-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LSPwlIJFX5dksn3HGDPlGHUGeqaw0TNebElyewszoU4a3XDixTR5Bt+UhfJhWdQp E4J6a3n1b+M+VJKgWPXHLw== 0000897101-96-000432.txt : 19960627 0000897101-96-000432.hdr.sgml : 19960627 ACCESSION NUMBER: 0000897101-96-000432 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19960625 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUANTECH LTD /MN/ CENTRAL INDEX KEY: 0000880354 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 411709417 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-06809 FILM NUMBER: 96585594 BUSINESS ADDRESS: STREET 1: 1419 ENERGY PARK DRIVE CITY: ST PAUL STATE: MN ZIP: 55108 MAIL ADDRESS: STREET 1: 1419 ENERGY PARK DRIVE CITY: ST PAUL STATE: MN ZIP: 55108 FORMER COMPANY: FORMER CONFORMED NAME: SPECTRUM DIAGNOSTICS SPA DATE OF NAME CHANGE: 19930328 SB-2 1 As filed with the Securities and Exchange Commission on June 21, 1996 Registration No. 33-_________ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT Under The Securities Act of 1933 QUANTECH LTD. (Name of Small Business Issuer as specified in its Charter) Minnesota 3573 41-1709417 (State or other Jurisdiction (Primary Standard (I.R.S. Employer of Incorporation or Industrial Classification Identification Organization) Code Number) Number) Quantech Ltd. 1419 Energy Park Drive St. Paul, Minnesota 55108 (612) 647-6370 (Address and Telephone Number, of Principal Executive Offices and Principal Place of Business) R.H. Joseph Shaw, CEO Quantech Ltd. 1419 Energy Park Drive St. Paul, Minnesota 55108 (612) 647-6370 (Name, Address and Telephone Number of Agent for Service) Copies to: Timothy M. Heaney, Esq. Melodie R. Rose, Esq. Fredrikson & Byron, P.A. 900 Second Avenue South, Suite 1100 Minneapolis, Minnesota 55402 (612) 347-7000 APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this form to be offered on a delayed or continuous basis, pursuant to Rule 415 under the Securities Act of 1933, check the following box: |X| If this Form is filed to register additional securities of an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: |_| CALCULATION OF REGISTRATION FEE
Proposed TITLE OF EACH CLASS PROPOSED MAXIMUM MAXIMUM OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE - --------------------------------- -------------------- ----------------------- ------------------ ------------------ Common Stock ($.01 par value) 46,932,427 shares (2) $0.8435 $39,587,502 $13,651
(1) For purposes of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, as amended, such amount is based upon the average of the bid and asked prices of registrant's Common Stock on June 20, 1996. (2) Includes 9,851,000 shares that may be issued upon exercise of outstanding Warrants. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVENESS UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. QUANTECH LTD. CROSS-REFERENCE SHEET
Item Number and Caption Location or Caption in Prospectus 1. Front of Registration Statement and Outside Front Cover Page of Prospectus........................... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus......................................... Inside Front and Outside Back Cover Pages 3. Summary Information and Risk Factors.................. Prospectus Summary; Risk Factors 4. Use of Proceeds....................................... * 5. Determination of Offering Price....................... Outside Front Cover Page; Plan of Distribution 6. Dilution.............................................. * 7. Selling Security Holders.............................. Principal and Selling Shareholders 8. Plan of Distribution.................................. Outside Front Cover Page; Plan of Distribution 9. Legal Proceedings..................................... Business; Legal Proceedings 10. Directors, Executive Officers, Promoters and Control Persons........................................... Management 11. Security Ownership of Certain Beneficial Owners and Management........................................ Principal and Selling Shareholders; Certain Transactions 12. Description of Securities............................. Description of Securities 13. Interest of Named Experts and Counsel................. * 14. Disclosure of Commission position on Indemnification for Securities Act Liabilities.................... Indemnification 15. Organization within last Five Years .................. * 16. Description of Business............................... Business 17. Management's Discussion and Analysis or Plan of Operations........................................ Management's Discussion and Analysis or Plan of Operations 18. Description of Property............................... Business 19. Certain Relationships and Related Transactions........ Certain Transactions 20. Market for Common Equity and Related Shareholder Price Range of Common Stock; Description of Securities; and Matters........................................... Risk Factors 21. Executive Compensation................................ Management 22. Financial Statements.................................. Financial Statements 23. Change In and Disagreements With Accountants on Accounting and Financial Disclosure............... *
- --------------------- * Not applicable or answer negative. SUBJECT TO COMPLETION, June 21, 1996 PROSPECTUS QUANTECH LTD. 46,932,427 SHARES OF COMMON STOCK This Prospectus relates to the offer and sale of up to 46,932,427 shares of Common Stock (the "Shares"), par value $.01 per share, of Quantech Ltd., a Minnesota corporation (the "Company" or "Quantech"), by persons who are currently shareholders of the Company's Common Stock or who may become such holders upon exercise of Warrants to purchase shares of Company Common Stock (the "Selling Shareholders"). The Selling Shareholders may offer their Shares from time to time through or to brokers or dealers in the over-the-counter market at market prices prevailing at the time of sale or in one or more negotiated transactions at prices acceptable to the Selling Shareholders. The Company will not receive any proceeds from sale of Shares by the Selling Shareholders. See "Plan of Distribution." The Company will bear all expenses of the offering (estimated at $35,000), except that the Selling Shareholders will pay any applicable underwriter's commissions and expenses, brokerage fees or transfer taxes, as well as any fees and disbursements of counsel and experts for the Selling Shareholders. Quantech's Common Stock is traded on the local over-the-counter and Nasdaq Bulletin Board markets under the symbol of QQQQ. The closing sale price of the Common Stock on June 20, 1996, as reflected on such markets was $0.85 per share. ------------------------- THE COMMON STOCK OFFERED BY THIS PROSPECTUS IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6." ------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE- SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1996 No person is authorized to give any information or to make any representations, other then those contained or incorporated by reference in this Prospectus, in connection with the offering contemplated hereby, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the registered securities to which it relates. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained or incorporated by reference herein is correct as of any time subsequent to its date. PROSPECTUS SUMMARY This summary is qualified in its entirety by the more detailed information and Financial Statements of the Company and the Notes thereto appearing elsewhere in this Prospectus, including information under "Risk Factors." THE COMPANY Quantech Ltd. ("Quantech" or the "Company") is a development stage company seeking to commercialize Surface Plasmon Resonance ("SPR") technology. The Company's initial focus is the development of SPR for the hospital point-of-care ("POC") medical diagnostic market. SPR, the core technology of Quantech's proposed medical diagnostic system, enables the Company to integrate the existing diagnostic methodologies of immunoassays, DNA probes and chemical binding into a single, simple, economical system in order to provide rapid, quantitative, diagnostic results. The Quantech system configuration will consist of a small, bench top instrument and a series of disposables containing a particular test or tests. It is anticipated that the Quantech system will have the ability to analyze body fluids (e.g., whole blood, urine, saliva) without preparation or addition of reagents. The medical diagnostics market is divided into three broad segments: the traditional central laboratory, home diagnostics and POC. The overall United States in-vitro (outside the body) diagnostic market is growing, estimated at $9.6 billion in 1995 and expected to grow to $14.4 billion by the year 2000. Central labs account for the majority of this market while POC currently represents only a small portion, but is expected to grow by some estimates to $1 billion by the end of 1997 as more POC products enter the market. The Company's market entry strategy focuses its efforts on the POC segment. The POC segment has become important for health care administrators and third party payers seeking to bring more rapid decision making to the patient's bedside, thereby decreasing the overall costs of care. Technologies that meet the stringent customer needs of this POC segment are expected to achieve a competitive advantage over many central lab procedures. Quantech's business strategy is to capitalize on the flexibility, extreme sensitivity and relatively low cost of its diagnostic system to penetrate and expand the POC market. Quantech's intended entry into the POC market will be Critical Care Units of hospitals, the first unit being the Emergency Department ("ED") where the most pressing and unmet customer needs are found. Of the current POC market segment, approximately 85% is represented by testing in Critical Care Units. The Critical Care Units represent a significant market as they require a number of rapid turn-around tests. Although there are some POC tests available for the Critical Care Units, the Company is not aware of any currently existing POC product that provides a single instrument that will perform most of the tests required in the Critical Care Units and especially the ED. Additionally, there is minimal current competition for POC products in the ED from the large, multinational companies that are presently focused on serving the central lab market. There are approximately thirty commonly ordered tests in the ED, all of which are ordered STAT (very urgent). Some of the most important diagnostic tests in the ED are cardiac markers. These tests help to identify whether a patient experiencing chest pain has suffered a myocardial infarction (heart attack). Current POC competition for this approximately $500 million annual market consists of colorimetric, non-quantitative disposable kits. Quantech's first two tests, intended to be introduced in late calendar 1996, are expected to quantify these markers in two to five minutes through its objective, computer-controlled system. Similar results are presently available from the central lab in 60 to 90 minutes. Quantech's price to the customer will be less than the existing POC products while offering the advantages of rapid quantification and cost reduction when compared to the central lab. Quantech believes the benefits of its system over other POC systems are that the same instrument is expected to be able to be used for a full range of tests and provide quantitative results. After the initial introduction of tests for myocardial infarction, the Company intends to introduce additional tests at the rate of one per quarter. Selection of these tests will be based upon market demand, ease of development, regulatory hurdles and profit margins. The Company plans to expand into other critical care diagnostic markets which have needs similar to the ED. The capabilities of the Quantech system as a broad, flexible diagnostic testing platform should meet the needs identified by the POC market and the Company's marketing strategy is expected to enable it to be competitive in the global medical diagnostics market. THE OFFERING
Securities Offered................................... 46,932,427 shares of Common Stock assuming exercise of all Warrants(1). Common Stock Outstanding............................. 46,900,759 shares of Common Stock(2). Use of Proceeds...................................... The Company will not receive any proceeds from sales of Shares by the Selling Shareholders. Risk Factors......................................... An investment in the Shares offered hereby involves a high degree of risk, including the risk of loss of an investor's entire investment. See "Risk Factors" for a discussion of factors that investors should consider before purchasing any of the Shares offered hereby. - --------------------------------------
1. Includes 9,851,000 shares that may be acquired upon exercise of outstanding warrants. 2. Does not include up to 15,768,103 shares that may be issued upon exercise of outstanding options and warrants, of which 9,851,000 shares are registered hereby for resale. See "Capitalization" and "Certain Transactions." SUMMARY FINANCIAL DATA The following table sets forth summary financial data for the periods indicated for the Company. This information should be read in conjunction with the Financial Statements and related Notes and "Management's Discussion and Analysis or Plan of Operations" appearing elsewhere herein.
PERIOD FROM SEPTEMBER 30, 1991 STATEMENT OF NINE MONTHS NINE MONTHS (DATE OF OPERATIONS DATA: ENDED ENDED YEAR ENDED YEAR ENDED INCEPTION), TO MARCH 31, 1996 MARCH 31, 1995 JUNE 30, 1995 JUNE 30, 1994 MARCH 31, 1996 ----------- ----------- ----------- ----------- ----------- G&A 919,506 902,981 1,193,285 1,119,295 5,842,303 ----------- ----------- ----------- ----------- ----------- R & D 691,585 342,000 503,375 195,118 2,231,003 ----------- ----------- ----------- ----------- ----------- Net Loss (1,800,360) (1,523,908) (1,543,888) (9,886,237) (2,070,292) =========== =========== =========== =========== =========== NET LOSS PER COMMON SHARE: (.07) (.32) (.31) (.33) (1.23) =========== =========== =========== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: 25,793,027 4,690,000 6,786,986 4,690,000 8,036,465 =========== =========== =========== =========== ===========
Balance Sheet Data: March 31, 1996 June 30, 1995 -------------- ------------- Current Assets $ 205,378(1) $ 41,498 Total Assets 2,773,113 2,735,960 Current Liabilities 275,059 4,445,099 Total Liabilities & Equity $2,773,113 $2,735,960 (1) On May 3, 1996, the Company completed a private placement of its Common Stock and received net proceeds of approximately $3,350,000. As of May 30, 1996 the Company had current assets of approximately $3.2 million, current liabilities of approximately $200,000 and no long term debt. RISK FACTORS An investment in the securities offered hereby is speculative and involves a high degree of risk In addition to the other information in this Prospectus, the following factors should be considered carefully by potential purchasers in evaluating an investment in the Common Stock of the Company. NO HISTORY OF OPERATIONS; DEVELOPMENT STAGE COMPANY; GOING CONCERN UNCERTAINTY The Company (through predecessor entities) was organized in December 1989 and acquired its technology in November 1991. Since November 1991, the Company has been conducting development of SPR technology and the associated patents and proprietary information encompassed in the License, as defined below. To date, the Company does not have a product ready to be brought to market and has experienced delays in completing development, but is continuing research and development on its prototype and associated test disposables. Accordingly, the Company has no operating history and its proposed operations are subject to all of the risks inherent in a new business enterprise, including commercial development of its products, lack of marketing experience and lack of production history. See "Business." The likelihood of the success of the Company must be considered in light of the expenses, difficulties and delays frequently encountered in connection with the start-up of new businesses and the competitive environment in which the Company will operate. The Company has not had significant revenues to date. As of March 31, 1996, the Company had an accumulated deficit of $9,886,237. The report of the independent auditors on the Company's financial Statements for the period ended June 30, 1995, includes an explanatory paragraph relating to the uncertainty of the Company's ability to continue as a going concern. The Company is a development stage company which has suffered losses from operations, requires additional financing, and ultimately needs to successfully attain profitable operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. There can be no assurance that the Company will be able to develop a commercially viable product or marketing system or attain profitable operations. See "Financial Statements." FUTURE CAPITAL NEEDS On May 3, 1996, the Company completed a private placement of its Common Stock and received net proceeds of approximately $3,350,000. As of May 30, 1996 the Company had current assets of approximately $3.2 million, current liabilities of approximately $200,000 and no long term debt. The Company does not have sufficient funds to commence commercial production and sales of its system, but anticipates that its current funding is adequate to complete FDA approval of its first product and start preproduction and premarket activities. The Company's ability to begin commercial production and sales of its system will depend upon the continued availability of investment capital, funding made by strategic partner(s) or licensing revenues, until the revenues from sale of the instruments and associated test disposables are sufficient to maintain operations. Additional funds may have to be raised through equity or debt financing. The Company has no commitments for any additional equity or debt financing and there can be no assurance that any such commitments can be obtained on favorable terms, if at all. Such additional financing may result in dilution to Company shareholders. If funding is not available when needed, the Company may be forced to cease operations and abandon its business. In such event, Company shareholders could lose their entire investment. See "Management's Discussion and Analysis or Plan of Operations." NEW PRODUCT DEVELOPMENT The Company's reading instrumentation and associated disposables are under development. Such development is being conducted by the Company using both internal resources and outside contractors. To date, the Company and certain of its outside contractors have had difficulty meeting their development timetables and budget. Although Quantech believes it will complete development of its initial product for FDA submission in calendar 1996, no assurance can be given that the Company's development timetable can be kept, that the budget for development will be maintained, or that development efforts will be successful. See "Use of Proceeds" and "Business." UNCERTAINTY OF MARKET ACCEPTANCE The commercial success of the Company's products will depend upon their acceptance by the medical community and third-party payors as useful and cost-effective. Market acceptance will depend upon several factors, including the establishment of the utility and cost-effectiveness of the Company's tests, the receipt of regulatory clearances in the United States and elsewhere and the availability of third-party reimbursement. The availability of POC test systems for a wide variety of tests has been limited to date. The Company is thus targeting an emerging market. Diagnostic tests similar to those developed by the Company are generally performed by a central laboratory at a hospital or clinic. The approval of the purchase of diagnostic equipment by a hospital is generally controlled by its central laboratory. The Company expects there will be resistance by central laboratories to yield control of tests they have previously performed. The Company will also have to demonstrate to physicians that its diagnostic products perform as intended, meaning that the level of accuracy and precision attained by the Company's products must be comparable to test results achieved by the central laboratory systems. Failure of the Company's products to achieve market acceptance or third-party payor approval would have a material adverse effect on the Company. See "Business - The Market." LACK OF MARKETING EXPERIENCE The Company has had no experience in marketing its system. The Company believes that the ED market is focused enough that a small sales and marketing force can produce significant results, however, there is no guaranty that the Company's sales and marketing plans will succeed. LACK OF FDA PRODUCT APPROVAL The Company's products will be regulated as medical devices by the Food and Drug Administration ("FDA") under the Federal Food, Drug, and Cosmetic Act ("FDC Act"), and as such require premarket regulatory clearance before commericialization in the United States. The Company believes that premarket clearance can be obtained for its systems, except for a few tests the Company may introduce at a later time, through submission of a 510(K) premarket notification ("510(K) Notification") demonstrating the product's substantial equivalence to another device legally marketed pursuant to 510(K) Notification clearance. The Company will have to perform in-house clinical trials designed to produce the data necessary to demonstrate the substantial equivalence of its instrument and tests. Although 510(K) submissions are supposed to be completed by the FDA within 90 days of submission, there can be no assurance the FDA will approve the Company's initial system pursuant to a 510(K) Notification, or do so in a timely manner, and therefore there can be no assurance that the Company will be able to introduce its initial system in the United States by the first quarter of calendar 1997 as it currently intends. If the Company cannot establish to the satisfaction of the FDA that its products are substantially equivalent, the Company will have to seek premarket approval ("PMA") of its system, requiring submission of a PMA application supported by extensive data to prove safety and efficacy. If a PMA is required, introduction of the initial system likely would be significantly delayed, which could have a material adverse effect on the Company. By regulation, FDA review of PMA applications is required within 180 days of its acceptance for filing; however, reviews more often occur over a significantly protracted period, usually 12 to 18 months, and a number of products have never been cleared. See "Business - Government Regulation." LIMITED MANUFACTURING AND PRODUCTION EXPERIENCE To be successful the Company must manufacture its products in compliance with regulatory requirements, in sufficient quantities and on a timely basis, while maintaining product quality and acceptable manufacturing costs. The Company will have to establish a manufacturing facility, or contract with a third party for manufacturing, which is registered with the FDA. Production of the Company's disposables requires the placement of antibodies or other binding reagents on metalized grating surfaces. The chemical and physical conditions for coating are substantially equivalent to those used to produce other solid state binding assays. Although the Company believes that its production methods will be effective for manufacturing its disposables, there can be no assurance that the methods will be applicable to all the tests it expects to develop or that the Company will be able to manufacture accurate and reliable products in large commercial quantities on a timely basis and at an acceptable cost. Inability to manufacture a full range of diagnostic tests would limit the Company's access to its intended market. COMPETITION The diagnostic testing market is highly competitive. As POC markets expand, the Company expects that manufacturers of central and STAT laboratory testing equipment will compete to maintain their revenue and market share and that new POC products will be developed. All of the industry leaders and many of the other companies participating in this market have substantially greater resources than the resources available to the Company, including, but not limited to, financial resources and skilled personnel. See "Business - Competition." TECHNOLOGICAL OBSOLESCENCE The Company operates in a market characterized by rapid and significant technological change. While the Company is not aware of any developments in the medical industry which would render the Company's current or planned products less competitive or obsolete, there can be no assurance that future technological changes or the development of new or competitive products by others will not do so To remain competitive, the Company must continually make substantial expenditures for development of both equipment and disposables. OBTAINING ANTIBODIES AND CHEMISTRIES Many of the chemistries that will be necessary for the Company's diagnostic system must be obtained through commercial suppliers or agreements for the licensing of such chemistries. Although the Company believes it can obtain the necessary chemistries, there can be no assurance that the Company will be able to make satisfactory arrangements to provide its customers with as wide a variety of products as they might desire. The lack of a sufficient number of chemistries would greatly limit the Company's ability to market its diagnostic system. DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL SKILLED PERSONNEL The operations and future success of the Company will depend upon the efforts and abilities of R. H. Joseph Shaw, Chief Executive Officer, Dr. Robert R. McKiel, Executive Vice President and Director of Research and Development and Gregory G. Freitag, Chief Financial Officer and Vice President of Corporate Development. The loss of any of these person's services could adversely affect the Company. The Company does not have key-person life insurance on any of its officers. The Company has in place employment agreements with each of Mr. Shaw, Dr. McKiel and Mr. Freitag. Successful development of the Company's products will require the services of additional personnel. There can be no assurance that the Company will be able to attract and retain such persons as employees, independent contractors, consultants or otherwise. See "Management." PATENT PROTECTION No assurance can be given that other companies will not develop technologies substantially equivalent to those owned or to be acquired or developed by the Company or that the Company will be able to protect its proprietary technology. See "Business - Patents and Proprietary Rights." The Company is not aware of any issued patents that would prohibit the use of any technology the Company currently has under development. However, patents may exist or issue in the future to other companies covering elements of the Company's systems. The existence or issuance of such patents may require the Company to make significant changes in the design of its systems or operational plans. Although the Company believes that its proposed products will not infringe patent rights of others, there can be no assurance that such infringement does not, or will not, exist with respect to the completed product. The Company has not conducted an independent patent search or evaluation with respect to the SPR technology. Ares-Serono, the licensor to the Company of its basic SPR technology, has made no warranties as to the enforceability of any of its patents or the commercial potential of the technology. Although Ares-Serono has the obligation to defend the patents they have licensed to the Company, Quantech will be responsible for the defense of any patents issued to it. Cost of defending patents can be substantial. See "Business - Patents and Proprietary Rights." GOVERNMENT REGULATION If the Company becomes a provider of health care diagnostic devices as intended, the Company will be subject to laws and regulations administered by federal, State and foreign governments. The degree of regulation and areas of concern differ in each country or region. The Company will be required to comply with regulations regarding product approval and performance and, in addition, regulations concerning electronic devices. The industry in which the Company expects to operate is subject to frequent regulatory changes and there can be no assurance that the Company will be able to comply with applicable regulations. In the event of noncompliance, the Company may be unable to market any products. See "Business - Government Regulation." POSSIBILITY OF EXPOSURE TO PRODUCT LIABILITY CLAIMS The Company could be exposed to risk of product liability claims or other lawsuits in the event of incorrect diagnosis utilizing the SPR equipment and disposables developed by the Company. Although the Company will evaluate obtaining liability insurance when the products come to market, there can be no assurance that the Company will be able to obtain or maintain such insurance or that the Company will not be subject to claims in excess of its insurance coverage. ABSENCE OF DIVIDENDS The Company has not declared or paid any cash dividends on its Common Stock since its inception and the Board of Directors presently intends to retain all earnings for use by the Company for the foreseeable future. Any future determination as to declaration and payment of dividends will be made at the discretion of the Board of Directors and will depend upon a number of factors, including, among others, earnings of the Company, the operating and financial condition of the Company, the Company's capital requirements, and general business conditions. SHARES ELIGIBLE FOR FUTURE SALE Including the Shares available pursuant to this Prospectus, all of the Company's outstanding stock may be sold in the public market. In addition, 9,851,000 of a total of 15,768,103 shares that may be obtained upon exercise of outstanding options and warrants are also included for resale pursuant to this Prospectus. LIMITED MARKET FOR SECURITIES There is a limited trading market for the Company's Common Stock, which is not listed on any stock exchange or Nasdaq. Although trading in the Company's Common Stock in calendar 1996 has occurred on a consistent basis, the volume of shares traded has been very sporadic. The Company's securities are subject to the "penny stock rules" adopted pursuant to Section 15(g) of the Securities Exchange Act of 1934, which applies to non-NASDAQ companies whose common stock trades at less than $5 per share or has tangible net worth of less than $2,000,000. These "penny stock rules" require, among other things, that brokers who sell "penny stock" subject to the rules to persons other than "established customers" complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade "penny-stock" because of the requirements of the "penny stock rules" and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. There can be no assurance that an established trading market will develop, the current market will be maintained or a liquid market for the Company's Common Stock will be available in the future. See "Price Range of Common Stock." PRICE RANGE OF COMMON STOCK The Company's Common Stock is traded on the local over-the-counter and the National Association of Securities Dealers Bulletin Board markets under the symbol of QQQQ. At June 20, 1996, the Company had approximately 490 shareholders of record. On June 20, 1996 the bid, asked and closing sale prices of its Common Stock were $0.75, $0.973 and $0.85, respectively. The following table summarizes the high and low sale prices for the periods since the Company's listing. High Low Fiscal 1994 Fourth Quarter $0.25 $0.125 Fiscal 1995 First Quarter $0.25 $0.0625 Second Quarter $0.25 $0.0625 Third Quarter $0.12 $0.09 Fourth Quarter $0.34 $0.125 Fiscal 1996 First Quarter $0.34 $0.187 Second Quarter $0.81 $0.50 Third Quarter $1.06 $0.50 Fourth Quarter through June 20, 1996 $1.625 $0.68 DIVIDEND POLICY The Company has never declared or paid a cash dividend on its Common Stock. The Company currently intends to retain any earnings for use in the operation and expansion of its business and therefore does not anticipate paying any cash dividends in the foreseeable future. CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1996. Such table has not been adjusted for the exercise of any of the Warrants as there is no assurance that any of the Warrants will be exercised. This table should be read in conjunction with the Company's Financial Statements, including the Notes thereto, included elsewhere in this Prospectus. March 31, 1996 ----------- Current portion of long-term debt............................. $ 0 Long-term debt................................................ 0 Shareholders' equity: Common Stock, $.01 par value; 60,000,000 shares authorized; 40,659,893 shares issued and outstanding(1)........................................... $ 406,599 Additional Paid-in Capital 11,997,692 Subscriptions Receivable (20,000) Deficit Accumulated During Development Stage............. (9,886,237) ----------- Total shareholders' equity............................ 2,498,054 ----------- Total capitalization................................ 2,498,054 =========== (1) Does not include up to 15,768,103 shares that may be issued upon exercise of outstanding options and warrants, of which 9,851,000 shares are registered hereby for resale. See "Capitalization" and "Certain Transactions." SELECTED FINANCIAL DATA The following table has been derived from the Company's financial statements appearing elsewhere in this Prospectus and sets forth selected financial data for the periods indicated. The financial statements for the years ended June 30, 1995 and 1994 have been audited by McGladrey & Pullen, LLP. The data in the table for the nine months ended March 31, 1996 and 1995 and for the period from September 30, 1991 (date of inception) to March 31, 1996, are derived from the Company's unaudited financial statements and include all adjustments (consisting of normal recurring accruals) that the Company considers necessary for a fair presentation of such data. Results for the nine months ended March 31, 1996 may not necessarily be indicative of the results expected for the year ending June 30, 1996. The data should be read in conjunction with the Company's Financial Statements and the Notes thereto included elsewhere in this Prospectus.
