-----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, JovRWjBXVCCSi/ysLaj74xrxorrBQO/3AJRbSjHlvSEDmy6ajNkpXVrkVxWsQxTg yLKZMh6DUHOeArjci4Eq4g== 0000914190-96-000326.txt : 19961115 0000914190-96-000326.hdr.sgml : 19961115 ACCESSION NUMBER: 0000914190-96-000326 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-19957 FILM NUMBER: 96662272 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 10QSB 1 FORM 10-QSB FOR THIRD QUARTER 1996 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended: Commission File Number: September 30, 1996 0 - 19957 Quantech Ltd. (Exact name of registrant as specified in its charter) Minnesota 41-1709417 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) identification No.) 1419 Energy Park Drive St. Paul, MN 55108 (Address of principal executive offices) (Zip code) (612)-647-6370 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ____ Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 47,095,759 shares of Common Stock, par value $.01 per share, outstanding as of November 11, 1996. Index PART I. FINANCIAL INFORMATION Page No. Item 1: Financial Statements: Balance Sheets as of September 30, 1996 and June 30, 1996 3 Statement of Operations for the Three Months Ended September 30, 1996 and 1995 and from inception to September 30, 1996 4 Statement of Stockholders' Equity from inception to September 30, 1996 5 Statement of Cash Flows for the Quarters ended September 30, 1996 and 1995 and from inception to September 30, 1996 6 Notes to Financial Statements 7 Item 2: Management's Discussion and Analysis or Plan of Operation 8 PART II. OTHER INFORMATION 10 PART I QUANTECH LTD. (A Development Stage Company) BALANCE SHEET
(Unaudited) September 30, June 30, 1996 1996 ------------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,267,172 $ 2,942,871 Other current assets 68,974 41,269 ----------- ----------- 2,336,146 2,984,140 ----------- ----------- EQUIPMENT Equipment 332,712 268,058 Leasehold Improvements 15,000 15,000 ----------- ----------- 347,712 283,058 Less:accumulated depreciation (92,498) (78,657) ----------- ----------- 255,214 204,401 OTHER ASSETS License agreement, at cost, less amortization 2,264,390 2,320,334 Organization expenses, at cost, less amortization 887 4,675 ----------- ----------- 2,265,277 2,325,009 ----------- ----------- TOTAL ASSETS $ 4,856,637 $ 5,513,550 =========== =========== LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) CURRENT LIABILITIES Short term debt $ 19,850 $ 24,455 Accounts Payable 155,866 114,934 Accrued Expenses: Spectrum Diagnostics Inc. obligations 49,360 53,637 Other 8,894 0 ----------- ----------- Total Current Liabilites 233,970 193,026 ----------- ----------- LONG-TERM OBLIGATIONS Minimum Royalty Commitment 56,250 37,500 ----------- ----------- STOCKHOLDERS EQUITY (DEFICIT) Common stock, $.01 par value; authorized 60,000,000 shares issued and outstanding 46,910,759 shares at September 30, 1996; and 46,900,759 at June 30, 1996 $ 469,108 $ 469,008 Additional paid-in capital 15,286,946 15,296,856 Deficit accumulated during the development stage (11,189,637) (10,482,840) ----------- ----------- Total Stockholders Equity (Deficit) 4,566,417 5,283,024 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 4,856,637 $ 5,513,550 =========== ===========
QUANTECH LTD. (A Development Stage Company) STATEMENT OF OPERATIONS-UNAUDITED
Period From September 30, 1991 Three months Three months (Date 0f Ended Ended Inception), to September 30, September 30, September 30, 1996 1995 1996 ------------ ------------ ------------ Interest Income $ 34,692 $ 1,151 $ 124,619 ------------ ------------ ------------ Expenses: General & Administrative 357,494 228,663 6,498,965 Research and development 362,832 235,734 2,893,951 Minimum royalty expense 18,750 43,750 906,250 Loses resulting from transactions with Spectrum Diagnostics Inc. -- -- 556,150 Net exchange (gain) -- -- (67,172) Financing 2,413 51,071 483,517 ------------ ------------ ------------ 741,489 559,218 11,271,661 ------------ ------------ ------------ Loss before income taxes (706,797) (558,067) (11,147,042) Income taxes -- -- 42,595 ============ ============ ============ Net loss $ (706,797) $ (558,067) $(11,189,637) ============ ============ ============ Loss per common share $ (0.02) $ (0.07) Weighted average common shares outstanding 46,902,063 8,319,094
QUANTECH LTD (A Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY-UNAUDITED Period From September 30, 1991 (date of Inception), to September 30, 1996
Deficit Accumulated During Par Additional the Paid for Shares Value Paid-In Development Subscriptions Not Issued Amount Capital Stage Receivable Issued ------------------------------------------------------------------------------ Balance at Inception Net Loss ($3,475,608) 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 Common stock issued, September 1992 700,000 $699,033 $875,967 ($53,689) Common stock issuance costs ($312,755) Common stock to be issued $120,000 Cumulative translation adjustment Elimination of cumulative translation adjustment Officers advances, net ------------------------------------------------------------------------------ Balance, December 31, 1992 4,500,000 $4,465,353 $1,461,617 ($3,475,608) ($53,689) $120,000 Net loss ($996,089) Common stock transactions: Common stock issued, January 1993 160,000 $1,600 $118,400 ($120,000) Common stock issued, April 1993 30,000 $300 $11,700 Change in common stock par value resulting from merger 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 ($4,471,697) ($53,689) $0 Net loss ($1,543,888) 240,000 shares of common stock to be issued $30,000 Repayments $53,689 ------------------------------------------------------------------------------ Balance, June 30, 1994 4,690,000 $46,900 $6,012,070 ($6,015,585) $0 $30,000 Net loss ($2,070,292) Common stock issued, June 1995 2,150,000 $21,500 $276,068 ($20,000) ($30,000) Warrants issued for services $40,200 ------------------------------------------------------------------------------ Balance June 30, 1995 6,840,000 $68,400 $6,328,338 ($8,085,877) ($20,000) $0 Common stock issued, net of issuance costs of $848,877: July, 1995 6,160,000 $61,600 $1,304,450 August, 1995 717,600 $7,176 $161,460 September, 1995 13,807,296 $138,073 $2,370,389 November, 1995 1,897,840 $18,978 $425,482 December, 1995 11,217,157 $112,172 $1,292,473 May, 1996 6,275,000 $62,750 $3,300,422 June, 1996 5,058 $51 $3,650 Payments received on subscription receivable (19,192) ($192) ($14,808) $20,000 Compensation expense recorded on stock options $125,000 Net loss ($2,396,963) ------------------------------------------------------------------------------ Balance, June 30, 1996 46,900,759 $469,008 $15,296,856 ($10,482,840) $0 $0 Common stock issued Sept., 1996 10,000 $100 $2,400 Stock offering costs ($12,310) Net loss ($706,797) ------------------------------------------------------------------------------ Balance, September 30, 1996 (Unaudited) 46,910,759 $469,108 $15,286,946 ($11,189,637) $0 $0 ==============================================================================
QUANTECH LTD (A Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY-UNAUDITED (continued) Period From September 30, 1991 (date of Inception), to September 30, 1996
