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

FORM 10-KSB

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

For the Fiscal Year Ended June 30, 2007

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, 2007 were $2,121,609.

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 October 12, 2007, was $544,008.02.

As of October 12, 2007 there were 207,923,622 shares of issuer’s common stock outstanding.
 

 
QUINTEK TECHNOLOGIES, INC.
FORM 10-KSB
 
For the Fiscal Year Ended June 30, 2007

     
Part I
 
Page
     
Item 1.
Description of Business.
3
     
Item 2.
Description of Property.
15
     
Item 3.
Legal Proceedings.
15
     
Item 4.
Submission of Matters to a Vote of Security Holders.
15
 
Part ll
 
Page
     
Item 5.
Market for Common Equity and Related Stockholder Matters.
16
     
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.
23
     
Item 8A.
Controls and Procedures.
23
     
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
28
     
Item 12.
Certain Relationships and Related Transactions.
29
     
Item 13.
Exhibits.
30
     
Item 14.
Principal Accountant Fees and Services.
33
     
Signatures.
34
 
2

 
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 "Investors/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.quintek.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., we provide services to enable Fortune 500 and Global 2000 corporations to reduce costs and maximize revenues.
 
3

 
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 believe that we deliver superior customer service, fast turnaround time and competitive prices.

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 from Forrester entitled, “Service Oriented Architecture Will Shape the Future of BPO Delivery” states that, “Labor arbitrage is the most straightforward element of BPO delivery.” We bridge the gap of getting information to the outsourced laborer and are 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). We solve this problem through our high speed- high volume scanning and data capture 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. We solve this problem with a sales and management team that has over 85 years of experience in the sales and implementation technology services industry.

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

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 and are widening our focus to include various the Small to Medium sized Business (SMB) market.

According to AMI-Partners the US SMB backup and recovery software spending will grow by 10% in 2007 to annual spend of $582K, indicative of the increased storage and backup requirements of SMBs. Apple’s new “Time Machine” allows SMBs to back up their PCs without the hassle of purchasing external hardware or software. US SMBs continue to utilize additional channels of communications (with lower cost) —. SMB LAN adoption is becoming pervasive. Over 50% of Small Businesses (SBs) and 98% of Medium Businesses (MB’) now have a LAN. AMI predicts that global SMB notebook shipments will grow by 20% in 2007 over 2006, outpacing desktop PC growth by five times. SMBs will increasingly depend upon mobility and convergence as the use of public wireless internet will grow by over 30%. We estimate that this will result in an increased demand from SMB’s for Document Management Services and Solutions.
 
4

 
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 Xerox Docushare by Xerox Corporation, 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. Running two shifts at full capacity, the facility could process 13,200,000 documents a month.
 
5

 
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 a 99.5% accuracy rate. We ensure this by utilizing a double-blind data entry process, whereby two separate operators independently index the same document entering the same required information per image. Then, results are compared using an automated system. If the two separate operator versions are not identical, the batch is immediately routed to a review queue where a senior project manager confirms for accuracy and corrects.

We can perform this service in-house, on-site 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 Ascend Software from Ascend Software, Inc., Microsoft Sharepoint Server by Microsoft; Documentum, Captiva and Application Extender from EMC Corporation or Docushare by Xerox Corporation. For customers that do not want to install and maintain their own ECM system, we can resell web-based document hosting ASP services. This provides our clients the efficient and immediate capability of viewing business critical documents online. We charge by the Gigabyte by the month, and offer our customers their data, anytime anywhere via our secure web-based software tools.

Workflow Automation

We design and install software systems that automate the routing and approval of processes otherwise performed manually. This is accomplished by converting paper documents to electronic version and utilizing an automated workflow process via the internet or intranet. We provide all of the necessary components to accomplish this from discovery to solution to design to infrastructure to implementation to training to execution. 

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 California; Washington and Massachusetts.

