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 December 31, 2002
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)
Issuer's telephone number: 805-383-3914
Check whether the issuer (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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. 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 exchange Act after the distribution of
securities under a plan confirmed by a court. Yes |X| No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
On February 14, 2003, a total of 42,127,008 shares of the issuer's common stock
were outstanding.
Transitional Small Business Disclosure Format Yes [ ] No |X|
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis or Plan
of Operations 14
Item 3. Disclosure Controls and Procedures 16
PART II OTHER INFORMATION
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
2
PART I --- FINANCIAL INFORMATION
Item 1. Financial Statements
QUINTEK TECHNOLOGIES, INC.
BALANCE SHEETS AT DECEMBER 31, 2002
AND JUNE 30, 2002
December 31,
2002 June 30,
A S S E T S Unaudited 2002
----------- -------- --------
Current assets:
Cash 773 2,602
Accounts receivable (net of allowance
for doubtful accounts of $20,498) 116,660 27,212
Inventory 30,422 57,426
Other -- 2,038
-------- --------
Total current assets 147,855 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 (203,224) (192,210)
-------- --------
Net fixed assets 24,675 31,689
Other assets:
Deposits 4,994 4,994
Intangible assets (net of accumulated amortization
of $63,018 and $53,082) 73,049 82,985
Investments 28,762 28,762
Employee receivables, net 12,615 2,400
-------- --------
Total other assets 119,420 119,141
-------- --------
Total assets 291,950 240,108
======== ========
The accompanying notes are an integral part of the financial statements.
3
QUINTEK TECHNOLOGIES, INC.
BALANCE SHEETS AT DECEMBER 31, 2002
AND JUNE 30, 2002
December 31,
2002 June 30,
LIABILITIES AND STOCKHOLDERS' (DEFICIT) Unaudited 2002
--------------------------------------- ----------- -----------
Current liabilities:
Accounts payable 174,914 207,335
Payroll and payroll taxes payable 422,893 307,522
Payroll taxes assumed in merger 123,272 123,272
Accrued expenses 134,928 134,521
Notes payable 109,400 36,400
Other liabilities 32,458 48,594
Convertible bonds 310,695 330,505
Unearned revenue 39,722 27,886
----------- -----------
Total current liabilities 1,348,282 1,216,035
COMMITMENTS AND CONTINGENCIES
Stockholders' (deficit):
Common stock-$0.01 par value, 50,000,000 shares
authorized, 42,126,008 and 40,162,008 issued
and outstanding 421,260 401,620
Additional paid-in capital 20,068,590 19,997,017
Retained (deficit) (21,545,299) (21,361,481)
----------- -----------
(1,055,449) (962,844)
Less subscriptions receivable (883) (13,083)
----------- -----------
Total stockholders' (deficit) (1,056,332) (975,927)
----------- -----------
Total liabilities and stockholders' (deficit) 291,950 240,108
=========== ===========
The accompanying notes are an integral part of the financial statements.
4
QUINTEK TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS
ENDED DECEMBER 31, 2002 AND 2001
Three Months Ended Six Months Ended
December 31 December 31
-------------------- --------------------
(Unaudited) (Unaudited)
2002 2001 2002 2001
-------- -------- -------- --------
Sales 72,221 145,629 222,611 212,388
Cost of sales 43,044 50,289 112,953 105,364
-------- -------- -------- --------
Gross margin 29,177 95,340 109,658 107,024
Operating expenses:
Selling, general and
administrative 112,796 203,760 231,632 385,608
Stock-based compensation
for services 61,680 42,853 72,013 343,414
-------- -------- -------- --------
Total operating expenses 174,476 246,613 303,645 729,022
-------- -------- -------- --------
Loss from operations (145,299) (151,273) (193,987) (621,998)
Other income (expenses):
Other income 14,138 1,845 34,017 6,780
Interest expense (3,907) (21,003) (23,846) (28,523)
-------- -------- -------- --------
Total other income
(expenses) 10,231 (19,158) 10,171 (21,743)
-------- -------- -------- --------
Net (loss) before income taxes (135,068) (170,431) (183,816) (643,741)
Provision for income taxes -- 800 -- 800
-------- -------- -------- --------
Net (loss) (135,068) (171,231) (183,816) (644,541)
======== ======== ======== ========
Net loss per share:
Basic and diluted ($ 0.00) ($ 0.01) ($ 0.00) ($ 0.02)
The accompanying notes are an integral part of the financial statements.
