UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Amendment No. 1

To

FORM 10-KSB

(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the Fiscal Year Ended June 30, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission file number: 0-28541

QUINTEK TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
 
California
77-0505346
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)

17951 Lyons Circle
Huntington Beach, California 92647
 (Address of principal executive offices)

(714) 848-7741
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(g) of the Act:
Common stock, no par value

Indicate by check mark 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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to Form 10-KSB.

Yes o No x Delinquent filers are disclosed herein.

Total revenues for Fiscal Year Ended June 30, 2006 were $2,307,402.

The aggregate market value of the Common Stock held by non-affiliates (as affiliates are defined in Rule 12b-2 of the Exchange Act) of the registrant, computed by reference to the average of the high and low sale price on September 25, 2006, was $o.

As of September 25, 2006, there were 151,699,773 shares of issuer’s common stock outstanding.
 

EXPLANATORY NOTE

We have determined, after consultation with our independent registered public accounting firm, that a restatement of our financial statements for the period ended June 30, 2006 was necessary due to inappropriate recording of warrant liability in connection with the private placement we conducted in May 2006.
 
For the convenience of the reader, this Form 10-KSB/A sets forth the original Form 10-KSB in its entirety. However, this Form 10-KSB/A only amends our financial statements and the footnotes to our financial statements, along with the corresponding changes to our Management’s Discussion and Analysis and Risk Factors. We also corrected typographical errors and have revised our controls and procedures disclosure as a result of these restatements. No other information in the original Form 10-KSB is amended hereby. In addition, pursuant to the rules of the SEC, Item 13 of Part III to the Initial Filing has been amended to contain currently dated certifications from our Principal Executive Officer and Principal Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of our Principal Executive Officer and Principal Financial Officer are attached to this Form 10KSB/A as Exhibits 31.1, 31.2
32.1, 32.2, respectively. 
 
2
 
QUINTEK TECHNOLOGIES, INC.
FORM 10-KSB
 
For the Fiscal Year Ended June 30, 2006

Part I
    
Page
       
Item 1.
Description of Business.
  
4
       
Item 2.
Description of Property.
  
13
       
Item 3.
Legal Proceedings.
  
13
       
Item 4.
Submission of Matters to a Vote of Security Holders.
  
14
       
       
Part ll
    
Page
       
Item 5.
Market for Common Equity and Related Stockholder Matters.
  
15
       
Item 6.
Management's Discussion and Analysis or Plan of Operation.
  
18
       
Item 7.
Financial Statements
  
F-1
       
Item 8.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
  
22
       
Item 8A.
Controls and Procedures.
  
22
       
Item 8B.
Other Information.
  
23
       
Part lll
    
Page
       
Item 9.
Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
    
 
of the Exchange Act.
  
24
       
Item 10.
Executive Compensation.
  
25
       
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  
26
       
Item 12.
Certain Relationships and Related Transactions.
  
29
       
Item 13.
Exhibits.
  
30
       
Item 14.
Principal Accountant Fees and Services.
  
33
       
       
Signatures.
  
34
 
3
 
ITEM 1. - DESCRIPTION OF BUSINESS

This Annual Report on Form 10-KSB (including the section regarding Management's Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Annual Report on Form 10-KSB. Additionally, statements concerning future matters are forward-looking statements.

Although forward-looking statements in this Annual Report on Form 10-KSB reflect the good faith judgment of our Management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading "Risks Related to Our Business" below, as well as those discussed elsewhere in this Annual Report on Form 10-KSB. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-KSB. We file reports with the Securities and Exchange Commission ("SEC"). We make available on our website under "Investor Relations/SEC Filings," free of charge, our annual reports on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. Our website address is www.wpcs.com. You can also read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report on Form 10-KSB. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Overview

We are a California corporation. Our corporate headquarters are located at 17951 Lyons Circle, California, 92647. Quintek Electronics, Inc., our predecessor company was founded in July 1991. On January 14, 1999, Quintek Electronics, Inc. was acquired in a merger by Pacific Diagnostics Technologies, Inc. and the surviving entity's name was changed to Quintek Technologies, Inc. On February 24, 2000, we acquired all of the outstanding shares of common stock of Juniper Acquisition Corporation. Upon effectiveness of that acquisition, Quintek elected to become the successor issuer to Juniper for reporting purposes under the Securities Exchange Act of 1934.

We provide back office services and solutions to improve efficiencies within organizations. We accomplish this through out-sourcing/in-sourcing services, consulting services and solution sales. Through our wholly owned subsidiaries Quintek Services, Inc., or QSI, and Sapphire Consulting Services, Inc. provides services to enable Fortune 500 and Global 2000 corporations to reduce costs and maximize revenues.

Our QSI business unit provides back-office services to reduce our customer’s costs by enabling them to focus on their core competencies. We reduce our customer’s costs by converting their mission critical documents from paper to electronic formats, making these documents readily organized and available and automating the routing and approval processes related to electronic documents via the internet. We deliver superior customer service, fast turnaround time and competitive prices.

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Market Overview

The outsourcing of jobs that can be performed via the Internet has come to be called business process outsourcing or BPO. Forester Research, Inc estimates that the market for BPO services will grow from $19 billion in 2004 to $146 billion in 2008. Additionally, in an August 2006 report from Business Insights, titled “The BPO Market Outlook” they state that, “The BPO market is the single fastest growing area of the IT services sector. Growing at 8% annually it is expected to grow from $112.1 billion is 2005 to $144 billion in 2008.” In a report dated June 26, 2006 form Forrester entitled “Service Oriented Architecture Will Shape the Future of BPO Delivery” states that, “Labor arbitrage is the most straightforward element of BPO delivery.” Quintek bridges the gap of getting information to the outsourced laborer and is a key enabler of SOA implementation.

We solve three major problems for the outsourcing market.

First, outsourced worker needs timely access to relevant information. The most efficient and effective way is to have data and or source documents converted to digital format. The information may then be easily shipped to the worker electronically or via digital media (Disk, Hard Drive, Mag Tape, etc). Quintek solves this problem through its high speed- high volume scanning and data captue operations.

Second, closing a multi-year, multi-million dollar outsourcing deal requires specialized sales skill. Proposal drafting and presentation, project management, detailed costing are all needed to close and execute long term contracts for BPO customers. Barriers exist, such as language, time and distance, as BPO service providers are based in other countries. This creates challenges in discovery and proposal creation, closing the sale and management of the project. Quintek solves this problem with a management tea that has over 40 years of experience with sales and implementation technology services industry.

Lastly, there are system integration requirements that must be supported with a US presence. Quintek brings a US presence with specialized systems integration experience to this growing market.

Recent activity in this space by large private equity groups further validates the growth in the industry and attractiveness to institutional investors. This past year ACS, a Fortune 500 company with reported annual revenues of over $4 billion and more than 40,000 employees, was courted for a buyout by major private equity firms including the Blackstone group. The company declined offers and proceeded to make a tender offer for a significant portion of their own stock. Additionally, SourceCorp, a business process outsourcing solutions to clients throughout the U.S, with reported annual revenues of approximately $415 million, was recently acquired by Apollo Management L.P., one of the most active and successful private investment firms in the United States.
 
Market Opportunity

Our core competencies are converting mission critical documents from paper to electronic formats, making these documents readily organized and available and automating the routing and approval processes related to electronic documents via the internet. We market these core competencies in three document processing market segments: mortgages; healthcare and accounts payable.

