- --------
Net (loss) (285,108) (250,319) (468,925) (894,860)
---------- ======== ======== ======== ========
Net loss per share:
Basic and diluted ($ 0.01) ($ 0.01) ($ 0.01) ($ 0.03)
The accompanying notes are an integral part of these financial statements.
QUINTEK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED MARCH 31, 2003 AND 2002
(Unaudited)
March 31,
2003 2002
-------- --------
Cash flows from operating activities:
Net (loss) (468,925) (894,680)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities:
Depreciation and amortization 27,880 22,591
Stock-based compensation for services 223,013 343,414
Loss in unconsolidated affiliate -- 186,201
Changes in current assets and liabilities:
(Increase) in accounts receivable (126,269) (155,300)
(Increase) decrease in inventory 25,043 (25,301)
(Increase) in other current assets -- (4,027)
(Decrease) in accounts payable (5,358) (128,145)
Increase in payroll payables 126,370 118,051
Increase (decrease) in other liabilities and accrued expenses (18,195) 3,552
-------- --------
Total adjustments 252,484 361,036
-------- --------
Net cash (used) by operating activities (216,441) (533,644)
Cash flows from investing activities:
-------------------------------------
Purchase of fixed assets (4,000) --
Decrease in other assets 2,599 --
(Increase) decrease in employer receivables (8,010) 2,400
-------- --------
Net cash provided (used) by investing activities (9,411) 2,400
Cash flows from financing activities:
-------------------------------------
Factoring payable 40,000 130,490
Notes payable-stockholders 68,900 43,000
Convertible bonds -- 94,200
Proceeds from common stock 120,200 261,451
-------- --------
Net cash provided by financing activities 229,100 529,141
-------- --------
Net increase (decrease) in cash 3,248 (2,103)
------------------------------- -------- -------
Cash-beginning of period 2,602 3,073
------------------------ -------- --------
Cash-end of period 5,850 970
------------------ ======== ========
The accompanying notes are an integral part of these financial statements.
QUINTEK TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
(Unaudited)
1. Basis of Presentation
In the opinion of management, the accompanying unaudited financial statements of
Quintek Technologies, Inc. (the "Company") include all adjustments (consisting
only of normal recurring adjustments) considered necessary to present fairly its
financial position as of March 31, 2003, the results of operations for the three
months and nine months ended March 31, 2003 and 2002, and cash flows for the
nine months ended March 31, 2003 and 2002. The results of operations for the
nine months ended March 31, 2003 and 2002, are not necessarily indicative of the
results to be expected for the full year or for any future period. The
information included in this Form 10-QSB should be read in conjunction with
Management's Discussion and Analysis and financial statements and notes thereto
included in the Company's 2002 Form 10-KSB.
2. Summary of Significant Accounting Policies
a) Nature of Business
The Company was originally incorporated under the laws of the State of
California on April 16, 1993, as Quintek Electronics, Inc. On January 14, 1999,
the Company merged with Pacific Diagnostic Technologies, Inc. in a business
combination accounted for as a purchase. The acquisition took place under a plan
of reorganization. Quintek Electronics, Inc. ("QEI") became public when it was
acquired by Pacific Diagnostic Technologies, Inc. ("PDX") through a reverse
merger and Chapter 11 Plan of Reorganization. Under the plan, all assets of QEI
were sold to PDX, all PDX management resigned once the Plan was confirmed, and
QEI's management and operating plan were adopted by the new operating entity.
Shortly after the confirmation of the plan, the name of the reorganized debtor
was changed to Quintek Technologies, Inc. ("QTI"). QTI assumed the assets,
liabilities, technology and public position of both QEI and PDX. At the time of
the merger, PDX was a nonoperating public entity and QTI has no intention of
carrying on the former operations of PDX.
