-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ou2jhtCMgwiTZ2gPdj0Nfh0D34LpB8Zl5+guV8Z4b/1hqDVGSOnn1UruCeR2fC7r si6cEgo88pgg/KD00YlydA== 0000914190-98-000094.txt : 19980218 0000914190-98-000094.hdr.sgml : 19980218 ACCESSION NUMBER: 0000914190-98-000094 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUANTECH LTD /MN/ CENTRAL INDEX KEY: 0000880354 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 411709417 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-19957 FILM NUMBER: 98541493 BUSINESS ADDRESS: STREET 1: 1419 ENERGY PARK DRIVE CITY: ST PAUL STATE: MN ZIP: 55108 MAIL ADDRESS: STREET 1: 1419 ENERGY PARK DRIVE CITY: ST PAUL STATE: MN ZIP: 55108 FORMER COMPANY: FORMER CONFORMED NAME: SPECTRUM DIAGNOSTICS SPA DATE OF NAME CHANGE: 19930328 10QSB 1 10QSB FOR QTR ENDED DECEMBER 31, 1997 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended: Commission File Number: December 31, 1997 0 - 19957 Quantech Ltd. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Minnesota 41-1709417 - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) identification No.) 1419 Energy Park Drive St. Paul, MN 55108 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (612)-647-6370 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ____ Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 51,040,759 shares of Common Stock, par value $.01 per share, outstanding as of February 12, 1998. Transitional Small Business Disclosure Format: YES ___ NO X Index PART I. FINANCIAL INFORMATION Page No. Item 1: Financial Statements: Balance Sheets as of December 31, 1997 and June 30, 1997 3 Statement of Operations for the Three Months and Six Months Ended December 31, 1997 and 1996 and inception to December 31, 1997 4 Statement of Stockholders' Equity from inception 6 to December 31, 1997 Statement of Cash Flows for the Six Months ended December 31, 1997 and 1996 and from inception to December 31, 1997 7 Notes to Financial Statements 8 Item 2: Management's Discussion and Analysis or Plan of Operation 9 Item 3: Quantitative and Qualitative Disclosure About Market Risk 12 PART II. OTHER INFORMATION 13 QUANTECH LTD. (A Development Stage Company) BALANCE SHEET
(Unaudited) December 31, June 30, 1997 1997 ------------------ ------------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 50,216 $ 718,893 Deferred debt issue costs 40,450 78,699 Other current assets 35,558 35,452 ------------------ ------------------ Total Current Assets 126,224 833,044 ------------------ ------------------ EQUIPMENT Equipment 335,195 329,780 Leasehold Improvements 15,000 15,000 ------------------ ------------------ 350,195 344,780 Less accumulated depreciation (169,897) (139,267) ------------------ ------------------ Total Equipment 180,298 205,513 ------------------ ------------------ OTHER ASSETS License agreement, at cost, less amortization 2,899,122 2,096,558 Patents, at cost, less amortization 9,029 8,895 Organization expenses, at cost, less amortization - 113 ------------------ ------------------ Total Other Assets 2,908,151 2,105,566 ------------------ ------------------ TOTAL ASSETS $ 3,214,673 $ 3,144,123 ================== ================== LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) CURRENT LIABILITIES Short term debt $ 2,107,00 $ 1,070,000 Accounts Payable 86,305 100,794 Accrued Expenses: Spectrum Diagnostics Inc. obligations 27,546 36,509 Minimum Royalty Commitment - 112,500 Accrued Interest 109,341 10,685 Accrued Severance - 77,265 Accrued Payroll/Vacation 23,143 54,226 Other - 4,019 ------------------ ------------------ Total Current Liabilities 2,353,335 1,465,998 ------------------ ------------------ STOCKHOLDERS EQUITY (DEFICIT) Common stock, $.01 par value; authorized 200,000,000 shares; issued and outstanding 51,040,759 shares at December 31, 1997; and 48,040,759 at June 30, 1997 510,408 480,408 Additional paid-in capital 15,966,244 15,606,017 Deficit accumulated during the development stage (15,615,314) (14,408,300) ------------------ ------------------ Total Stockholders Equity 861,338 1,678,125 ------------------ ------------------ TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 3,214,673 $ 3,144,123 ================== ==================
QUANTECH LTD. (A Development Stage Company) STATEMENT OF OPERATIONS-UNAUDITED
Period From September 30, Six Months Six Months 1991 (Date of Ended Ended Inception), to December 31, December 31, December 31, 1997 1996 1997 -------------------- -------------------- -------------------- Interest Income $ 9,907 $ 61,232 $ 180,688 -------------------- -------------------- -------------------- Expenses: General and Administrative 484,251 724,664 8,142,459 Research and Development 595,349 1,063,413 5,241,054 Sales and Marketing - 70,424 282,380 Minimum Royalty expense 37,500 37,500 1,000,000 Losses resulting from transactions with Spectrum Diagnostics Inc. - - 556,150 Net Exchange (gain) - - (67,172) Financing 99,821 4,442 598,536 -------------------- -------------------- -------------------- Total Expenses 1,216,921 1,900,443 15,753,407 -------------------- -------------------- -------------------- Loss before income taxes (1,207,014) (1,839,211) (15,572,719) Income Taxes - - 42,595 -------------------- -------------------- -------------------- Net Loss $ (1,207,014) $ (1,839,211) $ (15,615,314) ==================== ==================== ==================== Basic and diluted loss per share $ (0.02) $ (0.04) Weighted average common shares outstanding 49,769,020 47,010,487