Direct Sales

We currently have three full-time outside sales people and one inside sales person. We are growing this with one sales person to be located on the east coast. These senior salespeople are experienced and paid a semi monthly draw against monthly sales commissions. We provide an incentive stock option plan to attract top sales talent.

6


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 10% gross profit.
 
Business Records Storage and Management Consulting Services
 
Companies experience an average of 501 hours of network downtime every year, and the overall downtime costs an average of 3.6% of annual revenue.  (Source: The Costs of Enterprise Downtime, Infonetics Research)
 
Research reveals that 6 out of 10 businesses will experience some type of major network or technology disaster that will cost them between $9,000 and $60,000 in repairs and restoration costs on average. These figures exclude lost productivity and sales.  The statistics delineate a compelling picture: 93% of companies that lost their data center for 10 days or more due to a disaster filed for bankruptcy within one year of the disaster, and 50% filed for bankruptcy immediately (Source: National Archives & Records Administration in Washington, D.C.). Every 5 years, 20% of small to medium businesses will suffer a major network disaster causing loss of critical data. (Source: Richmond House Group).  In 2007, 40% of small to medium businesses that manage their own network and use the Internet for more than email will have their network accessed by a hacker. More than 50% won’t even know they were attacked. (Source: Gartner Group). Cyber-criminals stole an average of $900 from each of 3 million Americans in the past year, not including the hundreds of thousands of PCs rendered useless by spyware (Source: Gartner Group). We offer a wide variety of secure online data storage and compliance solutions for business needs. Storing records off-site will help reduce storage expenses, improve the security of records, and maximize new growth for personnel.
 
We offer software programs to ensure that records are safe, secure, and readily available. We also offer custom reporting for records information needs.
 
Our clients in manufacturing, healthcare, insurance, and government, legal and financial services enjoy the benefits of simple yet powerful integration to their existing systems. Our clients use these integration services to effectively bridge the gap between electronic and paper documents. Our services offer unlimited retrievals from an unlimited number of users from an unlimited number of locations worldwide.
 
As a summary of our services, we can:
 
·
"SCAN" - we accept and scan electronic images
     
  · "UPLOAD" - document integrity is secured by digital signatures for every page.
     
  · "SEARCH" - searching easily for non-technical types.
     
  · "SECURE" - safeguarding documents is of highest priority.
     
  · "STORE” - architected to scale without limit and grow with clients business needs.
     
  · "RETRIEVE" - individualized rapid interface permits unlimited access from any location.
     
  · "REPORT" - maintains audit logs of access events from data.
 
Disaster Recovery / Business Continuity Solutions; Rapid recovery of business data to ensure business continuity
 
Recent legislation is requiring that organizations have the ability to recover data quickly and completely following a disaster and is vital to business continuity.  We offer a range of services to support disaster preparedness and response from the data center to the edge of the network, encompassing mainframes, servers, PCs, and physical records.
 
7

 
With the disaster recovery support services we provide, our customers can assess impact of various scenarios before disaster strikes or assist in rapid recovery if the worst does happen. We reduce the risk that vital data will be lost due to a disaster, ensure timely recovery of corporate data, including distributed data, provide cost effective email continuity for Microsoft Exchange Services, consistently implement the best practices for recovery across multiple locations and support compliance requirements for safeguarding sensitive data.
 
Our solutions will give local high availability and remote disaster recovery of Microsoft Exchange; enable companies to deploy comprehensive, cost effective email continuity by protecting mission -critical Microsoft Exchange Servers.  
 
Document Destruction Services
 
Our records management will destroy all old and confidential records, while providing our customers with a "Certificate of Destruction" to guarantee that records were destroyed properly. The records destruction service we provide will ensure a strong sense of security in regard to the destruction of confidential records.
 
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. 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 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 truly national providers of BPO and Document Imaging. Most often we will compete with Affiliated Computer Services (NYSE:ACS) of Dallas, Texas, Unisys Corp of Blue Bell, Pennsylvania (NYSE:UIS) and Electronic Data Systems Corp of Plano, Texas (NYSE:EDS).