Due Cumulative From Translation Officers Adjustment ---------------------------- Balance at Inception Net Loss Common stock transactions: Common stock issued, October 1991 Common stock issued, November 1991 Common stock issuance costs Cumulative translation adjustment $387,754 Common stock issued, September 1992 Common stock issuance costs Common stock to be issued Cumulative translation adjustment ($209,099) Elimination of cumulative translation adjustment ($178,655) Officers advances, net ($27,433) -------------------------- Balance, December 31, 1992 ($27,433) $0 Net loss Common stock transactions: Common stock issued, January 1993 Common stock issued, April 1993 Change in common stock par value resulting from merger Change in common stock par value resulting from merger Repayments $5,137 ---------------------------- Balance,June 30, 1993 ($22,296) $0 Net loss 240,000 shares of common stock to be issued Repayments $22,296 ---------------------------- Balance, June 30, 1994 $0 $0 Net loss Common stock issued, June 1995 Warrants issued for services ---------------------------- Balance June 30, 1995 $0 $0 Common stock issued, net of issuance costs of $848,877: July, 1995 August, 1995 September, 1995 November, 1995 December, 1995 May, 1996 June, 1996 Payments received on subscription receivable Compensation expense recorded on stock options Net loss ---------------------------- Balance, June 30, 1996 $0 $0 Common stock issued Sept., 1996 Stock offering costs Net loss ---------------------------- Balance, September 30, 1996 (Unaudited) $0 $0 ============================
QUANTECH LTD (A Development Stage Company) STATEMENTS OF CASH FLOWS - UNAUDITED
Period From September 30, Three Three 1991 Months Months (Date of ended ended Inception), to September 30, September 30, September 30, 1996 1995 1996 ---------- ------------ ------------ Cash Flows From Operating Activities Net Loss $(706,797) $ (558,067) $(11,189,637) Adjustments to reconcile net loss to net cash used in operating activities: Elimination of cumulative translation adjustment -- -- (178,655) Depreciation 13,841 6,695 138,852 Amortization 59,732 59,732 1,188,011 Noncash compensation and interest -- -- 489,250 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 (27,705) 7,722 7,463 Increase (decrease)in accounts payable 40,932 (512,566) 154,311 Increase (decrease) in accrued expenses 23,367 (285,710) 388,628 --------- ---------- ----------- Net cash used in operating activities (596,630) (1,282,194) (8,378,127) --------- ---------- ----------- Cash Flows From Investing Activities Purchase of property and equipment (64,654) (65,962) (387,095) 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 (64,654) (65,962) (4,316,844) --------- ---------- ----------- Cash Flows From Financing Activities Net proceeds from the sale of common stock $ 2,500 $2,882,952 $12,610,736 Proceeds on debt obligations -- -- 2,658,435 Payments received on stock subscription receivables -- -- 5,000 Stock offering costs (12,310) -- (12,310) Payments on debt obligations (4,605) (335,893) (502,960) --------- ---------- ----------- Net cash provided by financing activities (14,415) 2,547,059 14,758,901 --------- ---------- ----------- Effect of Exchange Rate Changes on Cash -- -- 203,242 --------- ---------- ----------- Net decrease in cash (675,699) 1,198,903 2,267,172 Cash Beginning 2,942,871 4,276 -- --------- ---------- ----------- Ending $2,267,172 $1,203,179 $ 2,267,172 --------- ---------- -----------
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 September 30, 1996 and the results of operations and its cash flows for the three-month periods ended September 30, 1996 and 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, 1996. Note 2. 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. 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 September 30, 1996 the Company has paid $850,000 of the cumulative royalty payments. The Company has also ratably accrued additional minimum royalty payments of $37,500 as of June 30, 1996, because sales or sublicense revenues through December 31, 1997 may not be adequate to meet the cumulative minimum royalty payments. The Company intends to accrue the entire $150,00 by December 31, 1997. ITEM 2 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 the 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. 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 Company's initial focus is to develop its SPR instrument for Critical Care Units of hospitals; initially for the emergency department of such Units. Its first test will aid physicians in assessing whether a patient has suffered a heart attack. 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. Results of Operations The Company has incurred a net loss of $11,189,637 from September 30, 1991 (date of inception) through September 30, 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 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. For the three months ended September 30, 1996 the Company had interest income of $34,692 compared to $1,151 for the same period in 1995 as a result of cash on hand obtained from Quantech's private placements. General and administration expenses increased from $228,663 for the three months ended September 30, 1995 to $357,494 for the three months ended September 30, 1996. This increase in Quantech's general and administration expenses was in part a result of adding general and administration personnel and other costs associated with Quantech continuing to build its infrastructure in anticipation of commercial production of its system. A portion of the increase was also attributable to increased public relations expenditures as the Company incurred costs for its year end materials (Form 10-KSB and Annual Report), proxy materials, prospectus for selling shareholders and investor packages requested by potential shareholders and brokers. General and administration expenses are not anticipated to increase significantly in the next quarter, but will continue to grow in the future as the Company nears market introduction of, and begins to sell, its system. Research and development costs increased from $235,734 in the three months ended September 30, 1995 to $362,832 in the same period of 1996. This increase is a result of accelerated research and development activity including hiring of employees and consultants and engaging firms to perform contract development work. Minimum royalty expense decreased in the three months ended September 30, 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 three months ended September 30, 1996 Quantech had a loss of $706,797 as compared to $558,067 for the same period ended September 30, 1995. This increase was a result of the rise in research and development and general and administrative expenses in the 1996 period exceeding decreases in such period in minimum royalty and financing expenses and the increase in interest income. In the three months ended September 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 and contracted the development of the disposable slides for the tests. Management anticipates that the Company will be able to submit its system to the FDA for approval around the end of calendar year 1996. Such FDA approval is anticipated in the spring of 1997. After such approval the system will be marketed in the United States. 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. Liquidity and Capital Resources From inception to September 30, 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. 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 of its system. Although the Company has a limited lending arrangement with its bank, it does not anticipate receiving significant funding from lenders. 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. Quantech incurred capital expenditures of approximately $65,000 in the three months ended September 30, 1996. The Company anticipates significant capital expenditures in fiscal 1997 for laboratory and 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. The Company currently has outstanding 47,080,759 shares of Common Stock. It also has options and warrants outstanding to purchase an additional 16,153,603 shares. 