QUANTECH LTD. (A Development Stage Company) STATEMENT OF OPERATIONS-UNAUDITED
Three Months Three Months Ended Ended December 31, December 31, 1997 1996 -------------------- --------------------- Interest Income $ 3,083 $ 26,540 -------------------- --------------------- Expenses: General & Administrative 261,394 367,170 Research and development 281,088 700,581 Sales and Marketing - 70,424 Minimum royalty expense 18,750 18,750 Loses resulting from transactions with Spectrum Diagnostics Inc. - - Net exchange (gain) - - Financing 60,445 2,029 -------------------- --------------------- Total Expenses 621,677 1,158,954 -------------------- --------------------- Loss before income taxes (618,594) (1,132,414) Income taxes - - -------------------- --------------------- Net loss $ (618,594) $ (1,132,414) ==================== ===================== Basic and diluted loss per share $ (0.01) $ (0.02) Weighted average common shares outstanding 51,040,759 47,119,129
QUANTECH LTD (A Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY-UNAUDITED Period From September 30, 1991 (date of Inception), to December 31, 1997
Deficit Accumulated During Par Additional the Paid for Due Cumulative Shares Value Paid-In Development Subscriptions Not From Translation Issued Amount Capital Stage Receivable Issued Officers Adjustment -------------------------------------------------------------------------------------------- Balance at Inception Net Loss for 15 months ($3,475,608) Common stock transactions: Common stock issued, October 1991 3,200,000 $3,154,574 Common stock issued, November 1991 600,000 $611,746 $1,788,254 Common stock issuance costs ($889,849) Cumulative translation adjustment $387,754 Common stock issued, September 1992 700,000 $699,033 $875,967 ($53,689) Common stock issuance costs ($312,755) Common stock to be issued $120,000 Cumulative translation adjustment ($209,099) Elimination of cumulative translation adjustment ($178,655) Officers advances, net ($27,433) -------------------------------------------------------------------------------------------- Balance, December 31, 1992 4,500,000 $4,465,353 $1,461,617 ($3,475,608) ($53,689) $120,000 ($27,433) $0 Net loss ($996,089) Common stock transactions: Common stock issued, January 1993 160,000 $1,600 $118,400 ($120,000) Common stock issued, April 1993 30,000 $300 $11,700 Change in common stock par value resulting from merger ($4,420,353) $4,420,353 Repayments $5,137 -------------------------------------------------------------------------------------------- Balance,June 30, 1993 4,690,000 $46,900 $6,012,070 ($4,471,697) ($53,689) $0 ($22,296) $0 Net loss ($1,543,888) 240,000 shares of common stock to be issued $30,000 Repayments $53,689 $22,296 -------------------------------------------------------------------------------------------- Balance, June 30, 1994 4,690,000 $46,900 $6,012,070 ($6,015,585) $0 $30,000 $0 $0 Net loss ($2,070,292) Common stock issued, June 1995 2,150,000 $21,500 $276,068 ($20,000) ($30,000) Warrants issued for services $40,200 -------------------------------------------------------------------------------------------- Balance June 30, 1995 6,840,000 $68,400 $6,328,338 ($8,085,877) ($20,000) $0 $0 $0 Net loss ($2,396,963) Common stock issued, net of issuance costs of $848,877: July, 1995 6,160,000 $61,600 $1,304,450 August, 1995 717,600 $7,176 $161,460 September, 1995 13,807,296 $138,073 $2,370,389 November, 1995 1,897,840 $18,978 $425,482 December, 1995 11,217,157 $112,172 $1,292,473 May, 1996 6,275,000 $62,750 $3,300,422 June, 1996 5,058 $51 $3,650 Payments received on subscription receivable (19,192) (192) ($14,808) $20,000 Compensation expense recorded on stock options $125,000 -------------------------------------------------------------------------------------------- Balance, June 30, 1996 46,900,759 $469,008 $15,296,856 ($10,482,840) $0 $0 $0 $0
Net loss ($3,925,460) Stock offering costs ($12,310) Common stock issued upon exercise of options and warrants September 1996 10,000 $100 $2,400 October 1996 170,000 $1,700 $40,800 November 1996 15,000 $150 $3,600 December 1996 270,000 $2,700 $64,800 ($57,500) January 1997 20,000 $200 $4,800 February 1997 150,000 $1,500 $17,250 March 1997 140,000 $1,400 $33,600 Payments received on subscription receivable $57,500 Compensation expense recorded on stock options $48,000 Common stock issued, June 1997 365,000 $3,650 $105,850 Warrants issued with notes payable $371 -------------------------------------------------------------------------------------------- Balance, June 30, 1997 48,040,759 $480,408 $15,606,017 ($14,408,300) $0 $0 $0 $0 Net Loss ($1,207,014) Common stock issued, September 1997 3,000,000 $30,000 $360,000 Warrants issued with notes payable $227 ============================================================================================ Balance, December 31, 1997 51,040,759 $510,408 $15,966,244 ($15,615,314) $0 $0 $0 $0 ============================================================================================
QUANTECH LTD (A Development Stage Company) STATEMENT OF CASH FLOWS-UNAUDITED