The plan was structured to compensate all related parties with common stock and
units. Each unit consisted of one share of common stock, one Class A warrant,
one Class B warrant, one Class C warrant and one Class D warrant. PDX
shareholders received unrestricted units at a ratio of one QTI unit for 25
shares of PDX stock, resulting in a distribution of 310,535 units. PDX creditors
received unrestricted QTI units at a ratio of one QTI unit for $3 of previous
PDX debt, resulting in a net distribution of 885,549 units. Chapter 11
administrators and consultants received approximately 610,000 unrestricted QTI
shares, attorneys received 220,000 unrestricted units and market-makers received
200,000 unrestricted units. QEI shareholders received 11,096,167 shares of
restricted common stock.
On February 24, 2000, the Company acquired all of the outstanding common stock
of Juniper Acquisition Corporation ("Juniper"). For accounting purposes, the
acquisition has been treated as a capitalization of the Company with the Company
as the acquirer (reverse acquisition). The historical financial statements prior
to February 24, 2000 are those of the Company.
5
2. Summary of Significant Accounting Policies (Continued)
The Company was established for the primary purpose of developing,
manufacturing, and distributing the 4300 Aperture Card Imaging System
technologies, used for recording digital images on aperture card media ("the
4300 system"). Aperture cards are small, rectangular cards each of which
contains a 35mm strip of microfilm, which is used for storing visual
information. The 4300 system is intended to eliminate the problems of
conventional aperture card manufacturing by producing aperture card media with a
chemical free process. The chemistry and fumes involved with conventional
photographic film development may be hazardous and the waste material resulting
from the chemical process may be considered hazardous material. The Company's
4300 system does not use a chemical process and does not produce any hazardous
material.
b) Basis of Accounting
The Company reports on the accrual basis of accounting for both financial
statement and income tax purposes. Revenue from product sales is recognized upon
shipment of the product. Revenue from services is recognized as the service is
provided using the straight-line method over the life of the contract. A related
liability is recorded for the unearned portion of service revenue received.
c) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
d) Major Customers
The Company had two customers that accounted for more than 67% of revenue. For
the nine months ended March 31, 2003, revenues from the Company's major
customers amounted to approximately $152,887. Accounts receivable from these
major customers was approximately $137,649 at March 31, 2003.
e) Major Suppliers
There are currently only two known suppliers of aperture cards that use dry
silver film. A continued supply of aperture card media is crucial to the success
of the Company because without cards, customers have no use for the Company's
equipment, services and software.
g) Accounts Receivable
The allowance for bad debt is established through a provision for bad debt
charged to expense. Receivables are charged off against the allowance when
management believes that the collectibility of the account is unlikely.
Recoveries of amounts previously charged off are credited to the allowance.
h) Property, Equipment and Depreciation
Property and equipment are recorded at cost. Depreciation of property and
equipment is provided using the straight-line and accelerated methods over the
following estimated useful lives: Equipment-5 years, computers and office
equipment-3-7 years and furniture and fixtures-7 years.
Expenditures and maintenance and repairs are charged against operations when
incurred. Major renewals and betterments are capitalized.
6
i) Intangible Assets
The cost of patents and purchased proprietary processes acquired are being
amortized using the straight-line method over their remaining useful lives of 4
years.
j) Payroll Taxes-Assumed in Merger
The Company assumed $205,618 of payroll tax liabilities in the merger with
Pacific Diagnostic Technologies, Inc. The balance at March 31, 2003 is $123,272.
k) Research and Development
Research and development costs are charged to operations when incurred and are
included in operating expenses. The amount charged to operations for the nine
months ended March 31, 2003 was $42,375.
l) Advertising
The Company expenses advertising costs as they are incurred. Advertising expense
was $11,572 for the nine months ended March 31, 2003.
m) Income Taxes
The Company accounts for income taxes using the liability approach to financial
accounting and reporting. Current income taxes are based on the year's income
taxable for federal and state reporting purposes.
The Company has a deferred tax asset due to net operating loss carry forwards
and temporary taxable differences due to stock-based compensation for income tax
purposes. The deferred tax asset is $2,480,092 as of December 31, 2002. However,
due to the ongoing nature of the losses and the potential inability of the
Company to ever realize the benefit, a valuation allowance has been established
for 100% of the deferred tax asset. Net operating loss carry forwards expire at
various times through the year 2021.