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. The Company does not intend to adopt Statement No. 123 in measuring expense, however it will present the proforma disclosures and those pro forma amounts will likely be less than the amounts shown in future statements of income. Cautionary Statements As provided for under the Private Securities Litigation Act of 1995, the Company wishes to caution investors that the following important factors, among others, in some cases have affected and in the future could affect the Company's actual results of operations and cause such results to differ materially from those anticipated in forward-looking statements made in this document and elsewhere by or on behalf of the Company: No History of Operations; Development Stage Company; Going Concern Uncertainty To date, the Company does not have a product ready to be brought to market and its proposed operations are subject to all of the risks inherent in a new business enterprise, including completion of commercial development and FDA approval of its products within reasonable time frames and budget constraints, lack of marketing experience and lack of production history. 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, the development of a new product and the competitive environment in which the Company will operate. The report of the independent auditors on the Company's financial Statements for the period ended June 30, 1996, 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. Future Capital Needs 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 which could dilute current 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 Other Factors As described in the Company's Form 10-KSB for the year ended June 10, 1996 under Cautionary Statements and Prospectus dated September 12, 1996 under Risk Factors, there are additional factors concerning the Company that should be considered including: uncertainty of market acceptance of Quantech's product once introduced, inability or delay in , affects of government regulation on product and its sale, ability to manufacture product, exposure to the risk of product liability and market for the Company's shares. PART II OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities Not Applicable Item 3. Defaults upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Materially Important Events On April 23, 1996, a group of three shareholders of Quantech Ltd., calling itself The Group for the Maximization of Shareholder Value of Quantech Ltd. (the "Group"), notified the Company that it had filed a Schedule 13D with the Securities and Exchange Commission. The Group on September 15, 1996 withdrew its Schedule 13D and the Group disbanded. Item 6. Exhibits and Reports on 8-K a. Exhibits - See "Exhibit Index" on page following signatures. b. Reports on 8-K - None Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. QUANTECH LTD /s/ R.H. Joseph Shaw R.H. Joseph Shaw President and Chief Executive Officer /s/ Gregory G. Freitag Gregory G. Freitag Chief Financial Officer Date: November 12, 1996 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. EXHIBIT INDEX TO FORM 10-QSB OF QUANTECH LTD. For The Quarter Ended September 30, 1996 Commission File Number: 0-19957 Exhibit Description Number 10.1 Design proposal with Robert Case + Associates, Inc. dated October 2, 1996 10.2 Design proposal with Robert Case + Associates, Inc. dated October 15, 1996 EX-10.1 2 10/2/96 PROPOSAL EXHIBIT 10.1 Proposal (Confidential) PN 3222 (QTECH100296) Quantech Ltd. St. Paul, MN SPR System Disposable Development October 2, 1996 Quantech Ltd. SPR System Disposable Development PN 3222/(QTECH100296) Introduction/Assumptions Quantech Ltd. (Quantech) is a development stage company seeking to commercialize its SPR technology. The Company's initial focus is the development of SPR for the hospital critical care 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 each offering a particular test or series of tests. The Quantech system has the ability to analyze body fluids (e.g., whole blood, urine, saliva) without user preparation or addition of reagents. 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 where the most pressing and unmet customer needs are found. The Disposable Quantech's disposable consists of an injection molded plastic carrier containing up to four gold coated grating surfaces. The gold surface is overlaid with reagents that react specifically with the analyte to be identified and measured. A unique aspect of the Quantech disposable will be the ability to attach a standard vacutainer tube, complete with its top intact, directly to the disposable so that it is easy to use and the user does not come in direct contact with the patient sample. Future disposables for certain tests may also be configured to handle samples of urine, saliva, or other body fluids. 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. When the test disposable is inserted in the instrument, a bar-code reader will identify the type of test to be performed and contain certain calibration information necessary to effectively maintain quality control. The development team of Robert Case + Associates, Inc. (RC+A) and the Product Design Center (PDC) propose to assist Quantech in developing and/or specifying the detailed, commercial part and assembly design and specifications for the disposable sub-system, which consists of: 1. Molded plastic disposable sample preparation/processing assembly, including: a. primary sample tube connection b. red blood cell filtration chamber c. sample temperature control chamber d. sample introduction pressure/vacuum connection e. assay reaction/read chamber f. assay identification/QC bar code label target area Quantech Ltd. SPR System Disposable Development PN 3222/(QTECH100296) 2. Mechanical articulation and disposable positioning components of the instrument "drawer". 3. Sample introduction pressure/vacuum components and fluid circuit. 4. Sensor components for: a. disposable positioning b. reaction chamber sample volume fill c. bar code reading target Note: It is assumed that the following specifications will be provided by Quantech: a. red blood cell filtration material b. sample temperature/tolerance c. sample reaction volumes/tolerance d. disposable positioning tolerances e. bar code reading target area ROBERT CASE + ASSOCIATES, INC./PRODUCT DESIGN CENTER As specialists in health care product development, RC+A/PDC has distinguished itself through integrated application of our core competencies of customer/user research, industrial design and product engineering, focused toward our clients rapid product development needs. The key results for our clients are: 1) rapid specification of customer and technical product design requirements through customer and user product evaluations; 2) integration of the customer/user requirements into the detailed product design, engineering and production specifications; 3) single-point accountability for delivery of product engineering, prototypes and production specifications. This fully integrated product development process has repeatedly enabled our clients to develop Better Products, Faster. Work Program Phase I Sample Introduction and Preparation Feasibility Breadboard Deliverables: - Design specifications and documentation of the disposable fluid path, prep/processing chambers and connectology. - Design specifications and documentation of the sample introduction pressure/vacuum components and fluid circuit. - Industrial design concepts (ergonomics & aesthetics) for the disposable assembly. - Fabrication of a functional disposable and sample introduction/prep breadboard. - Detailed plan for development of the commercial sub-system. Phase II Production Design Development Deliverables: - Production Design Specifications and Documentation Events and tasks for the phases of activity are detailed below. Subsequent phases will be further detailed and quoted as the necessary information becomes available. The Fees Outline defines the project budget and Appendix B - General Provisions describes the contract terms. Phase I - Sample Introduction and Preparation Feasibility Breadboard Deliverables - - Design specifications and documentation of the disposable fluid path, prep/processing chambers and connectology. - - Design specifications and documentation of the sample introduction pressure/vacuum components and fluid circuit. - - Industrial design concepts (ergonomics & aesthetics) for the disposable assembly. - - Fabrication of a functional disposable and sample introduction/prep breadboard. - - Detailed Phase II plan for development of the commercial sub-system. Activities 1.1 Product Requirements Review RC+A/PDC will review the current project/product requirements and specifications for the disposable sub-system with Program Management. The results of this review will provide the basis on which the balance of this phase will proceed. Note: The initial review was conducted on September 24, 1996 at the RC+A office in Chicago. It is anticipated that a telephone review will be scheduled during the week of October 7, 1996 to further discuss design concepts and the recent results of Quantech research with appropriate team members. 