SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1 to Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 24, 2000
QUINTEK TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
California 000-29719 77-0505346
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification No.)
537 Constitution Ave., Suite B
Camarillo, California 93012
(Address of principal executive office)
Issuer's telephone number: 805-383-3904
We have previously reported the acquisition of all of the outstanding capital
stock of Juniper Acquisition Corporation on Form 8-K dated February 24, 2000.
This amendment to the February 24, 2000, Form 8-K contains financial
statements for our Company for the fiscal years ended June 30, 1999 and 1998.
Item 7. Financial Statements and Exhibits
Financial Statements
Quintek's audited financial statements for the years ended June 30, 1999 and
1998, follow this page and are incorporated herein by reference. We have not
completed our interim financial statements for the nine months ended March
31, 2000. We will file unaudited financial statements for the period ended
March 31, 2000, in a subsequent amendment to this Form 8-K/A.
We acquired Juniper Acquisition Corporation, our predecessor registrant under
the Securities Exchange Act of 1934, in a purchase on February 24, 2000.
<PAGE>
Juniper was a blank check corporation which did not have significant
operations or a plan of business. We have treated the combination with
Juniper as a recapitalization of Quintek, with Quintek as the acquirer in a
reverse acquisition. Pro forma financial information has not been presented
because the combination was not a business combination. See Financial
Statements Note 16, Subsequent Events, on page F-19.
Exhibits
2.1 Agreement and Plan of Reorganization between Quintek Technologies,
Inc., and Juniper Acquisition Corporation (incorporated by reference
to Exhibit 2.1 to the Form 8-K dated February 24, 2000).
27.1 Financial Data Schedule.
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 hereunto duly authorized.
Quintek Technologies, Inc.
Date: April 25, 2000 /s/
-----------------------------------
Thomas W. Sims, President
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<PAGE>
CARPENTER KUHEN & SPRAYBERRY
Certified Public Accountants
Ralph C. Kuhen,C.P.A. Members: Martin J. Marietta, C.P.A.
Steve Barnes, C.P.A. American Institute of Dana Boutain, C.P.A.
Mark Luttrell, C.P.A. Certified Public Dwayne Schiellack, C.P.A.
Greg Braun, C.P.A. Accountants William Duerksen, C.P.A.
Ann Braun, C.P.A. SEC Practice Section Jeffrey Freeman, C.P.A.
Jennifer Haney, C.P.A. California Society of Audrey Tamekazu, C.P.A.
Laima Swanson, C.P.A. Certified Public Matthew Davis, C.P.A.
Michael Luxton, C.P.A. Accountants Lisa Pereira, C.P.A.
Veronica Quintana, C.P.A.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Quintek Technologies, Inc.
Camarillo, California
We have audited the accompanying balance sheets of Quintek Technologies,
Inc., as of June 30, 1999 and 1998, and the related statements of operations,
stockholders' deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, based on our audit, the financial statements referred to
above present fairly, in all material respects, the financial position of
Quintek Technologies, Inc., as of June 30, 1999 and 1998, in conformity with
generally accepted accounting principles.
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 experienced losses
from operations and substantial doubt exists as to its continuation as a
going concern. Continuation is dependent upon the success of future
operations. Management's plans in regard to those matters are described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Certain errors resulted in an overstatement of previously reported income for
the year ended June 30, 1997 and were discovered during the current year.
Accordingly, an adjustment has been made to retained deficit to correct the
errors. The errors are described in Note 15.