ACS is a Fortune 500 company with reported annual revenues of over $5 billion and more than 58,000 employees supporting client operations in nearly 100 countries providing business process and information technology outsourcing solutions to businesses, government agencies and non-profit organizations. ACS is ranked at number 424 on the 2007 Fortune 500 list.

Unisys Corporation is a worldwide technology services and solutions company specializing in consulting, systems integration, outsourcing, infrastructure, and server technology with reported annual revenues of over $5 billion in more than a hundred countries. Services include systems integration and consulting, outsourcing, infrastructure services and core maintenance. Unisys serves worldwide and includes financial services, communications, transportation, commercial, and public sector, including the United States federal government.

8

 
EDS is a Fortune 500 company with reported annual revenues of approximately $21 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.

CUSTOMERS

We had three customers that individually represented more than 10% of our revenues for the fiscal year ended June 30, 2007; FedEx Kinko’s represented 29% of our revenue, Wave Imaging and Avail Medical Products each represented 11% of our revenue.

EMPLOYEES

As of October 12, 2007, we had 19 full time employees, of which seven are hourly employees and 12 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 $2,458,633 for the year ended June 30, 2007 compared to a net loss of $4,440,623 for the restated fiscal year ended June 30, 2006. 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 require additional funds to continue our operations for the next twelve months. 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.

9


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 is 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 October 10, 2007, our Independent Registered Public Accounting Firm stated that our financial statements for the year ended June 30, 2007 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 $2,690,488, including net losses of $2,458,633 and $4,440,623 for the fiscal years ending June 30, 2007 and 2006, 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 numbers of features of, our products grow.
 
10

 
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. Kernan 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. James Kernan, our Chief Executive Officer and Mr. Andrew Haag, our Chief Financial Officer. Loss of the services of Messrs. Kernan 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. Kernan 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 October 12, 2007, we had 207,923,622 shares of common stock issued and outstanding, secured convertible debentures issued and outstanding that may be converted into 624,000,000 shares of common stock based on current market prices and outstanding warrants to purchase 56,397,000 shares of common stock. 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 the attached warrants, up to a limit of 45,700,000 may be sold without restriction due to 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 (balance of convertible debenture excluding accrued interest), based on market prices 25%, 50% and 75% below the market price as of October 12, 2007 of $0.003 per share.
 
   
 
 
 
 
Number
 
% of
 
 
Price Per
 
With Discount
 
of Shares
 
Outstanding
 
% Below Market
 
Share
 
at 5%
 
Issuable
 
Stock
 
                   
25%
 
$
0.00225
 
$
0.0021375
   
720,935,673
   
77.62
%
50%
 
$
0.0015
 
$
0.001425
   
1,081,403,509
   
83.87
%
75%
 
$
0.00075
 
$
0.0007125
   
2,162,807,018
   
91.23
%
 
11

 
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. The company currently has authorized 500,000,000 shares of common stock. In the event that the stock price remains at these levels or lower we will need to increase the amount of authorized common stock, restructure our capital structure or restructure the YA Global Investments financing. The Company is currently exploring options to refinance/restructure the YA Global Investments financing though it cannot be assured that it will be successful. In the event that it is unsuccessful, we will need to consider additional options.

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 We Are Required To File An Additional Registration Statement, We May Incur Substantial Costs In Connection Therewith.
 
12

 
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. 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. As of October 12, 2007, we had $1,541,000 of this secured convertible debentures outstanding. 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.

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.

13


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 receives 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.

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.
 
14

 
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 $7,909.

We lease on a month-to-month basis, 580 square feet of office 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.

