10KSB40

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

 Annual Report Pursuant to Section 13 or 15(d) of the
 Securities Exchange Act of 1934

                     For the fiscal year ended June 30, 2000

                         Commission file number 0-19957

                                  QUANTECH LTD.
                 (Name of Small Business Issuer in its Charter)

             Minnesota                                        41-1709417
(State or Other Jurisdiction of             (IRS Employer Identification Number)
Incorporation or Organization)

                        815 Northwest Parkway, Suite 100
                             Eagan, Minnesota 55121
               (Address of Principal Executive Offices; Zip Code)

          Issuer's Telephone Number Including Area Code: (651) 647-6370

           Securities Registered Under Section 12(b) of the Act: None

Securities Registered Under Section 12(g) of the Act: Common Stock, no par value

Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
  X   Yes           No

Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is contained in this form, and no disclosure will be con tained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]

The Issuer's revenues for the fiscal year ended June 30, 2000 were $150,000.


The aggregate market value of the Issuer's Common Stock held by non affiliates
(persons other than officers, directors or holders of more than 5% of the
outstanding stock) as of September 18, 2000, was approxi mately $ 14,000,000
(based on the closing sale price of the Issuer's Common Stock on such date).

Shares of Common Stock, no par value, outstanding on September 18, 2000:
 6,218,524.


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for its 2000 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-KSB.

Transitional Small Business Disclosure Format (check one):  Yes       No   X






                                      INDEX

PART I                                                                      Page
                                                                            ----
     Item 1.   Description of Business........................................ 3
     Item 2.   Description of Property........................................19
     Item 3.   Legal Proceedings..............................................19
     Item 4.   Submission of Matters to a Vote of Security Holders............19


PART II

     Item 5.   Market for Common Equity and Related Stockholder Matters.......19
     Item 6.   Management's Discussion and Analysis or Plan of Operation......20
     Item 7.   Financial Statements...........................................23
     Item 8.   Changes in and Disagreements with Accountants on Accounting
                   and Financial Disclosure...................................23


PART III
     Item 9.   Directors, Executive Officers, Promoters and Control Persons;
               Compliance with Section 16(a) of the Exchange Act..............52
     Item 10.  Executive Compensation.........................................53
     Item 11.  Security Ownership of Certain Beneficial Owners and Management.53
     Item 12.  Certain Relationships and Related Transactions.................53
     Item 13.  Exhibits and Reports on Form 8-K...............................53

Signatures....................................................................54






                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

Company Summary

General

          Quantech Ltd. is completing development of a system that is expected
to run tests for a number of different medical conditions. We call our system
the FasTraQ(TM). The FasTraQ consists of an instrument that sits on the top of a
counter or cart and reads PrePaQ(TM) disposable test cartridges developed by
Quantech. Each Quantech PrePaQ test cartridge will contain from one to four
different medical tests such as those for a heart attack or pregnancy. Hand-held
communication devices called ReaLinQ(TM) communicators provide real time test
results directly from the FasTraQ instrument to the medical staff members
treating a patient.

         The FasTraQ produces test results in a manner different than other
testing systems because it uses Quantech's proprietary technology based on the
quantum physics phenomenon known as surface plasmon resonance ("SPR"), which
involves the interaction of light with the electrons of metal. Quantech's
technology creates SPR in a controlled environment which enables the FasTraQ to
detect and transmit information concerning the presence and quantity of certain
native and foreign molecules in blood, urine or other fluids which may be
associated with specific diseases or medical conditions.

         Excluding tests that can be conducted in the home, the overall world
wide diagnostic market is more than $20 billion. Routine and "STAT" (from the
Latin statim meaning urgent) laboratory tests currently account for the majority
of this market. Routine tests required in the hospital are conducted on testing
systems located in either the hospital's central laboratory or sent to a
laboratory that is not within the hospital. STAT tests are conducted by a
hospital's central laboratories or a smaller, more conveniently located, version
of the central laboratories called STAT labs. Obtaining test results from
central laboratories can take a minimum of 45 minutes and up to three hours.
This delay negatively affects patient treatment and increases costs. Although
STAT labs have been established to reduce the time delay, test costs are higher
in STAT labs than central laboratories and turnaround time for tests is not
always reduced. We are designing the FasTraQ to address what we believe is a
pressing need for a test system that can quickly, in less than 15 minutes, and
cost effectively provide test results, especially for patients with critical
problems in emergency departments.

         The FasTraQ will be launched with at least a panel of three heart
attack tests and a single test for pregnancy. Other tests are under development
and are expected to be added to the FasTraQ system to provide the number of
different quantitative tests the emergency department requires on an urgent
basis. We have received clearance from the U.S. Food and Drug Administration to
market for clinical use our tests for the cardiac enzymes Myoglobin and CK-MB
and the pregnancy enzyme hCG.

         Quantech also owns 73% of HTS BioSystems, Inc. ("HTS"). HTS was formed
around a combination of SPR technologies and intellectual property from both
Quantech and PE Biosystems (NYSE:PEB). This technology supports the accelerated
development of label-free, cost effective detection systems, initially for the
scientific research market. HTS intends to become the definitive source of
analytical systems and chemistry for the high-speed detection of molecular and
cellular interactions in the fields of functional genomics, proteomics and drug
discovery.

Product Description

General

         The Quantech FasTraQ Patient Treatment Information Platform is a new
multi-menu STAT testing system with real time communication capabilities that is
in the final stages of commercial development. The FasTraQ consists of the
reading instrument, PrePaQ disposable test cartridges and ReaLinQ communication
units. It will combine accuracy with simplicity of use and automatically
transfer information to the appropriate Emergency Department ("ED") personnel.
The PrePaQ cartridges can process up to four tests at a time and the FasTraQ
instrument can simultaneously run up to 20 PrePaQ test cartridges.


         The FasTraQ Testing Instrument

         The Quantech FasTraQ testing instrument is designed to fill the needs
of the ED. Most importantly, the FasTraQ instrument is designed to be compatible
with new PrePraQ test disposables when Quantech introduces them to the market.
As a result, when Quantech adds tests through the introduction of new
disposables, its original instrument will accommodate these various tests
without system obsolescence or significant training of personnel.

         The FasTraQ instrument consists of a communication module and up to
five testing modules. It will be of a size capable of sitting on a bench top or
cart. The communication module will contain a microprocessor, a computer touch
screen, barcode readers, interfaces for hospital information systems and
Quantech testing modules and systems to communicate with the Quantech ReaLinQ
communicators. Each test module will be able to run up to four PrePaQ test
disposables and contain a white light source and a number of optical components.
The light is split into a number of channels, providing for quality controls and
multiple tests per disposable. When the PrePaQ is inserted into a port of the
test module an internal bar-code reader identifies the type of tests to be run.

         A touch screen and/or an external barcode reader on the communication
module and/or a barcode reader in the ReaLinQ communicator will enable the user
to enter both a user number and the patient or specimen ID number. The
instrument's computer screen and a screen on each test module will display test
results. The data or results produced by the instrument will also be stored on
an internal hard drive, downloaded to the hospital information system, and may
be provided on a hard copy through use of a printer or sent to the ED staff via
the Quantech ReaLinQ communicators.

         The module configuration of the instrument allows it to run up to 20
PrePaQ test cartridges simultaneously. This provides flexibility to meet the
necessary test throughput capability for a given institution. The instrument
size allows it to be located in the ED or associated STAT or rapid response lab.
Quantech intends to offer several industry standard reagent rental programs
whereby the FasTraQ instrument will be provided to the hospital and it may
retain the FasTraQ without cost as long as a specified number of PrePaQ test
disposables are purchased. The ability of Quantech's biosensor FasTraQ to
convert biological data into digital signals should also permit designs that
capitalize on future advances in microcomputer and microfluidic technology.

         The PrePaQ Disposable Test Cartridge

         Quantech's PrePaQ disposable test cartridge consists of an injection
molded plastic carrier containing a metal coated sensor surface. The metallic
surface is overlaid with reagents that react specifically with the analyte to be
identified and measured. An important feature of the PrePaQ will be the ability
to attach a standard vacutainer-type tube, complete with its top intact, to the
PrePaQ disposable so that it is easy to use and the user has minimal exposure to
the patient sample. One or more separate tests may be performed on a single
disposable providing Quantech the capability to develop clinically related
panels of tests by simply adding the appropriate reagents. Future PrePaQ
disposables for certain tests may also be configured to handle samples of urine
and other body fluids.

         A further advantage of Quantech's PrePaQ test disposable will be that
an operator will not be required to add reagents. This simplicity translates
into ease of use and immediacy of results. PrePaQ disposables will be configured
to provide single or multiple clinically-related tests. Additional development
of the PrePaQ disposable is currently being conducted and future development
will be undertaken to expand the number of tests that may be performed in
general and on each disposable.

         The ReaLinQ Wireless Communicator

         At the option of the user, the FasTraQ may include the ReaLinQ wireless
communication capability to input all emergency test information directly into
the FasTraQ from, and automatically provide the appropriate ED staff members
with test results at, "patient-side". The LAN transmission unit will be located
in the instruments' communication module. Hand held receivers or communicators
similar to pagers will be provided to the ED staff. When the patient arrives in
the ED the appropriate ED staff member can input necessary information. When the
ED staff member begins the test process at the FasTraQ instrument, the
instrument will be directed to send the results to the ED team for the
particular patient. When the results are completed they are provided to the
ReaLinQ communicators and the receiving parties acknowledge receipt of the
information.




         The receipt of test information through the ReaLinQs will speed results
by eliminating the need for the ED staff to go back to the instrument or printer
multiple times to determine if the tests are finished. Also, because the
treatment team may be scattered throughout the ED, it will no longer be
necessary to track down individual team members to provide them with the
results. The ReaLinQ communicators will also have the ability to receive other
patient information such as hospital records if made available.

         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, electrochemistry, coagulation and chemical reactions. Each of these
testing methodologies requires a separate system and the performance of a series
of operations by a skilled technologist. These operations consist of sample
preparation, addition of reagents, further method-specific manipulations, and
reading and interpretation of raw data. Central and STAT laboratory automated
systems have mechanized, rather than eliminated many of these steps and have
been unable to combine a number of different methodologies or technologies into
a single system. Quantech's digital SPR technology, in contrast, can be used for
many basic testing methods within a single instrument, but without complicated
processing by the operator.

         Central labs provide quality results on a menu of tests, however, STAT
test results take from 45 minutes to 3 hours to be returned to the ED.
Additionally STAT tests disrupt the batch testing of central labs. Although STAT
labs have quicker turnaround time with the quality advantages of the central
lab, personnel and equipment requirements of STAT labs result in high test
costs. Point-of-care instruments have reduced turnaround time, and in some
instances have lower test costs than STAT labs, but fail to meet laboratory
quality and ED needs due to lack of interface to the laboratory information
system, manipulation of patient sample, nonconcordance with central lab results
and lack of quantitative results. Most importantly, their limited test menu
keeps them from eliminating the testing time for tests they cannot perform thus
making the treatment process only as fast and efficient as the slowest test from
the lab. Quantech's FasTraQ system expects to address these shortcomings of the
current testing environment and products by combining the advantages of central
lab and point-of-care testing into a system with the following anticipated
features:

   o     STAT quantitative test menu (a number instead of qualitative yes/no)
   o     User-friendly system, rapid test turnaround time (less than 15 minutes)
   o     Real time monitoring of test information status
   o     Multi-test, single use disposable (up to four tests per PrePaQ)
   o     Cost effective (comparable to central lab STAT test costs, 2x-4x less
         than STAT lab)
   o     Remote results receipt acknowledgement; auto-release of test module
   o     Throughput of up to 20 PrePaQ cartridges simultaneously
   o     Concordance with central lab test results
   o     Whole blood/closed tube (vacutainer) patient sample capability
   o     Full-time laboratory information system interface
   o     Automatic user/patient/test/QC input
   o     Internet ordering, training and information transfer


The Market

         General Discussion

         Excluding home diagnostics, the overall worldwide in-vitro diagnostic
market ("IVD") is approximately $20 billion. Commercial, hospital central and
hospital STAT/rapid response laboratories currently account for the majority of
this market with testing divided between non-urgent and urgent (STAT) tests. We
are focused on the ED STAT testing portion of this market.


         STAT tests are required by critical care physicians in areas such as
surgical suites, ICUs/CCUs and emergency departments because of the time
sensitive nature of their treatment. However, results of STAT tests from the
central laboratory can take a minimum of 45 minutes and up to three hours for
the physician to receive the results. This delay affects patient treatment and
increases costs. Although STAT laboratories have been established to reduce this
time delay, test costs are often 2-4 times that of the central lab and reduced
test time turnaround has not been effectively achieved.

         The United States ED testing market is highly concentrated. There are
approximately 1,032 EDs in the United States that each see more than 30,000
patients per year with the average ED in this group seeing 50,000 patients
annually. These ED's represent approximately 55% of the ED testing market.
Additionally, the majority of hospitals belong to a small number of buying
groups such as Columbia/HCA and the Voluntary Hospital Association of America
Inc. (VHA). This concentration results in a high level of revenue passing
through a limited number of sites.

         Pressure has increased to reduce the length of patient stay and provide
a greater portion of services in outpatient settings. Because the cost of
providing care in the ED far exceeds those of general medical or surgical units,
a primary goal of the ED is to determine the appropriate care path for a patient
so they may be treated, sent home or moved to a different area of the hospital.
Quick determination of this care path is made possible by rapid, accurate and
clinically relevant quantitative test results that are efficiently delivered to
the care provider. For this reason, STAT labs were established to reduce test
turnaround time, but their high test cost and still often lengthy turnaround
time have limited their effectiveness in reducing patient treatment costs.
Point-of-care ("POC") testing represents a growing segment of the IVD market and
a response to rising costs of health care that have produced changes in hospital
reimbursement. POC instruments have tried to fill the gap left by STAT labs, but
lack of central and STAT lab features and true increases in efficiencies have
limited their penetration of the ED testing market.

         The strategic direction chosen by Quantech is to exploit the inherent
technological advantages of its SPR technology and current information
technologies, which allows it to address the shortfalls of the central and STAT
labs and POC instruments. As such, Quantech will focus on the STAT testing and
information delivery needs of hospital ED's.

         The Emergency Department

         Critical Care Units include Intensive Care Units, Surgical Suites and
Emergency Departments. The FasTraQ will first be marketed to EDs. EDs must
respond to critical patient conditions and conduct tests on an as needed basis
in order to support the health care team when a patient's condition is life
threatening. Most tests conducted in the ED are required STAT (urgent) and are
processed 24 hours a day.

         Tests processed in a STAT manner significantly increase cost as they
require the hospital central or STAT laboratory to remain open at times when
they are not otherwise busy. Further, STAT testing in the central lab interrupts
batch testing and thus negatively affects cost while STAT labs costs are high
because of the inability to spread operating and capital costs across a larger
number of tests. The solution to this difficulty and expense is to bring a
system designed for STAT testing to the patient site in a manner that will
provide cost-effective test results promptly, accurately and with the requisite
throughput.

         Because of space limitations in the ED, and a desire not to train
personnel on a number of different instruments, a single instrument for the ED
STAT test menu is desirable. Such ED STAT test menu includes:

   o     Cardiac marker panel (CK-MB, troponin I, myoglobin)
   o     hCG (Pregnancy)
   o     Blood Cell panel (WBC, RBC, Hct and Hgh)
   o     Coagulation
   o     Electrolytes
   o     Kidney Panel (Bun/Creatinine)
   o     Pancreas Panel
   o     Therapeutic Drug Monitoring (Digoxin, Theophylline)
   o     Drugs of Abuse (e.g., Cocaine, Marijuana)
   o     Amylase
   o     Liver Panel




         In 1998 there were 98 million patient visits to 4,200 EDs in the United
States of which 2,000 EDs saw 76% of the patients. Approximately 60% of these
patients received tests. Europe and Japan represent a similar number and
concentration of ED patient testing. Quantech estimates the worldwide ED STAT
testing market to be more than $6 billion. As a result, a limited number of
sites produce a significant amount of STAT testing revenue.


         Quantech will introduce the FasTraQ with a cardiac panel to test for
heart attacks and a quantitative pregnancy test, and expects to provide a number
of the other tests performed in the ED. The combination of these tests provides
a significant market. Because of the FasTraQ's initial test menu, and additional
tests to be provided, Quantech believes it can achieve substantial market
penetration. The Company will pay attention to groupings of tests for particle
needs so that all tests necessary for a particular patient can be run on the
FasTraQ. Since the needs of other areas of critical care are similar to those
tests required by the ED, the Company anticipates that growth into these other
areas will be evolutionary.

         Cardiac Markers

         Cardiac markers are needed to triage and treat individuals that arrive
at the ED with chest pain. Hospitals are aware of a need for more rapid cardiac
diagnosis and in response have started to establish chest pain centers in
emergency departments for triaging patients. Lacking, however, are whole blood,
cost effective, rapid cardiac test results. Quantech has chosen a test panel for
heart attacks as one of its initial tests because of the high need,
reimbursement and volume these tests represent.

         During a myocardial infarction ("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 and myoglobin. Myoglobin is the earliest of the
markers to be detected and the first to leave the body. CK-MB and troponin I are
later markers but stay in the body longer and are more specific to cardiac
damage. Combinations of these markers are thus used to cover the required time
frames.

         Cardiac markers are important to help to identify patients who have
suffered an AMI. Such tests, however, are most useful if they can be performed
in under fifteen minutes in the ED or mobile care unit so that medical personnel
may take immediate action. Most of the existing test modalities require a
central laboratory system that may delay the results beyond their effective
need. The FasTraQ will provide emergency personnel with the ability to receive
quantitative results for a heart attack in less than 20 minutes.

         An estimated 6 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 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 represent 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, making a rapid definitive diagnosis of chest pain has become more
important. In the past when a patient was in the early stages of a heart
attack/AMI, there was little treatment available. In the last 10 years,
substantial progress has been made in thrombolytic therapy. If the therapy is
started within four to six hours of the onset of a heart attack, it can dissolve
the blood clot, clear arteries and save heart muscle tissue. Because these
therapies are expensive and present undesirable side effects (allergic
reactions, bleeding) if the patient has not suffered an AMI, rapid accurate
testing for an AMI is very important.




         Pregnancy

         Every woman of child-bearing age who enters the ED and requires a
procedure that could injure a fetus (x-ray or drugs) should have a pregnancy
test. Because of the delays in obtaining tests from the central or STAT lab,
many women are treated without the physician receiving the results of the
pregnancy test. Malpractice claims in this area are second only to cardiac
markers. The FasTraQ will have a whole blood quantitative test for the pregnancy
marker hCG. Whole blood is an advantage in the ED as it is the preferred method
of sample collection as compared to urine and may be obtained from a patient
that is unconscious.

         A rapid quantitative pregnancy test is also important for treatment of
ectopic pregnancies (gestation outside of uterus, often in fallopian tube).
Ectopic pregnancy is a leading cause of abdomen pain for women presenting to the
ED. Determination of an ectopic pregnancy is made through the quantitative
testing of hCG. The ability of the Quantech system to perform pregnancy and
other tests will show its advantage as a quantitative multi-test platform.

Patient Treatment Information

         In order for a physician to diagnose a patient he or she requires
information. The FasTraQ will provide the most critical piece of information,
test results. Other information such as patient records, x-rays, etc. are also
important. Because the FasTraQ is expected to communicate with the hospital
computer information system, it will be able to deliver available non-diagnostic
information.

         The ability to converge many pieces of information is the next step for
the practice of medicine. Technology is providing many avenues to make this
information convergence complete. Quantech is taking advantage of these
technologies by providing not just a diagnostic system, but a complete patient
treatment information platform.

Sales and Marketing

         General

         Quantech will form a strategic marketing group. Initially this
marketing group will begin creating awareness of Quantech and its system.
Currently Quantech is evaluating strategic distribution partners to market its
products in the United States. If a strategic distribution partner is engaged,
the marketing group will support this distribution partner and maintain contact
with customers to help Quantech monitor the market for future products. If
Quantech establishes a direct sales force the marketing group will initiate that
effort.

         Quantech is currently in discussions with a number of potential
partners. Determination of whether to ultimately market through a strategic
partner will be based upon factors such as size of sales force, presence in
hospital, pricing and discounts. The benefits of a strategic partner of lowering
marketing and sales cost and penetration of the market will be weighed against
distribution discounts, commitment to the sale of the Quantech product and
Quantech's ability to cost effectively rollout its product.

         If an appropriate distribution partner cannot be engaged, the marketing
group will focus on sales of the system to the highest volume emergency
departments. Because of the small number of emergency departments in the United
States, and the large amount of revenue that can be provided by each one, the
Company believes that a small focused sales effort will enable it to effectively
penetrate the ED market.

         International

         Shortly after the launch of the FasTraQ in the United States, Quantech
intends to begin sales in western Europe and, after appropriate approvals, in
Japan. These markets are similar to the United States in both menu of STAT
testing and concentration of patients in a small number of facilities. The
Company will manage and support international distributors if a strategic
distribution partner is not engaged. Quantech has completed its international
marketing research and has begun identifying potential distribution partners.




         Clients

         The purchasing decision for diagnostic testing equipment is made by the
laboratory manager, although the end user of the FasTraQ will be ED personnel.
Under the Clinical Laboratory Improvement Act of 1988 ("CLIA") regulation, the
laboratory is responsible for training, instrument calibration and quality
assurance of testing systems. As such, the laboratory manager prefers a
STAT-testing instrument with the following features:


   o    Comparable performance to central lab instrument with concordant results
   o    One (maximum of two) instruments for entire ED STAT menu
   o    Full-time,  bi-directional  laboratory information system ("LIS")
            interface with information automatically downloaded to LIS
   o    Automated user/patient/test/QC information input
   o    User ID and lockout capability by laboratory
   o    Minimum user training
   o    Costs comparable to central lab STAT tests - less than STAT lab

         As the ultimate users ED personnel must also accept any system that
will be used for their STAT testing needs. Although they cannot buy a testing
system without laboratory approval, they are capable of preventing a system from
being purchased. A system that is acceptable to the ED must provide the
following features:

   o    Comparable performance to central lab instrument with concordant results
   o    Rapid turnaround time (less than 15 minutes)
   o    One (maximum of two) instruments for entire ED STAT menu
   o    Whole blood, closed collection tube sampling and transfer
   o    Automatic LIS download
   o    User friendly - minimum training and time at instrument
   o    High reliability
   o    Test menu so all patient testing completed
   o    Limitation of steps necessary to receive information

         To achieve market penetration of the FasTraQ, Quantech's marketing
strategy will be focused on achieving the acceptance of both laboratory and ED
personnel. Testing systems to date have been unable to meet the needs of both
groups because of technology limitations. The FasTraQ is being designed to meet
the requirements of both groups by trying to incorporate all of the required
features into a single platform.

         Although the laboratory and ED are important customers, the FasTraQ
will also appeal to hospital administration. Quantech believes that the
FasTraQ's ability to simplify and improve the ED treatment process can be shown
to facilitate the growth and profitability of the ED. Because more patients can
be seen with the same fixed cost resources, the FasTraQ should provide
significant incremental revenue to the hospital, while the variable cost of the
test will be comparable to current costs.

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 patient
samples. While most hospital laboratories must maintain the capability to
perform certain STAT tests on single patient sample, most of the samples handled
by central laboratories are processed so that one type of test, such as
pregnancy tests, are all run at one time or in batches. The competitors for this
market have addressed these laboratories' needs for high-test throughput, low
reagent cost and low labor cost by developing automated systems. STAT labs have
been developed to address the needs of STAT testing and generally use the same
instrumentation found in the central laboratory. These laboratory systems are
generally complex and expensive, incorporating designs appropriate to the
central laboratories they serve which employ 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/STAT laboratory testing system 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 non-STAT tests. The suppliers' corporate infrastructures, marketing
and sales organizations, research and development activities and production
capabilities are committed to this market. As a result, hospitals may maintain
their established means of having testing performed.

         There is a significant number of companies serving this central
clinical laboratory market. Most of them compete in only one or two segments of
the overall market. Abbott Laboratories, Roche Diagnostics, and Johnson &
Johnson 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 initially on the central laboratory and increasingly on
point-of-care. The FasTraQ in general must compete with central and /or STAT
laboratory testing systems to gain market share and, as a result, Quantech will
meet with competition from these companies in both sales of the FasTraQ system
and the individual tests to be provided on the FasTraQ.

         There is significant new product activity in certain areas of critical
care STAT testing. Point of care testing systems are addressing limited testing
areas such as coagulation, blood gas and basic chemistry including electrolytes.
Three such point of care systems, i-STAT Corp. (in conjunction with Abbott
Laboratories), Diametrics Medical (in conjunction with Agilent Technologies) and
Careside, Inc., which market point of care testing instruments have become
recognized point of care testing systems. Quantech does not believe current
products of i-STAT, Diametrics or Careside are capable, however, of providing
the breadth of tests and features required by the emergency department.

         With respect to testing for cardiac markers to diagnose a heart attack,
most testing is done in the hospital central and STAT labs with test result
turnaround times of more than 45 minutes. Quantech is aware of only a limited
number of companies that provide rapid testing for heart attacks. Of such
companies, Spectral Diagnostics Limited, a Canadian company, markets a manual
method available for certain heart attack tests. Roche Diagnostics markets a
manual test for the heart attack marker troponin I. As configured Spectral's and
Roche's heart attack tests can provide only yes/no results instead of
quantitative results such as those provided by central laboratory systems.
Biosite Diagnostics has introduced an instrument and tests for heart attacks.
Quantech believes that Biosite's system is not able to provide the number of
tests and other STAT testing requirements expected to be available on the
FasTraQ. Limitation of the tests that competitors' system can perform is
believed by Quantech to provide it a competitive advantage because the FasTraQ
is expected to provide a large number of different tests.

         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 Quantech, including, but not limited to,
financial resources and skilled personnel. However, Quantech believes the
FasTraQ provides a product that is currently lacking for the critical care STAT
testing market. There can be no assurance that current or future companies will
not invent systems that will have broad testing capabilities and features like
those expected in the FasTraQ. If Quantech is able to launch its system, no
assurance exists that competitive pressures will not negatively affect its
pricing of both the FasTraQ instrument and the individual test cartridges.

The Technology

         The FasTraQ is a biosensor which incorporates Quantech's proprietary
method of using surface plasmon resonance ("SPR") to detect certain chemical
conditions. A biosensor is an analytical device that combines a biological
sensing or detection element with a suitable transducer that converts
biochemical activity into a measurable form of energy. A biosensor's input is a
specific biological event. Its output is a measurable signal that corresponds to
the input.

         Surface plasmon resonance is an optical-electrical phenomenon involving
the interaction of light with the electrons of a metal. The optical-electrical
basis of surface plasmon resonance 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 proprietary method of using SPR consists of a disposable cartridge
composed of a plastic base with a fine grating molded into its surface. The
grating is coated with a very thin layer of gold. Gold is used because it does
not oxidize like other metals which can affect chemistry binding. 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, such as a heart attack marker, and defines the test to be done.




         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 the analyte
being tested, 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.

         Quantech's SPR based technology combines the strengths of biology and
physics into a single entity. Other applications of technology using SPR that
have been reported in the scientific literature or explored by Quantech include
immunoassays for cardiac markers, hormones, drugs, viruses and bacteria,
quantitation of anesthetic gases, and DNA binding assays. Quantech's SPR based
technology thus represents a simple, unified platform that is capable of
performing a wide range of diagnostic tests. Quantech's SPR based technology is
also a valuable research tool that allows Quantech to develop further tests for
its system.

Manufacturing

         Quantech's system is comprised of a modular instrument, disposable
tests and communicators. The instrument consists of electronics and optics, most
of which are off the shelf parts, and does not require complicated assembly
procedures. The ReaLinQ communicators are based upon current handheld data
transfer devices. Production of the FasTraQ instrument and ReaLinQ communicators
will be performed by a contract manufacturer to Quantech under quality standards
set by the Company. The contract supplier has not yet been selected. Quantech
will take delivery of the instrument and communicators, perform final quality
inspection and inventory the units for final shipment.

         Quantech's disposable consists of two parts, the sensor grating piece
with the metal coating and the carrier for such piece. Both the coated sensor
grating and carrier will be produced by contract suppliers according to Quantech
specifications. These pieces will be shipped to either Quantech or another
contract manufacturer to complete final manufacturing of the disposable. This
final manufacturing will consist of applying the assay (chemistry) on the gold
coated sensor grating, placing the final grating piece into the carrier,
performing the final assembly, labeling the unit and packaging the disposable
for final shipment.

Regulatory Environment

         The Company has received clearance from the FDA to market in the
clinical environment its cardiac tests, myoglobin and CK-MB, and its pregnancy
test, hCG. Each test for the FasTraQ must obtain FDA approval. The Company must
also submit its instrument to the FDA for approval. The instrument will be
provided to the FDA for such approval after its commercial development is
completed.

         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 1990
Safe Medical Device 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 design, 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").

         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 on the Company, although preliminary indications from
the FDA are consistent with a 510(k) filing.

         For products subject to either 510(k) or PMA regulations, the FDA
requires that the Company conduct any required studies following Good Clinical
Practice and Good Laboratory Practice guidelines. Also, the manufacture of
products subject to 510(k) or PMA regulations both must be in accordance with
current Good Manufacturing Practice. For sale in foreign countries, compliance
with ISO 9000 standards will be required. Sales of medical devices outside the
U.S. are subject to foreign regulatory requirements. Medical devices may not be
sold in EU countries unless they display CE mark certification. The Company's
products will be manufactured according to ISO 9001 and EN 46001 quality
standards and the Company expects to be able to apply the CE mark to its
products. In addition, international sales of medical devices manufactured in
the U.S. but not approved by the FDA for distribution in the U.S. are subject to
FDA export requirements. Under these requirements, the Company must assure that
the product is not in conflict with the laws of the country for which it is
intended for export, in addition to complying with the other requirements of
Section 801(e) of the United States Food, Drug and Cosmetic Act.

         Specific requirements demanded of a laboratory depend upon the
complexity of the test performed. CLIA regulations establish three categories of
laboratory tests, for which regulatory requirements become increasingly
stringent as the complexity of the test rises: (1) tests that require little or
no operator skill which allows for a waiver of the regulations; (2) tests of
moderate complexity; and (3) highly complex tests which require significant
operator skill or training. All laboratories performing tests of moderate or
high complexity must obtain either a registration certificate or a certificate
of accreditation from Health Care Financing Administration ("HCFA") or an
organization to whom HCFA has delegated such authority. HCFA has allowed
electronic controls for some POC instruments to serve the function of daily
quality control performance to allow non-laboratory personnel to run such POC
systems. The tests to be performed by the Company's system are initially
expected to fall within the moderate complexity class as defined by current CLIA
regulations, as all analogous POC instruments that are presently on the market
are classified in this manner. In practical terms, performing a test of moderate
complexity means that the individual supervising the test, i.e. the physician,
pathologist or laboratory director, must be well educated and well trained,
whereas the individual who operates the machine requires no formal laboratory
education and only task-specific training. The Company may, but has not yet,
applied for the waiver.



Significant Agreements

         Ares-Serono License

         Quantech has acquired from Ares-Serono at a total cost of $3.4 million
a worldwide exclusive license to certain patents, proprietary information and
associated hardware (e.g. molds, test rigs, prototypes) related to Quantech's
SPR based technology. The Ares Serono license calls for an ongoing royalty of 6
percent on all products utilizing the SPR based technology which are sold by
Quantech. In addition, if Quantech sublicenses the technology, Quantech will pay
a royalty of 15 percent of all revenues received by Quantech under any
sublicense. To date, Quantech has paid $1,300,000 of cumulative royalty
payments. This amount satisfies the requirements of the license agreement until
royalty accruals based on revenues exceed such minimum payment amount. The
obligations of Quantech to pay royalties terminate when the total royalty
payments reach a gross amount of $18 million. After such total payments,
Quantech's rights in the licensed SPR based technology continues 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 fluorescence capillary fill
device technology. Quantech believes that such limitation does not materially
impact the value of the Ares Serono license given Quantech's current plan of
commercialization. In addition, the Ares Serono 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
biosensor technology for applications outside the field of the commercial
interests of Quantech.

         The PE Corp. Agreement

         Quantech provided PE Corp. ("PE") with exclusive worldwide rights to
the SPR technology licensed from Ares-Serono for products other than those
regulated by the FDA or products sold outside the United States if they would be
regulated by the FDA if sold in the United States. PE also received two of
Quantech's SPR research breadboards. As part of PE's research and development
efforts, it applied certain of its technology to develop a large density,
high-throughput diagnostic breadboard using Quantech's SPR technology (the "PE
High Density Technology"). PE granted Quantech an exclusive worldwide license to
the PE High Density Technology for use in FDA medical diagnostics.

         Through the optical and chemistry deposition advancements made by PE,
the system can read up to 10,000 test areas on a single 1 cm by 1 cm slide.
Quantech believes such two dimensional array capability, as now used in genomic
screening research, should allow Quantech to expand the FasTraQ upstream from
the critical care area to the central laboratory. Vertical expansion to
intensive care units, surgical suites, doctor offices and home testing should
also be possible. Future generations of Quantech's current FasTraQ system are
also expected to benefit from the PE technology by reducing the number of unique
test cartridges needed to perform the same number of tests which reduces
inventory requirements and manufacturing costs.

         The royalty to be paid by Quantech will be 8% of gross sales of
Quantech products which include the Perkin-Elmer technology. If Quantech does
not proceed to commercialize the SPR based technology licensed from PE, all
rights revert back to PE. The PE technology will not be initially incorporated
into the FasTraQ system.