Period From September 30, Six Months Six Months 1991 (Date of Ended Ended Inception), to December 31, December 31, December 31, 1997 1996 1997 ------------------ ------------------ ----------------- Cash Flows From Operating Activities Net Loss $ (1,207,014) $ (1,839,211) $ (15,615,314) Adjustments to reconcile net loss to net cash used in operating activities: Elimination of cumulative translation adjustment - - (178,655) Depreciation 30,630 13,841 216,251 Amortization 186,366 59,732 1,542,983 Noncash compensation and interest - - 537,250 Losses resulting from transactions with Spectrum Diagnostics Inc. - - 556,150 Write down of investment - - 67,500 Change in assets and liabilities, net of effects from purchase of Spectrum Diagnostics Inc.: (Increase) decrease in other current assets (106) (27,705) 40,880 Increase (decrease)in accounts payable (14,489) 40,932 84,750 Increase (decrease) in accrued expenses (135,174) 23,367 434,154 ------------------ ------------------ ----------------- Net cash used in operating activities (1,139,787) (1,729,044) (12,314,051) ------------------ ------------------ ----------------- Cash Flows From Investing Activities Purchase of property and equipment (5,415) (64,654) (426,953) Proceeds on disposition of property - - 37,375 Organization expenses - - (97,547) Patent spending (134) - (9,029) Officer advances, net - - (109,462) Purchase of investment - - (225,000) Purchase of license agreement - - (1,950,000) Advances to Spectrum Diagnostics, Inc. - - (320,297) Prepaid securities issuance costs (10,403) - (112,046) Purchase of Spectrum Diagnostics, Inc., net of cash and cash equivalents acquired - - (1,204,500) ------------------ ------------------ ----------------- Net cash used in investing activities (15,952) (64,654) (4,417,459) ------------------ ------------------ ----------------- Cash Flows From Financing Activities Net proceeds from the sale of common stock & warrants 62 2,500 12,880,859 Proceeds on debt obligations 487,000 4,215,435 Payments received on stock subscription receivables - - 5,000 Stock offering costs - (12,310) - Payments on debt obligations - (4,605) (522,810) ------------------ ------------------ ----------------- Net cash provided by financing activities 487,062 (14,415) 16,578,484 ------------------ ------------------ ----------------- Effect of Exchange Rate Changes on Cash - - 203,242 ------------------ ------------------ ----------------- Net increase (decrease) in cash (668,677) (1,808,113) 50,216 Cash Beginning 718,893 2,942,871 - ------------------ ------------------ ----------------- Ending $ 50,216 $ 1,134,758 $ 50,216 ================== ================== ================= Non-Cash Investing and Financing Activities Issuance of debt, common stock and warrants for sublicensing rights $ 940,165 $ - $ 940,165 ================== ================== =================
QUANTECH LTD. ( A Development Stage Company ) NOTES TO UNAUDITED FINANCIAL STATEMENTS Note 1. BASIS OF PRESENTATION In the opinion of the management of the Company, the accompanying unaudited financial statements contain all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the financial position of the Company as of December 31, 1997 and the results of operations for the three and six month periods and its cash flows for the six month periods ended December 31, 1997 and 1996. The results of operations for any interim period are not necessarily indicative of the results for the year. These interim financial statements should be read in conjunction with the Company's annual financial statements and related notes in the Company's Annual Report on Form 10-KSB for the year ended June 30, 1997. Note 2. LICENSE AGREEMENT The Company has a license agreement as amended with Ares-Serono for certain patents, proprietary information and associated hardware related to SPR technology. The license calls for an ongoing royalty of 6 percent on all products utilizing the SPR technology which are sold by the Company. In addition, if the Company sublicenses the technology, the Company will pay a royalty of 15 percent of all revenues received by the Company under any sublicense. As of December 31, 1997, the Company had paid $1,000,000 of cumulative royalty payments, which includes a $150,000 payment made on December 31, 1997. In order to maintain its exclusive rights under the license agreement, the Company must make a $150,000 payment by December 31, 1998 and 1999. The Company intends to accrue $150,000 by December 31, 1998, and continue accruing for future payments until royalty accruals based on revenues exceed the minimum payment amounts. Note 3. NET LOSS PER SHARE The FASB has issued Statement No. 128, Earnings Per Share, which supersedes APB Opinion No. 15. Statement No. 128 requires the presentation of earnings per share by all entities that have common stock or potential common stock, such as options, warrants, and convertible securities, outstanding that trade in a public market. Those entities that have only common stock outstanding are required to present basic earnings per share amounts. Basic per share amounts are computed, generally, by dividing net income or loss by the weighted average number of common shares outstanding. All other entities are required to present basic and diluted per share amounts. Diluted per share amounts assume the conversion, exercise, or issuance of all potential common stock instruments unless the effect is anti-dilutive thereby reducing the loss or increasing the income per common share. The Company initially applied Statement No. 128 for the periods ended December 31, 1997 and, as required by the Statement, has restated all per share information for the prior years to conform to the Statement. Because the Company has incurred a loss in all periods presented, the inclusion of 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. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION History Quantech Ltd. ("Quantech" or the "Company") is a Minnesota corporation originally founded in 1991. Quantech is completing development of a near patient ("NP") medical diagnostic testing system which is based upon its patented Surface Plasmon Resonance ("SPR") technology. Quantech's critical care system will have the ability to perform a complete range of clinically related, quantitative whole blood tests on a single instrument near the patient in 10 to 20 minutes. The system will be marketed to hospital Critical Care Units, with the initial focus being Emergency Departments. Hospital Critical Care Units, such as the Emergency Department, are best able to recognize the immediate positive impact Quantech's system will have on patient treatment and satisfaction, determination of appropriate clinical care path and cost containment. Quantech's system will consist of an easy to use bench top instrument and test disposables. Each disposable will contain one test, or a panel of clinically related tests, which will define the particular tests to be conducted by the instrument. The Company has begun data collection and other preparation necessary to file a pre-market notification, known as a 510(k), with the FDA on its first test for the detection and quantification of the cardiac marker Myoglobin. This cardiac marker is an aid to physicians in the diagnosis of an early stage heart attack. Further tests, including the cardiac markers CK-MB and Troponin, are being developed to provide the Quantech system with a full range of testing capabilities along with multiple tests per disposable. Quantech and The Perkin-Elmer Corporation ("Perkin-Elmer"), a leading supplier of life science systems and analytical instruments, are parties to a technology and development agreement. Such agreement provides Perkin-Elmer with exclusive licenses to certain Quantech technology for use outside of Quantech's core area of non-nucleic medical diagnostics. Perkin-Elmer, pursuant to the agreement, provides technical assistance related to Quantech's medical diagnostic system and possible future royalty payments if Perkin-Elmer sells products using Quantech's technology. 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 diagnostic system. Additional tests and system development must be completed, FDA approval obtained on these multiple tests and the system, Quantech's diagnostic system introduced to the market, and ultimately, Quantech will need to successfully attain profitable operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Results of Operations The Company has incurred a net loss of $15,615,314 from September 30, 1991 (date of inception) through December 31, 1997 due to expenses related to formation and operation of its predecessor, continuing costs of raising capital, normal expenses of operating over an extended period of time, funds applied to research and development, minimum royalty payments on the SPR technology, and interest on borrowed funds. In addition, an investment of $3,356,629 was made when Quantech purchased the exclusive rights to the SPR technology. For the three and six months ended December 31, 1997 the Company had interest income of $3,083 and $9,907 compared to $26,540 and $61,232 for the same periods in 1996. These decreases were a result of less cash on hand as proceeds obtained from Quantech's private placements of securities have been used for operations and research and development. General and administration expenses decreased to $261,394 and $484,251 for the three months and six months ended December 31, 1997 from $367,170 and $724,664 for the same periods in 1996. There were no sales and marketing expenses during the three months and six months ended December 31, 1997 compared to $70,424 for the three months and six months ended December 31, 1996. The decreases in general and administrative and sales and marketing spending resulted from the restructuring that the Company implemented in 1997. The restructuring was aimed at reducing expenses and focusing the Company's resources on completing development of its diagnostic system. Changes that were made included reducing the number of employees, consultants and outside services employed in the administrative and marketing functions. The Company anticipates that these expenses will increase significantly in the future as the Company completes development of its system and begins to manufacture and distribute its products. Research and development costs decreased to $281,088 and $595,349 in the three and six months ended December 31, 1997 from $700,581 and $1,063,413 in the same periods of 1996. The decreases were due to the above mentioned restructuring, with cost reductions resulting primarily from reduced outside contract development work as the Company focused its resources on completing the system development with a reconfigured internal development team. Research and development spending, however, is expected to increase