According to the Mortgage Banking Association, there will be $1.8 trillion in mortgage originations in 2006, down from $1.96 Trillion in 2005. We calculate that this represents approximately 13 million loans to be processed. Our experience is that each loan yields an average of 200 documents and that the customer will pay approximately $0.10 per mortgage page. This yields an addressable market of $260 million. According to Healthcare Informatics.com, there were 15 billion health claims filed in 2004. Our experience is that customers pay an average of $0.10 per claim for processing. This yields an addressable market of $1.5 billion for healthcare claims processing service. In 2005, total revenues from the Fortune 500 companies were $8.2 trillion. Our experience is that a company will spend 0.025% of its revenue on accounts payable outsourcing. This yields an addressable market of $1.7 billion for A/P processing services.

5

BPO Services Overview

Most BPO processes start by capturing data and organizing it into digital formats. This has increased the need for service provider support. Companies wanting to bring unstructured data on line have been faced with the task of converting this information into electronic form. Unstructured data is considered any media in paper, film, fiche or other forms that are not readily available to the knowledge worker.

Companies electing to image capture their paper documents are turning to service providers as a source of digitizing this information. Outsourcing this business to service providers has proven less expensive than hiring permanent staff. Temporary employees have proven ineffective since conversions are not generally done all at once. Companies attempting to purchase equipment and train staff to do their work in-house cannot keep up with the changing technologies in hardware and software.

Our Core Competencies

Mailroom Outsourcing

The most efficient solution for a customer is for the customer to outsource the mail handling function. We physically retrieve the mail directly from the post office through a P.O. Box, sort, scan and capture key data fields from each document. The scanned images and corresponding data are uploaded directly to the customer’s Enterprise Content Management , or ECM, or one of our Application Service Provider partners’ systems for online viewing by the customer’s end user. This service is sold per piece of mail processed. Our mailroom outsourcing service is delivered from our Huntington Beach, California facility.

High-Speed Scanning

Fortune 500 companies and other large organizations manage documents using ECM systems such as OnBase from Hyland Software Inc., Documentum from EMC Corporation or FileNet P8 from Filenet Corporation. These are very large databases with web browser interfaces that allow people all over the world to access and interact with document-based content in an organized manner twenty-four hours a day/seven days a week.

The scope of work for a high speed scanning contract will usually include us receiving paper documents and delivering these documents directly into the customer’s ECM system. Scanning is the process of converting a paper document into a digital image saved in electronic format such as a TIFF or PDF file. High-end scanners are similar to high-end copiers with sheet feeders, but they output electronic files, not more paper. We provide the ground transportation and secure facility for processing the documents, trained staff for processing the documents, expertise to index, scan and categorize the documents, expertise to re-assemble the original documents in the format and order they were delivered and the expertise to upload the documents and the indexing into the customer’s ECM system. This often has to be done in less than 24 hours from receipt of the document.

In its current configuration, our Huntington Beach facility can convert 6,550,000 images per month up from 2,400,000 per month last year. At a rate of $0.05 an image this could result in approximately $300,000 a month in billings and a gross profit of $120,000. Running two shifts at full capacity, the facility could process 13,200,000 documents a month, this could result in approximately $660,000 a month in billings and a gross profit of $264,000. This would materially impact the financial status of the company.

Domestic/Offshore Data Capture, OCR, and Indexing

We can use manual and OCR or Optical Character Recognition, technologies to create indexing for converted digital images. Indexing of documents facilitates a more efficient means of retrieving critical documents and information for future use.

We guarantee our customers “Sigma Level 5,” a 99.5% accuracy rate. We ensure this by utilizing an “Enter - Enter - Compare” process, whereby two separate operators independently index the same document, then compare results using automated systems. If discrepancies are found between the two separate operator versions, the batch is immediately rejected and routed to a senior project manager for rework.
 
6
 
We can perform this service in-house or offshore. Services are priced by the keystroke. A typical healthcare claim form may require between 400 and 1000 keystrokes. With volumes in the millions, our customers may pay $0.01- $0.02 per keystroke.

ASP Hosting of Scanned Images

Once images have been scanned, end-users need an ECM system. We will continue to provide clients with support for best of breed choice preferred by the customer such as OnBase from Hyland Software Inc., Documentum and Application Extender from EMC Corporation or FileNet P8 from Filenet Corporation. For customers that do not want to install and maintain their own ECM system, we resell web-based document hosting ASP services from our partners such as Hyland Software’s OnBase. This provides our clients the efficient and immediate capability of viewing business critical documents online.

Workflow Automation

We design and install software systems for automating the routing and approval processes related to electronic documents via the internet. This is accomplished by converting paper documents to electronic version and utilizing an automated workflow process via the internet or intranet.

Delivery of products or services

Our high speed scanning, data capture, OCR & indexing and in-house imaging solutions services are performed either in our Huntington Beach, California facility or on client’s site. We currently service clients in Thousand Oaks, California; Los Angeles, California; San Francisco, California; Seattle, Washington and Cambridge, Massachusetts.

Direct Sales

We currently have one full-time outside sales person and two inside sales people. We hope to grow this to a national staff. These senior salespeople are experienced and paid a base salary and a sales commission commensurate with that experience and are expected to meet an annual sales quota. We provide an incentive stock option plan to attract top sales talent.

Sales Incentives and Compensation

Salespeople receive a stock option bonus for meeting specific revenue goals. Our sales people are compensated based on the gross profit of the sale. Sales people receive no commission for jobs sold at less than 20% gross profit.

Partnership Agreement with FedEx Kinko’s

On June 1, 2004, we signed a sales partner agreement with FedEx Kinko’s. With this relationship, FedEx Kinko’s can resell our BPO services. Our sales team has been working with FedEx Kinko’s sales representatives on selling our services. We have sold and delivered on several customer contracts under this agreement. Under this agreement, we executed and delivered on one long-term contract with a leading life sciences and biotechnology company. This contract was expanded in the past year from one customer site to four and revenues have increased incrementally. We are providing services in two California locations, one location in Washington and one in Massachusetts.

COMPETITION

Our document imaging and BPO services are a mix of existing microfilm conversion service providers, scanning service providers, document management system integrators, and offshore data entry organizations. There are only a few national providers of BPO and document imaging services, including Affiliated Computer Services (NYSE:ACS) of Dallas, Texas, SourceCorp of Dallas, Texas and Electronic Data Systems Corp of Plano, Texas (NYSE:EDS).
 
7
 
EDS is a Fortune 500 company with reported annual revenues of approximately $20 billion that provides a broad portfolio of business and technology solutions to help its clients worldwide improve their business performance. The company’s core portfolio comprises information-technology, applications and business process services, as well as information-technology transformation services.

ACS is a Fortune 500 company with reported annual revenues of over $4 billion more than 40,000 employees supporting client operations in nearly 100 countries provides business process and information technology outsourcing solutions to world-class commercial and government clients. This past year, ACS was courted for a buyout by major private equity firms. The company declined offers and proceeded to make a tender offer for a significant portion of their own stock.

SourceCorp is a business process outsourcing solutions to clients throughout the U.S. SourceCorp reported annual revenues of approximately $415 million. This company focuses on business processes in information-intensive industries including healthcare, legal, financial services, government, transportation and logistics. This company has offices in 24 states and operates in approximately 40 states, Washington D.C., Mexico and both domestically and offshore through alliances. SourceCorp was recently acquired by Apollo Management L.P., one of the most active and successful private investment firms in the United States.

CUSTOMERS

We had two customers that individually represented more than 10% of our revenues for the fiscal year ended June 30, 2006; GMAC represented 37% of our revenue and FedEx Kinko’s represented 16% of its revenue. In June 2006, we ceased production for GMAC at their DiTech.com facility.

