-----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, QssRZ1TJugbtqqpdeqWWpoUja++CPLmJpZ/6fnXcbbFUycKeV5KgwXwIS0ygB0Nm H2xeHL9qUicHmyh8Iwl1oA== 0000950137-01-504623.txt : 20020410 0000950137-01-504623.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950137-01-504623 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUANTECH LTD /MN/ CENTRAL INDEX KEY: 0000880354 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 411709417 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-19957 FILM NUMBER: 1786004 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 c66029e10qsb.txt FORM 10QSB FOR PERIOD ENDING SEPTEMBER 30, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended: Commission File Number: September 30, 2001 0 - 19957 Quantech Ltd. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Minnesota 41-1709417 - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) identification No.) 815 Northwest Parkway, Suite 100 Eagan, MN 55121 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (651)-647-6370 - -------------------------------------------------------------------------------- (Issuer's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: 18,583,712 shares of Common Stock, no par value, as of November 9, 2001. Transitional Small Business Disclosure Format: YES ___ NO X Index
PART I. FINANCIAL INFORMATION Page No. -------- Item 1: Financial Statements: Consolidated Balance Sheets as of September 30, 2001 and June 30, 3 2001 Consolidated Statements of Operations for the Three Months Ended September 30, 2001 and 2000 and from inception to September 30, 2001 4 Consolidated Statement of Stockholders' Equity from inception to September 30, 2001 5 Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2001 and 2000 and from inception to September 30, 2001 7 Notes to Financial Statements 8 Item 2: Management's Discussion and Analysis or Plan of Operation 11 PART II.OTHER INFORMATION 15
2 QUANTECH LTD. (A Development Stage Company) CONSOLIDATED BALANCE SHEET
(Unaudited) September 30, June 30, ASSETS 2001 2001 ----------------- ------------------ CURRENT ASSETS Cash and cash equivalents $ 760,041 $ 2,162,479 8% demand note receivable from officer 154,806 151,963 Prepaid expenses 30,590 29,376 ----------------- ------------------ Total current assets 945,437 2,343,818 ----------------- ------------------ PROPERTY AND EQUIPMENT Equipment 2,449,970 2,350,964 Leasehold improvements 117,534 72,059 ----------------- ------------------ 2,567,504 2,423,023 Less accumulated depreciation (782,724) (619,183) ----------------- ------------------ Total property and equipment 1,784,780 1,803,840 ----------------- ------------------ OTHER ASSETS License agreement, at cost, less amortization (note 2) 1,674,267 1,755,924 Patents, net 141,222 128,115 Deposits 37,793 37,793 ----------------- ------------------ Total other assets 1,853,282 1,921,832 ----------------- ------------------ TOTAL ASSETS $ 4,583,499 $ 6,069,490 ================= ================== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Short term debt (note 8) $ 2,985,321 $ 1,931,871 Accounts payable 1,117,437 871,699 Accrued expenses: Payroll and benefits 252,074 203,234 Interest 9,512 - Current portion of deferred revenue 1,038,412 1,038,412 ----------------- ------------------ Total current liabilities 5,402,756 4,045,216 ----------------- ------------------ DEFERRED REVENUE LESS CURRENT PORTION (note 7) 3,027,554 3,212,157 STOCKHOLDERS' DEFICIT Common stock, no par value; authorized 59,913,000 shares, issued and outstanding 18,583,712 shares and 18,583,712 shares, respectively 33,479,786 33,479,786 Subscriptions receivable (8,597) (9,782) Additional paid-in capital 11,568,394 11,297,626 Deficit accumulated during the development stage (48,886,394) (45,955,513) ----------------- ------------------ Total stockholders' deficit (3,846,811) (1,187,883) ----------------- ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 4,583,499 $ 6,069,490 ================= ==================