Index Number: GIC872522 - Superior Court of California, County of San Diego

We were served with a summons as a defendant in a case filed on September 15, 2006 in Superior Court of California, County of San Diego. The complaint was filed by Golden Gate Investors for Breach of Contract relating to the financing agreements executed between us and Golden Gate Investors in August 2004. Golden Gate Investors is claiming damages in excess of $722,040 in relation to the case. We retained counsel to defend ourselves in this matter and we have filed a response and counter claim for undisclosed damages.    On August 4, 2007, our counsel filed and was granted an order granting attorney’s motion to be relieved as counsel.  The answers filed and the cross complaint were stricken and the trial date of October 19, 2007 cancelled for failure to procure counsel to represent on September 21, 2007.  There are currently no dates on record. The next action is for the GGI counsel to set a prove-up hearing date.  We have recorded payables and an accrued legal expense totaling $722,040. 

Index Number: 06CC11306 - Superior Court of California, County of Orange

We were served with a summons as a defendant in a case filed on October 24, 2006 in Superior Court of California, County of Orange by Single Source Partners for failure to pay commissions and installment payments. Single Source Partners is seeking judgment in the amount of $51,206. We retained counsel to defend ourselves in this matter and we have filed a response and counter claim for undisclosed damages. On August 7, 2007, our counsel filed and was granted an attorney’s motion to be relieved as counsel.  On September 11, 2007 a motion to strike defendant’s answer to the complaint, to dismiss defendant’s cross-complaint and to enter default was continued to October 9, 2007. The action has been assigned a trial date of October 24, 2007. We have recorded payables and an accrued partnership fee totaling $56,605. 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

15


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 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
 
$
0.05
 
$
0.03
 
Second Quarter
 
$
0.04
 
$
0.03
 
Third Quarter
 
$
0.07
 
$
0.02
 
Fourth Quarter
 
$
0.03
 
$
0.01
 

   
Fiscal Year 2008
 
   
High
 
Low
 
First Quarter
 
$
0.02
 
$
0.0036
 
Second Quarter (1)
 
$
0.0045
 
$
0.0021
 
Third Quarter
   
xxx
   
xxx
 
Fourth Quarter
   
xxx
   
xxx
 

 
(1)
As of October 12, 2007.

Holders

As of October 12, 2007, we had approximately 503 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.

16


Recent Sale of Unregistered Securities

On February 14, 2007, April 2, 2007, April 17, 2007, April 23, 2007, May 9, 2007 and June 19, 2007, we issued 11,590,365 shares of common stock to YA Global Investments (formerly, Cornell Capital Partners) upon conversion of outstanding debentures in the amount of $200,000.

Unless otherwise noted, the sales set forth above involved no underwriter's discounts or commissions and are claimed to be exempt from registration with the Securities and Exchange Commission pursuant to Section 4 (2) of the Securities Act of 1933, as amended, as transactions by an issuer not involving a public offering, the issuance and sale by 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, 2007 Compared to Fiscal Year Ended June 30, 2006

Our revenues totaled $2,121,609 and $2,307,402 for the years ended June 30, 2007 and 2006, respectively, a decrease of $185,793 (8%) in 2007 due to the loss of a material mortgage processing services customer with revenue receipts totaling $851,760 for the prior year ending 2006.

For the years ended June 30, 2007 and 2006, cost of revenue was $1,585,613 and $1,522,814, respectively, an increase of $62,799 (4%). Cost of revenue for both periods consisted mostly of labor and production costs. Cost of revenue increased in 2007 primarily due to increased temporary labor costs.

Total operating expenses were $3,226,485 for the year ended June 30, 2007 as compared to $5,344,899 for the same period in 2006. The decrease in operating expenses of $2,118,414 (39%) in 2007 as compared to 2006 was primarily due to fewer issuances of stock for consulting fees and lower financing expenses. Selling, general and administrative expenses in 2007 were $2,490,530 compared to $3,832,925, a decrease of $1,342,395 primarily due to decreased funding costs, legal fees, penalties and salary expenses.