3. Going Concern
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern; however, the Company has sustained substantial
operating losses. In view of this matter, realization of a major portion of the
assets in the accompanying balance sheet is dependent upon continued operations
of the Company, which in turn is dependent upon the Company's ability to meet
its financing requirements, and the success of its future operations.
The Company's management is unable to determine how long its cash flow will
sustain its operations or whether certain creditors will initiate actions to
collect amounts due. Accordingly, the Company will require an additional capital
infusion or revenues from additional sales to continue operations. Management is
not certain if additional capital or sales proceeds will become available and is
considering other strategic alternatives, which may include a merger, asset
sale, or another comparable transaction, or financial restructuring. If
unsuccessful in completing a strategic transaction, the Company may be required
to cease operations.
4. Net Loss Per Share
Basic net loss per share is based on the weighted average number of common
shares outstanding of 44,577,008 and 32,232,302, for the three month periods
ended March 31, 2003 and 2002, respectively. The basic and diluted net loss per
share calculations are the same because potential dilutive securities would have
had an antidilutive or immaterial effect. Securities that were not included in
the net loss per share calculation because they were antidilutive consist of the
convertible bonds and warrants.
7
5. Inventory
Inventory consists of aperture cards, parts and supplies, and completed
machines, and is stated at the lower of cost or market. Cost is determined on a
FIFO (first-in, first-out) basis.
Inventories are as follows:
3/31/03 6/30/02
----------- -----------
Parts and supplies 330,027 355,070
Reserve for obsolescence (297,644) (297,644)
----------- -----------
32,383 57,426
=========== ===========
6. Convertible Bonds
Bonds payable with interest at 9%, due on various
dates in 2001 and 2002, convertible to shares of
common stock in increments of $1,000 or more. 120,554
Bonds payable with interest at 12%, due July 2002, convertible to
shares of common stock in incre-
ments of $500 or more. 41,141
-----------
161,695
Certain of the outstanding convertible bonds have matured prior to March 31,
2003. 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.
Bond holders have been asked to exchange their bonds for Series B preferred
stock. As of March 31, 2003, holders of $149,000 of the bonds had acted on this.
The $149,000 is included in the liability section of the financials under
"Liabilities In Process Of Conversion To Stock", since the Preferred stock has
not yet been issued.
7. Notes Payable
Notes payable, due on demand, unsecured,
with interest at 12% per annum. 105,300
===========
8. Factoring Payable
The Company has entered into an agreement with a factoring company (the
"Factor") to factor receivables with recourse. The Factor funds 85% of the face
value of approved invoices and retains the remaining 15% as a deposit against
its fees. The factoring fee is 1% of the factored amount for every 10 days of
use. The deposit, less fees, is refunded to the Company once payment is received
from the customer. The Company records a factoring payable liability for the
amount of the funds received from the Factor. When payment is ultimately
received from the customer, the factoring payable and the related receivable are
removed from the balance sheet. At March 31, 2003, the Company had a factoring
payable balance of $40,000 which is included in accounts payable.
8
9. Stockholders' Deficit
a. Stock and Warrants
The Company has authorized 50 million shares of common stock with a par value of
$0.01 per share. Each share entitles the holder to one vote. There are no
dividend or liquidation preferences, participation rights, call prices or rates,
sinking fund requirements, or unusual voting rights associated with these
shares. At March 31, 2003, there were 47,027,008 shares of common stock issued
and outstanding. During the three months ended March 31, 2003, the Company
established the Class L warrants and initiated the process of establishing the
Class A Preferred stock which underlies these warrants.
Upon surrender of either a Class J or L warrant, the holder is entitled to
purchase one share of the Company's stock at the designated exercise price. For
each warrant class, the number of warrants outstanding, the exercise price, the
type of underlying stock, and the expiration dates are defined as follows:
Class J - 6,458,384 warrants to purchase common restricted stock with an
exercise price of $1.00 per share, expiring on January 14, 2004.