PERIOD FROM SEPTEMBER 30, NINE MONTHS FISCAL YEAR ENDED JUNE 30, 1991 -------------------------- ------------------------- (DATE OF ENDED ENDED INCEPTION), TO MARCH 31, MARCH 31, MARCH 31, 1996 1995 1995 1994 1996 ----------- ----------- ----------- ----------- ----------- SUMMARY OF OPERATIONS: Net Loss (1,800,360) (1,523,908) (2,070,292) (1,543,888) (9,886,237) ----------- ----------- ----------- ----------- ----------- NET LOSS PER COMMON SHARE: (.07) (.32) (.31) (.33) (1.23) =========== =========== =========== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: 25,793,027 4,690,000 6,786,986 4,690,000 8,036,465 ----------- ----------- ----------- ----------- -----------
MARCH 31, 1996 JUNE 30, 1995 -------------- ------------- FINANCIAL POSITION: Total assets $ 2,773,113(1) 2,735,960 ============== ============= Stockholders equity $ 2,498,054 $ 2,735,960 ============== ============= (1) On May 3, 1996, the Company completed a private placement of its Common Stock and received net proceeds of approximately $3,350,000. As of May 30, 1996 the Company had current assets of approximately $3.2 million, current liabilities of approximately $200,000 and no long term debt. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION HISTORY Quantech Ltd. ("Quantech" or the "Company") was formed under the laws of Minnesota for the purpose of effecting the change of domicile of Spectrum Diagnostics S.p.A ("SDS") from Italy to the state of Minnesota through a merger with SDS on April 14, 1993. Quantech had no operations prior to the merger and is continuing the business of SDS to commercialize Surface Plasmon Resonance ("SPR") technology licensed from Ares-Serono. SPR, the core technology of Quantech's proposed medical diagnostic system, enables the Company to integrate the existing diagnostic methodologies of immunoassays, DNA probes and chemical binding into a single, simple economical system in order to provide rapid, quantitative, diagnostic results. The Quantech system configuration will consist of a small, bench top instrument and a series of disposable slides with multiple tests per slide. The Quantech system will have the ability to analyze body fluids (e.g., whole blood, urine, saliva) without preparation or addition or reagents. The Company's initial focus is to develop SPR for the hospital emergency room point-of-care ("POC") medical diagnostic market. Its first test will aid physicians in assessing whether a patient has suffered a heart attack. RESULTS OF OPERATIONS INTRODUCTION Quantech is a development stage company which has suffered losses from operations and will require additional financing to commercialize its product. The Company's product development must be completed, FDA approval obtained, the product introduced to the market and ultimately Quantech will need to successfully attain profitable operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company has incurred a net loss of $9,886,237 from September 30, 1991 (date of inception) through March 31, 1996 due to expenses related to formation and operation of SDS in Italy, continuing costs of raising capital, normal expenses of operating over an extended period of time, funds applied to the research and development, royalty payments related to the SPR technology, losses due to expenses of Quantech's predecessor, Spectrum Diagnostics Inc. and interest on borrowed funds. In addition, an investment of $3,356,629 was made when Quantech purchased the exclusive rights to the SPR technology. In fiscal 1996, the Company has continued to contract for the development of its prototype instrument and its manufacture; continued to develop the chemistries necessary to do specific tests; contracted the development of the disposable slides for the tests; and continued to raise the necessary funds to stay in operation. Management anticipates that a system suitable to begin FDA clinical work will be available in the summer of 1996. The next major step for the Company will be to submit its system to the FDA for approval which submission is anticipated in the fall of 1996. At the time of submission to the FDA, the system is expected to be ready for the commercial market and marketing in the United States will proceed upon approval by the FDA. Such FDA approval is anticipated in the first calendar quarter of 1997. This timetable will be influenced by the Company's ability to complete prototype development of its system and necessary testing for submission of its FDA filing and delays it may encounter with the FDA in its review of the system. COMPARISON OF NINE MONTHS ENDED MARCH 31, 1996 TO NINE MONTHS ENDED MARCH 31, 1995 For the nine months ended March 31, 1996 the Company had interest income of $23,310 compared to $0 in the same period in 1995, due to cash on hand as a result of funds remaining from Quantech's private placement in the first quarter of fiscal 1996. General and administrative expenses increased from $902,981 to $919,506 for the nine months ended March 31, 1995 as compared to the same period in 1996. General and administrative expenses, although appearing to remain basically flat in the comparative nine month periods, have in fact changed modestly in how funds are expended in such category. In each quarter of fiscal 1996, Quantech has been able to reduce the significant general and administrative expenses it has incurred in the past relating to professional fees, consulting arrangements and other expenses required to maintain an inadequately funded organization. Such reductions general and administrative expenses have been absorbed by increases in personal and associated costs which reflect normal operations. General and administrative expenses are expected to increase in the future as the Company expands in anticipation of introduction of its product to the market in the third quarter of fiscal 1997. Research and development costs increased from $342,000 to $691,585 for the nine months ended March 31, 1995 compared to the same period in 1996. This increase was a result of accelerated research and development activity including hiring of employees and engaging firms to perform contract development work. Minimum royalty expense decreased for the nine month period ending March 31, 1996 as compared to the same 1995 period as a result of the declining minimum royalties owed under Quantech's license with Ares-Serono. For the nine months ended March 31, 1996 the Company had a net loss of $1,800,360 compared to $1,523,908 for the same period in 1995. This increase was a result of the rise in research and development expenses in the 1996 nine month period offsetting decreases in such period in general and administrative, minimum royalty and financing expenses. Management believes the reduction from prior periods in general and administrative and financing expenses while research and development expenses have increased reflects the Company's current stability. Quantech is now able to apply an appropriate amount of funds to pursue the development and commercialization of its product. The Company believes it will be able to continue to apply funds to the areas most appropriate to complete its system and introduce it to the market. This forward looking information regarding the anticipated use of funds will be influenced, however, by the timing of product introduction, need for additional capital and other factors beyond the Company's control. COMPARISON OF YEAR ENDED JUNE 30, 1995 TO YEAR JUNE 30, 1994 The Company incurred a net loss of $8,085,877 from September 30, 1991 (date of inception) through June 30, 1995, due to expenses related to the formation and operation of SDS in Italy, continuing costs of raising capital, normal expenses of operating over an extended period of time, funds applied to the research and development of the SPR technology, royalty payments related to the SPR technology, losses due to expenses of SDI and interest on borrowed funds. In addition, an investment was made purchasing exclusive rights to the SPR technology which through June 30, 1995 had cost the Company $3,356,629. As a result of the Company's status as a development stage company and its continued losses from expenses as outline above, a comparison of the results of operations of fiscal 1995 to fiscal 1994 is not meaningful. In both years the Company expended considerable funds for general and administrative expenses, although in fiscal 1995 the Company was able to increase its expenditures for research and development as it had greater capital availability. LIQUIDITY AND CAPITAL RESOURCES From inception to May 6, 1996, Quantech has raised approximately $15,500,000 through a combination of public stock sales, private stock sales and debt obligations. Additional funds will be needed to establish sales and marketing and production capabilities and to begin any significant sales of the Company's product once development is completed. There can be no assurance that the Company will obtain additional capital when needed or that additional capital will not have a dilutive effect on current shareholders. Since its fiscal year ended June 30, 1995, Quantech has had a number of events occur affecting its capital resources. With regard to debt conversion transactions, holders of Quantech 8% debentures due September 30, 1995, totaling $977,500 plus accrued interest, on such date converted these amounts to Common Stock at conversion prices ranging from $.125 to $.25 per share. In total, including accrued interest to September 30, 1995, these debentures were converted into 7,484,896 shares of Common Stock. In addition, holders of notes due in March 1996, totaling $1,230,000 plus accrued interest, converted these notes to Common Stock at a conversion price of $.125 per share on December 31, 1995. In total, including accrued interest, these notes were converted into 11,237,157 shares of Common Stock. Quantech has also completed three private offerings of its Common Stock. In September 1995, the Company received approximately $2.88 million of net proceeds as a result of completion of a private placement of Units at $1.00 per Unit. In November 1995, it received approximately $430,000 of net proceeds also from the private placement of $1.00 Units. In both of these private placements the Unit consisted of four (4) shares of Company Common Stock and a warrant to purchase one share of Common Stock at $.25 per share. The Company used the proceeds from these offerings for payment of bridge loans, including interest, minimum royalties due under its license with Ares-Serono, accounts and accrued payables, purchased equipment and for working capital. On May 3, 1996, Quantech completed its third private offering of 6,250,000 shares of Common Stock at $.60 per share. Such offering provided the Company with net proceeds of approximately $3,350,000. Quantech intends to apply the proceeds of such offering, along with cash on hand, to expenses relating to product development, FDA submission, establishing sales and marketing and production capabilities (including capital expenditures) and to provide working capital. As of May 30, 1996 the Company had current assets of approximately $3.2 million, current liabilities of approximately $200,000 and no long term debt. Although current funds are expected to allow the Company to proceed through FDA approval of its system, Quantech will not have sufficient funds to commence commercial production. Although the Company has a limited lending arrangement with its bank, it does not anticipate receiving significant funding from lenders. For the nine months ended March 31, 1996, Quantech incurred capital expenditures of approximately $156,000. The Company anticipates capital expenditures for the three months ended June 30, 1996 to be in excess of $450,000 for the purchase of production and laboratory equipment. Capital expenditures for future quarters will be necessary for production equipment and office expansion as the Company nears product introduction. The timing and amount of such expenditures will be governed by the Company's development and market introduction schedules which are subject to change due to a number of factors including development delays, FDA approval and availability of future financing. In addition to capital expenditures, the Company has a final minimum royalty payment of $150,000 due to Ares-Serono on December 31, 1997. ISSUED BUT NOT YET ADOPTED ACCOUNTING STANDARD In October 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 123, "Accounting for Stock-Based Compensation", which establishes financial accounting and reporting standards for stock-based employee compensation plans. The Company will be required to adopt Statement No. 123 in fiscal 1997. Quantech has not yet determined what effect, if any, Statement No. 123 will have on the financial statements. BUSINESS BACKGROUND Quantech Ltd. ("Quantech" or the "Company") is a development stage company seeking to commercialize Surface Plasmon Resonance ("SPR") technology. The Company's initial focus is the development of SPR for the hospital point-of-care ("POC") medical diagnostic market. SPR, the core technology of Quantech's proposed medical diagnostic system, enables the Company to integrate the existing diagnostic methodologies of immunoassays, DNA probes and chemical binding into a single, simple, economical system in order to provide rapid, quantitative, diagnostic results. The Quantech system configuration will consist of a small, bench top instrument and a series of disposables containing a particular test or tests. It is anticipated that the Quantech system will have the ability to analyze body fluids (e.g., whole blood, urine, saliva) without preparation or addition of reagents. The medical diagnostics market is divided into three broad segments: the traditional central laboratory, home diagnostics and POC. The overall United States in-vitro (outside the body) diagnostic market is growing, estimated at $9.6 billion in 1995 and expected to grow to $14.4 billion by the year 2000. Central labs account for the majority of this market while POC currently represents only a small portion, but is expected to grow by some estimates to $1 billion by the end of 1997 as more POC products enter the market. The Company's market entry strategy focuses its efforts on the POC segment. The POC segment has become important for health care administrators and third party payers seeking to bring more rapid decision making to the patient's bedside, thereby decreasing the overall costs of care. Technologies that meet the stringent customer needs of this POC segment are expected to achieve a competitive advantage over many central lab procedures. Quantech's business strategy is to capitalize on the flexibility, extreme sensitivity and relatively low cost of its diagnostic system to penetrate and expand the POC market. Quantech's intended entry into the POC market will be Critical Care Units of hospitals, the first unit being the Emergency Department ("ED") where the most pressing and unmet customer needs are found. Of the current POC market segment, approximately 85% is represented by testing in Critical Care Units. The Critical Care Units represent a significant market as they require a number of rapid turn-around tests. Although there are some POC tests available for the Critical Care Units, the Company is not aware of any currently existing POC product that provides a single instrument that will perform most of the tests required in the Critical Care Units and especially the ED. Additionally, there is minimal current competition for POC products in the ED from the large, multinational companies that are presently focused on serving the central lab market. There are approximately thirty commonly ordered tests in the ED, all of which are ordered STAT (very urgent). Some of the most important diagnostic tests in the ED are cardiac markers. These tests help to identify whether a patient experiencing chest pain has suffered a myocardial infarction (heart attack). Current POC competition for this approximately $500 million annual market consists of colorimetric, non-quantitative disposable kits. Quantech's first two tests, intended to be introduced in late calendar 1996, are expected to quantify these markers in two to five minutes through its objective, computer-controlled system. Similar results are presently available from the central lab in 60 to 90 minutes. Quantech's price to the customer will be less than the existing POC products while offering the advantages of rapid quantification and cost reduction when compared to the central lab. Quantech believes the benefits of its system over other POC systems are that the same instrument is expected to be able to be used for a full range of tests and provide quantitative results. After the initial introduction of tests for myocardial infarction, the Company intends to introduce additional tests at the rate of one per quarter. Selection of these tests will be based upon market demand, ease of development, regulatory hurdles and profit margins. The Company plans to expand into other critical care diagnostic markets which have needs similar to the ED. The capabilities of the Quantech system as a broad, flexible diagnostic testing platform should meet the needs identified by the POC market and the Company's marketing strategy is expected to enable it to be competitive in the global medical diagnostics market. STRATEGY Quantech's objective is to establish its SPR biosensor diagnostic technology as the standard for critical POC diagnostics and steadily expand the number of its tests available for its system through the introduction of additional disposables. To reach that objective, Quantech intends to do the following. * Finalize the development of the prototype system (configured for the cardiac marker CK-MB) * Submit the system to the FDA for regulatory review * Market this initial system (including evaluating strategic partners with established distribution channels) * Develop additional cardiac markers (specifically, Troponin, Myoglobin, Myosin and CA-III). * Develop additional markers for other high demand critical care tests in medical diagnostic testing (specifically, pregnancy, therapeutic drugs such as Digoxin, drugs of abuse and infectious diseases) * Assess capabilities of SPR in nonmedical testing applications THE ARES-SERONO LICENSE The Company has acquired from Ares-Serono at a total cost of $3.2 million a worldwide exclusive license (the "License"), to certain patents, proprietary information and associated hardware (e.g. molds, test rigs, prototypes) related to the SPR technology. The Ares-Serono affiliated companies (the "Ares-Serono Group"), based in Switzerland, comprise a multinational organization engaged in the development and marketing of ethical pharmaceuticals and diagnostic products, primarily in the field of human fertility, human growth, immunology and virology. The SPR diagnostic technology was developed by a research and development partnership (the "R&D Partnership"), the General Partner of which was a company belonging to the Ares-Serono Group. The License calls for an ongoing royalty of 6 percent on all products utilizing the SPR technology which are sold by the Company. If the Company sublicenses the technology, the Company will pay a royalty of 15 percent of all revenues received by the Company under any sublicense. If the payments of the 6 percent royalty and the sublicense royalty fail to reach at least $1,000,000 by December 31, 1997, an additional payment of $150,000 by December 31, 1997 will be required as the Company has paid to date $850,000. If such payment is not made then Ares-Serono has the right to cause a reversion to Ares-Serono of a royalty-free license, thereby depriving the Company of its exclusive rights under the License. The obligations of Quantech to pay royalties terminate when the total royalty payments (excluding any sublicense royalties paid through July 1, 1996) reach a gross amount of $18 million. After such date, Quantech's rights in the licensed SPR technology continue in perpetuity with no further obligations to Ares-Serono. Ares-Serono specifically reserved, and did not license to Quantech, any rights with or otherwise integrated with certain fluoresecence capillary fill device technology (the "FCFD Technology"). The Company believes that such limitation does not materially impact the value of the License given Quantech's current plan of commercialization. In addition, the License is subject to the contingent right of PA Technology, a U.K. corporation, to request a grant of a non-exclusive royalty-free license to exploit certain rights in the SPR technology for applications outside the field of the commercial interests of the Company. Finally, Ares-Serono has retained the right to further develop the SPR technology, provided, however, that any products commercialized from such development may only be sold through Ares-Serono under its name. Quantech is unaware of any attempts by Ares-Serono to further develop the SPR technology. See "Business-Patents." THE TECHNOLOGY [GRAPHIC: DESCRIBED BELOW] Surface Plasmon Resonance (SPR) Technology. Surface Plasmon Resonance is an optical-electrical phenomenon involving the interaction of light with the electrons of a metal. The optical-electronic basis of SPR is the transfer of the energy carried by photons of light to a group of electrons (a plasmon) at the surface of a metal. Quantech's SPR sensor is a disposable slide composed of a clear plastic base with a fine grating molded into its surface. The grating is coated with a very thin layer of gold (1 ounce of gold is sufficient to produce approximately 350,000 disposables). Gold is used since it does not oxidize like other metals. Oxidation on the surface would prevent the creation of an SPR signal. The gold is subsequently coated with binding molecules. The binding molecules may be antibodies, DNA probes, enzymes or other reagents chosen because they react exclusively with a specific analyte. The analyte is the substance being measured and defines the test to be done such as a cardiac marker. The coated metal surface interacts with light at a characteristic resonant wavelength that depends upon the molecular composition at the metal's surface. When the coated metal is exposed to a sample that contains analyte, the analyte becomes bound to the metal through its specific interaction with the binding molecules. As an analyte is bound, the composition at the surface changes and consequently the resonant wavelength shifts. The magnitude of the change in the resonant wavelength is proportional to the amount of binding that takes place, which is proportional to the concentration of the analyte in the sample. [GRAPHIC] In the examples shown, an antibody is coated onto the surface of the grating against a specific antigen such as the cardiac marker CK-MB. As the antigen is captured, the wavelength of light that causes the SPR signal alters in proportion to the amount of antigen present in the sample. SPR biosensors combine the strengths of biology and physics into a single entity. The utilization of the phenomena of SPR produces high sensitivity. Applications of SPR that have been reported in the scientific literature or explored by the Company include immunoassays for hormones, drugs, viruses and bacteria, quantitation of anesthetic gases, and DNA binding assays. The Company's SPR biosensor technology presents a simple, unified platform that is capable of performing a wide range of diagnostic tests. [GRAPHIC] PRODUCT DESCRIPTION THE INSTRUMENT The Quantech instrument will be designed to fill the anticipated needs of Critical Care Units and in particular the ED. The instrument will be designed to be compatible with new disposables if and when they are introduced to the market. Thus, a single instrument will accommodate the various tests necessary to be performed in the ED. As Quantech adds tests, the same instrument platform will be utilized. The instrument will sit on a desk or tabletop and have a built-in keyboard that will enable the user to enter both a user number and the patient or specimen ID number. The instrument will be equipped with a bar-code reader that will identify the disposable employed and contain certain calibration information necessary to effectively maintain quality control. The data produced will be stored in the instrument thereby allowing the user to download data to a central computer upon demand. The instrument contains a white light source, a microprocessor, a series of lenses and a liquid crystal display to display results of a given test. The light beam is split into two parts, a unique development that enables the user to read whole blood samples and a base line thereby providing quantitative results. A beeping sound will alert the user when the test results are available. A "strip printer," that may be provided with the instrument, will produce a hard copy of the results. The size and configuration of the instrument will enable it be located at bedside. It is anticipated that Critical Care Units will have several of these instruments at various locations. The instrument will retail for approximately $18,500 and several pricing options will be available based upon the number of test slides purchased. DISPOSABLES [GRAPHIC] Quantech's disposable slide consists of an injection molded plastic carrier containing up to four grating surfaces. The metallic surface is overlaid with reagents that react specifically with the analyte to be identified and measured. The disposable is filled with whole blood directly from a Vacutainer which is routinely used to collect blood from patients in the ED. The disposables will be configured identically for all of the tests manufactured by the Company. The only difference between the disposables will be the reagents coated on each grating to define the particular test. Future disposables for certain test may also be configured to handle samples of urine, saliva, or other body fluid. Unlike the majority of other disposables on the market, Quantech's disposables do not require the addition of reagents by the user. This simplicity translates into lower production costs, quicker development time, easier use, immediacy of results and reduced costs to the user. Individual disposables will be packaged in a sterile pouch to provide extended shelf life. Disposables will be configured to provide single tests or panels of up to three diagnostically-related tests. Disposables are expected to have retail prices ranging from $5.00 to $35.00 per disposable slide. The Company has conducted experiments on a limited scale and initial indications are that the SPR technology is a viable testing method. The Company intends to manufacture test disposables based upon such SPR technology. The Company believes that such test disposables will be easily produced, however, commercial production may pose difficulties which currently are unforeseen. The same disposable configuration may be used for all tests and instruments, thus minimizing manufacturing and quality control costs. Additional development of the disposable is currently being conducted and future development will continue to expand the number of tests that may be performed in general and on each disposal. COMPARISON OF PRODUCT TECHNOLOGIES A number of basic methods, whether performed manually or by automated instruments, are utilized in diagnostic testing including immunoassays, DNA probes and chemical reactions. Each of these testing methods requires the performance of a series of operations by a skilled technologist. This testing consists of: sample preparation, addition of reagents, further method-specific manipulations, and reading and interpretation of raw data. Central laboratory automated systems have been mechanized, rather than eliminated many of these