significantly during calendar 1998 as Quantech completes development of its system, conducts FDA work, and begins development of additional disposable tests for its system. There was no change in the minimum royalty expense recorded for the three months and six months ended December 31, 1997 compared to the same periods for the previous year. A royalty expense of $37,500 per quarter will begin to accrue starting in January 1998 for minimum payments scheduled for December 1998 and 1999 (see Notes to Financial Statements, Note 2 - License Agreement). Financing expenses increased to $60,445 and $99,821 for the three months and six months ended December 31, 1997 compared to $2,029 and $4,442 for the same periods in 1996 primarily due to increased debt from the sale of convertible promissory notes in 1997 to fund operations. Financing expenses are expected to increase as a result of the sale of additional convertible promissory notes and interest on such notes. For the three months and six months ended December 31, 1997 Quantech had a loss of $618,594 and $1,207,014, respectively, as compared to $1,132,414 and $1,839,211 for the same periods in 1996. The decreased losses were the result of lower operating expenses partially offset by lower interest income. During December 1997 the Company entered into a License Agreement with The Perkin-Elmer Corporation ("Perkin-Elmer"), a leading supplier of life science systems and analytical instruments. The Agreement provides technical assistance to Quantech for the completion of its medical diagnostic system in exchange for Perkin-Elmer receiving exclusive licenses to certain Quantech technology for use outside of Quantech's core medical markets. Quantech will be entitled to royalty payments on products sold by Perkin-Elmer which include Quantech's technology. The royalty rate on these sales will be reduced as Perkin-Elmer assists Quantech in achieving certain product development milestones or phases. In addition, the Company has granted Perkin-Elmer a warrant to purchase Quantech common stock under certain conditions. In January 1998, the Company announced that it had completed with Perkin-Elmer the first phase of instrument development, a breadboard-level instrument that detects bulk changes of chemical concentrations. From this milestone, Quantech was able to make further progress that allowed it to begin activities for the preparation necessary to file a pre-market notification 510(k) with the FDA for the cardiac marker Myoglobin. It is expected that the FDA 510(k) for Myoglobin will be submitted to the FDA early in the second calendar quarter. Quantech is continuing development of further tests and receiving assistance from Perkin-Elmer in completing additional phases under the License Agreement. Introduction of Quantech's system is anticipated in the later part of 1998, which introduction is expected to include three tests for the system. The Company is also in discussions with other potential strategic partners regarding research and development collaborations for medical and industrial applications of Quantech's technology, and distribution of its system once developed and in manufacturing. The timetable for submitting additional tests to the FDA and introduction of Quantech's system to the market will be influenced by the Company's ability to obtain further funding, enter into strategic relationships, complete commercial prototype development of its system, develop further tests and delays it may encounter with the FDA in its review of Quantech's tests and system. There can be no assurance that the Company will be able to obtain the required funding, enter into any strategic agreements or ultimately complete its commercial system. Liquidity and Capital Resources From inception to December 31, 1997, Quantech has raised approximately $17,100,000 through a combination of public stock sales, private stock sales and debt obligations, including a $300,000 bank loan guaranteed by Company directors. Additional funds are needed immediately to continue current operations. To provide these additional funds, the Company is seeking to sell up to a maximum of $1,173,000 which is the balance of its $2.5 million offering of notes (the "Notes") and warrants (the "Warrants"). The Notes will be due and payable on June 1, 1998, or earlier upon Quantech completing a transaction that provides it with a minimum of $5,000,000 (the "Additional Funding"). Interest will be the prime rate plus five percent and the Notes will be secured by all of the assets of the Company. For each dollar invested in the Note, the investor will receive a Warrant to purchase three shares of Quantech Common Stock at an exercise price equal to the lower of (a) $0.17625 per share; or (b) 80% of the price of the Additional Funding or, if the Additional Funding has not occurred prior to June 1, 1998, the lower of 80% of the market price of the Company's Common Stock for the 20 consecutive trading days prior to the issuance of the Warrant or June 1, 1998. The principal amount of the Notes is convertible into shares of the Company's Common Stock at a price equal to, and calculated in the same manner as, the Warrant Exercise Price. Terms are subject to negotiation and may change. The Company believes it will complete the sale of most or all of the $1,173,000 of the Notes by March 15, 1998, and the