Oxnard, California
April 8, 2000
5601 Truxtun Avenue, Suite 200 Bakersfield, California 93309
661/325-7500 Fax 661/325-7004
300 Esplanade Drive, Suite 250 Oxnard, California 93030
805/988-3222 Fax 805/988-3220
Bakersfield - cks @ckscpa.com/ Oxnard - oxnard @ckscpa.com
www. ckscpa.com
- F-1 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
Balance Sheets June 30, 1999 and 1998
Assets 1999 1998
Current Assets:
Cash $ 39,064 $ 885
Accounts receivable (net of allowance
for doubtful accounts of $0 for both years) 81,338 35,917
Inventory 226,564 131,745
Other current assets 21,470 --
----------- -----------
Total current assets 368,436 168,547
Property and Equipment, at Cost:
Equipment 123,434 123,434
Computer and office equipment 62,307 58,439
Furniture and fixtures 14,448 14,448
----------- -----------
200,189 196,321
Less - Accumulated depreciation (127,159) (79,588)
----------- -----------
73,030 116,733
Leased property under capital lease - net of
accumulated amortization 8,854 12,979
----------- -----------
81,884 129,712
----------- -----------
Other Assets:
Deposits 3,110 2,703
Intangible assets (net of accumulated
amortization of $9,322 and $102,201, 1999
and 1998, respectively) 121,554 54,399
Employee receivables, net 26,968 23,260
Idle property 100,000 --
Note receivable -- 40,000
----------- -----------
251,632 120,362
----------- -----------
$ 701,952 $ 418,621
=========== ===========
The accompanying notes are an integral part of the financial statements.
- F-2 -
<PAGE>
Liabilities and Stockholders' Deficit 1999 1998
Current Liabilities:
Accounts payable $ 370,370 $ 201,178
Payroll and payroll taxes payable 54,265 48,825
Payroll taxes assumed in merger 205,618 --
Accrued interest payable 57,353 47,668
Other current liabilities 83,687 47,828
Investment 1,885 2,455
Current portion of obligations under
capital lease 3,448 3,773
Convertible bonds 501,141 146,813
Unearned revenue 45,348 30,558
Note payable - related party -- 127,840
----------- -----------
Total current liabilities 1,323,115 656,938
----------- -----------
Obligations Under Capital Lease 4,659 7,441
----------- -----------
Commitments And Contingencies -- --
----------- -----------
Stockholders' Deficit:
Preferred stock - cumulative, par value $.01
Authorized - 10,000,000 shares
Issued and outstanding - 0 shares -- --
Common stock - par value $.01
Authorized - 50,000,000 shares
Issued and outstanding - 13,293,500 and
9,694,420 shares, respectively 132,935 96,944
Additional paid-in capital 11,560,491 4,683,512
Retained deficit (12,319,248) (5,026,214)
Total stockholders' deficit (625,822) (245,758)
----------- -----------
$ 701,952 $ 418,621
=========== ===========
- F-3 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
Statements of Operations
For the Years Ended June 30, 1999 and 1998
1999 1998
Sales $ 638,526 $ 328,494
Cost of Sales 674,429 256,539
------------ -----------
Gross margin (35,903) 71,955
Selling, General And Administrative Expenses 5,501,574 2,434,094
------------ -----------
Loss from operations (5,537,477) (2,362,139)
------------ -----------
Other Income (Expense):
Interest income 10,786 4,683
Other income 7,214 59,553
Royalty income 3,305 7,306
Gain (loss) on investment 570 (2,455)
Interest expense (75,238) (89,218)
Acquisition expense (1,701,394) (158,075)
------------ -----------
(1,754,757) (178,206)
------------ -----------
Net loss before taxes (7,292,234) (2,540,345)
Provision for Income Taxes 800 800
------------ ----------
Net loss $ (7,293,034) $(2,541,145)
=========== ===========
Net Loss Per Share:
Basic and diluted $ (0.65) $ (0.36)
=========== ===========
The accompanying notes are an integral part of the financial statements.