5
QUINTEK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS
ENDED DECEMBER 31, 2002 AND 2001
(Unaudited)
December 31,
2002 2001
-------- --------
Cash flows from operating activities:
Net (loss) (183,816) (644,541)
Adjustments to reconcile net (loss) to net cash (used)
by operating activities:
Depreciation and amortization 18,148 11,343
Stock-based compensation for services 72,013 343,414
Changes in current assets and liabilities:
(Increase) in accounts receivable (89,448) (76,950)
(Increase) decrease in inventory 27,004 (4,148)
(Increase) decrease in other current assets 2,038 (2,401)
(Decrease) in accounts payable (32,421) (19,108)
Increase in payroll payables 115,371 69,576
Increase (decrease) in other liabilities and accrued expenses (3,893) 7,384
-------- --------
Total adjustments 108,812 329,110
-------- --------
Net cash (used) by operating activities (75,004) (315,431)
Cash flows from investing activities:
Purchase of fixed assets (4,000) --
Decrease in other assets 4,000 --
(Increase) decrease in employer receivables (10,215) 2,400
-------- --------
Net cash provided (used) by investing activities (10,215) 2,400
Cash flows from financing activities:
Factoring payable -- 96,295
Notes payable-stockholders 73,000 20,000
Convertible bonds (19,810) 104,200
Proceeds from common stock 30,200 90,000
-------- --------
Net cash provided by financing activities 83,390 310,495
-------- --------
Net (decrease) in cash (1,829) (2,536)
--------
Cash-beginning of period 2,602 3,073
-------- --------
Cash-end of period 773 537
======== ========
The accompanying notes are an integral part of the financial statements.
6
QUINTEK TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2002
(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 December 31,
2002, the results of operations for the three months and six months ended
December 31, 2002 and 2001, and cash flows for the six months ended
December 31, 2002 and 2001. The results of operations for the three
months and six months ended December 31, 2002 and 2001, 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.
7
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.
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 contain 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 six months ended December 31, 2002, revenues from
the Company's major customers amounted to approximately $152,887.
Accounts receivable from these major customers was approximately
$94,387 at December 31, 2002.
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.
8
f) 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.
g) 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.
h) 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.
i) 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
December 31, 2002 is $123,272.
j) 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 six months ended December 31, 2002 was
$30,000.
k) Advertising
The Company expenses advertising costs as they are incurred.
Advertising expense was $6,315 for the six months ended December
31, 2002.
l) 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
carryforwards 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
carryforwards expire at various times through the year 2021.
9
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 41,075,008 and 36,522,546, for the three
month periods ended December 31, 2002 and 2001, 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.
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:
12/31/02 6/30/02
----------- -----------
Parts and supplies 328,086 355,070
Reserve for obsolescence (297,644) (297,644)
----------- -----------
30,442 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. 239,554
10
Bonds payable with interest at 12%, due July 2002,
convertible to shares of common stock in incre-
ments of $500 or more. 71,141
-----------
310,695
===========
Certain of the outstanding convertible bonds have matured as of December
31, 2002. The holders of the matured bonds do not wish to renew the bonds
and have asked for payment; however, the Company does not have the cash
to repay these bonds.
7. Notes Payable
Notes payable, due on demand, unsecured,
with interest at 12% per annum. 109,400
===========
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 December 31, 2002, the Company had a factoring payable balance
of $-0-.