1.2 Disposable Sub-system Design Development RC+A/PDC will develop and/or specify the functional part and assembly design for the disposable sub-system, consisting of: 1. Plastic disposable sample preparation/processing assembly, including: a. primary sample tube connection b. red blood cell filtration chamber c. sample temperature control chamber d. sample introduction pressure/vacuum connection e. assay reaction/read chamber f. assay identification/QC bar code label target area 2. Disposable mechanical positioning components. 3. Sample introduction pressure/vacuum components and fluid circuit. A Pro/Engineer Rev. 16 CAD data base will be developed of all parts designed by RC+A/PDC as a part of this project, in conjunction with required FEA-based mechanical, thermal and flow analysis. Industrial design concept sketches of the proposed disposable ergonomic and aesthetic details will be provided in conjunction with the engineering feasibility database/drawings. 1.3 Program/Design Review RC+A/PDC will conduct a review of the proposed disposable design documentation with Program Management and the impact on the program plan, if any. Phase I - Sample Introduction and Preparation Feasibility Breadboard 1.4 Engineering Breadboard Fabrication and Testing RC+A/PDC will fabricate a functional engineering breadboard which will demonstrate feasibility for the proposed disposable sub-system design. The breadboard will include the following functional components: 1. Machined/purchased component disposable sample preparation/ processing assembly, including: a. primary sample tube connection b. red blood cell filtration chamber/material c. sample temperature control chamber d. assay reaction/read chamber e. sample introduction pressure/vacuum connection 2. Disposable mechanical positioning components. 3. Sample introduction pressure/vacuum components and fluid circuit. Tests will be conducted and documented with the breadboard, and necessary revisions made, to ensure functionality to specification prior to delivery to Quantech R&D. 1.5 Program/Design Review RC+A/PDC will conduct a review of the breadboard, test data and revised engineering documentation with Project Management. The results of this review will determine the requirements for the detailed production design phase of the project. Phase II - Production Design Development Deliverables Detailed production design specifications and documentation for the Disposable Sub-system. Activities 2.1 Production Requirements Review RC+A/PDC will conduct a review session with Program Management and the Program Team to confirm the manufacturability and performance requirements and specifications for the disposable sub-system. The deliverables of this phase will provide detailed production design specifications and documentation for the commercial parts and assemblies of the following items: 1. Molded plastic disposable sample preparation/processing assembly, including: a. primary sample tube connection b. red blood cell filtration chamber c. sample temperature control chamber d. assay reaction/read chamber e. sample introduction pressure/vacuum connection f. assay identification/QC bar code label target area 2. Mechanical articulation and disposable positioning components of the instrument "drawer". 3. Sample introduction pressure/vacuum components and fluid circuit. 4. Sensor components for: a. disposable positioning b. reaction chamber sample volume fill c. bar code reading target Note: It is assumed that the following specifications will be provided by Quantech: a. red blood cell filtration material b. sample temperature/tolerance c. sample reaction volumes/tolerance d. disposable positioning tolerances e. bar code reading target area Quantech will supply RC+A/PDC with specifications, sources and/or samples of all purchased parts and components which will interface with the disposable sub-system. 2.2 Detailed Component Design/Engineering 2.2.1 Design Layout/Pro-E CAD Model RC+A/PDC will develop a Pro-E model for the commercial design of the sub-system. The CAD model will be reviewed with Program Management and Quantech development resources for confirmation of component and subsystem functional and assembly requirements. RC+A/PDC will coordinate with Quantech selected vendors regarding costing and timing for production implementation. Phase II - Production Design Development 2.2.2 Final Part Drawings & Database RC+A/PDC will produce detailed engineering drawings, material/process specifications and updated Pro-E database for the sub-system. 2.3 Program/Design Review A detailed design review of the production documentation, specifications, schedule and costs will be conducted with Program Management and selected production vendor(s). Program Management will determine the level of support required for further prototype and production execution. Fees Outline Robert Case + Associates, Inc./Product Design Center Client: Quantech Ltd. - Joe Shaw Project: SPR System Disposable Development Project No: 3222/(QTECH100296) Date: October 2, 1996 Phase Activity Fees I Sample Introduction and Preparation Feasibility Breadboard A. Disposable Sub-system Design Development $47,600 (Activity 1.1-1.3) B. Engineering Breadboard Fabrication & Testing $12,400* (Activity 1.4-1.5) Reimbursable Expenses $2500* II Production Design Development $125,000* (*) Budget Estimates Notes: 1. Estimates The budget estimated fees will be quoted for Client approval upon completion of each previous phase. 2. Fees The fees quoted by RC+A/PDC in the proposal do not include reimbursable expenses incurred by RC+A/PDC which include but are not restricted to transportation, lodging, meals and long-distance telephone calls, delivery services and the cost of documentation and reproduction excessive of the normal development process. These fees will be billed on monthly progress billings. The quoted out-of-pocket expenses are estimates only. The fees and costs quoted in the proposal will remain in effect for sixty (60) days from the date of the proposal subject only to fluctuations in the cost of materials, outside services and time delays caused by factors beyond RC+A/PDC control. The fees and costs presented to Client have been estimated according to Client's goals and objectives as originally stated and set forth in the proposal, and are subject to revisions by RC+A/PDC as changes are made over the course of the project. The fees and costs have been estimated according to using RC+A/PDC resources except where Client has indicated specific resources to be used prior to project quotation. Should Client require specifying resources to be used after RC+A/PDC has submitted a project quotation, the fees and costs are subject to revisions by RC+A/PDC as dictated by such Client specified resources. Status updates and projections will be made by RC+A/PDC at the intervals outlined in the proposal. Appendix A - Phase Approval Robert Case + Associates, Inc./Product Design Center Client: Quantech Ltd. - Joe Shaw Project: SPR System Disposable Development Project No: 3222/(QTECH100296) Date: October 2, 1996 Phase Activity Fees I Sample Introduction and Preparation Feasibility Breadboard A. Disposable Sub-system Design Development $47,600 (Activity 1.1-1.3) B. Engineering Breadboard Fabrication & Testing $12,400* (Activity 1.4-1.5) Reimbursable Expenses $2500* (*) Budget Estimate The undersigned hereby authorizes RC+A/PDC to proceed with the above Phase(s) and agrees to the attached Appendix B General Provisions of the Proposal (Revision Date 12-21-95). Client Acceptance and Approval RC+A/PDC Acceptance and Approval By: By: (Authorized Signature) (Department Manager) Date: Date: 10/4/96 Name: Upon approval, please send signed copies of Title: Appendix A & B to: Client Purchase Order No:2007 Robert Case + Associates, Inc. 640 North LaSalle Street, Suite #282 Chicago, Illinois 60610 Appendix B - General Provisions of the Proposal Robert Case + Associates, Inc. - ---------------------------------------------------------------- This Appendix is attached to and made a part of the proposal given by Robert Case + Associates, Inc. (hereinafter referred to as "RC+A"). 