Total non-operating income for the year ended June 30, 2007 was $232,655 compared to total non-operating income of $120,488 for the same period in 2006. During 2007, we realized a loss on sale of investment of $120,040 and recorded a change in fair value of warrants of $945,491. We recorded a finance expense of $336,790 and interest expense of $256,693. During 2006, we recorded a gain of $113,700 on the sale of investment, finance expense of $110,924 and interest expense of $571,674. As a result, we incurred a reduction in net loss of $2,458,633 for the period ending June 30, 2007 compared to a net loss of $4,440,623 for the same period in 2006. This reduction in net loss is attributed to the decrease in interest expense and the non-operating income recorded pursuant to the change in the fair value of warrants.

18

 
At June 30, 2007, our total assets were $811,944 compared to $1,195,643 as of June 30, 2006. The assets decreased by $383,699 (32%) primarily due to a reduction in cash and cash equivalents and the depreciation of property and equipment. Total current liabilities at June 30, 2007 were $3,860,271 compared to $4,164,052 as of June 30, 2006. The current liabilities decreased by 303,781 (7%) primarily due to decrease in the warrant liability, payroll taxes payable and loans payable. The long term debt increased to $1,174,316 as of June 30, 2007 compared to $28,741 at June 30, 2006 due primarily to the expense incurred in regard to additional financing.

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 $3,449,358 at June 30, 2007. 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 $66,529 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 2008 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. We have historically financed operations from the sale of our common stock and the conversion of common stock warrants. At June 30, 2007, we had cash on hand of $92,062 as compared cash on hand of $410,007 at June 30, 2006.

Net cash used in operating activities for the year ended June 30, 2007 was $1,216,492, primarily attributable to the increase in accounts payable and accrued expenses of $848,748, an increase in accounts receivable of $119,279, and a decrease in deferred revenue of $3,381.

Net cash used in investing activities for the year ended June 30, 2007 was $16,477, due to the acquisition of equipment for $27,298 offset by the proceeds from the sale of marketable securities.

Net cash provided by financing activities for the year ended June 30, 2007 was $915,025. The increase was primarily attributable to net proceeds from issuance of debentures of $1,250,000, proceeds from a factor of $92,672, proceeds from issuance of common stock upon exercise of options of $2,504. We made lease payments of $139,962, payments on notes payable of $62,590, and payments on factoring payables of $97,549.

As a result of the above activities, we experienced a net decrease in cash and cash equivalents of $317, 945 as of June 30, 2007 as compared to a $397,338 net increase in cash as of June 30, 2006. Our ability to continue as a going concern is still dependent on our success in obtaining additional financing from institutional investors or by selling our common shares and fulfilling our business plan. Other than as described below, we do not have any commitments for capital and we cannot give any assurances that capital will be available on terms we deem favorable or at all.
 
19

 
Subsequent Events

On July 23, August 6, August 21, September 13, October 3 and October 8, 2007, we issued 39,541,546 common shares pursuant to a debenture conversion valued at $234,000.

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.

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 February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company’s first fiscal year that begins after September 15, 2006. The Company has not evaluated the impact of this pronouncement its financial statements.
 
20

 
In March 2006 FASB issued SFAS 156 ‘Accounting for Servicing of Financial Assets’ this Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement:
 
 
1.
Requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract.
 
 
2.
Requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable.
 
 
3.
Permits an entity to choose ‘Amortization method’ or  Fair value measurement method’ for each class of separately recognized servicing assets and servicing liabilities:
 
 
4.
At its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value.
 
 
5.
Requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities.
 
This Statement is effective as of the beginning of the Company’s first fiscal year that begins after September 15, 2006. Management believes that this statement will not have a significant impact on the financial statements 

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement clarifies the definition of fair value, establishes a framework for measuring fair value and expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. Management has not determined the effect, if any; the adoption of this statement will have on the financial statements.