HTS BioSystems, Inc.

         After Quantech and PE significantly advanced the state-of-the-art in
the SPR technology, they agreed that a separate company, which could be focused
on promoting the non-medical use of the SPR technology, would be most effective
in bringing products to market without affecting mainstream activities of either
company. Quantech and PE formed HTS BioSystems, Inc. ("HTS") which is 73% owned
by Quantech and 18% owned by PE. PE provided HTS: 1. a sub-license to all of its
rights to the Quantech SPR technology (the "Sublicense"); 2. a license for
non-medical use of the PE High Density Technology (the "License"); 3. one of
PE's Quantech SPR breadboard instruments; and 4. the PE breadboard for the PE
High Density Technology. Quantech is required to provide HTS with office space,
management support, technical assistance and any other needs required by HTS
until HTS is funded in a manner adequate to support its own operations.




         HTS will owe to PE: 1. a 4% royalty on products using only SPR other
than those for use in the food and beverages, chemical and industrial and
environmental testing markets; 2. a 4% royalty on products using only the PE
High Density Technology; and 3. a 6% royalty on products using both
technologies. No minimum royalties, or royalties on the first $3 million of
sales, are required to be paid. Quantech receives 15% of any royalties paid to
PE by HTS for products which incorporate Quantech's SPR technology. In the event
that HTS does not seek to commercialize the SPR or PE High Density Technology,
then the rights revert back to PE. PE also has a five-year right of first
negotiation in the event that HTS wishes to license or sell any of its
technology licensed from PE. Quantech is entitled to an 8% royalty on products
using its SPR technology sold to the food and beverages, chemical and industrial
and environmental testing markets.

         The combination of technology and intellectual property from both PE
and Quantech provided to HTS is expected to support the accelerated development
of label-free, cost effective detection systems for the pharmaceutical and
genomics research markets. In addition to label free systems, HTS intends to
become the source of various other high-throughput systems and chemistries for
the detection of molecular and cellular changes and interactions for the fields
of functional genomics, proteomics and drug discovery.

Patents and Proprietary Rights

         The Ares-Serono license covers a total of eight patents. Some of these
patents relate to the optics, mirrors, light refraction and calibration of the
SPR based instrument. The remaining patents are on the grating, optics
enhancement of the disposals, sensitivity of the chemistry on the disposable,
attachment of the assay reagents to the disposal grating and features of the
prototype instrument. The chart below provides a listing of the patents and
their status.



PATENT NAME                     DESCRIPTION                   U.S. GRANT DATE           COUNTRIES GRANTED

                                                                           
Merlin I                   Patent for grating coupled SPR        06/05/90           AT,  AU,  BE,  CA,  CH, DE, EP, FR, GB, IT,
                           biosensor. Used in FasTraQ System                        JP, LU, NL, NO, SE, WO

Merlin II                  Patent for grating coupled SPR        21/11/89           AT,  AU,  BE,  CA,  CH, DE, EP, FR, GB, IT,
                           biosensor. Used in FasTraQ System                        JP, LU, NL, NO, SE, WO

Cellulose Nitrate Films    Patent for grating coupled SPR        12/02/91           AT,  AU,  BE,  CA,  CH, DE, EP, ES, FR, GB,
                           biosensor. Used in FasTraQ System                        GR, IL, IT, JP, LU, NL, SE

Calibration Notches        Not used in FasTraQ                   09/05/89           AT,  AU,  BE,  CA,  CH, DE, EP, ES, FR, GB,
                                                                                    GR, IL, IT, JP, LU, NL, SE

Enhanced SPR biosensor     Not used in FasTraQ                   Pending            AT,  AU,  BE,  CA,  CH, DE, EP, ES, FR, GB,
assay                                                                               GR, IL, IT, JP, LU, NL, SE

Sensor Using Photoresist   Not used in FasTraQ                   09/03/88           AT,  AU,  BE,  CA,  CH, DE, EP, FR, GB, IT,
                                                                                    LU, NL, NO, SE, WO

Waveguide Sensor           Not used in FasTraQ                   Pending            AT,  AU,  BE,  CA,  CH, DE, EP, ES, FR, GB,
                                                                                    IT, JP, LU, NL, NO, SE, WO

Restrahlen Effect Sensor   Not used in FasTraQ                   N/A                GB ONLY


         All developments by Quantech pursuant to the Ares-Serono license,
either proprietary or patentable in nature, are the property of Quantech. We
have made a number of advances that may be patentable and we are reviewing
registration of additional patents.

Employees

         Quantech employs 32 people on a full and part-time basis and engages
consultants and independent contractors to provide services related to the
development of the FasTraQ system and marketing. Quantech expects to hire other
personnel as necessary for chemistry development, quality control, sales and
marketing, manufacturing and administration.




CAUTIONARY STATEMENTS

         Certain statements contained in this Form 10-KSB and other written and
oral statements made from time to time by Quantech do not relate strictly to
historical or current facts. As such, they are considered "forward-looking
statements" which provide current expectations or forecasts of future events.
Such statements can be identified by the use of terminology such as
"anticipate," "believe," "estimate," "expect," "intend," "may," "could,"
"possible," "plan," "project," "will," "forecast" and similar words or
expressions. Quantech's forward-looking statements generally relate to its
growth strategy, financial results, product approvals, development programs and
marketing efforts. One must carefully consider forward-looking statements and
understand that such statements involve a variety of risks and uncertainties,
known and unknown, and may be affected by inaccurate assumptions, including,
among others, those discussed herein. Consequently, no forward-looking statement
can be guaranteed and actual results may vary materially. Quantech notes these
factors as permitted by the Private Securities Litigation Reform Act of 1995.
Quantech wishes to caution investors that the following important factors, among
others, in some cases have affected and in the future could affect its actual
operations and cause such operations to differ materially from those anticipated
in forward-looking statements made in this document and elsewhere by or on
behalf of Quantech.

We expect to incur losses in the future and we need additional financing to
achieve sales necessary to reach a break-even cash flow.

         We have incurred net losses in each year since inception. We expect to
increase significantly our research and development, sales and marketing,
manufacturing and general and administrative expenses in the future. We will
spend these amounts before we receive any incremental revenue from these
efforts. Further financing will be necessary to complete the Company's menu of
tests, establish sales and marketing and manufacturing capacity and achieve the
sales level required to achieve a break-even cash flow. Additional financing
through investment capital, funding by strategic partner(s) or licensing
revenues will be needed to operate until revenues can be generated in an amount
sufficient to support operations. Quantech does not have any commitments for any
such additional financing and does not anticipate receiving any additional
significant funding from commercial lenders until product sales commence. There
can be no assurance that any such additional financing can be obtained on
favorable terms, if at all. Any additional equity financing may result in
dilution to Quantech stockholders and could depress the market price of our
common stock.

"Going concern" statement in auditor's report may make it difficult to raise new
capital.

         Quantech has not had any significant revenues to date. As of June 30,
1999 and 2000 we had accumulated deficits of $22,727,284 and $31,900,252,
respectively. The report of the independent auditors on Quantech's financial
statements for the year ended June 30, 2000, includes an explanatory paragraph
relating to the uncertainty of Quantech's ability to continue as a going
concern, which may make it more difficult for Quantech to raise additional
capital.

Development of the FasTraQ is not complete and may not be completed on the
current timetable and budget.

         Components of the FasTraQ system are under various stages of
development. Until the FasTraQ development is completed and cleared through the
FDA, there can be no assurance that the FasTraQ system will be finished
according to our current development timetable and budget. Failure to timely
finish on budget will require Quantech to seek funding greater than currently
anticipated, thus intensifying the risks described in "We expect to incur losses
in the future and we need additional financing to achieve sales necessary to
obtain break-even cash flow" above. Additionally, the final price that we will
need to charge to cover the costs of the FasTraQ instrument and the PrePaQ test
cartridges cannot be determined until development is complete and FDA clearances
have been obtained. If Quantech cannot receive FDA approval and offer the
FasTraQ system with certain required features and tests at a cost acceptable to
potential customers, it will be impossible for Quantech to continue operations.
Failures in any of these areas will disappoint investors and could result in a
decline in our stock price thus causing investors to lose substantial money.




We may not succeed in persuading potential buyers to replace existing equipment
and facilities with our system or in convincing the medical community and
third-party payers of the reliability, faster speed and lower cost of tests
conducted on the FasTraQ.

         In general, the commercial success of the FasTraQ will depend upon its
acceptance by the medical community and third-party payers as a reliable and
economical product. The approval of the purchase of diagnostic test systems by a
hospital is generally controlled by its central laboratory. We expect that there
will be resistance by some central laboratories to a new system until it is
proven to have a level of accuracy and precision comparable to current hospital
tests. Finally, the system must provide to emergency department doctors results
of STAT tests quicker than current hospital tests.

We have not established a distribution system and may not have the resources to
effectively market our product.

         We have had no experience in marketing our system. We intend to market
our system in the United States through either a direct sales force or through a
strategic partner with an established distribution system, and in foreign
markets through a distributor(s) and/or strategic partner(s), but no assurance
can be given that such arrangements can be made. Establishing sales and
marketing capability sufficient to support the level of sales necessary for us
to attain profitability will require substantial efforts and significant
management and financial resources. There can be no assurance that we will be
able to recruit and retain direct sales and marketing personnel, engage
distributors or have our marketing efforts be successful.

         Sales through distributors could be less profitable than direct sales.
Sales of our products through multiple channels could also confuse customers and
cause the sale of our products to decline. We will not control our distribution
partners. Our partners could sell competing products and may devote insufficient
sales efforts to our products. We may not be able to have our distributors
purchase minimum quantities. As a result, even if we are dissatisfied with the
performance of our partners, we may be unable to terminate our agreements with
these partners or enter into alternative arrangements.

We have very limited manufacturing and production experience and have not yet
contracted with third party manufacturers.

         To be successful, we must timely manufacture sufficient quantities of
the FasTraQ instrument, PrePaQ test cartridges and ReaLinQ communicators in
compliance with regulatory requirements, such as the FDA's Good Manufacturing
Practices, while maintaining product quality and acceptable manufacturing costs.
The instrument, communicators and many components of the test cartridges will be
manufactured by outside vendors. We have not entered into agreements with any of
these vendors. There can be no assurance that we can engage such vendors.
Further, if engaged, the limited control we have over any third party
manufacturers as to timeliness of production, delivery and other factors could
affect our ability to supply products on a timely basis.

         We ultimately intend to chemically coat and assemble test cartridges
ourselves. We have never operated a manufacturing/assembly business. We have
only one manufacturing facility, which must be registered with the FDA. If we
fail to produce enough products at our manufacturing facility or at a
third-party manufacturing facility we may be unable to deliver products to our
customers on a timely basis. Our failure to deliver products on a timely basis
could lead to customer dissatisfaction and damage our reputation.

Our ability to market and sell our products and generate revenue depends upon
receipt of domestic and foreign regulatory approval for our products and
manufacturing operations.

         The FasTraQ instrument and PrePaQ test cartridges are human diagnostic
medical devices subject to regulation by the United States FDA and agencies of
foreign countries. The FDA regulates the system as a medical device that
requires clearance before sales can be made in the United States. We believe
that such pre-market clearance can be obtained for our instrument and
substantially all of our test cartridges through submissions of a 510(k)
pre-market notification demonstrating the particular product's substantial
equivalence to another device legally marketed under a similar clearance. There
can be no assurance that the FDA or other government regulators will approve the
instrument and test cartridges in a timely manner or at all. Delay in approvals,
or failure to achieve approvals, would increase the capital necessary to
maintain operations and make it more difficult to raise required funds.




         The FDA also requires us to adhere to current Good Manufacturing
Practices regulations, which include production design controls, testing,
quality control, storage and documentation procedures. The FDA may at any time
inspect our facilities to determine whether adequate compliance has been
achieved. Compliance with current Good Manufacturing Practices regulations for
medical devices is difficult and costly. In addition, we may not continue to be
compliant as a result of future changes in, or interpretations of, regulations
by the FDA or other regulatory agencies. If we do not achieve continued
compliance, the FDA may withdraw marketing clearance or require product recall.
When any change or modification is made to a device or its intended use, the
manufacturer may be required to reassess compliance with current Good
Manufacturing Practices regulations, which may cause interruptions or delays in
the marketing and sale of our products. Sales of our products outside the United
States are subject to foreign regulatory requirements that vary from country to
country. The time required to obtain approvals from foreign countries may be
longer or shorter than that required for FDA approval, and requirements for
foreign licensing may differ from FDA requirements. The Federal, state and
foreign laws and regulations regarding the manufacture and sale of our products
are subject to future changes, as are administrative interpretations of
regulatory agencies. If we fail to comply with applicable federal, state or
foreign laws or regulations, we could be subject to enforcement actions,
including product seizures, recalls, withdrawal of clearances or approvals and
civil and criminal penalties.

We may not succeed in marketing our product against multiple levels of
competition, including from manufacturers of central and STAT laboratory testing
equipment and point-of-care testing products.

         The medical testing market is highly competitive. We expect that
manufacturers of central and STAT laboratory testing equipment will compete to
maintain their market shares. Also, point-of-care testing products exist and
additional products are likely to be introduced to compete with certain tests to
be performed on the FasTraQ. All of the industry leaders and many of the other
companies participating in this market have substantially greater resources than
the resources available to us, including, but not limited to, financial
resources and skilled personnel. Current central lab systems are also well
accepted and entrenched so that sale of our system may require a significant
sales effort to gain market share. If the features and costs of our system are
not compelling it will not successfully compete in its market.

The FasTraQ must comply with regulations governing the qualifications of persons
operating it and high qualification requirements could adversely affect sales.

         Use of the FasTraQ will be subject to the Clinical Laboratory
Improvement Act of 1988. This regulation governs the qualifications of persons
supervising a laboratory test and the persons performing the laboratory test. We
have based our marketing plan on the belief that our system will be classified
as a test of moderate complexity. However, we have not sought the necessary
regulatory approval of this classification. In practical terms, performing a
test of moderate complexity means that the individual supervising the test must
be well educated and well trained, but the individual operating the system
requires no formal laboratory education and only task-specific training. If our
system were not classified as a test of moderate complexity, we would not have a
user-friendly operation advantage, which could have an adverse effect on sales.

The FasTraQ will initially be Quantech's only product making us vulnerable to
technological obsolescence.

         The FasTraQ will be Quantech's only initial product and is based upon a
single set of core technologies. We operate in a market characterized by rapid
and significant technological change. While we are not aware of any developments
in the medical industry that would render our current or planned product 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, we will need continually to make substantial
expenditures for development of both equipment and additional tests.




Failure to maintain patent protection of our system would put Quantech at
substantial risk.

         No assurance can be given that we will be able to protect our
proprietary technology. We are not aware of any issued patents that would
prohibit the use of any technology we currently have under development. However,
patents may exist or be issued in the future to other companies covering
elements of our system. The existence or issuance of such patents may require us
to make costly significant changes in the design of the FasTraQ or operational
plans. We have not conducted an independent patent search or evaluation with
respect to our technology. Ares-Serono, the company licensing certain technology
to us made no warranties as to the enforceability of any of the patents or the
commercial potential of the technology. Although Ares-Serono may defend the
patents they have licensed to us, we will be responsible for the defense of any
patents Ares-Serono elects not to defend and all of those issued to us. The cost
of patent litigation can be very substantial.

We are dependent upon our few employees and the loss of our CEO, CFO/COO or
Executive VP of R&D could leave Quantech without sufficient management expertise
to continue operations successfully.

         We have a small number of employees. Although we believe we maintain a
core group sufficient for us to effectively conduct our operations, the loss of
any of our personnel could, to varying degrees, have an adverse effect on our
operations and system development. The loss of Robert Case, our CEO, Greg
Freitag, our COO and CFO or Thomas Witty, our Executive V.P. of R&D, would have
a material adverse effect on Quantech.

If we do not attract and retain skilled personnel, we will not be able to expand
our business.

         Our products are based on chemical, electrical and optical
technologies. Accordingly, we require skilled personnel to develop, manufacture,
sell and support our products. Our future success will depend largely on our
ability to continue to hire, train, retain and motivate additional skilled
personnel. We continue to experience difficulty in recruiting and retaining
skilled personnel because the pool of experienced persons is small and we
compete for personnel with other companies, many of which have greater resources
than we do. Consequently, if we are not able to attract and retain skilled
personnel, we will not be able to meet our development and product launch
timetable or budgets.

Failure of users of the FasTraQ to obtain adequate reimbursement from
third-party payors could limit market acceptance of the FasTraQ, which could
prevent us from achieving market acceptance and profitability.

         The FasTraQ will be marketed to hospitals who bill various third-party
payors, such as managed care organizations, government health programs, private
health insurance plans and other similar programs, for the health care products
and services provided to their patients. Failure by hospitals and other users of
the FasTraQ to obtain adequate reimbursement from third-party payors, or any
reduction in the reimbursement by third-party payors to hospitals and other
users as a result of using the FasTraQ could limit market acceptance of the
FasTraQ, which could prevent us from achieving profitability.

We could be exposed to product liability claims once the FasTraQ is launched,
which could adversely affect our cash position and our ability to obtain and
maintain insurance coverage at satisfactory rates.

         The manufacture and sale of our products will expose us to product
liability claims and product recalls, including those which may arise from
misuse or malfunction of, or design flaws in, our products. Product liability
claims or product recalls, regardless of their ultimate outcome, could require
us to spend significant time and money in litigation or to pay significant
damages. We currently do not maintain insurance; however, prior to marketing our
product we intend to obtain product liability insurance coverage in an amount
which we deem, appropriate. There can be no assurance that such insurance will
be available on commercially reasonable terms or that if obtained it will be
adequate to cover the costs of any product liability claims made against us.




Shares eligible for future sale could depress the market price of Quantech's
Common Stock and make it more difficult for Quantech to raise the funds it needs
to survive.

         Nearly all shares of Quantech's outstanding common stock are eligible
to be sold in the public market along with almost all shares that may be
obtained upon exercise of outstanding options, warrants or conversion of Series
A, B, C and D Convertible Preferred Stock. The sale of a large number of shares
could adversely affect the market price and liquidity of Quantech's securities.
Such potential adverse effects on price and liquidity, or the concern over these
issues, could make it more difficult for Quantech to raise required future
funds.





ITEM 2.  DESCRIPTION OF PROPERTY

         Quantech leases offices (comprised of approximately 20,900 sq. ft.) at
815 Northwest Blvd., Eagan, Minnesota at a base monthly rent of approximately
$16,000 pursuant to a lease arrangement which expires April 2007. Thereafter
Quantech has an option to extend the lease for an additional five years.

ITEM 3.  LEGAL PROCEEDINGS

         None.

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

         There were no matters submitted to a vote of security holders during
the fourth quarter of fiscal 2000.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's common stock is quoted on the local over-the-counter and
the OTC Bulletin Board under the symbol QQQQ. Although trading in Quantech's
common stock does occur on a consistent basis, the volume of shares traded has
been sporadic. There can be no assurance that an established trading market will
develop, the current market will be maintained or a liquid market for Quantech's
common stock will be available in the future. Investors should not rely on
historical stock price performance as an indication of future price performance.

         The following table summarizes the quarterly high and low sale prices
of Quantech's common stock for the last two fiscal years. The closing price of
Quantech's common stock on September 18, 2000 was $3.44 per share.


                                             High                   Low
                                           -------                -------
          Fiscal 1999

                   First Quarter           $  3.88                $  0.94
                   Second Quarter          $  2.56                $  0.53
                   Third Quarter           $  2.00                $  1.38
                   Fourth Quarter          $  1.81                $  1.38

          Fiscal 2000

                   First Quarter           $  1.69                $  1.06
                   Second Quarter          $  1.50                $  0.88
                   Third Quarter           $  5.00                $  1.09
                   Fourth Quarter          $  4.13                $  2.50


         As of September 18, 2000, the Company had approximately 500 holders of
record of its common stock, excluding stockholders whose stock is held either in
nominee name or street name brokerage accounts. Based on information obtained
from Quantech's transfer agent, as of such date, there were approximately 3,800
stockholders of Quantech's common stock whose stock is held in either nominee
name or street name brokerage accounts.


                                 DIVIDEND POLICY

         Quantech has never paid a cash dividend on its common stock or Series
A, B, C or D Convertible Preferred Stock. Payment of dividends is at the
discretion of the board of directors. The board of directors plans to retain
earnings, if any, for operations and does not intend to pay dividends in the
near future.



                           UNREGISTERED SALES OF STOCK

         During April through June 2000, Quantech issued 338,568 shares of
common stock pursuant to conversion of preferred stock. The sale of such shares
was deemed to be exempt from registration under Section 3(a)(9) of the 1933 Act.
The purchasers acquired these securities for their own accounts and not with a
view to any distribution thereof to the public.

         During May and June 2000, Quantech issued 47,029 shares of common stock
pursuant to the exercise of warrants by accredited investors. The sale of such
shares was deemed to be exempt from registration under Section 4(2) of the 1933
Act. The purchasers acquired these securities for their own accounts and not
with a view to any distribution thereof to the public.

         During August and September 2000, Quantech issued 1,996,000 shares of
Series D preferred stock and warrants to purchase 499,000 shares of common stock
at $3.50 per share. Each share of Series D preferred stock is convertible into
one share of common stock. The sale of such shares was deemed to be exempt from
registration under Section 4(2) of the 1933 Act and rule 506 promulgated
thereunder. Quantech paid commissions and accountable expenses in the aggregate
amount of $467,880 to registered investment banks for acting as selling agents,
and issued the investment banks warrants to purchase up to 183,600 shares of
common stock as additional compensation. The purchasers acquired these
securities for their own accounts and not with a view to any distribution
thereof to the public.


       ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
                  OF OPERATION

History

         Quantech 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 is the core technology of Quantech's proposed FasTraQ(TM)
system. The FasTraQ system will first be marketed to hospital emergency
departments ("ED") and is expected to provide a single, simple and economical
system providing the rapid, quantitative STAT test menu EDs require. The
Quantech system configuration will consist of a bench top modular instrument, a
series of disposable tests with one or up to three tests per disposable and
wireless handheld communication devices to quickly provide test information.

         Quantech's consolidated financial statements include the results of HTS
BioSystems ("HTS") of which Quantech currently has 73% ownership. HTS was formed
around a combination of SPR technologies and intellectual property from both
Quantech and PE Biosystems (NYSE:PEB). This technology supports the accelerated
development of label-free, cost effective detection systems, initially for the
scientific research market. HTS intends to become the definitive source of
analytical systems and chemistry for the high-speed detection of molecular and
cellular interactions in the fields of functional genomics, proteomics and drug
discovery. HTS expects its first product, the FLEX CHIP Kinetic Analysis System,
to be available next year.

         Quantech is a development stage company, which has suffered losses from
operations, and will require additional financing to complete development,
obtain FDA approval and commercialize its product. Our 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 our ability to continue as a going
concern.




Results of Operations

         Quantech has incurred a net loss of $28,369,717 from September 30, 1991
(date of inception) through June 30, 2000 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 rights to the SPR technology.

         Quantech reported its first revenue during the year ended June 30, 2000
of $150,000 from the sale of an evaluation system. During fiscal year 2001 we
expect additional revenue from evaluation systems, but do not expect significant
revenue from the sale of commercial systems.

         For the year ended June 30, 2000 Quantech had interest income of
$27,562 compared to $1,886 for the 1999 fiscal year as a result of more cash on
hand from the proceeds of offerings for Quantech and its HTS BioSystems
subsidiary.

         General and administration expenses increased to $1,876,930 for the
year ended June 30, 2000 from $1,470,359 for the year ended June 30, 1999. The
increase in general and administration expenses was primarily due to start up
costs for the HTS BioSystems subsidiary and expenses related to Quantech
expansion. We expect general and administrative expenses to increase in the
future as Quantech and HTS BioSystems complete development of their systems,
prepare for market launch and begin to manufacture and distribute their
products.

         Marketing expenses increased to $1,059,063 for the year ended June 30,
2000 from $123,092 for the year ended June 30, 1999 due to higher market
research expenses including fees paid to consultants and research firms,
non-cash option expenses for advisors, and costs to attend industry trade shows.
We expect marketing expenses to increase in the future as Quantech and HTS
BioSystems prepare for market launch and begin to distribute their products.

         Research and development costs increased to $3,269,590 during the year
ended June 30, 2000 from $1,815,727 for the year ended June 30, 1999. The
increase was primarily due to increased internal and outside development work at
Quantech, and the initial development work at HTS BioSystems. We expect R&D
spending to significantly increase as Quantech and HTS BioSystems complete the
commercial development of their systems and begin to establish higher volume
manufacturing capabilities.

         Minimum royalty expense decreased to $75,000 in fiscal 2000 compared to
$150,000 in fiscal 1999 due to the final minimum royalty payment made in January
2000. In the future we expect to incur additional royalty expense when royalties
based on revenues exceed minimum payments.

         Interest expense decreased to $42,509 during the year ended June 30,
2000 from $732,524 during the year ended June 30, 1999 as a result of reduced
debt. Interest expense is expected to remain lower in fiscal year 2001 as
Quantech does not anticipate any debt other than borrowing up to $1,000,000 from
its bank credit facility and $125,000 of capital lease obligations.

         During fiscal year 2000, Quantech recorded an expense credit of
$122,677 for the minority interest in the net loss of its HTS BioSystems
subsidiary. We expect to record a larger minority interest credit in fiscal year
2001 due to increased spending at HTS.

         For the year ended June 30, 2000, Quantech had a loss of $6,022,853 as
compared to $4,289,816 for the same period ended June 30, 1999. This increased
loss was primarily a result of higher general and administrative, marketing and
research and development expenses in fiscal year 2000, partially offset by
higher revenue, lower interest expense and the expense credit for the minority
interest in the subsidiary.

         Quantech's earnings per share figures reflect large non-cash charges
resulting from the timing of convertible securities sales. A rapid increase in
the price of Quantech's common stock occurred after Quantech had negotiated
pricing terms for its Series B and Series C preferred stock, resulting in large
beneficial conversion feature charges for the difference between the conversion
price of the preferred stock and the market price of the common stock. These
charges were due to the timing of equity sales and had no effect on cash flow.




Liquidity and Capital Resources

         From inception to June 30, 2000, Quantech has raised approximately
$27,000,000 through a combination of public stock sales and private sales of
stock and debt obligations. In June 2000 Quantech began offering for sale a
minimum of $2,500,000 and a maximum of $5,000,000 of its Series D preferred
stock to accredited investors. The units are priced at $10.00 per unit
consisting of 4 shares of Series D preferred stock and a warrant to purchase one
share of common stock. Each share is convertible into one share of common stock,
and the warrant has an exercise price of $3.50 per share. During August and
September 2000, Quantech raised net proceeds of $4,523,000 from the sale of
499,000 units.

         Quantech anticipates that its cash on hand, bank credit facility, and
completion of Quantech's Series D convertible preferred stock offering for up to
an additional $2.5 million will allow it to maintain operations through February
2001. Additional financing of approximately $15 million will be needed to
develop and submit to the FDA additional tests, complete clinical evaluation of
the system, establish manufacturing capabilities and prepare for sales of the
system. Quantech is currently reviewing multiple avenues of future funding
including private sale of equity or debt with equity features or arrangements
with strategic partners. Quantech does not have any commitments for any such
financing and there can be no assurance that Quantech will obtain additional
capital when needed or that additional capital will not have a dilutive effect
on current stockholders. See "Cautionary Statements -- We expect to incur losses
in the future and we need additional financing to achieve sales necessary to
reach a break-even cash flow." Quantech has a limited lending arrangement with
its bank to a maximum of $1,000,000 which expires at the end of calendar 2000.
Quantech does not anticipate renewing this credit line or receiving any
additional significant funding from commercial lenders. In addition, HTS
BioSystems anticipates raising up to $15 million for its operations either
through strategic partners or the sale of securities. An equity sale would
result in a dilution of Quantech ownership of HTS.

         Quantech incurred capital expenditures of approximately $874,000 in
fiscal 2000 primarily for automated production equipment and office systems and
equipment. We anticipate significantly higher capital expenditures in the near
future for laboratory and production equipment and office expansion as Quantech
and HTS BioSystems near product introduction. The timing and amount of such
expenditures will be governed by our 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.

         As of September 18, 2000 Quantech had 6,218,524 shares of Common Stock
outstanding. It also had options and warrants outstanding to purchase an
additional 6,889,218 shares, and Series A, B, C and D Preferred Stock
convertible into 11,146,263 shares of Common Stock.

New Accounting Pronouncements

Revenue recognition: In December 1999, the staff of the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101 (SAB No. 101), "Revenue
Recognition in Financial Statements". SAB No. 101 summarizes some of the staff's
interpretations of the application of generally accepted accounting principles
related to revenue recognition. The Company will adopt SAB No. 101 in the first
quarter of the fiscal year ending June 30, 2001. Management believes the
adoption of SAB No. 101 will not have a significant affect on its financial
statements.

Derivatives: The FASB has issued SFAS No. 133, Accounting for Derivative
instruments and Hedging Activities, which the Company will be required to adopt
in the fiscal year ending June 30, 2001. Statement No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires than an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
SFAS No. 133 is not expected to have a significant effect on the Company's
financial statements.





ITEM 7.  FINANCIAL STATEMENTS

         The following financial information of the Company is included as
follows:
                                                                           Page
                                                                           -----
Financial Statements for Fiscal Years 2000 and 1999

Independent Auditors Report................................................24
Statements of Operations For the Period from Inception (September 30, 1991)
through June 30, 2000 and for the Years Ended June 30, 2000 and 1999.......25
Balance Sheets as of June 30, 2000 and 1999................................26-27
Statements of Stockholders' Equity (Deficit) For the Period from Inception
 (September 30, 1991) through June 30, 2000................................28-35
Statement of Cash Flows For the Period from Inception (September 30, 1991)
 through June 30, 2000 and for the Years Ended June 30, 2000 and 1999......36-38
Notes to Financial Statements..............................................39-51


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

         None.



                          INDEPENDENT AUDITOR'S REPORT

To the Stockholders and the Board of Directors
Quantech Ltd. and Subsidiary
Eagan, Minnesota

We have audited the accompanying consolidated balance sheets of Quantech Ltd.
and Subsidiary (A Development Stage Company) as of June 30, 2000 and 1999, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended and the period from September
30, 1991 (date of inception) to June 30, 2000. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Quantech Ltd. and
Subsidiary (A Development Stage Company) as of June 30, 2000 and 1999, and the
results of its operations and its cash flows for the years then ended and for
the period from September 30, 1991 (date of inception) to June 30, 2000, in
conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company is a development stage company
which has suffered significant losses from operations, requires significant
additional financing, and ultimately needs to continue development of its
product, obtain FDA approval, generate significant revenues, and successfully
attain profitable operations to realize the value of its license agreement and
to remain a going concern. 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 described in Note 2. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

Minneapolis, Minnesota
August 18, 2000, except for the last paragraph of Note 6
   as to which the date is September 20, 2000




QUANTECH LTD. AND SUBSIDIARY (A Development Stage Company)

CONSOLIDATED BALANCE SHEETS
June 30, 1999 and 2000



ASSETS (Note 3)                                         2000            1999
- -------------------------------------------------------------------------------

                                                              
Current Assets
  Cash and cash equivalents                         $1,328,797      $  436,223
  8% demand note receivable from officer               141,000            --
  Prepaid expenses:
    Product development expense                           --            57,500
    Other                                               44,261          36,037
                                                    ----------      ----------
      Total current assets                           1,514,058         529,760
                                                    ----------      ----------



Property and Equipment
  Equipment                                          1,193,898         427,508
  Leasehold improvements                                28,634          15,000
                                                    ----------      ----------
                                                     1,222,532         442,508

  Less accumulated depreciation                        278,088         276,295
                                                    ----------      ----------
                                                       944,444         166,213
                                                    ----------      ----------







Other Assets
  License agreement, at cost, less accumulated
       amortization (Note 4)                         2,082,553       2,409,180
  Patents                                               25,816          13,045
  Deposits                                              79,457            --
                                                    ----------      ----------
                                                     2,187,826       2,422,225
                                                    ----------      ----------
                                                    $4,646,328      $3,118,198
                                                    ==========      ==========


See Notes to Consolidated Financial Statements






LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                   2000           1999
- ---------------------------------------------------------------------------------------------------------
                                                                                       
Current Liabilities
  Short-term debt (Note 3)                                                $    750,000       $    746,000
  Current portion of long-term debt (Note 5)                                    57,770               --
  Accounts payable                                                             614,592            111,857
  Accrued expenses:
    Minimum royalty commitment (Note 4)                                           --               75,000
    Payroll and vacation                                                       138,763            120,300
    Interest                                                                     3,750              3,100
                                                                          ------------       ------------
      Total current liabilities                                              1,564,875          1,056,257
                                                                          ------------       ------------

Long-term debt, net of current portion (Note 5)                                 46,009               --

Redeemable Series A Preferred Stock, authorized 2,129,593 shares;
  issued and outstanding 1,354,926 and 1,697,706 shares at
  June 30, 2000 and 1999, respectively reedeemable after
  November 5, 2003, at $4,852,640 (Note 6)                                   4,495,245          5,113,143

Minority Interest in Subsidiary                                                339,685               --

Commitments and Contingencies (Notes 4 and 5)

Stockholders' Equity (Deficit) (Notes 2, 3, 6, and 7)
  Common stock, no par value; authorized 51,538,740 shares;
    issued and outstanding 6,204,416 and 2,741,534 shares at
    June 30, 1998 and 1999, respectively                                    19,959,765         16,498,837
  Series B Preferred Stock, no par value; authorized 2,744,667
    shares; issued and outstanding 2,744,667 and 623,334 shares at
    June 30, 2000 and 1999, respectively                                     1,874,073            891,500
  Series C Preferred Stock, no par value; authorized 1,000,000
    shares; issued and outstanding 1,000,000 shares at June 30, 2000           973,100               --
  Stock subscription receivable for Series B and C Preferred Stock             (20,000)           (60,000)
  Additional paid-in capital                                                 7,313,828          2,342,745
  Deficit accumulated during the development stage                         (31,900,252)       (22,724,284)
                                                                          ------------       ------------
                                                                            (1,799,486)        (3,051,202)
                                                                          ------------       ------------
                                                                          $  4,646,328          3,118,198
                                                                          ============       ============



QUANTECH LTD. AND SUBSIDIARY (A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                                            September 30,
                                                                                           1991 (Date of
                                                           Years Ended June 30             Inception) to
                                                          2000                1999         June 30, 2000
- --------------------------------------------------------------------------------------------------------
                                                                                   
Net sales                                             $    150,000       $       --         $    150,000
                                                      ------------       ------------       ------------
Expenses:
  General and administrative                             1,876,930          1,470,359         12,206,083
  Marketing                                              1,059,063            123,092          1,485,145
  Research and development                               3,269,590          1,815,727         11,339,383
  Minimum royalty expense (Note 4)                          75,000            150,000          1,300,000
  Minority interest                                       (122,677)              --             (122,677)
  Other                                                       --                 --              488,978
                                                      ------------       ------------       ------------
                                                         6,157,906          3,559,178         26,696,912
                                                      ------------       ------------       ------------

     Loss from operations                               (6,007,906)        (3,559,178)       (26,546,912)

Other:
  Interest income                                           27,562              1,886            212,664
  Interest expense                                         (42,509)          (732,524)        (1,992,874)
                                                      ------------       ------------       ------------
     Loss before income taxes                           (6,022,853)        (4,289,816)       (28,327,122)
                                                      ------------       ------------       ------------

Income taxes (Note 8)                                         --                 --               42,595
                                                      ------------       ------------       ------------
     Net loss                                         $ (6,022,853)      $ (4,289,816)      $(28,369,717)
                                                      ============       ============       ============

Net loss attributable to common stockholders:
  Net loss                                            $ (6,022,853)      $ (4,289,816)
  Preferred stock accretion                               (410,445)          (377,420)
  Beneficial conversion feature of preferred stock      (2,742,670)              --
                                                      ------------       ------------
     Net loss attributable to common
     stockholders                                     $ (9,175,968)      $ (4,667,236)

Loss per basic and diluted common share               $      (2.12)      $      (1.75)

Weighted-average common shares outstanding               4,335,846          2,673,812


See Notes to Consolidated Financial Statements.