Class L - warrants were established in March 2003, with an exercise price of
$.25 per share, an expiration date of January 14, 2005 and Series A Preferred as
underlying stock. As of March 31, 2003, holders of Class J warrants to purchase
5,686,861 shares of common stock have agreed to exchange their warrants for
2,843,431 Class L Warrants (i.e. a two for one exchange ratio).
At March 31, 2003, the outstanding warrants of classes A, B, C, D, E, F, G, H,
and I have expired.
b. Common Stock Reserved
At March 31, 2003, common stock was reserved for the following reasons:
Conversion of bonds 1,763,585 shares
Exercise of Class J warrants
classified as stock options 195,000 shares
Exercise of Class J warrants 576,523 shares
c. Stock Option Agreements
The Company previously had granted stock options to employees through Class J
warrants. As of March 31, 2003 no options were outstanding to employees;
however, 195,000 Class J warrants remain outstanding to former employees.
The Company intends to issue 903,500 Class L warrants to employees later in year
2003 once the underlying securities have been approved by stockholders of the
Company.
The Company applies APB Opinion 25 in accounting for its fixed stock
compensation. Compensation cost charged to operations for the nine months ended
March 31, 2003 was $-0-.
10. Commitments and Contingencies
a. SEC Inquiry
On September 17, 2002, the Company was advised by the staff of the U.S.
Securities and Exchange Commission that they will recommend that the Commission
file a civil injunctive lawsuit against the Company, alleging that the Company
violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) and
13(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13a-1, and 13a-13.
On March 25, 2003, the Company signed, without admitting or denying the
9
allegations, a proposed settlement agreement with the U.S. Securities and
Exchange Commission, which permanently restrains and enjoins the company from
engaging in acts which would constitute violations of these regulations in the
future. The U.S. Securities and Exchange Commission has not yet approved and
executed the settlement agreement.
b. First Horizon Lawsuit
On September 19, 2002, First Horizon Loan Corp. filed suit for damages for
breach of a lease agreement for the Company's former sales offices in Fairfax,
Virginia. The suit alleges that the Company breached the lease when the Fairfax
office was closed in July 2000 and lease payments were stopped. In May 2003, the
Company and First Horizon reached a tentative settlement in which the total sum
of $20,000 is to be paid to First Horizon over an nine-month period of time.
c. Purchase Obligation
The Company has established a licensing agreement with Qtek Aperture Card AB.
Under the agreement, the Company is required to purchase at least 30 of the
Q4305 units at approximately $18,000 each before June 30, 2004. As of March 30,
2003, the Company had purchased 15 units under the agreement.
d. Income Tax Return Filings
The Company has not filed income tax returns for several years. Due to operating
losses, income tax liability and penalties would not be substantial. However,
the State of California could potentially revoke the Company's charter if the
Company does not become current on its income tax return filings.
Item 2. Management's Discussion and Analysis
2.1 Results of Operations
Our revenues totaled $323,449 and $333,472 for the nine months ended March 31,
2003 and 2002, respectively, a decrease of $10,023 (3%) in 2002. Our revenues
totaled $100,838 and $121,084 for the three months ended March 31, 2003 and
2002, respectively, a decrease of $20,246 (17 %) in 2003, primarily due to a
decrease in machine sales. Revenues in both periods resulted primarily from
sales of equipment, aperture card media, and maintenance services.
For the nine months ended March 31, 2003 and 2002, cost of sales was $169,463
and $141,195, respectively, an increase of $28,268 (20%) in 2003. For the three
months ended March 31, 2003 and 2002, cost of sales was $56,510 and $35,831,
respectively, an increase of $20,679 (57%) in 2003. The cost of sales for both
periods consisted primarily of labor and production costs.