steps. Based upon the Company's current prototype instrument and test disposables, The Quantech system will not require sample preparation, addition of reagents or operation by a skilled technologist. No assurance can be given, however, that the SPR technology can be commercialized so as to provide an instrument and disposable that will operate in the manner described or that such instrument will be accepted by the medical community. In the Critical Care Units of the hospital, low volume or single test throughput eliminates the economy of the central lab systems without significantly shortening turnaround time for test results. Quantech's system economically employs the same basic technologies, but simplifies the process. The expected advantages of SPR include: * Considerably faster test results * Quantitative results * Objective results (independent of operator skill or perception) * Competitively priced instrument and disposables * Minimal operator training * No addition of reagents by the operator * Compact, durable instrument * Equal to or better sensitivity than other technologies The Company believes the products to be developed from the SPR technology will provide the potential to enable medical tests to be conducted at the patient site with fewer steps, rapid response time, and minimal operator training. However, the final commercialized SPR product has not been developed and no assurance can be given that all of the advantages described above will be attained. The Company anticipates that the first instrument will be designed for the POC market described below. It is anticipated that this instrument will be designed to combine accuracy with simplicity of use and that such an instrument will be capable of processing only one test disposable at a time. Subsequently developed instruments may offer more automation, may provide greater throughput required by larger facilities, and may incorporate a small computer for data storage and analysis. The ability of biosensors to convert biological data into digital signals should permit designs that capitalize on future advances in microcomputer technology. THE MARKET GENERAL The medical diagnostics market can be divided into three broad segments: the traditional central lab, home diagnostics and point-of-care. The Company defines point-of-care ("POC") so as to exclude home diagnostics such as pregnancy and glucose which has grown tremendously over the last ten years. The overall United States in-vitro diagnostic market is growing, estimated at $9.6 billion in 1995, and expected to grow to $14.4 billion by the year 2000. Central labs account for the majority of this market while POC currently represents only a portion, but is expected to grow by some estimates to $1 billion by the end of 1997 as more POC products enter the market. Such testing world wide, excluding the United States, is at least as large with equal growth opportunities. See "Business - Competition." POINT OF CARE The strategic direction chosen by Quantech is to exploit the inherent technological advantages of its SPR technology by identifying the diagnostic market niche where such technological advantages provide both economic savings and significant patient benefits. The Company's primary strategy will be to focus on the critical care diagnostics area. Quantech has identified this area as one that fulfills both the above criteria. At this time, the large medical diagnostic testing companies have little presence in this niche as they focus their resources on the central laboratory. This absence should enable Quantech to competitively enter the market. However, there is no assurance that the Quantech system will be accepted by its intended market or that competition from the large diagnostic companies will not be forthcoming. The home testing market has expanded greatly, being driven largely by the acceptance of blood glucose monitoring for diabetes and, to a lesser extent, by home pregnancy testing. These applications, while increasing the availability of home testing, do not address the needs of POC testing within the wider health care environment as they are limited in the tests that can be performed. Effective POC testing has become a significant need within the traditional testing sites such as hospitals, ambulances and nurse's stations. POC testing represents one of the most rapidly growing segments of the in-vitro diagnostics market. Part of this growth is a result of the rising costs of health care that have produced changes in hospital reimbursement. Pressure has increased to reduce the length of patient stay and provide a greater portion of services in ambulatory and outpatient settings. Because the cost of providing care in Critical Care Units far exceeds those of general medical or surgical units, one goal of critical care medicine is to shorten the amount of time patients spend in these settings by instituting therapy based on the rapid availability of test results. In the Critical Care departments and surgical suites, a wide variety of testing is now conducted that was formerly restricted to the main laboratory. For example, tests that were done in the central labs, like blood gases and electrolytes, are now available as POC tests. Conducting testing in proximity to the patient provides immediate results and avoids the delays, communication problems and increased costs often associated with a centralized testing process. The continued growth of the POC will be a result of the advantages POC testing has over central laboratories. CRITICAL CARE Critical Care is defined as the area where immediate diagnostic information is needed to effect either the treatment or processing of a patient. When test results are needed in these areas they must be processed in a STAT manner, thereby significantly increasing the cost. The solution to this difficulty is to bring a system of diagnostic methodologies to the patient site in a manner that will provide test results promptly. Part of Critical Care Units are the ED. The Company believes that there are approximately 30 different diagnostic tests that require prompt results in the ED. Quantech intends to develop products primarily focused on the ED and these 30 tests during the first several years of operation. Since the needs of the other areas of critical care are similar to the ED, the Company anticipates that growth into these other areas will be evolutionary. CARDIAC MARKERS Of the tests needed by the critical care segment of the POC market, the Company has selected those tests that the Company believes will minimize development time and regulatory processes and, most importantly, satisfy unmet demands of the users. Tests for cardiac markers meet all of these criteria. These markers are needed to triage and treat individuals that arrive at the ED with chest pain. An estimated 5.5 million patients are evaluated for chest pain annually in the United States with approximately 3 million admitted to an intensive-care unit for further evaluation. Of those admitted only 30% subsequently "rule-in" for acute myocardial infarction ("AMI"). Assuming an average cost of $3,000 per admission, this represents a total expenditure of $6 billion annually on patients who do not have AMI. This also does not take into account that 2-8% of patients with acute chest pain that are released from the ED without treatment subsequently fulfill criteria for AMI resulting in deaths and complications that result in greater than 20% of the malpractice dollars awarded in the field of emergency medicine. Not only are costs of admission and malpractice claims an important issue, but in the past, making a rapid definitive diagnosis of chest pain was not as important as it is today. When a patient was in the early stages of a heart attack/AMI there was not much treatment available. In the last 10 years, substantial progress has been made in thrombolytic therapy. If the therapy is started within 6 hours of the onset of a heart attack, it can dissolve the blood clot, clear arteries and save heart muscle tissue. These therapies are expensive and present undesirable side effects if the patient has not suffered an AMI. During an AMI, certain proteins are released from the damaged heart muscle into the blood stream as a result of damage to the muscle. These proteins are in varying concentrations and consist of CK-MB, troponin, myosin, light chain, myoglobin and CA-III. The interaction of these proteins is described in the chart below. To identify patients who have suffered an AMI, cardiac markers have become important. These tests must provide results in under five minutes in the ED or mobile care unit so that medical personnel may take immediate action. Presently, there is no method available to provide such results quantitatively. Most of the existing test modalities require a central laboratory system that may delay the results beyond their effective need. Quantech's system is expected to provide emergency personnel with the ability to receive quantitative results within several minutes. The high cost of therapy, the urgency of the associated conditions and the difficulty of a definitive diagnosis creates an urgent demand for these tests in the critical care setting. Quantech has begun to develop the disposable slides for this market and intends to introduce the first two disposables in the United States by the first quarter of calendar 1997. These test markers will assist in the diagnosis of AMI in the ED. The instruments and disposables based on SPR to be offered by Quantech will provide results in a timely and economic manner. COMPETITION The majority of in-vitro medical diagnostic testing is conducted in hospital and commercial reference laboratories. These facilities are particularly suited for efficiently processing a large number of clinical samples. While most hospital laboratories must maintain the capability to perform certain STAT tests on single samples, most of the samples handled by central laboratories are processed in batches. The competitors for this market have addressed these laboratories' needs for high sample throughput, low reagent cost and low labor cost by developing automated systems. These systems are generally complex and expensive incorporating designs, appropriate to the labs they serve, which presume skilled operators who are expected to perform sample preparation, system calibration and basic instrument maintenance. Both the health care providers and their suppliers are heavily committed to the current central laboratory model. The laboratories are constrained by their organization structure, their substantial capital investment in instrumentation and the task of processing a large number of routine (i.e., non-STAT) samples. The suppliers' corporate infrastructures, marketing and sales organizations, research and development activities and production capabilities are committed to this market. Even though the economic savings and medical utility afforded by POC is becoming widely recognized, it is not necessarily immediately attractive to the most successful laboratories and the strongest suppliers. There are more than 150 companies serving this central, clinical laboratory market. Most of them compete in only one or two segments of the overall market. Abbott Laboratories, Boehringer Mannheim, and Johnson & Johnson (reinforced by its recent acquisition of Kodak Medical) are notable exceptions. These companies have achieved their broad market penetration by developing several technologies, each targeted for the specific needs of a market segment and focusing their marketing, distribution and sales activities on the central lab. The POC market in general must compete with the central laboratory to gain market share and as a result Quantech will meet with competition from these companies in both sales of its system and the individual tests for such system. There is significant activity in the Critical Care segment of the POC market. The majority of current systems address the areas of coagulation, blood gas and basic chemistry (including electrolytes). Two such systems, i-STAT Corp. which markets a hand-held biosensor instrument and Abaxis, Inc. (Piccolo) which markets a tabletop analyzer, are capable of determining blood gas and electrolyte levels and have become recognized POC instruments. The Company does not believe current products of i-STAT, Abaxis or others are capable, however, of diagnosing analytes that indicate cardiac markers or any infectious diseases. There can be no assurance that current or future POC companies or current companies providing instruments to the central laboratory market will not invent systems that will have broad immunoassay testing capabilities like those expected by the Company's system. With respect to testing for CK-MB to diagnose AMI, most testing is done in the Central Labs with turnaround time from 30 to 120 minutes. The Company is aware of only four companies that provide POC testing for AMI. Of such companies, Spectral Diagnostics Limited, a Canadian company, markets a manual method available for two cardiac markers and Boehringer Mannheim has recently begun to market a manual test for troponin T. As configured, neither Spectral's, Boehringer's nor the other POC AMI tests can provide quantitative results and all but Boehringer's test necessitate addition of reagents by the user. The Company believes there is need for quantitative measurement of cardiac markers, drugs and other critical care tests and that such need continues to be unfulfilled. The Company plans to enter the market by serving the unmet needs for quantitative cardiac markers and to extend its penetration by delivering the full range of ED tests on a single platform. In doing so, the Company will compete directly with providers of currently available testing methods. All of the industry leaders, and many of the other companies participating in the diagnostic testing market, have substantially greater resources than those available to the Company, including, but not limited to, financial resources and skilled personnel. However, the Company believes the SPR technology will enable it to provide products to the POC market, a market niche believed by the Company to be less competitive. See "Business -- The Market." PATENTS AND PROPRIETARY RIGHTS The License covers a total of eight patents. The two principal patents covering the SPR technology gratings have been granted in the United States, Canada, Australia and certain European countries and portions are pending in Japan and Great Britain. Except for two patents relating to optics, one of which is pending in the United States and one of which is pending in Canada, the remaining patents have been granted in the United States, Canada, Australia, and certain European countries and portions are pending in Japan and Great Britain. All developments by the Company pursuant to the License, either proprietary or patentable in nature, will be the property of the Company. The Company has made a number of advances that it intends to patent. These developments are in the methodology of chemically coding the SPR disposables, and in enhancements to the optics that improve the ease and reliability of calibration and eliminate nonspecific, sample-to-sample variability. Because the Company's licensed patents do not expire in less than ten years and Quantech intends to file additional patents, the Company believes that is has the opportunity to complete development of its product, establish a market position and seek additional patents on improvements and related technologies. No assurance can be given, however, that other companies will not develop technologies substantially equivalent to those owned, or to be developed, by the Company or that granted or pending and to filed patents, if granted, will protect the Company's technology. See "Risk Factors - Patent Protection." GOVERNMENT REGULATION The Company believes that the products it initially proposes to manufacture and market will be classified as medical devices and will therefore be subject to regulation by the United States Food and Drug Administration (the "FDA") and, in some instances by foreign government authorities. Under the 1976 amendments to the Federal Food, Drug and Cosmetics Act (the "FFDCA") and regulations promulgated thereunder, manufacturers of medical devices must comply with certain regulations governing the testing, manufacturing and packaging of medical devices. Under the FFDCA, medical devices are subject to different levels of testing and review. The most comprehensive level of review requires that a clinical evaluation program be conducted before a device receives premarket approval by the FDA for commercial distribution. As a manufacturer of medical devices, the Company will also be subject to certain other FDA regulations, and its manufacturing processes and facilities will be subject to periodic inspection, without warning, to ensure compliance. Comparable agencies in certain States and foreign countries will also regulate the Company's activities. The Company's products could be subject to recall by the FDA or the Company itself, if it appears that the products and their use do not conform to regulations. Generally, medical devices intended for human use that are to be marketed in the United States are placed in one of three regulatory classifications depending upon the degree of testing and review to which the device will be subject. The Company expects that its products will not be subjected to the highest level of scrutiny because they are in-vitro (outside of the body) diagnostic devices which do not come into contact directly with a living human being. Specifically, the systems would be classified as either Class I or Class II devices as distinct from implantable devices, which are classified as Class III devices. The Company believes that premarket clearance can be obtained for its initial system and tests through submission of a 510(K) premarket notification ("510(K) Notification") demonstrating the product's substantial equivalence to another device legally marketed pursuant to 510(K) Notification clearance. The FDA may also require, in connection with the 510(K) Notification, that it be provided with the test results supporting this claim. The FDA may further require, in connection with the 510(k) Notification, that it be provided with test results demonstrating the safety and efficacy of the device. Under certain circumstances, such clinical data can be obtained only after submitting to the FDA an application for an Investigational Device Exemption ("IDE"). The FDA must either deny the 510(K) Notification or require further information within 90 days. If the FDA has not responded within such time period, the applicant may proceed to market the new product. Generally, a request by the FDA for a 90 day extension prior to ruling is not uncommon. For new products that are not considered to be "substantially equivalent" to an existing device, two levels of FDA approval will probably be required before marketing in the United States can begin. First, the FDA and participating medical institutions must approve the Company's application for an IDE, permitting clinical evaluations of the product utilizing human samples under controlled experimental conditions. Second, the FDA must grant to the Company a Premarket Approval ("PMA"). The FDA should grant a PMA if it finds that the product complies with all regulations and manufacturing standards. In addition, the FDA may require further clinical evaluation of the product, or it may grant a PMA but restrict the number of devices distributed or require additional patient follow-up for an indefinite period of time. Completion of this process could take up to 12 months and involve significant costs. The Company believes it is unlikely that it will be required to obtain a PMA with respect to any of its currently proposed products except where mandated by the FDA such as HIV, cancer and hepatitis detection tests. Any claims of panel diagnostics are subject to a PMA procedure. The Company anticipates that it will make claims in reference to its cardiac markers. These claims will be made after the products are marketed with only single claim implications. Accordingly, the products should not be delayed in their initial introduction. If a PMA is required for the Company's initial system and CK-MB test, introduction of the initial system likely would be significantly delayed, which could have a material adverse effect of the Company. Mr. Shaw and Dr. McKiel, the Company's President and Executive Vice President-Research and Development, respectively, have extensive experience in FDA approval and compliance matters. PRODUCT LIABILITY The Company could be exposed to risk of product liability claims or other lawsuits in the event of incorrect diagnosis utilizing the SPR equipment and disposables developed by the Company. Unless the Company maintains product liability insurance of a sufficient amount, the Company will have to bear the economic consequences of any claim in excess of its insurance coverage. While the Company does not presently have such coverage, it will evaluate its availability at such time as products are commercially introduced. There can be no assurance that the Company will be able to obtain or maintain such insurance. EMPLOYEES AND PROPERTIES The Company employs fourteen people on a full-time basis and engages consultants and independent contractors to provide services related to the development of the SPR technology. The Company expects to hire other personnel in the next twelve months as necessary for FDA work, sales and marketing, manufacturing and administration. See "Management." The Company leases offices (comprised of approximately 6,800 sq. ft.) at 1419 Energy Park Drive, St. Paul, Minnesota at a base monthly rent of approximately $5,200 pursuant to a lease arrangement which expires February, 2000 and will thereafter proceed on a month-to-month basis. The Company will require at least 15,000 sq. ft. of space prior to commercial manufacturing of its system. The Company is currently reviewing additional space to satisfy it future needs. LEGAL PROCEEDINGS The Company is not a party to any litigation that would have a material adverse effect on its financial condition or results of operations. HISTORY OF THE COMPANY The Company is the culmination of developments dating from early 1989. R. H. Joseph Shaw, the Company's President, learned that Ares-Serono intended to sell the SPR technology (patents and proprietary information) due to changes in corporate strategy. Mr. Shaw formed Spectrum Diagnostics Inc. ("SDI") and purchased an option on the SPR technology. In August 1991, the Company found itself in the position of having to raise $2 million to make the final payment on its option with Ares-Serono to acquire the SPR technology or face the loss of the previous investment. An organization capable of raising the funds within the necessary time frame was found, New York-based Ital American Securities, but the financing had to be conducted in Italy Spectrum Diagnostics S.p.A. ("SDS") purchased the assets of SDI, including the Ares-Serono option, completed the financing and exercised the option. These funds, while adequate to secure the technology, were insufficient to fully develop it to a commercial level. In conjunction with the Italian offering, a concurrent offering was conducted by Schneider Securities, Inc. in the United States, however, funds raised in such offering fell short of expectations. The inconvenience and costs associated with operating under both Italian and U.S. regulations, necessitated a repatriation. Quantech Ltd. was formed under the laws of Minnesota for the purpose of effecting the change of domicile of SDS from Italy to the state of Minnesota through a merger with SDS on April 14, 1993. Quantech had no operations prior to the merger. SDI's changed its name to Quantech Ltd. primarily to avoid confusion with other medical companies. Since that time, the Company has financed its efforts through a series of private placements of securities. MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company are as follows: Name Age Position R. H. Joseph Shaw 50 President, Chief Executive Officer and Chairman of the Board Robert R. McKiel, Ph.D. 53 Executive Vice President- Research and Development and Director Gregory G. Freitag 34 Chief Financial Officer, Vice President of Corporate Development, and Secretary. James F. Lyons 64 Director Richard W. Perkins 64 Director Edward E. Strickland 67 Director R. H. JOSEPH SHAW has been President, Chief Executive Officer and Chairman of the Board of the Company and its predecessor entities since their inception. Mr. Shaw is an honors science graduate with postgraduate work in the area of medical science. He has taught at McMaster University and Simon Fraser University in Canada, has served on the Le Dain Royal Commission investigating the nonmedical use of drugs and was a guest speaker to the U.S. Senate Committee on Small Business. He has an extensive background in the medical industry and in 1971 started his career with McNeil Laboratories, Ltd., a subsidiary of Johnson & Johnson ("J&J") in the position of Manager of Scientific Affairs. In that capacity he monitored clinical programs and interfaced with the Canadian equivalent of the FDA. Subsequently, he served as Canadian General Manager of another J&J company. In 1973, Mr. Shaw joined K-Vet/KVL, a privately owned medical company, as Executive Vice President, in which capacity he was responsible for all aspects of the corporate organization. In 1978, Mr. Shaw purchased the Human Diagnostics Division from this group, which he renamed Cathra International ("Cathra"). Mr. Shaw remained with Cathra as President until it was sold in 1985 and coordinated the integration of Cathra and the purchaser's medical groups into a single operating entity, MCT Medical, Inc. Mr. Shaw was the President of MCT Medical, Inc. through April 1987. From April 1987 until joining the Company, Mr. Shaw was Vice President and head of diagnostics of Quadra Logic Technologies, Inc., a company listed on NASDAQ and the Toronto Stock Exchange. Mr. Shaw has extensive experience in both national and international markets and has managed the scientific and commercial development of a number of diagnostic products. He also has experience in establishing and managing strategic alliances in Canada, the United States, Japan and Europe. ROBERT R. MCKIEL, PH.D., has been Executive Vice President-Research and Development since 1992 and a director since May 1995. From 1984 to 1987, Dr. McKiel served as Vice President of Amersham International, a large medical company based in the United Kingdom. From 1987 until joining the Company he served as a consultant to various companies in the medical diagnostics industry, including Ares-Serono and Boehringer Mannheim Corporation. In that capacity, he has been involved in a variety of projects including the design of a clinical immunochemistry analyzer, implementation of a GMP (Good Manufacturing Practices) program for a clinical device manufacturer and a redesign of a pharmaceutical quality control program. He earned his baccalaureate degree in organic chemistry at the University of Notre Dame and a doctorate in biological chemistry at the University of Illinois. After completion of his post-doctoral residency in clinical chemistry at the University of Illinois Medical Center, he joined the Illinois Medical Center staff. From 1973 to 1979, he served as an assistant Director of the University of Illinois Hospital Laboratories and as head of Radioimmunoassay Laboratory, held various faculty appointments, and taught in the departments of Biological Chemistry and Pathology. In 1979, Dr. McKiel joined Amercham Corporation to