3 QUANTECH LTD. (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Period From September 30, Three Months Three Months 1991 (Date of Ended Ended Inception), to September 30, September 30, September 30, 2001 2000 2001 ------------ ------------ ------------ Net Revenue: Product sales $ -- $ 40,000 $ 1,102,495 Licensing revenue (note 8) 184,603 -- 334,034 ------------ ------------ ------------ Total net revenue 184,603 40,000 1,436,529 ------------ ------------ ------------ Expenses: General and administrative 866,352 634,735 16,066,137 Marketing 83,599 197,153 2,600,725 Research and development 2,124,338 1,370,643 22,486,106 Minimum royalty expense -- -- 1,300,000 Minority interest (4,032) (82,993) (525,624) Other -- -- 488,978 ------------ ------------ ------------ Total expenses 3,070,257 2,119,538 42,416,322 ------------ ------------ ------------ Loss from operations (2,885,654) (2,079,538) (40,979,793) Other: Interest income 17,493 28,949 358,227 Interest expense (62,720) (19,226) (2,102,805) ------------ ------------ ------------ Loss before income taxes (2,930,881) (2,069,815) (42,724,371) Income taxes -- -- 42,595 ------------ ------------ ------------ Net loss $ (2,930,881) $ (2,069,815) $(42,766,966) ============ ============ ============ Net loss attributable to common shareholders: Net loss $ (2,930,881) $ (2,069,815) Preferred stock accretion -- (118,249) Beneficial conversion feature of preferred stock -- (1,771,904) ------------ ------------ Net loss attributable to common shareholders $ (2,930,881) $ (3,959,968) ============ ============ Loss per basic and diluted common share $ (0.16) $ (0.64) Weighted average common shares outstanding 18,583,712 6,219,867
4 QUANTECH LTD (A Development Stage Company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Period From September 30, 1991 (date of Inception), to September 30, 2001
Series B Series C Preferred Stock Preferred Stock Shares Amount Shares Amount ---------------------------------------------- Balance at Inception Net Loss for 15 months Common stock transactions: Common stock issued, October 1991 Common stock issued, November 1991 Common stock issuance costs Cumulative translation adjustment Common stock issued, September 1992 Common stock issuance costs Common stock to be issued Cumulative translation adjustment Elimination of cumulative translation adjustment Officers advances, net ---------------------------------------------- Balance, December 31, 1992 0 $0 0 $0 Net loss Common stock transactions: Common stock issued, January 1993 Common stock issued, April 1993 Change in common stock par value resulting from merger Repayments ---------------------------------------------- Balance,June 30, 1993 0 $0 0 $0 Net loss 240,000 shares of common stock to be issued Repayments ---------------------------------------------- Balance, June 30, 1994 0 $0 0 $0 Net loss Common stock issued, June 1995 Warrants issued for services ---------------------------------------------- Balance June 30, 1995 0 $0 0 $0 Net loss Common stock issued, net of issuance costs of $848,877: July, 1995 August, 1995 September, 1995 November, 1995 December, 1995 May, 1996 June, 1996 Payments received on subscription receivable Compensation expense recorded on stock options ---------------------------------------------- Balance, June 30, 1996 0 $0 0 $0 Net loss Stock offering costs Common stock issued upon exercise of options and warrants September 1996 October 1996 November 1996 December 1996 January 1997 February 1997 March 1997 Payments received on subscription receivable Compensation expense recorded on stock options Common stock issued, June 1997 Warrants issued with notes payable ---------------------------------------------- Balance, June 30, 1997 0 $0 0 $0 Net Loss Conversion of common stock from par value to no par value 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 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 ---------------------------------------------- Balance, June 30, 1998 0 $0 Net Loss Warrants issued with notes payable 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 Stock options issued for services: October 1998 Compensation expense recorded on stock options
Series D Preferred Stock Common Stock Shares Amount Shares Amount ----------------------------------------------------------------- Balance at Inception Net Loss for 15 months 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 Common stock issued, September 1992 35,000 $ 699,033 Common stock issuance costs Common stock to be issued Cumulative translation adjustment Elimination of cumulative translation adjustment Officers advances, net ----------------------------------------------------------------- Balance, December 31, 1992 0 $ 0 225,000 $ 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 0 $ 0 234,500 $ 46,900 Net loss 240,000 shares of common stock to be issued Repayments ----------------------------------------------------------------- Balance, June 30, 1994 0 $ 0 234,500 $ 46,900 Net loss Common