- F-4 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
Statements of Stockholders' Deficit
For the Years Ended June 30, 1999 and 1998
Total
Common Stock Preferred Stock Additional Retained Stockholder
------------------ --------------- Paid-In Deficit Deficit
Shares Amount Shares Amount Capital
------- --------- ------ ------ ---------- -------- -----------
Balance, June 30, 1997 as previously reported
5,388,942 $53,889 -- $ -- $ 372,424 $(1,236,800) $(810,487)
Prior period adjustment, net of tax benefit
-- -- -- -- 916,260 (1,248,269) (332,009)
--------- ------ ------ ------ ---------- ----------- --------
Balance, June 30, 1997 as restated
5,388,942 53,889 -- -- 1,288,684 (2,485,069) (1,142,496)
Stock issuances
4,305,478 43,055 -- -- 3,394,828 -- 3,437,883
Net loss -- -- -- -- -- (2,541,145) (2,541,145)
--------- ------ ------ ------ ---------- ----------- --------
Balance, June 30, 1998
9,694,420 96,944 -- -- 4,683,512 (5,026,214) (245,758)
Stock issuances
4,049,080 40,491 -- -- 6,957,979 -- 6,998,470
Stock redemption
(450,000) (4,500) -- -- (81,000) -- (85,500)
Net loss -- -- -- -- -- (7,293,034) (7,293,034)
--------- ------ ------ ------ ---------- ----------- --------
Balance, June 30, 1999
13,293,500 $ 132,935 -- $ -- $11,560,491 $(12,319,248) $(625,822)
---------- --------- ------ ------ ---------- ----------- --------
---------- --------- ------ ------ ---------- ----------- --------
The accompanying notes are an integral part of the financial statements.
- F-5 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
Statements of Cash Flows
For the Years Ended June 30, 1999 and 1998
1999 1998
Cash Flows from Operating Activities:
Net loss
$ (7,293,034) $ (2,541,145)
Adjustments to reconcile net loss to net cash used
in operating activities-
Depreciation and amortization 58,817 46,111
Stock issued in merger with Pacific Diagnostic Technologies
1,676,381 --
Common stock issued for services 4,284,579 1,747,405
(Gain) loss on investment (570) 2,455
Net change in operating assets and liabilities 178,465 (18,333)
-------------- --------------
Net cash used in operating activities (1,095,362) (763,507)
-------------- --------------
Cash Flows from Investing Activities:
Payments on employee receivables (3,708) (2,310)
Purchase of fixed assets (28,144) (59,470)
-------------- --------------
Net cash used in investing activities (31,852) (61,780)
-------------- --------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 755,500 450,836
Proceeds from the issuance of convertible bonds 435,000 350,105
Principal payments on obligations under capital leases
(3,107) (3,241)
Net change in note payable - related party (22,000) (20,000)
-------------- --------------
Net cash provided by financing activities 1,165,393 777,700
-------------- --------------
Net Increase (Decrease) in Cash 38,179 (47,587)
Cash, Beginning of Year 885 48,472
-------------- --------------
Cash, End of Year $ 39,064 $ 885
-------------- --------------
-------------- --------------
The accompanying notes are an integral part of the financial statements.
- F-6 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
(1) Summary of Accounting Policies
This summary of accounting policies of Quintek Technologies, Inc.
('the Company') is presented to assist in understanding the
Company's financial statements. These accounting policies conform
to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
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 discussed further in Note 12. Subsequent to the
merger, the Company changed its name to Quintek Technologies,
Inc.
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.
- F-7 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
(Continued)
(1) Summary of Accounting Policies (Continued)
d) Major Customers
The Company had two customers that each accounted for more than
10 percent of revenue. For the year ended June 30, 1999,
revenues from the Company's major customers amounted to
approximately $137,000 and $215,600. Accounts receivable from
these major customers amounted to approximately $2,100 and
$53,100 at June 30, 1999. For the year ended June 30, 1998,
revenues from the Company's major customers amounted to
approximately $54,100 and $58,500. Accounts receivable from
these major customers amounted to approximately $5,500 and $0 at
June 30, 1998.
e) Concentration of Credit Risk - Cash
The Company maintains its cash balances in various financial
institutions. The balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. At various times
throughout the years ended June 30, 1999 and 1998, the Company
has maintained balances in excess of federally insured limits.
The Company's uninsured balances totaled $0 at June 30, 1999 and
1998.
f) Accounts Receivable
The Company considers accounts receivable to be fully
collectible, accordingly, no allowance for doubtful accounts is
required. If amounts become uncollectible, they will be charged
to operations when that determination is made.
During the year ended June 30, 1999 the Company sold certain
receivables with recourse to a financing institution for cash in
the amount of $138,748. These transactions resulted in losses
to the Company of $16,545. As of June 30, 1999, $52,931 remains
uncollected. This amount is included in other current
liabilities.
g) 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.