establish a U.S. based technical support system for the company's products, and to enhance the Amerchan's effectiveness in the design and marketing of new products in the U.S. In 1984, he took on the additional responsibility of managing the marketing of clinical products. GREGORY G. FREITAG has been Chief Financial Officer, Vice President of Corporate Development and Secretary of the Company since December 1, 1995. From 1987 until joining the Company Mr. Freitag was a lawyer with the Minneapolis, Minnesota law firm of Fredrikson & Byron, P.A. As a shareholder with Fredrikson & Byron he practiced in the corporate, securities and merger and acquisition areas of law. Mr. Freitag has his J.D. and CPA, has served on securities advisory committees to the Minnesota Commissioner of Commerce and is included in the Minnesota Business Guide to Law & Leading Attorneys. JAMES F. LYONS has served as a director of the Company since September 7, 1995. From September 1983 through October 1994, when he retired, Mr. Lyons was Chief Executive Officer of Bio-Vascular, Inc., a cardiovascular medical products company. From 1978 through 1990, Mr. Lyons was President and Chief Executive Officer of BioMedicus, Inc., a cardiovascular medical products company. Mr. Lyons is also a Director and Chairman of the Board of AVECOR Cardiovascular Inc., and a director of ATS Medical, Inc., Bio-Vascular, Inc. and Spinetech, Inc. RICHARD W. PERKINS has been a director of the Company since September 7, 1995. Since 1985, Mr. Perkins has been President, Chief Executive Officer and a director of Perkins Capital Management, Inc., Wayzata, Minnesota. Prior thereto he was a Senior Vice President of Piper Jaffray Inc., Minneapolis, Minnesota. He is also a director of Bio-Vascular, Inc., Eagle Pacific Industries, Inc., Children's Broadcasting Corporation, Discus Acquisition Corp., Garment Graphics, Inc., Lifecore Biomedical, Inc., Nortech Systems, Inc., and CNS, Inc. EDWARD E. STRICKLAND has been a director of the Company since September 7, 1995. Mr. Strickland has been an independent financial consultant for more than seven years. From October 1990 to January 1991, he performed the duties of Chief Executive Officer while serving on the Executive Committee of the Board of Directors of Reuter, Inc. Mr. Strickland also serves as a director of Bio-Vascular, Inc., Hector Communications Corp., Communication Systems, Inc., and AVECOR Cardiovascular Inc. ELECTION OF OFFICERS AND DIRECTORS; COMMITTEES OF THE BOARD OF DIRECTORS Executive officers of the Company are elected by the Board of Directors on an annual basis and serve at the discretion of the Board of Directors. The Company's Board of Directors is divided into three classes with each class being elected for a term of three years after their initial term is completed. The Company's directors hold office until their term has expired and their successors have been elected and qualified. John G. Kinnard and Company, Incorporated ("JGK"), the Company's investment banker, has the option to nominate two directors who are not a director, officer, partner, employee or affiliate of JGK. Messrs. Strickland and Lyons are such designees. JGK's right to appoint such directors terminates on the earlier of September 22, 2000 or the closing of a Company public offering of securities in excess of $10 million. See "Plan of Distribution - The Agent and the Agency Agreement." The Company's Board of Directors has established two committees. The Audit Committee has the responsibility of selecting Quantech's independent auditors and communicating with such auditors on matters of auditing and accounting. The Audit Committee is comprised of directors Perkins, Lyons and Strickland with Mr. Strickland as Chairman. The Compensation Committee has the responsibility of reviewing on an annual basis all officer compensation and administering any employee options and plans related thereto. The Compensation Committee is also comprised of directors Perkins, Lyons and Strickland with Mr. Lyons as Chairman. SCIENTIFIC ADVISORY BOARD The Company has established a Scientific Advisory Board comprised of persons knowledgeable in the area of biosensors, SPR and medical products who can provide insight into the direction of the Company and its technology. The Company provided each advisor in April 1996 an option to purchase 50,000 shares of Company Common Stock at $.60 per share and reimburses them for out-of-pocket expenses. The persons on the advisory board are as follows: DR. MICHAEL FLANAGAN is a Professor of Bioelectronics at University College London. Dr. Flanagan has served as a consultant to numerous companies investigating the commercial application of biosensors. He is a world recognized expert in the area of optical sensors. Dr. Flanagan received his B.S. and Ph.D. degrees from the University of Sheffield, England. His thesis work was in the area of mapping of protein. DR. JOHN G. HURRELL, is Vice President of Diagnostic Technology for Genzyme Corp. Previously he was Senior Vice President, R&D Operations for Boehringer Mannheim and was responsible for the successful development and launch of the two leading self-blood glucose monitoring systems, Accu Check Easy and Accu Check Advantage, as well as the Coagu Check coagulation product presently available in Europe. Dr. Hurrell was Worldwide Technical Director for Serono Diagnostics, Waking, England, before joining Boehringer Mannheim. With Serono Diagnostics, he directed immunoassay systems and optical biosensor development. Dr. Hurrell was with the founding management team at Allelix, a diversified biotechnology company in Toronto, Canada, where he cofounded ADI Diagnostics Inc. An Australian by birth, Dr. Hurrell received his Ph.D. from the University of Melbourne and was a Fulbright Fellow at Harvard Medical School in the Cardiac Unit of Massachusetts General Hospital. Dr. Hurrell's research interests cover biosensor, protein engineering and new diagnostic methods. binding sites using fluorescent probes. DR. JOSEPH P. LEVERONE is a partner in Central Regional Pathology Laboratories, P.A., an independent pathology practice which provides anatomic and clinical pathology services to twelve urban and rural hospitals in Minnesota and Wisconsin as well as several medical clinics. Dr. Leverone has been in the practice of pathology since 1976. He received his M.D. degree from the University of Minnesota and received his specialty training at Los Angeles County - USC Medical Center in Los Angeles and St. Paul-Ramsey Medical Center in St. Paul, Minnesota. Dr. Leverone has served on several committees and task forces of the College of American Pathologists and has been an inspector in the CAP's Laboratory Accreditation Program since 1979. DR. ROGER C. LUCAS is Vice Chairman of Techne Corporation, parent company to Research & Development Systems, Inc. and the Chief Scientific Advisor to its Board of Directors. Prior to co-founding R&D Systems in 1980, Dr. Lucas was an Assistant Professor in the Department of Biochemistry in the medical and graduate schools of the State University of New York in Brooklyn. Dr. Lucas has published more than one dozen recent articles in the field of immune system response modifiers. He established a diagnostic group at R&D Systems to detect these molecules in blood. These diagnostic assays now dominate their segment of the marketplace. As both a National Institutes of Health and Muscular Dystrophy Association Post-doctoral Fellow, he has performed extensive work on the troponins and myosin light chains. His interests include molecular biology, genetic engineering and the use of nucleic acid probes to diagnose genetic disorders. JON K. NISPER is Manager of Optical Technology for Donnelly Corp. where he developed and patented a method for injection molding nanostructures and diffractive optical elements. He is responsible for managing technical aspects including optical design and engineering. He previously worked as a Principal Optical Engineer for Martin Marietta Corp. While there he held top secret compartmentalized clearance and was responsible for design, analysis, and fabrication of supersonic sensor window technology and frequency selective surfaces. He also worked as a member of the technical staff for the Rocketdyne Division of Rockwell International, where he was responsible for High Energy Excimer Laser Development and Analysis. He received his B.S. in Electrical Engineering from the University of Michigan in 1984. Since graduation, he has continued course work in electro-magnetics and optics at California Institute of Technology and University of Central Florida. KEMAL SCHANKERELI is presently Vice President of Research and Development for Bio-Vascular, Inc., a manufacturer of long term implantable disposable medical devices. His previous work background includes that of Manager of Research and Development for St. Jude Medical, Senior Scientist for Meadox Medical and Machida Medical, and as polymer chemist for GAF Corporation. Mr. Schankereli's primary area of expertise resides in material characterization, development of coatings, and the development of biomedical devices intended for cardiovascular applications. DR. LAWRENCE WEAVER is a past director of Quantech. From 1953 through 1959, he was in Research and Administration for Pitman-Moore Co., Division of Allied Laboratories and from 1959 through 1966, for Pitman-Moore Co., Division of Dow Chemical Co. From 1966 through 1984, he served as Dean and Professor of Pharmacology, College of Pharmacy, University of Minnesota. He has served as Vice President, Pharmaceutical Manufacturers Association and is presently Dean of the College of Pharmacy, University of Minnesota. Dr. Weaver served on the Board of Directors of Fuller Laboratories at the time it was merged into Parke-Davis Co., and on the Board of Directors for Rowell Laboratories when it was merged into Reid-Provident. COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth, the cash and noncash for each of the last three fiscal years awarded to or earned by the Chief Executive Officer of the Company and to all executive officers whose compensation exceeded $100,000 for such fiscal year. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ------------------- ---------------- AWARDS ---------------- OTHER ANNUAL SECURITIES ALL OTHER NAME AND FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION PRINCIPAL POSITION YEAR ($) ($) DOLLARS OPTIONS (#) ($) ------------------ ------ ------ ----- ------------ ----------- ------------ R.H. Joseph Shaw 1995 $150,000 -- $7,800 0 0 Chief Executive 1994 $150,000 -- $7,800 0 0 Officer 1993 $ 50,000(1) -- $7,800 0 0
- --------------------- (1) During this period, the Company changed its fiscal year from December 31 to June 30 and the salary is reflective of the 6-month period ended June 30, 1993. The Company does not currently compensate its directors. The Company has, however, granted options to its directors from time to time. Additional directors' options may be granted in the future to attract and retain qualified personnel to its Board of Directors. The Company's officers are appointed by, and serve at the discretion of, its Board of Directors. See "Risk Factors - Dependence on Key Personnel; Need for Skilled Personnel." The following table shows, as to the individuals named in the Summary Compensation Table, information concerning stock options granted during the year ended June 30, 1995. OPTION GRANTS IN FISCAL 1995
INDIVIDUAL GRANTS ----------------- NUMBER OF SECURITIES % OF TOTAL UNDERLYING OPTIONS OPTIONS GRANTED TO EXERCISE GRANTED EMPLOYEES PRICE EXPIRATION (#)(1) IN 1995 ($/SHARE) DATE ------ ------- --------- ---------- R.H. Joseph Shaw 1,246,262 53.6% .25 5/15/2000
- -------------------- (1) Options indicated vest and become exerciseable over a one year period from the date of grant. The following table sets forth, for each of the executive officers named in the Summary Compensation Table above, the year-end value of unexercised options. OPTION EXERCISES AND VALUE OF OPTIONS AT END OF FISCAL 1995
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED SHARES OPTIONS AT IN-THE-MONEY OPTIONS ACQUIRED END OF FISCAL 1995 AT END OF FISCAL 1995 (1) ON VALUE -------------------------------- -------------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- -------- -------- ----------- ------------- ----------- ------------- R.H. Joseph Shaw -- N/A 623,131 623,131 $0 $0
- ------------------------ (1) Value based on market value of the Company's Common Stock on August 1, 1995 less the exercise price. EMPLOYMENT AGREEMENTS In May 1995, the Company entered into three-year employment agreements with Messrs. Shaw and McKiel and in December of 1995 entered into a two year employment agreement with Mr. Freitag (the "Employment Agreements"), which provide for annual base salaries of $150,000, $110,000 (subsequently raised to $125,000) and $125,000, respectively, and further provide that Messrs. Shaw, McKiel and Freitag are entitled to certain severance benefits in the event that their employment is terminated by the Company "without cause" or by such executive following a "change of control" (both as defined in the Employment Agreements). In such cases, the executive would receive, in a lump sum payment at termination, the greater of (i) the salary such executive would have received for the remaining term of the Employment Agreement, or (ii) one year's salary with respect to Messrs. Shaw and McKiel and two year's salary and bonus with respect to Mr. Freitag following notice of termination. Each of the Employment Agreements contains a covenant not to compete with the Company for twelve months following termination, in the event of their termination by the Company "without cause" or at their election upon a "change of control." Finally, Mr. Shaw is provided an automobile allowance. STOCK OPTION PLAN The Company to date has provided employees, directors and scientific advisory members nonqualified stock options and warrants for the purchase of up to 5,667,103 shares of Common Stock ranging in exercise prices from $.25 to $.60, except for 60,000 options granted at an exercise price of $1.31 per share. It is expected that the Company at its next annual shareholders meeting will submit for approval a formal employee stock option plan under which future options will be granted. The Company will determine the number of shares to be reserved under such Option Plan at such time as the Compensation Committee of the Board of Directors takes action to establish it. LIMITATION OF LIABILITY AND INDEMNIFICATION The Company's Articles of Incorporation, as amended, limit the liability of directors in their capacity as directors to the Company or its shareholders to the full extent permitted by Minnesota law. The Articles provide that a director shall not be liable to the Company or its shareholders for monetary damages for breach of fiduciary duty as a director, except (i) for any breach of the director's duty of loyalty to the Company or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for dividends, stock repurchases and other distributions made in violation of Minnesota law or for violations of the Minnesota securities laws, (iv) for any transaction from which the director derived an improper personal benefit or (v) for any act or omission occurring prior to the effective date of the provision in the Company's Articles of Incorporation, as amended, limiting such liability. These provisions do not affect the availability of equitable remedies, such as an action to enjoin or rescind a transaction involving a breach of fiduciary duty, although, as a practical matter, equitable relief may not be available. The above provisions also do not limit liability of the directors for violations of, or relieve them from the necessity of complying with, the federal securities law. The Articles of Incorporation of the Company, as amended, also provide that the Company will exercise, to the extent permitted by law, its power of indemnification, and that the foregoing right of indemnification shall not be exclusive of other rights to which a person shall be entitled as a matter of law. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. CERTAIN TRANSACTIONS The Company entered into a Consulting Agreement with Weems E. Estelle, a former director and Chairman of the Board of the Company, in September 1993 and amended the Agreement in May 1995. Under the terms of the amendment, Mr. Estelle agreed to reduce the cumulative amount of fees owing to him for consulting services from $213,000 in exchange for $20,000 in cash and 560,000 shares of the Company's Common Stock valued at $.125 per share ($70,000). R. H. Joseph Shaw and Robert McKiel, officers and directors of the Company, from time to time over the last three years have either been indebted to the Company for funds advanced pursuant to authorization by the Board of Directors or owed money by the Company for services rendered by them which the Company was unable to pay on a current basis. At the present time, the Company is not indebted to such persons and does not intend to be in the future. Mr. Shaw is indebted to the Company in the approximate amount of $4,500. The Company has authorized 60,000,000 shares of its Common Stock. As of the date of this Prospectus the Company had 46,900,759 shares of Common Stock outstanding and 15,768,103 shares issuable upon the exercise of options and warrants. Because the total number of shares outstanding and issuable upon exercise of options and warrants exceeds the Company's authorized shares by 2,418,862 shares, Messrs. Freitag, Perkins, Strickland and Lyons have agreed to amend their stock options for the purchase of up to 500,000 shares each and Mr. Shaw his warrant for up to 346,262 shares to provide that they are not exercisable for such number of shares until the shareholders of the Company approve an increase in the aggregate number of authorized shares of Company Common Stock. All future transactions with directors, officers or shareholders holding more than 5% of Quantech's outstanding Common Stock, or affiliates of any such persons, including loans to such persons, will be approved by a disinterested majority of Quantech's directors. PRINCIPAL AND SELLING SHAREHOLDERS Set forth below are the names of: (a) persons who are known to own more than 5% of the Company's Common Stock; (b) each executive officer named in the Summary Compensation table; (c) each director of the Company; (d) all directors and executive officers as a group; and (e) Selling Shareholders. The following table sets forth as of the date of the Prospectus beneficially owned shares which include any shares that may be acquired within 60 days of the date of this Prospectus upon exercise of options or warrants, the number of Shares offered hereby and the percentage of the outstanding Common Stock to be owned if all of the Shares registered hereunder are sold by the Selling Shareholders.
NUMBER OF SHARES % OF BENEFICIALLY OWNED NO. SHARES -------------------------------- SHARES OWNED WARRANT OFFERED AFTER NAME SHARES SHARES HEREBY OFFERING - --------------------------------------------------- --------- -------- -------- -------- Ted & Mary Adams 25,000 25,000 * Theodore P. Adams 40,000 10,000 50,000 * American Heritage Fund 250,000 250,000 * Gerald L. Anderson 25,000 25,000 * Roy Anderson Jr. 200,000 50,000 250,000 * Roy Anderson III 200,000 50,000 250,000 * Gregory & Ann Anklam 40,000 10,000 50,000 * Menesa Anstalt 50,000 50,000 * Meleah T. & David M. Arnold 400,000 100,000 500,000 * J. Marc Ashton 40,000 10,000 50,000 * Atwell & Co. 928,000 928,000 * Larry Auriana 598,000 598,000 * Bernard C. Baier 50,000 50,000 * John G. Ballenger 200,000 50,000 250,000 * Bank Heusser & Co. LTD 400,000 100,000 500,000 * W. William & Colette M. Bednarczyk 125,000 125,000 * Richard T. Bennett 50,000 50,000 * Denis Berger 250,000 250,000 * Les Biller 454,704 454,704 * Nicolas C. Bluhm 360,000 115,000 475,000 * Jeffrey A. & Brenda L. Bowen 50,000 50,000 * Donald A. Brattain 450,000 50,000 500,000 * Courtney W. Brown 210,664 10,000 220,664 * Paul R. Braun 33,335 33,335 * Richard M. Brown 25,000 25,000 * Ralph D. Burgess Jr. 50,000 50,000 * Timothy H. Burton 50,000 50,000 * Anthony Carideo 40,000 10,000 50,000 * Fred & Wendy Caslavka 10,000 10,000 * Joseph B. Catarious 200,000 50,000 250,000 * James A. Chapman 30,000 30,000 * Walter L. Chapman 54,264 54,264 * Lee S. Chapman 538,000 25,000 235,000 0.7% Martin Chelstrom 10,000 10,000 * Christianson Investment Co. LP 500,000 100,000 600,000 * Ann M. Christianson 19,750 4,937 24,687 * Lynn A. Christianson 19,750 4,937 24,687 * Warren G. Christianson 800,036 120,378 920,414 * Warren T. A. Christianson 19,750 4,937 24,687 * Dual B. & Adelle Cooper 10,000 10,000 * Dave Cowley Pension Trust 50,000 50,000 * Thomas A. Cullinan 25,000 25,000 * Francisco E. dela Rosa Jr. 17,000 17,000 * Robert W. & Rita M. deWerd 48,000 12,000 60,000 * Glenn Diamond 1,115,037 600,000 1,715,037 * Robert Diamond 227,200 227,200 * Michael H. Diemer 50,000 50,000 * John P. & Emily W. Dirksen 80,000 20,000 100,000 * Arthur T. Donaldson 25,000 25,000 * DRAFTCO 200,000 50,000 250,000 * Neil Durhman 200,000 200,000 * Paul Ehlen 36,670 5,000 41,670 * Stanley G. & Carol R. Eilers 958,000 190,000 790,000 * Engelkes-Abels Funeral Home Inc. 80,000 20,000 100,000 * W. Bruce Erickson 167,464 167,464 * James E. Ernst 17,500 17,500 * Weems Estelle 560,000 450,000 1,010,000 * Robert J. Evans 40,000 10,000 50,000 * Harvey Feldman 25,000 25,000 * Lee Felicetta 40,000 10,000 50,000 * Mary Jane Fleming 84,268 84,268 * Founding Partners Limited Partnership II 200,000 200,000 * Carol M. Freeman 19,750 4,937 24,687 * Gregory G.Freitag 505,500(1) 100,000 100,000 1.1% Robert D. Furst Jr. 289,800 289,800 * James M. Gahlon 80,000 80,000 * James Gahlon 92,008 92,008 * Robert W. Jr. & Patricia T. Gaines 100,000 100,000 * Robert D. Gearou 50,000 50,000 * Robert L. Gearou 250,000 62,500 312,500 * Thomas W. Gearou 250,000 50,000 300,000 * Marvin A. Ginsburg 40,000 10,000 50,000 * Michael J. Glass 16,670 16,670 * Ronald L. Glassman 50,000 50,000 * Glymar Inc. 40,000 10,000 50,000 * David S. Goldsteen 3,025,056 3,025,056 * Mark Goldsteen 400,000 100,000 500,000 * Franklin N. Groves IRA 25,000 25,000 * Gummow Investments 50,000 50,000 * Troy Gummow 50,000 50,000 * Warren Guy & Lonnie K. Gummow 50,000 50,000 * H. Eugene Hall 52,232 40,000 * James W. Hansen 50,000 50,000 * Thomas Harkness 100,000 50,000 150,000 * Craig Hartsburg 25,000 25,000 * Bill R. Hay 80,000 15,000 95,000 * Timothy Heaney 20,000 5,000 25,000 * Timothy Heaney IRA 8,335 8,335 * Heartland Limited Partnership I 750,000 750,000 * Thomas Craig Hense 50,000 50,000 * Julie A. Higgins 19,750 4,937 24,687 * George Holbrook 454,672 454,672 * Bruce Hubbard 32,000 8,000 40,000 * Richard G. & Diane L. Hubers 20,000 20,000 * H. K. Financial Corp 1,420,664 100,000 924,000 1.3% Hynan Real Estate Partnership 25,000 25,000 * Industricorp & Co. Inc. 127,600 44,400 172,000 * Intermed Anstalt 275,000 50,000 325,000 * Charles A. Jacob 20,000 20,000 * Stanley J. Johnson 250,000 75,000 325,000 * Theodore Johnson 100,000 25,000 125,000 * Wesley E. Johnson Jr. 65,000 10,000 75,000 * James C. Jordan 25,000 25,000 * E. Elmer &E. Joyce Jutila 40,000 10,000 50,000 * Jon E. Jutila 40,000 10,000 50,000 * Nasser J. Kazeminy 85,000 85,000 * Bernard M. S. Kegan 40,000 10,000 50,000 * Kessler Ashler Group Limited Partnership 800,000 200,000 1,000,000 * Kurt King DDS, IRA 100,000 25,000 125,000 * Steven G. King 100,000 25,000 125,000 * John G. Kinnard & Company Inc. 3,078,500 3,078,500 * Brandon Koress 116,670 25,000 141,670 * Mitchell Krieger 175,000 37,500 212,500 * David J. & Kathryn J. Kruskopf 40,000 10,000 50,000 * Martin Lackner 116,670 25,000 141,670 * Lakewood Ortho Clinic-Mark Mills 40,000 10,000 50,000 * Dennis J. LaValle 1,084,345 175,000 886,345 0.8% Bruce A. Lawin 40,000 10,000 50,000 * Thomas F. Leahy 100,000 100,000 * Frank Lee 92,800 92,800 * Cheri E. Lefebvre 10,000 10,000 * Donald S. & Mary A.Leonard 84,264 84,264 * Peter Lerner 460,000 460,000 * Lopresti Gabbay & Associates Inc. 400,000 400,000 * C. S. Lozinski 60,000 15,000 75,000 * Roger Lucas 100,000 25,000 125,000 * Wayne K. Lund 792,000 150,000 590,000 * James F. Lyons 750,000(2) 50,000 300,000 1.1% James F. Lyons & Eleanor Lyons 50,000 50,000 * Plato Mavroulis 100,000 25,000 125,000 * Lyle H. Maschoff 25,000 25,000 * Kenneth Maus 50,000 50,000 * Victor Mavar 100,000 25,000 125,000 * Adolfo M. Maglaya 22,120 16,000 * Trustees of Adolfo Maglaya Profit Sharing Trust 33,762 24,000 * David Metz 50,000 12,500 62,500 * Robert T. Montague 100,808 100,808 * Joseph Mooibroek 60,000 15,000 75,000 * Sheliah Mulvaney 16,665 16,665 * James S. Murphy 80,000 20,000 100,000 * Michael Nagel 22,898 22,898 * Andrea McCallister O'Connell 127,664 12,500 140,164 * Robert R. McKiel 881,330(3) 1.8% H. Vincent O'Connell 345,864 32,500 378,364 * Steve O'Hara 40,000 10,000 50,000 * Okabena Partnership K 2,765,328 2,765,328 * Jay Osman 5,000 5,000 * John & Delores Owensby 340,000 90,000 430,000 * Deming L. Payne 260,000 90,000 350,000 * Richard W. Perkins 800,000(4) 50,000 350,000 0.9% Jeff Peterson 41,864 41,864 * Patrick Peyton 16,744 16,744 * Thomas J. Pierce 40,000 10,000 50,000 * William W. Prain 100,000 25,000 125,000 * Charlie H. Pulley 342,000 75,000 417,000 * Arthur Querfeld 40,000 40,000 * Mary J. Rasley 19,750 4,937 24,687 * Willard Charles Rehbein 400,000 150,000 550,000 * Victor P. Reim 50,000 50,000 * Ben Reuben 25,000 25,000 * Kenneth S. Roberts 50,000 50,000 * Richard Rog 25,000 25,000 * Douglas Schmid 25,000 25,000 * Robert A. & Lois R. Schmiege 100,000 37,500 137,500 * Schneider Securities Inc. 17,500 17,500 * Thomas J. Schrade 100,000 100,000 * James R. Schroeder 25,000 25,000 * John P. & Gloria E. Schweich 50,000 12,500 62,500 * Sekhavat Ltd. Partnership 560,000 190,000 750,000 * Byron G. Shaffer 335,000 335,000 * R.H. Joseph Shaw 1,470,242(5) 3.1% Gerald J. Shink 50,000 50,000 * Patrick M. Sidders 72,136 5,000 77,136 * Ronald & Catherine M. Silver 50,000 50,000 * Terryl Sinko 50,000 50,000 * Six C's Investment Corporation 300,000 100,000 400,000 * Soldier Creek Family Limited Partnership 2,200,000 2,200,000 * Jeannette A. & John E. Slaughter 25,000 25,000 * Allan P. Steffes 100,000 25,000 125,000 * Thomas E. Steinhaus 50,000 50,000 * Ross Strehlow 20,000 20,000 * Edward E. Strickland 800,000(6) 50,000 350,000 0.9% Douglas V. & Kathleen L. Swanson 25,000 25,000 * William R. & Catherine A. Swanson 40,000 10,000 50,000 * Curtis R. Swenson 25,000 25,000 * James W. Swenson 200,400 50,100 250,500 * James E. Tarr 25,000 25,000 * David M. & Susan M. Thymian 508,000 50,500 202,500 * Elizabeth J. Tonne 50,000 50,000 * John M. Tonne 50,000 50,000 * Larry & Gayla Torguson 40,000 10,000 50,000 * Marlin F. Torguson 1,000,000 275,000 1,275,000 * Ben Trainer 255,000 75,000 330,000 * Charles E. Underbrink 325,000 125,000 450,000 * Greg & Patricia Vogelpohl 35,000 35,000 * Randall S.& Nancy Brostrom Vollertdon 17,500 17,500 * Chris Warren 100,000 100,000 * Larry Weaver 5,861 250,000 250,000 * George Vitalis 61,000 250,000 250,000 * Paul Walker 25,000 25,000 * Willard Weikle 45,000 45,000 * Kevin E. & Delana S. Were 17,000 17,000 * Donald Westrup 272,328 250,000 * Dr. Henry & Dr. Carolyn Wiggins 248,302 220,000 * Frank W. Worms 85,000 85,000 * Jeff M Zalasky 310,024 310,024 * Alvin Zelickson 50,000 12,500 62,500 * Richard J. Zentgraf 50,000 50,000 * All directors and executive officers as a Group (6 persons) 5,257,072(7) 250,000 1,150,000 8.0%