stock issued, June 1995 107,500 $ 21,500 Warrants issued for services ----------------------------------------------------------------- Balance June 30, 1995 0 $ 0 342,000 $ 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 Payments received on subscription receivable (960) (192) Compensation expense recorded on stock options ----------------------------------------------------------------- Balance, June 30, 1996 0 $ 0 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 0 $ 0 2,402,035 $ 480,408 Net Loss Conversion of common stock from par value to no par value $ 15,392,446 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 Stock options issued for services: October 1998 Compensation expense recorded on stock options
Deficit Accumulated During Additional the Sub- Paid-In Development scriptions Capital Stage Receivable ----------------------------------------------------------- Balance at Inception Net Loss for 15 months ($3,475,608) 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 Common stock issued, September 1992 $875,967 ($53,689) Common stock issuance costs ($312,755) Common stock to be issued Cumulative translation adjustment Elimination of cumulative translation adjustment Officers advances, net ----------------------------------------------------------- Balance, December 31, 1992 $1,461,617 ($3,475,608) ($53,689) Net loss ($996,089) Common stock transactions: Common stock issued, January 1993 $118,400 Common stock issued, April 1993 $11,700 -- Change in common stock par value resulting from merger $4,420,353 Repayments ------------------------------------------------------------- Balance,June 30, 1993 $6,012,070 ($4,471,697) ($53,689) Net loss ($1,543,888) 240,000 shares of common stock to be issued Repayments $53,689 ------------------------------------------------------------- Balance, June 30, 1994 $6,012,070 ($6,015,585) $0 Net loss ($2,070,292) Common stock issued, June 1995 $276,068 ($20,000) Warrants issued for services $40,200 ------------------------------------------------------------- Balance June 30, 1995 $6,328,338 ($8,085,877) ($20,000) 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 Payments 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) $0 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) $0 Net Loss ($3,648,748) Conversion of common stock from par value to no par value ($15,392,446) 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) $0 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 Stock options issued for services: October 1998 $42,000 Compensation expense recorded on stock options $43,000
Paid for Due Cumulative Not From Translation Issued Officers Adjustment ----------------------------------------------------------- Balance at Inception Net Loss for 15 months Common stock transactions: Common stock issued, October 1991 Common stock issued, November 1991 Common stock issuance costs Cumulative translation adjustment $387,754 Common stock issued, September 1992 Common stock issuance costs Common stock to be issued $120,000 Cumulative translation adjustment ($209,099) Elimination of cumulative translation adjustment ($178,655) Officers advances, net ($27,433) ----------------------------------------------------------- Balance, December 31, 1992 $120,000 ($27,433) $0 Net loss Common stock transactions: Common stock issued, January 1993 ($120,000) Common stock issued, April 1993 Change in common stock par value resulting from merger Repayments $5,137 ----------------------------------------------------------- Balance,June 30, 1993 $0 ($22,296) $0 Net loss 240,000 shares of common stock to be issued $30,000 Repayments $22,296 ----------------------------------------------------------- Balance, June 30, 1994 $30,000 $0 $0 Net loss Common stock issued, June 1995 ($30,000) Warrants issued for services ----------------------------------------------------------- Balance June 30, 1995 $0 $0 $0 Net loss Common stock issued, net of issuance costs of $848,877: July, 1995 August, 1995 September, 1995 November, 1995 December, 1995 May, 1996 June, 1996 Payments received on subscription receivable Compensation expense recorded on stock options ----------------------------------------------------------- Balance, June 30, 1996 $0 $0 $0 Net loss Stock offering costs Common stock issued upon exercise of options and warrants September 1996 October 1996 November 1996 December 1996 January 1997 February 1997 March 1997 Payments received on subscription receivable Compensation expense recorded on stock options Common stock issued, June 1997 Warrants issued with notes payable ----------------------------------------------------------- Balance, June 30, 1997 $0 $0 $0 Net Loss Conversion of common stock from par value to no par value 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 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 ----------------------------------------------------------- Balance, June 30, 1998 $0 $0 $0 Net Loss Warrants issued with notes payable 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 Stock options issued for services: October 1998 Compensation expense recorded on stock options