EMPLOYEES

As of September 25, 2006, we had 22 full time employees, of which 15 are hourly employees and seven are salaried. We consider our relations with our employees to be good.

RISKS RELATED TO BUSINESS

You should carefully consider the following risk factors and all other information contained herein as well as the information included in this Annual Report in evaluating our business and prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, other than those we describe below, that are not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following risks occur, our business and financial results could be harmed. You should refer to the other information contained in this Annual Report, including our consolidated financial statements and the related notes.

We Have a History of Losses Which May Continue, Requiring Us to Seek Additional Sources of Capital Which May Not be Available, Requiring Us to Curtail or Cease Operations

We had a net loss of $4,440,623 for the year ended June 30, 2006 compared to a net loss of $7,417,687 for the fiscal year ended June 30, 2005. We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future. If revenues grow more slowly than we anticipate, or if operating expenses exceed our expectations or cannot be adjusted accordingly, we will continue to incur losses. We will continue to incur losses until we are able to establish significant sales of our software and hardware products and our business process outsourcing services. Our possible success is dependent upon the successful development and marketing of our services and products, as to which there is no assurance. Any future success that we might enjoy will depend upon many factors, including factors out of our control or which cannot be predicted at this time. These factors may include changes in or increased levels of competition, including the entry of additional competitors and increased success by existing competitors, changes in general economic conditions, increases in operating costs, including costs of supplies, personnel and equipment, reduced margins caused by competitive pressures and other factors. These conditions may have a materially adverse effect upon us or may force us to reduce or curtail operations. In addition, we will require additional funds to sustain and expand our sales and marketing activities, particularly if a well-financed competitor emerges. Based on our current funding arrangements, we anticipate that we will not require additional funds to continue our operations for the next twelve months. In the event that we do not receive the remaining funds under our financing arrangement with Cornell Capital or if we need additional financing, there can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain sufficient funds from operations or external sources would require us to curtail or cease operations.
 
8
 
If We are Unable to Obtain Additional Funding Our Business Operations Will be Harmed and if We do Obtain Additional Financing Our then Existing Shareholders may Suffer Substantial Dilution

Additional capital may be required to effectively support the operations and to make strategic acquisitions. However, there can be no assurance that financing will be available when needed on terms that are acceptable to us. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our operations. Any additional equity financing may involve substantial dilution to our then existing shareholders.

Our Independent Registered Public Accounting Firm Has Expressed Substantial Doubt About Our Ability to Continue as a Going Concern, Which May Hinder Our Ability to Obtain Future Financing

In their report dated September 15, 2006, our Independent Registered Public Accounting Firm stated that our financial statements for the year ended June 30, 2006 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of recurring losses from operations ($4,560,311), including net losses of $4,440,623 and $7,417,687 for the fiscal years ending June 30, 2006 and 2005, respectively. We continue to experience net losses. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans and grants from various financial institutions where possible. Our continued net losses and stockholders’ deficit increases the difficulty in meeting such goals and there can be no assurances that such methods will prove successful. 

Many of Our Competitors are Larger and Have Greater Financial and Other Resources than We do and Those Advantages Could Make it Difficult for Us to Compete With Them

The general market for our products and services is extremely competitive and includes several companies which have achieved substantially greater market shares than we have, and have longer operating histories, have larger customer bases, have substantially greater financial, development and marketing resources than we do. If overall demand for our products should decrease it could have a materially adverse affect on our operating results.

Our Products may Infringe Upon the Intellectual Property Rights of Others and Resulting Claims Against Us Could be Costly and Require Us to Enter Into Disadvantageous License or Royalty Arrangements

The business process outsourcing industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement and the violation of intellectual property rights. Although we attempt to avoid infringing upon known proprietary rights of third parties, we may be subject to legal proceedings and claims for alleged infringement by us or our licensees of third-party proprietary rights, such as patents, trade secrets, trademarks or copyrights, from time to time in the ordinary course of business. Any claims relating to the infringement of third-party proprietary rights, even if not successful or meritorious, could result in costly litigation, divert resources and our attention or require us to enter into royalty or license agreements which are not advantageous to us. In addition, parties making these claims may be able to obtain injunctions, which could prevent us from selling our products. Furthermore, former employers of our employees may assert that these employees have improperly disclosed confidential or proprietary information to us. Any of these results could harm our business. We may be increasingly subject to infringement claims as the number of, and number of features of, our products grows.

9
 
If We are not Able to Manage Our Growth We may Never Achieve Profitability

Our success will depend on our ability to expand and manage our operations and facilities. There can be no assurance that we will be able to manage our growth, meet the staffing requirements of manufacturing scale-up or for current or additional collaborative relationships or successfully assimilate and train our new employees. In addition, to manage our growth effectively, we will be required to expand our management base and enhance our operating and financial systems. If we continue to grow, there can be no assurance that the management skills and systems currently in place will be adequate or that we will be able to manage any additional growth effectively. Failure to achieve any of these goals could have a material adverse effect on our business, financial condition or results of operations.

If We Are Unable to Retain the Services of Messrs. Steele and Haag or If We Are Unable to Successfully Recruit Qualified Personnel, We May Not Be Able to Continue Our Operations.

Our success depends to a significant extent upon the continued service of Mr. Robert Steele, our Chief Executive Officer and Mr. Andrew Haag, our Chief Financial Officer. Loss of the services of Messrs. Steele or Haag could have a material adverse effect on our growth, revenues, and prospective business. We do not maintain key-man insurance on the life of Messrs. Steele or Haag. In addition, in order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified personnel. Competition for qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms.

Risks Relating to Our Current Financing Arrangement:

There Are a Large Number of Shares Underlying Our Secured Convertible Debentures and Warrants That May be Available for Future Sale and the Resale of These Shares May Depress the Market Price of Our Common Stock.

As of September 25, 2006, we had 151,699,773 shares of common stock issued and outstanding, secured convertible debentures issued and outstanding that may be converted into 31,578,948 shares of common stock based on current market prices and outstanding warrants to purchase 56,397,000 shares of common stock. In addition, we have an obligation pursuant to a securities purchase agreement we entered into in May 2006 to issue additional secured convertible debentures that may be converted into 38,596,492 shares of our common stock based on current market prices. Additionally, the number of shares of common stock issuable upon conversion of the outstanding secured convertible debentures may increase if the market price of our stock declines. All of the shares, including all of the shares issuable upon conversion of the secured convertible debentures and upon exercise of our warrants, may be sold without restriction upon the effectiveness of the registration statement registering their resale. The resale of these shares may adversely affect the market price of our common stock.

The Continuously Adjustable Conversion Price Feature of Our Secured Convertible Debentures Could Require Us to Issue a Substantially Greater Number of Shares, Which Will Cause Dilution to Our Existing Stockholders.

Our obligation to issue shares upon conversion of our secured convertible debentures is essentially limitless. The following is an example of the amount of shares of our common stock that are issuable, upon conversion of our secured convertible debentures (excluding accrued interest), based on market prices 25%, 50% and 75% below the market price as of September 25, 2006 of $0.03 per share.

 
 
 
 
 
 
Number
 
% of
 
% Below
 
Price Per
 
With Discount
 
of Shares
 
Outstanding
 
Market
 
Share
 
at 5%
 
Issuable
 
Stock
  
                   
25%
  
$
0.0225
  
$
0.021375
    
93,567,252
    
38.15
%
50%
  
$
0.015
  
$
0.01425
    
140,350,878
    
48.06
%
75%
  
$
0.0075
  
$
0.007125
    
380,701,755
    
71.51
%
 
As illustrated, the number of shares of common stock issuable upon conversion of our secured convertible debentures will increase if the market price of our stock declines, which will cause dilution to our existing stockholders.
 