1. General Terms RC+A is a professional organization providing independent consulting services to our clients. All Client documents and information will be considered confidential. All Client work in progress will be open for inspection and consultation by authorized employees (as designated by Client). The rights to any patentable inventions that may be developed during the course of the project will be assigned to Client. All actions or costs necessary to obtain a patent or to reserve any other rights will be Client's sole responsibility. Client hereby releases, hold harmless and indemnifies RC+A and its agents from any and all claims, damages, or attorneys' fees of any third parties relating in any way to this proposal, including design, production, sale or use of items which are the subject of this proposal. Client agrees that RC+A and its Agents shall have no liability to Client for claims or damages of any kind which may result from RC+A services in relation to the subject matter of this proposal. 2. Authorization to Proceed Upon receipt of Appendix A - Proposal Approval signed by Client, or other specific approval, RC+A will commence the work set forth in the approved phase(s). A written Purchase Order signed by an authorized agent of Client must follow within 15 days from RC+A's commencement of work. In the event such Purchase Order is not received on a timely basis, RC+A may in its sole discretion in addition to all other rights and remedies it may have, elect to discontinue work on the phase. Should work on a phase be discontinued by Client or RC+A, Client will be responsible for all fees and expenses incurred by RC+A up to the time work on the phase is discontinued, including a start-up and shut-down fee (estimated to be 15% of the total proposed phase fees) as well as all additional fees and expenses incurred by RC+A as a result of said discontinuance. 3. Fees and Expenses All fees, and costs quoted in the proposal will remain in effect for 30 days from the date of the proposal. Time schedules will be adjusted based on start date. Fees, costs, and time schedules are based on the use of RC+A resources except where Client has requested the use of specific resources and these resources are specified in the project proposal. Fees are subject to fluctuations in the cost of outside services and changes or additions requested by the client. The time schedules set forth in this proposal are best estimates of RC+A and subject o changes over the course of the project. The fees quoted by RC+A in this proposal do not include reimbursable expenses which include but are not limited to transportation, lodging, meals, travel incidentals and honoraria. Expenses will be periodically invoiced during the course of the project. Because of delays in third party billing, expenses may be invoiced as late as 90 days after the final project billing. Upon written request, documentation of expenses will be provided. Quoted out-of-pocket expenses are estimates for budgeting purposes only. 4. Billing Upon authorization, Client will be invoiced for 100% of the approved fees and/or estimated costs for proposals of less than $5,000, and 50% of the approved fees and/or estimated costs for proposals in excess of $5,000. Payment will be due upon receipt and shall be applied to the first fifty (50%) percent of the quoted fees and estimated costs of each phase of the proposal. Progress billings will be made upon commencement of work for the remaining fees and expenses incurred by RC+A and will be due upon receipt. Any balance remaining will be due upon completion and delivery of the finished project as defined in the proposal. RC+A shall retain title and rights to all work produced until it has received Client's final payment. Client grants RC+A security interest to secure payment to RC+A for all fees or other amounts due pursuant to all phases of this proposal or any other proposals in Clients fixtures, furniture, office equipment, patents, accounts receivable, bank accounts, motor vehicles, and any proceeds from their sale or deposition. Interest on unpaid invoices shall accrue at 1 1/2% per each full or partial month after due date. 5. Interpretation and Enforcement Parties hereby agree that interpretation and enforcement of this agreement will be governed by Illinois law and venue of any claim or lawsuit shall be Chicago, Illinois. Any controversy or claim arising out of or relating to this agreement or the breach thereof shall be settled by arbitration in accordance with the rules of the American Arbitration Association and judgment upon the award rendered shall be entered in any court having jurisdiction thereof. Any arbitrator's award or finding or any judgment or verdict thereon shall be final and u unappealable. All parties agree that venue for said arbitration shall be in Chicago, Illinois and that any litigation or arbitration commenced in any other venue shall be transferred instanter to Chicago, Illinois upon the written request of any party to this agreement. The prevailing party shall be entitled to reimbursement for attorneys' fees, costs or other expenses pertaining to said arbitration or any litigation and said attorneys' fees, costs and other expenses shall become a part of any award, judgment or verdict. All arbitration's shall have (3) three individuals acting as arbitrators. One arbitrator shall be selected by RC+A . One arbitrator shall be selected by Client. Both arbitrators shall select a third arbitrator. Any arbitrator selected by a party shall not be affiliated, associated or related to the parties selecting that arbitrator by blood, marriage, business or otherwise. The decision of the majority of the arbitrators shall be binding upon all parties. Client grants RC+A security interest to secure payment to RC+A for all fees or other amounts due pursuant to all phases of this proposal or any other proposals in Clients fixtures, furniture, office equipment, patents, accounts receivable, bank accounts, motor vehicles, and any proceeds from their sale or deposition. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their legal representatives, heirs, administrators, executors, successors and assigns. The waiver by either party of any breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party. Each party agrees to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement. Client Acceptance & Approval: Date:10/4/96 (Rev. 12-21-95) EX-10.2 3 10/15/96 PROPOSAL EXHIBIT 10.2 Proposal (Confidential) PN 3224 (QTECH101596) Quantech Ltd. St. Paul, MN SPR STAT System Instrument Development October 15, 1996 Quantech Ltd. SPR STAT System Instrument Development PN 3224/(QTECH101596) Introduction/Assumptions Quantech Ltd. (Quantech) is a development stage company seeking to commercialize its SPR technology. The Company's initial focus is the development of SPR for the hospital critical care 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. 