Directors and Director affiliates of the Company have already purchased $200,000 of the Notes. There can be no assurance, however, that the Company will be able to raise this or any other funding and continue its operations. See "Cautionary Statements - Immediate and Future Capital Needs." The Company anticipates that the $1,173,000 will be sufficient to allow it to complete its FDA work for the cardiac marker Myoglobin and begin development of further tests. Funds of at least $7.5 million will be needed to develop and submit to the FDA additional tests, establish manufacturing capabilities, introduce the Quantech system and repay the Notes. Quantech is currently reviewing multiple avenues of future funding including a secondary offering of securities, private sale of equity or debt with equity features or arrangements with strategic partners. The Company does not have any commitments for any such financing and there can be no assurance that the Company will obtain additional capital when needed or that additional capital will not have a dilutive effect on current shareholders. Although the Company has a limited lending arrangement with its bank, it does not anticipate receiving significant funding from commercial lenders. Quantech incurred capital expenditures of $5,415 in the six month period ended December 31, 1997. The Company anticipates significant capital expenditures in the near future for laboratory and production equipment and office expansion as the Company nears product introduction. The timing and amount of such expenditures will be governed by the Company's development and market introduction schedules which are subject to change due to a number of factors including development delays, FDA approval and availability of future financing. The Company currently has outstanding 51,040,759 shares of Common Stock. It also has options and warrants outstanding to purchase an additional 51,416,561 shares and notes convertible into 10,933,333 shares. Cautionary Statements The Company wishes to caution investors that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results of operations and cause such results to differ materially from those anticipated in forward-looking statements made in this document and elsewhere by or on behalf of the Company. No History of Operations; Development Stage Company; Going Concern Uncertainty To date, the Company does not have a product ready to be brought to market and its proposed operations are subject to all of the risks inherent in a new business enterprise, including completion of commercial development and FDA approval of its tests and instrument within reasonable time frames and financial constraints, lack of marketing experience and lack of production history. The likelihood of the success of the Company must be considered in light of the expenses, difficulties and delays frequently encountered in connection with the start-up of new businesses, and specifically those historically encountered by Quantech, the development of a new product and the competitive environment in which the Company will operate. The report of the independent auditors on the Company's financial statements for the period ended June 30, 1997, includes an explanatory paragraph relating to the uncertainty of the Company's ability to continue as a going concern. The Company is a development stage company which has suffered losses from operations, requires additional financing, and ultimately needs to successfully attain profitable operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. There can be no assurance that the Company will be able to develop a commercially viable product or marketing system or attain profitable operations. Immediate and Future Capital Needs The Company does not have sufficient funds to complete development of its commercial system or additional tests for such system, submit its system to the FDA or commence commercial production and sales. The Company's ability to continue as a going concern, complete its system, submit its system to the FDA and commence sales will depend upon the continued availability of investment capital, funding made by strategic partner(s) or licensing revenues, until revenues from the sale of instruments and associated test disposables are sufficient to maintain operations. Additional funds may have to be raised through equity or debt financing. There can be no assurance that any additional financing can be obtained on favorable terms, if at all. Such additional financing may result in dilution to Company shareholders and/or additional debt to the Company. If funding is not available immediately and in the future when needed, the Company may be forced to cease operations and abandon its business. In such event, Company shareholders could lose their entire investment. Other Factors As described in the Company's Form 10-KSB for the year ended June 30, 1997 under Cautionary Statements, there are additional factors concerning the Company that should be considered including: uncertainty of market acceptance of Quantech's product once introduced, inability or delay in obtaining FDA product approval, , effects of government regulation on Quantech's product and its sale, ability to manufacture its product, exposure to the risk of product liability and the limited market for the Company's shares. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not Applicable. PART II OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities In December 1997 the Company issued to The Perkin-Elmer Corporation a warrant to purchase up to 28,000,000 shares of Common Stock. The exercise price for each share will be equal to 95% of the average of the last sale price of the Common Stock for each of the 25 consecutive trading days immediately preceding the date of the first notice of exercise of the Warrant provided to Quantech by Perkin-Elmer. Exemption from registration under the Securities Act of 1933 ("the Act") for the issuance of the Warrant is claimed under Section 4(2) of the Act. Perkin-Elmer represented its intention to acquire the Warrant for investment purposes only and a restrictive securities legend has been placed on the Warrant. Item 3. Defaults upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders The Company held its annual meeting on December 2, 1997 in Minneapolis, Minnesota. The Company solicited proxies and filed a definitive proxy statement with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Act of 1934, as amended. The matters voted upon at the meeting and the votes cast were as follows: No. 1 Election of Mr. Richard W. Perkins as class 2 director: Votes for - 23,769,597 Votes Withheld - 5,033,730 Election of Mr. Edward E. Strickland as class 2 director: Votes for - 23,788,597 Votes Withheld - 5,014,730 The terms of the following directors continued after the meeting: Robert Case, James F. Lyons. No. 2 Amendment to Articles of Incorporation to increase the number of authorized shares to 250,000,000 shares consisting of 200,000,000 Common Shares and 50,000,000 undesignated shares Votes: for - 16,735,984 Votes Against - 1,590,456 Abstain - 291,400 Broker Non-Votes - 10,185,487 Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on 8-K a. Exhibits - 10.1 Amended royalty agreement with Ares-Serono dated October 31, 1997 10.2 License agreement with Perkin-Elmer (incorporated by reference to Exhibit 1 of Schedule 13D filed by The Perkin-Elmer Corporation on December 23, 1997, File No. 0-19957) 27 Financial Data Schedule (filed in electronic format only) b. Reports on 8-K - None Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. QUANTECH LTD /s/ Robert Case Robert Case Chief Executive Officer /s/ Gregory G. Freitag Gregory G. Freitag Chief Operating Officer and Date: February 12, 1998 Chief Financial Officer EXHIBIT INDEX QUANTECH LTD. FORM 10-QSB for Quarter Ended December 31, 1997 Exhibit Number Description 10.1 Amended royalty agreeement with Ares-Serono dated October 31, 1997 10.2 License agreement with Perkin-Elmer (incorporated by reference to Exhibit 1 of Schedule 13D filed by The Perkin-Elmer Corporation on December 23, 1997, File No. 0-19957) 27 Financial Data Scehdule (filed in electronic format only) EX-10.1 2 AMENDED ROYALTY AGREEMENT AMENDMENT TO LICENSE AGREEMENT This Amendment to License Agreement, dated as of 31st October 1997, is by and among Applied Research Systems ARS Holding N.V. ("ARS"); Laboratoires Serono S.A. ("LSA"), the successor in interest to Serono Diagnostic S.A. ("Diagnostic") (ARS, LSA and any successor thereof being collectively referred to as the "Serono Companies") and Quantech Ltd. ("Quantech"), the successor in interest to Spectrum Diagnostics, S.p.A. ("Spectrum"). RECITALS: A. The Serono Companies and Quantech are parties to the License, Sublicense and Purchase Agreement dated November 7th, 1991, attached as Exhibit A (the "License Agreement"). B. Section 2 (a) (i) of the License Agreement reserves from the scope of the license granted to Spectrum thereunder, among other reservations, a right to develop and commercialize the SPR technology for the development of products to be marketed in the name of the Serono Companies and/or Serono Affiliates (the "SPR License Reservation"). C. Section 2 (d) of the License Agreement sets forth a series of benchmarks of aggregate payments (the "Minimum Royalties") and Section 4(b) of the License Agreement sets forth sublicense, assignment and transfer royalties (the "Transfer Royalties"). D. Section 2 (e) of the License Agreement grants the Serono Companies and Serono Affiliates the right to demand a royalty-free right to use any technology Spectrum has developed with respect to SPR (the "Grant Back License"), subject to certain reservations. E. Upon an Event of Default, Section 10 of the License Agreement (the "Default Provision") provides that the license rights granted to Spectrum shall terminate and revert back to the Serono Companies. F. The Serono Companies and Quantech wish to amend and restate the License Agreement as it concerns the SPR License Reservation, the Minimum Royalties, the Transfer Royalties, the Grant Back License, and the Default Provision. In consideration of the agreements contained herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Definitions. All of the defined terms in the License Agreement shall have the same meanings in this Amendment to License Agreement. 2. SPR License Reservation. Upon Payment to the Serono Companies pursuant to Section 2(d) of the License Agreement of Minimum Royalties of at least $1,000,000 in the aggregate by December 31, 1997, the Serono Companies, on behalf of themselves and the Serono Affiliates, shall waive all of their rights under the SPR License Reservation. 