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The Continuously Adjustable Conversion Price Feature of Our Secured Convertible Debentures May Encourage Investors to Make Short Sales in Our Common Stock, Which Could Have a Depressive Effect on the Price of Our Common Stock.

The secured convertible debentures are convertible into shares of our common stock at a 5% discount to the trading price of the common stock prior to the conversion. The downward pressure on the price of the common stock as the investor converts and sells material amounts of common stock could encourage short sales by investors. This could place further downward pressure on the price of the common stock. The investors could sell common stock into the market in anticipation of covering the short sale by converting their securities, which could cause the further downward pressure on the stock price. In addition, not only the sale of shares issued upon conversion or exercise of the secured convertible debentures, but also the mere perception that these sales could occur, may adversely affect the market price of the common stock.

The Issuance of Shares Upon Conversion of the Secured Convertible Debentures and Exercise of Outstanding Warrants May Cause Immediate and Substantial Dilution to Our Existing Stockholders.

The issuance of shares upon conversion of the secured convertible debentures and exercise of warrants may result in substantial dilution to the interests of other stockholders since the investors may ultimately convert and sell the full amount issuable on conversion. Although the investor may not convert its secured convertible debentures and/or exercise its warrants if such conversion or exercise would cause it to own more than 4.99% of our outstanding common stock, this restriction does not prevent the investor from converting and/or exercising some of its holdings and then converting the rest of its holdings. In this way, the investor could sell more than this limit while never holding more than this limit. There is no upper limit on the number of shares that may be issued which will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering.

In The Event That Our Stock Price Declines, The Shares Of Common Stock Allocated For Conversion Of The Secured Convertible Debentures to be Registered Pursuant To A Registration Statement May Not Be Adequate And We May Be Required to File A Subsequent Registration Statement Covering Additional Shares. If The Shares We Have Allocated And Plan to Register Are Not Adequate And We Are Required To File An Additional Registration Statement, We May Incur Substantial Costs In Connection Therewith.

Based on our current market price and the potential decrease in our market price as a result of the issuance of shares upon conversion of the secured convertible debentures, we have made a good faith estimate as to the amount of shares of common stock that we are required to register and allocate for conversion of the secured convertible notes. Accordingly, we plan to allocate and register, upon obtaining an increase in the authorized number of shares of common stock, at least 150,000,000 shares to cover the conversion of the secured convertible debentures. In the event that our stock price decreases, the shares of common stock we have allocated for conversion of the secured convertible debentures and plan to register may not be adequate. If the shares we allocate and register pursuant to the registration statement are not adequate and we are required to file an additional registration statement, we may incur substantial costs in connection with the preparation and filing of such registration statement.  

If We Are Required for any Reason to Repay Our Outstanding Convertible Debentures, We Would Be Required to Deplete Our Working Capital, If Available, Or Raise Additional Funds. Our Failure to Repay the Secured Convertible Debentures, If Required, Could Result in Legal Action Against Us, Which Could Require the Sale of Substantial Assets.

In May 2006, we entered into a Securities Purchase Agreement for the sale of $2,000,000 principal amount of secured convertible debentures. The secured convertible debentures are due and payable, with 10% interest, three years from the date of issuance, unless sooner converted into shares of our common stock. Although we currently have $900,000 secured convertible debentures outstanding, the investors are obligated to purchase additional secured convertible debentures in the aggregate of $1,100,000. In addition, any event of default such as our failure to repay the principal or interest when due, our failure to issue shares of common stock upon conversion by the holder, our failure to timely file a registration statement or have such registration statement declared effective, breach of any covenant, representation or warranty in the Securities Purchase Agreements or related convertible debentures, the assignment or appointment of a receiver to control a substantial part of our property or business, the filing of a money judgment, writ or similar process against our company in excess of $50,000, the commencement of a bankruptcy, insolvency, reorganization or liquidation proceeding against our company and the delisting of our common stock could require the early repayment of the secured convertible debentures, including default interest rate on the outstanding principal balance of the secured convertible debentures if the default is not cured with the specified grace period. We anticipate that the full amount of the secured convertible debentures will be converted into shares of our common stock, in accordance with the terms of the secured convertible debentures. If we were required to repay the secured convertible debentures, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the secured convertible debentures when required, the debenture holders could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would require us to curtail or cease operations.
 
11
 
If an Event of Default Occurs under the Securities Purchase Agreement, Secured Convertible Debentures or Security Agreement, the Investor Could Take Possession of all Our Goods, Inventory, Contractual Rights and General Intangibles, Receivables, Documents, Instruments, Chattel Paper, and Intellectual Property.

In connection with the Securities Purchase Agreement, we executed a Security Agreement in favor of the investor granting them a first priority security interest in all of our goods, inventory, contractual rights and general intangibles, receivables, documents, instruments, chattel paper, and intellectual property. The Security Agreement states that if an event of default occurs under the Securities Purchase Agreement, Secured Convertible Debentures or Security Agreement, the Investor has the right to take possession of the collateral, to operate our business using the collateral, and have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the collateral, at public or private sale or otherwise to satisfy our obligations under these agreements.

Risks Relating to Our Common Stock:

If We Fail to Remain Current in Our Reporting Requirements, We Could be Removed From the OTC Bulletin Board Which Would Limit the Ability of Broker-Dealers to Sell Our Securities and the Ability of Stockholders to Sell Their Securities in the Secondary Market.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Our Common Stock is Subject to the "Penny Stock" Rules of the SEC and the Trading Market in Our Securities is Limited, Which Makes Transactions in Our Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
 
  ·  that a broker or dealer approve a person's account for transactions in penny stocks; and
     
 
·
the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
 
  · obtain financial information and investment experience objectives of the person; and
     
 
·
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
 
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The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
 
 
·
sets forth the basis on which the broker or dealer made the suitability determination; and
     
  ·  that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
 
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

ITEM 2. DESCRIPTION OF PROPERTY.

We lease 7,062 square feet for our executive offices at 17951 Lyons Circle, Huntington Beach, California. The lease expires on June 30, 2008, with an option to extend at the end of the commencement year. The current monthly lease amount for this facility is $7,768.

We lease on a month-to-month basis, 1,800 square feet of office and warehouse space at 720 N. 4th Street, Montpelier, Idaho, for our accounting and purchasing function. The current monthly rent is $675. We believe that our current office space and facilities are sufficient to meet our present needs and do not anticipate any difficulty securing alternative or additional space, as needed, on terms acceptable to us.

ITEM 3. LEGAL PROCEEDINGS. 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as disclosed below, we are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

On April 16, 2004, Decision One Corporation filed suit in the County of Bannock, Idaho against us for $22,661.56 for goods provided. Since 2000, Decision One (formerly Imation) has been both a vendor to us and a reseller of our Q4300 Printers. We filed a counterclaim on August 1, 2004. We assert that Decision One used its authority as a dealer of our product to disparage us, in violation of its dealer agreement with us, and we sought relief for the hundreds of thousands of dollars in business lost because of it. On January 11, 2005, the Court granted Judgment for the sum of $21,000 in favor of the Decision One Corporation. The Court has ruled that we would be allowed to file the counterclaim under this action, rather than a separate lawsuit. In March 2005, a stipulation settlement was accepted by Decision One where they agreed to accept $15,000 in full satisfaction of their debt. We agreed to pay $2,000 upon execution of the stipulation plus $1,000 for 13 months thereafter. In April 2006, we made a payment of $16,827 to satisfy our obligations pursuant to the terms of the judgment and a Satisfaction of Judgment was entered in the matter.