5 QUANTECH LTD (A Development Stage Company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Period From September 30, 1991 (date of Inception), to September 30, 2001
Series B Series C Preferred Stock Preferred Stock Shares Amount Shares Amount ---------------------------------------------------------------- Common stock issued upon conversion of preferred stock: November 1998 January 1999 March 1999 April 1999 Warrants issued for services: November 1998 Series B Preferred Stock issued: June 1999 623,334 $891,500 Accrete to redemption value on Series A Preferred Stock ---------------------------------------------------------------- Balance, June 30, 1999 623,334 $891,500 0 $0 Net Loss 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 $1.00 471,666 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 Preferred Stock Series C Preferred Stock issued: February 2000 1,000,000 $973,100 Common stock issued: February 2000 Common stock issued upon conversion of preferred stock: July 1999 August 1999 (33,333) ($50,000) September 1999 October 1999 December 1999 January 2000 (880,000) ($880,000) February 2000 March 2000 (75,000) ($72,500) April 2000 (180,000) ($177,000) 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 November 1999 January 2000 February 2000 March 2000 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 Compensation expense recorded on stock options Subsidiary stock issued Payment received on subscriptions receivable Accrete to redemption value on Series A Preferred Stock ---------------------------------------------------------------- Balance June 30, 2000 2,744,667 $1,874,073 1,000,000 $973,100 Net Loss Series D Preferred Stock issued: August 2000 September 2000 October 2000 Common stock issued upon conversion of preferred stock: August 2000 September 2000 (25,000) ($22,500) October 2000 2,719,667) ($1,851,573) (1,000,000) ($973,100) Warrants issued: August 2000 September 2000 October 2000 November 2000 December 2000 April 2001 Subsidiary stock and warrant issued Common stock issued: October 2000 November 2000 December 2000 Compensation expense recorded on stock options Common stock issued upon exercise of warrants: Beneficial conversion expense on Preferred Stock Payment received on subscriptions receivable Accrete to redemption value on Series A Preferred Stock ---------------------------------------------------------------- Balance June 30, 2001 0 $0 0 $0 Net Loss Warrants issued with notes payable Amount attributable to value of debt conversion feature Compensation expense recorded on subsidiary stock options Payment received on subscriptions receivable ---------------------------------------------------------------- Balance September 30, 2001 0 $0 0 $0
Series D Preferred Stock Common Stock Shares Amount Shares Amount ---------------------------------------------------------------------------- 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 services: November 1998 Series B Preferred Stock issued: June 1999 Accrete to redemption value on Series A Preferred Stock ---------------------------------------------------------------------------- Balance, June 30, 1999 0 $0 2,741,534 $16,498,837 Net Loss Series B Preferred Stock issued: July 1999 August 1999 September 1999 October 1999 - adjust price to $1.00 November 1999 December 1999 January 2000 February 2000 Beneficial conversion expense on Preferred Stock Series C Preferred Stock issued: February 2000 Common stock issued: February 2000 125,000 $187,500 Common stock issued upon conversion of preferred stock: July 1999 32,000 $24,000 August 1999 179,121 $159,341 September 1999 80,852 $60,639 October 1999 50,000 $37,500 December 1999 13,252 $9,939 January 2000 890,000 $887,500 February 2000 866,664 $649,998 March 2000 89,000 $83,000 April 2000 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 Compensation expense recorded on stock options