In September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)’ This Statement improves financial reporting by requiring an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. An employer without publicly traded equity securities is required to recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after June 15, 2007. However, an employer without publicly traded equity securities is required to disclose the following information in the notes to financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of this Statement in preparing those financial statements:

 
1.
A brief description of the provisions of this Statement
 
21

 
 
2.
The date that adoption is required
     
 
3.
The date the employer plans to adopt the recognition provisions of this Statement, if earlier.

The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008.

In February of 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.” The statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007.

22

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, 2007
   
F-3
 
Consolidated Statements of Operations for the years ended June 30, 2007 and 2006
   
F-4
 
Consolidated Statement of Stockholders' Deficit for the years ended June 30, 2007 and 2006
   
F-5
 
Consolidated Statements of Cash Flows for the years ended June 30, 2007 and 2006
   
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 as of June 30, 2007, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the two years ended June 30, 2007 and 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Quintek Technologies, Inc. and subsidiary as of June 30, 2007 and the results of its operations and its cash flows for the years ended June 30, 2007 and 2006 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 19 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 19. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ Kabani & Company, Inc.
CERTIFIED PUBLIC ACCOUNTANTS

Los Angeles, California
October 10, 2007

F-2

 
QUINTEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2007
 
       
ASSETS
       
         
Current assets:
       
Cash and cash equivalents
 
$
92,062
 
Accounts receivable, net of allowance for doubtful accounts of $11,719
   
318,750
 
Other current assets
   
100
 
Total current assets
   
410,912
 
         
Property and equipment, net
   
297,235
 
         
Other assets:
       
Deposits
   
102,914
 
Other assets
   
883
 
Total other assets
   
103,797
 
         
   
$
811,944
 
         
LIABILITIES AND STOCKHOLDERS' DEFICIT
       
         
Current liabilities:
       
Accounts payable and accrued expenses
 
$
1,839,488
 
Factoring payable
   
136,722
 
Payroll and payroll taxes payable
   
83,306
 
Payroll taxes assumed in merger
   
66,529
 
Advances from lenders
   
36,736
 
Loans payable
   
186,719
 
Convertible bonds
   
62,495
 
Convertible debentures
   
210,674
 
Convertible notes
   
45,450
 
Beneficial Conversion liability
   
491,687
 
Warrant Liability
   
647,369
 
Deferred revenue
   
5,040
 
Dividend payable
   
48,057
 
Total current liabilities
   
3,860,271
 
         
Long-term debt
   
1,174,316
 
         
         
Stockholders' deficit:
       
Preferred stock, convertible, no par value, 50,000,000 shares authorized,
       
4,154,750 shares issued and outstanding
   
1,281,605
 
Common stock, $0.001 par value, 500,000,000 shares authorized,
       
166,543,841 shares issued and outstanding
   
166,543
 
Additional paid-in capital
   
32,501,523
 
Shares to be issued
   
30,000
 
Stock subscription receivable
   
(776,250
)
Accumulated deficit
   
(37,426,065
)
Total stockholders' deficit
   
(4,222,644
)
Total liabilities and stockholders' deficit
 
$
811,944
 
 
The accompanying notes are an integral part of these consolidated financial statements

 
F-3


QUINTEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
For the years ended June 30,
 
   
2007
 
2006
 
       
Restated
 
           
Net revenue
 
$
2,121,609
 
$
2,307,402
 
 
             
Cost of revenue
   
1,585,613
   
1,522,814
 
Gross margin
   
535,996
   
784,588
 
               
Operating expenses:
             
Selling, general and administrative
   
2,490,530
   
3,832,925
 
Stock-based compensation
   
600,000
   
485,456
 
Stock-based consulting fees
   
135,955
   
1,026,518
 
Total operating expenses
   
3,226,485
   
5,344,899
 
Loss from operations
   
(2,690,488
)
 
(4,560,311
)
               
Non-operating income (expense):
             
Realized gain (loss) on investment
   
(120,040
)
 