QUANTECH LTD. AND SUBSIDIARY (A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)



                                                  Series B Preferred Stock   Series C Preferred Stock           Common Stock
                                                   Shares Issued   Amount     Shares Issued  Amount     Shares Issued      Amount
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      
Balance, at inception                                  $--          $--          $--          $--       $      --       $      --
  Net loss                                              --           --           --           --              --              --
  Common stock transactions:
    Common stock issued, October 1991                   --           --           --           --           160,000       3,154,574
    Common stock issued, November 1991                  --           --           --           --            30,000         611,746
    Common stock issuance costs                         --           --           --           --              --              --
  Cumulative translation adjustment                     --           --           --           --              --              --
                                                     ------------------------------------------------------------------------------
Balance, December 31, 1991                              --           --           --           --           190,000       3,766,320
  Net loss                                              --           --           --           --              --              --
  Common stock transactions:
    Common stock issued, September 1992                 --           --           --           --            35,000         699,033
    Common stock issuance costs                         --           --           --           --              --              --
    8,000 shares of common stock to be issued           --           --           --           --              --              --
  Officer advances, net                                 --           --           --           --              --              --
  Cumulative translation adjustment                     --           --           --           --              --              --
  Elimination of cumulative translation adjustment      --           --           --           --              --              --
                                                     ------------------------------------------------------------------------------
Balance, December 31, 1992                              --           --           --           --           225,000       4,465,353
  Net loss                                              --           --           --           --              --              --
  Common stock transactions:
    Common stock issued, January 1993                   --           --           --           --             8,000           1,600
    Common stock issued, April 1993                     --           --           --           --             1,500             300
    Change in common stock par value resulting
    from merger                                         --           --           --           --              --        (4,420,353)
  Repayments                                            --           --           --           --              --              --
                                                     ------------------------------------------------------------------------------
Balance, June 30, 1993                                  --           --           --           --           234,500          46,900
  Net loss                                              --           --           --           --              --              --
  12,000 shares of common stock to be issued            --           --           --           --              --              --
  Repayments                                            --           --           --           --              --              --
                                                     ------------------------------------------------------------------------------
Balance, June 30, 1994                                  --           --           --           --           234,500          46,900
  Net loss                                              --           --           --           --              --              --
  Common stock issued, June 1995                        --           --           --           --           107,500          21,500
  Warrants issued for services                          --           --           --           --              --              --
                                                     ------------------------------------------------------------------------------

(Continued)


(Continued)


                                                                                                           Deficit
                                                                                                         Accumulated    Accumulated
                                                   Additional   Common Stock                              During the      Other
                                                    Paid-In     Paid for, but  Subscriptions   Due From  Development   Comprehensive
                                                    Capital      Not Issued     Receivable     Officers     Stage         Income
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       
Balance, at inception                             $      --      $      --      $      --      $    --     $      --     $     --
  Net loss                                               --             --             --           --        (594,620)        --
  Common stock transactions:
    Common stock issued, October 1991                    --             --             --           --            --           --
    Common stock issued, November 1991              1,788,254           --             --           --            --           --
    Common stock issuance costs                      (889,849)          --             --           --            --           --
  Cumulative translation adjustment                      --             --             --           --            --        387,754
                                                   ---------------------------------------------------------------------------------
Balance, December 31, 1991                            898,405           --             --           --        (594,620)     387,754
  Net loss                                               --             --             --           --      (2,880,988)        --
  Common stock transactions:
    Common stock issued, September 1992               875,967           --          (53,689)        --            --           --
    Common stock issuance costs                      (312,755)          --             --           --            --           --
    8,000 shares of common stock to be issued            --          120,000           --           --            --           --
  Officer advances, net                                  --             --             --        (27,433)         --           --
  Cumulative translation adjustment                      --             --             --           --            --       (209,099)
  Elimination of cumulative translation adjustmen        --             --             --           --            --       (178,655)
                                                   ---------------------------------------------------------------------------------
Balance, December 31, 1992                          1,461,617        120,000        (53,689)     (27,433)   (3,475,608)        --
  Net loss                                               --             --             --           --        (996,089)        --
  Common stock transactions:
    Common stock issued, January 1993                 118,400       (120,000)          --           --            --           --
    Common stock issued, April 1993                    11,700           --             --           --            --           --
    Change in common stock par value resulting
    from merger                                     4,420,353           --             --           --            --           --
  Repayments                                             --             --             --          5,137          --           --
                                                   ---------------------------------------------------------------------------------
Balance, June 30, 1993                              6,012,070           --          (53,689)     (22,296)   (4,471,697)        --
  Net loss                                               --             --             --           --      (1,543,888)        --
  12,000 shares of common stock to be issued             --           30,000           --           --            --           --
  Repayments                                             --             --           53,689       22,296          --           --
                                                   ---------------------------------------------------------------------------------
Balance, June 30, 1994                              6,012,070         30,000           --           --      (6,015,585)        --
  Net loss                                               --             --             --           --      (2,070,292)        --
  Common stock issued, June 1995                      276,068        (30,000)       (20,000)        --            --           --
  Warrants issued for services                         40,200           --             --           --            --           --
                                                   ---------------------------------------------------------------------------------


QUANTECH LTD. AND SUBSIDIARY (A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)



                                                  Series B Preferred Stock   Series C Preferred Stock          Common Stock
                                                   Shares Issued   Amount     Shares Issued  Amount     Shares Issued      Amount
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          
Balance, June 30, 1995                                  --           --           --           --           342,000          68,400
  Net loss                                              --           --           --           --             --                --
  Common stock issued, net of issuance costs of
    $848,877:
    July 1995                                           --           --           --           --           308,000          61,600
    August 1995                                         --           --           --           --            35,880           7,176
    September 1995                                      --           --           --           --           690,364         138,073
    November 1995                                       --           --           --           --            94,892          18,978
    December 1995                                       --           --           --           --           560,857         112,172
    May 1996                                            --           --           --           --           313,750          62,750
    June 1996                                           --           --           --           --               252              51
  Payment received on subscription receivable           --           --           --           --              (960)           (192)
  Compensation expense recorded on stock options        --           --           --           --             --                --
                                                   ---------------------------------------------------------------------------------
Balance, June 30, 1996                                  --           --           --           --         2,345,035         469,008
  Net loss                                              --           --           --           --             --                --
  Stock offering costs                                  --           --           --           --             --                --
  Common stock issued upon exercise of options
    and warrants:
    September 1996                                      --           --           --           --               500             100
    October 1996                                        --           --           --           --             8,500           1,700
    November 1996                                       --           --           --           --               750             150
    December 1996                                       --           --           --           --            13,500           2,700
    January 1997                                        --           --           --           --             1,000             200
    February 1997                                       --           --           --           --             7,500           1,500
    March 1997                                          --           --           --           --             7,000           1,400
  Payments received on subscription receivable          --           --           --           --             --                --
  Compensation expense recorded on stock options        --           --           --           --             --                --
  Common stock issued, June 1997                        --           --           --           --            18,250           3,650
  Warrants issued with notes payable                    --           --           --           --             --                --
                                                   ---------------------------------------------------------------------------------
Balance, June 30, 1997                                  --           --           --           --         2,402,035         480,408
  Net loss                                              --           --           --           --             --                --
  Conversion of common stock from par value to
  no par value                                          --           --           --           --             --         15,392,446

(Continued)

(Continued)


                                                                                                           Deficit
                                                                                                         Accumulated    Accumulated
                                                   Additional   Common Stock                              During the      Other
                                                    Paid-In     Paid for, but  Subscriptions   Due From  Development   Comprehensive
                                                    Capital      Not Issued     Receivable     Officers     Stage         Income
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        
Balance, June 30, 1995                               6,328,338       --          (20,000)        --       (8,085,877)      --
  Net loss                                                --         --             --           --       (2,396,963)      --
  Common stock issued, net of issuance costs of
    $848,877:
    July 1995                                        1,304,450       --             --           --             --         --
    August 1995                                        161,460       --             --           --             --         --
    September 1995                                   2,370,389       --             --           --             --         --
    November 1995                                      425,482       --             --           --             --         --
    December 1995                                    1,292,473       --             --           --             --         --
    May 1996                                         3,300,422       --             --           --             --         --
    June 1996                                            3,650       --             --           --             --         --
  Payment received on subscription receivable          (14,808)      --           20,000         --             --         --
  Compensation expense recorded on stock options       125,000       --             --           --             --         --
                                                   ---------------------------------------------------------------------------------
Balance, June 30, 1996                              15,296,856       --             --           --      (10,482,840)      --
  Net loss                                                --         --             --           --       (3,925,460)      --
  Stock offering costs                                 (12,310)      --             --           --             --         --
  Common stock issued upon exercise of options
    and warrants:
    September 1996                                       2,400       --             --           --             --         --
    October 1996                                        40,800       --             --           --             --         --
    November 1996                                        3,600       --             --           --             --         --
    December 1996                                       64,800       --          (57,500)        --             --         --
    January 1997                                         4,800       --             --           --             --         --
    February 1997                                       17,250       --             --           --             --         --
    March 1997                                          33,600       --             --           --             --         --
  Payments received on subscription receivable            --         --           57,500         --             --         --
  Compensation expense recorded on stock options        48,000       --             --           --             --         --
  Common stock issued, June 1997                       105,850       --             --           --             --         --
  Warrants issued with notes payable                       371       --             --           --             --         --
                                                   ---------------------------------------------------------------------------------
Balance, June 30, 1997                              15,606,017       --             --           --      (14,408,300)      --
  Net loss                                                --         --             --           --       (3,648,748)      --
  Conversion of common stock from par value to
  no par value                                     (15,392,446)      --             --           --             --         --


QUANTECH LTD. AND SUBSIDIARY (A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)



                                                  Series B Preferred Stock   Series C Preferred Stock          Common Stock
                                                   Shares Issued   Amount     Shares Issued  Amount     Shares Issued      Amount
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          
Balance, June 30, 1997 (Continued)
  Common stock issued for license agreement:
    September 1997                                      --           --           --           --          150,000          390,000
  Common stock issued for equipment and services
    received:
    March 1998                                          --           --           --           --           13,078           45,584
  Warrants issued for services received:
    March 1998                                          --           --           --           --             --               --
    April 1998                                          --           --           --           --             --               --
  Warrants issued with notes payable                    --           --           --           --             --               --
  Amount attributable to value of debt conversion
    feature                                             --           --           --           --             --               --
  Warrants issued for license agreement:
    December 1997                                       --           --           --           --             --               --
  Compensation expense recorded on stock options        --           --           --           --             --               --
  Adjustment of fractional shares due to 1-for-20
    reverse stock split                                 --           --           --           --              (73)            --
                                                   ---------------------------------------------------------------------------------
Balance, June 30, 1998                                  --           --           --           --        2,565,040       16,308,438
  Net loss                                              --           --           --           --             --               --
  Warrants issued with notes payable                    --           --           --           --             --               --
  Common stock issued upon conversion of notes
    payable:
    July 1998                                           --           --           --           --            2,000            7,060
    September 1998                                      --           --           --           --            3,400           12,002
    October 1998                                        --           --           --           --           25,000           18,750
  Common stock issued upon exercise of warrant:
    August 1998                                         --           --           --           --            2,045            5,114
  Common stock issued for equipment and services
    received:
    July 1998                                           --           --           --           --            5,714           20,000
    August 1998                                         --           --           --           --            9,196           27,589
    September 1998                                      --           --           --           --           12,557           11,318
    December 1998                                       --           --           --           --            6,078            5,688

(Continued)

(Continued)



                                                                                                           Deficit
                                                                                                         Accumulated    Accumulated
                                                   Additional   Common Stock                              During the      Other
                                                    Paid-In     Paid for, but  Subscriptions   Due From  Development   Comprehensive
                                                    Capital      Not Issued     Receivable     Officers     Stage         Income
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        
Balance, June 30, 1997 (Continued)
  Common stock issued for license agreement:
    September 1997                                       --          --            --            --             --           --
  Common stock issued for equipment and services
    received:
    March 1998                                           --          --            --            --             --           --
  Warrants issued for services received:
    March 1998                                         15,215        --            --            --             --           --
    April 1998                                            500        --            --            --             --           --
  Warrants issued with notes payable                      939        --            --            --             --           --
  Amount attributable to value of debt conversion
    feature                                           988,444        --            --            --             --           --
  Warrants issued for license agreement:
    December 1997                                     230,000        --            --            --             --           --
  Compensation expense recorded on stock options       28,000        --            --            --             --           --
  Adjustment of fractional shares due to 1-for-20
    reverse stock split                                  --          --            --            --             --           --
                                                   ---------------------------------------------------------------------------------
Balance, June 30, 1998                              1,476,669        --            --            --      (18,057,048)        --
  Net loss                                               --          --            --            --       (4,289,816)        --
  Warrants issued with notes payable                       76        --            --            --             --           --
  Common stock issued upon conversion of notes
    payable:
    July 1998                                            --          --            --            --             --           --
    September 1998                                       --          --            --            --             --           --
    October 1998                                         --          --            --            --             --           --
  Common stock issued upon exercise of warrant:
    August 1998                                          --          --            --            --             --           --
  Common stock issued for equipment and services
    received:
    July 1998                                            --          --            --            --             --           --
    August 1998                                          --          --            --            --             --           --
    September 1998                                       --          --            --            --             --           --
    December 1998                                        --          --            --            --             --           --



QUANTECH LTD. AND SUBSIDIARY (A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)



                                                  Series B Preferred Stock   Series C Preferred Stock          Common Stock
                                                   Shares Issued   Amount     Shares Issued  Amount     Shares Issued      Amount
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          
Balance, June 30, 1998 (Continued)
  Stock options issued for services:
    October 1998                                          --            --         --          --             --               --
  Common stock issued upon conversion of preferred
    stock:
    November 1998                                         --            --         --          --           74,052           55,539
    January 1999                                          --            --         --          --           15,952           11,964
    March 1999                                            --            --         --          --              500              375
    April 1999                                            --            --         --          --           20,000           15,000
  Warrants issued for acquisition of engineering
    development agreement:
    November 1998                                         --            --         --          --             --               --
  Compensation expense recorded on stock options          --            --         --          --             --               --
  Warrants issued in conjunction with Series A
    Preferred Stock                                       --            --         --          --             --               --
  Accretion to redemption value of Series A
    redeemable Preferred Stock                            --            --         --          --             --               --
    Issuance of Series B Preferred Stock               623,334       891,500       --          --             --               --
                                                   ---------------------------------------------------------------------------------
Balance, June 30, 1999                                 623,334       891,500       --          --        2,741,534       16,498,837
  Net loss                                                --            --         --          --             --               --
  Common stock issued February 2000                       --            --         --          --          125,000          187,500
  Series B Preferred Stock issued
    July 1999                                          216,666       291,829       --          --             --               --
    August 1999                                         86,667       116,989       --          --             --               --
    September 1999                                      16,667        22,500       --          --             --               --
    October 1999 - adjust price to $1.00 (Note 6)      471,666          --         --          --             --               --
    November 1999                                      100,000       100,000       --          --             --               --
    December 1999                                      480,000       472,500       --          --             --               --
    January 2000                                       600,000       425,500       --          --             --               --
    February 2000                                    1,318,000       732,755       --          --             --               --
  Beneficial conversion expense on Series B
    Preferred Stock                                       --            --         --          --             --               --
  Common stock issued upon conversion of preferred
    stock
    July 1999                                             --            --         --          --           32,000           24,000
    August 1999                                        (33,333)      (50,000)      --          --          179,121          159,341
    September 1999                                        --            --         --          --           80,852           60,639
    October 1999                                          --            --         --          --           50,000           37,500
    December 1999                                         --            --         --          --           13,252            9,939

(Continued)


(Continued)


                                                                                                           Deficit
                                                                                                         Accumulated    Accumulated
                                                   Additional   Common Stock                              During the      Other
                                                    Paid-In     Paid for, but  Subscriptions   Due From  Development   Comprehensive
                                                    Capital      Not Issued     Receivable     Officers     Stage         Income
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        
Balance, June 30, 1998 (Continued)
  Stock options issued for services:
    October 1998                                       42,000        --               --         --             --           --
  Common stock issued upon conversion of preferred
    stock:
    November 1998                                        --          --               --         --             --           --
    January 1999                                         --          --               --         --             --           --
    March 1999                                           --          --               --         --             --           --
    April 1999                                           --          --               --         --             --           --
  Warrants issued for acquisition of engineering
    development agreement:
    November 1998                                     554,000        --               --         --             --           --
  Compensation expense recorded on stock options       43,000        --               --         --             --           --
  Warrants issued in conjunction with Series A
    Preferred Stock                                   227,000        --               --         --             --           --
  Accretion to redemption value of Series A
    redeemable Preferred Stock                           --          --               --         --         (377,420)        --
    Issuance of Series B Preferred Stock                 --          --            (60,000)      --             --           --
                                                   ---------------------------------------------------------------------------------
Balance, June 30, 1999                              2,342,745        --            (60,000)      --      (22,724,284)        --
  Net loss                                               --          --               --         --       (6,022,853)        --
  Common stock issued February 2000                      --          --             (4,500)      --             --           --
  Series B Preferred Stock issued
    July 1999                                            --          --               --         --             --           --
    August 1999                                          --          --               --         --             --           --
    September 1999                                       --          --               --         --             --           --
    October 1999 - adjust price to $1.00 (Note 6)        --          --               --         --             --           --
    November 1999                                        --          --               --         --             --           --
    December 1999                                        --          --            (20,000)      --             --           --
    January 2000                                         --          --               --         --             --           --
    February 2000                                        --          --               --         --             --           --
  Beneficial conversion expense on Series B
    Preferred Stock                                 1,769,570        --               --         --       (1,769,570)        --
  Common stock issued upon conversion of preferred
    stock
    July 1999                                            --          --               --         --             --           --
    August 1999                                          --          --               --         --             --           --
    September 1999                                       --          --               --         --             --           --
    October 1999                                         --          --               --         --             --           --
    December 1999                                        --          --               --         --             --           --


QUANTECH LTD. AND SUBSIDIARY (A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)


                                                     Series B Preferred Stock   Series C Preferred Stock          Common Stock
                                                      Shares Issued   Amount     Shares Issued  Amount     Shares Issued      Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 (continued)
  Common stock issued upon converstion of preferred (continued)
                                                                                                         
    January 2000                                          (880,000)   (880,000)         --         --         890,000        887,500
    February 2000                                             --          --            --         --         866,664        649,998
    March 2000                                             (75,000)    (72,500)         --         --          89,000         83,000
    April 2000                                            (180,000)   (177,000)                               226,880        212,160
    May 2000                                                                                                   68,864         51,648
    June 2000                                                                                                  42,824         32,118
  Common stock issued upon exercise of warrants:
    September 1999                                            --          --            --         --         454,545        500,000
    February 2000                                             --          --            --         --          24,256         18,192
    March 2000                                                --          --            --         --          60,263        147,835
    May 2000                                                                                                   39,708         67,318
    June 2000                                                                                                   7,321          7,553
  Warrants issued:
    September 1999                                            --          --            --         --            --             --
    November 1999                                             --          --            --         --            --             --
    January 2000                                              --          --            --         --            --             --
    February 2000                                             --          --            --         --            --             --
    March 2000                                                --          --            --         --            --             --
  Common stock issued upon exercise of options:
    January 2000                                              --          --            --         --           2,000          2,750
    February 2000                                             --          --            --         --             200            226
    June 2000                                                                                                   7,001          8,751
  Common stock issued for equipment and services
    received:
    January 2000                                              --          --            --         --           2,275          2,276
    February 2000                                             --          --            --         --         200,856        310,684
  Series C Preferred Stock issued:
    February 2000                                             --          --       1,000,000    973,100          --             --
    Beneficial conversion expense on Series C
      Preferred Stock                                         --          --            --         --            --             --
  Compensation recorded on stock options                      --          --            --         --            --             --
  Subsidiary stock issued                                     --          --            --         --            --             --
  Payments received on subscriptions receivable               --          --            --         --            --             --
  Accretion to redemption value of Series A redeemable
    Preferred Stock                                           --          --            --         --            --             --
                                                   ---------------------------------------------------------------------------------
Balance June 30, 2000                                   $2,744,667  $1,874,073    $1,000,000   $973,100    $6,204,416    $19,959,765
                                                   =================================================================================


(Continued)

(Contnued)



                                                                                                           Deficit
                                                                                                         Accumulated    Accumulated
                                                   Additional   Common Stock                              During the      Other
                                                    Paid-In     Paid for, but  Subscriptions   Due From  Development   Comprehensive
                                                    Capital      Not Issued     Receivable     Officers     Stage         Income
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       
Balance, June 30, 1999 (continued)
  Common stock issued upon converstion of preferred (continued)
    January 2000                                         --         --              --          --              --          --
    February 2000                                        --         --              --          --              --          --
    March 2000                                           --         --              --          --              --          --
    April 2000
    May 2000
    June 2000
  Common stock issued upon exercise of warrants:
    September 1999                                       --         --              --          --              --          --
    February 2000                                        --         --              --          --              --          --
    March 2000                                           --         --              --          --              --          --
    May 2000
    June 2000
  Warrants issued:
    September 1999                                     10,000       --           (10,000)       --              --          --
    November 1999                                      15,000       --           (15,000)       --              --          --
    January 2000                                      152,000       --              --          --              --          --
    February 2000                                     469,000       --              --          --              --          --
    March 2000                                             25       --              --          --              --          --
  Common stock issued upon exercise of options:
    January 2000                                         --         --              --          --              --          --
    February 2000                                        --         --              --          --              --          --
    June 2000
  Common stock issued for equipment and services
    received:
    January 2000                                         --         --              --          --              --          --
    February 2000                                        --         --              --          --              --          --
  Series C Preferred Stock issued:
    February 2000
    Beneficial conversion expense on Series C
      Preferred Stock                                 973,100       --              --          --          (973,100)       --
  Compensation recorded on stock options              332,300       --              --          --              --          --
  Subsidiary stock issued                           1,250,088       --              --          --              --          --
  Payments received on subscriptions receivable          --         --            89,500        --              --          --
  Accretion to redemption value of Series A
    redeemable Preferred Stock                           --         --              --          --          (410,445)       --
                                                   ---------------------------------------------------------------------------------
Balance June 30, 2000                              $7,313,828      $--      $    (20,000)      $--      $(31,900,252)      $--
                                                   =================================================================================



QUANTECH LTD. AND SUBSIDIARY (A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                                                  September 30,
                                                                                                  1991 (Date of
                                                                  Years Ended June 30             Inception) to
                                                                  2000                1999        June 30, 2000
- ---------------------------------------------------------------------------------------------------------------------------------
                                                                                          
Cash Flows From Operating Activities
  Net loss                                                   $ (6,022,853)      $ (4,289,816)      $(28,369,717)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Elimination of cumulative translation adjustment                 --                 --             (178,655)
    Depreciation                                                   96,081             74,094            418,730
    Amortization                                                  328,166            441,627          2,506,137
    Noncash compensation, services, and interest                1,266,260          1,403,241          4,019,205
    Minority interest in subsidiary                               339,685               --              339,685
    Other                                                            --                 --              623,650
    Changes in assets and liabilities:
      Decrease in prepaid expenses                                 49,276              6,007             97,331
      Increase (decrease) in accounts payable                     247,389             14,524            351,024
      Increase (decrease) in accrued expenses                     (55,887)           (48,197)           416,637
                                                              -------------------------------------------------
        Net cash used in operating activities                  (3,751,883)        (2,398,520)       (19,775,973)
                                                              -------------------------------------------------

Cash Flows From Investing Activities
  Purchases of property and equipment                            (486,020)           (61,015)          (985,286)
  Proceeds on disposition of property                                --                 --               37,375
  Organization expenses                                              --                 --              (97,547)
  Patent expenses                                                 (14,310)            (4,016)           (27,355)
  Deposits                                                        (79,457)              --              (79,457)
  Officer advances, net                                              --                 --             (109,462)
  Note receivable from officer                                   (141,000)              --             (141,000)
  Purchase of investment                                             --                 --             (225,000)
  Purchase of license agreement                                      --                 --           (1,950,000)
  Advances to Spectrum Diagnostics, Inc.                             --                 --             (320,297)
  Prepaid securities issuance costs                                  --                 --             (101,643)
  Purchase of Spectrum Diagnostics, Inc., net of cash
    and cash equivalents acquired                                    --                 --           (1,204,500)
                                                              -------------------------------------------------
        Net cash used in investing activities                    (720,787)           (65,031)        (5,204,172)
                                                              -------------------------------------------------


               (Continued)

QUANTECH LTD. AND SUBSIDIARY (A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)



                                                                                              September 30,
                                                                                              1991 (Date of
                                                               Years Ended June 30            Inception) to
                                                              2000              1999          June 30, 2000
- -----------------------------------------------------------------------------------------------------------
                                                                                       
Cash Flows From Financing Activities
  Net proceeds from the sale of common stock
    and warrants                                                965,150               --          13,820,922
  Net proceeds from sale of Series A Preferred Stock               --            1,523,909         1,523,909
  Net proceeds from sale of Series B Preferred Stock          2,162,073            831,500         2,993,573
  Net proceeds from sale of Series C Preferred Stock            973,100               --             973,100
  Net proceeds from sale of common stock of
    subsidiary                                                1,250,088               --           1,250,088
  Proceeds from debt obligations                                  4,000            498,230         6,051,085
  Payments received on stock subscriptions receivable            40,000               --              45,000
  Payments on debt obligations                                  (29,167)              --            (551,977)
                                                             -----------------------------------------------
      Net cash provided by financing
        activities                                            5,365,244          2,853,639        26,105,700
                                                             -----------------------------------------------

Effect of Exchange Rate Changes on Cash                            --                 --             203,242
                                                             -----------------------------------------------

      Net increase in cash and cash
        equivalents                                             892,574            390,088         1,328,797

Cash and Cash Equivalents
Beginning                                                       436,223             46,135              --
                                                             -----------------------------------------------
Ending                                                     $  1,328,797       $    436,223      $  1,328,797
                                                             ===============================================


Cash Payments for Interest                                 $     41,859       $     46,795      $    249,124
                                                             ===============================================

Supplemental Schedule of Noncash Investing and
  Financing Activities
  Issuance of debt obligations for services, accounts
    payable, and accrued interest                          $       --         $       --        $    259,500
  Issuance of debt for acquisition of license                      --                 --             550,000
  Issuance of warrants in connection with:
    Product development                                            --                 --             230,000
    Acquisition of sublicense agreement                            --                 --                 165
    Issuance of convertible debt                                   --                   76               527
    Guarantee of debt                                            38,000               --              53,716


               (Continued)


QUANTECH LTD. AND SUBSIDIARY (A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


                                                                                              September 30,
                                                                                              1991 (Date of
                                                                Years Ended June 30           Inception) to
                                                                2000             1999         June 30, 2000
- -----------------------------------------------------------------------------------------------------------
                                                                                      
Supplemental Schedule of Noncash Investing
  and Financing Activities (Continued)
  Acquisition of engineering development agreement                 --            554,000          554,000
  Series A Preferred Stock sales and exchange for
    debt                                                           --            227,000          227,000
  Amount attributable to value of beneficial debt
    conversion feature                                             --            546,902        1,535,346
  Amount attributable to value of beneficial
    conversion feature of preferred stock                     2,742,670             --          2,742,670
  Capital expenditures included in accounts payable             255,346             --            262,013
  Fixed assets acquired under capital lease                     132,946             --                  0
  Advances to Spectrum Diagnostics, Inc.                           --               --             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.                          --               --           (674,374)
  Stock issuance costs to be paid                                  --               --            237,201
  Subscriptions receivable offset by accrued
    compensation                                                   --               --             53,689
  Officer advances offset by accrued compensation                  --               --            109,462
  Issuance of options and warrants for compensation
    and services                                                940,325           85,000        1,160,528
  Series A Preferred Stock issued for debt obligations
    and accrued interest                                           --          3,521,692        3,521,692
  Accretion to redemption value of Series A
    redeemable Preferred Stock                              $   410,445      $   377,420      $   787,865
                                                            =============================================




QUANTECH LTD. AND SUBSIDIARY (A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)



                                                                                            September 30,
                                                                                            1991 (Date of
                                                               Years Ended June 30          Inception) to
                                                             2000             1999          June 30, 2000
- ---------------------------------------------------------------------------------------------------------
                                                                                   
Supplemental Schedule of Noncash Investing
  and Financing Activities (Continued)
Common stock issued for:
  Services, equipment, and interest                       $   312,960      $    64,595      $   697,189
  Exercise of warrants                                        740,898            5,114          746,012
  Exercise of options                                          11,727             --             11,727
  Acquisition of license agreement                               --               --            390,000
  Subscriptions receivable                                       --               --              5,000
  Debt obligations                                               --             37,812        2,355,937
  Accounts payable                                               --               --             40,000
  Accrued expenses                                               --               --            360,394
  Series A Preferred Stock                                  1,028,343           82,878        1,111,221
  Series B Preferred Stock                                  1,179,500             --          1,179,500
                                                          =============================================

  Acquisition of Spectrum Diagnostics, Inc.
    Fair value of other assets acquired, principally
      the license agreement                               $      --        $      --        $ 1,489,500
    Liabilities assumed                                          --               --           (285,000)
                                                          ---------------------------------------------
        Cash purchase price paid, less $5,199
          cash acquired                                   $      --        $      --        $ 1,204,500

                                                          =============================================




See Notes to Consolidated Financial Statements.



QUANTECH LTD. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED 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 the state 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 was accounted
for as if it were a pooling of interests.

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.

On December 7, 1999, the Company and PE Corp (PE) formed HTS BioSystems, Inc.
(HTS), which is 73 percent owned by the Company. HTS will focus on promoting the
nonmedical use of the SPR technology. In conjunction with this formation, PE
provided HTS with:

o        a sub-license to all of its rights to the Company's SPR nonmedical
         technology (see Note 4),
o        a license for nonmedical use of the PE High Density Technology,
o        one of PE's SPR prototype instruments, and
o        the PE prototype for the PE High Density Technology.

The Company is required to provide HTS with office space, management support,
technical assistance and any other needs required by HTS until HTS is funded in
a manner adequate to support its own operations.

HTS will owe to PE:

o        a 4 percent royalty on products using only SPR other than those for use
         in the food and beverages, chemical and industrial and environmental
         testing markets,
o        a 4 percent royalty on products using only the PE High Density
         Technology, and
o        a 6 percent royalty on products using both technologies.

No minimum royalties, or royalties on the first $3,000,000 of sales, are
required to be paid.

HTS will owe the Company:

o        15 percent of any royalties paid to PE by HTS for products which
         incorporates the Company's SPR technology, and
o        8 percent royalty on products using its SPR technology sold to the food
         and beverages, chemical and industrial and environmental testing
         markets.