An action which was pending in the Superior Court of the State of California for Orange County against one of our competitors, a former employee and a former officer of ours, has been resolved by mutual agreement. The settlement includes an injunction which prevents the defendants from soliciting or initiating contact with 23 accounts until February 28, 2007. There was no admission or acknowledgment of any wrongdoing by the defendants in stipulating to the injunction. We, the plaintiff, and defendants Robert Brownell, Chris De Lapp and Document Imaging Technologies, Inc. entered into a stipulated injunction in the matter which provides, among other things, that Defendants and all of their respective officers, agents, representatives, directors, affiliates, employees, successors in interest, and all persons acting in concert or participating with them, are restrained and enjoined from soliciting or initiating contact with 23 clients listed in the injunction. Additionally, the Defendants shall not use, disclose, disseminate or publish in any manner our confidential business information and/or trade secrets including lists of clients, candidates, information regarding contracts or prospective Quintek contracts with clients and candidates, computer programs, business plans and strategies, prices, job descriptions, contracts, budgets, and similar confidential or proprietary materials or information respecting us or our clients' or candidates' business affairs, as well as confidential information of a personal nature of us and our employees, managers and officers, without our prior written consent. All other related claims and causes of action were dismissed with prejudice.
 
13
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

14

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

PRICE RANGE OF COMMON STOCK

Our common stock is quoted on the OTC Bulletin Board under the symbol “QTEK”.

For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

   
Fiscal Year 2005
  
   
High
  
Low
  
First Quarter
 
$
0.21
  
$
0.14
  
Second Quarter
  
$
0.26
  
$
0.16
  
Third Quarter
  
$
0.20
  
$
0.10
  
Fourth Quarter
 
$
0.18
  
$
0.10
  

   
Fiscal Year 2006
  
   
High
  
Low
  
First Quarter
 
$
0.12
  
$
0.07
  
Second Quarter
  
$
0.08
  
$
0.05
  
Third Quarter
  
$
0.09
  
$
0.06
  
Fourth Quarter
 
$
0.07
  
$
0.04
  

   
Fiscal Year 2007
  
   
High
  
Low
  
First Quarter (1)
  
$
0.05
  
$
0.03
  
Second Quarter
    
xxx
    
Xxx
  
Third Quarter
    
xxx
    
Xxx
  
Fourth Quarter
   
xxx
    
Xxx
  

 
(1)
As of September 25, 2006.

Holders

As of September 25, 2006, we had approximately 500 holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent of our common stock is Interwest Transfer Co., Inc., 1981 E. Murray Holladay Road, Suite 100, Salt Lake City Utah 84117.

Dividends

We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant.

Recent Sale of Unregistered Securities

On April 12, 2006, we issued 1,183,184 shares of common stock upon conversion of $5,000 of a previously issued convertible debenture.
 
15
 
On April 12, 2006, we issued 50,000 shares of common stock valued at $50,000 upon exercise of outstanding warrants.

On June 15, 2006, we issued 4,000,000 shares of common stock to a consultant valued at $160,000 pursuant to a fee agreement in regards to raising funding. The common shares were valued at the closing market price of the shares on the date of issuance.

On June 15, 2006, we issued 1,370,286 common shares to a marketing partner for an engagement fee valued at $58,811. The common shares were valued at the closing market price of the shares on the date of issuance.

On June 23, 2006, we issued 234,375 common shares to a consultant for settlement in full of agreement fees valued at $7,500. The common shares were valued at the closing market price of the shares on the date of issuance.

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with Cornell Capital Partners L.P., an accredited investor, on May 17, 2006, and amended on September 15, 2006, for the sale of $2,000,000 in secured convertible debentures and warrants. The investors are obligated to provide us with an aggregate of $2,000,000 as follows:

● $750,000 was disbursed on May 17, 2006;

● $150,000 was disbursed on September 15, 2006;

● $600,000 will be disbursed two business days prior to the date a registration statement registering for resale the shares of common stock underlying the secured convertible debentures and warrants is filed by us with the Securities and Exchange Commission; and

● $500,000 will be disbursed upon the effectiveness of the registration statement registering the shares of common stock underlying the secured convertible debentures and warrants.

Accordingly, we have received a total of $900,000 pursuant to the Securities Purchase Agreement.

The secured convertible debentures bear interest at 10%, mature three years from the date of issuance, and are convertible into our common stock, at the investor's option, at the lower of (i) $0.0662 or (ii) 95% of the lowest daily volume weighted average price of our common stock, as quoted by Bloomberg, LP, during the 30 trading days immediately preceding the date of conversion.

In connection with the securities purchase agreement, as amended, we agreed to issue Cornell warrants to purchase an aggregate of 56,397,000 shares of our common stock, exercisable for a period of five years; including warrants to purchase 17,857,000 shares at an exercise price of $0.05, warrants to purchase 15,625,000 shares at an exercise price of $0.055, warrants to purchase 12,500,000 shares at an exercise price of $0.065 and warrants to purchase 10,415,000 shares at an exercise price of $0.08. All of the warrants were issued upon closing. We have the option to force the holder to exercise the warrants, as long as the shares underlying the warrants are registered pursuant to an effective registration statement, if the closing bid price of our common stock trades above certain levels. In the event that the closing bid price of our common stock is greater than or equal to $0.10 for a period of 20 consecutive days prior to the forced conversion, we can force the warrant holder to exercise the $0.05 warrants. In the event that the closing bid price of our common stock is greater than or equal to $0.11 for a period of 20 consecutive days prior to the forced conversion, we can force the warrant holder to exercise the $0.055 warrants. In the event that the closing bid price of our common stock is greater than or equal to $0.13 for a period of 20 consecutive days prior to the forced conversion, we can force the warrant holder to exercise the $0.065 warrants. In the event that the closing bid price of our common stock is greater than or equal to $0.16 for a period of 20 consecutive days prior to the forced conversion, we can force the warrant holder to exercise the $0.08 warrants.

The investor has contractually agreed to restrict its ability to convert the debentures or exercise the warrants and receive shares of our common stock such that the number of shares of common stock held by it and its affiliates after such conversion does not exceed 4.99% of the then issued and outstanding shares of common stock. 

16

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 us of shares of our common stock to financially sophisticated individuals who are fully aware of our activities, as well as our business and financial condition, and who acquired said securities for investment purposes and understood the ramifications of same.
 
17
 
Item 6 Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to Management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our services, fluctuations in pricing for materials, and competition.

Results of Operations for the Fiscal Year ended June 30, 2006 Compared to Fiscal Year Ended June 30, 2005

Our revenues totaled $2,307,402 and $1,547,923 for the twelve months ended June 30, 2006 and 2005, respectively, an increase of $759,479 (149%) in 2006 was due to our investment in sales and marketing efforts and resultant increase in new sales contracts.

For the twelve months ended June 30, 2006 and 2005, cost of revenue was $1,522,814 and $1,070,001 respectively, an increase of $452,813 (142%). Cost of revenue for both periods consisted mostly of labor and production costs. Cost of revenue increased in 2006 due to increase in revenues from increase in new sales contracts we received.

Total operating expenses were $5,344,899 for the twelve-month period ended June 30, 2006 as compared to $5,982,314 for the same period in 2005. The decrease in operating expenses of $637,415 (12%) in 2006 as compared to 2005 resulted primarily due to a permanent decline in the market value of marketable securities we held as investment. Selling, general and administrative expenses in 2006 were $3,832,925 compared to $2,200,476, an increase of $1,631,449 (77%) primarily due to increased funding costs, legal fees, penalties and salary expenses.