- F-8 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
Notes to Financial Statements
June 30, 1999 and 1998
(Continued)
(1) Summary of Accounting Policies (Continued)
g) Inventory (continued)
Inventories are summarized as follows at June 30, 1999 and 1998:
1999 1998
Parts and supplies $ 356,208 $ 171,745
Machines 18,000 --
----------- ------------
374,208 171,745
Reserve for obsolescence (147,644) (40,000)
----------- ------------
$ 226,564 $ 131,745
========== ===========
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:
Asset Classification Estimated
Useful Life
Equipment 5 Years
Computer and office equipment 3-7 Years
Furniture and fixtures 7 Years
Expenditures for maintenance and repairs are charged against
operations when incurred. Major renewals and betterments are
capitalized.
i) Intangible Assets
The cost of patents and purchased proprietary processes acquired
are being amortized using the straight-line method over their
remaining lives, ranging from 7 to 14 years.
j) Payroll Taxes Assumed in Merger
As more fully explained in Note 12, the Company assumed $205,618
of payroll tax liabilities in the merger with Pacific Diagnostic
Technologies, Inc.
- F-9 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Continued)
1) Summary of Accounting Policies (Continued)
k) Equity Method of Accounting for Investments
Investments in companies in which the Company has a 20% to 50%
interest are carried at cost, adjusted for the Company's
proportionate share of undistributed earnings or losses.
l) Research and Development
Research and development costs are charged to operations when
incurred and are included in operating expenses. The amounts
charged to operations for the years ended June 30, 1999 and 1998
were $175,165 and $593,576, respectively.
m) Advertising
The Company expenses advertising costs as they are incurred.
n) Income Taxes
Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized
or settled. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the
provision for income taxes. The Company has a deferred tax
asset due to net operating loss carryforwards for income tax
purposes. The deferred tax asset is $2,527,900 and $888,064 at
June 30, 1999 and 1998, respectively; 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. If the
Company achieves profitability at a future date, some or all of
the deferred tax benefit may be realized. At June 30, 1999 and
1998, the Company's available federal net operating loss
carryforwards totaled $11,035,927 and $3,752,298, respectively,
and California net operating loss carryforwards totaled
$11,611,806 and $4,328,177, respectively. The loss
carryforwards will expire at various dates through the year
2014.
The components of the deferred income tax assets as of June 30,
1999 and 1998 are as follows:
1999 1998
NOL carryforwards $ 2,527,900 $ 888,064
Valuation allowance (2,527,900) (888,064)
------------ -----------
$ - $ -
============ ===========
- F-10 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Continued)
(1) Summary of Accounting Policies (Continued)
n) Income Taxes (Continued)
Differences between the provision for income taxes and income
taxes at the statutory federal income tax rate are as follows:
1999 1998
Income tax at statutory
federal rate $ 997,140 15.00% $347,367 15.00%
State income taxes 642,696 8.84% 218,668 8.84%
Change in valuation allowance (1,639,836) (22.50)% (566,035)(22.50)%
----------- ---------
$ - - % $ - -%
=========== =========
o) Stock-Based Compensation
The Company accounts for stock-based employee compensation
arrangements in accordance with the provisions of APB 25,
Accounting for Stock Issued to Employees, and complies with
the disclosure provisions of SFAS 123, Accounting for Stock-
based Compensation. Under APB 25, compensation cost is
recognized based on the difference, if any, on the date of
grant between the fair value of the Company's stock and the
amount an employee must pay to acquire the stock. At June
30, 1999 and 1998, there were no options issued to employees.
p) Net Loss Per Share
Basic net loss per share is based on the weighted average
number of common shares outstanding of 11,193,294 and
7,080,496 at June 30, 1999 and 1998, respectively. The basic
and diluted earnings per share calculations are the same
because potential dilutive securities would have had an
antidilutive effect.
Securities that were not included in the earnings per share
calculation because they were antidilutive consist of the
convertible bonds and warrants.
(2) 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.
- F-11 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Continued)
(2) Going Concern (Continued)
Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide the
opportunity for the Company to continue as a going concern.