In the event that HTS does not seek to commercialize the SPR or PE High Density
Technology, the rights revert back to PE. PE also has a five-year right of first
negotiation in the event that HTS wishes to license or sell any of the
technology it licensed from PE.



Note 1.       Nature of Business and Significant Accounting Policies (Continued)

Principles of consolidation: The consolidated financial statements include the
accounts of the Company and its subsidiary. All significant intercompany
transactions and accounts have been eliminated in consolidation.

A summary of the Company's significant accounting policies follows:

Cash equivalents: The Company maintains its cash in bank deposit and money
market accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts.

Fair value of financial instruments: The following methods and assumptions were
used by the Company in estimating the fair value of each class of financial
instruments:

Cash and cash equivalents: The carrying amount approximates fair value because
of the nature or short maturity of those instruments.

Short and long-term debt: The fair value of the Company's short and long-term
debt is estimated based on interest rates for the same or similar debt having
the same or similar remaining maturities with similar risk and collateral
requirements. The recorded value of short and long-term debt approximates its
fair value.

Redeemable Series A Preferred Stock: The fair value of the Company's Redeemable
Series A Preferred Stock is estimated based on the estimated interest rate the
Company would have to pay for debt financing with similar terms. The recorded
value exceeds the estimated fair value by approximately $1,627,000, assuming a
13.5 percent interest rate and a redemption date of November 2003.

Prepaid product development expense: Prepaid product development expense arose
from the valuation of warrants issued to a licensee in return for technical
assistance to be rendered to the Company by the licensee over a period of
approximately two years via a technology and development agreement. The expense
was being recognized over this period (see Note 4).

Other assets: The license agreement is being amortized using the straight-line
method over the remaining life of the underlying patents of 15 years (see Note
4). Costs of obtaining additional patents are capitalized and will be amortized
over their useful lives.

The Company reviews its intangible assets periodically to determine potential
impairment by comparing the carrying value of the intangibles with expected
future net cash flows. Though the Company has had no significant sales to date
nor an established market for its product, it has performed market studies to
determine potential size of the market and expected acceptance of its product.
This has been the basis for the Company's expected future net cash flows. 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 would be determined
based on estimated expected future discounted cash flows or appraised value. To
date, management has determined that no impairment of intangible assets exists.



Note 1.       Nature of Business and Significant Accounting Policies (Continued)

Property and equipment: Property and equipment are stated at cost. Depreciation
is computed by the straight-line method over five years, or the life of the
related lease, whichever is less.

Income taxes: Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax basis 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.

Research and development: The Company contracts with certain outside parties for
the design and development of its products in addition to conducting its own
research and development. Research and development costs are charged to expense
as incurred.

Basic and diluted net loss per share: Basic per share amounts are computed,
generally, by dividing net income or loss by the weighted-average number of
common shares outstanding. Diluted per share amounts assume the conversion,
exercise, or issuance of all potential common stock instruments unless their
effect is antidilutive, thereby reducing the loss or increasing the income per
common share.

Loss per share has been adjusted for accretion on the Company's mandatory
redeemable Series A Preferred Stock, which totaled $410,445 and $377,420 for the
years ended June 30, 2000 and 1999, respectively. In addition, loss per share
has been adjusted for the beneficial conversion feature of preferred stock,
which totaled $2,742,670 for the year ended June 30, 2000. As described in Notes
6 and 7, the Company has options and warrants outstanding to purchase shares of
common stock, and the Series A, B, and C Preferred Stock is convertible into
common stock. However, because the Company has incurred losses in all periods
presented, the inclusion of those potential common shares in the calculation of
diluted loss per share would have an antidilutive effect. Therefore, basic and
diluted loss per share amounts are the same in each period presented.

Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue recognition: In December 1999, the staff of the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101 (SAB No. 101), "Revenue
Recognition in Financial Statements". SAB No. 101 summarizes some of the staff's
interpretations of the application of generally accepted accounting principles
related to revenue recognition. The Company will adopt SAB No. 101 in the first
quarter of the fiscal year ending June 30, 2001. Management believes the
adoption of SAB No. 101 will not have a significant affect on its financial
statements.



Note 1.       Nature of Business and Significant Accounting Policies (Continued)

Derivatives: The FASB has issued SFAS No. 133, Accounting for Derivative
instruments and Hedging Activities, which the Company will be required to adopt
in the fiscal year ending June 30, 2001. Statement No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires than an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
SFAS No. 133 is not expected to have a significant effect on the Company's
financial statements.

Translation of foreign currency statements: Prior to September of 1992, the
functional and reporting currency for SDS was the Italian lira. 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 lira 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 significant sales. In 2000, the Company had a sale of $150,000 of an
evaluation system and planned principal operations have not commenced.

The Company is a development stage company which has suffered significant losses
from operations, requires significant additional financing, and ultimately needs
to continue development of its product, obtain FDA approval, generate
significant revenues, and successfully attain profitable operations. These
factors raise substantial doubt about the Company's ability to continue as a
going concern and realize the value of its assets, including its license
agreement intangible asset. These financial statements do not reflect any
adjustments which might be necessary should the Company not remain a going
concern.

The Company does not have sufficient funds to complete commercial development or
commence production and sales of its system. The Company anticipates that its
cash on hand, bank credit facility, and the completion of its Series D
convertible Preferred Stock offering (see Note 6) for up to an additional $7.5
million will allow it to maintain operations through part of fiscal year 2001.
Additional financing of at least $15 million of investment capital, funding by
strategic partners, or licensing revenues will be needed for the following: to
develop and submit additional tests to the FDA, to complete clinical evaluation
of the system, to establish manufacturing capabilities, and to prepare for sales
of the system. The Company does not have any commitments for any such additional
financing and does not anticipate receiving any additional significant funding
from commercial lenders. There can be no assurance that any such additional
equity or debt financing can be obtained on favorable terms, if at all.

Note 3.  Short-Term Debt Obligations

The Company has a $1,000,000 revolving credit note with a bank. Advances under
the loan bear interest at the prime rate (9.5 percent at June 30, 2000) and are
guaranteed by a shareholder. The note expires December 31, 2000, unless renewed.
Amounts due under the note were $750,000 and $746,000 at June 30, 2000 and 1999,
respectively.



Note 3.       Short-Term Debt Obligations (Continued)

During the fiscal year ended June 30, 1999, the Company completed an offering of
secured promissory notes. The investors received warrants to purchase 37,835
shares of common stock. In conjunction with this offering, the selling agent
received warrants to purchase 3,314 shares of common stock. These warrants were
valued at $76. This fair value was based upon management's determination that
the effective interest rate of the debt approximated the market rate of similar
debt instruments with similar risk. Also, the value assigned to the warrants was
not materially different than the value computed using the Black-Scholes pricing
model.

As of June 30, 1999, all of the secured promissory notes and related accrued
interest had been converted to 30,400 shares of common stock and 1,173,902
shares of redeemable Series A Preferred Stock (see Note 6).

Note 4.  Agreements

License agreements: 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. If the cumulative
payments of these two royalties failed to reach at least $500,000 by December
31, 1993, $850,000 by December 31, 1995, $1,000,000 by December 31, 1997,
$1,150,000 by December 31, 1998, and $1,300,000 by December 31, 1999, the
licensor had the right to deprive the Company of its exclusive rights under the
license agreement (each time one of such benchmarks is not met). As of June 30,
2000, the Company has paid $1,300,000 of the cumulative payment.

The obligation of the Company to pay royalties terminates when the total royalty
payments reach a gross amount of $18,000,000. After such date, the Company's
rights in the licensed SPR technology continue in perpetuity with no further
royalty obligations.

On March 3, 1994, the Company entered into an agreement with an investor group,
which included a shareholder of the Company, that granted them rights for a
sublicense of the research portion of the original license. This agreement had
no expiration date. The investor group received this sublicense in exchange for
a promise to purchase 10 percent of the aggregate number of shares offered in
the next public offering by the Company, not to exceed an aggregate amount of
$500,000. The investor group did not purchase any shares under the agreement.



Note 4.       Agreements (Continued)

In September 1997, the Company entered into an agreement to purchase certain
sublicense rights that had previously been granted to the investor group. In
return for these sublicense rights, the Company issued 150,000 shares of the
Company's common stock, convertible secured promissory notes totaling $550,000,
and warrants to purchase 82,500 shares of the Company's common stock, and
canceled the requirement to purchase shares in the next public offering. The
purchase of the sublicense rights was expected to provide the Company with
future benefits as the Company was subsequently able to sign an exclusive
sublicense agreement for nonmedical markets. This agreement provides the Company
with a possibility of receiving a future royalty stream from the sale of
products under this new sublicense agreement. Therefore, the Company capitalized
the sublicense rights at $940,165, the amount that approximates the fair market
price of the equity and debt instruments issued as of the date of the agreement.
The value assigned to the common stock was based on the quoted market value. The
values of the convertible debt instrument and the detachable warrants were based
on similar instruments previously placed by the Company. The value assigned to
the warrants was not materially different than the value computed using the
Black-Scholes pricing model.

In March 2000 HTS BioSystems, Inc. entered into a license agreement for certain
patents and proprietary information. The license calls for royalties of one to
four percent on sales of products containing the licensed technology. 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. In consideration of this agreement, the Company granted the licensor
a warrant to purchase 75,000 shares of common stock for $1.00, which was valued
at approximately $125,000 using the Black-Scholes model.

Technology and development agreement: During the year ended June 30, 1998, the
Company entered into a technology and development agreement with PE Corp. (PE),
a leading supplier of life science systems and analytical instruments, which
provides exclusive license rights to certain of the Company's technology for use
outside of medical diagnostics, and co-exclusive rights to nucleic acid medical
diagnostics. The licensee, pursuant to the agreement, is providing technical
assistance related to the Company's medical diagnostic system and will be
required to pay future royalty payments of 8 percent of gross sales if the
licensee sells products containing the Company's technology. Minimum annual
royalties to be paid by the licensee will be $500,000 beginning December 2000,
expiring in conjunction with the related patents. Should the licensee fail to
commercialize the licensed technology, all rights will revert back to the
Company.

The licensee also received a warrant to purchase 1,400,000 shares of common
stock. The warrant was valued at $230,000, based on the fair value of technical
assistance expected to be received by the Company over the term of the
technology and development agreement. As the technical assistance was received,
the prepaid asset resulting from this transaction was reduced, and research and
development expense was charged. On December 7, 1999 this warrant was canceled
pursuant to the formation of HTS BioSystems, Inc. (see Note 1).

In conjunction with the above technology and development agreement, the Company
entered into a license for certain portions of this technology. The Company will
be required to pay royalties at 8 percent of its sales on products featuring the
technology. Minimum annual royalties of $500,000 begin in December 2000,
expiring in conjunction with the related patents. Should the Company fail to
commercialize the licensed technology, all rights will revert back to the
licensor, and future minimum annual royalty obligations will be canceled.



Note 4.       Agreements (Continued)

Research and development agreement: In November 1998, a warrant to purchase
1,800,000 shares of common stock was issued in conjunction with a research and
development services agreement. The warrant is nonforfeitable, fully vested, and
exercisable immediately at $1.10 per share and was valued at approximately
$518,000 using the Black-Scholes model as of the contract date, which is the
measurement date. Since all of the services under this agreement have been
rendered, the value has been expensed. In September 1999, the Company issued
454,545 shares of common stock as a result of a partial exercise of this
warrant. In conjunction with this agreement, warrants to purchase 144,000 shares
of common stock were issued, and $190,000 in cash was paid to the investment
banking firm that arranged the transaction. These warrants were valued at
$36,000 using the Black-Scholes model.

Employment agreements: The Company has at-will employment agreements with its
Chief Executive Officer, Chief Financial Officer, Vice President of Research and
Development and the Executive Vice President of Business Development of HTS. The
agreements require the payment of one year's salary (for the chief financial
officer and executive vice president of business development), $150,000 (for the
chief executive officer), or six-months' salary (for the vice president of
research and development) if employment is terminated due to the sale of the
Company or a greater than 50 percent change in ownership. In addition, the Chief
Financial Officer and Vice President of Research and Development are entitled to
six months' salary if they are terminated without cause.

Note 5. Leases

Operating leases: The Company leases its office space under an agreement which
expires April 2007. Approximate minimum aggregate rental commitments under this
lease are as follows:

Years ending June 30:
      2001                        $  192,000
      2002                           192,000
      2003                           192,000
      2004                           195,000
      2005                           210,000
Thereafter                           385,000
                                  ==========
                                  $1,366,000
                                  ==========

In addition, there are monthly payments required for common area maintenance and
other related expenses.

Rental expense for the years ended June 30, 2000 and 1999 was approximately
$96,000 and $79,000 respectively.

Capital leases: In 2000 the Company began leasing equipment under a capital
lease. At June 30, 2000, equipment with a cost of $132,946 and accumulated
depreciation of $5,136 has been recorded.



Note 5.       Leases (Continued)

The following is a schedule by year of the future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of June 30, 2000:

Years ending June 30:
2001                                                                    $ 75,000
2002                                                                      50,000
                                                                        --------
                                                                         125,000

Less the amount representing interest                                     21,000
                                                                        --------
Present value of minumum debt payments reflected as long-term debt      $104,000
                                                                        ========


Note 6.  Stockholders' Equity

Capital stock: In December 1998, the Company amended its Articles of
Incorporation to increase the number of authorized shares 75,000,000. The Board
of Directors has designated the authorized shares as common, Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D
Preferred Stock with the remaining authorized shares as undesignated. As shares
of Series A, B, C and D Preferred Stock are converted to common stock, the
number of authorized shares of preferred stock decreases and the number of
authorized shares for common stock increases.

Reverse stock split: On June 2, 1998, the Company reduced the number of shares
outstanding in a 1-for-20 reverse stock split. All share and per share amounts
presented have been retroactively adjusted to reflect the reverse split.

Par value of stock: In March 1998, the Company amended its Articles of
Incorporation to change the par value of common stock from $0.01 per share to no
par value. The cumulative amount paid in excess of the previously stated par
value has been reclassed from additional paid-in capital to common stock on the
statement of stockholders' equity (deficit).

Redeemable Series A Preferred Stock: In November 1998, the Company established
and designated 2,500,000 shares of previously undesignated shares as Series A
Preferred Stock (Series A Stock). The shares have no par value and a liquidation
value of $3 per share. Each share of Series A Stock is convertible into, and has
voting rights equal to, four shares of common stock. The Series A Stock is not
redeemable until November 5, 2003. If any time after November 5, 2003, the
Company receives a written request from the holders of at least 50 percent of
the outstanding share of Series A Stock, the Company will redeem all of the
outstanding shares by paying in cash an amount equal to the sum of the original
purchase price plus a 10 percent return per annum. Series A Stock is
automatically converted into shares of common stock if (i) the Company closes on
an equity offering of at least $5,000,000 or (ii) at least 50 percent of the
number of shares of Series A Stock that were outstanding as of November 30,
1998, have been converted or redeemed. The excess of redemption value over
carrying value is being accreted, using the interest method, over the period
until the first redemption date of November 5, 2003.



Note 6.       Stockholders' Equity (Continued)

In November and December 1998, the Company sold 551,431 shares of its Series A
Stock to accredited investors at $3.00 per share and issued 1,173,902 shares of
Series A Stock pursuant to conversion of promissory notes and the related
accrued interest at a conversion price of $3.00 per share. The holders of the
promissory notes also received warrants to purchase 728,957 shares of common
stock at an exercise price of $0.75. The receipt of these warrants canceled the
detachable warrants issued in conjunction with the promissory notes. The new
warrants were valued at $162,000 using the Black-Scholes model. In conjunction
with these transactions, the Company paid commissions and expenses of $125,700
and issued warrants to purchase 176,420 shares of common stock to the selling
agents, which were valued at approximately $65,000 using the Black-Scholes
model.

In November 1998 through June 2000, 1,481,628 shares of common stock were issued
pursuant to conversion of Series A Stock.

Following is a detail of the Series A Preferred Stock:

                                              Shares
                                              Issued             Amount
                                              ---------       -----------
Balance, July 1, 1998                              --         $      --
Shares issued                                   600,616         1,444,464
Notes converted to preferred                  1,124,716         3,374,138
Conversion of notes payable                     (27,626)          (82,879)
Accretion to redemption value                      --             377,420
                                              ---------       -----------
Balance June 30, 1999                         1,697,706         5,113,143
Shares converted to common stock               (342,781)       (1,028,343)
Accretion to redemption value                      --             410,445
                                              ---------       -----------
Balance June 30, 2000                         1,354,925       $ 4,495,245
                                              =========       ===========


Series B Preferred Stock: In May 1999, the Company established and designated
3,000,000 shares of previously undesignated shares as Series B Preferred Stock
(Series B Stock). The shares have no par value and a liquidation value of $1.00
per share. Each share of Series B Stock is convertible into, and has voting
rights equal to, one share of common stock. Series B Stock is automatically
converted into shares of common stock if (i) the Company closes on an equity
offering of at least $5,000,000 or (ii) at least 50 percent of the number of
shares of Series B Stock that were outstanding have been converted. In the event
the next sale of securities by the Company results in a price or conversion
price lower than $1.00 per share, the number of shares of common stock into
which the shares may be converted will be adjusted to a number equal to the per
share liquidation preference divided by such sale or conversion price.

Through September 1999, the Company sold 943,334 shares of its Series B Stock to
accredited investors at $1.50 per share. In conjunction with this transaction,
the Company paid commissions and expenses of $92,182.

In October 1999, the price of the Series B Stock was adjusted to $1.00 from an
initial price of $1.50. In conjunction with this adjustment previous purchasers
received 471,666 additional shares of Series B Stock.



Note 6.       Stockholders' Equity (Continued)

In November and December 1999, 580,000 shares of Series B Stock were sold at
$1.00 per share, net of commissions of $7,500.

In January 2000, the Board of Directors designated an additional 913,333 shares
of previously undesignated shares as Series B Stock.

In January and February 2000, the Company sold an additional 1,918,000 shares of
Series B Stock for $1.00 per share. In conjunction with this transaction, the
Company paid commissions and accountable expenses in the amount of $762,400 and
issued warrants to purchase 282,900 shares of common stock to the selling
agents, which were valued at $621,000 using the Black-Scholes model.

From August 1999 to June 2000, 1,168,333 shares of common stock were issued
pursuant to conversion of Series B Stock.

Series C Preferred Stock: In February 2000, the Board of Directors designated
1,000,000 shares of previously undesignated authorized shares as Series C
Preferred Stock (Series C Stock). Shares of Series C Stock have no par value and
a liquidation value of $1.00 per share. Each share is convertible into, and has
voting rights equal to, one share of common stock. Series C Stock is
automatically converted into shares of common stock if (i) the Company closes on
an equity offering of at least $5,000,000 or (ii) at least 50 percent of the
number of shares of Series C Stock that were outstanding have been converted. In
the event the next sale of securities by the Company results in a price or
conversion price lower than $1.00 per share, the number of shares of common
stock into which the shares may be converted will be adjusted to a number equal
to the per share liquidation preference divided by such sale or conversion
price.

The Company sold 1,000,000 shares of Series C stock to an accredited investor at
a price of $1.00 per share, net of commissions of $26,900.

Series D Preferred Stock: In June 2000, the Board of Directors designated
2,500,000 shares of previously undesignated authorized shares as Series D
Preferred Stock (Series D stock). Shares of Series D stock have no par value and
a liquidation value of $2.50 per share. Each share is convertible into, and has
voting rights equal to, one share of common stock. Series D stock is
automatically converted into shares of common stock if (i) the Company closes on
an equity offering of at least $5,000,000 or (ii) at least 50 percent of the
number of shares of Series D stock that were outstanding have been converted. In
the event the next sale of securities by the Company results in a price or
conversion price lower than $2.50 per share, the number of shares of common
stock into which the share may be converted will be adjusted to a number equal
to the per share liquidation preference divided by such sale or conversion
price.

No shares of Series D Preferred Stock were issued as of June 30, 2000. In August
and September 2000 the Company sold 1,996,000 shares of its Series D Stock to
accredited investors at $2.50 per share. Holders of the Series D Preferred Stock
also received warrants to purchase 499,000 shares of common stock at an exercise
price of $3.50, which were valued at $490,000 using the Black-Scholes Model. In
conjunction with this transaction, the Company paid commissions and expenses of
$467,880 and issued warrants to purchase 183,600 shares of common stock to the
selling agents, which were valued at $211,000 using the Black-Scholes model.



Note 6.       Stockholders' Equity (Continued)

Beneficial conversion feature: In conjunction with the issuance of the Series B,
C, and D convertible Preferred Stock, the Company recognized a beneficial
conversion feature. The beneficial conversion feature was calculated as the
difference between the conversion price and the fair value of the common stock
into which the preferred stock is convertible. The beneficial conversion feature
was allocated to additional-paid-in capital and since the stock was immediately
convertible, the preferred stock was accreted to its redemption value in a
manner similar to a dividend.

Note 7.  Stock Options and Warrants

Options--employee grants: The Company and its subsidiary regularly grant options
to employees, some of which are granted under the Company's 1998 Stock Option
Plan (the Plan). The Plan may grant options for up to 4,000,000 shares, of which
2,482,018 were outstanding at June 30, 2000. If any of the options granted under
the Plan expire or are terminated prior to being exercised in full, the
unexercised portion of such options will once again be available for additional
option grants. The options granted will have a maximum term of ten years and an
exercise price not less than the market price on the date of grant. Vesting of
options granted to employees is determined on a discretionary basis. One-third
of the options granted to directors are exercisable immediately, with one-third
becoming exercisable on each of the first and second anniversaries of the date
of grant.

As permitted under generally accepted accounting principles, these grants are
accounted for following APB Opinion No. 25 and related interpretations.
Accordingly, compensation cost has been recognized for those grants whose
exercise price is less than the fair market value of the stock on the date of
grant. There was no compensation expense recorded for employee grants for the
years ended June 30, 2000 and 1999.

Options and warrants--nonemployee grants: The Company and its subsidiary also
grant options and warrants to nonemployees for goods, services, and in
conjunction with certain agreements. These grants are accounted for under FASB
Statement No. 123 based on the grant date fair values.

Options and warrants--pro forma information: Had compensation cost for all of
the stock-based compensation grants and warrants issued been determined based on
the grant date fair values of awards, reported net loss attributable to common
stockholders and net loss per common share would have been increased to the pro
forma amounts shown below:



                                                                         June 30
                                                                2000               1999
                                                               ------------       ------------
                                                                            
Net loss attributable to common stockholders, as reported      $ (9,175,968)      $ (4,667,236)
Net loss attributable to common stockholders, pro forma          (9,661,526)        (5,073,371)
Net loss per basic and diluted common share, as reported              (2.12)             (1.75)
Net loss per basic and diluted common share, pro forma                (2.23)             (1.90)




Note 7.       Stock Options and Warrants (Continued)

The above pro forma effects on net loss and net loss per share are not likely to
be representative of the effects on reported net loss for future years because
options vest over several years and additional awards generally are made each
year. The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2000 and 1999:

                                                            June 30
                                                     2000               1999
                                                   -------             ------
Expected dividend yield                             $ --               $ --
Expected stock price volatility                      67.2%              68.7%
Risk-free interest rate                               6.0%               6.0%
Expected life of options (years)                        3                  3

Transactions involving stock options and warrants are summarized as follows:

                                                              Weighted-
                                                Stock     Average Exercise
                              Warrants         Options     Price Per Share
- --------------------------------------------------------------------------------
Balance, June 30, 1996         602,505          186,250       $   5.40
  Granted                      172,140           56,175           8.60
  Exercised                    (22,750)         (16,000)          4.60
  Expired                      (12,500)         (10,916)          9.60
                            ------------------------------------------
Balance, June 30, 1997         739,395          215,509           6.20
  Granted                    2,120,148          521,000           3.30
  Expired                     (187,828)        (243,009)          7.26
                            ------------------------------------------
Balance, June 30, 1998       2,671,715          493,500           3.58
  Granted                    2,156,766        1,650,604           1.10
  Exercised                    (22,500)            --             2.50
  Expired                         --            (50,140)          3.47
                            ------------------------------------------
Balance, June 30, 1999       4,805,981        2,093,964           1.59
  Granted                      672,700        1,219,845           1.88
  Exercised                   (586,091)          (9,201)          1.26
  Expired                   (1,550,291)         (26,291)          1.58
                            ------------------------------------------
Balance, June 30, 2000       3,342,299        3,278,317       $   1.67
                            ==========================================

The fair value of warrants granted during 2000 and 1999 was $1.19 and $0.27 per
warrant, respectively.

The fair value of stock options granted for goods and services during 2000 and
1999 was $0.63 and $0.34 per equity instrument, respectively.



Note 7.       Stock Options and Warrants (Continued)

The following tables summarize information about stock options and warrants
outstanding as of June 30, 2000:

                        OPTIONS AND WARRANTS OUTSTANDING

                                            Weighted-
                                             Average
                      Number of             Remaining          Weighted-
Range of                Units              Contractual          Average
Exercise Price       Outstanding           Life - Years      Exercise Price
- --------------------------------------------------------------------------------
$0.75                 1,740,232                3.1             $ 0.75
$1.00-$1.32           2,311,781                3.7               1.11
$1.50                   851,000                3.9               1.50
$1.63 - $2.78           806,616                4.4               2.47
$3.00 - $3.06           373,500                2.8               3.00
$3.38 - $4.38           148,873                4.7               3.57
$5.00                   353,739                0.3               5.00
$12.00                    5,000                0.8              12.00
$14.40                   29,875                0.8              14.40
                      ==========                              ========
                      6,620,616                                $ 1.67
                      ==========                              ========

                        OPTIONS AND WARRANTS EXERCISABLE

                                            Number of          Weighted-
                                              Units             Average
                                           Exercisable       Exercise Price
- ---------------------------------------------------------------------------
$0.75                                       1,707,316             $ 0.75
$1.00-$1.32                                 2,203,240               1.11
$1.50                                         627,338               1.50
$1.63 - $2.78                                 374,958               2.48
$3.00 - $3.06                                 368,750               3.00
$3.38 - $4.38                                  73,338               3.47
$5.00                                         353,739               5.00
$12.00                                          5,000              12.00
$14.40                                         29,875              14.40
                                   ======================================
                                            5,743,554             $ 1.60
                                   ======================================


The number of options and warrants exercisable at June 30, 1999 was 5,983,401
with a weighted-average exercise price of $1.65.



Note 7.       Stock Options and Warrants (Continued)

The Company sold the following warrants to purchase shares of common stock to
accredited investors.

                      Number of        Exercise      Expiration          Selling
Date                   Shares           Price           Date              Price
- --------------------------------------------------------------------------------
September 1999         175,000          $ 1.25    September 9, 2004     $ 10,000
November 1999           75,000            1.06    November 16, 2004       15,000

Note 8.  Income Taxes

The Company's income tax expense consisted solely of a franchise tax in Italy
during the year ended December 31, 1992, since 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
$20,424,000 in operating loss carryforwards and $627,000 in research and
development credits at June 30, 2000, which may be used to offset otherwise
future taxable income. These carryforwards are subject to certain limitations
under the provisions of the Internal Revenue Code, Section 382, which relate to
a 50 percent change in control over a three-year period. At June 30, 2000, the
annual net operating loss carryforward limitation due to Section 382 was
approximately $200,000 per year, which reduced the carryforward by $2,800,000.
Further changes of control, including those discussed in Note 6, may result in
additional limitations and expiration of additional amounts of the net operating
loss carryforwards. Usage of the net operating loss carryforwards is also
dependent upon the Company attaining profitable operations in the future.

Loss carryforwards and credits for tax purposes, reduced by the Section 382
limitation discussed above, as of June 30, 2000, have the following expiration
dates:

                                  Net            Research and
Expiration                     Operating         Development
Date                             Loss             Credits
- ------------------------------------------------------------
2006                            $ 241,000                $ -
2007                            1,115,000                  -
2008                              827,000             20,000
2009                              849,000             26,000
2010                                    -             45,000
2011                            2,193,000                  -
2012                            3,738,000            117,000
2013                            2,957,000            108,000
2019                            3,397,000            108,000
2020                            5,107,000            203,000
                              ------------------------------
                              $20,424,000          $ 627,000
                              ==============================


Note 8.       Income Taxes (Continued)

The tax effects of principal temporary differences at an assumed effective
annual rate of 34 percent are shown in the following table:


                                                           June 30
                                                        2000            1999
                                                    ---------------------------
Deferred tax assets:
Loss carryforwards                                  $ 6,944,000     $ 5,208,000
Royalties                                                     -          26,000
Research and development credits and deductions         832,000         629,000
Guarantee of Spectrum Diagnostics, Inc. debt            115,000         115,000
Compensation expense                                    324,000         295,000
Other accruals                                           47,000          35,000
                                                    ---------------------------
                                                      8,262,000       6,308,000

Valuation allowance for deferred tax assets          (8,262,000)     (6,308,000)
                                                    ---------------------------
Net deferred tax assets                                     $ -             $ -
                                                    ===========================


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, 2000 and 1999, due to the valuation allowance recorded against deferred
tax assets.

Note 9.  Segments

The Company has two reportable segments: Quantech Ltd. (Quantech) and HTS
BioSystems, Inc. (HTS). Quantech is completing development of a system that is
expected to run tests for a number of different medical conditions utilizing
their proprietary technology, surface plasmon resonance (SPR). HTS is focused on
developing and marketing the non-medical use of the SPR technology. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies.

                                      Quantech         HTS            Total
- ------------------------------------------------------------------------------
Net Sales                            $ 150,000         $ -          $ 150,000
Interest Income                         12,990         14,572          27,562
Interest Expense                        42,509              -          42,509
Depreciation and amortization          423,728            519         424,247
Segment loss                        (5,568,494)      (454,359)     (6,022,853)
Total assets                         3,373,398      1,272,930       4,646,328
                               ===============================================


No segment information is presented for the year ended June 30, 1999 as HTS was
not formed until December 1999.






                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
         PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         The names, ages and positions of the Company's executive officers are
as follows:

         Name                    Age       Position

         Robert Case             56        Chief Executive Officer and Director

         Gregory G. Freitag      38        Chief Financial Officer, Chief
                                           Operating Officer and Director

         Thomas Witty            53        Executive Vice President Research and
                                           Development

         Robert Case has been Chief Executive Officer of Quantech since June
1997 and a director of Quantech since October 1996. He founded Case +
Associates, Inc. in 1978 and has been its President since such time. Case +
Associates is a leading consultant in the research, design, development, and
engineering of medical products. Its consulting activities include work for
major multi-national, as well as development stage medical companies, in the
design of products from diagnostic instrumentation and implantable devices to
surgical instruments. He has served as Chairman of the Industrial Designers
Society of America, and was a member of its national board of directors. Mr.
Case has also been a longtime member of the Biomedical Marketing Association. In
addition, Mr. Case conducts both U.S. and European seminars in product
definition and development for Frost & Sullivan, the Society of Plastics
Engineers, the Society for the Advancement of Medical Packaging Institute, and
Northwestern University. His educational background includes product design,
engineering, and marketing at Syracuse University, the Illinois Institute of
Technology, and DePaul University. Mr. Case is also a director of HTS.

         Gregory G. Freitag has been Chief Operating Officer of Quantech since
June 1997 and Chief Financial Officer and Secretary of Quantech since December
1995. From 1987 until joining Quantech, Mr. Freitag was a lawyer with the
Minneapolis, Minnesota law firm of Fredrikson & Byron, P.A. As a stockholder
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, was
included in the Minnesota Business Guide to Law & Leading Attorneys, and
received from City Business its "40 under 40" award recognizing Mr. Freitag as
one of the Twin Cities' next generation of business and community leaders. Mr.
Freitag is also President and a director of HTS.

         Thomas R. Witty, Ph.D. was an Organizational and Program Management
Consultant to Quantech Ltd. from August 1997 until October 1997 when he joined
Quantech as Vice President of Research and Development. Dr. Witty has been
Executive Vice President of Research and Development since September 1999. Dr.
Witty has over 24 years of experience in the field of medical diagnostics. Dr.
Witty has had senior program management responsibilities for clinical instrument
systems while at Rohm and Haas, Becton Dickinson, Sanofi and ICN
Pharmaceuticals. In addition, he was a key contributor to the development of a
near patient diagnostic system at Biocircuits and was on the Board of Directors
of SeaLite Sciences, a small biotechnology company. In these roles, Dr. Witty
has led over 20 products to market through clinical trials and the FDA. Dr.
Witty received his Doctor of Philosophy in Medicinal Chemistry from Purdue
University and his Bachelor of Arts degree with honors in chemistry from
Macalester College in St. Paul, Minnesota. Further academic training was
completed under an NIH Fellowship at the University of Illinois and as a
Professor at Colorado State University.

         The information required by Item 9 relating to directors and compliance
with Section 16 of the Exchange Act is incorporated herein by reference to the
sections entitled "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" which appear in the Company's definitive proxy
statement for its 2000 Annual Meeting of Shareholders.



ITEM 10. EXECUTIVE COMPENSATION

         The information required by Item 10 is incorporated herein by reference
to the section entitled "Executive Compensation" which appears in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

         The information required by Item 11 is incorporated herein by reference
to the section entitled "Security Ownership of Certain Beneficial Owners and
Executive Management" which appears in the Company's definitive Proxy Statement
for its 2000 Annual Meeting of Shareholders.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by Item 12 is incorporated herein by reference
to the section entitled "Executive Compensation -- Certain Transactions" in the
Company's definitive Proxy Statement for its 2000 Annual Meeting of
Shareholders.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits.  See "Exhibit Index" on page following signatures.