* Less than 0.5%. (1) Includes 500,000 shares issuable upon exercise of options. (2) Includes 500,000 shares issuable upon exercise of options. (3) Includes 830,841 shares issuable upon exercise of warrants. (4) Includes 500,000 shares issuable upon exercise of options (5) Includes 1,246,262 shares issuable upon exercise of warrants and 37,000 shares held by Mr. Shaw's wife. Also includes 150,980 shares held by Spectrum Diagnostics, Inc., of which company Mr. Shaw is an officer and director, but not a shareholder, and by such position has voting and dispositive power over such shares. (6) Includes 500,000 shares issuable upon exercise of options. (7) Includes 4,077,103 shares issuable upon exercise of options and warrants. Also includes 150,980 shares held by Spectrum Diagnostics, Inc. referenced in note 5 above. The address of each executive officer and director of the Company is 1419 Energy Park Drive, St. Paul, Minnesota, 55108. DESCRIPTION OF SECURITIES The following description of the Company's capital stock is qualified in its entirety by reference to the Company's Articles of Incorporation, as amended, its Bylaws, and the Minnesota Business Corporation Act (the "MBCA"). GENERAL The Company's Articles of Incorporation authorize the issuance of up to 60 million shares of Common Stock, par value $0.01 per share. None of the holders of any class or series of the Company's capital stock have preemptive rights or a right to cumulative voting. COMMON STOCK As of the date of this Memorandum, there were 46,900,759 shares of the Company's Common Stock issued and outstanding. The Board of Directors may issue additional shares of Common Stock without the consent of the holders of Common Stock. Each outstanding share of Common Stock is entitled to one vote except as may be otherwise required under the terms of the MBCA. All outstanding shares of Common Stock are fully paid and non-assessable. Holders of Common Stock are entitled to receive such dividends as may be declared by the directors out of funds legally available therefor, and to share pro rata in any distributions to holders of Common Stock upon liquidation or otherwise. However, the Company has not paid cash dividends on its Common Stock, and does not expect to pay such dividends in the foreseeable future. Under the provisions of the MBCA, which governs the actions of the Company, an amendment to the Articles of Incorporation of the Company generally may be adopted by the affirmative vote of the holders of a majority of the voting power of the shares present and entitled to vote at a shareholders' meeting at which an amendment is proposed. Under the statute, a majority of the voting power of the shares entitled to vote at a meeting is generally a quorum for the transaction of business. Accordingly, it is possible that the affirmative vote of shares in excess of 25 percent of the outstanding shares could authorize an amendment to the Company's Articles of Incorporation. Under the Statute, the affirmative vote of the holders of a majority of the voting power of all shares entitled to vote is necessary to approve a plan of merger, a plan of exchange, a sale of all or substantially all of the assets of the Company, or its dissolution. OPTIONS AND WARRANTS The Company has granted options and warrants to purchase up to 15,768,103 shares of Common Stock to officers, directors, scientific advisors, consultants, investors, and financial advisors at exercise prices ranging from $.125 to $1.31 per share. CONTROL SHARE ACQUISITION ACT Section 302A.671 of the MBCA applies to any acquisition of Common Stock of the Company (from a person other than the Company, and other than in connection with certain mergers and exchanges to which the Company is a party) resulting in beneficial ownership (including the power to vote and direct disposition) of 20% or more of the Common Stock then outstanding. Section 302A.671 requires a majority vote of approval of any such acquisition by the shareholders of the Company prior to its consummation. In general, shares acquired in the absence of such approval are denied voting rights and are redeemable by the Company within 30 days after certain specified events at market value at the time of redemption. Furthermore, Section 302A.673 of the MBCA generally prohibits any business combination by the Company, or any subsidiary of the Company, with any interested shareholder of the Company within five years following the interested shareholder's share acquisition date, unless the business combination is approved by a committee of the Board of Directors of the Company before the interested shareholder's share acquisition date. These provisions under the MBCA may impede or deter unsolicited tender offers or takeover proposals with respect to the Company and may, therefore, adversely affect the value of the Company's shares. TRANSFER AGENT Norwest Bank Minnesota, N.A., St. Paul, Minnesota is the transfer agent for the Common Stock. SHARES ELIGIBLE FOR FUTURE SALE The Company has outstanding 46,900,759 shares of Common Stock. In addition, as of the date of this Prospectus, the Company has outstanding 15,768,103 shares reserved for issuance upon exercise of options and warrants. All of the Company's outstanding shares and 9,851,000 shares issuable upon exercise of warrants, when and if such warrants are exercised, will be freely tradable without restrictions or registration under the Securities Act, except that Officers and directors of the Company, who beneficially hold 5,507,072 shares of the Company's Common Stock, are subject to the restrictions of Rule 144 with respect to the sale of such shares. In general, under Rule 144 a person (or persons whose sales are aggregated) who beneficially owns shares acquired privately from the Company or an affiliate of the Company at least two years previously and an affiliate of the Company who beneficially owns shares acquired (whether or not such shares were acquired privately) from the Company or an affiliate of the Company at least two years previously, are entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding shares of the Company's Common Stock or the average weekly trading volume in the Company's Common Stock during the four calendar weeks preceding the filing of notice with the Commission in connection with such sale. Sales under Rule 144 are also subject to certain manner-of-sale provisions, notice requirements and the availability of current public information about the Company. A person who has not been an affiliate of the Company at any time during the three months preceding a sale and who beneficially owns shares acquired from the Company or an affiliate of the Company at least three years previously is entitled to sell all such shares under Rule 144 without regard to any of the limitations of the Rule. In addition, Rule 144A under the Securities Act, as currently in effect, in general, permits unlimited resales of certain restricted securities of any issuer provided that the purchaser is an institution that owns and invests on a discretionary basis at least $100 million in securities or is a registered broker-dealer that owns and invests $10 million in securities. Rule 144A allows the existing shareholders of the Company to sell their shares to such institutions and registered broker-dealers without regard to any volume or other restrictions. Unlike under Rule 144, restricted securities sold under Rule 144A to nonaffiliates do not lose their status as restricted securities. The Company cannot predict the effect, if any, that sales of the Shares offered hereby or pursuant to Rule 144 could have on the market price of the Company's Common Stock, if any, prevailing from time to time. Nevertheless, sales of substantial amounts of the Company's securities, including the securities offered hereby, could adversely affect prevailing market prices of the Company's securities and the Company's ability to raise additional capital by occurring at a time when it would be beneficial for the Company to sell securities. PLAN OF DISTRIBUTION All or a portion of the Shares offered by the Selling Shareholders hereby may be sold from time to time by the Selling shareholders or by pledgees, donees, transferees or other successors in interest. Such sales may be made in the over-the-counter market or otherwise at prices and at terms then prevailing or at prices related to the then current market price, or in negotiated transactions. The Shares may be sold by one or more of the following means: (a) ordinary brokerage or market making transactions and transactions in which the broker or dealer solicits purchasers; (b) block trades in which the broker or dealer so engaged will attempt to sell the Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; and (c) purchases by a broker or dealer as principal and resales by such broker or dealer for its account pursuant to this Prospectus. In effecting sales, brokers or dealers engaged by the Selling Shareholders may arrange for other brokers or dealers to participate. Brokers or dealers will receive commissions or discounts from the Selling Shareholders in amounts to be negotiated immediately prior to the sales. Such brokers or dealers and any other participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act of 1933, as amended, in connection with such sales. In addition, any securities covered by this Prospectus which qualify for sale pursuant to Rule 144 under the Act may be sold under Rule 144 rather than pursuant to this Prospectus. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Fredrikson & Byron, P.A. EXPERTS The financial statements of the Company as of June 30, 1995, and 1994, and for the years ended June 30, 1995, and 1994 and the period from September 30, 1991 (date of inception) to June 30, 1995, included herein and elsewhere in the Registration Statement, of which this Prospectus is a part, have been audited by McGladery & Pullen, L.L.P., independent certified public accountants, as set forth in their report thereon appearing elsewhere herein and in the Registration Statement, and are included herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION Prior to this Offering, the Company has been subject to the reporting requirements of the Securities Exchange Act of 1934. The Company has filed with the Washington, D.C. Office of the Commission a Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the sale of the Shares. This Prospectus does not contain all of the information set forth in the Registration Statement, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Shares, reference is made to the Registration Statement, including the exhibits thereto. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement. The Registration Statement may be inspected by anyone without charge at the principal office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, or at one of the Commission's regional offices: 500 West Madison, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor, New York, New York, 10048. Copies of all or any part of such material may be obtained upon payment of the prescribed fees from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. INDEX TO FINANCIAL STATEMENTS QUANTECH LTD.
Page ----- FINANCIAL STATEMENTS FOR THIRD QUARTER OF FISCAL YEARS 1996 AND 1995 (UNAUDITED) Balance Sheets as of March 31, 1996........................................................... F-1 Statement of Operations for the Nine Months Ended March 31, 1996 and 1995 and from inception to March 31, 1996................................................ F-2 Statement of Stockholders' Equity from inception to March 31, 1996............................ F-3 Statement of Cash Flows for the Nine Months ended March 31, 1996 and 1995 and from inception to March 31, 1996.................................................................. F-4 Notes to Financial Statements................................................................. F-5 FINANCIAL STATEMENTS FOR FISCAL YEARS 1995 AND 1994 Report of Independent Auditors................................................................ F-6 Balance Sheets as of June 30, 1995 and 1994................................................... F-7 Statements of Operations For the Period from Inception (September 30, 1991) through June 30, 1995 and for the Years Ended June 30, 1994 and 1995................................. F-9 Statements of Stockholders' Equity (Deficit) For the Period from Inception (September 30, 1991) through June 30, 1995 and for the Years Ended June 30, 1994 and 1995.... F-10 Statement of Cash Flows For the Period from Inception (September 30, 1991) through June 30, 1995 and for the Years Ended June 30, 1994 and 1995......................... F-14 Notes to Finical Statements................................................................... F-17
QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET (Unaudited) March 31, 1996 ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 167,117 Other current assets 38,261 ------------ 205,378 ------------ EQUIPMENT Equipment 237,136 Leasehold Improvements 15,000 ------------ 252,136 Less:accumulated depreciation (69,141) ------------ 182,995 OTHER ASSETS Deferred offering costs 0 License agreement, at cost, less amortization 2,376,278 Organization expenses, at cost, less amortization 8,462 ------------ 2,384,740 ------------ TOTAL ASSETS $ 2,773,113 ============ LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) CURRENT LIABILITIES Short term debt $ 28,872 Accounts Payable 144,937 Accrued Expenses: Minimum Royalty Commitment 18,750 Spectrum Diagnostics Inc. obligations 65,000 Other 17,500 ------------ Total Current Liabilites 275,059 ------------ STOCKHOLDERS EQUITY (DEFICIT) Common stock, $.01 par value; authorized 60,000,000 shares issued and outstanding 40,659,893 shares at March 31, 1996; and 6,840,000 at June 30, 1995 $ 406,599 Additional paid-in capital 11,997,692 Subscriptions receivable (20,000) Deficit accumulated during the development stage (9,886,237) ------------ Total Stockholders Equity 2,498,054 ------------ TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 2,773,113 ============ QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS-UNAUDITED
PERIOD FROM SEPTEMBER 30, 1991 NINE MONTHS NINE MONTHS (DATE 0F ENDED ENDED INCEPTION), TO MARCH 31, MARCH 31, MARCH 31, 1996 1995 1996 ------------ ------------ ------------ INTEREST INCOME $ 23,310 $ -- $ 71,199 ------------ ------------ ------------ EXPENSES: GENERAL & ADMINISTRATIVE 919,506 902,981 5,842,303 RESEARCH AND DEVELOPMENT 691,585 342,000 2,231,003 MINIMUM ROYALTY EXPENSE 106,250 131,250 868,750 LOSES RESULTING FROM TRANSACTIONS WITH SPECTRUM DIAGNOSTICS INC -- -- 556,150 NET EXCHANGE (GAIN) -- -- (67,172) FINANCING 106,329 147,677 483,807 ------------ ------------ ------------ 1,823,670 1,523,908 9,914,841 ------------ ------------ ------------ LOSS BEFORE INCOME TAXES (1,800,360) (1,523,908) (9,843,642) INCOME TAXES -- -- 42,595 ============ ============ ============ NET LOSS $ (1,800,360) $ (1,523,908) $ (9,886,237) ============ ============ ============ LOSS PER COMMON SHARE $ (0.07) $ (0.32) $ (1.23) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 25,793,027 4,690,000 8,036,465
QUANTECH LTD (A Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY-UNAUDITED Period From June 30, 1995 to March 31, 1996
Deficit Accumulated During Par Additional the Shares Value Paid-In Development Subscriptions Issued Amount Capital Stage Receivable ------------ ------------ ------------ ------------ ------------ Balance June 30, 1995 6,840,000 $ 68,400 $ 6,328,338 ($ 8,085,877) ($ 20,000) Common stock issued , Sept. 95 13,200,000 $ 132,000 $ 2,750,952 Debenture conversions including accrued interest to 9/30/95 7,484,896 $ 74,849 $ 1,085,647 Compensation expense recorded on stock option grants $ 125,000 Common stock issued Nov. 1995 1,897,840 $ 18,978 $ 415,482 Debenture conversions including accrued interest to 12/31/95 11,237,157 $ 112,372 $ 1,292,273 Net Loss ($ 1,800,360) ------------ ------------ ------------ ------------ ------------ Balance March 31, 1996 (Unaudited) 40,659,893 $ 406,599 $ 11,997,692 ($ 9,886,237) ($ 20,000) ============ ============ ============ ============ ============
QUANTECH LTD (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS - UNAUDITED
PERIOD FROM SEPTEMBER 30, NINE NINE 1991 MONTHS MONTHS (DATE OF ENDED ENDED INCEPTION), TO MARCH 31, MARCH 31, MARCH 31, 1996 1995 1996 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ (1,800,360) $ (1,523,908) $ (9,886,237) Adjustments to reconcile net loss to net cash used in operating activities: Elimination of cumulative translation adjustment -- -- (178,655) Depreciation 27,884 22,786 115,495 Amortization 179,195 179,195 1,068,548 Noncash compensation and interest 125,000 90,200 427,200 Losses resulting from transactions with Spectrum Diagnostics Inc. -- -- 556,150 Write down of investment -- -- 67,500 Change in assets and liabilities, net of effects from purchase of Spectrum Diagnostics Inc.: (Increase) decrease in prepaid expenses (1,039) (25,596) (38,261) Increase (decrease)in accounts payable (640,184) 261,964 143,382 Increase (decrease) in accrued expenses (536,784) 102,708 475,747 ------------ ------------ ------------ Net cash used in operating activities (2,646,288) (892,651) (7,249,131) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (156,789) (17,922) (291,519) Organization expenses -- -- (97,547) Officer advances -- -- (109,462) Purchase of investment -- -- (225,000) Purchase of license agreement -- -- (1,950,000) Advances to Spectrum Diagnostics, Inc. -- -- (320,297) Prepaid securities issuance costs -- -- (22,943) Purchase of Spectrum Diagnostics, Inc., net of cash -- -- -- and cash equivalents acquired -- -- (1,204,500) ------------ ------------ ------------ Net cash used in investing activities (156,789) (17,922) (4,221,268) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from the sale of common stock $ 3,312,952 $ -- $ 9,245,063 Proceeds on debt obligations -- 1,006,172 2,627,880 Payments on debt obligations (347,034) (59,863) (438,669) ------------ ------------ ------------ Net cash provided by financing activities 2,965,918 946,309 11,434,274 ------------ ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH -- -- 203,242 ------------ ------------ ------------ Net increase in cash 162,841 35,736 167,117 CASH Beginning 4,276 36,167 -- ------------ ------------ ------------ Ending $ 167,117 $ 71,903 $ 167,117 ============ ============ ============
QUANTECH LTD. (A Development Stage Company) NOTES TO UNAUDITED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION In the opinion of the management of the Company, the accompanying unaudited financial statements contain all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the financial position of the Company as of March 31, 1996 and the results of operations and its cash flows for the three-month and nine month periods ended March 31, 1996 and March 31, 1995. The results of operations for any interim period are not necessarily indicative of the results for the year. These interim financial statements should be read in conjunction with the Company's annual financial statements and related notes in the Company's Annual Report on Form 10-KSB for the year ended June 30, 1995. NOTE 2. DEBT CONVERSION The Holders of the 8% debentures due September 1995, totaling $977,500 plus accrued interest, converted these amounts to Common Stock at conversion prices ranging from $.125 to $.25 per share on September 30, 1995. In total, including accrued interest to September 30, 1995, these debentures were converted to 7,484,896 shares of Common Stock. The Holders of the notes due in March 1996, totaling $1,230,000 plus accrued interest, converted these amounts to Common Stock at a conversion price of $.125 per share on December 31, 1995. Principal and interest on these notes were converted into 11,237,157 shares of Common Stock. NOTE 3. PRIVATE PLACEMENT CLOSING In September 1995, the Company received $2,882,952 of net proceeds as a result of the completion of a private placement of the Company's Units at $1.00 per Unit. In November 1995, the Company received $430,000 of net proceeds from the sale of the Units at $1.00 per Unit. Each Unit consisted of four shares of Common Stock and a warrant to purchase one share of Common Stock. The Company used the proceeds from the offering for payment of bridge loans, including interest, royalty due under the license referenced in Note 4, accounts payable and accrued expenses, purchase of fixed assets and working capital. NOTE 4. LICENSE AGREEMENT The Company has a license agreement for certain patents, proprietary information and associated hardware related to SPR technology. The license calls for an ongoing royalty of 6 percent on all products utilizing the SPR technology which are sold by the Company. In addition, if the Company sublicenses the technology, the Company will pay a royalty of 15 percent of all revenues received by the Company under any sublicense (provided that, until July 1996, the sublicense payments shall be in an amount not less than 1/2 percent of the net sales of the products sublicensed). If the cumulative payments of these two royalties fail to reach at least $1,000,000 by December 31, 1997, the licensor has the right to deprive the Company of its exclusive rights under the license agreement. As of May 6, 1996 the Company has paid $850,000 in minimum royalties and will owe the balance of $150,000 on December 31, 1997. NOTE 5. SUBSEQUENT EVENT On May 3, 1996, the Company completed a private placement of its Common Stock at $.60 per share which provided approximately $3,350,000 of net proceeds. The Company intends to apply the proceeds of such offering, along with cash on hand, to expenses relating to product development, FDA submission, establishing sales and marketing and production capabilities (including capital expenditures) and to provide working capital. [MCGLADREY & PULLEN, LLP LETTERHEAD] INDEPENDENT AUDITOR'S REPORT To the Stockholders and the Board of Directors Quantech Ltd. St. Paul, Minnesota We have audited the accompanying balance sheets of Quantech Ltd. (A Development Stage Company) as of June 30, 1995 and 1994, and the related statements of operations, stockholders' equity (deficit) and cash flows for the years ended June 30, 1995 and 1994, and the period from September 30, 1991 (date of inception), to June 30, 1995. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 Quantech Ltd. (A Development Stage Company) as of June 30, 1995 and 1994, and the results of its operations and its cash flows for the years ended June 30, 1995 and 1994, and the period from September 30, 1991 (date of inception), to June 30, 1995, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is a development stage company which has suffered losses from operations, has negative working capital, requires additional financing and ultimately needs to successfully attain profitable operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ McGladrey & Pullen, LLP Minneapolis, Minnesota August 29, 1995 QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS JUNE 30, 1995 AND 1994
ASSETS (NOTE 3) 1995 1994 ---------- ---------- Current Assets Cash $ 4,276 $ 36,167 Prepaid expenses 37,222 7,166 ---------- ---------- TOTAL CURRENT ASSETS 41,498 43,333 ---------- ---------- Property and Equipment Equipment 87,347 64,494 Leasehold improvements 8,000 46,354 ---------- ---------- 95,347 110,848 Less accumulated depreciation 41,257 60,106 ---------- ---------- 54,090 50,742 ---------- ---------- Other Assets License agreement, at cost, less amortization (Note 4) 2,544,110 2,767,886 Organization expenses, at cost, less amortization 19,825 34,975 Deferred offering costs 76,437 -- ---------- ---------- 2,640,372 2,802,861 ---------- ---------- $2,735,960 $2,896,936 ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1995 1994 ----------- ----------- Current Liabilities Short-term debt (Note 3) $ 2,628,120 $ 150,084 Accounts payable 785,121 409,084 Accrued expenses: Minimum royalty commitment, current portion (Note 4) 562,500 400,000 Spectrum Diagnostics, Inc. obligations (Note 8) 65,000 120,000 Compensation 104,989 99,099 Interest 283,451 111,744 Other 15,918 58,700 ----------- ----------- TOTAL CURRENT LIABILITIES 4,445,099 1,348,711 ----------- ----------- Long-Term Obligations Long-term debt (Note 3) -- 1,387,340 Minimum royalty commitment (Note 4) -- 87,500 ----------- ----------- -- 1,474,840 ----------- ----------- Commitments and Contingencies (Notes 4, 5 and 8) Stockholders' Equity (Deficit) (Notes 2, 3 and 6) Common stock, no par value; authorized 30,000,000 shares; shares outstanding, 6,840,000 and 4,690,000 in 1995 and 1994, respectively 68,400 46,900 Additional paid-in capital 6,328,338 6,012,070 Paid for, but not issued -- 30,000 Subscriptions receivable (20,000) -- Deficit accumulated during the development stage (8,085,877) (6,015,585) ----------- ----------- (1,709,139) 73,385 ----------- ----------- $ 2,735,960 $ 2,896,936 =========== ===========
QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1995 AND 1994, AND PERIOD FROM SEPTEMBER 30, 1991 (DATE OF INCEPTION), TO JUNE 30, 1995
September 30, 1991 (Date of Years Ended June 30 Inception), to -------------------------- June 30, 1995 1994 1995 ----------- ----------- ----------- Interest income $ -- $ 314 $ 47,889 ----------- ----------- ----------- Expenses: General and administrative 1,193,285 1,119,295 4,922,797 Research and development 503,375 195,118 1,539,418 Minimum royalty expense (Note 4) 175,000 87,500 762,500 Losses resulting from transactions with Spectrum Diagnostics, Inc. (Note 8) -- 39,000 556,150 Net exchange gain -- -- (67,172) Financing 198,632 103,289 377,478 ----------- ----------- ----------- 2,070,292 1,544,202 8,091,171 ----------- ----------- ----------- LOSS BEFORE INCOME TAXES (2,070,292) (1,543,888) (8,043,282) Income taxes (Note 7) -- -- 42,595 ----------- ----------- ----------- NET LOSS $(2,070,292) $(1,543,888) $(8,085,877) =========== =========== =========== Loss per common share $ (.31) $ (.33) $ (1.82) =========== =========== =========== Weighted average common shares outstanding 6,786,986 4,690,000 4,452,570 =========== =========== ===========
See Notes to Financial Statements. QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) PERIOD FROM SEPTEMBER 30, 1991 (DATE OF INCEPTION), TO JUNE 30, 1995
Common Stock ------------------------- Additional Shares Par Value Paid-In Issued Amount Capital ----------- ----------- ----------- Balance, at inception -- $ -- $ -- Net loss -- -- -- Common stock transactions: Common stock issued, October 1991 3,200,000 3,154,574 -- Common stock issued, November 1991 600,000 611,746 1,788,254 Common stock issuance costs -- -- (889,849) Cumulative translation adjustment -- -- -- ----------- ----------- ----------- Balance, December 31, 1991 3,800,000 3,766,320 898,405 Net loss -- -- -- Common stock transactions: Common stock issued, September 1992 700,000 699,033 875,967 Common stock issuance costs -- -- (312,755) 160,000 shares of common stock to be issued -- -- -- Officer advances, net -- -- -- Cumulative translation adjustment -- -- -- Elimination of cumulative translation adjustment -- -- -- ----------- ----------- ----------- Balance, December 31, 1992 4,500,000 4,465,353 1,461,617 Net loss -- -- -- Common stock transactions: Common stock issued, January 1993 160,000 1,600 118,400 Common stock issued, April 1993 30,000 300 11,700 Change in common stock par value resulting from merger -- (4,420,353) 4,420,353 Repayments -- -- -- ----------- ----------- ----------- Balance, June 30, 1993 4,690,000 46,900 6,012,070 Net loss -- -- -- 240,000 shares of common stock to be issued -- -- -- Repayments -- -- -- ----------- ----------- -----------