Subsequent to year-end, the Company has received $1,169,248 from the
exercise of warrants. The Company feels that this and other
financing arrangements coupled with product and services market
introductions will provide sufficient cash to meet its operating and
business expansion requirements for the year ending June 30, 2000.
(3) Leased Property under Capital Lease
The Company leases office equipment under capital leases. The
economic substance of these lease agreements is that the Company is
financing the acquisition of these assets through the leases and,
accordingly, they are recorded in the Company's assets and
liabilities. The following is an analysis of the leased property
under capital lease:
1999 1998
Furniture, machinery and equipment $ 15,447 $ 15,447
Less accumulated amortization (6,593) (2,468)
---------- ----------
$ 8,854 $ 12,979
========== ==========
Net minimum lease payments $ 8,557 $ 11,763
Less - Amount representing interest (450) (549)
---------- ----------
Present value of net minimum lease
payments $ 8,107 $ 11,214
=========== ==========
The following is a schedule by years of future minimum lease payments
required under the leases:
Years ended June 30, 2000 $ 3,448
2001 2,436
2002 2,223
--------
$ 8,107
========
- F-12 -
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QUINTEK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Continued)
(4) Employee Receivables
1999 1998
Notes receivable from officers,
unsecured, due on June 30, 2019,
plus interest at 4%. $ 238,989 $ 122,680
Notes receivable from employees,
unsecured, due on June 30, 2019,
plus interest at 4%. 58,091 24,639
------------ -----------
297,080 147,319
Less valuation allowance (270,112) (124,059)
------------ -----------
$ 26,968 $23,260
============ ===========
(5) Idle Property
Idle property consists of furniture and equipment acquired in the
merger with Pacific Diagnostic Technologies, Inc. The property has
been recorded at its net realizable value. The Company intends to
sell the assets at a future date.
(6) Note Receivable
Note receivable from Pacific Diagnostic Technologies, Inc., unsecured,
due on demand, with interest at the Applicable Federal Rates. AFR at
June 30, 1998 was 5.58%.
$ - $ 40,000
============= ===========
(7) Investment (continued)
The investment held by the Company consists of a 49% ownership
interest in Qtek Aperture Card AB, a Swedish corporation. The
investment is accounted for on the equity method.
Pertinent financial information for the Company as of June 30, 1999
and 1998 is as follows:
Balance sheet:
Assets $ 141,415 $ 13,116
============= ==========
Liabilities $ 132,989 11,665
Equity 8,426 1,451
------------- ----------
$ 141,415 $ 13,116
============= ==========
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<PAGE>
QUINTEK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Continued)
(7) Investment
1999 1998
Income statement:
Revenues $ 154,522 $ -
Expenses (153,359) (5,010)
------------ ----------
Company's share of net income (loss) $ 570 $ (2,455)
============ ==========
(8) Convertible Bonds
Convertible bonds consists of the following:
Bonds payable with interest at 9% due on various
dates in 2000, convertible to shares of common
stock in increments of $1,000 or more at the rate
of $1.00 per share. $ 410,000 $ -
Bonds payable with interest at 12%, due July 1999,
convertible to shares of common stock in
increments of $500 or more at the rate of
$.75 per share. $ 41,141 41,141
Bond payable with interest at 9%, due on June 25,
2000, convertible to shares of common stock at
the rate of $.60 per share, with a maximum of
20,000 shares. 25,000 -
Bond payable with interest at 12%, due March 23,
2000, convertible to shares of common stock in
increments of $1,000 or more at the rate of
$.625 per share. 25,000 25,000
Bond payable with interest at 9%, due January
23, 1999, convertible to shares of common stock
at the rate of $.80 per share. - 21,111
- F-14 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Continued)
(8) Convertible Bonds (Continued)
1999 1998
Bonds payable with interest at 9%,
due on July 9, 1998, convertible to
shares of common stock in increments
of $500 or more at the rate of $1.00
per share. - 20,000
Bond payable with interest at 9%, due
September 22, 1998, convertible to
shares of common stock at the rate of
$.75 per share. - 17,561
Bond payable with interest at 9%, due
December 22, 1998, convertible to
shares of common stock at the rate of
$1.00 per share. - 10,000
Bond payable with interest at 12%, due
May 9, 1998, convertible to shares of
common stock in increments of $500 or
more at the rate of $.50 per share. - 5,000
Bond payable with interest at 11.5% due
on March 26, 1999, convertible to shares
of common stock in increments of $500 or
more at the rate of $.625 per share. - 5,000
Bond payable with interest at 9%, due
January 20, 1999, convertible to shares
of common stock at the rate of $1.00 per
share. - 2,000
--------- --------
$ 501,141 $146,813
========= ========
(9) Note Payable - Related Party
Note payable to related party, due on
demand, unsecured, plus interest at the
Applicable Federal Rates. AFR at June
30, 1998 was 5.58%. $ - $ 127,840
========== ==========
- F-15 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Continued)
(10) Commitments and Contingencies
a) Operating Leases
The Company leases its office facilities under a non-cancelable
operating lease that requires total monthly rental payments of
$2,340. The lease expires on March 31, 2002. The lease contains
a rental payment escalation clause. For the years ended June 30,
1999 and 1998, rent expense for this operating lease totaled
$29,936 and $26,304, respectively.