         (b)      Reports on Form 8-K.  No reports on Form 8-K were filed during
                  the fourth quarter ended June 30, 2000.




                                   SIGNATURES

                  In accordance with the requirements of Section 13 of the Se
curities Exchange Act of 1934, the Registrant caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
                                                              QUANTECH LTD.
                                                              ("Registrant")


Dated: September 28, 2000                            By:   /s/ Robert Case
                                                           Robert Case,
                                                           CEO

         In accordance with the requirements of the Securities Exchange Act of
1934, this Report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
                               (Power of Attorney)

         Each person whose signature appears below constitutes and appoints
ROBERT CASE and GREGORY G. FREITAG as his true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this Annual Report on Form 10-KSB and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in per
son, hereby ratifying and confirming all said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.



              Signature                                      Title                                  Date
                                                                                    
 /s/ Robert Case                        Chief Executive Officer, and Director             September 28, 2000
Robert Case                             (Principal Executive Officer)

 /s/ Gregory G. Freitag                 Chief Financial Officer, COO, Secretary and       September 28, 2000
Gregory G. Freitag                      Treasurer (Chief Financial and Accounting
                                        Officer)


 /s/ Robert W. Gaines, Jr., MD          Director                                          September 28, 2000
Robert W. Gaines, Jr., MD

 /s/ James F. Lyons                     Chairman                                          September 28, 2000
James F. Lyons


 /s/ Richard W. Perkins                 Director                                          September 28, 2000
Richard W. Perkins


                                        Director                                          September   , 2000
Edward E. Strickland









                       SECURITIES AND EXCHANGE COMMISSION
                                 WASHINGTON D.C.

                          EXHIBIT INDEX TO FORM 10-KSB
                                       OF
                                  QUANTECH LTD.

                     For The Fiscal Year Ended June 30, 2000
                         Commission File Number: 0-19957


Exhibit                                            Description
Number

3.1      Articles of Incorporation of Quantech Ltd., as amended to date.

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 (incorporated by reference to Exhibit
         4.2 of the Registrant's Registration Statement on Form SB-2; Reg. No.
         333-6809).

10.1*    1998 Stock Option Plan and Forms of Incentive and Nonqualified Stock
         Option Agreements used in connection therewith as amended to date
         (incorporated by reference to Exhibit 10.9 of the Registrant's Form
         10-KSB for the year ended June 30, 1999).

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     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).

10.4*    Employment Agreement with Gregory G. Freitag (incorporated by reference
         to Exhibit 10.1 of the Registrant's Form 10-Q for the Quarter Ended
         March 31, 1998).

10.5*    Employment Agreement with Robert Case (incorporated by reference to
         Exhibit 10.2 of the Registrant's Form 10-Q for the Quarter Ended March
         31, 1998).

10.6     Technology and Development License Agreement dated December 16, 1997
         (incorporated by reference to Exhibit 1 of Schedule 13D filed by The
         Perkin-Elmer Corporation on December 23, 1997, File No. 0-19957).

10.7     Perkin Elmer/Quantech License Agreement dated June 29, 1998
         (incorporated by reference to Exhibit 10.7 of the Registrant's Form
         10-KSB for the year ended June 30, 1998).

10.8     Research and Development Servies Agreement, dated November 13, 1998,
         with Millennium Medical Systems, LLC (incorporated by reference to
         Exhibit A to Schedule 13D filed by Robert Gaines and Millennium Medical
         Systems, LLC on November 23, 1998, File No. 0-19957).

10.9*    Employment agreement with Thomas R. Witty, Ph.D (incorporated by
         reference to Exhibit 10.10 of the Registrant's Registration Statement
         on Form SB-2; Reg No. 333-70487).

10.10    Lease agreement for space at 815 Northwest Parkway, Eagan MN 55121
         (incorporated by reference to Exhibit 10.1 of the Registrant's Form
         10-Q for the quarter ended December 31, 1999.)

21       Subsidiary of the Registrant: HTS BioSystems, Inc., a Minnesota
         corporation.

23       Accountant's Consent

24       Power of Attorney (included on signature page)

27       Financial Data Schedule

*  Management contract or compensatory plan or arrangement.

EX-3.1

                            ARTICLES OF INCORPORATION
                                       OF
                                  QUANTECH LTD.


         The undersigned individual, being of full age, for the purpose of
forming a corporation under and pursuant to Chapter 302A of the Minnesota
Statutes, as amended, hereby adopts the following Articles of Incorporation:


                                ARTICLE 1 - NAME

         1.1)     The name of the corporation shall be Quantech Ltd.


                          ARTICLE 2 - REGISTERED OFFICE

         2.1) The registered office of the corporation is located at 1021
Bandana Boulevard East, Suite 212, St. Paul, Minnesota 55108.


                            ARTICLE 3 - CAPITAL STOCK

         3.1) Authorized Shares; Establishment of Classes and Series. The
aggregate number of shares the corporation has authority to issue shall be
30,000,000 shares, which shall have a par value of $.01 per share solely for the
purpose of a statute or regulation imposing a tax or fee based upon the
capitalization of the corporation, and which shall consist of 15,000,000 shares
of Common Stock and 15,000,000 undesignated shares. The Board of Directors of
the corporation is authorized to establish from the undesignated shares, by
resolution adopted and filed in the manner provided by law, one or more classes
or series of shares, to designate each such class or series (which may include
but is not limited to designation as additional shares of Common Stock), and to
fix the relative rights and preferences of each such class or series.

         3.2) Issuance of Shares. The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, issue, sell and
deliver shares of any class or series of the corporation to such persons, at
such times and upon such terms and conditions as the Board shall determine,
valuing all nonmonetary consideration and establishing a price in money or other
consideration, or a minimum price, or a general formula or method by which the
price will be determined.

         3.3) Issuance of Rights to Purchase Shares. The Board of Directors is
further authorized from time to time to grant and issue rights to subscribe for,
purchase, exchange securities for, or convert securities into, shares of the
corporation of any class or series, and to fix the terms, provisions and
conditions of such rights, including the exchange or conversion basis or the
price at which such shares may be purchased or subscribed for.




         3.4) Issuance of Shares to Holders of Another Class or Series. The
Board is further authorized to issue shares of one class or series to holders of
that class or series or to holders of another class or series to effectuate
share dividends or splits.


                             ARTICLE 4 - RIGHTS OF SHAREHOLDERS

         4.1) No Preemptive Rights. No shares of any class or series of the
corporation shall entitle the holders to any preemptive rights to subscribe for
or purchase additional shares of that class or series or any other class or
series of the corporation now or hereafter authorized or issued.

         4.2) No Cumulative Voting Rights. There shall be no cumulative voting
by the shareholders of the corporation.


                              ARTICLE 5 - DIRECTORS

         5.1) The names of the person constituting the first Board of Directors
is as follows:

                  R. H. Joseph Shaw


        ARTICLE 6 - MERGER, EXCHANGE, SALE OF ASSETS AND DISSOLUTION

         6.1) Where approval of shareholders is required by law, the affirmative
vote of the holders of at least a majority of the voting power of all shares
entitled to vote shall be required to authorize the corporation (i) to merge
into or with one or more other corporations, (ii) to exchange its shares for
shares of one or more other corporations, (iii) to sell, lease, transfer or
otherwise dispose of all or substantially all of its property and assets,
including its good will, or (iv) to commence voluntary dissolution.


               ARTICLE 7 - AMENDMENT OF ARTICLES OF INCORPORATION.

         7.1) After the issuance of shares by the corporation, any provision
contained in these Articles of Incorporation may be amended, altered, changed or
repealed by the affirmative vote of the holders of at least a majority of the
voting power of the shares present and entitled to vote at a duly held meeting
or such greater percentage as may be otherwise prescribed by the laws of the
State of Minnesota.

                  ARTICLE 8 - LIMITATION OF DIRECTOR LIABILITY

         8.1) To the fullest extent 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.





                            ARTICLE 9 - INCORPORATOR

         9.1) The name and mailing address of the incorporator are as follows:

                  Gregory G. Freitag
                  900 Second Avenue South
                  1100 International Centre
                  Minneapolis, Minnesota 55402


         IN WITNESS WHEREOF, the undersigned incorporator has hereunto set his
hand this 13th day of November, 1992.



                                          /s/ Gregory G. Freitag
                                          Gregory G. Freitag




                              ARTICLES OF AMENDMENT
                                     TO THE
                            ARTICLES OF INCORPORATION
                                       OF
                                  QUANTECH LTD.

         The undersigned, being the Secretary of Quantech Ltd., a Minnesota
corporation, (the "Corporation"), on behalf of the Corporation, does hereby
certify that the following recitals and resolutions were adopted at a duly
called special meeting of the shareholders, pursuant to Minnesota Statutes
Sections 302A.135 and 302A.139

                  WHEREAS, the Board of Directors of the Corporation believes it
         is in the best interest of the Corporation to amend the Articles of
         Incorporation to increase the number of authorized common stock shares
         from 30,000,000 to 60,000,000 and has previously adopted similar
         recitals and resolutions as those proposed here;

         IT IS HEREBY RESOLVED THAT:

                  The shareholders, in accordance with the Corporation's Bylaws,
         do hereby approve amending the Corporation's Articles of Incorporation
         to increase the number of authorized common stock shares from
         30,000,000 to 60,000,000;

         RESOLVED FURTHER:

                  Section 3.1 is hereby amended to read:

                                   ARTICLE 3.1
                                  CAPITAL STOCK

                  The aggregate number of shares of all classes of stock which
         this corporation shall have the authority to issue is Sixty Million
         (60,000,000) shares, $.01 par value per share. The Board of Directors
         of the corporation is authorized to establish from the undesignated
         shares, by resolution adopted and filed in the manner provided by law,
         one or more classes or series of shares, to designate each such class
         or series (which may include but is not limited to designation as
         additional shares of Common Stock), and to fix the relative rights and
         preferences of each such class or series.

         RESOLVED FURTHER:

                  The corporation's officers are hereby authorized to complete
         all documents necessary and make all filings necessary to effectuate
         the amendment to the Corporation's Articles of Incorporation and to
         record such Amendment in the Corporation's official record books.

Dated and effective:  September 28, 1995.
                                               /s/ George Vitalis
                                               George Vitalis, Secretary



                            ARTICLES OF AMENDMENT OF
                            ARTICLES OF INCORPORATION
                                OF QUANTECH LTD.

         The undersigned, being the Secretary of Quantech Ltd., a Minnesota
corporation, (the "Corporation"), on behalf of the Corporation, does hereby
certify that the following recitals and resolutions were adopted at a duly
called special meeting of the shareholders, pursuant to Minnesota Statutes,
Sections 302A.135 and 302A.139.

         WHEREAS, the Board of Directors of the Corporation believes it is in
the best interest of the Corporation to amend the Articles of Incorporation to
increase the number of authorized shares from 60,000,000 Common Shares to
120,000,000 shares consisting of 90,000,000 Common Shares and 30,000,000
undesignated shares and has previously adopted similar recitals and resolutions
as those proposed here.

         IT IS HEREBY RESOLVED THAT,

         The shareholders, in accordance with the Corporation's Bylaws, do
hereby approve amending the Corporation's Articles of Incorporation to increase
the number of authorized shares from 60,000,000 Common Shares to 120,000,000
shares consisting of 90,000,000 Common Shares and 30,000,000 undesignated
shares.

         RESOLVED FURTHER, that Section 3.1 is hereby amended to read as
follows:

                                   ARTICLE 3.1
                                  CAPITAL STOCK

         The aggregate number of shares of all classes of stock which this
corporation shall have the authority to issue is One Hundred and Twenty Million
(120,000,000) shares, $.01 par value per share, consisting of 90,000,000 Common
Shares and 30,000,000 undesignated shares. The Board of Directors of the
corporation is authorized to establish from the undesignated shares, by
resolution adopted and filed in the manner provided by law, one or more classes
or series of shares, to designate each such class or series (which may include
but is not limited to designation as additional shares of Common Stock), and to
fix the relative rights and preferences of each such class or series.

         RESOLVED FURTHER,

         The corporation's officers are hereby authorized to complete all
documents necessary and make all filings necessary to effectuate the amendment
to the Corporation's Articles of Incorporation and to record such Amendment in
the Corporation's official record books.

Dated and effective:  November 25, 1996.

/s/ Gregory G. Freitag
Gregory G. Freitag, Secretary


                            ARTICLES OF AMENDMENT OF
                            ARTICLES OF INCORPORATION
                                OF QUANTECH LTD.

         The undersigned, being the Secretary of Quantech Ltd., a Minnesota
corporation, (the "Corporation"), on behalf of the Corporation, does hereby
certify that the following recitals and resolutions were adopted at a duly
called special meeting of the shareholders, pursuant to Minnesota Statutes,
Sections 302A.135 and 302A.139.

         WHEREAS, the Board of Directors of the Corporation believes it is in
the best interest of the Corporation to amend the Articles of Incorporation to
increase the number of authorized shares from 120,000,000 Common Shares to
250,000,000 shares consisting of 200,000,000 Common Shares and 50,000,000
undesignated shares and has previously adopted similar recitals and resolutions
as those proposed here.

         IT IS HEREBY RESOLVED THAT,

         The shareholders, in accordance with the Corporation's Bylaws, do
hereby approve amending the Corporation's Articles of Incorporation to increase
the number of authorized shares from 120,000,000 Common Shares to 250,000,000
shares consisting of 200,000,000 Common Shares and 50,000,000 undesignated
shares.

         RESOLVED FURTHER, that Section 3.1 is hereby amended to read as
follows:

                                   ARTICLE 3.1
                                  CAPITAL STOCK

         The aggregate number of shares of all classes of stock, which this
corporation shall have the authority to issue is Two Hundred and Fifty Million
(250,000,000) shares, which shall have a par value of $.01 per share solely for
the purpose of a statute or regulation imposing a tax or fee based upon the
capitalization of the corporation, and which shall consist of 200,000,000 Common
Shares and 50,000,000 undesignated shares. The Board of Directors of the
corporation is authorized to establish from the undesignated shares, by
resolution adopted and filed in the manner provided by law, one or more classes
or series of shares, to designate each such class or series (which may include
but is not limited to designation as additional shares of Common Stock), and to
fix the relative rights and preferences of each such class or series.

         RESOLVED FURTHER,

         The corporation's officers are hereby authorized to complete all
documents necessary and make all filings necessary to effectuate the amendment
to the Corporation's Articles of Incorporation and to record such Amendment in
the Corporation's official record books.

Dated and effective:  December 2, 1997

/s/ Gregory G. Freitag
Gregory G. Freitag, Secretary



                            ARTICLES OF AMENDMENT OF
                            ARTICLES OF INCORPORATION
                                OF QUANTECH LTD.

         The undersigned, being the Secretary of Quantech Ltd., a Minnesota
corporation, (the "Corporation"), on behalf of the Corporation, does hereby
certify that the following recitals and resolutions were adopted at a duly
called special meeting of the directors, pursuant to Minnesota Statutes,
Sections 302A.135 and 302A.139.

         The Board discussed and determined that it was in the interest of
Quantech to effect the reverse split of its Capital Stock to conform its capital
structure to companies in Quantech's industry, so as to attract potential
financing and strategic partners and to position Quantech for filing on NASDAQ
when it meets such organization's listing requirements. It was determined that
the timing of the split should be coordinated with the release of information
concerning Quantech's filing with the FDA of its test for myoglobin.

         A MOTION was made by Mr. Lyons that the directors hereby adopt the
following plan of recapitalization in order to effect a 1-for-20 reverse stock
split effective on the date on which the Amendment of Articles hereinafter
adopted is filed with the Minnesota Secretary of State (the "Effective Date"):

         1.       One (1) share of Common Stock of the Company shall be issued
                  in exchange for every twenty (20) shares of Common Stock
                  outstanding on the Effective Date.
         2.       Fractional shares resulting on account of such reverse split
                  shall be rounded down.
         3.       Promptly following the Effective Date, shareholders shall
                  exchange certificates representing shares of Common Stock
                  outstanding on the Effective Date for certificates
                  representing the appropriate number of shares of Common Stock
                  to reflect the reverse stock split.
         4.       On the Effective Date, the number of shares of the Company's
                  Common Stock reserved for issuance under, or covered by, any
                  outstanding option or warrant shall be decreased by twenty
                  times and the per share exercise price shall be increased by
                  such amount as may be necessary so that the aggregate purchase
                  price of each outstanding option or warrant after adjustment
                  is equal to the aggregate purchase price of such option or
                  warrant before adjustment.

         FURTHER RESOLVED, that Section 3.1 of Article 3 of the Articles of
Incorporation is amended to read as follows:




                           "ARTICLE 3 - CAPITAL STOCK

                  3.1) Authorized Shares; Establishment of Classes and Series.
                  The aggregate number of shares the corporation has authority
                  to issue shall be 12,500,000 shares, which shall have a par
                  value of $.01 per share solely for the purpose of a statute or
                  regulation imposing a tax or fee based upon the capitalization
                  of the corporation, and which shall consist of 10,000,000
                  Common Shares (hereinafter referred to as "Common Stock") and
                  2,500,000 undesignated shares. Except as otherwise provided by
                  these Articles of Incorporation or in a contractual obligation
                  of the corporation, the Board of Directors of the corporation
                  is authorized to establish from the undesignated shares, by
                  resolution adopted and filed in the manner provided by law,
                  one or more classes or series of shares, to designate each
                  such class or series (which may include but is not limited to
                  designation as additional shares of Common Stock), and to fix
                  the relative rights and preferences of each such class or
                  series, which rights and preferences may be superior to those
                  of any of the shares of Common Stock."

         FURTHER RESOLVED, that any officer of the Company be and he hereby is
authorized to execute Articles of Amendment of the Articles of Incorporation of
the Company and to cause such Articles of Amendment to be filed with the
Minnesota Secretary of State.

         FURTHER RESOLVED, that the form of stock certificate reviewed this date
be and it hereby is adopted to represent the Company's Common Stock from and
after the Effective Date.

         FURTHER RESOLVED, that the officers of the Company are hereby
authorized and directed to take all such further action and execute and deliver
all such further documents and instruments as may be necessary or advisable to
effectuate such reverse stock split.

         Mr. Perkins seconded the motion and the motion was unanimously approved
by the directors.

Dated and effective:  March 17, 1998

/s/ Gregory G. Freitag
Gregory G. Freitag, Secretary






                       STATEMENT OF DESIGNATION OF SHARES
                                       OF
                                  QUANTECH LTD.



         I hereby certify that the resolutions set forth on Exhibit A attached
hereto were adopted by written action of the Board of Directors of QUANTECH LTD.
on November 5, 1998.

         I certify that I am authorized to execute this Statement and I further
certify that I understand that by signing this Statement I am subject to the
penalties of perjury as set forth in Section 609.48 as if I had signed this
Statement under oath.




                                     /s/ Gregory G. Freitag
                                     Gregory G. Freitag, Chief Operating Officer






                                    EXHIBIT A


                     Designation of Series A Preferred Stock

         WHEREAS, the corporation's current authorized capitalization consists
of 10,000,000 authorized shares of Common Stock and 2,500,000 authorized but
undesignated shares; and

         WHEREAS, the Board of Directors deems it advisable to establish an
additional class of shares from the 2,500,000 authorized but undesignated
shares;

         NOW, THEREFORE, RESOLVED, that of the 2,500,000 undesignated shares
which the corporation is authorized to issue under its Articles of
Incorporation, 2,500,000 are hereby designated as shares of Series A Preferred
Stock (the "Series A Stock"), with a par value of $0.01 per share solely for
purposes of a statute or regulation imposing a tax or fee based upon the
capitalization of the corporation.

         FURTHER RESOLVED, that the rights and preferences of the Series A Stock
shall be as follows:

         1. Dividends. In the event that the corporation declares and pays any
dividends in cash with respect to Common Stock, the holder of a share of Series
A Stock will be entitled to receive a dividend per share equal to the dividend
that would have been otherwise payable with respect to such share if it had been
converted into shares of Common Stock prior to the record date of such dividend.

         2. Voting. Each outstanding share of Series A Stock shall entitle its
holder to that number of votes on all matters submitted to the stockholders that
is equal to the number of shares of Common Stock into which such holder's shares
of Series A Stock are then convertible, as hereinafter provided (except that
shares of Series A Stock shall have class voting rights as provided in paragraph
3 below and as otherwise now or hereafter required by agreement or law).

         3. Additional Class Votes by Series A Stock. Without the affirmative
vote or written consent of the holders (acting together as a class) of at least
a majority of the shares of Series A Stock at the time outstanding, the
corporation shall not:

                  a. amend the Articles of Incorporation of the corporation in
         any respect, including without limitation any certificate or
         designation relating to the Series A Stock, so as to alter any existing
         provision relating to Series A Stock or the holders thereof or waive
         any of the rights granted to the holders of the Series A Stock by the
         Articles of Incorporation of the corporation; or

                  b. increase the authorized number of shares of Series A Stock;
         or

                  c. authorize or issue any shares of capital stock having
         priority or preference over, or on parity with, Series A Stock as to
         dividends or distributions in the event of the liquidation, dissolution
         or winding up of the corporation, provided that such prohibition shall



         not prevent the corporation from issuing any shares which may receive
         distributions in such events on a pari passu basis prorated, in the
         event assets are insufficient to pay the original purchase price of all
         such securities, to the original purchase price of each; or

                  d. declare or pay any dividend or make any other distribution
         on any shares of capital stock of the corporation at any time created
         and issued ranking junior to Series A Stock with respect to the rights
         to the distribution of assets upon liquidation, dissolution or winding
         up of the corporation, other than distributions payable solely in
         shares of junior stock.

         4.       Liquidation.

                  a. In the event of the liquidation, dissolution or winding up
         of the corporation, whether voluntary or involuntary, the holders of
         the shares of Series A Stock shall be entitled, subject to the
         participation right of certain lenders/guarantors as provided in
         subparagraph (d) below, to receive in cash, out of the assets of the
         corporation, before any payment shall be made or any assets distributed
         to the holders of Common Stock with respect to the payment of dividends
         or upon dissolution or liquidation of the corporation, an amount equal
         to the sum of (i) $3.00 per share ("Original Purchase Price")
         (appropriately adjusted to reflect stock splits, stock dividends,
         reorganizations, consolidations and similar changes hereafter
         effected), (ii) all dividends unpaid and accumulated or accrued thereon
         to the date of such distribution, if any, and (iii) an amount equal to
         a return on investment at the rate of 10% per annum, compounded
         annually, over the period commencing on the date of original issuance
         of the Series A Stock by the corporation and ending on the date of
         distribution of assets as specified by the corporation's Board of
         Directors. If, upon any liquidation or dissolution of this corporation,
         the assets of the corporation shall be insufficient to pay such amount,
         the holders of such shares shall share pro rata in any such
         distribution in proportion to the full amounts to which they would
         otherwise be respectively entitled.

                  b. After the payment of all preferential amounts required to
         be paid pursuant to subparagraph a above, any remaining assets and
         funds of the corporation available for distribution to its stockholders
         upon the liquidation, dissolution or winding up of the corporation
         shall be distributed ratably among the holders of Common Stock.
         Thereafter, any such remaining assets and funds shall be distributed.

                  c. The merger or consolidation of the corporation into or with
         another corporation which results in the exchange of outstanding shares
         of the corporation for securities or other consideration issued or paid
         or caused to be issued or paid by such other corporation or an
         affiliate thereof (except if such merger or consolidation does not
         result in the transfer of more than 60% of the voting securities of the
         corporation), change in control of more than 60% of the voting
         securities of the corporation or the sale of all or substantially all
         the assets of the corporation, shall be deemed to be a liquidation,
         dissolution or winding up of the corporation for purposes of this
         paragraph, unless the holders of a majority of the Series A Stock then



         outstanding vote otherwise. The amount deemed distributed to the
         holders of Series A Stock upon any such merger or consolidation shall
         be the cash or the value of the property, rights and/or securities
         distributed to such holders by the acquiring person, firm or other
         entity. The value of such property, rights or other securities shall be
         determined in good faith by the Board of Directors of the corporation.

                  d. The corporation and one of its current directors are
         parties to that certain Agreement dated November 5, 1998, which
         agreement provides that if the director is required to make any payment
         pursuant to that certain Guaranty and Collateral Pledge Agreement, each
         dated August 7, 1998, between such director and Norwest Bank Minnesota,
         National Association, which has provided the corporation a bank credit
         facility in the aggregate principal amount of $750,000, such director
         waives any right of recovery of such payment from the corporation
         except in the event of a liquidation by the corporation in which event
         such director shall be entitled to participate in the distribution of
         the corporation's assets in liquidation on a pro rata basis with
         holders of Series A Stock pursuant to subparagraph a above as if such
         director held an amount of Series A Stock equal to the amount of such
         director's payment under the Guaranty and Collateral Pledge Agreement
         divided by $3.00.

         5. Conversion Right. At the option of the holders thereof, the shares
of Series A Stock shall be convertible, at the office of the corporation (or at
such other office or offices, if any, as the Board of Directors may designate),
into fully paid and nonassessable shares (calculated as to each conversion to
the nearest 1/100th of a share) of Common Stock of the corporation, at the
conversion price, determined as hereinafter provided, in effect at the time of
conversion, each share of Series A Stock being deemed to have a value of $3.00
for the purpose of such conversion. The price at which shares of Common Stock
shall be delivered upon conversion of shares of Series A Stock (herein called
the "conversion price") shall be initially $0.75 per share of Common Stock
(i.e., at an initial conversion rate of four shares of Common Stock for each
share of Series A Stock), provided, however, that such initial conversion price
shall be subject to adjustment from time to time in certain instances as
hereinafter provided. The following provisions shall govern such right of
conversion:

                  a. In order to convert shares of Series A Stock into shares of
         Common Stock of the corporation, the holder thereof shall surrender at
         any office hereinabove mentioned the certificate or certificates
         therefor, duly endorsed to the corporation or in blank, and give
         written notice to the corporation at such office that such holder
         elects to convert such shares. Shares of Series A Stock shall be deemed
         to have been converted immediately prior to the close of business on
         the day of the surrender of such shares for conversion as herein
         provided, and the person entitled to receive the shares of Common Stock
         of the corporation issuable upon such conversion shall be treated for
         all purposes as the record holder of such shares of Common Stock at
         such time. As promptly as practicable on or after the conversion date,
         the corporation shall issue and deliver or cause to be issued and
         delivered at such office a certificate or certificates for the number
         of shares of Common Stock of the corporation issuable upon such
         conversion.




                  b. The conversion price shall be subject to adjustment from
         time to time as hereinafter provided. Upon each adjustment of the
         conversion price each holder of shares of Series A Stock shall
         thereafter be entitled to receive the number of shares of Common Stock
         of the corporation obtained by multiplying the conversion price in
         effect immediately prior to such adjustment by the number of shares
         issuable pursuant to conversion immediately prior to such adjustment
         and dividing the product thereof by the conversion price resulting from
         such adjustment.

                  c. If and whenever the corporation shall issue or sell any
         shares of its Common Stock for a consideration per share less than the
         conversion price in effect immediately prior to the time of such issue
         or sale of the Common Stock, then, forthwith upon such issue or sale,
         the conversion price shall be reduced to such lower price.

         No adjustment of the conversion price of the Series A Stock, however,
shall be made in an amount less than 2% of such conversion price in effect on
the date of such adjustment, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which, together with any such adjustment so carried forward, shall be
an amount equal to or greater than 4% of the conversion price of the Series A
Stock then in effect.

         The holders of at least a majority of the Series A Stock then
outstanding may elect to waive the application of the provisions of this
paragraph 5 with respect to any issue or sale by the corporation of shares of
its Common Stock for a consideration per share less than the conversion price of
the Series A Stock in effect immediately prior to the time of such issue or
sale.

         For the purposes of this paragraph 5, the following provisions (i) to
(v), inclusive, shall also be applicable:

                  (i) In the event the corporation shall grant (whether directly
         or by assumption in a merger or otherwise) any rights to subscribe for
         or to purchase, or any options for the purchase of, (a) Common Stock or
         (b) any obligations or any shares of stock of the corporation which are
         convertible into, or exchangeable for, Common Stock (any of such
         obligations or shares of stock being hereinafter called "Convertible
         Securities") whether or not such rights or options or the right to
         convert or exchange any such Convertible Securities are immediately
         exercisable, and the price per share for which Common Stock is issuable
         upon the exercise of such rights or options or upon conversion or
         exchange of such Convertible Securities (determined by dividing (x) the
         total amount, if any, received or receivable by the corporation as
         consideration for the granting of such rights or options, plus the
         minimum aggregate amount of additional consideration payable to the
         corporation upon the exercise of such rights or options, plus, in the
         case of such rights or options which relate to Convertible Securities,
         the minimum aggregate amount of additional consideration, if any,
         payable upon the issue of such Convertible Securities and upon the
         conversion or exchange thereof, by (y) the total maximum number of
         shares of Common Stock issuable upon the exercise of such rights or
         options or upon the conversion or exchange of all such Convertible
         Securities issuable upon the exercise of such rights or options) shall
         be less than the conversion price of the Series A Stock in effect
         immediately prior to the time of the granting of such rights or
         options, then the total maximum number of shares of Common Stock
         issuable upon the exercise of such rights or options or upon conversion
         or exchange of the total maximum amount of such Convertible Securities
         issuable upon the exercise of such rights or options shall (as of the



         date of granting of such rights or options) be deemed to have been
         issued for such price per share. Except as provided in subparagraph d
         below, no further adjustments of the conversion price of the Series A
         Stock shall be made upon the actual issue of such Common Stock or of
         such Convertible Securities upon exercise of such rights or options or
         upon the actual issue of such Common Stock upon conversion or exchange
         of such Convertible Securities.

                  (ii) In case the corporation shall issue or sell (whether
         directly or by assumption in a merger or otherwise) any Convertible
         Securities, whether or not the rights to exchange or convert thereunder
         are immediately exercisable, and the price per share for which Common
         Stock is issuable upon such conversion or exchange (determined by
         dividing (x) the total amount received or receivable by the corporation
         as consideration for the issue or sale of such Convertible Securities,
         plus the minimum aggregate amount of additional consideration, if any,
         payable to the corporation upon the conversion or exchange thereof, by
         (y) the total maximum number of shares of Common Stock issuable upon
         the conversion or exchange of all such Convertible Securities) shall be
         less than the conversion price of the Series A Stock in effect
         immediately prior to the time of such issue or at the time of such
         issue or sale, then the total maximum number of shares of Common Stock
         issuable upon conversion or exchange of all such Convertible Securities
         shall (as of the date of the issue or sale of such Convertible
         Securities) be deemed to be outstanding and to have been issued for
         such price per share, provided that (a) except as provided in
         subparagraph d below, no further adjustments of the conversion price
         shall be made upon the actual issue of such Common Stock upon
         conversion or exchange of such Convertible Securities, and (b) if any
         such issue or sale of such Convertible Securities is made upon exercise
         of any rights to subscribe for or to purchase or any option to purchase
         any such Convertible Securities for which adjustments of the conversion
         price of the Series A Stock have been or are to be made pursuant to
         other provisions of this paragraph 5, no further adjustment of the
         conversion price shall be made by reason of such issue or sale.

                  (iii) In case any shares of Common Stock or Convertible
         Securities or any rights or options to purchase any such Common Stock
         or Convertible Securities shall be issued or sold for cash, the
         consideration received therefor shall be deemed to be the amount
         received by the corporation therefor, without deducting therefrom any
         expenses incurred or any underwriting commissions, discounts or
         concessions paid or allowed by the corporation in connection therewith.
         In case any shares of Common Stock or Convertible Securities or any
         rights or options to purchase any such Common Stock or Convertible
         Securities shall be issued or sold for a consideration other than cash,
         the amount of the consideration other than cash received by the
         corporation shall be deemed to be the fair value of such consideration
         as determined by the Board of Directors of the corporation, without
         deducting therefrom any expenses incurred or any underwriting
         commissions, discounts or concessions paid or allowed by the



         corporation in connection therewith. In case any shares of Common Stock
         or Convertible Securities or any rights or options to purchase such
         Common Stock or Convertible Securities shall be issued in connection
         with any merger or consolidation in which the corporation is the
         surviving corporation, the amount of consideration therefor shall be
         deemed to be the fair value as determined by the Board of Directors of
         the corporation of such portion of the assets and business of the
         non-surviving corporation or corporations as such Board shall determine
         to be attributable to such Common Stock, Convertible Securities, rights
         or options, as the case may be. In the event of any consolidation or
         merger of the corporation in which the corporation is not the surviving
         corporation or in the event of any sale of all or substantially all of
         the assets of the corporation for stock or other securities of any
         other corporation, the corporation shall be deemed to have issued a
         number of shares of its Common Stock for stock or securities of the
         other corporation computed on the basis of the actual exchange ratio on
         which the transaction was predicated and for a consideration equal to
         the fair market value on the date of such transaction of such stock or
         securities of the other corporation, and if any such calculation
         results in adjustment of the conversion price of the Series A Stock,
         the determination of the number of shares of Common Stock issuable upon
         conversion immediately prior to such merger, conversion or sale, for
         purposes of subparagraph d below, shall be made after giving effect to
         such adjustment of the conversion price.