Operating expenses totaled $ 616,290 for the nine-month period ended March 31,
2003 as compared to $ 866,376 for the nine-month period ended March 31, 2002, a
$250,086 ( 29%) decrease in 2003, primarily due to a decrease in overhead
expenses and stock based compensation for services. Operating expenses totaled
$312,645 and $136,554 for the three months ended March 31, 2003 and 2002,
respectively, an increase of $176,091 (129%) in 2003.
During the three months ended March 31, 2003, we sold one Q4300 system for
installation at a domestic site, we sold 66,000 aperture cards, and we renewed
three maintenance contracts.
2.2 Liquidity and capital resources
We have historically financed operations from the sale of common stock and the
conversion of common stock warrants. On March 31, 2003, we had cash on hand of $
5,850 and working capital of $ ($1,230,506) as compared to cash on hand of $970
and working capital of ($1,002,949) at period-ending March 31, 2002.
10
Net cash used in operating activities of ($216,441) and ($533,644) for the nine
months ended March 31, 2003 and 2002, respectively, is attributed primarily to
stock based compensation and payroll payables.
Net cash used for investing activities of ($9,411) for the nine months ended
March 31, 2003 and $ 2,400 for the nine months ended March 31, 2002 is primarily
related to employer receivables.
Net cash provided by financing activities of $229,110 for the nine months ended
March 31, 2003 is based primarily on proceeds from common stock and convertible
bonds. Net cash provided by financing activities of $529,141 for the nine months
ended March 31, 2002 is based primarily on proceeds from common stock.
We occasionally enter into factoring agreements with a factoring company (the
"Factor"). The Factor funds 85% of the face value of approved invoices and
retains the remaining 15% as a deposit against its fees. When payments are
remitted to the Factor, the deposit, less fees ranging from 1% to 15%, is
refunded. Fees are determined based on the length of time the invoice is
outstanding.
We assumed certain payroll tax liabilities as the result of the merger with
Pacific Diagnostic Technologies, Inc., on January 14, 1999. We have negotiated a
payment plan with the Internal Revenue Service to pay the payroll taxes assumed
in the merger.
We believe that the receipt of net proceeds from the sale of the common stock
and the exercise of common stock warrants plus cash generated internally from
sales will be sufficient to satisfy our future operations, working capital and
other cash requirements for the remainder of the fiscal year. However, if we are
unable to raise sufficient capital, we may need sell certain assets, enter into
new strategic partnerships, reorganize the company, or merge with another
company to effectively maintain operations. Our audit for the years ended June
30, 2002 and 2001, contained a going concern qualification.
Item 3. Disclosure Controls and Procedures
Within the 90 days prior to the date of this Form 10-QSB, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Company's Chief Executive Officer and
Treasurer/Controller concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company required to be included in the Company's periodic SEC
filings. There have been no significant changes in the Company's internal
controls or in other factors, which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.
11
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
a. SEC Inquiry
On September 17, 2002, we were advised by the staff of the U.S. Securities and
Exchange Commission that they will recommend that the Commission file a civil
injunctive lawsuit against us, alleging that we violated Section 17(a) of the
Securities Act of 1933 and Sections 10(b) and 13(a) of the Securities Exchange
Act of 1934 and Rules 10b-5, 13a-1, and 13a-13. On March 25, 2003, we signed,
without admitting or denying the allegations, a proposed settlement agreement
with the U.S. Securities and Exchange Commission, which permanently restrains
and enjoins the company from engaging in acts which would constitute violations
of these regulations in the future. The U.S. Securities and Exchange Commission
has not yet approved and executed the settlement agreement.
b. First Horizon Lawsuit
On September 19, 2002, First Horizon Loan Corporation filed suit in Superior
Court of California, County of Ventura against us for breach of a lease
agreement for our former sales offices in Fairfax, Virginia. The suit alleges
that we breached the lease when the Fairfax office was closed in July 2000 and
the lease payments stopped. In May 2003, we reached a tentative settlement with
First Horizon, agreeing to pay a total of $20,000 to First Horizon in monthly
payments distributed over an nine-month period of time.