Minimum future rental payments under the non-cancelable operating
leases are as follows:
Years ended June 30, 2000 $ 28,080
2001 28,080
2002 21,060
------------
$ 77,220
============
b) Pending and Threatened Litigation
In the schedule of claims attached to the bankruptcy petition of
Pacific Diagnostic Technologies, Inc., a lessor of a telephone
system was listed as being owed $6,800. The lessor did not
challenge the amount listed, but instead proceeded against the
lease guarantor, a third party. The Company verbally promised to
indemnify the lease guarantor and the lessor asserted a claim for
an amount in excess of $50,000 against the Company as indemnitor.
The Company contends that its verbal promise to act as surety for
the debt of another is unenforceable under the statute of frauds.
Accordingly, the Company does not expect the claim to have a
material effect on the financial statements and no provision for
loss has been made.
(11) Stockholders' Deficit
(a) Common Stock and Warrants
The Company has authorized 50 million shares of $0.01 par value
common stock. Each share entitles the holder to one vote. There
are no dividend or liquidation preferences, participation rights,
call prices or rates, sinking fund requirements, or unusual
voting rights associated with these shares. At June 30, 1999
there were 13,293,500 shares of common stock issued and
outstanding.
- F-16 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Continued)
(11) Stockholders' Deficit (Continued)
a) Common Stock and Warrants (Continued)
During the year ended June 30, 1999 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 A - 1,224,511 warrants on non-restricted stock with a strike
price of $1.00 per share, expiring on January 14, 2000.
Class B - 1,094,511 warrants on non-restricted stock with a strike
price of $2.00 per share, expiring on January 14, 2000.
Class C - 1,094,511 warrants on non-restricted stock with a strike
price of $3.00 per share, expiring on January 14, 2001.
Class D - 1,094,511 warrants on non-restricted stock with a strike
price of $4.00 per share, expiring on January 14, 2001.
Class I - 385,000 warrants on restricted stock with a strike price
of $1.00 per share, expiring on July 1, 2000.
Class J - 170,000 warrants on restricted stock with a strike price
of $1.00 per share, expiring on January 14, 2004.
b) Common Stock Reserved
At June 30, 1999, common stock was reserved for the following
reasons:
Conversion of bonds 524,855 shares
Exercise of common stock warrants 5,063,044 shares
c) Preferred Stock
At June 30, 1999, there were 10,000,000 shares of $.01 par value
preferred stock authorized and no shares issued or outstanding.
The preferred stock is cumulative and contains preferences on
liquidation. The preferred stock may be called for redemption at
any time at the option of the Company.
- F-17 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Continued)
(12) Plan of Reorganization
On January 14, 1999, Quintek Electronics, Inc. ('QEI') became public
when it was acquired by Pacific Diagnostic Technologies, Inc. ('PDX')
through a reverse merger and Chapter 11 Plan of Reorganization. Under
the plan, all assets of QEI were sold to PDX, all PDX management
resigned once the Plan was confirmed, and QEI's management and
operating plan were adopted by the new operating entity. Shortly
after the confirmation of the plan, the name of the reorganized debtor
was changed to Quintek Technologies, Inc. ('QTI'). QTI assumed the
assets, liabilities, technology and public position of both QEI and
PDX. At the time of the merger, PDX was a non-operating public entity
and QTI has no intention of carrying on the former operations of PDX.