Total non-operating income for the twelve months ended June 30, 2006 was $120,488 compared to total non-operating expense of $1,912,495 for the same period in 2005. During 2006, we realized a gain on sale of investment of $113,700 and recorded a change in fair value of warrants of $677,008. We recorded a beneficial conversion feature expense of $110,924 and interest expense of $571,674. During 2005, we recorded a loss of $594,892 due to conversion of debt, beneficial conversion feature expense of $317,021 and interest expense of $1,122,703. As a result, we incurred a reduction in net loss of $4,440,623 for the period ending June 30, 2006 compared to a net loss of $7,417,687 for the same period in 2005. This reduction in net loss is attributed to the increase in net revenue, reduction in the permanent decline of marketable securities, and the non-operating income recorded pursuant to the change in the fair value of warrants.

In June 2006, we ceased production of mortgage processing services for GMAC at their DiTech.com facility. This customer represented a material portion of our revenues over the past 12 months. We are focused on obtaining additional business to replace this contract and grow revenues. There can be no assurance that we will be able to obtain a significant amount of new business to replace these revenues.

At June 30, 2006, our total assets were $1,195,643 compared to $1,402,264 as of June 30, 2005. The assets decreased by $206,621 (15%) primarily due to a reduction in accounts receivable and the depreciation of property and equipment. Total current liabilities at June 30, 2006 were $4,164,053 compared to $2,168,067 as of June 30, 2005. The current liabilities increased by $1,995,986 (92%) primarily due to an increase in the warrant liability as a result of financing to grow the business. The long term debt decreased to $28,741 as of June 30, 2006 compared to $128,162 at June 30, 2005.
 
18
 
We are currently in default on two outstanding convertible bonds totaling $62,495. Interest continues to accrue against the principal. The notes are unsecured. The holders of the bonds that are in default have indicated that they do not want to convert their debt to stock and wish to be repaid in cash. At present, we do not have the funds to repay the indebtedness. It is not known whether we will be able to repay or renegotiate this debt. Additionally, our current liabilities exceeded our current assets by $3,526,425 at June 30, 2006. If we are unable to cure the default or renegotiate our debt, we may not be able to continue as a going concern.

We owe $96,661 in payroll withholding taxes that were assumed in a merger and are past due.

Liquidity and Capital Resources

Our principal capital requirements during the fiscal year 2007 are to fund the internal operations and acquisitions of profitable and growth-oriented businesses. We plan to raise necessary funds by selling our own common shares to selected investors and bringing in business partners whose contributions include the necessary cash. In view of low borrowing interest rates, we are actively pursuing additional credit facilities with financial institutions as a means to obtain new funding. Our management estimates that it currently has the funding facilities in place to operate for at least twelve months. We have historically financed operations from the sale of our common stock and the conversion of common stock warrants. At June 30, 2006, we had cash on hand of $410,007 as compared cash on hand of $12,669 at June 30, 2005.

Net cash used in operating activities for the year ended June 30, 2006 was $1,208,903, primarily attributable to the increase in accounts payable and accrued expenses of $163,508, decrease in accounts receivable of $87,657, decrease in prepaid expenses of $5,562, and a decrease in deferred revenue of $16,656.

Net cash provided by investing activities for the year ended June 30, 2006 was $457,879, primarily due to the proceeds from sale of marketable securities of $233,938 and removal of restrictions on cash of $260,087. We used $36,146 of cash to acquire equipment during the year ended June 30, 2006.

Net cash provided by financing activities for the year ended June 30, 2006 was $1,148,361. The increase was primarily attributable to proceeds from issuance of debentures of $750,000, proceeds from issuance of convertible notes of $50,500, proceeds from sale of shares to be issued of $151,750, proceeds from sale of common shares of $265,000, proceeds from prepayments for warrants to be issued for note conversion of $125,000, proceeds from issuance of common stock upon exercise of warrants of $59,400. We made lease payments of $128,540, payments on notes payable of $22,914, and net payments on factoring payables of $101,834.

As a result of the above activities, we experienced a net increase in cash and cash equivalents of $397,338 as of June 30, 2006 as compared to $2,931 net decrease in cash as of June 30, 2005. Our ability to continue as a going concern is still dependent on our success in obtaining additional financing from institutional investors or by selling our common shares and fulfilling our business plan. Other than as described below, we do not have any commitments for capital and we cannot give any assurances that capital will be available on terms we deem favorable or at all.

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with Cornell Capital Partners L.P., an accredited investor, on May 17, 2006, and amended on September 15, 2006, for the sale of $2,000,000 in secured convertible debentures and warrants. The investors are obligated to provide us with an aggregate of $2,000,000 as follows:

● $750,000 was disbursed on May 17, 2006;

● $150,000 was disbursed on September 15, 2006;
 
19
 
● $600,000 will be disbursed two business days prior to the date a registration statement registering for resale the shares of common stock underlying the secured convertible debentures and warrants is filed by us with the Securities and Exchange Commission; and

● $500,000 will be disbursed upon the effectiveness of the registration statement registering the shares of common stock underlying the secured convertible debentures and warrants.

Accordingly, we have received a total of $900,000 pursuant to the Securities Purchase Agreement.

The secured convertible debentures bear interest at 10%, mature three years from the date of issuance, and are convertible into our common stock, at the investor's option, at the lower of (i) $0.0662 or (ii) 95% of the lowest daily volume weighted average price of our common stock, as quoted by Bloomberg, LP, during the 30 trading days immediately preceding the date of conversion.

In connection with the securities purchase agreement, as amended, we agreed to issue Cornell warrants to purchase an aggregate of 56,397,000 shares of our common stock, exercisable for a period of five years; including warrants to purchase 17,857,000 shares at an exercise price of $0.05, warrants to purchase 15,625,000 shares at an exercise price of $0.055, warrants to purchase 12,500,000 shares at an exercise price of $0.065 and warrants to purchase 10,415,000 shares at an exercise price of $0.08. All of the warrants were issued upon closing. We have the option to force the holder to exercise the warrants, as long as the shares underlying the warrants are registered pursuant to an effective registration statement, if the closing bid price of our common stock trades above certain levels. In the event that the closing bid price of our common stock is greater than or equal to $0.10 for a period of 20 consecutive days prior to the forced conversion, we can force the warrant holder to exercise the $0.05 warrants. In the event that the closing bid price of our common stock is greater than or equal to $0.11 for a period of 20 consecutive days prior to the forced conversion, we can force the warrant holder to exercise the $0.055 warrants. In the event that the closing bid price of our common stock is greater than or equal to $0.13 for a period of 20 consecutive days prior to the forced conversion, we can force the warrant holder to exercise the $0.065 warrants. In the event that the closing bid price of our common stock is greater than or equal to $0.16 for a period of 20 consecutive days prior to the forced conversion, we can force the warrant holder to exercise the $0.08 warrants.

The investor has contractually agreed to restrict its ability to convert the debentures or exercise the warrants and receive shares of our common stock such that the number of shares of common stock held by it and its affiliates after such conversion does not exceed 4.99% of the then issued and outstanding shares of common stock. 

Subsequent Events

On August 3, 2006, we issued 3,529,169 common shares pursuant to a warrant conversion and convertible note valued at $151,750 reported as shares to be issued from the year ending June 30, 2006.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies

Revenue Recognition

Revenue is recognized when earned. We recognize our revenue in accordance with the SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” and The American Institute of Certified Public Accountants Statement of Position 97-2, “Software Revenue Recognition,” as amended as amended by SOP 98-4 and SOP 98-9.