                  (iv) In case the corporation shall take a record of the
         holders of its Common Stock for the purpose of entitling them (a) to
         receive a dividend or other distribution payable in Common Stock or in
         Convertible Securities, or in any rights or options to purchase any
         Common Stock or Convertible Securities, or (b) to subscribe for or
         purchase Common Stock or Convertible Securities, then such record date
         shall be deemed to be the date of the issue or sale of the shares of
         Common Stock deemed to have been issued or sold upon the declaration of
         such dividend or the making of such other distribution or the date of
         the granting of such rights of subscription or purchase, as the case
         may be.

                  b. In case the corporation shall (i) declare a dividend upon
         the Common Stock payable in Common Stock (other than a dividend
         declared to effect a subdivision of the outstanding shares of Common
         Stock, as described in subparagraph e below) or Convertible Securities,
         or in any rights or options to purchase Common Stock or Convertible
         Securities, or (ii) declare any other dividend or make any other
         distribution upon the Common Stock payable otherwise than out of
         earnings or earned surplus, then thereafter each holder of shares of
         Series A Stock upon the conversion thereof will be entitled to receive
         the number of shares of Common Stock into which such shares of Series A
         Stock have been converted, and, in addition and without payment
         therefor, each dividend described in clause (i) above and each dividend
         or distribution described in clause (ii) above which such holder would
         have received by way of dividends or distributions if continuously held
         since such holder became the record holder of such shares of Series A
         Stock such holder (i) had been the record holder of the number of
         shares of Common Stock then received, and (ii) had retained all
         dividends or distributions in stock or securities (including Common
         Stock or Convertible Securities, and any rights or options to purchase
         any Common Stock or Convertible Securities) payable in respect of such
         Common Stock or in respect of any stock or securities paid as dividends
         or distributions and originating directly or indirectly from such
         Common Stock. For the purposes of the foregoing, a dividend or
         distribution other than in cash shall be considered payable out of
         earnings or earned surplus only to the extent that such earnings or
         earned surplus are charged an amount equal to the fair value of such
         dividend or distribution as determined by the Board of Directors of the
         corporation.




                  c. In case the corporation shall at any time split or
         subdivide its outstanding shares of Common Stock into a greater number
         of shares, the conversion price of Series A Stock in effect immediately
         prior to such subdivision shall be proportionately reduced, and
         conversely, in case the outstanding shares of Common Stock of the
         corporation shall be combined into a smaller number of shares, the
         conversion price of Series A Stock in effect immediately prior to such
         combination shall be proportionately increased.

                  d. If (i) the purchase price provided for in any right or
         option referred to in clause (i) of subparagraph a, or (ii) the
         additional consideration, if any, payable upon the conversion or
         exchange of Convertible Securities referred to in clause (i) or clause
         (ii) of subparagraph a, or (iii) the rate at which any Convertible
         Securities referred to in clause (i) or clause (ii) of subparagraph a
         are convertible into or exchangeable for Common Stock, shall change at
         any time (other than under or by reason of provisions designed to
         protect against dilution), the conversion price of the Series A Stock
         then in effect hereunder shall forthwith be increased or decreased to
         such conversion price as would have obtained had the adjustments made
         upon the issuance of such rights, options or Convertible Securities
         been made upon the basis of (a) the issuance of the number of shares of
         Common Stock theretofore actually delivered upon the exercise of such
         options or rights or upon the conversion or exchange of such
         Convertible Securities, and the total consideration received therefor,
         and (b) the issuance at the time of such change of any such options,
         rights, or Convertible Securities then still outstanding for the
         consideration, if any, received by the corporation therefor and to be
         received on the basis of such changed price; and on the expiration of
         any such option or right or the termination of any such right to
         convert or exchange such Convertible Securities, the conversion price
         of the Series A Stock then in effect hereunder shall forthwith be
         increased to such conversion price as would have obtained had the
         adjustments made upon the issuance of such rights or options or
         Convertible Securities been made upon the basis of the issuance of the
         shares of Common Stock theretofore actually delivered (and the total
         consideration received therefor) upon the exercise of such rights or
         options or upon the conversion or exchange of such Convertible
         Securities. If the purchase price provided for in any right or option
         referred to in clause (i) of subparagraph a, or the rate at which any
         Convertible Securities referred to in clause (i) or clause (ii) of
         subparagraph a are convertible into or exchangeable for Common Stock,
         shall decrease at any time under or by reason of provisions with
         respect thereto designed to protect against dilution, then in case of
         the delivery of Common Stock upon the exercise of any such right or
         option or upon conversion or exchange of any such Convertible Security,
         the conversion price of the Series A Stock then in effect hereunder
         shall forthwith be decreased to such conversion price as would have
         obtained had the adjustments made upon the issuance of such right,
         option or Convertible Security been made upon the basis of the issuance
         of (and the total consideration received for) the shares of Common
         Stock delivered as aforesaid.

                  e. The corporation shall at all times insure and keep
         available out of its authorized but unissued shares of Common Stock,
         for the purpose of effecting the conversion of Series A Stock, the full
         number of shares of Common Stock then deliverable upon the conversion
         of all shares of Series A Stock then outstanding.




                  f. No fractional shares shall be issued upon conversion of the
         Series A Stock, and the number of shares of Common Stock to be issued
         shall be rounded to the nearest whole share (with one-half being
         rounded to the upward). Such conversion shall be determined on the
         basis of the total number of shares of Series A Stock the holder is at
         the time converting into Common Stock and the aggregate number of
         shares of Common Stock issuable upon such conversion.

         6. Mandatory Conversion. The Series A Stock shall automatically be
converted into shares of Common Stock of the corporation, without any act by the
corporation or the holders of the Series A Stock, (i) concurrently with the
closing of an offering of the corporation's equity in which the aggregate
offering price of the securities sold for cash by the corporation in the
offering is at least $5,000,000, or such lower amount as may be approved by the
holders of at least a majority of the shares of Series A Stock then outstanding,
voting separately as a class or (ii) at such time as at least 50% of the number
of shares of Series A Stock that were outstanding as of November 30, 1998 have
been converted or redeemed. As used herein, the term "closing" shall mean the
delivery by the corporation of certificates representing the securities of the
corporation offered against delivery to the corporation of payment therefor. Any
conversion of Series A Stock occurring on the date of the closing of a financing
by the corporation satisfying the conditions set forth above shall be deemed to
be a conversion pursuant to the terms of this paragraph 6.

         Each holder of a share of Series A Stock converted pursuant to the
preceding paragraph shall be entitled to receive the full number of shares of
Common Stock into which such share of Series A Stock held by such holder could
be converted if such holder had exercised its conversion right at the time of
closing of such financing.

         7.       Redemption of Series A Stock.

                  a. If any time after November 5, 2003 the corporation receives
         a written request of the holders of not less than fifty percent (50%)
         of the then outstanding shares of Series A Stock, voting together as a
         single class and on an as-converted basis, (collectively, the
         "Initiating Holders"), the corporation shall within thirty (30) days
         after the receipt of such notice redeem all of the then outstanding
         shares of Series A Stock (or, if less, the maximum amount it may
         lawfully redeem) by paying in cash therefor an amount equal to the sum
         of the Original Purchase Price and an amount equal to a return on
         investment at the rate of 10% per annum, compounded annually, over the
         period commencing on the date of original issuance of the Series A
         Stock by the corporation and ending on the Redemption Date (defined
         below). The aggregate amounts payable with respect to Series A Stock
         are hereinafter collectively referred to as the "Redemption Price."

                  b. At least twenty (20) days prior to the date fixed for any
         redemption of any Series A Stock (the "Redemption Date"), written
         notice shall be mailed, first class postage prepaid, to each holder of
         record (at the close of business on the business day next preceding the
         day on which notice is given) of the Series A Stock to be redeemed, at
         the address last shown on the records of the corporation for such
         holder or given by the holder to the corporation for the purpose of
         notice or if no such address appears or is given at the principal
         executive office of the corporation, notifying such holder of the
         redemption to be effected, specifying the number of shares to be
         redeemed from such holder, the Redemption Date, the Redemption Price,



         the place at which payment may be obtained, and the date on which such
         holder's conversion rights (as set forth in paragraph 5 above) as to
         such shares terminate, and calling upon such holder to surrender to the
         corporation, in the manner and at the place designated, the certificate
         or certificates representing the shares to be redeemed (the "Redemption
         Notice"). On or after the Redemption Date, each holder of Series A
         Stock to be redeemed shall surrender to the corporation the certificate
         or certificates representing such shares, in the manner and at the
         place designated in the Redemption Notice, and thereupon the Redemption
         Price of such shares shall be payable to the order of the person whose
         name appears on such certificate or certificates as the owner thereof
         and each surrendered certificate shall be canceled. In the event less
         than all the shares represented by any such certificate are redeemed, a
         new certificate shall be issued representing the unredeemed shares.

                  c. From and after the Redemption Date, unless there shall have
         been a default in payment of the Redemption Price, all rights of the
         holders of Series A Stock, as holders of such shares (except the right
         to receive the Redemption Price without interest upon surrender of
         their certificate or certificates) shall cease with respect to such
         shares which such holders elected to have redeemed, and such shares
         shall not thereafter be transferred on the books of the corporation or
         be deemed to be outstanding for any purpose whatsoever. If the funds of
         the corporation legally available for redemption of shares of Series A
         Stock on any Redemption Date are insufficient to redeem the total
         number of shares of Series A Stock to be redeemed on such date, those
         funds that are legally available will be used to redeem shares of
         Series A Stock such that each holder of Series A Stock receives the
         same percentage of the aggregate Series A Stock Redemption Price, as
         applicable, as such holder would otherwise receive if the corporation
         could legally redeem all of the shares put for redemption on such date.
         The shares of Series A Stock not redeemed shall remain outstanding and
         entitled to all the rights and preferences provided herein. At any time
         thereafter when additional funds of the corporation are legally
         available for the redemption of shares of Series A Stock, such funds
         will immediately be used to redeem the balance of the shares that the
         corporation has become obligated to redeem on any Redemption Date but
         that it has not redeemed.

                  d. On or prior to the Redemption Date, the corporation shall
         deposit the Redemption Price of all shares of Series A Stock designated
         for redemption in the Redemption Notice, and not yet redeemed or
         converted, with a bank or trust corporation having aggregate capital
         and surplus in excess of $100,000,000 as a trust fund for the benefit
         of the respective holders of the shares designated by holders of Series
         A Stock for redemption and not yet redeemed, with irrevocable
         instructions and authority to the bank or trust corporation to publish
         the notice of redemption thereof and pay the Redemption Price for such
         shares to their respective holders on or after the Redemption Date,
         upon receipt of notification from the corporation that such holder has
         surrendered its share certificate to the corporation pursuant to
         subparagraph 7(b) above. As of the date of such deposit, the deposit
         shall constitute full payment of the shares to their holders, and from
         and after the date of the deposit the shares so called for redemption



         shall be redeemed and shall be deemed to be no longer outstanding, and
         the holders thereof shall cease to be shareholders with respect to such
         shares and shall have no rights with respect thereto except the rights
         to receive from the bank or trust corporation payment of the Redemption
         Price of the shares, without interest, upon surrender of their
         certificates therefor, and the right to convert such shares as provided
         in paragraph 5 above. Such instructions shall also provide that any
         moneys deposited by the corporation pursuant to this subparagraph 7(d)
         for the redemption of shares thereafter converted into shares of the
         corporation's Common Stock pursuant to paragraph 6 above prior to the
         Redemption Date shall be returned to the corporation forthwith upon
         such conversion. The balance of any moneys deposited by the corporation
         pursuant to this subparagraph 7(d) remaining unclaimed at the
         expiration of two (2) years following the Redemption Date shall
         thereafter be returned to the corporation upon its request expressed in
         a resolution of its Board of Directors.

         8. Status of Converted or Redeemed Stock. In the event any shares of
Series A Stock shall be converted or redeemed by the corporation, the shares so
converted or redeemed shall not be reissuable by the corporation as Series A
Stock but shall be designated authorized shares of Common Stock and available
for issuance by the corporation as Common Stock. At such time as all outstanding
shares of Series A Stock have been converted or redeemed, (i) any theretofore
authorized but unissued shares of such series shall return to the status of
undesignated shares of the corporation, (ii) this Statement of Designation shall
be deemed amended to eliminate all authorized Series A Stock and the terms and
provisions thereof, and (iii) the Board of Directors and officers of the
corporation are authorized to take such action and execute and file such
instruments as may be necessary or appropriate to effect such amendment.






                     AMENDMENT OF ARTICLES OF INCORPORATION
                                       OF
                                  QUANTECH LTD.



         Section 3.1 of the Articles of Incorporation of Quantech Ltd. has been
amended to read as follows:

                  "3.1 Authorized Shares; Establishment of Classes and Series.
         The aggregate number of shares the corporation has the authority to
         issue shall be 75,000,000, which shall have a par value of $.01 per
         share solely for the purpose of a statute or regulation imposing a tax
         or fee based upon the capitalization of the corporation, and which
         shall consist of 50,000,000 common shares, 2,500,000 Series A preferred
         shares, and 22,500,000 undesignated shares. The Board of Directors of
         the corporation is authorized to establish from the undesignated
         shares, by resolution adopted and filed in the manner provided by law,
         one or more classes or series of shares, to designate each such class
         or series (which may include but is not limited to designation as
         additional common shares), and to fix the relative rights and
         preferences of each such class or series."

         The foregoing amendment has been approved pursuant to Chapter 302A,
Minnesota Statutes.

         I certify that I am authorized to execute this Amendment and I further
certify that I understand that by signing this Amendment I am subject to the
penalties of perjury as set forth in Minnesota Statutes, Section 609.48 as if I
had signed this Amendment under oath.

         Dated:  December 22, 1998.





                                               /s/ Gregory G. Freitag
                                               Gregory G. Freitag
                                               Chief Operating Officer and
                                               Chief Financial Officer









                       STATEMENT OF DESIGNATION OF SHARES
                                       OF
                                  QUANTECH LTD.



         I hereby certify that the resolutions set forth on Exhibit A attached
hereto were adopted by written action of the Board of Directors of QUANTECH LTD.
on May 19, 1999.

         I certify that I am authorized to execute this Statement and I further
certify that I understand that by signing this Statement I am subject to the
penalties of perjury as set forth in Section 609.48 as if I had signed this
Statement under oath.




                                     /s/ Gregory G. Freitag
                                     Gregory G. Freitag, Chief Operating Officer





               Designation of Series B Convertible Preferred Stock

         WHEREAS, the corporation's current authorized capitalization consists
of 50,000,000 authorized shares of Common Stock, 2,500,000 authorized shares of
Series A Preferred Stock and 22,500,000 authorized but undesignated shares; and

         WHEREAS, the Board of Directors deems it advisable to establish an
additional class of shares from the 22,500,000 authorized but undesignated
shares;

         NOW, THEREFORE, RESOLVED, that of the 22,500,000 undesignated shares
which the corporation is authorized to issue under its Articles of
Incorporation, 2,000,000 are hereby designated as shares of Series B Convertible
Preferred Stock (the "Series B Stock"), with a par value of $0.01 per share
solely for purposes of a statute or regulation imposing a tax or fee based upon
the capitalization of the corporation.

         FURTHER RESOLVED, that the rights and preferences of the Series B Stock
shall be as follows:

         1. Dividends. In the event that the corporation declares and pays any
dividends in cash with respect to Common Stock, the holder of a share of Series
B Stock will be entitled to receive a dividend per share equal to the dividend
that would have been otherwise payable with respect to such share if it had been
converted into shares of Common Stock prior to the record date of such dividend.

         2. Voting. Each outstanding share of Series B Stock shall entitle its
holder to that number of votes on all matters submitted to the stockholders that
is equal to the number of shares of Common Stock into which such holder's shares
of Series B Stock are then convertible, as hereinafter provided (except that
shares of Series B Stock shall have class voting rights as provided in paragraph
3 below and as otherwise now or hereafter required by agreement or law).

         3. Additional Class Votes by Series B Stock. Without the affirmative
vote or written consent of the holders (acting together as a class) of at least
a majority of the shares of Series B Stock at the time outstanding, the
corporation shall not:

                  a. amend the Articles of Incorporation of the corporation in
         any respect, including without limitation any certificate or
         designation relating to the Series B Stock, so as to alter any existing
         provision relating to Series B Stock or the holders thereof or waive
         any of the rights granted to the holders of the Series B Stock by the
         Articles of Incorporation of the corporation; or

                  b. increase the authorized number of shares of Series B Stock;
         or

                  c. authorize or issue any shares of capital stock having
         priority or preference over, or on parity with, Series B Stock as to
         dividends or distributions in the event of the liquidation, dissolution
         or winding up of the corporation, provided that such prohibition shall



         not prevent the corporation from issuing any shares which may receive
         distributions in such events on a pari passu basis prorated, in the
         event assets are insufficient to pay the original purchase price of all
         such securities, to the original purchase price of each; or

                  d. declare or pay any dividend or make any other distribution
         on any shares of capital stock of the corporation at any time created
         and issued ranking junior to Series B Stock with respect to the rights
         to the distribution of assets upon liquidation, dissolution or winding
         up of the corporation, other than distributions payable solely in
         shares of junior stock.

         4.       Liquidation.

                  a. In the event of the liquidation, dissolution or winding up
         of the corporation, whether voluntary or involuntary, the holders of
         the shares of Series B Stock shall be entitled, after the payment of
         the preferential amount required to be paid to the Series A Preferred
         Stock, including the participation right of certain lenders/guarantors
         as provided in subparagraph (d) of the Designation of Series A
         Preferred Stock of this corporation, to receive in cash, out of the
         assets of the corporation, before any payment shall be made or any
         assets distributed to the holders of Common Stock with respect to the
         payment of dividends or upon dissolution or liquidation of the
         corporation, an amount equal to the sum of (i) $1.50 per share
         ("Original Purchase Price") (appropriately adjusted to reflect stock
         splits, stock dividends, reorganizations, consolidations and similar
         changes hereafter effected), and (ii) all dividends unpaid and
         accumulated or accrued thereon to the date of such distribution, if
         any. If, upon any liquidation or dissolution of this corporation, the
         assets of the corporation shall be insufficient to pay such amount, the
         holders of such shares shall share pro rata in any such distribution in
         proportion to the full amounts to which they would otherwise be
         respectively entitled.

                  b. After the payment of all preferential amounts required to
         be paid pursuant to subparagraph a above, any remaining assets and
         funds of the corporation available for distribution to its stockholders
         upon the liquidation, dissolution or winding up of the corporation
         shall be distributed ratably among the holders of Common Stock.

                  c. The merger or consolidation of the corporation into or with
         another corporation which results in the exchange of outstanding shares
         of the corporation for securities or other consideration issued or paid
         or caused to be issued or paid by such other corporation or an
         affiliate thereof (except if such merger or consolidation does not
         result in the transfer of more than 60% of the voting securities of the
         corporation), change in control of more than 60% of the voting
         securities of the corporation or the sale of all or substantially all
         the assets of the corporation, shall be deemed to be a liquidation,
         dissolution or winding up of the corporation for purposes of this
         paragraph, unless the holders of a majority of the Series B Stock then
         outstanding vote otherwise. The amount deemed distributed to the
         holders of Series B Stock upon any such merger or consolidation shall
         be the cash or the value of the property, rights and/or securities
         distributed to such holders by the acquiring person, firm or other
         entity. The value of such property, rights or other securities shall be
         determined in good faith by the Board of Directors of the corporation.




         5. Conversion Right. At the option of the holders thereof, the shares
of Series B Stock shall be convertible, at the office of the corporation (or at
such other office or offices, if any, as the Board of Directors may designate),
into fully paid and nonassessable shares (calculated as to each conversion to
the nearest 1/100th of a share) of Common Stock of the corporation, at the
conversion price, determined as hereinafter provided, in effect at the time of
conversion. The price at which shares of Common Stock shall be delivered upon
conversion of shares of Series B Stock (herein called the "conversion price")
shall be initially $1.50 per share of Common Stock (i.e., at an initial
conversion rate of one share of Common Stock for each share of Series B Stock),
provided, however, that such initial conversion price shall be subject to
adjustment from time to time in certain instances as hereinafter provided. The
following provisions shall govern such right of conversion:

                  a. In order to convert shares of Series B Stock into shares of
         Common Stock of the corporation, the holder thereof shall surrender at
         any office hereinabove mentioned the certificate or certificates
         therefor, duly endorsed to the corporation or in blank, and give
         written notice to the corporation at such office that such holder
         elects to convert such shares. Shares of Series B Stock shall be deemed
         to have been converted immediately prior to the close of business on
         the day of the surrender of such shares for conversion as herein
         provided, and the person entitled to receive the shares of Common Stock
         of the corporation issuable upon such conversion shall be treated for
         all purposes as the record holder of such shares of Common Stock at
         such time. As promptly as practicable on or after the conversion date,
         the corporation shall issue and deliver or cause to be issued and
         delivered at such office a certificate or certificates for the number
         of shares of Common Stock of the corporation issuable upon such
         conversion.

                  b. The conversion price shall be subject to adjustment from
         time to time as hereinafter provided. Upon each adjustment of the
         conversion price each holder of shares of Series B Stock shall
         thereafter be entitled to receive the number of shares of Common Stock
         of the corporation obtained by multiplying the conversion price in
         effect immediately prior to such adjustment by the number of shares
         issuable pursuant to conversion immediately prior to such adjustment
         and dividing the product thereof by the conversion price resulting from
         such adjustment.

                  c. If in the next sale of securities by this corporation after
         the adoption of this Designation, excluding any sale pursuant to
         options, warrants or conversion rights outstanding as the date of
         adoption of this Designation, the price per share of Common Stock sold
         is less than $1.875, or if the security sold is not Common Stock but is
         convertible into or exercisable to purchase Common Stock at a
         conversion or exercise price of less than $1.875 per share, then the
         conversion price shall be reduced an amount equal to 80% of the price
         per share at which such security is sold, convertible or exercisable.

         No adjustment of the conversion price of the Series B Stock, however,
shall be made in an amount less than 2% of such conversion price in effect on
the date of such adjustment, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent



adjustment which, together with any such adjustment so carried forward, shall be
an amount equal to or greater than 4% of the conversion price of the Series B
Stock then in effect.

         The holders of at least a majority of the Series B Stock then
outstanding may elect to waive the application of the provisions of this
paragraph 5 with respect to any issue or sale by the corporation of shares of
its Common Stock for a consideration per share less than the conversion price of
the Series B Stock in effect immediately prior to the time of such issue or
sale.

         For the purposes of this paragraph 5, the following provisions (i) to
(v), inclusive, shall also be applicable:

                  (i) In the event the corporation shall grant (whether directly
         or by assumption in a merger or otherwise) any rights to subscribe for
         or to purchase, or any options for the purchase of, (a) Common Stock or
         (b) any obligations or any shares of stock of the corporation which are
         convertible into, or exchangeable for, Common Stock (any of such
         obligations or shares of stock being hereinafter called "Convertible
         Securities") whether or not such rights or options or the right to
         convert or exchange any such Convertible Securities are immediately
         exercisable, and the price per share for which Common Stock is issuable
         upon the exercise of such rights or options or upon conversion or
         exchange of such Convertible Securities (determined by dividing (x) the
         total amount, if any, received or receivable by the corporation as
         consideration for the granting of such rights or options, plus the
         minimum aggregate amount of additional consideration payable to the
         corporation upon the exercise of such rights or options, plus, in the
         case of such rights or options which relate to Convertible Securities,
         the minimum aggregate amount of additional consideration, if any,
         payable upon the issue of such Convertible Securities and upon the
         conversion or exchange thereof, by (y) the total maximum number of
         shares of Common Stock issuable upon the exercise of such rights or
         options or upon the conversion or exchange of all such Convertible
         Securities issuable upon the exercise of such rights or options) shall
         be less than the conversion price of the Series B Stock in effect
         immediately prior to the time of the granting of such rights or
         options, then the total maximum number of shares of Common Stock
         issuable upon the exercise of such rights or options or upon conversion
         or exchange of the total maximum amount of such Convertible Securities
         issuable upon the exercise of such rights or options shall (as of the
         date of granting of such rights or options) be deemed to have been
         issued for such price per share. Except as provided in subparagraph d
         below, no further adjustments of the conversion price of the Series B
         Stock shall be made upon the actual issue of such Common Stock or of
         such Convertible Securities upon exercise of such rights or options or
         upon the actual issue of such Common Stock upon conversion or exchange
         of such Convertible Securities.

                  (ii) In case the corporation shall issue or sell (whether
         directly or by assumption in a merger or otherwise) any Convertible
         Securities, whether or not the rights to exchange or convert thereunder
         are immediately exercisable, and the price per share for which Common
         Stock is issuable upon such conversion or exchange (determined by
         dividing (x) the total amount received or receivable by the corporation
         as consideration for the issue or sale of such Convertible Securities,
         plus the minimum aggregate amount of additional consideration, if any,
         payable to the corporation upon the conversion or exchange thereof, by



         (y) the total maximum number of shares of Common Stock issuable upon
         the conversion or exchange of all such Convertible Securities) shall be
         less than the conversion price of the Series B Stock in effect
         immediately prior to the time of such issue or at the time of such
         issue or sale, then the total maximum number of shares of Common Stock
         issuable upon conversion or exchange of all such Convertible Securities
         shall (as of the date of the issue or sale of such Convertible
         Securities) be deemed to be outstanding and to have been issued for
         such price per share, provided that (a) except as provided in
         subparagraph d below, no further adjustments of the conversion price
         shall be made upon the actual issue of such Common Stock upon
         conversion or exchange of such Convertible Securities, and (b) if any
         such issue or sale of such Convertible Securities is made upon exercise
         of any rights to subscribe for or to purchase or any option to purchase
         any such Convertible Securities for which adjustments of the conversion
         price of the Series B Stock have been or are to be made pursuant to
         other provisions of this paragraph 5, no further adjustment of the
         conversion price shall be made by reason of such issue or sale.

                  (iii) In case any shares of Common Stock or Convertible
         Securities or any rights or options to purchase any such Common Stock
         or Convertible Securities shall be issued or sold for cash, the
         consideration received therefor shall be deemed to be the amount
         received by the corporation therefor, without deducting therefrom any
         expenses incurred or any underwriting commissions, discounts or
         concessions paid or allowed by the corporation in connection therewith.
         In case any shares of Common Stock or Convertible Securities or any
         rights or options to purchase any such Common Stock or Convertible
         Securities shall be issued or sold for a consideration other than cash,
         the amount of the consideration other than cash received by the
         corporation shall be deemed to be the fair value of such consideration
         as determined by the Board of Directors of the corporation, without
         deducting therefrom any expenses incurred or any underwriting
         commissions, discounts or concessions paid or allowed by the
         corporation in connection therewith. In case any shares of Common Stock
         or Convertible Securities or any rights or options to purchase such
         Common Stock or Convertible Securities shall be issued in connection
         with any merger or consolidation in which the corporation is the
         surviving corporation, the amount of consideration therefor shall be
         deemed to be the fair value as determined by the Board of Directors of
         the corporation of such portion of the assets and business of the
         non-surviving corporation or corporations as such Board shall determine
         to be attributable to such Common Stock, Convertible Securities, rights
         or options, as the case may be. In the event of any consolidation or
         merger of the corporation in which the corporation is not the surviving
         corporation or in the event of any sale of all or substantially all of
         the assets of the corporation for stock or other securities of any
         other corporation, the corporation shall be deemed to have issued a
         number of shares of its Common Stock for stock or securities of the
         other corporation computed on the basis of the actual exchange ratio on
         which the transaction was predicated and for a consideration equal to
         the fair market value on the date of such transaction of such stock or
         securities of the other corporation, and if any such calculation
         results in adjustment of the conversion price of the Series B Stock,
         the determination of the number of shares of Common Stock issuable upon
         conversion immediately prior to such merger, conversion or sale, for
         purposes of subparagraph d below, shall be made after giving effect to
         such adjustment of the conversion price.




                  (iv) In case the corporation shall take a record of the
         holders of its Common Stock for the purpose of entitling them (a) to
         receive a dividend or other distribution payable in Common Stock or in
         Convertible Securities, or in any rights or options to purchase any
         Common Stock or Convertible Securities, or (b) to subscribe for or
         purchase Common Stock or Convertible Securities, then such record date
         shall be deemed to be the date of the issue or sale of the shares of
         Common Stock deemed to have been issued or sold upon the declaration of
         such dividend or the making of such other distribution or the date of
         the granting of such rights of subscription or purchase, as the case
         may be.

                  b. In case the corporation shall (i) declare a dividend upon
         the Common Stock payable in Common Stock (other than a dividend
         declared to effect a subdivision of the outstanding shares of Common
         Stock, as described in subparagraph e below) or Convertible Securities,
         or in any rights or options to purchase Common Stock or Convertible
         Securities, or (ii) declare any other dividend or make any other
         distribution upon the Common Stock payable otherwise than out of
         earnings or earned surplus, then thereafter each holder of shares of
         Series B Stock upon the conversion thereof will be entitled to receive
         the number of shares of Common Stock into which such shares of Series B
         Stock have been converted, and, in addition and without payment
         therefor, each dividend described in clause (i) above and each dividend
         or distribution described in clause (ii) above which such holder would
         have received by way of dividends or distributions if continuously held
         since such holder became the record holder of such shares of Series B
         Stock such holder (i) had been the record holder of the number of
         shares of Common Stock then received, and (ii) had retained all
         dividends or distributions in stock or securities (including Common
         Stock or Convertible Securities, and any rights or options to purchase
         any Common Stock or Convertible Securities) payable in respect of such
         Common Stock or in respect of any stock or securities paid as dividends
         or distributions and originating directly or indirectly from such
         Common Stock. For the purposes of the foregoing, a dividend or
         distribution other than in cash shall be considered payable out of
         earnings or earned surplus only to the extent that such earnings or
         earned surplus are charged an amount equal to the fair value of such
         dividend or distribution as determined by the Board of Directors of the
         corporation.

                  c. In case the corporation shall at any time split or
         subdivide its outstanding shares of Common Stock into a greater number
         of shares, the conversion price of Series B Stock in effect immediately
         prior to such subdivision shall be proportionately reduced, and
         conversely, in case the outstanding shares of Common Stock of the
         corporation shall be combined into a smaller number of shares, the
         conversion price of Series B Stock in effect immediately prior to such
         combination shall be proportionately increased.

                  d. If (i) the purchase price provided for in any right or
         option referred to in clause (i) of subparagraph a, or (ii) the
         additional consideration, if any, payable upon the conversion or
         exchange of Convertible Securities referred to in clause (i) or clause
         (ii) of subparagraph a, or (iii) the rate at which any Convertible
         Securities referred to in clause (i) or clause (ii) of subparagraph a
         are convertible into or exchangeable for Common Stock, shall change at
         any time (other than under or by reason of provisions designed to
         protect against dilution), the conversion price of the Series B Stock
         then in effect hereunder shall forthwith be increased or decreased to



         such conversion price as would have obtained had the adjustments made
         upon the issuance of such rights, options or Convertible Securities
         been made upon the basis of (a) the issuance of the number of shares of
         Common Stock theretofore actually delivered upon the exercise of such
         options or rights or upon the conversion or exchange of such
         Convertible Securities, and the total consideration received therefor,
         and (b) the issuance at the time of such change of any such options,
         rights, or Convertible Securities then still outstanding for the
         consideration, if any, received by the corporation therefor and to be
         received on the basis of such changed price; and on the expiration of
         any such option or right or the termination of any such right to
         convert or exchange such Convertible Securities, the conversion price
         of the Series B Stock then in effect hereunder shall forthwith be
         increased to such conversion price as would have obtained had the
         adjustments made upon the issuance of such rights or options or
         Convertible Securities been made upon the basis of the issuance of the
         shares of Common Stock theretofore actually delivered (and the total
         consideration received therefor) upon the exercise of such rights or
         options or upon the conversion or exchange of such Convertible
         Securities. If the purchase price provided for in any right or option
         referred to in clause (i) of subparagraph a, or the rate at which any
         Convertible Securities referred to in clause (i) or clause (ii) of
         subparagraph a are convertible into or exchangeable for Common Stock,
         shall decrease at any time under or by reason of provisions with
         respect thereto designed to protect against dilution, then in case of
         the delivery of Common Stock upon the exercise of any such right or
         option or upon conversion or exchange of any such Convertible Security,
         the conversion price of the Series B Stock then in effect hereunder
         shall forthwith be decreased to such conversion price as would have
         obtained had the adjustments made upon the issuance of such right,
         option or Convertible Security been made upon the basis of the issuance
         of (and the total consideration received for) the shares of Common
         Stock delivered as aforesaid.

                  e. The corporation shall at all times insure and keep
         available out of its authorized but unissued shares of Common Stock,
         for the purpose of effecting the conversion of Series B Stock, the full
         number of shares of Common Stock then deliverable upon the conversion
         of all shares of Series B Stock then outstanding.

                  f. No fractional shares shall be issued upon conversion of the
         Series B Stock, and the number of shares of Common Stock to be issued
         shall be rounded to the nearest whole share (with one-half being
         rounded to the upward). Such conversion shall be determined on the
         basis of the total number of shares of Series B Stock the holder is at
         the time converting into Common Stock and the aggregate number of
         shares of Common Stock issuable upon such conversion.

         6. Mandatory Conversion. The Series B Stock shall automatically be
converted into shares of Common Stock of the corporation, without any act by the
corporation or the holders of the Series B Stock, (i) concurrently with the
closing of an offering of the corporation's equity in which the aggregate
offering price of the securities sold for cash by the corporation in the
offering is at least $5,000,000, or (ii) at such time as at least 50% of the
number of shares of Series B Stock have been converted into Common Stock. As
used herein, the term "closing" shall mean the delivery by the corporation of
certificates representing the securities of the corporation offered against
delivery to the corporation of payment therefor. Any conversion of Series B



Stock occurring on the date of the closing of a financing by the corporation
satisfying the conditions set forth above shall be deemed to be a conversion
pursuant to the terms of this paragraph 6.