(Continued) Deficit Accumulated Paid For, During the Cumulative But Not Subscriptions Due From Development Translation Issued Receivable Officers Stage Adjustment - ----------- ----------- ----------- ----------- ----------- $ -- $ -- $ -- $ -- $ -- -- -- -- (594,620) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 387,754 - ----------- ----------- ----------- ----------- ----------- -- -- -- (594,620) 387,754 -- -- -- (2,880,988) -- -- (53,689) -- -- -- -- -- -- -- -- 120,000 -- -- -- -- -- -- (27,433) -- -- -- -- -- -- (209,099) -- -- -- -- (178,655) - ----------- ----------- ----------- ----------- ----------- 120,000 (53,689) (27,433) (3,475,608) -- -- -- -- (996,089) -- (120,000) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 5,137 -- -- - ----------- ----------- ----------- ----------- ----------- -- (53,689) (22,296) (4,471,697) -- -- -- -- (1,543,888) -- 30,000 -- -- -- -- -- 53,689 22,296 -- -- - ----------- ----------- ----------- ----------- ----------- QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) PERIOD FROM SEPTEMBER 30, 1991 (DATE OF INCEPTION), TO JUNE 30, 1995 Common Stock ----------------------- Additional Shares Par Value Paid-In Issued Amount Capital ---------- ---------- ---------- Balance, June 30, 1994 4,690,000 46,900 6,012,070 Net loss -- -- -- Common stock issued, June 1995 2,150,000 21,500 276,068 Warrants issued for services -- -- 40,200 ---------- ---------- ---------- Balance, June 30, 1995 6,840,000 $ 68,400 $6,328,338 ========== ========== ========== See Notes to Financial Statements. Deficit Accumulated Paid For, During the Cumulative But Not Subscriptions Due From Development Translation Issued Receivable Officers Stage Adjustment - ----------- ----------- --------- ----------- --------- 30,000 -- -- (6,015,585) -- -- -- -- (2,070,292) -- (30,000) (20,000) -- -- -- -- -- -- -- -- - ----------- ----------- --------- ----------- --------- $ -- $ (20,000) $ -- $(8,085,877) $ -- =========== =========== ========= =========== ========= QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1995 AND 1994, AND PERIOD FROM SEPTEMBER 30, 1991 (DATE OF INCEPTION), TO JUNE 30, 1995
September 30, 1991 (Date of Years Ended June 30 Inception), to -------------------------- June 30, 1995 1994 1995 ----------- ----------- ----------- Cash Flows From Operating Activities Net loss $(2,070,292) $(1,543,888) $(8,085,877) Adjustments to reconcile net loss to net cash used in operating activities: Elimination of cumulative translation adjustment -- -- (178,655) Depreciation 27,505 36,316 87,611 Amortization 238,926 240,803 889,353 Noncash compensation and interest 90,200 80,000 302,200 Losses resulting from transactions with Spectrum Diagnostics, Inc. (Note 8) -- 39,000 556,150 Write-down of investment -- -- 67,500 Change in assets and liabilities, net of effects from purchase of Spectrum Diagnostics, Inc.: Increase in prepaid expenses (30,056) -- (37,222) Increase (decrease) in accounts payable 379,600 163,766 783,566 Increase (decrease) in accrued expenses 221,758 318,240 1,012,531 ----------- ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (1,142,359) (665,763) (4,602,843) ----------- ----------- ----------- Cash Flows From Investing Activities Purchase of property and equipment (30,853) (6,456) (134,730) Organization expenses -- -- (97,547) Officer advances, net -- (57,166) (109,462) Purchase of investment -- -- (225,000) Purchase of license agreement -- -- (1,950,000) Advances to Spectrum Diagnostics, Inc. -- -- (320,297) Prepaid securities issuance costs -- -- (22,943) Purchase of Spectrum Diagnostics, Inc., net of cash and cash equivalents acquired -- -- (1,204,500) ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (30,853) (63,622) (4,064,479) ----------- ----------- -----------
(Continued) QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED JUNE 30, 1995 AND 1994, AND PERIOD FROM SEPTEMBER 30, 1991 (DATE OF INCEPTION), TO JUNE 30, 1995
September 30, 1991 (Date of Years Ended June 30 Inception), to ------------------------- June 30, 1995 1994 1995 ----------- ----------- ----------- Cash Flows From Financing Activities Net proceeds from the sale of common stock -- -- 5,932,111 Proceeds on debt obligations 1,202,422 680,500 2,627,880 Payments on debt obligations (61,101) (7,422) (91,635) ----------- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,141,321 673,078 8,468,356 ----------- ----------- ----------- Effect of Exchange Rate Changes on Cash -- -- 203,242 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH (31,891) (56,307) 4,276 Cash Beginning 36,167 92,474 -- ----------- ----------- ----------- Ending $ 4,276 $ 36,167 $ 4,276 =========== =========== =========== Cash Payments for Interest $ 26,925 $ 2,809 $ 83,435 =========== =========== =========== Supplemental Schedule of Noncash Investing and Financing Activities Acquisition of Spectrum Diagnostics, Inc. (Note 8): Cash purchase price, less $5,199 cash acquired $ -- $ -- $ 1,204,500 =========== =========== =========== Fair value of other assets acquired, principally the license agreement $ -- $ -- $ 1,489,500 Liabilities assumed -- -- (285,000) ----------- ----------- ----------- $ -- $ -- $ 1,204,500 =========== =========== ===========
(Continued) QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (CONTINUED) YEARSENDED JUNE 30, 1995 AND 1994, AND PERIOD FROM SEPTEMBER 30, 1991 (DATE OF INCEPTION), TO JUNE 30, 1995
September 30, 1991 (Date of Years Ended June 30 Inception), to --------------------- June 30, 1995 1994 1995 --------- --------- --------- Supplemental Schedule of Noncash Investing and Financing Activities (Continued) Advances to Spectrum Diagnostics, Inc. (Note 8) $ -- $ -- $ 20,000 Prepaid security issuance costs (acquired from Spectrum Diagnostics, Inc.) ultimately used to reduce proceeds from the sale of common stock -- -- 58,830 Due from Ital-American Securities, Inc. -- -- (674,734) Stock issuance costs to be paid 76,437 -- 237,201 Subscriptions receivable offset by accrued compensation -- 53,689 53,689 Officer advances offset by accrued compensation -- 79,462 109,462 Issuance of debt obligation for services and accounts payable 40,000 50,000 90,000 Issuance of warrants for services 40,200 -- 40,200 ========= ========= ========= Common stock issued/to be issued for: Services and interest $ 50,000 $ 30,000 $ 212,000 Subscriptions receivable 20,000 -- 20,000 Debt obligations 90,625 -- 90,625 Accounts payable 40,000 -- 40,000 Accrued expenses 66,943 -- 66,943 --------- --------- --------- $ 267,568 $ 30,000 $ 429,568 ========= ========= =========
See Notes to Financial Statements. QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS: Quantech Ltd. (Quantech or the Company) was formed under the laws of Minnesota, for the purpose of effecting the change in domicile of Spectrum Diagnostics S.p.A (SDS) from Italy to the state of Minnesota through a merger with SDS on April 14, 1993. The merger has been accounted for as a pooling of interests and, accordingly, all prior financial statements include SDS. The Company's fiscal year end is June 30 and SDS' fiscal year end was December 31. The Company had no operations prior to the merger and is continuing the business of SDS to commercialize the Surface Plasmon Resonance (SPR) technology. Commercialization will consist of developing and introducing an instrument which will run various tests capable of diagnosing various human health conditions, and which the Company intends to market to the world medical diagnostic industry. The Company anticipates that it will grant trade credit to future customers on credit terms it establishes with individual customers. A summary of the Company's significant accounting policies follows: OTHER ASSETS: The license agreement is being amortized by the straight-line method over the remaining life of the related patents of 15 years (Note 4). Organization expenses are being amortized by the straight-line method over 5 years. The Company reviews its intangible assets quarterly to determine potential impairment by comparing the carrying value of the intangibles with expected future net cash flows provided by operating activities of the business. Should the sum of the expected future net cash flows be less than the carrying value, the Company would determine whether an impairment loss should be recognized. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the intangible. Fair value will be determined based on estimated expected future discounted cash flows. To date, management has determined that no impairment of intangible assets exists. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciation is computed by the straight-line method over five years. INCOME TAXES: Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. LOSS PER COMMON SHARE: Loss per common share is computed based upon the weighted average number of common shares outstanding during the period. Fully diluted and primary loss per common share are the same amounts for all periods presented. TRANSLATION OF FOREIGN CURRENCY STATEMENTS: Prior to September of 1992, the functional and reporting currency for SDS was the Italian lire. Concurrent with the receipt of net proceeds from its initial public offering of common stock in the United States in September 1992, and in connection with the phase out of its Italian operations, the functional and reporting currency of SDS changed from the Italian lire to the United States dollar. As a result, the cumulative translation adjustment component of equity was eliminated in 1992. NOTE 2. BASIS OF PRESENTATION The Company was incorporated for the purpose of acquiring, developing and commercializing SPR technology for use in medical diagnostics. The Company has had no sales and the only revenue generated by the Company since its inception has been interest income. The Company is a development stage company which has suffered losses from operations, has negative working capital, requires additional financing and ultimately needs to successfully attain profitable operations. In addition, the Company will need to pay minimum royalty payments to maintain exclusive rights under a license agreement (Note 4). These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not reflect any adjustments which might be necessary should the Company not remain a going concern. Management intends to pursue funding of future operations through private common stock placements or a public offering of common stock, conversion of certain obligations into common stock (see Notes 3, 4, and 8), and commercial distribution of its product. In that regard, in March 1995, the Company signed a letter of intent with a placement agent to undertake a private placement of the Company's common stock at $1.00 per unit. Each unit consists of four shares of common stock and a warrant to purchase one share of common stock. Gross proceeds from the offering will be a minimum of $1,500,000 and a maximum of $3,000,000. In addition, the investors in this private placement will receive piggy-back registration rights and the placement agent will purchase, for a nominal amount, a five-year warrant to purchase common stock at $0.25 per share equal to 10 percent of the number of shares sold. Subsequent to year end, the Company closed on $1,719,400 of the offering and realized net proceeds of $1,527,254. The Company is currently seeking additional investors to complete the balance of the offering. NOTE 3. DEBT OBLIGATIONS AS OF JUNE 30, 1995 AND 1994, ARE AS FOLLOWS:
June 30 ----------------------- 1995 1994 ---------- ---------- 8% convertible debentures, due on demand, convertible to common stock at $0.75 per share, unsecured $ 25,000 $ 25,000 8% convertible debentures, due September 1995, at which time they will automatically convert to common stock at $0.125 per share, unsecured (a) 622,500 450,500 8% convertible debentures, due September 1995, at which time they will automatically convert to common stock at $0.25 per share, unsecured (a) 375,000 375,000 8% convertible debentures, due March 1996, convertible to common stock at $0.125 per share: Secured by corporate assets 1,015,000 415,000 Unsecured 65,000 50,000 8% convertible debentures, paid in 1995 with $75,000 cash and issuance of 600,000 shares of common stock at $0.125 -- 125,000 10% convertible debentures, due March 1996, convertible at $0.125 per share, secured by corporate assets, personally guaranteed by chief executive officer 150,000 65,000 10% convertible note, converted, including accrued interest, to 80,000 shares of common stock in May 1995, unsecured -- 15,625 11.5% note, due on demand, personally guaranteed by chief financial officer 25,000 -- 12% notes, due November 1, 1995, unsecured (b) 327,500 -- Obligations under capital lease agreements, due in monthly installments of $1,560, expiring between January 1996 and November 1997, personally guaranteed by the chief executive and financial officers 23,120 16,299 ---------- ---------- $2,605,000 $1,521,125 ========== ==========
(a) converted to approximately 7,505,000 shares of common stock on September 30, 1995, with registration rights. (b) The note holders were also issued warrants to purchase 655,000 shares of common stock at $0.25 (see Note 6). Subsequent to year end, these notes were paid with funds from the private placement (see Note 2). These obligations are classified in the accompanying financial statements as follows:
June 30 ----------------------- 1995 1994 ---------- ---------- Short-term debt obligations $2,628,120 $ 150,084 Long-term obligations -- 1,387,340 ---------- ---------- $2,628,120 $1,537,424 ---------- ----------
NOTE 4. AGREEMENTS LICENSE AGREEMENT: The Company has a license agreement for certain patents, proprietary information and associated hardware related to the SPR technology. The license calls for an ongoing royalty of 6 percent on all products utilizing the SPR technology which are sold by the Company. In addition, if the Company sublicenses the technology, the Company will pay a royalty of 15 percent of all revenues received by the Company under any sublicense (provided that, until July 1996, the sublicense payments shall be in an amount not less than 1/2 percent of the net sales of the products sublicensed). If the cumulative payments of these two royalties fail to reach at least $500,000 by December 31, 1993, $850,000 by December 31, 1995, and $1,000,000 by December 31, 1997, then each time one of such benchmarks is not met, the licensor has the right to deprive the Company of its exclusive rights under the license agreement. As of June 30, 1995, the Company has paid $200,000 of the first $500,000 cumulative payment and has received an extension for the remaining $300,000, which was paid with proceeds from the private placement (see Note 2). The Company has also ratably accrued additional minimum royalty payments of $262,500 as of June 30, 1995, because sales or sublicense revenues through December 31, 1995, may not be adequate to meet the cumulative minimum royalty payments. The obligations of the Company to pay royalties terminates on the earlier of such time as the total royalty payments (excluding any sublicense royalties paid through July 1, 1996) reach a gross amount of $18,000,000, which amount would be increased by $2,000,000 each time a benchmark is not met. After such date, the Company's rights in the licensed SPR technology continue in perpetuity with no further royalty obligations. Certain of the convertible debenture holders have been granted licensing rights to the SPR technology as it applies to the research market, whereby proceeds of such licensing relationships executed by these debenture holders will be divided 40 percent to the Company and 60 percent to the debenture holders. Furthermore, these debenture holders will receive a 10 percent royalty on revenues resulting from research market licensing relationships executed by the Company. DEVELOPMENT AND SUPPLY AGREEMENT: In September 1994, the Company signed an agreement with a developer of medical diagnostic instrumentation devices to complete the design and development of a new SPR system and thereafter manufacture said SPR system for the Company to market. As compensation for these design and development activities, the developer will be entitled to receive the sum of $500,000 payable as follows: (a) $35,000 upon execution of the agreement. (b) $35,000 upon delivery of preliminary specifications. (c) $45,000 commencing on the month after delivery of the specifications and continuing for eight months. (d) upon delivery of a reproduction SPR system. Development expense under this agreement was $391,000 for the year ended June 30, 1995. Amounts due to developer at June 30, 1995, was $326,000. Subsequent to year end, this amount was paid with funds from the private placement (see Note 2). EMPLOYMENT AGREEMENTS: In May 1995, the Company entered into a three-year employment agreement with its chief executive officer and its vice president of research and development. Annual salaries under the agreements are $150,000 for the chief executive officer and $110,000 for the vice president of research and development with such adjustments and bonuses as may be determined by the Board of Directors. In the event the employment agreements are terminated for any reason by the Company, other than for cause as defined in the agreements, the officers would receive compensation for the greater of (i) the salary due under the remaining terms of the agreement, or (ii) one year's salary. CONSULTING AGREEMENTS: The Company had an agreement with a member of the Board of Directors whereby the Company agreed to pay the Board member for consulting services. Upon execution of this agreement in September 1993, the chairman received an option to purchase 200,000 shares of common stock at $0.125 per share (see Note 6). Consulting expense under this agreement was $45,000 for the years ended June 30, 1995 and 1994, $70,000 of which was paid by issuing stock at $0.125 per share. In August 1993, the Company entered into an agreement with a consultant whereby the consultant would provide assistance to the Company with respect to financing, corporate development and other business matters. In consideration for these services, the consultant was to receive a monthly fee and a combination of cash and warrants based on performance. The consultant earned the following under this agreement: * warrant for the purchase of 150,000 shares of common stock at $0.125 upon entering into the agreement (see Note 6); * a warrant for the purchase of 450,000 shares of common stock at $0.125 based on fund raising performance (see Note 6); and * $118,250 in consulting fees; $40,000 and $78,250 was earned during the years ended June 30, 1995 and 1994, respectively. $28,250 of the fees were paid in cash and the balance is payable in convertible promissory notes (see Note 3). In April 1995, this agreement was canceled and no further obligations are due this consultant. In July 1994, the Company entered into a consulting agreement with a consultant who is also a secured creditor of the Company, being the holder of $300,000 in convertible debentures (see Note 3). The consultant earned $60,000 under this agreement consisting of $10,000 in cash and 400,000 shares of stock issued at $0.125. In May 1995, this agreement was canceled and no further obligations are due this consultant. NOTE 5. LEASES The Company leases its office space under an agreement which expires February 28, 2000. The Company leases vehicles and office equipment under various lease agreements which expire at various dates through 1997. Approximate minimum aggregate rental commitments under these leases are as follows: Years ending June 30: 1996 $ 44,900 1997 46,600 1998 39,000 1999 38,000 2000 26,000 Rental expense for the years ended June 30, 1995 and 1994, and the period from September 30, 1991 (date of inception), to June 30, 1995, was $103,681, $103,177 and $292,933, respectively. Subsequent to June 30, 1995, the Company entered into a lease for computer equipment. The terms of the lease require a down payment of $5,320 along with payments of $1,235 for 24 months beginning September 1995. The lease is personally guaranteed by the chief executive and chief financial officers. NOTE 6. COMMON STOCK PURCHASE WARRANTS AND OPTIONS COMMON STOCK PURCHASE WARRANTS: Common stock purchase warrants outstanding as of June 30, 1995, are summarized below: Shares of Common Exercise Exercisable Redemption Warrant Class Stock Price Until Feature - ------------- ----- ----- ----- ------- A - expired -- $ -- -- $ -- B 1,403,200 5.070 January 1996 0.07 (a) Undesignated 150,000 0.125 February 1997 -- 450,000 0.125 August 1998 -- 250,000 0.250 May 2000 -- 1,173,000 0.125 May 2000 -- 655,000 0.250 June 2000 -- Unit 17,500 5.400 September 1998 -- (a) Provided that the market price per share of commo stock exceeds $6.09 for 30 consecutive days prior to notice of redemption. STOCK OPTION PLAN: The Company had 400,000 shares of its common stock reserved for issuance under a 1992 Stock Option Plan (the Plan) and had granted options for the purchase of 307,500 shares. In May 1995, the Plan, along with options granted thereunder, was canceled. As of the date of this report, the Company has not established a new plan. NONQUALIFIED STOCK OPTIONS: In May 1995, the Company granted nonqualified stock options for the purchase of 3,377,103 shares of common stock to officers and directors. Options with respect to 450,000 shares are exercisable at $0.125, with the balance exercisable at $0.25. Options with respect to 1,300,000 shares are immediately exercisable, with the balance 50 percent vested upon closing of the private placement and 50 percent one year later. The options expire in May 2000. All options and warrants were issued at or above market prices and accordingly no compensation expense was recorded for all periods presented. NOTE 7. INCOME TAXES The Company's income tax expense consists solely of a franchise tax in Italy during the year ended December 31, 1992, as the Company has incurred no United States income taxes. For United States income tax purposes, under provisions of the Internal Revenue Code, the Company has approximately $5,800,000 in net operating loss carryforwards and $46,000 in research and development credits at June 30, 1995, which may be used to offset otherwise future taxable income. These carryforwards expire in varying amounts through June 30, 2010. Future utilization of these loss credit carryforwards are subject to certain limitations under the provisions of the Internal Revenue Code, including limitations subject to Section 382, which relates to a 50 percent change in control over a 3-year period, and are further dependent upon the Company attaining profitable operations. This may subject the Company to annual net operating loss carryforward limitations in the future and may result in the expiration of a portion of the carryforward before it can be used. The tax effects of principal temporary differences at an assumed effective annual rate of 34 percent are shown in the following table: June 30 -------------------------- 1995 1994 ----------- ----------- Loss carryforwards $ 1,978,000 $ 1,353,000 Minimum royalty commitment 21,000 30,000 Research and development credits and deductions 251,000 225,000 Guarantee of Spectrum Diagnostics, Inc. debt 137,000 156,000 Accrued payroll 30,000 34,000 Other 6,000 ----------- ----------- Gross deferred tax assets 2,417,000 1,804,000 Valuation allowance for deferred tax assets (2,417,000) (1,804,000) ----------- ----------- $ -- $ -- ----------- ----------- The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the years ended June 30, 1995 and 1994, due to the valuation allowance recorded against deferred tax assets. NOTE 8. SPECTRUM DIAGNOSTICS, INC. During 1991, SDS acquired substantially all of the assets of Spectrum Diagnostics, Inc. (SDI) for 1,200,000 shares of SDS common stock plus the assumption of certain SDI liabilities and guarantees. A summary of the transaction follows: In order to comply with acquisition requirements of Italian law, this transaction was structured with Penguin Investment Ltd, (Penguin) purchasing the SDI assets instead of SDS purchasing the SDI assets directly. Initially, Penguin purchased 3,200,000 shares of SDS common stock for cash consideration of approximately $3,200,000. Penguin then purchased SDI for 1,200,000 shares of SDS common stock, plus the assumption of $285,000 of SDI liabilities and the guarantee of $353,000 of SDI liabilities. Of the 1,200,000 shares of SDS common stock, 1,025,000 shares were distributed directly to SDI shareholders and 175,000 shares (of Quantech common stock after the merger described in Note 1) are held in escrow for the benefit of SDI creditors. Immediately after Penguin's purchase of SDI, SDS acquired substantially all of the SDI assets from Penguin for approximately $1,200,000 in cash, the assumption of the $285,000 of SDI liabilities assumed by Penguin and guarantee of the $353,000 of SDI liabilities previously guaranteed by Penguin. The acquisition has been accounted for as a purchase. The allocation of the purchase price was as follows: License agreement $1,417,330 Prepaid security issuance costs 60,000 Equipment 6,971 Cash 5,199 ---------- $1,489,500 ---------- As a result of its merger with SDS (see Note 1), Quantech now guarantees payment of certain SDI liabilities previously guaranteed by SDS. SDI expects to sell an investment it has in Quantech's common stock, the proceeds of which are expected to be used to pay certain of SDI's obligations, but are not expected to be sufficient to pay the entire amount guaranteed by Quantech. Quantech has accrued its estimated loss which may result should SDI be unable to pay the obligations discussed above. In May 1995, the Company settled approximately $55,000 of this liability by issuing 350,000 shares of common stock, reducing the recorded liability to $65,000 as of June 30, 1995. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 302A.521 of the Minnesota Business Corporation Act provides that a corporation shall indemnify any person who was or is threatened to be made a party to any proceeding by reason of the former or present official capacity of such person , against judgments, penalties and fines, including, without limitation , excise taxes assessed against such person with respect to an employee benefit plan, settlements and reasonable expenses, including attorneys' fees and disbursements, incurred by such person in connection with the proceeding, if, with respect to the acts or omissions of such person complained of in the proceeding such person has not been indemnified by another organization or employee benefit plan for the same expenses with respect to the same acts or omissions, acted in good faith, received no improper personal benefit and Section 302A.255 (which pertains to director conflicts of interest), if applicable, has been satisfied; in the case of a criminal proceeding, had no reasonable cause to believe the conduct was unlawful; and in the case of acts or omissions by a person in their official capacity for the corporation, reasonably believed that the conduct was in the best interests of the corporation, or in the case of acts or omissions by persons in their capacity for other organizations, reasonably believed that the conduct was not opposed to the best interests of the corporation. The Minnesota Business Corporation Act also permits Minnesota corporations in their Articles of Incorporation to limit or eliminate personal liability of directors to the corporation or its shareholders for monetary damages for breach of fiduciary duty; however, for bids any limitation or elimination of director liability for (i) a breach of the director's duty of loyalty, (ii) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) corporate distributions which are either illegal or in contravention of restrictions in the Articles, Bylaws or any agreement to which the corporation is a party, (iv) violations of Minnesota securities laws, (v) any transaction from which the director derived an improper personal benefit, or (vi) any act or omission occurring prior to the effective date of the provision in the corporation's Articles eliminating or limiting liability. Article 8 of the Registrant's Articles of Incorporation reads as follows: "To the fullest extend permitted by Chapter 302A, Minnesota Statutes, as the same exists or may hereafter be amended, a director of this corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director." The Registrant's Bylaws provide for the indemnification of its directors, officers, employees and agents in accordance with, and to the fullest extent permitted by, Section 302A.521 of the Minnesota Business Corporation Act, as amended form time to time. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses in connection with this offering are as follows: Securities and Exchange Commission Filing Fee....... $ 13,651 Legal Fees and Expenses............................. $ 7,500 Accounting Fees and Expenses........................ $ 7,500 Printing............................................ $ 5,000 Miscellaneous....................................... $ 1,349 Total Expenses...................................... $ 35,000 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. During the past three years, the Registrant has sold the following securities pursuant to exemptions from registration under the Securities Act of 1933, as amended (the "Act"): (i) The Registrant in a number of individual transactions from May 1, 1993 through June 1995 sold 20,831,861 shares of its Common Stock at prices ranging from $.125 to $.25 per share to accredited investors. The transactions were made in reliance upon the exemptions from registration provided under Section 4(2) of the Securities Act. The registrant paid commissions in the aggregate amount of $76,700 to John G. Kinnard and Company, Incorporated ("JGK") for certain of these sales and issued JGK a warrant to purchase up to 1,173,000 shares at $.125 per share as additional compensation. Such warrants were granted in reliance upon the exemption from registration provided under Section 4(2) of the Act. The purchasers of such Common Stock and warrants acquired such securities for their own account and not with a view to any distribution thereof to the public. (ii) In September 1995, the Registrant sold 3,300,000 Units at $1.00 per Unit to a number of accredited investors. Each Unit consisted of four (4) shares of Company Common Stock and a warrant to purchase one share of Common Stock at $.25 per share. The transactions were made in reliance upon the exemptions from registration provided under Section 4(2) of the Securities Act and Rule 505 of Regulation D. The registrant paid commissions and accountable expenses in the aggregate amount of $354,950 to John G. Kinnard and Company, Incorporated ("JGK") for acting as selling agent in the offering and issued JGK a warrant to purchase up to 1,320,000 shares at $.25 per share as additional compensation. Such warrants were granted in reliance upon the exemption from registration provided under Section 4(2) of the Act. The purchasers of such Common Stock and warrants acquired such securities for their own account and not with a view to any distribution thereof to the public. (iii) In November 1995, the Registrant sold 450,000 Units at $1.00 Unit to five accredited investors. Each Unit consisted of four (4) shares of Company Common Stock and a warrant to purchase one share of Common Stock at $.25 per share. The transactions were made in reliance upon the exemptions from registration provided under Section 4(2) of the Securities Act and Rule 505 of Regulation D. No commissions were paid on such sales. The purchasers of such Common Stock and warrants acquired such securities for their own account and not with a view to any distribution thereof to the public. (iv) On May 3, 1996, the Registrant sold 6,250,000 shares of Common Stock at $.60 per share. The transactions were made in reliance upon the exemptions from registration provided under Section 4(2) of the Securities Act and Rule 506 of Regulation D. The registrant paid commissions and accountable expenses in the aggregate amount of $363,841 to John G. Kinnard and Company, Incorporated ("JGK") for acting as selling agent in the offering and issued JGK a warrant to purchase up to 597,500 shares at $.72 per share as additional compensation. Such warrants were granted in reliance upon the exemption from registration provided under Section 4(2) of the Act. The purchasers of such Common Stock and warrants acquired such securities for their own account and not with a view to any distribution thereof to the public. (v) On November 8, 1995 the Company sold 80,000 shares of Common Stock at $.25 per share and on December 8, 1995 17,840 shares of Common Stock at $.60 per share to two investors and a consultant to the Company. On June 1, 1996 the Company made an additional sale of 5,058 shares to a consultant to the Company at $.86 per share. The transactions were made in reliance upon the exemptions from registration provided under Section 4(2) of the Securities Act. No commissions were paid on such sales. The purchasers of such Common Stock and warrants acquired such securities for their own account and not with a view to any distribution thereof to the public. ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. See Exhibit Index on page following signatures. ITEM 28. UNDERTAKINGS. The undersigned Registrant undertakes that it will: (1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (I) Include any prospectus required by section 10(a)(3) of the Securities Act; (II) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and (III) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The undersigned Registrant further undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned in the City of St. Paul, State of Minnesota, on June 20, 1996. QUANTECH LTD. By /s/ R. H. Joseph Shaw R. H. Joseph Shaw, Chief Executive Officer POWER OF ATTORNEY Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Each person whose signature to this Registration Statement appears below hereby constitutes and appoints R. H. Joseph Shaw and Gregory G. Freitag, and each of them, as his or her true and lawful attorney-in-fact and agent, with full power of substitution, to sign on his or her behalf individually and in the capacity stated below and to perform any acts necessary to be done in order to file all amendments and post-effective amendments to this Registration Statement, and any and all instruments or documents filed as part of or in connection with this Registration Statement or the amendments thereto, and each of the undersigned does hereby ratify and confirm all that said attorney-in-fact and agent, or his or her substitutes, shall do or cause to be done by virtue hereof. Signatures Title Date /s/R. H. Joseph Shaw Chief Executive Officer and June 20, 1996 R. H. Joseph Shaw Chairman of the Board /s/ Robert R. McKiel Executive Vice President-Research June 20, 1996 Robert R. McKiel and Development and Director /s/ Gregory G. Freitag Chief Financial Officer, Vice June 20, 1996 Gregory G. Freitag President of Corporate Development and Secretary /s/ James F. Lyons Director June 20, 1996 James F. Lyons /s/ Richard W. Perkins Director June 20, 1996 Richard W. Perkins /s/ Edward E. Strickland Director June 20, 1996 Edward E. Strickland SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quantech Ltd. EXHIBIT INDEX TO FORM SB-2
Exhibit Sequentially Number Description Numbered Page - ------ ----------- ------------- 2.1 Plan of Reorganization, dated November 24, 1992, by and among Quantech Ltd. and Spectrum Diagnostics S.p.A. (incorporated by reference to Exhibit 2.1 of the Registrant's Registration Statement on Form S-4; Reg. No. 33-55356). 2.2 Amendment and Restatement Agreement and Plan of Merger dated January 20, 1993 by and among Quantech Ltd., Spectrum Diagnostics S.p.A. and Spectrum Diagnostics Corp. (incorporated by reference to Exhibit 2.2 of the Registrant's Registration Statement on Form S-4; Reg. No. 33-55356). 3.1 Articles of Incorporation of Quantech Ltd. (incorporated by reference to Exhibit 3.1 of the Registrant's Registration Statement on Form S-4; Reg. 33-55356). 3.2 Bylaws of Quantech Ltd. (incorporated by reference to Exhibit 3.2 of the Registrant's Registration Statement on Form S-4; Reg. No. 33-55356). 4.1 Form of Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement on Form S-4; Reg. No. 33-55356). 4.2 Form of Private Placement Warrant. 5.1 Opinion and Consent of Fredrikson & Byron, P.A. * 10.1 Lease for office at 1419 Energy Park Drive, St. Paul, MN 55108 (incorporated by reference to Exhibit 10.1 of the Registrant's Form 10-KSB for the Year Ended June 30, 1995). 10.2 Option Agreement with Ares-Serono, as amended (including license) assigned to Quantech Ltd. pursuant to the Merger (incorporated by reference to Exhibit 10.2 of the Registrant's Registration Statement on Form S-4; Reg. No. 33-55356). 10.3 Employment Agreement with R.H. Joseph Shaw (incorporated by reference to Exhibit 10.3 of the Registrant's Form 10-KSB for the Year Ended June 30, 1995). 10.4 Employment Agreement with Robert M. McKiel (incorporated by reference to Exhibit 10.4 of the Registrant's Form 10-KSB for the Year Ended June 30, 1995). 10.5 Letter of amendment to Ares-Serono License (incorporated by reference to Exhibit 10.6 of the Registrant's Form 10-KSB for the Year Ended June 30, 1995). 10.6 Agreement with Donnelly Corporation. 10.7 Stock Option to purchase 1,246,000 shares by R.H. Joseph Shaw (incorporated by reference to Exhibit 10.12 of the Registrant's Form 10-KSB for the Year Ended June 30, 1995). 10.8 Stock Option to purchase 830,841 shares by Robert M. McKiel (incorporated by reference to Exhibit 10.13 of the Registrant's Form 10-KSB for the Year Ended June 30, 1995). 10.9 Employment Agreement with Gregory G. Freitag * 10.10 First Amendment to Warrant of Messrs. Strickland, Perkins, Lyons, Freitag and Shaw 22 Quantech has no subsidiaries. 23.1 Consent of Fredrikson & Byron, P.A. (included in Exhibit 5.1) 23.2 Consent of McGladery & Pullen L.L.P. 24 Power of Attorney (included on signature page to Registration Statement)
* To be filed by amendment EX-4.2 2 FORM WARNT95.DOT The Warrant represented by this certificate has not been registered, under either the Securities Act of 1933, as amended, or applicable state securities laws. They may not be sold, offered for sale or transferred in the absence of an effective registration under the Securities Act of 1933, as amended, and the applicable state securities laws or an opinion of counsel satisfactory in form and substance to counsel for the Company that such transaction will not result in a prohibited transaction under the Securities Act of 1933, as amended, or the applicable state securities laws. WARRANT ------- To Purchase _____ Shares of Common Stock of Quantech Ltd. THIS CERTIFIES THAT, for good and valuable consideration __________, (the "Investor") or his, her or its registered assigns, is entitled to subscribe for and purchase from Quantech Ltd. a Minnesota corporation (the "Company"), at any time to and including September 22, 2000, ______ Thousand _____ Hundred (______) fully paid and nonassessable shares of the Common Stock of the Company, subject to the redemption provisions of this Warrant, at the price of $.25 per share (the "Warrant Exercise Price"), subject to the antidilution provisions of this Warrant. Reference is made to this Warrant in the Company's Private Placement Memorandum (the "Memorandum") dated May 15, 1995. The shares which may be acquired upon exercise of this Warrant are referred to herein as the "Warrant Shares." As used herein, the term "Holder" means the Investor any party who acquires all or a part of this Warrant as a registered transferee of the Investor, or any record holder or holders of the Warrant Shares issued upon exercise, whether in whole or in part, of the Warrant; the term "Common Stock" means and includes the Company's presently authorized common stock, no par value, and shall also include any capital stock of any class of the Company hereafter authorized which shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution, or winding up of the Company; and the term "Convertible Securities" means any stock or other securities convertible into, or exchangeable for, Common Stock. This Warrant is subject to the following provisions, terms and conditions: Exercise; Transferability. The rights represented by this Warrant may be exercised by the Holder hereof, in whole or in part (but not as to a fractional share of Common Stock), by written notice of exercise (in the form attached hereto) delivered to the Company at the principal office of the Company prior to the expiration of this Warrant and accompanied or preceded by the surrender of this Warrant along with a check in payment of the Warrant Exercise Price for such shares. This Warrant is transferable in whole or in part, subject to applicable federal and state securities laws and regulations. This Warrant may not be sold, transferred, assigned, hypothecated or divided into two or more Warrants of smaller denominations, nor may any Warrant shares issued pursuant to exercise of this Warrant be transferred, except as provided in Section 7 hereof. Exchange and Replacement. Subject to Sections 1 and 7 hereof, this Warrant is exchangeable upon the surrender hereof by the Holder to the Company at its office for new Warrants of like tenor and date representing in the aggregate the right to purchase the number of Warrant Shares purchasable hereunder, each of such new Warrants to represent the right to purchase such number of Warrant Shares (not to exceed the aggregate total number purchasable hereunder) as shall be designated by the Holder at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction, or mutilation of this Warrant, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor, in lieu of this Warrant; provided, however, that if the Underwriter shall be such Holder, an agreement of indemnity by such Holder shall be sufficient for all purposes of this Section 2. This Warrant shall be promptly canceled by the Company upon the surrender hereof in connection with any exchange or replacement. The Company shall pay all expenses, taxes (other than stock transfer taxes), and other charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Section 2. Issuance of the Warrant Shares. The Company agrees that the shares of Common Stock purchased hereby shall be and are deemed to be issued to the Holder as of the close of business on the date on which this Warrant shall have been surrendered and the payment made for such Warrant Shares as aforesaid. Subject to the provisions of the next section, certificates for the Warrant Shares so purchased shall be delivered to the Holder within a reasonable time, not exceeding fifteen (15) days after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the right to purchase the number of Warrant Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be delivered to the Holder within such time. Notwithstanding the foregoing, however, the Company shall not be required to deliver any certificate for Warrant Shares upon exercise of this Warrant except in accordance with exemptions from the applicable securities registration requirements or registrations under applicable securities laws. Nothing herein, however, shall obligate the Company to effect registrations under federal or state securities laws, except as provided in Section 9. If registrations are not in effect and if exemptions are not available when the Holder seeks to exercise the Warrant, the Warrant exercise period will be extended, if need be, to prevent the Warrant from expiring, until such time as either registrations become effective or exemptions are available, and the Warrant shall then remain exercisable for a period of at least 30 calendar days from the date the Company delivers to the Holder written notice of the availability of such registrations or exemptions. The Holder agrees to execute such documents and make such representations, warranties, and agreements as may be required solely to comply with the exemptions relied upon by the Company, or the registrations made, for the issuance of the Warrant Shares. Covenants of the Company. The Company covenants and agrees that all Warrant Shares will, upon issuance, be duly authorized and issued, fully paid, nonassessable, and free from all taxes, liens, and charges with respect to the issue thereof The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. Antidilution Adjustments. The provisions of this Warrant are subject to adjustment as provided in this Section 5. The Warrant Exercise Price shall be adjusted from time to time such that in case the Company shall hereafter: pay any dividends on any class of stock of the Company payable in Common Stock or securities convertible into Common Stock; subdivide its then outstanding shares of Common Stock into a greater number of shares; or combine outstanding shares of Common Stock, by reclassification or otherwise; then, in any such event, the Warrant Exercise Price in effect immediately prior to such event shall (until adjusted again pursuant hereto) be adjusted immediately after such event to a price (calculated to the nearest full cent) determined by dividing (a) the number of shares of Common Stock outstanding immediately prior to such event, multiplied by the then existing Warrant Exercise Price, by (b) the total number of shares of Common Stock outstanding immediately after such event (including the maximum number of shares of Common Stock issuable in respect of any securities convertible into Common Stock), and the resulting quotient shall be the adjusted Warrant Exercise Price per share. An adjustment made pursuant to this Subsection shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. If, as a result of an adjustment made pursuant to this Subsection, the Holder of any Warrant thereafter surrendered for exercise shall become entitled to receive shares of two or more classes of capital stock or shares of Common Stock and other capital stock of the Company, the Board of Directors (whose determination shall be conclusive) shall determine the allocation of the adjusted Warrant Exercise Price between or among shares of such classes of capital stock or shares of Common Stock and other capital stock. All calculations under this Subsection shall be made to the nearest cent or to the nearest 1/100 of a share, as the case may be. In the event that at any time as a result of an adjustment made pursuant to this Subsection, the holder of any Warrant thereafter surrendered for exercise shall become entitled to receive any shares of the Company other than shares of Common Stock, thereafter the Warrant Exercise Price of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in this Section. Upon each adjustment of the Warrant Exercise Price pursuant to Section 5(a) above, the Holder of each Warrant shall thereafter (until another such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares specified in such Warrant (as adjusted as a result of all adjustments in the Warrant Exercise Price in effect prior to such adjustment) by the Warrant Exercise Price in effect prior to such adjustment and dividing the product so obtained by the adjusted Warrant Exercise Price. In case of any consolidation or merger to which the Company is a party other than a merger or consolidation in which the Company is the continuing corporation, or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company), there shall be no adjustment under Subsection (a) of this Section above but the Holder of each Warrant then outstanding shall have the right thereafter to convert such Warrant into the kind and amount of shares of stock and other securities and property which he would have owned or have been entitled to receive immediately after such consolidation, merger, statutory exchange, sale, or conveyance had such Warrant been converted immediately prior to the effective date of such consolidation, merger, statutory exchange, sale, or conveyance and in any such case, if necessary, appropriate adjustment shall be made in the application of the provisions set forth in this Section with respect to the rights and interests thereafter of any Holders of the Warrant, to the end that the provisions set forth in this Section shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock and other securities and property thereafter deliverable on the exercise of the Warrant. The provisions of this Subsection shall similarly apply to successive consolidations, mergers, statutory exchanges, sales or conveyances. Upon any adjustment of the Warrant Exercise Price, then and in each such case, the Company shall give written notice thereof, by first-class mail, postage prepaid, addressed to the Holder as shown on the books of the Company, which notice shall state the Warrant Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of shares of Common Stock purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. No Voting Rights. This Warrant shall not entitle the Holder to any voting rights or other rights as a shareholder of the Company. Notice of Transfer of Warrant or Resale of the Warrant Shares. Subject to the sale, assignment, hypothecation, or other transfer restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof, agrees to give written notice to the Company before transferring this Warrant or transferring any Warrant Shares of such Holder's intention to do so, describing briefly the manner of any proposed transfer. Promptly upon receiving such written notice, the Company shall present copies thereof to the Company's counsel and to counsel to the original purchaser of this Warrant. If in the opinion of each such counsel the proposed transfer may be effected without registration or qualification (under any federal or state securities laws), the Company, as promptly as practicable, shall notify the Holder of such opinion, whereupon the Holder shall be entitled to transfer this Warrant or to dispose of Warrant Shares received upon the previous exercise of this Warrant, all in accordance with the terms of the notice delivered by the Holder to the Company; provided that an appropriate legend may be endorsed on this Warrant or the certificates for such Warrant Shares respecting restrictions upon transfer thereof necessary or advisable in the opinion of counsel and satisfactory to the Company to prevent further transfers which would be in violation of Section 5 of the Securities Act of 1933, as amended (the "1933 Act") and applicable state securities laws; and provided further that the prospective transferee or purchaser shall execute such documents and make such representations, warranties, and agreements as may be required solely to comply with the exemptions relied upon by the Company for the transfer or disposition of the Warrant or Warrant Shares. If in the opinion of either of the counsel referred to in this Section 7, the proposed transfer or disposition of this Warrant or such Warrant Shares described in the written notice given pursuant to this Section 7 may not be effected without registration or qualification of this Warrant or such Warrant Shares the Company shall promptly give written notice thereof to the Holder, and the Holder will limit its activities in respect to such as, in the opinion of both such counsel, are permitted by law. Fractional Shares. Fractional shares shall not be issued upon the exercise of this Warrant, but in any case where the holder would, except for the provisions of this Section, be entitled under the terms hereof to receive a fractional share, the Company shall, upon the exercise of this Warrant for the largest number of whole shares then called for, pay a sum in cash equal to the sum of (a) the excess, if any, of the Market Price of such fractional share over the proportional part of the Warrant Exercise Price represented by such fractional share, plus (b) the proportional part of the Warrant Exercise Price represented by such fractional share. For purposes of this Section, the term "Market Price" with respect to shares of Common Stock of any class or series means the last reported sale price or, if none, the average of the last reported closing bid and asked prices on any national securities exchange or quoted in the National Association of Securities Dealers, Inc.'s Automated Quotations System (NASDAQ), or if not listed on a national securities exchange or quoted in NASDAQ, the average of the last reported closing bid and asked prices as reported by Metro Data Company, Inc. from quotations by market makers in such Common Stock on the Minneapolis-St. Paul local over-the-counter market. Registration Rights. If the Company at any time within two (2) years after complete exercise of this Warrant, but no more than seven (7) years from the date of this Warrant, proposes to register under the 1933 Act (except by a Form S-4 or Form S-8 Registration Statement or any successor forms thereto) or qualify for a public distribution under Section 3(b) of the 1933 Act, any of its securities, it will give written notice to all Holders of this Warrant, any Warrants issued pursuant to Section 2 and/or Section 3(a) hereof, and any Warrant Shares of its intention to do so and, on the written request of any such Holder given within twenty (20) days after receipt of any such notice (which request shall specify the interest in this Warrant or the Warrant Shares intended to be sold or disposed of by such Holder and describe the nature of any proposed sale or other disposition thereof), the Company will use its best efforts to cause all such Warrants and Warrant Shares, the Holders of which shall have requested the registration or qualification thereof, to be included in such registration statement proposed to be filed by the Company; provided, however, that if a greater number of Warrants and Warrant Shares is offered for participation in the proposed offering than in the reasonable opinion of the managing underwriter of the proposed offering can be accommodated without adversely affecting the proposed offering, then the amount of Warrant and Warrant Shares proposed to be offered by such Holders for registration, as well as the number of securities of any other selling shareholders participating in the registration, shall be proportionately reduced to a number deemed satisfactory by the managing underwriter. Further, on a one-time basis only, provided Form S-3, or such successor form as may be adopted, is available, during the term of this Warrant, upon request by the Holder or Holders of a majority in interest of this Warrant, of any Warrants issued pursuant to Section 2 and/or Section 3(a) hereof, and of any Warrant Shares, the Company will promptly take all necessary steps to register or qualify, under the 1933 Act and the securities laws of such states as the holders may reasonably request, this Warrant and such number of Warrant Shares issued and to be issued upon conversion of the Warrants requested by such holders in their request to the Company. The Company shall keep effective and maintain any registration, qualification, notification, or approval specified in this Paragraph (b) for such period as may be reasonably necessary for such Holder or Holders of such Warrants and/or such Warrant Shares to dispose thereof and from time to time shall amend or supplement the prospectus used in connection therewith to the extent necessary in order to comply with applicable law. With respect to each inclusion of securities in a registration statement pursuant to this Section 9, the Company shall bear the following fees, costs, and expenses: all registration, filing and NASD