20
 
Stock-based Compensation

We follow the prescribed accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights in accordance with SFAS No. 148 “Accounting for Stock-Based Compensation”. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement requires prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used, on reported results.

Issuance of Shares for Services

We account for the issuance of equity instruments to acquire goods and services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably measurable.

Derivative Instruments

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. SFAS No. 133 requires us to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. It further provides criteria for derivative instruments to be designated as fair value, cash flow and foreign currency hedges and establishes respective accounting standards for reporting changes in the fair value of the derivative instruments. After adoption, we are required to adjust hedging instruments to fair value in the balance sheet and recognize the offsetting gains or losses as adjustments to be reported in net income or other comprehensive income, as appropriate.

Recent Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs -- an amendment of ARB No. 43, Chapter 4. This statement clarifies the criteria of "abnormal amounts" of freight, handling costs, and spoilage that are required to be expensed as current period charges rather than deferred in inventory. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. We do not expect the adoption of this statement will have any material impact on our results or financial position.

In December 2004, the FASB issued SFAS no. 153, Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29. This statement addresses the measurement of exchanges of nonmonetary assets. It eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. This statement specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. We do not expect the adoption of this statement will have any material impact on our results or financial position.

SFAS No. 154, Accounting Changes and Error Corrections, was issued in May 2005 and replaces APB Opinion No. 20 and SFAS No. 3. SFAS No. 154 requires retrospective application for voluntary changes in accounting principle in most instances and is required to be applied to all accounting changes made in fiscal years beginning after December 15, 2005. At such, we are required to adopt these provisions at the beginning of the fiscal year ending June 30, 2007. We are currently evaluating the impact of SFAS 154 on our consolidated financial statements.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”, which amends SFAS No. 133, “Accounting for Derivatives Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. SFAS 155 amends SFAS 133 to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the contractual interest or principle cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities to hold a passive derivative financial instrument pertaining to beneficial interests that itself is a derivative instruments. We are currently evaluating the impact this new Standard, but believe that it will not have a material impact on our financial position.

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ITEM 7. FINANCIAL STATEMENTS.
 
QUINTEK TECHNOLOGIES, INC.

INDEX TO FINANCIAL STATEMENTS

   
Page
Reports of Independent Registered Public Accounting Firm
  
F-2
Consolidated Balance Sheet as of June 30, 2006 and June 30, 2005
  
F-3
Consolidated Statements of Operations for the years ended June 30, 2006 and 2005
  
F-4
Consolidated Statement of Stockholders' Equity for the years ended June 30, 2006 and 2005
  
F-5
Consolidated Statements of Cash Flows for the years ended June 30, 2006 and 2005
  
F-6
Notes to Consolidated Financial Statements
  
F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
Quintek Technologies, Inc.

We have audited the accompanying consolidated balance sheet of Quintek Technologies, Inc. and subsidiary (a California Corporation) as of June 30, 2006 and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the two years ended June 30, 2006 and 2005. 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 audits.

We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Quintek Technologies, Inc. and subsidiary as of June 30, 2006 and the results of its operations and its cash flows for the years ended June 30, 2006 and 2005 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 21 to the consolidated financial statements, the Company’s significant operating losses and insufficient capital raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 21. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 24, the financial statements for the year ended June 30, 2006 have been restated.
 
/s/ KABANI & COMPANY, INC.

KABANI & COMPANY, INC.

Los Angeles, California
September 15, 2006 except for note 6, 13, 16, 21 and 24 which are as of September 5, 2007

F-2
 
QUINTEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of June 30 2006
(Unaudited)
 
ASSETS
  
       
Current assets:
      
Cash and cash equivalents
  
$
410,007
  
Accounts receivable, net of allowance for doubtful accounts of $370
    
227,621
 
         
Total current assets
    
637,628
 
         
Property and equipment, net
    
448,197
 
         
Other assets:
        
Deposits
    
108,935
 
Other assets (Restated)
    
883
 
Total other assets
    
109,818
 
         
   
$
1,195,643
  
         
LIABILITIES AND STOCKHOLDERS' DEFICIT
         
Current liabilities:
        
Accounts payable and accrued expenses
  
$
990,737
  
Factoring payable
    
136,722
 
Payroll and payroll taxes payable
    
181,565
 
Payroll taxes assumed in merger
    
96,661
 
Advances from lenders
    
36,736
 
Loans payable
    
326,681
 
Notes payable
    
62,590
 
Convertible bonds
    
62,495
 
Convertible debentures
    
210,674
 
Convertible notes
    
50,500
 
Warrant Liability (Restated)
    
1,967,637
 
Deferred revenue
    
8,421
 
Dividend payable
    
32,633
 
Total current liabilities
    
4,164,052
 
         
Long-term debt
    
28,741
 
         
Stockholders' deficit:
        
Preferred stock, convertible, no par value, 50,000,000 shares authorized,
        
3,154,750 shares issued and outstanding
    
681,605
 
Common stock, $0.01 par value, 200,000,000 shares authorized,
        
148,170,604 shares issued and outstanding
    
1,481,706
 
Additional paid-in capital (Restated)
    
30,655,361
 
Shares to be issued
    
156,750
 
Stock subscription receivable
    
(776,250
)
Prepaid consulting
    
(113,455
)
Unrealized gain on marketable securities
    
(90,859
)
Investments held in escrow
    
(40,002
)
Accumulated deficit (Restated)
    
(34,952,008
)
Total stockholders' deficit
    
(2,997,151
)
Total liabilities and stockholders' deficit
  
$
1,195,643
  
 
F-3
 
QUINTEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 
   
For the twelve month period ended June 30,
  
   
2006
  
2005
  
   
Restated
      
           
Net revenue
  
$
2,307,402
  
$
1,547,923
  
               
Cost of revenue
    
1,522,814
   
1,070,001
 
Gross margin
    
784,588
   
477,922
 
 
              
Operating expenses:
              
Selling, general and administrative
    
3,832,925
   
2,200,476
 
Permanent decline on value of marketable securities
    
-
   
2,338,321
 
Stock-based compensation
    
485,456
       
Stock-based consulting fees
    
1,026,518
   
1,443,517
 
Total operating expenses
    
5,344,899
   
5,982,314
 
Loss from operations
    
(4,560,311
)
  
(5,504,392
)
               
Non-operating income (expense):
              
Realized gain on investment
    
113,700
   
-
 
Other income
    
15,810
   
6,961
 
Loss on conversion of debt
    
-
   
(594,892
)
Uncollectible from former officers
    
(10,989
)
  
104,051
 
Beneficial conversion feature
    
(110,924
)
  
(317,021
)
Change in Fair Value of Warrants
    
677,008
   
-
 
Interest Income
    
7,557
   
11,109.00
 
Interest expense
    
(571,674
)
  
(1,122,703
)
Total non-operating income (expense)
    
120,488
   
(1,912,495
)
                  
Loss before provision for income taxes
    
(4,439,823
)
  
(7,416,887
)
               
Provision for income taxes
    
800
   
800
 
Net loss
    
(4,440,623
)
  
(7,417,687
)
               
Dividend requirement for preferred stock
    
16,057
   
16,575
 
Net loss applicable to common shareholders
    
(4,456,680
)
  
(7,434,262
)
               
Other comprehensive (loss)/gain:
              
Reclassification adjustment
    
(4,080
)
  