Item 2. Changes in Securities
Common Stock Transactions
During the three month period ending March 31, 2003, we issued 4,500,000
warrants to purchase our common stock and 4,900,000 shares of our common stock.
These transactions are summarized below:
(A) In March 2003, we issued 400,000 shares of stock to Robert Steele as
compensation for consulting services performed during the months of December
2002 and January 2003, prior to assuming the position of our President & CEO on
January 31, 2003. In March 2003 these shares were registered with the Securities
and Exchange Commission on Form S-8 of the Securities Act of 1933.
(B) In January 2003, we issued a warrant to purchase 4,500,000 shares of common
stock, under a special warrant agreement, to one individual as compensation for
consulting services. The warrant has an exercise price of 2 cents per share, an
expiration date of July 31, 2003, and a requirement for the underlying stock to
be registered on Form S-8 of the Securities Act of 1933.
(C) In March 2003, we issued 4,500,000 shares of common stock to one individual
upon exercise of the warrants described in Item 2 (B) for $90,000 in cash. The
common stock was subsequently registered with the Securities and Exchange
Commission on Form S-8 of the Securities Act of 1933.
12
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
During the three month period ended March 31, 2003, we made offers to all
holders of our promissory notes and convertible bonds to convert their bond
principal and accrued interest into Series B Preferred stock at a rate of 25
cents per share. As of March 31, 2003, we received commitments to convert
$188,268 of debt ($149,000 in principal + $39,268 in accumulated interest) into
753,072 shares of Series B Preferred stock. The balance of related debt,
consisting of $181,695 in principal and $33,455 in accrued interest, still
remains outstanding.
Interest continues to accrue against the principal of all outstanding bonds. The
convertible bonds are unsecured, general obligations of the Company which are
convertible into common stock at the option of the holders. The holders of the
bonds that are in default have indicated that they do not want to convert their
debt to stock and wish to be repaid in cash. At present we do not have funds to
repay the indebtedness. We do not know whether we will be able to repay or
renegotiate the debt. If we are unable to cure the default or renegotiate our
debt, we may not be able to continue as a going concern.
Item 5. Other Information
Series A Preferred Stock
During the three month period ended March 31, 2003, our board of directors
allocated 7,000,000 shares out of an authorized 10,000,000 shares of Preferred
stock to be used to establish Series A Preferred stock with general terms as
defined below:
o Par Value - $0.00
o Liquidation Preference - $0.25 per share plus any unpaid
accumulated dividends
o Dividends - cumulative annual rate of $0.005 per share
o Conversion Rights - convertible to common stock at a 1:1 ratio if
and when a majority of the Company's shareholders vote to approve
an increase in authorized common shares o from 50,000,000 to
200,000,000
o 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
o Voting Rights - one vote per share on all matters requiring
shareholder vote
13
Prior to issuing the Series A Preferred stock, we will need to modify our
articles of incorporation and obtain approval on such changes from a majority of
our shareholders. A shareholder meeting is scheduled for June 30, 2003 to vote
on this and other corporate matters.
Series B Preferred Stock
During the three month period ended March 31, 2003, our board of directors
allocated 1,613,680 shares out of a remaining authorized 3,000,000 shares of
Preferred stock to be used to establish Series B Preferred stock with the
following terms:
o Par Value - $0.00
o Liquidation Preference - $0.25 per share plus any unpaid
accumulated dividends
o Dividends - cumulative annual rate of $0.0005 per share when and
as declared by our Board of Directors
o Conversion Rights - convertible to common stock at a 1:5 ratio
(i.e. 1 share of Preferred Series B stock is convertible to 5
shares of common stock) if and when a majority of the Company's
shareholders vote to approve an increase in authorized common
shares from 50,000,000 to 200,000,000
o 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
o Voting Rights - one vote per share on all matters requiring
shareholder vote
Prior to issuing the Series B Preferred stock, we will need to modify our
articles of incorporation and obtain approval on such changes from a majority of
our shareholders. A shareholder meeting is scheduled for June 30, 2003 to vote
on this and other corporate matters.