The plan was structured to compensate all related parties with common
stock and units. Each unit consisted of one share of common stock,
one Class A warrant, one Class B warrant, one Class C warrant and one
Class D warrant. PDX shareholders received unrestricted units at a
ratio of one QTI unit for 25 shares of PDX stock, resulting in a
distribution of 310,535 units. PDX creditors received unrestricted QTI
units at a ratio of one QTI unit for $3 of previous PDX debt,
resulting in a net distribution of 885,549 units. Chapter 11
administrators and consultants received approximately 610,000
unrestricted QTI shares, attorneys received 220,000 unrestricted units
and market-makers received 200,000 unrestricted units. QEI
shareholders received 11,096,167 shares of restricted common stock.
(13) Related Party Transactions
During the year ended June 30, 1999, the Company sold a machine to
Qtek Aperture Card AB, a company related by common ownership, for
$28,000, the Company's cost of the machine. Additionally, during the
year ended June 30, 1999 the Company sold aperture cards to Qtek
Aperture Card AB for $13,664. This price represents the retail price
less the normal discount given to third-party dealers.
- F-18 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Continued)
(14) Statements of Cash Flows - Supplemental Disclosures
The net changes in operating assets and liabilities shown on the statement of
cash flows consist of the following:
1999 1998
(Increase) Decrease:
Accounts receivable $ (45,421) $ 27,048
Inventory (94,819) (126,150)
Other current assets (21,472) -
Deposits (407) (2,703)
Idle property (100,000) -
Interest receivable - 2,340
Increase (Decrease):
Accounts payable 169,192 132,374
Payroll and payroll taxes payable 5,440 27,898
Payroll taxes assumed in merger 205,618 -
Accrued interest payable 9,685 (20,791)
Other current liabilities 35,859 (88,907)
Unearned revenue 14,790 30,558
---------- ---------
$ 178,465 $ (18,333)
========== =========
Operating activities reflect:
Interest paid $ 75,238 $ 87,238
========== =========
Income taxes paid $ - 800
========== =========
For the year ended June 30, 1999, the Company had non-cash financing
transactions related to the conversion of bonds into common stock for
$80,672, the conversion of loans into common stock for $105,840, and
stock issued for services for $4,284,579.
For the year ended June 30, 1998, the Company had non-cash financing
transactions related to the conversion of bonds into common stock for
$1,210,042, stock issued for services for $1,747,405, and the
purchase of fixed assets financed by capital leases for $1,923.
- F-19 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Continued)
(15) Prior Period Adjustment
Retained deficit at the beginning of 1998 has been adjusted to correct
errors made in 1997 and in prior years. Had the errors not been made,
the net loss for 1997 would have increased by $1,084,416 ($.29 per
share), net of tax. The prior period adjustment consists of the
following: (1) employee and officer receivables that were incorrectly
recorded at an amount in excess of net realizable value were reduced to
net realizable value; (2) certain notes receivable by the Company from
officers were forgiven by the court in the personal bankruptcy of the
officers in a prior year but were not recorded as bad debt at that
time. The error was corrected through retained deficit; (3) an
investment the Company was carrying on its books became worthless in a
prior year but was not written off in that year. The error was
corrected through retained deficit; (4) stock issued for services in
prior years was recorded using an incorrect stock price; (5) certain
demo machines that are provided for customer use as rental machines
were not depreciated in the year they were placed in service. The
error was corrected through retained deficit; (6) inventory was
recorded in a prior year at an incorrect amount; (7) an intangible
asset was recorded in a prior year at an incorrect amount; (8) other
error corrections.