Subsidiary stock issued Payment received on subscriptions receivable Accrete to redemption value on Series A Preferred Stock ---------------------------------------------------------------------------- Balance June 30, 2000 0 $0 6,204,416 $19,959,765 Net Loss Series D Preferred Stock issued: August 2000 1,462,400 $2,817,482 September 2000 533,600 $1,123,817 October 2000 933,800 $1,613,840 Common stock issued upon conversion of preferred stock: August 2000 14,108 $10,581 September 2000 25,000 $22,500 October 2000 (2,929,800) ($5,555,139) 12,055,063 $12,982,725 Warrants issued: August 2000 September 2000 October 2000 November 2000 December 2000 April 2001 Subsidiary stock and warrant issued Common stock issued: October 2000 56,000 $65,371 November 2000 178,000 $366,300 December 2000 50,000 $71,700 Compensation expense recorded on stock options Common stock issued upon exercise of warrants: 1,125 $844 Beneficial conversion expense on Preferred Stock Payment received on subscriptions receivable Accrete to redemption value on Series A Preferred Stock ---------------------------------------------------------------------------- Balance June 30, 2001 0 $0 18,583,712 $33,479,786 Net Loss Warrants issued with notes payable Amount attributable to value of debt conversion feature Compensation expense recorded on subsidiary stock options Payment received on subscriptions receivable ---------------------------------------------------------------------------- Balance September 30, 2001 0 $0 18,583,712 $33,479,786
Deficit Accumulated During Additional the Sub- Paid-In Development scriptions Capital Stage Receivable ------------------------------------------------------------ Common stock issued upon conversion of preferred stock: November 1998 January 1999 March 1999 April 1999 Warrants issued for services: November 1998 $781,000 Series B Preferred Stock issued: June 1999 ($60,000) Accrete to redemption value on Series A Preferred Stock ($377,420) ------------------------------------------------------------ Balance, June 30, 1999 $2,342,745 ($22,724,284) ($60,000) Net Loss ($6,022,853) Series B Preferred Stock issued: July 1999 August 1999 September 1999 October 1999 - adjust price to $1.00 November 1999 December 1999 ($20,000) January 2000 February 2000 Beneficial conversion expense on Preferred Stock $2,742,670 ($2,742,670) Series C Preferred Stock issued: February 2000 Common stock issued: February 2000 ($4,500) Common stock issued upon conversion of preferred stock: July 1999 August 1999 September 1999 October 1999 December 1999 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 Compensation expense recorded on stock options $332,300 Subsidiary stock issued $1,250,088 Payment received on subscriptions receivable $89,500 Accrete to redemption value on Series A Preferred Stock ($410,445) ------------------------------------------------------------ Balance June 30, 2000 $7,313,828 ($31,900,252) ($20,000) Net Loss ($11,466,368) Series D Preferred Stock issued: August 2000 September 2000 October 2000 Common stock issued upon conversion of preferred stock: August 2000 September 2000 October 2000 Warrants issued: August 2000 $576,000 September 2000 $206,000 October 2000 $401,868 November 2000 $34,225 December 2000 $40,850 April 2001 $75,000 Subsidiary stock and warrant issued $156,770 $156,770 Common stock issued: October 2000 November 2000 December 2000 Compensation expense recorded on stock options $22,441 Common stock issued upon exercise of warrants: Beneficial conversion expense on Preferred Stock $2,470,644 ($2,470,644) Payment received on subscriptions receivable $10,218 Accrete to redemption value on Series A Preferred Stock ($118,249) ------------------------------------------------------------ Balance June 30, 2001 $11,297,626 ($45,955,513) ($9,782) Net Loss ($2,930,881) Warrants issued with notes payable $130,200 Amount attributable to value of debt conversion feature $130,200 Compensation expense recorded on subsidiary stock options $10,368 Payment received on subscriptions receivable $1,185 ------------------------------------------------------------ Balance September 30, 2001 $11,568,394 ($48,886,394) ($8,597)