         Each holder of a share of Series B Stock converted pursuant to the
preceding paragraph shall be entitled to receive the full number of shares of
Common Stock into which such share of Series B Stock held by such holder could
be converted if such holder had exercised its conversion right at the time of
closing of such financing.

         7. Status of Converted Stock. In the event any shares of Series B Stock
shall be converted by the corporation, the shares so converted shall not be
reissuable by the corporation as Series B Stock but shall be designated
authorized shares of Common Stock and available for issuance by the corporation
as Common Stock. At such time as all outstanding shares of Series B Stock have
been converted, (i) any theretofore authorized but unissued shares of such
series shall return to the status of undesignated shares of the corporation,
(ii) this Statement of Designation shall be deemed amended to eliminate all
authorized Series B Stock and the terms and provisions thereof, and (iii) the
Board of Directors and officers of the corporation are authorized to take such
action and execute and file such instruments as may be necessary or appropriate
to effect such amendment.






                       STATEMENT OF DESIGNATION OF SHARES
                                       OF
                                  QUANTECH LTD.



         I hereby certify that the resolutions set forth on Exhibit A attached
hereto were adopted by written action of the Board of Directors of QUANTECH LTD.
on October 11, 1999.

         I certify that I am authorized to execute this Statement and I further
certify that I understand that by signing this Statement I am subject to the
penalties of perjury as set forth in Section 609.48 as if I had signed this
Statement under oath.




                                      /s/ Gregory G. Freitag
                                     Gregory G. Freitag, Chief Operating Officer







                            STATEMENT OF DESIGNATION
                                       Of
                      Series B Convertible Preferred Stock

         WHEREAS, the corporation's current authorized capitalization consists
of 50,000,000 authorized shares of Common Stock, 2,500,000 authorized shares of
Series A Preferred Stock and 22,500,000 authorized but undesignated shares; and

         WHEREAS, the Board of Directors deems it advisable to establish an
additional class of shares from the 22,500,000 authorized but undesignated
shares;

         NOW, THEREFORE, RESOLVED, that of the 22,500,000 undesignated shares
which the corporation is authorized to issue under its Articles of
Incorporation, 3,000,000 are hereby designated as shares of Series B Convertible
Preferred Stock (the "Series B Stock"), with a par value of $0.01 per share
solely for purposes of a statute or regulation imposing a tax or fee based upon
the capitalization of the corporation.

         FURTHER RESOLVED, that the rights and preferences of the Series B Stock
shall be as follows:

         1. Dividends. In the event that the corporation declares and pays any
dividends in cash with respect to Common Stock, the holder of a share of Series
B Stock will be entitled to receive a dividend per share equal to the dividend
that would have been otherwise payable with respect to such share if it had been
converted into shares of Common Stock prior to the record date of such dividend.

         2. Voting. Each outstanding share of Series B Stock shall entitle its
holder to that number of votes on all matters submitted to the stockholders that
is equal to the number of shares of Common Stock into which such holder's shares
of Series B Stock are then convertible, as hereinafter provided (except that
shares of Series B Stock shall have class voting rights as provided in paragraph
3 below and as otherwise now or hereafter required by agreement or law).

         3. Additional Class Votes by Series B Stock. Without the affirmative
vote or written consent of the holders (acting together as a class) of at least
a majority of the shares of Series B Stock at the time outstanding, the
corporation shall not:

                  a. amend the Articles of Incorporation of the corporation in
         any respect, including without limitation any certificate or
         designation relating to the Series B Stock, so as to alter any existing
         provision relating to Series B Stock or the holders thereof or waive
         any of the rights granted to the holders of the Series B Stock by the
         Articles of Incorporation of the corporation; or



                  b. increase the authorized number of shares of Series B Stock;
         or

                  c. authorize or issue any shares of capital stock having
         priority or preference over, or on parity with, Series B Stock as to
         dividends or distributions in the event of the liquidation, dissolution
         or winding up of the corporation, provided that such prohibition shall
         not prevent the corporation from issuing any shares which may receive
         distributions in such events on a pari passu basis prorated, in the
         event assets are insufficient to pay the original purchase price of all
         such securities, to the original purchase price of each; or

                  d. declare or pay any dividend or make any other distribution
         on any shares of capital stock of the corporation at any time created
         and issued ranking junior to Series B Stock with respect to the rights
         to the distribution of assets upon liquidation, dissolution or winding
         up of the corporation, other than distributions payable solely in
         shares of junior stock.

         4.       Liquidation.

                  a. In the event of the liquidation, dissolution or winding up
         of the corporation, whether voluntary or involuntary, the holders of
         the shares of Series B Stock shall be entitled, after the payment of
         the preferential amount required to be paid to the Series A Preferred
         Stock, including the participation right of certain lenders/guarantors
         as provided in subparagraph (d) of the Designation of Series A
         Preferred Stock of this corporation, to receive in cash, out of the
         assets of the corporation, before any payment shall be made or any
         assets distributed to the holders of Common Stock with respect to the
         payment of dividends or upon dissolution or liquidation of the
         corporation, an amount equal to the sum of (i) $1.00 per share
         ("Original Purchase Price") (appropriately adjusted to reflect stock
         splits, stock dividends, reorganizations, consolidations and similar
         changes hereafter effected), and (ii) all dividends unpaid and
         accumulated or accrued thereon to the date of such distribution, if
         any. If, upon any liquidation or dissolution of this corporation, the
         assets of the corporation shall be insufficient to pay such amount, the
         holders of such shares shall share pro rata in any such distribution in
         proportion to the full amounts to which they would otherwise be
         respectively entitled.

                  b. After the payment of all preferential amounts required to
         be paid pursuant to subparagraph a above, any remaining assets and
         funds of the corporation available for distribution to its stockholders
         upon the liquidation, dissolution or winding up of the corporation
         shall be distributed ratably among the holders of Common Stock.

                  c. The merger or consolidation of the corporation into or with
         another corporation which results in the exchange of outstanding shares
         of the corporation for securities or other consideration issued or paid
         or caused to be issued or paid by such other corporation or an
         affiliate thereof (except if such merger or consolidation does not
         result in the transfer of more than 60% of the voting securities of the
         corporation), change in control of more than 60% of the voting



         securities of the corporation or the sale of all or substantially all
         the assets of the corporation, shall be deemed to be a liquidation,
         dissolution or winding up of the corporation for purposes of this
         paragraph, unless the holders of a majority of the Series B Stock then
         outstanding vote otherwise. The amount deemed distributed to the
         holders of Series B Stock upon any such merger or consolidation shall
         be the cash or the value of the property, rights and/or securities
         distributed to such holders by the acquiring person, firm or other
         entity. The value of such property, rights or other securities shall be
         determined in good faith by the Board of Directors of the corporation.

         5. Conversion Right. At the option of the holders thereof, the shares
of Series B Stock shall be convertible, at the office of the corporation (or at
such other office or offices, if any, as the Board of Directors may designate),
into fully paid and nonassessable shares (calculated as to each conversion to
the nearest 1/100th of a share) of Common Stock of the corporation, at the
conversion price, determined as hereinafter provided, in effect at the time of
conversion. The price at which shares of Common Stock shall be delivered upon
conversion of shares of Series B Stock (herein called the "conversion price")
shall be initially $1.00 per share of Common Stock (i.e., at an initial
conversion rate of one share of Common Stock for each share of Series B Stock),
provided, however, that such initial conversion price shall be subject to
adjustment from time to time in certain instances as hereinafter provided. The
following provisions shall govern such right of conversion:

                  a. In order to convert shares of Series B Stock into shares of
         Common Stock of the corporation, the holder thereof shall surrender at
         any office hereinabove mentioned the certificate or certificates
         therefor, duly endorsed to the corporation or in blank, and give
         written notice to the corporation at such office that such holder
         elects to convert such shares. Shares of Series B Stock shall be deemed
         to have been converted immediately prior to the close of business on
         the day of the surrender of such shares for conversion as herein
         provided, and the person entitled to receive the shares of Common Stock
         of the corporation issuable upon such conversion shall be treated for
         all purposes as the record holder of such shares of Common Stock at
         such time. As promptly as practicable on or after the conversion date,
         the corporation shall issue and deliver or cause to be issued and
         delivered at such office a certificate or certificates for the number
         of shares of Common Stock of the corporation issuable upon such
         conversion.

                  b. The conversion price shall be subject to adjustment from
         time to time as hereinafter provided. Upon each adjustment of the
         conversion price each holder of shares of Series B Stock shall
         thereafter be entitled to receive the number of shares of Common Stock
         of the corporation obtained by multiplying the conversion price in
         effect immediately prior to such adjustment by the number of shares
         issuable pursuant to conversion immediately prior to such adjustment
         and dividing the product thereof by the conversion price resulting from
         such adjustment.

                  c. If in the next sale of securities by this corporation after
         the adoption of this Designation, excluding any sale pursuant to
         options, warrants or conversion rights outstanding as of the date of
         adoption of this Designation, the price per share of Common Stock sold
         is less than $1.00, or if the security sold is not Common Stock but is
         convertible into or exercisable to purchase Common Stock at a



         conversion or exercise price of less than $1.00 per share, then the
         conversion price shall be reduced to an amount equal to the price per
         share at which such security is sold, convertible or exercisable.

         No adjustment of the conversion price of the Series B Stock, however,
shall be made in an amount less than 2% of such conversion price in effect on
the date of such adjustment, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which, together with any such adjustment so carried forward, shall be
an amount equal to or greater than 4% of the conversion price of the Series B
Stock then in effect.

         The holders of at least a majority of the Series B Stock then
outstanding may elect to waive the application of the provisions of this
paragraph 5 with respect to any issue or sale by the corporation of shares of
its Common Stock for a consideration per share less than the conversion price of
the Series B Stock in effect immediately prior to the time of such issue or
sale.

         For the purposes of this paragraph 5, the following provisions (i) to
(v), inclusive, shall also be applicable:

                  (i) In the event the corporation shall grant (whether directly
         or by assumption in a merger or otherwise) any rights to subscribe for
         or to purchase, or any options for the purchase of, (a) Common Stock or
         (b) any obligations or any shares of stock of the corporation which are
         convertible into, or exchangeable for, Common Stock (any of such
         obligations or shares of stock being hereinafter called "Convertible
         Securities") whether or not such rights or options or the right to
         convert or exchange any such Convertible Securities are immediately
         exercisable, and the price per share for which Common Stock is issuable
         upon the exercise of such rights or options or upon conversion or
         exchange of such Convertible Securities (determined by dividing (x) the
         total amount, if any, received or receivable by the corporation as
         consideration for the granting of such rights or options, plus the
         minimum aggregate amount of additional consideration payable to the
         corporation upon the exercise of such rights or options, plus, in the
         case of such rights or options which relate to Convertible Securities,
         the minimum aggregate amount of additional consideration, if any,
         payable upon the issue of such Convertible Securities and upon the
         conversion or exchange thereof, by (y) the total maximum number of
         shares of Common Stock issuable upon the exercise of such rights or
         options or upon the conversion or exchange of all such Convertible
         Securities issuable upon the exercise of such rights or options) shall
         be less than the conversion price of the Series B Stock in effect
         immediately prior to the time of the granting of such rights or
         options, then the total maximum number of shares of Common Stock
         issuable upon the exercise of such rights or options or upon conversion
         or exchange of the total maximum amount of such Convertible Securities
         issuable upon the exercise of such rights or options shall (as of the
         date of granting of such rights or options) be deemed to have been
         issued for such price per share. Except as provided in subparagraph (d)
         below, no further adjustments of the conversion price of the Series B
         Stock shall be made upon the actual issue of such Common Stock or of
         such Convertible Securities upon exercise of such rights or options or
         upon the actual issue of such Common Stock upon conversion or exchange
         of such Convertible Securities.




                  (ii) In case the corporation shall issue or sell (whether
         directly or by assumption in a merger or otherwise) any Convertible
         Securities, whether or not the rights to exchange or convert thereunder
         are immediately exercisable, and the price per share for which Common
         Stock is issuable upon such conversion or exchange (determined by
         dividing (x) the total amount received or receivable by the corporation
         as consideration for the issue or sale of such Convertible Securities,
         plus the minimum aggregate amount of additional consideration, if any,
         payable to the corporation upon the conversion or exchange thereof, by
         (y) the total maximum number of shares of Common Stock issuable upon
         the conversion or exchange of all such Convertible Securities) shall be
         less than the conversion price of the Series B Stock in effect
         immediately prior to the time of such issue or at the time of such
         issue or sale, then the total maximum number of shares of Common Stock
         issuable upon conversion or exchange of all such Convertible Securities
         shall (as of the date of the issue or sale of such Convertible
         Securities) be deemed to be outstanding and to have been issued for
         such price per share, provided that (a) except as provided in
         subparagraph d below, no further adjustments of the conversion price
         shall be made upon the actual issue of such Common Stock upon
         conversion or exchange of such Convertible Securities, and (b) if any
         such issue or sale of such Convertible Securities is made upon exercise
         of any rights to subscribe for or to purchase or any option to purchase
         any such Convertible Securities for which adjustments of the conversion
         price of the Series B Stock have been or are to be made pursuant to
         other provisions of this paragraph 5, no further adjustment of the
         conversion price shall be made by reason of such issue or sale.

                  (iii) In case any shares of Common Stock or Convertible
         Securities or any rights or options to purchase any such Common Stock
         or Convertible Securities shall be issued or sold for cash, the
         consideration received therefor shall be deemed to be the amount
         received by the corporation therefor, without deducting therefrom any
         expenses incurred or any underwriting commissions, discounts or
         concessions paid or allowed by the corporation in connection therewith.
         In case any shares of Common Stock or Convertible Securities or any
         rights or options to purchase any such Common Stock or Convertible
         Securities shall be issued or sold for a consideration other than cash,
         the amount of the consideration other than cash received by the
         corporation shall be deemed to be the fair value of such consideration
         as determined by the Board of Directors of the corporation, without
         deducting therefrom any expenses incurred or any underwriting
         commissions, discounts or concessions paid or allowed by the
         corporation in connection therewith. In case any shares of Common Stock
         or Convertible Securities or any rights or options to purchase such
         Common Stock or Convertible Securities shall be issued in connection
         with any merger or consolidation in which the corporation is the
         surviving corporation, the amount of consideration therefor shall be
         deemed to be the fair value as determined by the Board of Directors of
         the corporation of such portion of the assets and business of the
         non-surviving corporation or corporations as such Board shall determine
         to be attributable to such Common Stock, Convertible Securities, rights
         or options, as the case may be. In the event of any consolidation or
         merger of the corporation in which the corporation is not the surviving
         corporation or in the event of any sale of all or substantially all of
         the assets of the corporation for stock or other securities of any
         other corporation, the corporation shall be deemed to have issued a
         number of shares of its Common Stock for stock or securities of the
         other corporation computed on the basis of the actual exchange ratio on
         which the transaction was predicated and for a consideration equal to
         the fair market value on the date of such transaction of such stock or



         securities of the other corporation, and if any such calculation
         results in adjustment of the conversion price of the Series B Stock,
         the determination of the number of shares of Common Stock issuable upon
         conversion immediately prior to such merger, conversion or sale, for
         purposes of subparagraph d below, shall be made after giving effect to
         such adjustment of the conversion price.

                  (iv) In case the corporation shall take a record of the
         holders of its Common Stock for the purpose of entitling them (a) to
         receive a dividend or other distribution payable in Common Stock or in
         Convertible Securities, or in any rights or options to purchase any
         Common Stock or Convertible Securities, or (b) to subscribe for or
         purchase Common Stock or Convertible Securities, then such record date
         shall be deemed to be the date of the issue or sale of the shares of
         Common Stock deemed to have been issued or sold upon the declaration of
         such dividend or the making of such other distribution or the date of
         the granting of such rights of subscription or purchase, as the case
         may be.

                  b. In case the corporation shall (i) declare a dividend upon
         the Common Stock payable in Common Stock (other than a dividend
         declared to effect a subdivision of the outstanding shares of Common
         Stock, as described in subparagraph e below) or Convertible Securities,
         or in any rights or options to purchase Common Stock or Convertible
         Securities, or (ii) declare any other dividend or make any other
         distribution upon the Common Stock payable otherwise than out of
         earnings or earned surplus, then thereafter each holder of shares of
         Series B Stock upon the conversion thereof will be entitled to receive
         the number of shares of Common Stock into which such shares of Series B
         Stock have been converted, and, in addition and without payment
         therefor, each dividend described in clause (i) above and each dividend
         or distribution described in clause (ii) above which such holder would
         have received by way of dividends or distributions if continuously held
         since such holder became the record holder of such shares of Series B
         Stock such holder (i) had been the record holder of the number of
         shares of Common Stock then received, and (ii) had retained all
         dividends or distributions in stock or securities (including Common
         Stock or Convertible Securities, and any rights or options to purchase
         any Common Stock or Convertible Securities) payable in respect of such
         Common Stock or in respect of any stock or securities paid as dividends
         or distributions and originating directly or indirectly from such
         Common Stock. For the purposes of the foregoing, a dividend or
         distribution other than in cash shall be considered payable out of
         earnings or earned surplus only to the extent that such earnings or
         earned surplus are charged an amount equal to the fair value of such
         dividend or distribution as determined by the Board of Directors of the
         corporation.

                  c. In case the corporation shall at any time split or
         subdivide its outstanding shares of Common Stock into a greater number
         of shares, the conversion price of Series B Stock in effect immediately
         prior to such subdivision shall be proportionately reduced, and
         conversely, in case the outstanding shares of Common Stock of the
         corporation shall be combined into a smaller number of shares, the
         conversion price of Series B Stock in effect immediately prior to such
         combination shall be proportionately increased.




                  d. If (i) the purchase price provided for in any right or
         option referred to in clause (i) of subparagraph a, or (ii) the
         additional consideration, if any, payable upon the conversion or
         exchange of Convertible Securities referred to in clause (i) or clause
         (ii) of subparagraph a, or (iii) the rate at which any Convertible
         Securities referred to in clause (i) or clause (ii) of subparagraph a
         are convertible into or exchangeable for Common Stock, shall change at
         any time (other than under or by reason of provisions designed to
         protect against dilution), the conversion price of the Series B Stock
         then in effect hereunder shall forthwith be increased or decreased to
         such conversion price as would have obtained had the adjustments made
         upon the issuance of such rights, options or Convertible Securities
         been made upon the basis of (a) the issuance of the number of shares of
         Common Stock theretofore actually delivered upon the exercise of such
         options or rights or upon the conversion or exchange of such
         Convertible Securities, and the total consideration received therefor,
         and (b) the issuance at the time of such change of any such options,
         rights, or Convertible Securities then still outstanding for the
         consideration, if any, received by the corporation therefor and to be
         received on the basis of such changed price; and on the expiration of
         any such option or right or the termination of any such right to
         convert or exchange such Convertible Securities, the conversion price
         of the Series B Stock then in effect hereunder shall forthwith be
         increased to such conversion price as would have obtained had the
         adjustments made upon the issuance of such rights or options or
         Convertible Securities been made upon the basis of the issuance of the
         shares of Common Stock theretofore actually delivered (and the total
         consideration received therefor) upon the exercise of such rights or
         options or upon the conversion or exchange of such Convertible
         Securities. If the purchase price provided for in any right or option
         referred to in clause (i) of subparagraph a, or the rate at which any
         Convertible Securities referred to in clause (i) or clause (ii) of
         subparagraph a are convertible into or exchangeable for Common Stock,
         shall decrease at any time under or by reason of provisions with
         respect thereto designed to protect against dilution, then in case of
         the delivery of Common Stock upon the exercise of any such right or
         option or upon conversion or exchange of any such Convertible Security,
         the conversion price of the Series B Stock then in effect hereunder
         shall forthwith be decreased to such conversion price as would have
         obtained had the adjustments made upon the issuance of such right,
         option or Convertible Security been made upon the basis of the issuance
         of (and the total consideration received for) the shares of Common
         Stock delivered as aforesaid.

                  e. The corporation shall at all times insure and keep
         available out of its authorized but unissued shares of Common Stock,
         for the purpose of effecting the conversion of Series B Stock, the full
         number of shares of Common Stock then deliverable upon the conversion
         of all shares of Series B Stock then outstanding.

                  f. No fractional shares shall be issued upon conversion of the
         Series B Stock, and the number of shares of Common Stock to be issued
         shall be rounded to the nearest whole share (with one-half being
         rounded to the upward). Such conversion shall be determined on the
         basis of the total number of shares of Series B Stock the holder is at
         the time converting into Common Stock and the aggregate number of
         shares of Common Stock issuable upon such conversion.




         6. Mandatory Conversion. The Series B Stock shall automatically be
converted into shares of Common Stock of the corporation, without any act by the
corporation or the holders of the Series B Stock, (i) concurrently with the
closing of an offering of the corporation's equity in which the aggregate
offering price of the securities sold for cash by the corporation in the
offering is at least $5,000,000, or (ii) at such time as at least 50% of the
number of shares of Series B Stock have been converted into Common Stock. As
used herein, the term "closing" shall mean the delivery by the corporation of
certificates representing the securities of the corporation offered against
delivery to the corporation of payment therefor. Any conversion of Series B
Stock occurring on the date of the closing of a financing by the corporation
satisfying the conditions set forth above shall be deemed to be a conversion
pursuant to the terms of this paragraph 6.

         Each holder of a share of Series B Stock converted pursuant to the
preceding paragraph shall be entitled to receive the full number of shares of
Common Stock into which such share of Series B Stock held by such holder could
be converted if such holder had exercised its conversion right at the time of
closing of such financing.

         7. Status of Converted Stock. In the event any shares of Series B Stock
shall be converted by the corporation, the shares so converted shall not be
reissuable by the corporation as Series B Stock but shall be designated
authorized shares of Common Stock and available for issuance by the corporation
as Common Stock. At such time as all outstanding shares of Series B Stock have
been converted, (i) any theretofore authorized but unissued shares of such
series shall return to the status of undesignated shares of the corporation,
(ii) this Statement of Designation shall be deemed amended to eliminate all
authorized Series B Stock and the terms and provisions thereof, and (iii) the
Board of Directors and officers of the corporation are authorized to take such
action and execute and file such instruments as may be necessary or appropriate
to effect such amendment.




                       STATEMENT OF DESIGNATION OF SHARES
                                       OF
                                  QUANTECH LTD.


         I hereby certify that the resolutions set forth on Exhibit A hereto
were adopted by written action of the Board of Directors of Quantech Ltd. on
January 4, 2000.

         I certify that I am authorized to execute this Statement and I further
certify that I understand that by signing this Statement I am subject to the
penalties of perjury as set forth in Section 609.48 as if I had signed this
Statement under oath.




                                     /s/ Gregory G. Freitag
                                     Gregory G. Freitag, Chief Operating Officer






                     Designation of Series B Preferred Stock

         WHEREAS, the corporation's current authorized capitalization consists
of 51,005,919 authorized shares of Common Stock, 2,407,414 authorized shares of
Series A Preferred Stock, 2,086,667 authorized shares of Series B Preferred
Stock and 19,500,000 authorized but undesignated shares; and

         WHEREAS, the corporation desires to sell additional shares of Series B
Preferred Stock and holders of 913,333 shares of Series B Preferred Stock have
converted their shares into shares of Common Stock ("Converted Shares");

         WHEREAS, the Converted Shares of Series B Preferred Stock are
designated shares of Common Stock by operation of the terms of the Series B
Preferred Stock;

         WHEREAS, the directors deem it advisable to redesignate the Converted
Shares as shares of Series B Preferred Stock by designating 913,333 shares of
undesignated stock as Series B Preferred Stock;

         NOW, THEREFORE, RESOLVED, that the President or Chief Operating Officer
be and hereby is authorized and directed to file all necessary documentation
with the Secretary of State to effect such designation.





                       STATEMENT OF DESIGNATION OF SHARES
                                       OF
                                  QUANTECH LTD.



         I hereby certify that the resolutions set forth on Exhibit A attached
hereto were adopted by written action of the Board of Directors of QUANTECH LTD.
on February 5, 2000.

         I certify that I am authorized to execute this Statement and I further
certify that I understand that by signing this Statement I am subject to the
penalties of perjury as set forth in Section 609.48 as if I had signed this
Statement under oath.




                                     /s/ Gregory G. Freitag
                                     Gregory G. Freitag, Chief Operating Officer






                            STATEMENT OF DESIGNATION
                                       OF
                      SERIES C CONVERTIBLE PREFERRED STOCK

         WHEREAS, the corporation's current authorized capitalization consists
of 51,138,230 authorized shares of Common Stock, 2,275,103 authorized shares of
Series A Preferred Stock, 2,999,667 shares of Series B Preferred Stock and
18,587,000 authorized but undesignated shares; and

         WHEREAS, the Board of Directors deems it advisable to establish an
additional class of shares from the 18,587,000 authorized but undesignated
shares;

         NOW, THEREFORE, RESOLVED, that of the 18,587,000 undesignated shares
which the corporation is authorized to issue under its Articles of
Incorporation, 1,000,000 are hereby designated as shares of Series C Convertible
Preferred Stock (the "Series C Stock"), with a par value of $0.01 per share
solely for purposes of a statute or regulation imposing a tax or fee based upon
the capitalization of the corporation.

         FURTHER RESOLVED, that the rights and preferences of the Series C Stock
shall be as follows:

         1. Dividends. In the event that the corporation declares and pays any
dividends in cash with respect to Common Stock, the holder of a share of Series
C Stock will be entitled to receive a dividend per share equal to the dividend
that would have been otherwise payable with respect to such share if it had been
converted into shares of Common Stock prior to the record date of such dividend.

         2. Voting. Each outstanding share of Series C Stock shall entitle its
holder to that number of votes on all matters submitted to the stockholders that
is equal to the number of shares of Common Stock into which such holder's shares
of Series C Stock are then convertible, as hereinafter provided (except that
shares of Series C Stock shall have class voting rights as provided in paragraph
3 below and as otherwise now or hereafter required by agreement or law).

         3. Additional Class Votes by Series C Stock. Without the affirmative
vote or written consent of the holders (acting together as a class) of at least
a majority of the shares of Series C Stock at the time outstanding, the
corporation shall not:

                  a. amend the Articles of Incorporation of the corporation in
         any respect, including without limitation any certificate or
         designation relating to the Series C Stock, so as to alter any existing
         provision relating to Series C Stock or the holders thereof or waive
         any of the rights granted to the holders of the Series C Stock by the
         Articles of Incorporation of the corporation; or

                  b. increase the authorized number of shares of Series C Stock;
         or




                  c. authorize or issue any shares of capital stock having
         priority or preference over, or on parity with, Series C Stock as to
         dividends or distributions in the event of the liquidation, dissolution
         or winding up of the corporation, provided that such prohibition shall
         not prevent the corporation from issuing any shares which may receive
         distributions in such events on a pari passu basis prorated, in the
         event assets are insufficient to pay the original purchase price of all
         such securities, to the original purchase price of each; or

                  d. declare or pay any dividend or make any other distribution
         on any shares of capital stock of the corporation at any time created
         and issued ranking junior to Series C Stock with respect to the rights
         to the distribution of assets upon liquidation, dissolution or winding
         up of the corporation, other than distributions payable solely in
         shares of junior stock.

         4.       Liquidation.

                  a. In the event of the liquidation, dissolution or winding up
         of the corporation, whether voluntary or involuntary, the holders of
         the shares of Series C Stock shall be entitled, after the payment of
         the preferential amount required to be paid to the Series A and Series
         B Preferred Stock, including the participation right of certain
         lenders/guarantors as provided in subparagraph (d) of the Designation
         of Series A Preferred Stock of this corporation, to receive in cash,
         out of the assets of the corporation, before any payment shall be made
         or any assets distributed to the holders of Common Stock with respect
         to the payment of dividends or upon dissolution or liquidation of the
         corporation, an amount equal to the sum of (i) $1.00 per share
         ("Original Purchase Price") (appropriately adjusted to reflect stock
         splits, stock dividends, reorganizations, consolidations and similar
         changes hereafter effected), and (ii) all dividends unpaid and
         accumulated or accrued thereon to the date of such distribution, if
         any. If, upon any liquidation or dissolution of this corporation, the
         assets of the corporation shall be insufficient to pay such amount, the
         holders of such shares shall share pro rata in any such distribution in
         proportion to the full amounts to which they would otherwise be
         respectively entitled.

                  b. After the payment of all preferential amounts required to
         be paid pursuant to subparagraph a above, any remaining assets and
         funds of the corporation available for distribution to its stockholders
         upon the liquidation, dissolution or winding up of the corporation
         shall be distributed ratably among the holders of Common Stock.

                  c. The merger or consolidation of the corporation into or with
         another corporation which results in the exchange of outstanding shares
         of the corporation for securities or other consideration issued or paid
         or caused to be issued or paid by such other corporation or an
         affiliate thereof (except if such merger or consolidation does not
         result in the transfer of more than 60% of the voting securities of the
         corporation), change in control of more than 60% of the voting
         securities of the corporation or the sale of all or substantially all
         the assets of the corporation, shall be deemed to be a liquidation,
         dissolution or winding up of the corporation for purposes of this



         paragraph, unless the holders of a majority of the Series C Stock then
         outstanding vote otherwise. The amount deemed distributed to the
         holders of Series C Stock upon any such merger or consolidation shall
         be the cash or the value of the property, rights and/or securities
         distributed to such holders by the acquiring person, firm or other
         entity. The value of such property, rights or other securities shall be
         determined in good faith by the Board of Directors of the corporation.

         5. Conversion Right. At the option of the holders thereof, the shares
of Series C Stock shall be convertible, at the office of the corporation (or at
such other office or offices, if any, as the Board of Directors may designate),
into fully paid and nonassessable shares (calculated as to each conversion to
the nearest 1/100th of a share) of Common Stock of the corporation, at the
conversion price, determined as hereinafter provided, in effect at the time of
conversion. The price at which shares of Common Stock shall be delivered upon
conversion of shares of Series C Stock (herein called the "conversion price")
shall be initially $1.00 per share of Common Stock (i.e., at an initial
conversion rate of one share of Common Stock for each share of Series C Stock),
provided, however, that such initial conversion price shall be subject to
adjustment from time to time in certain instances as hereinafter provided. The
following provisions shall govern such right of conversion:

                  a. In order to convert shares of Series C Stock into shares of
         Common Stock of the corporation, the holder thereof shall surrender at
         any office hereinabove mentioned the certificate or certificates
         therefor, duly endorsed to the corporation or in blank, and give
         written notice to the corporation at such office that such holder
         elects to convert such shares. Shares of Series C Stock shall be deemed
         to have been converted immediately prior to the close of business on
         the day of the surrender of such shares for conversion as herein
         provided, and the person entitled to receive the shares of Common Stock
         of the corporation issuable upon such conversion shall be treated for
         all purposes as the record holder of such shares of Common Stock at
         such time. As promptly as practicable on or after the conversion date,
         the corporation shall issue and deliver or cause to be issued and
         delivered at such office a certificate or certificates for the number
         of shares of Common Stock of the corporation issuable upon such
         conversion.

                  b. The conversion price shall be subject to adjustment from
         time to time as hereinafter provided. Upon each adjustment of the
         conversion price each holder of shares of Series C Stock shall
         thereafter be entitled to receive the number of shares of Common Stock
         of the corporation obtained by multiplying the conversion price in
         effect immediately prior to such adjustment by the number of shares
         issuable pursuant to conversion immediately prior to such adjustment
         and dividing the product thereof by the conversion price resulting from
         such adjustment.

                  c. If a sale of securities by this corporation within twelve
         (12) months after the adoption of this Designation, excluding any sale
         pursuant to options, warrants or conversion rights outstanding as of
         the date of adoption of this Designation, occurs and is Common Stock at
         a price per share less than $1.00, or if the security sold is not
         Common Stock but is convertible into or exercisable to purchase Common
         Stock at a conversion or exercise price of less than $1.00 per share,



         then the conversion price shall be reduced to an amount equal to the
         price per share at which such security is sold, convertible or
         exercisable.

         No adjustment of the conversion price of the Series C Stock, however,
shall be made in an amount less than 2% of such conversion price in effect on
the date of such adjustment, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which, together with any such adjustment so carried forward, shall be
an amount equal to or greater than 4% of the conversion price of the Series C
Stock then in effect.

         The holders of at least a majority of the Series C Stock then
outstanding may elect to waive the application of the provisions of this
paragraph 5 with respect to any issue or sale by the corporation of shares of
its Common Stock for a consideration per share less than the conversion price of
the Series C Stock in effect immediately prior to the time of such issue or
sale.

         For the purposes of this paragraph 5, the following provisions (1) to
(v), inclusive, shall also be applicable:

                  (i) In the event the corporation shall grant (whether directly
         or by assumption in a merger or otherwise) any rights to subscribe for
         or to purchase, or any options for the purchase of, (a) Common Stock or
         (b) any obligations or any shares of stock of the corporation which are
         convertible into, or exchangeable for, Common Stock (any of such
         obligations or shares of stock being hereinafter called "Convertible
         Securities") whether or not such rights or options or the right to
         convert or exchange any such Convertible Securities are immediately
         exercisable, and the price per share for which Common Stock is issuable
         upon the exercise of such rights or options or upon conversion or
         exchange of such Convertible Securities (determined by dividing (x) the
         total amount, if any, received or receivable by the corporation as
         consideration for the granting of such rights or options, plus the
         minimum aggregate amount of additional consideration payable to the
         corporation upon the exercise of such rights or options, plus, in the
         case of such rights or options which relate to Convertible Securities,
         the minimum aggregate amount of additional consideration, if any,
         payable upon the issue of such Convertible Securities and upon the
         conversion or exchange thereof, by (y) the total maximum number of
         shares of Common Stock issuable upon the exercise of such rights or
         options or upon the conversion or exchange of all such Convertible
         Securities issuable upon the exercise of such rights or options) shall
         be less than the conversion price of the Series C Stock in effect
         immediately prior to the time of the granting of such rights or
         options, then the total maximum number of shares of Common Stock
         issuable upon the exercise of such rights or options or upon conversion
         or exchange of the total maximum amount of such Convertible Securities
         issuable upon the exercise of such rights or options shall (as of the
         date of granting of such rights or options) be deemed to have been
         issued for such price per share. Except as provided in subparagraph (d)
         below, no further adjustments of the conversion price of the Series C
         Stock shall be made upon the actual issue of such Common Stock or of
         such Convertible Securities upon exercise of such rights or options or
         upon the actual issue of such Common Stock upon conversion or exchange
         of such Convertible Securities.