A schedule of the prior period adjustment is as follows:
Prior Period Effect on 1997
Adjustment Net Income
Correction of notes receivable balances $ 104,431 $ (53,100)
Bad debt from prior year 139,022 -
Worthless investment from prior year 62,842 (62,842)
Price correction on stock issued for
services 916,260 (902,760)
Capitalization of demo machines (90,000) -
Correction of prior year inventory balance 40,000 (40,000)
Correction of intangible asset 63,333 (13,333)
Other error corrections 12,381 (12,381)
------------- --------------
$ 1,248,269 $(1,084,416)
============= ==============
(16) Subsequent Events
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
recapitalization 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.
- F-20 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Continued)
(16) Subsequent Events (Continued)
The Company paid $200,000 in cash and 400,000 of common stock (the
'Exchange Shares') to the former shareholder of Juniper, TPG Capital
Corporation ('TPG'). Per the agreement with TPG, the Company must
include the Exchange Shares in its first registration statement.
Alternatively, TPG may require the Company to register the Exchange
Shares at any time provided the Company is reimbursed for legal
services related to the filing.
At February 24, 2001, the number of Exchange Shares shall be increased,
if required, so that the number of Exchange Shares times the average
closing bid price of the Company's common stock for the 30 days
immediately prior to February 24, 2001, shall equal a value of
$500,000. Also, at February 24, 2001, the Company may elect, but is
not required, to purchase all (but not less than all) of the Exchange
Shares then held by TPG for $600,000. The Company will receive a credit
in full toward the purchase price for the net proceeds received by TPG
from any sales of the Exchange Shares prior to that date, provided that
in no case shall the purchase price be less than zero.
Subsequent to June 30, 1999, the Company has issued 2,427,981 shares of
common stock. In addition the Company has issued the following
warrants:
Class A - 530,693 warrants on non-restricted stock with a strike price
of $1.00 per share, expiring on January 14, 2000.
Class B - 697,193 warrants on non-restricted stock with a strike price
of $2.00 per share, expiring on January 14, 2000.
Class C - 697,193 warrants on non-restricted stock with a strike price
of $3.00 per share, expiring on January 14, 2001.
Class D - 697,193 warrants on non-restricted stock with a strike price
of $4.00 per share, expiring on January 14, 2001.
Class E - 812,544 warrants on restricted stock with a strike price of
$1.00 per share, expiring on October 1, 2000.
Class F - 812,422 warrants on restricted stock with a strike price of
$2.00 per share, expiring on October 1, 2000.
Class G - 1,026,844 warrants on restricted stock with a strike price of
$3.00 per share, expiring on October 1, 2001.
- F-21 -
<PAGE>
QUINTEK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Continued)
(16) Subsequent Events (Continued)
Class H - 1,026,844 warrants on restricted stock with a strike price
of $4.00 per share, expiring on October 1, 2002.
Class I - 2,312,686 warrants on restricted stock with a strike price
of $1.00 per share, expiring on July 1, 2000.
Class J - 3,705,500 warrants on restricted stock with a strike price
of $1.00 per share, expiring on January 14, 2004.
The Class A warrants were extended to April 14, 2000 and then expired
on that date. The Class B warrants were extended to May 15, 2000,
with a strike price of $1.25.
Subsequent to year-end, the Company's board of directors authorized a
stock award and long-term incentive plan which includes stock
appreciation rights and certain stock incentive awards. Nothing has
been issued under the plan as of the date of this filing and the plan
has not been approved by the shareholders at this time.
On July 1, 1999, the Company entered into a long-term non-cancelable
operating lease of its facilities in Virginia. The lease requires
monthly rental payments of $2,599 and carries an escalation clause of
4% per year. The lease expires March 2002, with an option to extend
the lease an additional 36 months.
On August 1, 1999, the Company entered into a long-term non-cancelable
operating lease of its facilities in Idaho. The lease requires monthly
rental payments of $750 and carries an option to purchase the
facilities at the end of the lease term. The lease expires August
2000.
On April 11, 2000, the Company entered into a joint venture with
Microshield Technologies, Inc. ('Microshield'), with an initial
investment of 5,000 shares of common stock and 500,000 Class J warrants
for a 5% equity investment in Microshield. Microshield was established
for the purpose of developing, manufacturing, and distributing products
for protecting consumers from microwave radiation emitted from cell
phones.
- F-22 -
<PAGE>