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 where the most pressing and unmet customer needs are found. The SPR System The first generation Quantech system, the SPR STAT System, will consist of a small, bench top instrument and a series of disposables each offering a particular test or series of tests. The Quantech system has the ability to analyze body fluids (e.g., whole blood, urine, saliva) without user preparation or addition of reagents. Disposables will be configured to provide single tests or panels of up to three diagnostically-related tests. When the test disposable is inserted in the instrument, a bar-code reader will identify the type of test to be performed and contain certain calibration information necessary to effectively maintain quality control. Customer research has indicated the following Customer Requirements which shall serve as the basis for development of the system: Disposable - - Disposal in standard biohazardous waste vs. sharps waste - - Specific test must be easy to identify; color code disposable for each different test - - Safe to handle under high stress conditions; no sharps hazard - - Minimum space required for standby storage - - Patient ID label area - - Specimen collection method must be easy and simple; familiar device(s) and technique - - Non-breakable and no sample spillage - - Easily handled shape; wet, gloved hands - - Easy to distinguish sample from unit; color - - Easy, foolproof interface with sample tube - - User does not have to transfer blood from sample tube to disposable Instrument - - Easily readable, illuminated readout; recognize output at a distance from the bench - - Minimal manual steps; easy to operate - - Easy and foolproof to put disposable into instrument - - Easy to maintain reliable operation - - Liquid/debris resistant membrane switches Quantech Ltd. SPR STAT System Instrument Development PN 3224/(QTECH101596) - - Fit on the existing ER countertops - - Easy to wipe clean; look clean (not dark) - - Appearance of a professional, high quality instrument - - Display viewing angle adjustable to reduce screen glare; readable for 5th-95th %-tile standing users - - High reliability and durability - - "Walk-away" level of test automation and patient ID - - Provide standby storage to hold new test disposables - - Rounded, smooth edges to avoid cuts and abrasions - - Easy to visually locate under crowded, high stress conditions (color/form) - - Display and controls built into instrument - - Weigh enough to not be accidentally knocked off counter, or be easily walked away with The development team of Robert Case + Associates, Inc. (RC+A) and the Product Design Center (PDC) propose to assist Quantech in developing and/or specifying the detailed, commercial part and assembly design and specifications for selected sub-systems of the instrument. These sub-systems consist of the following items at the initiation of this program, and will be further defined as development proceeds. 1. Enclosure, EMI/RFI shielding and electronic components support "chassis". 2. Mechanical articulation and disposable positioning components of the instrument "drawer". 3. Sample introduction pressure/vacuum components and fluid circuit. 4. Sensor components for: a. disposable positioning b. reaction chamber sample volume fill c. bar code reading target 5. Temperature control components Note: It is assumed that the following specifications will be provided by Quantech: a. sample temperature/tolerance b. disposable positioning tolerances c. bar code reading target area ROBERT CASE + ASSOCIATES, INC./PRODUCT DESIGN CENTER As specialists in health care product development, RC+A/PDC has distinguished itself through integrated application of our core competencies of customer/user research, industrial design and product engineering, focused toward our clients rapid product development needs. The key results for our clients are: 1) rapid specification of customer and technical product design requirements through customer and user product evaluations; 2) integration of the customer/user requirements into the detailed product design, engineering and production specifications; 3) single-point accountability for delivery of product engineering, prototypes and production specifications. This fully integrated product development process has repeatedly enabled our clients to develop Better Products, Faster. Quantech Ltd. SPR STAT System Instrument Development PN 3224/(QTECH101596) Work Program Phase I Instrument Concept Optimization Deliverables: - Functional Sub-System Pro-E 3-D Solids Model - 3-D Form Factor Mockup - Pro-E Appearance Renderings - Preliminary Costing Data - Operator Interface Demonstration Mock-Up Phase II Clinical Prototype Instrument Development Deliverables: - Instrument Pro-E CAD Database and Detailed Engineering Documentation/Specifications - Instrument FEA Modeling and Analysis - Material and Process Specifications - Preliminary Cost Roll-up Events and tasks for the phases of activity are detailed below. Subsequent phases will be further detailed and quoted as the necessary information becomes available. The Fees Outline defines the project budget and Appendix B - General Provisions describes the contract terms. Phase I - Instrument Concept Optimization Deliverables - - Functional Sub-System Pro-E 3-D Solids Model - - 3-D Form Factor Mockup - - Pro-E Appearance Renderings - - Preliminary Costing Data - - Operator Interface Demonstration Mock-Up Activities 1.1 Product Requirements Review/Development Support RC+A/PDC will review the following project/product requirements and specifications for the instrument system with Program Management: - Customer/Product Requirements - Business/Technology/Product Plan - Patent Strategy - Regulatory/Safety Strategy - Functional Specification The results of this review will provide the basis on which the balance of this program will proceed. RC+A/PDC will support Functional/Design Specification development by providing Program Management with system specifications at appropriate points in the program. This activity will continue over the course of the entire program. 1.2 Instrument Concept Improvements RC+A/PDC will perform the following activities to update and improve the current instrument concept based on on-going marketing requirements investigation and R&D results. 1.2.1 Engineering Configuration Modeling System performance specifications will be reviewed with Program Management. This review will establish requirements for materials and processes research, DFM/DFA research and packaging, shipping, disposal, and environmental criteria determination. RC+A/PDC will develop a functional sub-system Pro-E 3-D solids model which will define the physical and spacial relationships of the core functional components in a electronic database. This model will also serve to define the overall enclosure configuration (form factors) of the instrument, and provide a technical basis for engineering development in Phase II. 1.2.2 Industrial Design Concept Usability and human factors requirements will be reviewed based on the current Customer Requirements. Based on this review operator interface design studies will be conducted and a 3-D mockup of the critical interface tasks will be constructed and evaluated. A 3-D form factor mockup will then be developed to confirm overall instrument geometry. Phase I - Instrument Concept Optimization The aesthetic options for the instrument enclosure will be depicted in a series of Pro-E appearance renderings, based on the 3-D solids model. 1.3 Design Review RC+A/PDC will conduct a review of the proposed instrument engineering and industrial design concepts with Program Management. A concept direction will be selected for finalization. 1.4 Concept/Component Integration 1.4.1 Pro-E Configuration Model The functional sub-system Pro-E 3-D solids model will be updated and revised as required to reflect the design direction selected by Program Management. 