113,700
 
Other income
   
12,238
   
15,810
 
Uncollectible from former officers
   
(14,382
)
 
(10,989
)
Finance expense
   
(336,790
)
 
(110,924
)
Change in Fair Value of Warrants
   
945,491
   
677,008
 
Interest Income
   
2,831
   
7,557
 
Interest expense
   
(256,693
)
 
(571,674
)
Total non-operating income
   
232,655
   
120,488
 
               
Loss before provision for income taxes
   
(2,457,833
)
 
(4,439,823
)
               
Provision for income taxes
   
800
   
800
 
Net loss
   
(2,458,633
)
 
(4,440,623
)
               
Dividend requirement for preferred stock
   
15,424
   
16,057
 
Net loss applicable to common shareholders
   
(2,474,057
)
 
(4,456,680
)
               
Other comprehensive (loss)/gain:
             
Reclassification adjustment
   
120,151
   
(4,080
)
Unrealized gain for the period
   
-
   
9,317
 
Comprehensive loss
 
$
(2,353,906
)
$
(4,451,443
)
               
Basic and diluted net loss per share
 
$
(0.016
)
$
(0.040
)
               
Basic and diluted weighted average
             
shares outstanding
   
155,105,096
   
125,051,937
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
F-4


 
QUINTEK TECHNOLOGIES, INC. AND SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 2007 AND 2006
 
   
Preferred Stock
 
Common Stock
 
Additional
  Shares    
Prepaid 
         
 
 
Other
 
Total
 
   
Number
     
Number
     
Paid in
 
to be
 
Consulting
 
Investment
 
Stock
 
Accumulated
 
Comprehensive
 
Stockholders'
 
 
 
of Shares
 
Amount
 
of Shares
 
Amount
 
Capital
 
Issued
 
 Fees
 
in Escrow
 
Subscription
 
Deficit
 
Loss
 
Deficit
 
                                                   
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
)
$
(893,965
)
 
                                                                         
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
 
                                                                           
Warrants 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 expense
   
-
   
-
   
-
   
-
   
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
 
$
(113,455
)
$
(40,002
)
$
(776,250
)
 
(34,952,008
)
$
(90,859
)
$
(2,997,151
)
                                                                           
Issuance of shares for debt settlement
   
-
   
-
   
1,529,169
   
15,292
   
76,458
   
(91,750
)
 
-
   
-
   
-
   
-
   
-
   
-
 
                                                                           
Issuance of preferred stock
   
1,000,000
   
600,000
                                                         
600,000
 
                                                                           
Issuance of shares for services
   
-
   
-
   
750,000
   
7,500
   
15,000
   
-
   
-
   
-
   
-
   
-
   
-
   
22,500
 
                                                                           
Issuance of shares for conversion of debenture
   
-
   
-
   
11,590,365
   
11,590
   
188,410
   
-
   
-
   
-
   
-
   
-
   
-
   
200,000
 
                                                                           
Shares to be issued for conversion of debentures
   
-
   
-
   
-
   
-
   
-
   
25,000
   
-
   
-
   
-
   
-
   
-
   
25,000
 
                                                                           
Common stock options granted to employees
   
-
   
-
   
-
   
-
   
154,246
   
-
   
-
   
-
   
-
   
-
   
-
   
154,246
 
                                                                           
Issuance of shares upon exercise of warrants
   
-
   
-
   
4,503,703
   
22,504
   
40,000
   
(60,000
)
 
-
   
-
   
-
   
-
   
-
   
2,504
 
                                                                           
Amortization of consulting shares
   
-
   
-
   
-
   
-
   
-
   
-
   
113,455
   
-
   
-
   
-
   
-
   
113,455
 
                                                                           
Sale of Investment held in escrow
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
40,002
   
-
   
-
   
-
   
40,002
 
                                                                           
Reclass Unrealized loss on investment to Realized
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
90,859
   