fees, printing expenses, fees and disbursements of counsel and accountants for the Company, fees and disbursements of counsel for the underwriter or underwriters of such securities (if the Company is required to bear such fees and disbursements), all internal expenses, the premiums and other costs of policies of insurance against liability arising out of the public offering, and legal fees and disbursements and other expenses of complying with state securities laws of any jurisdictions in which the securities to be offered are to be registered or qualified. Fees and disbursements of special counsel and accountants for the selling Holders, underwriting discounts and commissions, and transfer taxes for selling Holders and any other expenses relating to the sale of securities by the selling Holders not expressly included above shall be borne by the selling Holders; The Company hereby indemnifies each of the Holders of this Warrant and of any Warrant Shares, and the officers and directors, if any, who control such Holders, within the meaning of Section 15 of the 1933 Act, against all losses, claims, damages, and liabilities caused by (1) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (and as amended or supplemented if the Company shall have furnished any amendments thereof or supplements thereto), any Preliminary Prospectus or any state securities law filings; (2) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading except insofar as such losses, claims, damages, or liabilities are caused by any untrue statement or omission contained in information furnished in writing to the Company by such Holder expressly for use therein; and each such Holder by its acceptance hereof severally agrees that it will indemnify and hold harmless the Company, each of its officers who signs such Registration Statement, and each person, if any, who controls the Company, within the meaning of Section 15 of the 1933 Act, with respect to losses, claims, damages, or liabilities which are caused by any untrue statement or omission contained in information furnished in writing to the Company by such Holder expressly for use therein. Redemption of Warrants. The Warrants may be redeemed at the option of the Company as a whole or in part at any time after the Company's Common Stock trades at greater than $1.25 per share, subject to adjustment pursuant to Section 5(a) hereof, for at lease 20 consecutive trading days, upon notice as set forth in Subsection (b) below, and at a redemption price equal to $.05 per Warrant. In the case of any redemption of Warrants, the Company shall give notice of such redemption to the holders of the Warrants to be redeemed as hereinafter provided in this Subsection (b). Notice of redemption to the holders of Warrants shall be given by mailing by first-class mail a notice of such redemption not less than 30 days prior to the date fixed for redemption. Any notice which is given in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives the notice. In any notice, to the holder of any Warrant Certificate shall not affect the validity of the proceedings for the redemption of Warrants represented by any other Warrant Certificate. Each such notice shall specify the date fixed for redemption, the number of Warrants held by the individual Warrant holder to be redeemed, the place of redemption and the redemption price of $.05 at which each Warrant is to be redeemed, and shall state that payment of the redemption price of the Warrants will be made on surrender of the Warrants at said place of redemption, and that after said date, the exercise rights of the Warrants identified for redemption shall expire. Such notice shall also state the current Purchase Price and the date on which the right to exercise the Warrants will expire. If notice of redemption shall have been given as provided in Subsection (b), the redemption price of $.05 per Warrant shall, unless the Warrant is theretofore exercised pursuant to the terms hereof, become due and payable on the date and at the place stated in such notice. On and after such date of redemption, provided that cash sufficient for the redemption thereof shall then be deposited by the Company with the Warrant Agent for that purpose, the exercise rights of the Warrants identified for redemption shall expire. On presentation and surrender of Warrant Certificates at said place of payment in said notice specified, the Warrants identified for redemption shall be paid and redeemed at the redemption price of $.05 per Warrant. In the event not all Warrants represented by a warrant Certificate are identified for redemption, a new Warrant Certificate shall be issued representing the number of Warrants not redeemed. Prior to the date fixed for redemption, the Company shall deposit with the Warrant Agent an amount of money sufficient to pay the redemption price of all the Warrants identified for redemption. Any moneys which shall have been deposited with the Warrant Agent for redemption of Warrants and which are not required for that purpose by reason of exercise of Warrants shall be repaid to the Company upon delivery to the Warrant Agent of evidence satisfactory to it of such exercise. IN WITNESS OF, Quantech Ltd. has caused this Warrant to be signed by its duly authorized officer and this Warrant to be dated _________, 199_. "Company" QUANTECH LTD. By _________________________________ Gregory G. Freitag Chief Financial Officer To: Quantech Ltd. NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder in Order to Exercise the Warrant The undersigned hereby irrevocably elects to exercise the attached Warrant to purchase for cash, ___________________ of the shares issuable upon the exercise of such Warrant, and requests that certificates for such shares (together with a new Warrant to purchase the number of shares, if any, with respect to which this Warrant is not exercised) shall be issued in the name of _________________________________ (Print Name) Please insert social security or other identifying number of registered holder of certificate (____________) Address: _________________________________ _________________________________ Date: ________________, 19__ _________________________________ Signature* *The signature on the Notice of Exercise of Warrant must correspond to the name as written upon the face of the Warrant in every particular without alteration or enlargement or any change whatsoever. When signing on behalf of a corporation, partnership, trust or other entity, PLEASE indicate your position(s) and title(s) with such entity. ASSIGNMENT FORM To be signed only upon authorized transfer of Warrants. FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto __________________________ the right to purchase the securities of Quantech Ltd. to which the within Warrant relates and appoints ______________________, attorney, to transfer said right on the books of Quantech Ltd. with full power of substitution in the premises. Dated: ______________________ _________________________________ (Signature) Address: _________________________________ _________________________________ EX-10.6 3 LETTER OF UNDERSTANDING This Letter of Understanding ("Agreement") is entered into by and between Quantech Ltd. ("Quantech") and Donnelly Corporation. (the "Company") this 31st day of March, 1996. RECITALS: A. The Company is performing development work on a contract basis for Quantech with respect to Quantech's SPR reading instrument (the "Instrument") and related disposable (the "Disposable"). B. The Company has agreed to perform such development in partial consideration for Quantech providing the Company the right to negotiate for the production of the Quantech Disposable upon terms to be mutually agreed upon by Quantech and the Company. C. Currently there is insufficient information to allow the Company and Quantech to negotiate the terms of the Disposable Production Contract (the "Contract") and as a result the Company and Quantech are entering into this Agreement until the Contract can be negotiated. AGREEMENT: NOW, THEREFORE, in consideration of the mutual covenants set forth herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Payment by Quantech. Quantech shall pay to the Company the total amount of $1,000,000 immediately upon the occurrence of one of the following events: (a) Quantech completes a consolidation or merger or Quantech or its shareholders complete a sale of its or their equity in a single transaction or series of related transactions which results in a change of 50% or more of Quantech's ownership; (b) Quantech sells all or substantially all of its assets to another corporation; or (c) Quantech enters into an agreement whereby it no longer has exclusive authority to determine who may produce the Disposable. 2. Good Faith Negotiation of Contract. Quantech and the Company agree to negotiate in good faith to finalize the terms of, and enter into, the Contract. If Quantech and the Company are unable to enter into the Contract by October 1, 1996, then neither party shall be obligated to the other for any damages, fees or payments (including the payment provided in Section 1 above), except for any amounts owing the Company for development work performed on behalf of Quantech. Provided, however, that if Quantech or its shareholders had begun negotiations with any party for sale, merger or consolidation prior to October 1, 1996 and subsequently enters into a transaction described in paragraph 1(a)-(c) with the same party or any affiliated party by January 1, 1998, then Quantech shall owe the Company the $1,000,000 provided in paragraph 1. 3. Termination of Agreement. This Agreement will terminate upon: (i) the date of execution of the Contract by Quantech and the Company; (ii) October 1, 1996 if the Contract has not been executed; or (iii) on such date as the Company is rendered incapable of producing the Disposable upon the specifications and in the quantities required by Quantech provided the Company has been supplied adequate equipment and lead times by Quantech. In the event this Agreement is terminated as a result of subsection (iii) above, Quantech shall have the right to have all molds for the Disposable provided to it for Quantech's unlimited use in producing the Disposable. 4. Governing Law. Any disputes arising under this Agreement shall be governed by the laws of the State of Minnesota. The parties further agree to submit themselves to the non-exclusive jurisdiction of the state and federal courts of the State of Minnesota in the event that any dispute arises under this Agreement. 5. Full Agreement. This Agreement contains the full agreement of the parties and may not be modified, altered, or changed in any respect except upon the express written consent of both parties. The parties have read this Agreement, have consulted with their attorneys, and understand the meaning of its terms. They enter into this Agreement freely and voluntarily. IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the date written above. QUANTECH LTD. BY: ___________________________________ ITS: ___________________________________ DONNELLY CORPORATION BY: ___________________________________ ITS: ___________________________________ EX-10.10 4 FIRST AMENDMENT TO WARRANT THE FIRST AMENDMENT TO WARRANT is made and executed as of this 1st day of May, 1996, by and between RICHARD W. PERKINS (the "Warrant Holder") and QUANTECH LTD., a Minnesota corporation (the "Company"). WHEREAS, under that certain stock option dated September 28, 1995 (the "Warrant"), the Warrant Holder or his registered assign is entitled to subscribe for and purchase from the Company, at any time through November 8, 2000, five hundred thousand (500,000) fully paid and nonassessable shares of the common stock of the Company, WHEREAS, the Company previously authorized a private placement of securities with a maximum aggregate offering price of $2,500,000 through John G. Kinnard and Company, Incorporated (the "Agent") pursuant to that certain Confidential Private Placement Memorandum dated February 5, 1996 (the "Private Placement Memorandum"); WHEREAS, the Agent has advised the Company that the private placement is oversubscribed and the Board of Directors believes it is in the best interest of the Company to raise an additional $1,250,000 of capital in that private placement by offering an additional 416,667 Units for sale, each Unit consisting of five shares of common stock at a price of $3.00 per Unit; WHEREAS, the number of authorized shares of common stock of the Company, which is currently 60,000,000, must be increased in order to complete the offering of such additional Units under the Private Placement Memorandum, which would result in the issuance of an additional 2,083,335 shares of common stock of the Company; and WHEREAS, the Warrant Holder and the Company wish to amend the Warrant as set forth herein to facilitate the offering of such additional Units. NOW, THEREFORE, in consideration of the mutual covenants set forth herein the parties agree as follows: 1. The Warrant shall not be exercisable by the Warrant Holder, his registered assign, or any other holder thereof until the Company's shareholders have approved and ratified at a duly convened meeting, an increase in the aggregate number of shares of common stock which the Company shall have authority to issue by at least such amount as is necessary to have available in reserve a sufficient number of shares for issuance upon exercise of all warrants and options granted by the Company as of the date of this Amendment. When the foregoing approval has been received and the appropriate amendment to the Company's Articles of Incorporation has been filed with the Minnesota Secretary of State, the Warrant Holder shall be immediately entitled to exercise the Warrant for such number of shares as the Warrant Holder would have otherwise been entitled to receive. 2. The terms and conditions of the Warrant shall remain the same in every respect other than that stated in paragraph 1 above. 3. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. This Agreement may be amended only by a writing signed by both of the parties hereto. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. IN WITNESS WHEREOF, the parties have set their hands hereto as of the date first set forth above. QUANTECH LTD. By ___________________________ Its _______________________ _________________________________ Richard W. Perkins FIRST AMENDMENT TO WARRANT THE FIRST AMENDMENT TO WARRANT is made and executed as of this 1st day of May, 1996, by and between EDWARD E. STRICKLAND (the "Warrant Holder") and QUANTECH LTD., a Minnesota corporation (the "Company"). WHEREAS, under that certain stock option dated September 28, 1995 (the "Warrant"), the Warrant Holder or his registered assign is entitled to subscribe for and purchase from the Company, at any time through November 8, 2000, five hundred thousand (500,000) fully paid and nonassessable shares of the common stock of the Company, WHEREAS, the Company previously authorized a private placement of securities with a maximum aggregate offering price of $2,500,000 through John G. Kinnard and Company, Incorporated (the "Agent") pursuant to that certain Confidential Private Placement Memorandum dated February 5, 1996 (the "Private Placement Memorandum"); WHEREAS, the Agent has advised the Company that the private placement is oversubscribed and the Board of Directors believes it is in the best interest of the Company to raise an additional $1,250,000 of capital in that private placement by offering an additional 416,667 Units for sale, each Unit consisting of five shares of common stock at a price of $3.00 per Unit; WHEREAS, the number of authorized shares of common stock of the Company, which is currently 60,000,000, must be increased in order to complete the offering of such additional Units under the Private Placement Memorandum, which would result in the issuance of an additional 2,083,335 shares of common stock of the Company; and WHEREAS, the Warrant Holder and the Company wish to amend the Warrant as set forth herein to facilitate the offering of such additional Units. NOW, THEREFORE, in consideration of the mutual covenants set forth herein the parties agree as follows: 1. The Warrant shall not be exercisable by the Warrant Holder, his registered assign, or any other holder thereof until the Company's shareholders have approved and ratified at a duly convened meeting, an increase in the aggregate number of shares of common stock which the Company shall have authority to issue by at least such amount as is necessary to have available in reserve a sufficient number of shares for issuance upon exercise of all warrants and options granted by the Company as of the date of this Amendment. When the foregoing approval has been received and the appropriate amendment to the Company's Articles of Incorporation has been filed with the Minnesota Secretary of State, the Warrant Holder shall be immediately entitled to exercise the Warrant for such number of shares as the Warrant Holder would have otherwise been entitled to receive. 2. The terms and conditions of the Warrant shall remain the same in every respect other than that stated in paragraph 1 above. 3. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. This Agreement may be amended only by a writing signed by both of the parties hereto. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. IN WITNESS WHEREOF, the parties have set their hands hereto as of the date first set forth above. QUANTECH LTD. By ___________________________ Its _______________________ _________________________________ Edward E. Strickland FIRST AMENDMENT TO WARRANT THE FIRST AMENDMENT TO WARRANT is made and executed as of this 1st day of May, 1996, by and between GREGORY G. FREITAG (the "Warrant Holder") and QUANTECH LTD., a Minnesota corporation (the "Company"). WHEREAS, under that certain stock option dated December 1, 1995 (the "Warrant"), the Warrant Holder or his registered assign is entitled to subscribe for and purchase from the Company, at any time through November 8, 2000, five hundred thousand (500,000) fully paid and nonassessable shares of the common stock of the Company, WHEREAS, the Company previously authorized a private placement of securities with a maximum aggregate offering price of $2,500,000 through John G. Kinnard and Company, Incorporated (the "Agent") pursuant to that certain Confidential Private Placement Memorandum dated February 5, 1996 (the "Private Placement Memorandum"); WHEREAS, the Agent has advised the Company that the private placement is oversubscribed and the Board of Directors believes it is in the best interest of the Company to raise an additional $1,250,000 of capital in that private placement by offering an additional 416,667 Units for sale, each Unit consisting of five shares of common stock at a price of $3.00 per Unit; WHEREAS, the number of authorized shares of common stock of the Company, which is currently 60,000,000, must be increased in order to complete the offering of such additional Units under the Private Placement Memorandum, which would result in the issuance of an additional 2,083,335 shares of common stock of the Company; and WHEREAS, the Warrant Holder and the Company wish to amend the Warrant as set forth herein to facilitate the offering of such additional Units. NOW, THEREFORE, in consideration of the mutual covenants set forth herein the parties agree as follows: 1. The Warrant shall not be exercisable by the Warrant Holder, his registered assign, or any other holder thereof until the Company's shareholders have approved and ratified at a duly convened meeting, an increase in the aggregate number of shares of common stock which the Company shall have authority to issue by at least such amount as is necessary to have available in reserve a sufficient number of shares for issuance upon exercise of all warrants and options granted by the Company as of the date of this Amendment. When the foregoing approval has been received and the appropriate amendment to the Company's Articles of Incorporation has been filed with the Minnesota Secretary of State, the Warrant Holder shall be immediately entitled to exercise the Warrant for such number of shares as the Warrant Holder would have otherwise been entitled to receive. 2. The terms and conditions of the Warrant shall remain the same in every respect other than that stated in paragraph 1 above. 3. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. This Agreement may be amended only by a writing signed by both of the parties hereto. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. IN WITNESS WHEREOF, the parties have set their hands hereto as of the date first set forth above. QUANTECH LTD. By ___________________________ Its _______________________ _________________________________ Gregory G. Freitag FIRST AMENDMENT TO WARRANT THE FIRST AMENDMENT TO WARRANT is made and executed as of this 1st day of May, 1996, by and between JAMES F. LYONS (the "Warrant Holder") and QUANTECH LTD., a Minnesota corporation (the "Company"). WHEREAS, under that certain stock option dated September 28, 1995 (the "Warrant"), the Warrant Holder or his registered assign is entitled to subscribe for and purchase from the Company, at any time through November 8, 2000, five hundred thousand (500,000) fully paid and nonassessable shares of the common stock of the Company, WHEREAS, the Company previously authorized a private placement of securities with a maximum aggregate offering price of $2,500,000 through John G. Kinnard and Company, Incorporated (the "Agent") pursuant to that certain Confidential Private Placement Memorandum dated February 5, 1996 (the "Private Placement Memorandum"); WHEREAS, the Agent has advised the Company that the private placement is oversubscribed and the Board of Directors believes it is in the best interest of the Company to raise an additional $1,250,000 of capital in that private placement by offering an additional 416,667 Units for sale, each Unit consisting of five shares of common stock at a price of $3.00 per Unit; WHEREAS, the number of authorized shares of common stock of the Company, which is currently 60,000,000, must be increased in order to complete the offering of such additional Units under the Private Placement Memorandum, which would result in the issuance of an additional 2,083,335 shares of common stock of the Company; and WHEREAS, the Warrant Holder and the Company wish to amend the Warrant as set forth herein to facilitate the offering of such additional Units. NOW, THEREFORE, in consideration of the mutual covenants set forth herein the parties agree as follows: 1. The Warrant shall not be exercisable by the Warrant Holder, his registered assign, or any other holder thereof until the Company's shareholders have approved and ratified at a duly convened meeting, an increase in the aggregate number of shares of common stock which the Company shall have authority to issue by at least such amount as is necessary to have available in reserve a sufficient number of shares for issuance upon exercise of all warrants and options granted by the Company as of the date of this Amendment. When the foregoing approval has been received and the appropriate amendment to the Company's Articles of Incorporation has been filed with the Minnesota Secretary of State, the Warrant Holder shall be immediately entitled to exercise the Warrant for such number of shares as the Warrant Holder would have otherwise been entitled to receive. 2. The terms and conditions of the Warrant shall remain the same in every respect other than that stated in paragraph 1 above. 3. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. This Agreement may be amended only by a writing signed by both of the parties hereto. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. IN WITNESS WHEREOF, the parties have set their hands hereto as of the date first set forth above. QUANTECH LTD. By ___________________________ Its _______________________ _________________________________ James F. Lyons FIRST AMENDMENT TO WARRANT THE FIRST AMENDMENT TO WARRANT is made and executed as of this 1st day of May, 1996, by and between R. H. JOSEPH SHAW (the "Warrant Holder") and QUANTECH LTD., a Minnesota corporation (the "Company"). WHEREAS, under that certain warrant dated May 15, 1995 (the "Warrant"), the Warrant Holder or his registered assign is entitled to subscribe for and purchase from the Company, at any time through November 8, 2000, one million two hundred thousand (1,200,000) fully paid and nonassessable shares of the common stock of the Company, WHEREAS, the Company previously authorized a private placement of securities with a maximum aggregate offering price of $2,500,000 through John G. Kinnard and Company, Incorporated (the "Agent") pursuant to that certain Confidential Private Placement Memorandum dated February 5, 1996 (the "Private Placement Memorandum"); WHEREAS, the Agent has advised the Company that the private placement is oversubscribed and the Board of Directors believes it is in the best interest of the Company to raise an additional $1,250,000 of capital in that private placement by offering an additional 416,667 Units for sale, each Unit consisting of five shares of common stock at a price of $3.00 per Unit; WHEREAS, the number of authorized shares of common stock of the Company, which is currently 60,000,000, must be increased in order to complete the offering of such additional Units under the Private Placement Memorandum, which would result in the issuance of an additional 2,083,335 shares of common stock of the Company; and WHEREAS, the Warrant Holder and the Company wish to amend the Warrant as set forth herein to facilitate the offering of such additional Units. NOW, THEREFORE, in consideration of the mutual covenants set forth herein the parties agree as follows: 1. The Warrant shall not be exercisable by the Warrant Holder, his registered assign, or any other holder thereof for only nine hundred thousand (900,000) shares of the common stock of the Company until the Company's shareholders have approved and ratified at a duly convened meeting, an increase in the aggregate number of shares of common stock which the Company shall have authority to issue by at least such amount as is necessary to have available in reserve a sufficient number of shares for issuance upon exercise of all warrants and options granted by the Company as of the date of this Amendment. When the foregoing approval has been received and the appropriate amendment to the Company's Articles of Incorporation has been filed with the Minnesota Secretary of State, the Warrant Holder shall be immediately entitled to exercise the Warrant for such number of shares as the Warrant Holder would have otherwise been entitled to receive. 2. The terms and conditions of the Warrant shall remain the same in every respect other than that stated in paragraph 1 above. 3. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. This Agreement may be amended only by a writing signed by both of the parties hereto. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. IN WITNESS WHEREOF, the parties have set their hands hereto as of the date first set forth above. QUANTECH LTD. By ___________________________ Its _______________________ _________________________________ R. H. Joseph Shaw EX-23.2 5 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors Quantech, Ltd. St. Paul, Minnesota We hereby consent to the use in this Registration Statement on Form SB-2 of our report, dated August 29, 1995, relating to the financial statements of Quantech, Ltd., and to the reference to our Firm under the captions "Experts" and "Selected Financial Data" in the Prospectus. McGLADREY & PULLEN, LLP Minneapolis, Minnesota June 24, 1996 -----END PRIVACY-ENHANCED MESSAGE-----