1.4.2 Pro-E Appearance Renderings The 3-D form factor mockup and the Pro-E appearance renderings, will be updated and revised based on the 3-D solids model and the design direction selected by Program Management. 1.5 Design/Cost Review RC+A/PDC will conduct a review of the revised engineering documentation, 3-D form factor mockup and the Pro-E appearance renderings with Project Management. The results of this review will determine the requirements for the detailed design phase of the program. 1.6 Demonstration Mock-Up Development/Evaluation RC+A/PDC will develop a set of design control drawings and fabricate an operator interface simulation mockup of the instrument. Selected functional components will be purchased and integrated into the mockup as required to demonstrate the critical operator tasks. The mockup will serve to verify the human factors and workflow characteristics of the instrument design by conducting informal hands-on evaluations of the instrument interface. 1.7 Program/Design Review A detailed design review of the design documentation and evaluation information, specifications, schedule and costs will be conducted with Program Management and selected production vendor(s) candidates. Updates and revisions to the program plan will be made as required. Phase II - Clinical Prototype Instrument Development Deliverables - - Instrument Pro-E CAD Database and Detailed Engineering Documentation/ Specifications - - Instrument FEA Modeling and Analysis - - Material and Process Specifications - - Preliminary Cost Roll-up Activities 2.1 Performance Specification Development RC+A/PDC will conduct a review session with Program Management and the Program Team to confirm the functional, DFM/DFA, regulatory, safety, and patent requirements and specifications for the instrument. The requirements and specifications identified and developed in this phase of activity will be documented and provided to Program Management as part of the on-going system specification support. Quantech will supply RC+A/PDC with specifications, sources and/or samples of all purchased parts and components which will be included in the instrument that are being specified/developed by other members of the SPR STAT System development team. 2.2 Vendor and Contract Manufacturer Sourcing RC+A/PDC will support Program Management in the identification, qualification and selection of clinical prototype and production vendors and a contract manufacturer. It is highly recommended that a selected contract manufacturer be employed to construct the clinical prototypes from prototype engineering documentation to become familiar with the system requirements and to provide recommendations for system manufacturability, reliability and cost optimization. 2.3 Detailed Component Design/Engineering 2.3.1 Design Layout/Pro-E CAD Database RC+A/PDC will develop a complete Pro-E database for the commercial design of the instrument sub-systems/components it is responsible for developing. The CAD database will be reviewed with Program Management and Quantech development resources for confirmation of component and subsystem functional and assembly requirements. RC+A/PDC will coordinate with Quantech selected vendors/contract manufacturer(s) regarding costing and timing for production implementation planning. 2.3.2 Performance Criteria Verification FEA modeling and analysis will be conducted as required to confirm the mechanical, thermal and mold flow specifications for the instrument components under development by RC+A/PDC. Phase II - Clinical Prototype Instrument Development 2.3.3 Prototype Part Documentation RC+A/PDC will produce detailed engineering drawings and updated Pro-E database for the instrument. The database will be capable of being directly employed in tooling production by vendors with appropriate CAD/CAM capabilities. 2.3.4 Material and Process Specifications RC+A/PDC will develop and document the material/process specifications for the instrument. 2.3.5 Preliminary Cost Roll-up Quotes from vendors and suppliers will be used to develop a preliminary cost estimate for instrument parts, tooling, fixturing and labor. 2.4 Design Review A detailed design review of design/performance specifications, DFM/DFA requirements, regulatory, safety, environmental, patent and tooling lead times and cost will be conducted. 2.5 Design Engineering Modifications The instrument design and specifications will be revised per the mutually agreed to results of the review Activity 2.4 above. 2.6 Program/Design Review A detailed design review of the design documentation, specifications, schedule and costs will be conducted with Program Management and selected production vendor(s) candidates. Updates and revisions to the program plan will be made as required. Note: Future phases of this program will be defined per the requirements identified by Program Management and RC+A/PDC. Currently those phases are anticipated to be: Phase III - Clinical Prototype Instrument Production Support Phase IV - Production Design/Specification Support Phase V - Release to Production Support RC+A/PDC proposes to support Quantech in the execution of these activities, but does not anticipate having primary deliverables responsibility for them, in that production resources should be available within the required timeframe. Fees Outline Robert Case + Associates, Inc./Product Design Center Page 1 of 2 Client: Quantech Ltd. - Joe Shaw Project: SPR STAT System Instrument Development Project No: 3224/(QTECH101596) Date: October 15, 1996 Phase Activity Fees I Instrument Concept Optimization A. Concept Improvements/Integration $82,300 (Activity 1.1-1.5) B. Demonstration Mockup Development $22,000 (Activity 1.6-1.7) Reimbursable Expenses $4,000* II Clinical Prototype Instrument Development $193,700* (Activity 2.1-2.6) Reimbursable Expenses $6,000* III-V Clinical Prototype/Production Support TBD (Activities To Be Determined Per Quantech/RC+A) * Budget Estimates Fees Outline Robert Case + Associates, Inc./Product Design Center Page 2 of 2 Client: Quantech Ltd. - Joe Shaw Project: SPR STAT System Instrument Development Project No: 3222/(QTECH101596) Date: October 15, 1996 Notes: 1. Estimates The budget estimated fees will be quoted for Client approval upon completion of each previous phase or activity. 2. Fees The fees quoted by RC+A/PDC in the proposal do not include reimbursable expenses incurred by RC+A/PDC which include but are not restricted to transportation, lodging, meals and long-distance telephone calls, delivery services and the cost of documentation and reproduction excessive of the normal development process. These fees will be billed on monthly progress billings. The quoted out-of-pocket expenses are estimates only. The fees and costs quoted in the proposal will remain in effect for sixty (60) days from the date of the proposal subject only to fluctuations in the cost of materials, outside services and time delays caused by factors beyond RC+A/PDC control. The fees and costs presented to Client have been estimated according to Client's goals and objectives as originally stated and set forth in the proposal, and are subject to revisions by RC+A/PDC as changes are made over the course of the project. The fees and costs have been estimated according to using RC+A/PDC resources except where Client has indicated specific resources to be used prior to project quotation. Should Client require specifying resources to be used after RC+A/PDC has submitted a project quotation, the fees and costs are subject to revisions by RC+A/PDC as dictated by such Client specified resources. Status updates and projections will be made by RC+A/PDC at the intervals outlined in the proposal. Appendix A - Phase Approval Robert Case + Associates, Inc./Product Design Center Client: Quantech Ltd. - Joe Shaw Project: SPR STAT System Instrument Development Project No: 3224/(QTECH101596) Date: October 15, 1996 Phase Activity Fees I Instrument Concept Optimization A. Concept Improvements/Integration $82,300 (Activity 1.1-1.5) B. Demonstration Mockup Development $22,000 (Activity 1.6-1.7) Reimbursable Expenses $4,000* * Budget Estimate The undersigned hereby authorizes RC+A/PDC to proceed with the above Phase(s) and agrees to the attached Appendix B - General Provisions of the Proposal (Revision Date 12-21-95). Client Acceptance and Approval RC+A/PDC Acceptance and Approval By: By: (Authorized Signature) (Department Manager) Date: Date: 10/15/96 Name: Upon approval, please send signed copies of Appendix A & B to: Title: Client Purchase Order No:2012 Robert Case + Associates, Inc. 640 North LaSalle Street, Suite #282 Chicago, Illinois 60610 Appendix B - General Provisions of the Proposal Robert Case + Associates, Inc. - ------------------------------------------------------------------ This Appendix is attached to and made a part of the proposal given by Robert Case + Associates, Inc. (hereinafter referred to as "RC+A"). 