9. Stockholders' Deficit
a. Common Stock and Warrants
The Company has authorized 50 million shares of $0.01 par value
common stock. Each share entitles the holder to one vote. There are
no dividend or liquidation preferences, participation rights, call
prices or rates, sinking fund requirements, or unusual voting
rights associated with these shares. At December 31, 2002, there
were 42,127,008 shares of common stock issued and outstanding.
During the three months ended December 31, 2002, the Company issued
warrants in connection with its Plan of Reorganization and in
connection with the issuance of restricted common stock. Upon
surrender of a warrant, the holder is entitled to purchase one
share of the Company's common stock at the strike price. For each
class, the number of warrants outstanding, the strike price and the
expiration dates are as follows:
Class J - 4,458,384 warrants on restricted common stock with a
strike price of $1.00 per share, expiring on January 14, 2004
issued to outside shareholders.
Class J - 2,000,000 warrants on restricted common stock with a
strike price of $1.00 per share, expiring on January 14, 2004
issued to Quintek employees. These warrants have been
classified as employee stock options.
11
At December 31, 2002, the outstanding warrants of classes B, C, D,
E, F, G, H, and I have expired.
b. Common Stock Reserved
At December 31, 2002, common stock was reserved for the following
reasons:
Conversion of bonds 2,495,312 shares
Exercise of stock options 2,000,000 shares
Exercise of common stock warrants 4,458,384 shares
c. Stock Option Agreements
The Company has granted fixed employee stock-based compensation
options. The fixed option agreements typically have a maximum term
of 5 years and are fully vested at the date of grant.
The fair value of each option granted is estimated on the grant
date using the Black-Scholes Model. The following assumptions were
made in estimating fair value.
Fixed
Options
-------
Dividend yield 0.00%
Risk-free interest rate 6.27%
Expected life 5 years
Expected volatility 112.20%
Had compensation cost been determined on the basis of fair value
pursuant to FASB Statement No. 123, net loss and loss per share
would have been no different than that reported.
The following is a schedule of the weighted average exercise price
and weighted average fair value in accordance with SFAS 123:
Weighted Weighted
Average Average
Exercise Price Fair Value
--------------- ----------
Exercise price:
Equals market price - -
Exceeds market price 1.00 0.81
Less than market price - -
The Company applies APB Opinion 25 in accounting for its fixed
stock compensation. Compensation cost charged to operations for the
six months ended December 31, 2002 was $ -0-.
12
Following is a summary of the status of the stock option agreements
during the six months ended December 31, 2002:
Number of Weighted Average
Shares Exercise Price
------------ ------------
Outstanding at July 1, 2002 2,000,000 $1.01
Granted -- --
Exercised -- --
Forfeited -- --
------------ ------------
Outstanding at December 31, 2002 2,000,000 1.01
------------ ------------
Options exercisable at December 31, 2002 2,000,000 1.01
============ ============
Following is a summary of the status of the stock option agreements
outstanding at December 31, 2002:
Weighted Average Weighted
Remaining Average
Exercise Price Range Number Contractual Life Exercise Price
-------------------- --------- ---------------- --------------
$1.00 - $4.00 2,000,000 16 months $1.01
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 civil injunctive lawsuits against the
Company and its president, Thomas W. Sims. The suits would allege
that the Company violated Section 17(a) of the Securities Act of
1933 and Sections 10(b) and 13(a) of the Securities Exchange Act of
1934 and Rules 10b-5, 13a-1, and 13a-13, based on false and
misleading statements in press releases disseminated by the Company
on October 22, 2001 and October 25, 2001, regarding the Company's
investment in Panamed Corp. and the press releases disseminated on
January 8, 2002 and March 20, 2002, and failure to timely file
annual and quarterly reports with the Commission. In connection
with the contemplated action against the Company's president,
Thomas W. Sims, the SEC staff may seek injunctive relief, civil
penalties, an officer and director bar, and a penny stock bar.
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. The suit claims
approximately $78,000 in damages. The Company believes it has
meritorious defenses, including the landlord's failure to mitigate
damages after the office was closed.