90,859
 
                                                                           
Preferred dividends
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
(15,424
)
 
-
   
(15,424
)
                                                                           
Reduction in par value of common stock
   
-
   
-
   
-
   
(1,372,048
)
 
1,372,048
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
                                                                           
Net loss for the year ended June 30, 2007
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
(2,458,633
)
 
-
   
(2,458,633
)
                                                                           
Balance at June 30, 2007
   
4,154,750
 
$
1,281,605
   
166,543,841
 
$
166,543
 
$
32,501,523
 
$
30,000
 
$
-
 
$
-
 
$
(776,250
)
 
(37,426,065
)
$
-
 
$
(4,222,644
)
  
The accompanying notes are an integral part of these consolidated financial statements
 
 
F-5

 
QUINTEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
For the years ended
 
   
June 30, 
 
   
2007
 
 2006
 
       
 Restated
 
OPERATING ACTIVITIES
             
Net loss
 
$
(2,458,633
)
$
(4,440,623
)
Adjustments to reconcile net loss to net cash used in operations:
             
Depreciation and amortization
   
178,261
   
173,379
 
Discount on factor
   
4,877
   
12,091
 
Expenses paid by a note payable
   
-
   
13,564
 
Issuance of shares for consulting services
   
135,955
   
983,517
 
Stock based compensation
   
600,000
   
-
 
Bad Debts
   
28,150
   
370
 
Uncollectible from former officers
   
14,382
   
10,989
 
Loss (Gain) on the sale of the investment
   
120,040
   
(113,700
)
Change in Fair value of derivative
   
(945,491
)
 
(677,008
)
Beneficial conversion feature expense
   
-
   
110,924
 
Amortization of the Unamortized discount
   
362,485
   
109,214
 
Finance Expense
   
-
   
1,185,904
 
Stock options granted
   
154,246
   
485,456
 
Warrants granted to consultant
   
-
   
619,547
 
Note Conversion Expense
   
-
   
104,674
 
Gain (loss) on legal settlement
   
-
   
(7,827
)
Changes in current assets and liabilities:
             
(Increase) decrease in accounts receivable 
   
(119,279
)
 
87,657
 
(Increase) decrease in other current assets 
   
(14,482
)
 
-
 
(Increase) decrease in prepaid expenses 
   
-
   
5,562
 
(Increase) decrease in deposits 
   
6,021
   
643
 
Increase in accounts payable 
   
848,748
   
163,508
 
Decrease in payroll taxes payable 
   
(128,391
)
 
(20,090
)
Decrease in deferred revenue 
   
(3,381
)
 
(16,656
)
Net cash used in operating activities
   
(1,216,492
)
 
(1,208,903
)
               
INVESTING ACTIVITIES
             
Acquisition of fixes assets
   
(27,298
)
 
(36,146
)
Increase in restricted cash
   
-
   
260,087
 
Proceeds from sale of marketable securities
   
10,821
   
233,938
 
Net cash provided by (used in) investing activities
   
(16,477
)
 
457,879
 
               
FINANCING ACTIVITIES
             
Payments on factoring payable
   
(97,549
)
 
(466,160
)
Proceeds from factor
   
92,672
   
364,326
 
Payments on leases
   
(139,962
)
 
(128,540
)
Proceeds from issuance of debentures
   
1,250,000
   
750,000
 
Expenses related to Issuance of Debenture
   
(125,000
)
 
-
 
Proceeds from convertible notes
   
-
   
50,500
 
Payments on convertible notes payable
   
(5,050
)
 
-
 
Cash received for shares to be issued
   
-
   
151,750
 
Proceeds from sale of stocks
   
-
   
265,000
 
Proceeds from exercise of options
   
2,504
   
125,000
 
Proceeds from issuance of common stock upon exercise of warrants
   
-
   
59,400
 
Payments of notes payable
   
(62,590
)
 
(22,914
)
Net cash provided by financing activities