Class L Warrants
During the three month period ended March 31, 2003, we established the Class L
Warrants with the following general terms; 1) exercise price of 25 cents per
share, 2) expiration date of January 14, 2005, and 3) Series A Preferred stock
designated as underlying stock. During this same period we initiated an exchange
program with our existing Class J Warrant holders in which we offered to
exchange one Class L Warrant for two Class J Warrants, with the exchange number
rounded up to the next whole number in cases where an odd number of Class J
Warrants were submitted for exchange. In comparison, the Class J Warrants have
the following general terms; 1) exercise price of $1.00 per share, 2) expiration
date of January 14, 2004, and 3) common stock designated as the underlying
stock.
As of March 31, 2003, our Class J Warrant holders had committed, by signed
agreement, to exchange a total of 5,686,861 Class J Warrant shares for a total
of 2,843,431 Class L Warrant shares.
14
Subsequent Events
In April 2003, our management team established an advisory board consisting of
six outside people, representing legal, business, and financial disciplines. A
consulting agreement was signed with each board member, contracting their
services as advisors for 90 days in return for the following compensation
package:
o For the first 60 days of service, members will be compensated with
100,000 shares of our common stock.
o For the last 30 days of service, members will be compensated with
$2,000 in cash or an equivalent amount of our restricted common
stock, with the payment method defined solely by our Board of
Directors. If stock is used for payment, the stock value is
determined by using the average closing bid price of our stock
over the 10 days just prior to the end of the 60 day period.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99.1 Certification of C.E.O. Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification of Principal Accounting Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Exhibit 99.3 Press Release Dated March 25, 2003
Exhibit 99.4 Press Release Dated March 28, 2003
Exhibit 99.5 Press Release Dated April 11, 2003
Exhibit 99.6 Press Release Dated April 30, 2003
Exhibit 99.7 Press Release Dated May 6, 2003
15
(b) Reports on Form 8-K - None
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
QUINTEK TECHNOLOGIES, INC.
Date: May 15, 2003 /s/ ROBERT STEELE
--------------------------------------------
Robert Steele, President & CEO
Date: May 15, 2003 /s/ ANDREW HAAG
--------------------------------------------
Andrew Haag, Chief Financial Officer
16
Certificate of President & Chief Executive Officer
I, Robert Steele, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Quintek Technologies,
Inc. ("Quintek").
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report fairly present, in all material
respects, the financial condition, results of operations and cash flows of
Quintek as of, and for, the periods presented in this quarterly report.
4. Quintek's other certifying officers and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in the Exchange
Act Rules 13a-14 and 15d-14) for Quintek and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to Quintek, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of Quintek's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. Quintek's other certifying officers and I have disclosed, based on our most
recent evaluation, to our auditors and the audit committee of Quintek's board of
directors :
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect Quintek's ability to record, process,
summarize and report financial data and have identified for Quintek's auditors
any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in Quintek's internal controls.
6. Quintek's other certifying officers and I have indicated in this quarterly
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ ROBERT STEELE
-------------------------------------
Robert Steele, President & CEO
17
Certificate of Chief Financial Officer
I, Andrew Haag, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Quintek Technologies,
Inc. ("Quintek").
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report fairly present, in all material
respects, the financial condition, results of operations and cash flows of
Quintek as of, and for, the periods presented in this quarterly report.
4. Quintek's other certifying officers and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in the Exchange
Act Rules 13a-14 and 15d-14) for Quintek and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to Quintek, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of Quintek's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. Quintek's other certifying officers and I have disclosed, based on our most
recent evaluation, to our auditors and the audit committee of Quintek's board of
directors :
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect Quintek's ability to record, process,
summarize and report financial data and have identified for Quintek's auditors
any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in Quintek's internal controls.
6. Quintek's other certifying officers and I have indicated in this quarterly
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ ANDREW HAAG
-------------------------------------
Andrew Haag, Chief Financial Officer
18