13
b. Purchase Obligation
The Company has established a licensing agreement with Qtek
Aperture Card AB. Under the agreement, the Company is required to
purchase at least 30 of the Q4305 units at approximately $18,000
each before June 30, 2004. As of December 31, 2002, the Company had
purchased 15 units under the agreement.
c. Income Tax Return Filings
The Company has not filed income tax returns for several years. Due
to operating losses, income tax liability and penalties would not
be substantial. However, the State of California could potentially
revoke the Company's charter if the Company does not become current
on its income tax return filings.
Item 2. Management's Discussion and Analysis
2.1 Results of Operations
Our revenues totaled $222,611 and $212,388 for the six months ended December 31,
2002 and 2001, respectively, an increase of $10,223 (5%) in 2002. Our revenues
totaled $72,221 and $145,629 for the three months ended December 31, 2002 and
2001, respectively, a decrease of $73,408 (50%) in 2002, 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 six months ended December 31, 2002 and 2001, cost of sales was $112,953
and $105,364, respectively, an increase of $7,589 (7%) in 2002. For the three
months ended December 31, 2002 and 2001, cost of sales was $43,044 and $50,289,
respectively, a decrease of $7,245 (14%) in 2002. The cost of sales for both
periods consisted primarily of labor and production costs.
Operating expenses totaled $303,645 for the six-month period ended December 31,
2002 as compared to $729,022 for the six-month period ended December 31, 2001, a
$425,377 (58%) decrease in 2002, primarily due to a decrease in stock based
compensation for services. Operating expenses totaled $174,476 and $246,613 for
the three months ended December 31, 2002 and 2001, respectively, a decrease of
$72,137 (29%) in 2002.
During the three months ended December 31, 2002, we delivered one Q4300 system
for installation at a domestic site, sold 36,000 aperture cards, and renewed 2
maintenance contracts.
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 civil
injunctive lawsuits against us and our president, Thomas W. Sims. The suits
would allege 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, based on false and misleading statements in press releases
that we disseminated on October 22, 2001 and October 25, 2001, regarding our
investment in PanaMed Corp. and the press releases we disseminated on January 8,
2002 and March 20, 2002, and failure to timely file annual and quarterly reports
with the Commission. In connection with the contemplated action against our
president, Thomas W. Sims, the SEC staff may seek injunctive relief, civil
penalties, an officer and director bar, and a penny stock bar.
On September 19, 2002, First Horizon Loan Corp. filed suit against us for
damages due to 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 lease payments were stopped. The suit claims
14
approximately $78,000 in damages. We believe that we have meritorious defenses,
including the landlord's failure to mitigate damages after the office was
closed.
2.2 Liquidity and capital resources
We have historically financed operations from the sale of common stock and the
conversion of common stock warrants. At December 31, 2002, we had cash on hand
of $773 and working capital of $ ($1,200,427) as compared to cash on hand of
$537 and working capital of ($1,114,740) at period-end, December 31, 2001.
Net cash used in operating activities of ($75,004) and ($315,431) for the six
months ended December 31, 2002 and 2001, respectively, is attributed primarily
to stock based compensation.
Net cash used for investing activities of ($10,215) for the six months ended
December 31, 2002 and $2,400 for the six months ended December 31, 2001 is
primarily related to employer receivables.
Net cash provided by financing activities of $83,390 for the six months ended
December 31, 2002 is due primarily to additional loans. Net cash provided by
financing activities of $310,495 for the six months ended December 31, 2001 is
based primarily on receipts from factoring and convertible bonds.
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 have accrued substantial payroll costs over the past twelve months that are
unpaid as of December 31, 2002. These payroll costs are paid intermittently as
cash becomes available. In addition, 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.
15
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.