-
 
Unrealized gain for the period
    
9,317
   
-
 
Comprehensive loss
  
$
(4,451,443
)
$
(7,434,262
)
               
Basic and diluted net loss per share
  
$
(0.04
)
$
(0.10
)
               
Basic and diluted net loss per share for dividend
              
for preferred stock
  
$
0.00
  
$
0.00
  
               
Basic and diluted net loss per share applicable to
             
common shareholders
  
$
(0.04
)
$
(0.10
)
               
Basic and diluted weighted average
             
shares outstanding
    
125,051,937
   
77,455,774
 
 
F-4
 
 
QUINTEK TECHNOLOGIES, INC. AND SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 2006 AND 2005
 
   
Preferred Stock  
  
Common Stock  
    
 
  
 
    
 
        
   
Number of
Shares
  
Amount
  
Number
of
Shares
  
Amount
  
Additional
Paid in Capital
  
Shares
to be Issued
  
Prepaid
Consulting Fees
  
Investment
in Escrow
  
Stock
Subscription
  
Accumulated
Deficit
  
Other
Comprehensive
Loss
  
Total
Stockholders'
Deficit
  
                                                   
Balance at June 30, 2004
    
-
 
$
-
    
48,749,994
 
$
487,500
  
$
20,475,680
  
$
40,000
  
$
(35,798
)
$
-
        
$
(23,061,065
)
$
-
  
$
(2,093,683
)
                                                                           
Issuance of shares for cash
    
-
   
-
   
2,750,000
   
27,500
   
196,000
   
-
   
-
   
-
         
-
   
-
   
223,500
 
                                                                           
Issuance of shares for debt settlement
    
1,027,602
   
280,262
   
12,132,736
   
121,327
   
578,679
   
-
   
-
   
-
         
-
   
-
   
980,268
 
                                                                           
Conversion of preferred stocks
    
(1,345,184
)
  
(696,315
)
  
3,624,320
   
36,243
   
660,072
   
-
   
-
   
-
         
-
   
-
   
-
 
                                                                           
Issuance of shares for services
   
2,342,000
   
367,400
   
3,894,560
   
38,946
   
510,731
   
-
   
-
   
-
         
-
   
-
   
917,077
 
                                                                           
Issuance of shares for conversion of bond
    
1,372,332
   
760,658
   
7,426,098
   
74,261
   
225,239
   
-
   
-
   
-
         
-
   
-
   
1,060,158
 
                                                                           
Issuance of shares for purchase of investment
    
-
   
-
   
14,000,000
   
140,000
   
2,520,000
   
-
   
-
   
-
         
-
   
-
   
2,660,000
 
                                                                           
Shares to be issued for services
    
-
   
-
   
-
   
-
   
-
   
8,000
   
-
   
-
         
-
   
-
   
8,000
 
                                                                           
Shares issued for services
    
40,000
   
40,000
   
-
   
-
   
-
   
(40,000
)
  
-
   
-
         
-
   
-
   
-
 
                                                                           
Common stock options granted
    
-
   
-
   
-
   
-
   
1,676,375
   
-
   
-
   
-
         
-
   
-
   
1,676,375
 
                                                                           
Issuance of shares upon exercise of warrants
    
-
   
-
   
5,902,824
   
59,028
   
720,940
   
-
   
-
   
-
         
-
   
-
   
779,968
 
                                                                           
Amortization of warrants granted
    
-
   
-
   
-
   
-
   
2,950
   
-
   
32,678
   
-
         
-
   
-
   
35,628
 
                                                                           
Investment held in escrow
    
-
   
-
   
-
   
-
   
-
   
-
   
-
   
(126,567
)
        
-
   
-
   
(126,567
)
                                                                           
Unrealized loss on investment
    
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
         
-
   
(8,374
)
  
(8,374
)
                                                                           
Beneficial conversion feature
    
-
   
-
   
-
   
-
   
427,948
   
-
   
-
   
-
         
-
   
-
   
427,948
 
                                                                           
Preferred dividends
    
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
         
(16,576
)
  
-
   
(16,576
)
                                                                           
Net loss for the year ended June 30, 2005
    
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
         
(7,417,687
)
  
-
   
(7,417,687
)
                                                     
                   
Balance at June 30, 2005
    
3,436,750
 
$
752,005
    
98,480,532
 
$
984,806
  
$
27,994,613
  
$
8,000
  
$
(3,120
)
$
(126,567
)
$
-
    
(30,495,328
)
$
(8,374
)
$
(893,967
)
                                                                           
Issuance of shares for cash
    
-
   
-
   
8,666,666
   
86,667
   
178,333
   
-
   
-
   
-
   
-
   
-
   
-
   
265,000
 
                                                                           
Issuance of shares for debt settlement
    
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
                                                                           
Conversion of preferred stocks
    
(282,000
)
  
(70,400
)
  
410,000
   
4,100
   
66,300
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
                                                                           
Issuance of shares for services
   
-
   
-
   
13,647,498
   
136,475
   
957,377
   
-
   
(110,335
)
  
-
   
-
   
-
   
-
   
983,517
 
                                                                           
Issuance of shares for conversion of debenture
    
-
   
-
   
9,529,866
   
95,299
   
(49,408
)
  
-
   
-
   
-
   
-
   
-
   
-
   
45,891
 
                                                                           
Issuance of shares for purchase of investment
    
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
                                                                           
Issuance of shares before cash receipt
    
-
   
-
   
16,500,000
   
165,000
   
611,250
   
-
   
-
   
-
   
(776,250
)
  
-
   
-
   
-
 
                                                                           
Shares to be issued for services
    
-
   
-
   
-
   
-
   
-
   
(8,000
)
  
-
   
-
   
-
   
-
   
-
   
(8,000
)
                                                                           
Shares to be issued for conversion and sales
    
-
   
-
   
-
   
-
   
-
   
156,750
   
-
   
-
   
-
   
-
   
-
   
156,750
 
                                                                           
Common stock options granted to employees
    
-
   
-
   
-
   
-
   
485,456
   
-
   
-
   
-
   
-
   
-
   
-
   
485,456
 
                                                                           
Common stock options granted for services
    
-
   
-
   
-
   
-
   
619,547
   
-
   
-
   
-
   
-
   
-
   
-
   
619,547
 
                                                                           
Issuance of shares upon exercise of warrants
    
-
   
-
   
936,042
   
9,360
   
483,304
   
-
   
-
   
-
   
-
   
-
   
-
   
492,664
 
                                                                           
Amortization of warrants granted
    
-
   
-
   
-
   
-
   
3,045
   
-
   
-
   
-
   
-
   
-
   
-
   
3,045
 
                                                                           
Investment held in escrow
    
-
   
-
   
-
   
-
   
-
   
-
   
-
   
86,565
   
-
   
-
   
-
   
86,565
 
                                                                           
Unrealized loss on investment
    
-
   
-
   
-
   
-
         
-
   
-
   
-
   
-
   
-
   
(82,485
)
  
(82,485
)
                                                                           
Beneficial conversion feature
    
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
                                                                           
Preferred dividends
    
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
(16,057
)
  
-
   
(16,057
)
                                                                           
Value of warrants transferred to liability (Restated)
                            
(694,456
)
                                      
(694,456
)
                                                                           
Net loss for the year ended June 30, 2006 (Restated)
    
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
(4,440,623
)
  
-
   
(4,440,623
)
                                                     
   
         
 
Balance at June 30, 2006
    
3,154,750
 
$
681,605
    
148,170,604
 
$
1,481,706
  
$
30,655,361
  
$
156,750