3. Minimum Royalties. Section 2 (d) of the License Agreement shall be amended to read as follows: (d) Minimum Royalty: Notwithstanding anything stated in this Agreement to the contrary, in the event that the royalty payments actually paid to the Serono Companies by Spectrum and/or any Third Party Transferee pursuant to Section 4 of this Agreement do not equal the following amounts: (a) at least $500,000 in the aggregate by December 31, 1993; (b) at least $850,000 in the aggregate by December 31,1995; (c) at least $1,000,000 in the aggregate by December 31, 1997; (d) at least $1,150,000 in the aggregate by December 31, 1998; and (e) at least $1,300,000 in the aggregate by December 31, 1999, then each time one of the first three of such benchmarks is not met, the cumulative royalties to be paid to the Serono Companies pursuant to Section 4(d) hereof shall be increased by two million ($2,000,000) dollars so that if all three initial benchmarks are not met, the cumulative royalties payable to the Serono Companies pursuant to Section 4(d) hereof shall be increased from eighteen million ($18,000,000) dollars to twenty-four million ($24,000,000) dollars. Also if any one of the first three of such benchmarks is not met the restrictions on the Serono Companies pursuant to Section 2(a)(i) hereof that provide only the Serono Companies and/or Serono Affiliates shall be allowed to market products developed pursuant to the retention of the right to develop and commercialize SPR shall lapse. If Spectrum shall receive any lump sum payment from any Third Party Transferee under a Transfer Agreement prior to December 31, 1999, then Spectrum shall accelerate payment of the minimum royalties set forth in this Section 2(d) by paying up to twenty percent (20%) of such lump sum payment to the Serono Companies. It is expressly understood that such lump sum payments do not give rise to any additional royalty obligations than would otherwise be payable to the Serono Companies under Section 4(b) and shall not increase any aggregate minimum royalties payable under this Section 2(d). 4. Section 4(b)(B) of the License Agreement shall be restated to read as follows: (B) Commencing on July 2, 1996, each Third Party Transferee shall pay Third Party Royalties to Diagnostic equal to the 15% Royalties. The obligation of Spectrum and any subsequent Third Party Transferees to pay Third Party Royalties to the Serono Companies shall terminate only in accordance with subparagraph 4(d) below. 5. Grant Back License. Section 2 (e) of the License Agreement shall be amended to read as follows: (e) Spectrum Obligation to provide technology: Upon termination of this Agreement under Section 10 below, the Serono Companies shall be entitled to a royalty-free license to make, use and sell whatever technology Spectrum has developed with respect to SPR, provided that such license shall be subject to the terms and conditions of any Preferred Transfer Agreement (as that term is defined in Section 6 of the Amendment to License Agreement) which is in force and effect at the time of such termination of this Agreement. This royalty-free license shall not extend to any technology and/or data and/or patents which Spectrum developed with a third party and with respect to which the third party retained a proprietary right. 6. Default Provision. Upon an Event of Default under the Default Provision, any sublicense granted by Quantech to a Preferred Third Party Transferee under a Preferred Transfer Agreement prior to the Event of Default shall survive termination of the license and sublicense rights in the Licensed SPR Technology granted to Spectrum and reversion of such license and sublicense rights to the Serono Companies under the Default Provision, and such Preferred Transfer Agreement shall continue in full force and effect under its own terms and conditions. For purposes of this Section 6, a "Preferred Third Party Transferee" shall be any third party which had assets of $100 million or more at the end of the third party's fiscal year immediately preceding the execution of such Transfer Agreement. For purposes of this Section 6, a "Preferred Transfer Agreement" shall be any Transfer Agreement with a Preferred Third Party Transferee which is approved by LSA, which approval will not be unreasonably withheld. 7. Execution in Counterparts. This Amendment to License Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become a binding agreement when one or more counterparts have been signed by each party and delivered to the other party. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment to License Agreement as of the date first above written. APPLIED RESEARCH SYSTEMS LABORATOIRES SERONO S.A. ARS HOLDING N.V. /s/ Reginald Schotborgh /s/ S. Antonius-Soedhoe /s/ T.P. Verhassee By Reginald Schotborgh/ By T.P. Verhassee S. Antonius-Soedhoe Its Managing Directors Its Senior Vice President of Operations QUANTECH LTD. /s/ Jacques Theurillat By Jacques Theurillat Its Director /s/ Gregory G. Freitag By Gregory G. Freitag Its COO and CFO EX-27 3 FDS FOR QTR ENDED DECEMBER 31, 1997
5 1 U.S. Dollars 6-MOS JUN-30-1998 JUL-01-1997 DEC-31-1997 1 50,216 0 0 0 0 126,224 350,195 169,897 3,214,673 2,353,335 0 0 0 510,408 350,930 3,214,673 0 0 0 0 0 0 99,821 (1,207,014) 0 0 0 0 0 (1,207,014) (.02) (.02)
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