PART II -- OTHER INFORMATION
Item 2. Changes in Securities
From September 30, 2002 to December 31, 2002, we issued 1,240,000 shares of our
restricted common stock in transactions that were not registered under the
Securities Act of 1933. These transactions are summarized below:
(A) In October 2002, we issued 250,000 shares of restricted common stock to 1
individual for consulting services in reliance on the exemption contained in
Section 4(2) of the Securities Act of 1933.
(B) In October 2002, we issued 200,000 shares of restricted common stock to 1
individual and 200,000 shares of restricted common stock to 1 company for
consulting services in reliance on the exemption contained in Section 4(2) of
the Securities Act of 1933.
(C) In October 2002, we issued 150,000 shares of restricted common stock to 1
company for consulting services in reliance on the exemption contained in
Section 4(2) of the Securities Act of 1933.
(D) In December 2002, we issued 424,000 shares of restricted common stock to 2
individuals and 16,000 shares of restricted common stock to 1 company for
consulting services in reliance on the exemption contained in Section 4(2) of
the Securities Act of 1933.
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.
On October 1, 2002 our Class H warrants expired.
16
Item 3. Defaults Upon Senior Securities
Our total convertible bond indebtedness on February 14, 2003 was $330,695 of
which $320,695 is in default. Interest continues to accrue on 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
In November 2002, the accounting firm of Sprayberry, Barnes, Marietta & Luttrell
resigned as our certifying accountants. We have retained the firm of Heard,
McElroy & Vestal, LLP as our new principal accountants as of February 12, 2003.
Subsequent Events
As of January 30 and 31, 2003, our original executive management team resigned
from all positions as executive officers and directors (as described below) and
a new management team (as described below) has assumed managerial control of our
company. The original executive management team is remaining with our company,
as employees, to support the new executive management team. The following
provides a summary of the changes made:
Name Old Position New Position
---- ------------ ------------
ORIGINAL EXECUTIVE MANAGEMENT
Tom Sims President, CEO, Chairman VP Operations
Teresa Kunz Controller, Corporate Treasurer Controller
Catherine Sims Corporate Secretary N/A
Kurt Kunz VP Engineering, Director VP Engineering
Kelly Kunz VP Manufacturing, Director VP Manufacturing
NEW EXECUTIVE MANAGEMENT
Robert Steele N/A President, CEO, Chairman
Andrew Haag N/A CFO, Corporate Treasurer,
Corporate Secretary,
and Director
In addition, the original executive management team has, as of January 30 or 31,
2003; 1) granted, in consideration of new employment agreements, an irrevocable
proxy to vote all of their Company stock holdings, a total of 7,307,495 common
shares, to the Company's Chief Executive Officer for one year; and 2) agreed to
a one year lock-up on selling their Company stock holdings.
17
Robert Steele, the Company's current Chief Executive Officer, as a result of the
proxy grants described above, beneficially owns, directly or indirectly,
7,707,495 shares, or eighteen percent (18%), of the Company's voting shares of
common stock.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
--------
Exhibit 4.1 Form of Irrevocable Proxy Granted to Chief Executive Officer
dated January 30 or 31, 2003
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 February 4, 2003
Exhibit 99.4 Press Release Dated February 6, 2003
Reports on Form 8-K - On November 8, 2002 the Company filed a report on Form 8-K
dated November 5, 2002 (and subsequently filed, on November 19 and 20 of 2002,
amendments to that report on Form 8-K dated November 5, 2002) disclosing the
resignation of Sprayberry, Barnes, Marietta & Luttrell as our principal
accountants.
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
QUINTEK TECHNOLOGIES, INC.
Date: February 14, 2003 /s/ ROBERT STEELE
--------------------------------------------
Robert Steele, President & CEO
Date: February 14, 2003 /s/ ANDREW HAAG
--------------------------------------------
Andrew Haag, Chief Financial Officer
18
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: February 14, 2003 /s/ ROBERT STEELE
-------------------------------------
Robert Steele, President & CEO
19
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: February 14, 2003 /s/ ANDREW HAAG
-------------------------------------
Andrew Haag, Chief Financial Officer
20