1. General Terms RC+A is a professional organization providing independent consulting services to our clients. All Client documents and information will be considered confidential. All Client work in progress will be open for inspection and consultation by authorized employees (as designated by Client). The rights to any patentable inventions that may be developed during the course of the project will be assigned to Client. All actions or costs necessary to obtain a patent or to reserve any other rights will be Client's sole responsibility. Client hereby releases, hold harmless and indemnifies RC+A and its agents from any and all claims, damages, or attorneys' fees of any third parties relating in any way to this proposal, including design, production, sale or use of items which are the subject of this proposal. Client agrees that RC+A and its Agents shall have no liability to Client for claims or damages of any kind which may result from RC+A services in relation to the subject matter of this proposal. 2. Authorization to Proceed Upon receipt of Appendix A - Proposal Approval signed by Client, or other specific approval, RC+A will commence the work set forth in the approved phase(s). A written Purchase Order signed by an authorized agent of Client must follow within 15 days from RC+A's commencement of work. In the event such Purchase Order is not received on a timely basis, RC+A may in its sole discretion in addition to all other rights and remedies it may have, elect to discontinue work on the phase. Should work on a phase be discontinued by Client or RC+A, Client will be responsible for all fees and expenses incurred by RC+A up to the time work on the phase is discontinued, including a start-up and shut-down fee (estimated to be 15% of the total proposed phase fees) as well as all additional fees and expenses incurred by RC+A as a result of said discontinuance. 3. Fees and Expenses All fees, and costs quoted in the proposal will remain in effect for 30 days from the date of the proposal. Time schedules will be adjusted based on start date. Fees, costs, and time schedules are based on the use of RC+A resources except where Client has requested the use of specific resources and these resources are specified in the project proposal. Fees are subject to fluctuations in the cost of outside services and changes or additions requested by the client. The time schedules set forth in this proposal are best estimates of RC+A and subject o changes over the course of the project. The fees quoted by RC+A in this proposal do not include reimbursable expenses which include but are not limited to transportation, lodging, meals, travel incidentals and honoraria. Expenses will be periodically invoiced during the course of the project. Because of delays in third party billing, expenses may be invoiced as late as 90 days after the final project billing. Upon written request, documentation of expenses will be provided. Quoted out-of-pocket expenses are estimates for budgeting purposes only. 4. Billing Upon authorization, Client will be invoiced for 100% of the approved fees and/or estimated costs for proposals of less than $5,000, and 50% of the approved fees and/or estimated costs for proposals in excess of $5,000. Payment will be due upon receipt and shall be applied to the first fifty (50%) percent of the quoted fees and estimated costs of each phase of the proposal. Progress billings will be made upon commencement of work for the remaining fees and expenses incurred by RC+A and will be due upon receipt. Any balance remaining will be due upon completion and delivery of the finished project as defined in the proposal. RC+A shall retain title and rights to all work produced until it has received Client's final payment. Client grants RC+A security interest to secure payment to RC+A for all fees or other amounts due pursuant to all phases of this proposal or any other proposals in Clients fixtures, furniture, office equipment, patents, accounts receivable, bank accounts, motor vehicles, and any proceeds from their sale or deposition. Interest on unpaid invoices shall accrue at 1 1/2% per each full or partial month after due date. 5. Interpretation and Enforcement Parties hereby agree that interpretation and enforcement of this agreement will be governed by Illinois law and venue of any claim or lawsuit shall be Chicago, Illinois. Any controversy or claim arising out of or relating to this agreement or the breach thereof shall be settled by arbitration in accordance with the rules of the American Arbitration Association and judgment upon the award rendered shall be entered in any court having jurisdiction thereof. Any arbitrator's award or finding or any judgment or verdict thereon shall be final and u unappealable. All parties agree that venue for said arbitration shall be in Chicago, Illinois and that any litigation or arbitration commenced in any other venue shall be transferred instanter to Chicago, Illinois upon the written request of any party to this agreement. The prevailing party shall be entitled to reimbursement for attorneys' fees, costs or other expenses pertaining to said arbitration or any litigation and said attorneys' fees, costs and other expenses shall become a part of any award, judgment or verdict. All arbitration's shall have (3) three individuals acting as arbitrators. One arbitrator shall be selected by RC+A . One arbitrator shall be selected by Client. Both arbitrators shall select a third arbitrator. Any arbitrator selected by a party shall not be affiliated, associated or related to the parties selecting that arbitrator by blood, marriage, business or otherwise. The decision of the majority of the arbitrators shall be binding upon all parties. Client grants RC+A security interest to secure payment to RC+A for all fees or other amounts due pursuant to all phases of this proposal or any other proposals in Clients fixtures, furniture, office equipment, patents, accounts receivable, bank accounts, motor vehicles, and any proceeds from their sale or deposition. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their legal representatives, heirs, administrators, executors, successors and assigns. The waiver by either party of any breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party. Each party agrees to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement. Client Acceptance & Approval: Date: 10/15/96 (Rev. 12-21-95) EX-27 4 ARTICLE 5 FDS FOR 1ST QUARTER
5 This schedule contains summary financial information extracted from the Form 10-QSB for the quarter ended Sept. 30, 1996, and is qualified in its entirety by reference to such financial statements. 1 U.S. Dollars 3-MOS JUN-30-1997 JUL-01-1996 SEP-30-1996 1 2,267,172 0 0 0 0 2,336,146 347,712 (92,498) 4,856,637 233,970 0 0 0 469,108 15,286,946 4,856,637 0 0 0 0 0 0 2,413 (706,797) 0 0 0 0 0 (706,797) (.02) (.02)
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