                  (ii) In case the corporation shall issue or sell (whether
         directly or by assumption in a merger or otherwise) any Convertible
         Securities, whether or not the rights to exchange or convert thereunder
         are immediately exercisable, and the price per share for which Common
         Stock is issuable upon such conversion or exchange (determined by
         dividing (x) the total amount received or receivable by the corporation
         as consideration for the issue or sale of such Convertible Securities,
         plus the minimum aggregate amount of additional consideration, if any,
         payable to the corporation upon the conversion or exchange thereof, by
         (y) the total maximum number of shares of Common Stock issuable upon
         the conversion or exchange of all such Convertible Securities) shall be
         less than the conversion price of the Series C Stock in effect
         immediately prior to the time of such issue or at the time of such
         issue or sale, then the total maximum number of shares of Common Stock
         issuable upon conversion or exchange of all such Convertible Securities
         shall (as of the date of the issue or sale of such Convertible
         Securities) be deemed to be outstanding and to have been issued for
         such price per share, provided that (a) except as provided in
         subparagraph d below, no further adjustments of the conversion price
         shall be made upon the actual issue of such Common Stock upon
         conversion or exchange of such Convertible Securities, and (b) if any
         such issue or sale of such Convertible Securities is made upon exercise
         of any rights to subscribe for or to purchase or any option to purchase
         any such Convertible Securities for which adjustments of the conversion
         price of the Series C Stock have been or are to be made pursuant to
         other provisions of this paragraph 5, no further adjustment of the
         conversion price shall be made by reason of such issue or sale.

                  (iii) In case any shares of Common Stock or Convertible
         Securities or any rights or options to purchase any such Common Stock
         or Convertible Securities shall be issued or sold for cash, the
         consideration received therefor shall be deemed to be the amount
         received by the corporation therefor, without deducting therefrom any
         expenses incurred or any underwriting commissions, discounts or
         concessions paid or allowed by the corporation in connection therewith.
         In case any shares of Common Stock or Convertible Securities or any
         rights or options to purchase any such Common Stock or Convertible
         Securities shall be issued or sold for a consideration other than cash,
         the amount of the consideration other than cash received by the
         corporation shall be deemed to be the fair value of such consideration
         as determined by the Board of Directors of the corporation, without
         deducting therefrom any expenses incurred or any underwriting
         commissions, discounts or concessions paid or allowed by the
         corporation in connection therewith. In case any shares of Common Stock
         or Convertible Securities or any rights or options to purchase such
         Common Stock or Convertible Securities shall be issued in connection
         with any merger or consolidation in which the corporation is the
         surviving corporation, the amount of consideration therefor shall be
         deemed to be the fair value as determined by the Board of Directors of
         the corporation of such portion of the assets and business of the
         non-surviving corporation or corporations as such Board shall determine
         to be attributable to such Common Stock, Convertible Securities, rights
         or options, as the case may be. In the event of any consolidation or
         merger of the corporation in which the corporation is not the surviving
         corporation or in the event of any sale of all or substantially all of
         the assets of the corporation for stock or other securities of any
         other corporation, the corporation shall be deemed to have issued a



         number of shares of its Common Stock for stock or securities of the
         other corporation computed on the basis of the actual exchange ratio on
         which the transaction was predicated and for a consideration equal to
         the fair market value on the date of such transaction of such stock or
         securities of the other corporation, and if any such calculation
         results in adjustment of the conversion price of the Series C Stock,
         the determination of the number of shares of Common Stock issuable upon
         conversion immediately prior to such merger, conversion or sale, for
         purposes of subparagraph d below, shall be made after giving effect to
         such adjustment of the conversion price.

                  (iv) In case the corporation shall take a record of the
         holders of its Common Stock for the purpose of entitling them (a) to
         receive a dividend or other distribution payable in Common Stock or in
         Convertible Securities, or in any rights or options to purchase any
         Common Stock or Convertible Securities, or (b) to subscribe for or
         purchase Common Stock or Convertible Securities, then such record date
         shall be deemed to be the date of the issue or sale of the shares of
         Common Stock deemed to have been issued or sold upon the declaration of
         such dividend or the making of such other distribution or the date of
         the granting of such rights of subscription or purchase, as the case
         may be.

                  b. In case the corporation shall (1) declare a dividend upon
         the Common Stock payable in Common Stock (other than a dividend
         declared to effect a subdivision of the outstanding shares of Common
         Stock, as described in subparagraph e below) or Convertible Securities,
         or in any rights or options to purchase Common Stock or Convertible
         Securities, or (ii) declare any other dividend or make any other
         distribution upon the Common Stock payable otherwise than out of
         earnings or earned surplus, then thereafter each holder of shares of
         Series C Stock upon the conversion thereof will be entitled to receive
         the number of shares of Common Stock into which such shares of Series C
         Stock have been converted, and, in addition and without payment
         therefor, each dividend described in clause (i) above and each dividend
         or distribution described in clause (ii) above which such holder would
         have received by way of dividends or distributions if continuously held
         since such holder became the record holder of such shares of Series C
         Stock such holder (i) had been the record holder of the number of
         shares of Common Stock then received, and (ii) had retained all
         dividends or distributions in stock or securities (including Common
         Stock or Convertible Securities, and any rights or options to purchase
         any Common Stock or Convertible Securities) payable in respect of such
         Common Stock or in respect of any stock or securities paid as dividends
         or distributions and originating directly or indirectly from such
         Common Stock. For the purposes of the foregoing, a dividend or
         distribution other than in cash shall be considered payable out of
         earnings or earned surplus only to the extent that such earnings or
         earned surplus are charged an amount equal to the fair value of such
         dividend or distribution as determined by the Board of Directors of the
         corporation.

                  c. In case the corporation shall at any time split or
         subdivide its outstanding shares of Common Stock into a greater number
         of shares, the conversion price of Series C Stock in effect immediately
         prior to such subdivision shall be proportionately reduced, and



         conversely, in case the outstanding shares of Common Stock of the
         corporation shall be combined into a smaller number of shares, the
         conversion price of Series C Stock in effect immediately prior to such
         combination shall be proportionately increased.

                  d. If (i) the purchase price provided for in any right or
         option referred to in clause (i) of subparagraph a, or (ii) the
         additional consideration, if any, payable upon the conversion or
         exchange of Convertible Securities referred to in clause (i) or clause
         (ii) of subparagraph a, or (iii) the rate at which any Convertible
         Securities referred to in clause (i) or clause (ii) of subparagraph a
         are convertible into or exchangeable for Common Stock, shall change at
         any time (other than under or by reason of provisions designed to
         protect against dilution), the conversion price of the Series C Stock
         then in effect hereunder shall forthwith be increased or decreased to
         such conversion price as would have obtained had the adjustments made
         upon the issuance of such rights, options or Convertible Securities
         been made upon the basis of (a) the issuance of the number of shares of
         Common Stock theretofore actually delivered upon the exercise of such
         options or rights or upon the conversion or exchange of such
         Convertible Securities, and the total consideration received therefor,
         and (b) the issuance at the time of such change of any such options,
         rights, or Convertible Securities then still outstanding for the
         consideration, if any, received by the corporation therefor and to be
         received on the basis of such changed price; and on the expiration of
         any such option or right or the termination of any such right to
         convert or exchange such Convertible Securities, the conversion price
         of the Series C Stock then in effect hereunder shall forthwith be
         increased to such conversion price as would have obtained had the
         adjustments made upon the issuance of such rights or options or
         Convertible Securities been made upon the basis of the issuance of the
         shares of Common Stock theretofore actually delivered (and the total
         consideration received therefor) upon the exercise of such rights or
         options or upon the conversion or exchange of such Convertible
         Securities. If the purchase price provided for in any night or option
         referred to in clause (i) of subparagraph a, or the rate at which any
         Convertible Securities referred to in clause (i) or clause (ii) of
         subparagraph a are convertible into or exchangeable for Common Stock,
         shall decrease at any time under or by reason of provisions with
         respect thereto designed to protect against dilution, then in case of
         the delivery of Common Stock upon the exercise of any such right or
         option or upon conversion or exchange of any such Convertible Security,
         the conversion price of the Series C Stock then in effect hereunder
         shall forthwith be decreased to such conversion price as would have
         obtained had the adjustments made upon the issuance of such right,
         option or Convertible Security been made upon the basis of the issuance
         of (and the total consideration received for) the shares of Common
         Stock delivered as aforesaid.

                  e. The corporation shall at all times insure and keep
         available out of its authorized but unissued shares of Common Stock,
         for the purpose of effecting the conversion of Series C Stock, the full
         number of shares of Common Stock then deliverable upon the conversion
         of all shares of Series C Stock then outstanding.

                  f. No fractional shares shall be issued upon conversion of the
         Series C Stock, and the number of shares of Common Stock to be issued
         shall be rounded to the nearest whole share (with one-half being
         rounded to the upward). Such conversion shall be determined on the



         basis of the total number of shares of Series C Stock the holder is at
         the time converting into Common Stock and the aggregate number of
         shares of Common Stock issuable upon such conversion.

         6. Mandatory Conversion. The Series C Stock shall automatically be
converted into shares of Common Stock of the corporation, without any act by the
corporation or the holders of the Series C Stock, (i) concurrently with the
closing of an offering of the corporation's equity in which the aggregate
offering price of the securities sold for cash by the corporation in the
offering is at least $5,000,000, or (ii) at such time as at least 50% of the
number of shares of Series C Stock have been converted into Common Stock. As
used herein, the term "closing" shall mean the delivery by the corporation of
certificates representing the securities of the corporation offered against
delivery to the corporation of payment therefor. Any conversion of Series C
Stock occurring on the date of the closing of a financing by the corporation
satisfying the conditions set forth above shall be deemed to be a conversion
pursuant to the terms of this paragraph 6.

         Each holder of a share of Series C Stock converted pursuant to the
preceding paragraph shall be entitled to receive the full number of shares of
Common Stock into which such share of Series C Stock held by such holder could
be converted if such holder had exercised its conversion right at the time of
closing of such financing.

         7. Status of Converted Stock. In the event any shares of Series C Stock
shall be converted by the corporation, the shares so converted shall not be
reissuable by the corporation as Series C Stock but shall be designated
authorized shares of Common Stock and available for issuance by the corporation
as Common Stock. At such time as all outstanding shares of Series C Stock have
been converted, (i) any theretofore authorized but unissued shares of such
series shall return to the status of undesignated shares of the corporation,
(ii) this Statement of Designation shall be deemed amended to eliminate all
authorized Series C Stock and the terms and provisions thereof, and (iii) the
Board of Directors and officers of the corporation are authorized to take such
action and execute and file such instruments as may be necessary or appropriate
to effect such amendment.






                       STATEMENT OF DESIGNATION OF SHARES
                                       OF
                                  QUANTECH LTD.



         I hereby certify that the resolutions set forth on Exhibit A attached
hereto were adopted by written action of the Board of Directors of QUANTECH LTD.
on June 20, 2000.

         I certify that I am authorized to execute this Statement and I further
certify that I understand that by signing this Statement I am subject to the
penalties of perjury as set forth in Section 609.48 as if I had signed this
Statement under oath.




                                    /s/ Gregory G. Freitag
                                    Gregory G. Freitag, Chief Operating Officer







                            STATEMENT OF DESIGNATION
                                       Of
                      Series D Convertible Preferred Stock

         WHEREAS, the corporation's current authorized capitalization consists
of 51,528,034 authorized shares of Common Stock, 2,140,299 authorized shares of
Series A Preferred Stock, 2,744,667 shares of Series B Preferred Stock,
1,000,000 shares of Series C Preferred Stock and 17,587,000 authorized but
undesignated shares; and

         WHEREAS, the Board of Directors deems it advisable to establish an
additional class of shares from the 17,587,000 authorized but undesignated
shares;

         NOW, THEREFORE, RESOLVED, that of the 17,587,000 undesignated shares
which the corporation is authorized to issue under its Articles of
Incorporation, 2,500,000 are hereby designated as shares of Series D Convertible
Preferred Stock (the "Series D Stock"), with a par value of $0.01 per share
solely for purposes of a statute or regulation imposing a tax or fee based upon
the capitalization of the corporation.

         FURTHER RESOLVED, that the rights and preferences of the Series D Stock
shall be as follows:

         1. Dividends. In the event that the corporation declares and pays any
dividends in cash with respect to Common Stock, the holder of a share of Series
D Stock will be entitled to receive a dividend per share equal to the dividend
that would have been otherwise payable with respect to such share if it had been
converted into shares of Common Stock prior to the record date of such dividend.

         2. Voting. Each outstanding share of Series D Stock shall entitle its
holder to that number of votes on all matters submitted to the stockholders that
is equal to the number of shares of Common Stock into which such holder's shares
of Series D Stock are then convertible, as hereinafter provided (except that
shares of Series D Stock shall have class voting rights as provided in paragraph
3 below and as otherwise now or hereafter required by agreement or law).

         3. Additional Class Votes by Series D Stock. Without the affirmative
vote or written consent of the holders (acting together as a class) of at least
a majority of the shares of Series D Stock at the time outstanding, the
corporation shall not:

                  a. amend the Articles of Incorporation of the corporation in
         any respect, including without limitation any certificate or
         designation relating to the Series D Stock, so as to alter any existing
         provision relating to Series D Stock or the holders thereof or waive
         any of the rights granted to the holders of the Series D Stock by the
         Articles of Incorporation of the corporation; or



                  b. increase the authorized number of shares of Series D Stock;
         or

                  c. authorize or issue any shares of capital stock having
         priority or preference over, or on parity with, Series D Stock as to
         dividends or distributions in the event of the liquidation, dissolution
         or winding up of the corporation, provided that such prohibition shall
         not prevent the corporation from issuing any shares which may receive
         distributions in such events on a pari passu basis prorated, in the
         event assets are insufficient to pay the original purchase price of all
         such securities, to the original purchase price of each; or

                  d. declare or pay any dividend or make any other distribution
         on any shares of capital stock of the corporation at any time created
         and issued ranking junior to Series D Stock with respect to the rights
         to the distribution of assets upon liquidation, dissolution or winding
         up of the corporation, other than distributions payable solely in
         shares of junior stock.

         4.       Liquidation.

                  a. In the event of the liquidation, dissolution or winding up
         of the corporation, whether voluntary or involuntary, the holders of
         the shares of Series D Stock shall be entitled, after the payment of
         the preferential amount required to be paid to the Series A, Series B
         and Series C Preferred Stock, including the participation right of
         certain lenders/guarantors as provided in subparagraph (d) of the
         Designation of Series A Preferred Stock of this corporation, to receive
         in cash, out of the assets of the corporation, before any payment shall
         be made or any assets distributed to the holders of Common Stock with
         respect to the payment of dividends or upon dissolution or liquidation
         of the corporation, an amount equal to the sum of (i) $2.50 per share
         ("Original Purchase Price") (appropriately adjusted to reflect stock
         splits, stock dividends, reorganizations, consolidations and similar
         changes hereafter effected), and (ii) all dividends unpaid and
         accumulated or accrued thereon to the date of such distribution, if
         any. If, upon any liquidation or dissolution of this corporation, the
         assets of the corporation shall be insufficient to pay such amount, the
         holders of such shares shall share pro rata in any such distribution in
         proportion to the full amounts to which they would otherwise be
         respectively entitled.

                  b. After the payment of all preferential amounts required to
         be paid pursuant to subparagraph a above, any remaining assets and
         funds of the corporation available for distribution to its stockholders
         upon the liquidation, dissolution or winding up of the corporation
         shall be distributed ratably among the holders of Common Stock.

                  c. The merger or consolidation of the corporation into or with
         another corporation which results in the exchange of outstanding shares
         of the corporation for securities or other consideration issued or paid
         or caused to be issued or paid by such other corporation or an
         affiliate thereof (except if such merger or consolidation does not
         result in the transfer of more than 60% of the voting securities of the
         corporation), change in control of more than 60% of the voting
         securities of the corporation or the sale of all or substantially all



         the assets of the corporation, shall be deemed to be a liquidation,
         dissolution or winding up of the corporation for purposes of this
         paragraph, unless the holders of a majority of the Series D Stock then
         outstanding vote otherwise. The amount deemed distributed to the
         holders of Series D Stock upon any such merger or consolidation shall
         be the cash or the value of the property, rights and/or securities
         distributed to such holders by the acquiring person, firm or other
         entity. The value of such property, rights or other securities shall be
         determined in good faith by the Board of Directors of the corporation.

         5. Conversion Right. At the option of the holders thereof, the shares
of Series D Stock shall be convertible, at the office of the corporation (or at
such other office or offices, if any, as the Board of Directors may designate),
into fully paid and nonassessable shares (calculated as to each conversion to
the nearest 1/100th of a share) of Common Stock of the corporation, at the
conversion price, determined as hereinafter provided, in effect at the time of
conversion. The price at which shares of Common Stock shall be delivered upon
conversion of shares of Series D Stock (herein called the "conversion price")
shall be initially $2.50 per share of Common Stock (i.e., at an initial
conversion rate of one share of Common Stock for each share of Series D Stock),
provided, however, that such initial conversion price shall be subject to
adjustment from time to time in certain instances as hereinafter provided. The
following provisions shall govern such right of conversion:

                  a. In order to convert shares of Series D Stock into shares of
         Common Stock of the corporation, the holder thereof shall surrender at
         any office hereinabove mentioned the certificate or certificates
         therefor, duly endorsed to the corporation or in blank, and give
         written notice to the corporation at such office that such holder
         elects to convert such shares. Shares of Series D Stock shall be deemed
         to have been converted immediately prior to the close of business on
         the day of the surrender of such shares for conversion as herein
         provided, and the person entitled to receive the shares of Common Stock
         of the corporation issuable upon such conversion shall be treated for
         all purposes as the record holder of such shares of Common Stock at
         such time. As promptly as practicable on or after the conversion date,
         the corporation shall issue and deliver or cause to be issued and
         delivered at such office a certificate or certificates for the number
         of shares of Common Stock of the corporation issuable upon such
         conversion.

                  b. The conversion price shall be subject to adjustment from
         time to time as hereinafter provided. Upon each adjustment of the
         conversion price each holder of shares of Series D Stock shall
         thereafter be entitled to receive the number of shares of Common Stock
         of the corporation obtained by multiplying the conversion price in
         effect immediately prior to such adjustment by the number of shares
         issuable pursuant to conversion immediately prior to such adjustment
         and dividing the product thereof by the conversion price resulting from
         such adjustment.

                  c. If a sale of securities by this corporation within twelve
         (12) months after the adoption of this Designation, excluding any sale
         pursuant to options, warrants or conversion rights outstanding as of
         the date of adoption of this Designation or the granting of any options
         or warrants to employees, directors or consultants, occurs and is
         Common Stock at a price per share less than $2.50, or if the security
         sold is not Common Stock but is convertible into or exercisable to



         purchase Common Stock at a conversion or exercise price of less than
         $2.50 per share, then the conversion price shall be reduced to an
         amount equal to the price per share at which such security is sold,
         convertible or exercisable.

         No adjustment of the conversion price of the Series D Stock, however,
shall be made in an amount less than 2% of such conversion price in effect on
the date of such adjustment, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which, together with any such adjustment so carried forward, shall be
an amount equal to or greater than 4% of the conversion price of the Series D
Stock then in effect.

         The holders of at least a majority of the Series D Stock then
outstanding may elect to waive the application of the provisions of this
paragraph 5 with respect to any issue or sale by the corporation of shares of
its Common Stock for a consideration per share less than the conversion price of
the Series D Stock in effect immediately prior to the time of such issue or
sale.

         For the purposes of this paragraph 5, the following provisions (i) to
(v), inclusive, shall also be applicable:

                  (i) In the event the corporation shall grant (whether directly
         or by assumption in a merger or otherwise) any rights to subscribe for
         or to purchase, or any options for the purchase of, (a) Common Stock or
         (b) any obligations or any shares of stock of the corporation which are
         convertible into, or exchangeable for, Common Stock (any of such
         obligations or shares of stock being hereinafter called "Convertible
         Securities") whether or not such rights or options or the right to
         convert or exchange any such Convertible Securities are immediately
         exercisable, and the price per share for which Common Stock is issuable
         upon the exercise of such rights or options or upon conversion or
         exchange of such Convertible Securities (determined by dividing (x) the
         total amount, if any, received or receivable by the corporation as
         consideration for the granting of such rights or options, plus the
         minimum aggregate amount of additional consideration payable to the
         corporation upon the exercise of such rights or options, plus, in the
         case of such rights or options which relate to Convertible Securities,
         the minimum aggregate amount of additional consideration, if any,
         payable upon the issue of such Convertible Securities and upon the
         conversion or exchange thereof, by (y) the total maximum number of
         shares of Common Stock issuable upon the exercise of such rights or
         options or upon the conversion or exchange of all such Convertible
         Securities issuable upon the exercise of such rights or options) shall
         be less than the conversion price of the Series D Stock in effect
         immediately prior to the time of the granting of such rights or
         options, then the total maximum number of shares of Common Stock
         issuable upon the exercise of such rights or options or upon conversion
         or exchange of the total maximum amount of such Convertible Securities
         issuable upon the exercise of such rights or options shall (as of the
         date of granting of such rights or options) be deemed to have been
         issued for such price per share. Except as provided in subparagraph (d)
         below, no further adjustments of the conversion price of the Series D
         Stock shall be made upon the actual issue of such Common Stock or of
         such Convertible Securities upon exercise of such rights or options or
         upon the actual issue of such Common Stock upon conversion or exchange
         of such Convertible Securities.




                  (ii) In case the corporation shall issue or sell (whether
         directly or by assumption in a merger or otherwise) any Convertible
         Securities, whether or not the rights to exchange or convert thereunder
         are immediately exercisable, and the price per share for which Common
         Stock is issuable upon such conversion or exchange (determined by
         dividing (x) the total amount received or receivable by the corporation
         as consideration for the issue or sale of such Convertible Securities,
         plus the minimum aggregate amount of additional consideration, if any,
         payable to the corporation upon the conversion or exchange thereof, by
         (y) the total maximum number of shares of Common Stock issuable upon
         the conversion or exchange of all such Convertible Securities) shall be
         less than the conversion price of the Series D Stock in effect
         immediately prior to the time of such issue or at the time of such
         issue or sale, then the total maximum number of shares of Common Stock
         issuable upon conversion or exchange of all such Convertible Securities
         shall (as of the date of the issue or sale of such Convertible
         Securities) be deemed to be outstanding and to have been issued for
         such price per share, provided that (a) except as provided in
         subparagraph d below, no further adjustments of the conversion price
         shall be made upon the actual issue of such Common Stock upon
         conversion or exchange of such Convertible Securities, and (b) if any
         such issue or sale of such Convertible Securities is made upon exercise
         of any rights to subscribe for or to purchase or any option to purchase
         any such Convertible Securities for which adjustments of the conversion
         price of the Series D Stock have been or are to be made pursuant to
         other provisions of this paragraph 5, no further adjustment of the
         conversion price shall be made by reason of such issue or sale.

                  (iii) In case any shares of Common Stock or Convertible
         Securities or any rights or options to purchase any such Common Stock
         or Convertible Securities shall be issued or sold for cash, the
         consideration received therefor shall be deemed to be the amount
         received by the corporation therefor, without deducting therefrom any
         expenses incurred or any underwriting commissions, discounts or
         concessions paid or allowed by the corporation in connection therewith.
         In case any shares of Common Stock or Convertible Securities or any
         rights or options to purchase any such Common Stock or Convertible
         Securities shall be issued or sold for a consideration other than cash,
         the amount of the consideration other than cash received by the
         corporation shall be deemed to be the fair value of such consideration
         as determined by the Board of Directors of the corporation, without
         deducting therefrom any expenses incurred or any underwriting
         commissions, discounts or concessions paid or allowed by the
         corporation in connection therewith. In case any shares of Common Stock
         or Convertible Securities or any rights or options to purchase such
         Common Stock or Convertible Securities shall be issued in connection
         with any merger or consolidation in which the corporation is the
         surviving corporation, the amount of consideration therefor shall be
         deemed to be the fair value as determined by the Board of Directors of
         the corporation of such portion of the assets and business of the
         non-surviving corporation or corporations as such Board shall determine
         to be attributable to such Common Stock, Convertible Securities, rights
         or options, as the case may be. In the event of any consolidation or
         merger of the corporation in which the corporation is not the surviving
         corporation or in the event of any sale of all or substantially all of
         the assets of the corporation for stock or other securities of any
         other corporation, the corporation shall be deemed to have issued a
         number of shares of its Common Stock for stock or securities of the
         other corporation computed on the basis of the actual exchange ratio on
         which the transaction was predicated and for a consideration equal to



         the fair market value on the date of such transaction of such stock or
         securities of the other corporation, and if any such calculation
         results in adjustment of the conversion price of the Series D Stock,
         the determination of the number of shares of Common Stock issuable upon
         conversion immediately prior to such merger, conversion or sale, for
         purposes of subparagraph d below, shall be made after giving effect to
         such adjustment of the conversion price.

                  (iv) In case the corporation shall take a record of the
         holders of its Common Stock for the purpose of entitling them (a) to
         receive a dividend or other distribution payable in Common Stock or in
         Convertible Securities, or in any rights or options to purchase any
         Common Stock or Convertible Securities, or (b) to subscribe for or
         purchase Common Stock or Convertible Securities, then such record date
         shall be deemed to be the date of the issue or sale of the shares of
         Common Stock deemed to have been issued or sold upon the declaration of
         such dividend or the making of such other distribution or the date of
         the granting of such rights of subscription or purchase, as the case
         may be.

                  b. In case the corporation shall (i) declare a dividend upon
         the Common Stock payable in Common Stock (other than a dividend
         declared to effect a subdivision of the outstanding shares of Common
         Stock, as described in subparagraph e below) or Convertible Securities,
         or in any rights or options to purchase Common Stock or Convertible
         Securities, or (ii) declare any other dividend or make any other
         distribution upon the Common Stock payable otherwise than out of
         earnings or earned surplus, then thereafter each holder of shares of
         Series D Stock upon the conversion thereof will be entitled to receive
         the number of shares of Common Stock into which such shares of Series D
         Stock have been converted, and, in addition and without payment
         therefor, each dividend described in clause (i) above and each dividend
         or distribution described in clause (ii) above which such holder would
         have received by way of dividends or distributions if continuously held
         since such holder became the record holder of such shares of Series D
         Stock such holder (i) had been the record holder of the number of
         shares of Common Stock then received, and (ii) had retained all
         dividends or distributions in stock or securities (including Common
         Stock or Convertible Securities, and any rights or options to purchase
         any Common Stock or Convertible Securities) payable in respect of such
         Common Stock or in respect of any stock or securities paid as dividends
         or distributions and originating directly or indirectly from such
         Common Stock. For the purposes of the foregoing, a dividend or
         distribution other than in cash shall be considered payable out of
         earnings or earned surplus only to the extent that such earnings or
         earned surplus are charged an amount equal to the fair value of such
         dividend or distribution as determined by the Board of Directors of the
         corporation.

                  c. In case the corporation shall at any time split or
         subdivide its outstanding shares of Common Stock into a greater number
         of shares, the conversion price of Series D Stock in effect immediately
         prior to such subdivision shall be proportionately reduced, and
         conversely, in case the outstanding shares of Common Stock of the
         corporation shall be combined into a smaller number of shares, the
         conversion price of Series D Stock in effect immediately prior to such
         combination shall be proportionately increased.




                  d. If (i) the purchase price provided for in any right or
         option referred to in clause (i) of subparagraph a, or (ii) the
         additional consideration, if any, payable upon the conversion or
         exchange of Convertible Securities referred to in clause (i) or clause
         (ii) of subparagraph a, or (iii) the rate at which any Convertible
         Securities referred to in clause (i) or clause (ii) of subparagraph a
         are convertible into or exchangeable for Common Stock, shall change at
         any time (other than under or by reason of provisions designed to
         protect against dilution), the conversion price of the Series D Stock
         then in effect hereunder shall forthwith be increased or decreased to
         such conversion price as would have obtained had the adjustments made
         upon the issuance of such rights, options or Convertible Securities
         been made upon the basis of (a) the issuance of the number of shares of
         Common Stock theretofore actually delivered upon the exercise of such
         options or rights or upon the conversion or exchange of such
         Convertible Securities, and the total consideration received therefor,
         and (b) the issuance at the time of such change of any such options,
         rights, or Convertible Securities then still outstanding for the
         consideration, if any, received by the corporation therefor and to be
         received on the basis of such changed price; and on the expiration of
         any such option or right or the termination of any such right to
         convert or exchange such Convertible Securities, the conversion price
         of the Series D Stock then in effect hereunder shall forthwith be
         increased to such conversion price as would have obtained had the
         adjustments made upon the issuance of such rights or options or
         Convertible Securities been made upon the basis of the issuance of the
         shares of Common Stock theretofore actually delivered (and the total
         consideration received therefor) upon the exercise of such rights or
         options or upon the conversion or exchange of such Convertible
         Securities. If the purchase price provided for in any right or option
         referred to in clause (i) of subparagraph a, or the rate at which any
         Convertible Securities referred to in clause (i) or clause (ii) of
         subparagraph a are convertible into or exchangeable for Common Stock,
         shall decrease at any time under or by reason of provisions with
         respect thereto designed to protect against dilution, then in case of
         the delivery of Common Stock upon the exercise of any such right or
         option or upon conversion or exchange of any such Convertible Security,
         the conversion price of the Series D Stock then in effect hereunder
         shall forthwith be decreased to such conversion price as would have
         obtained had the adjustments made upon the issuance of such right,
         option or Convertible Security been made upon the basis of the issuance
         of (and the total consideration received for) the shares of Common
         Stock delivered as aforesaid.

                  e. The corporation shall at all times insure and keep
         available out of its authorized but unissued shares of Common Stock,
         for the purpose of effecting the conversion of Series D Stock, the full
         number of shares of Common Stock then deliverable upon the conversion
         of all shares of Series D Stock then outstanding.

                  f. No fractional shares shall be issued upon conversion of the
         Series D Stock, and the number of shares of Common Stock to be issued
         shall be rounded to the nearest whole share (with one-half being
         rounded to the upward). Such conversion shall be determined on the
         basis of the total number of shares of Series D Stock the holder is at
         the time converting into Common Stock and the aggregate number of
         shares of Common Stock issuable upon such conversion.




         6. Mandatory Conversion. The Series D Stock shall automatically be
converted into shares of Common Stock of the corporation, without any act by the
corporation or the holders of the Series D Stock, (i) concurrently with the
closing of an offering of the corporation's equity in which the aggregate
offering price of the securities sold for cash by the corporation in the
offering is at least $5,000,000, (ii) concurrently with sale of more than
$5,000,000 of Series D Preferred Stock or (iii) at such time as at least 50% of
the number of shares of Series D Stock have been converted into Common Stock. As
used herein, the term "closing" shall mean the delivery by the corporation of
certificates representing the securities of the corporation offered against
delivery to the corporation of payment therefor. Any conversion of Series D
Stock occurring on the date of the closing of a financing by the corporation
satisfying the conditions set forth above shall be deemed to be a conversion
pursuant to the terms of this paragraph 6.

         Each holder of a share of Series D Stock converted pursuant to the
preceding paragraph shall be entitled to receive the full number of shares of
Common Stock into which such share of Series D Stock held by such holder could
be converted if such holder had exercised its conversion right at the time of
closing of such financing.

         7. Status of Converted Stock. In the event any shares of Series D Stock
shall be converted by the corporation, the shares so converted shall not be
reissuable by the corporation as Series D Stock but shall be designated
authorized undesignated shares and available for issuance by the corporation as
undesignated shares. At such time as all outstanding shares of Series D Stock
have been converted, (i) any theretofore authorized but unissued shares of such
series shall return to the status of undesignated shares of the corporation,
(ii) this Statement of Designation shall be deemed amended to eliminate all
authorized Series D Stock and the terms and provisions thereof, and (iii) the
Board of Directors and officers of the corporation are authorized to take such
action and execute and file such instruments as may be necessary or appropriate
to effect such amendment.

EX-23.2

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation of our report on the consolidated
financial statements of Quantech, Ltd., dated August 18, 2000 (except for the
last paragraph of Note 6, as to which the date is September 20, 2000), which
contains an emphasis paragraph relating to an uncertainty as to the Company's
ability to continue as a going concern and is included in this Form 10-KSB, into
the previously filed Registration Statements of Quantech, Ltd., on Form S-8 (No.
333-70499 and No. 333-11475), and on the related Prospectuses.

                                           /s/McGLADREY & PULLEN, LLP



Minneapolis, Minnesota
September 28, 2000

EX-27

 


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