Paid for Due Cumulative Not From Translation Issued Officers Adjustment -------------------------------------------------------- Common stock issued upon conversion of preferred stock: November 1998 January 1999 March 1999 April 1999 Warrants issued for services: November 1998 Series B Preferred Stock issued: June 1999 Accrete to redemption value on Series A Preferred Stock -------------------------------------------------------- Balance, June 30, 1999 $0 $0 $0 Net Loss Series B Preferred Stock issued: July 1999 August 1999 September 1999 October 1999 - adjust price to $1.00 November 1999 December 1999 January 2000 February 2000 Beneficial conversion expense on Preferred Stock Series C Preferred Stock issued: February 2000 Common stock issued: February 2000 Common stock issued upon conversion of preferred stock: July 1999 August 1999 September 1999 October 1999 December 1999 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 November 1999 January 2000 February 2000 March 2000 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 Compensation expense recorded on stock options Subsidiary stock issued Payment received on subscriptions receivable Accrete to redemption value on Series A Preferred Stock -------------------------------------------------------- Balance June 30, 2000 $0 $0 $0 Net Loss Series D Preferred Stock issued: August 2000 September 2000 October 2000 Common stock issued upon conversion of preferred stock: August 2000 September 2000 October 2000 Warrants issued: August 2000 September 2000 October 2000 November 2000 December 2000 April 2001 Subsidiary stock and warrant issued Common stock issued: October 2000 November 2000 December 2000 Compensation expense recorded on stock options Common stock issued upon exercise of warrants: Beneficial conversion expense on Preferred Stock Payment received on subscriptions receivable Accrete to redemption value on Series A Preferred Stock -------------------------------------------------------- Balance June 30, 2001 $0 $0 $0 Net Loss Warrants issued with notes payable Amount attributable to value of debt conversion feature Compensation expense recorded on subsidiary stock options Payment received on subscriptions receivable -------------------------------------------------------- Balance September 30, 2001 $0 $0 $0
6 QUANTECH LTD (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS
Period From September 30, 1991 (Date of Inception), to September 30, September 30, 2001 2000 2001 ------------ ------------ ------------ Cash Flows From Operating Activities Net Loss $ (2,930,881) $ (2,069,815) $(42,766,966) Adjustments to reconcile net loss to net cash used in operating activities: Elimination of cumulative translation adjustment -- -- (178,655) Depreciation 163,541 33,570 928,088 Amortization 81,657 81,659 2,914,423 Gain on disposal of property and equipment -- -- (1,777) Noncash compensation, services and interest 274,800 -- 5,650,390 Minority interest in subsidiary (4,032) (82,993) (4,032) Deferred revenue -- -- 5,352,495 Amortization of deferred revenue (184,603) (1,286,529) Other -- -- 623,650 Change in assets and liabilities: (Increase) decrease in prepaid expenses (1,214) (5,433) 111,001 Increase (decrease) in accounts payable 245,738 12,401 773,869 Increase (decrease) in accrued expenses 58,352 (3,750) 535,710 ------------ ------------ ------------ Net cash used in operating activities (2,296,642) (2,034,361) (27,348,333) ------------ ------------ ------------ Cash Flows From Investing Activities Purchase of property and equipment (144,481) (382,710) (2,255,603) Proceeds on disposition of property -- -- 39,775 Patent costs (13,107) (34,664) (142,761) Organization costs -- -- (97,547) Deposits -- (20,537) (101,092) Officer advances, net -- -- (109,462) Note receivable from officer (2,843) (4,597) (154,806) 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 (160,431) (442,508) (6,622,936) ------------ ------------ ------------ Cash Flows From Financing Activities Net proceeds from the sale of Series A Preferred Stock -- -- 1,523,909 Net proceeds from the sale of Series B Preferred Stock -- -- 2,993,573 Net proceeds from the sale of Series C Preferred Stock -- -- 973,100 Net proceeds from the sale of Series D Preferred Stock -- 3,941,299 5,555,139 Net proceeds from the sale of common stock and warrants -- 782,000 14,325,137 Net proceeds from the sale of common stock of subsidiary -- 125,000 1,406,858 Proceeds from debt obligations 1,053,450 -- 8,286,406 Payments received on stock subscriptions receivable 1,185 -- 56,403 Payments on debt obligations -- (763,302) (592,457) ------------ ------------ ------------ Net cash provided by financing activities 1,054,635 4,084,997 34,528,068 ------------ ------------ ------------ Effect of Exchange Rate Changes on Cash -- -- 203,242 ------------ ------------ ------------ Net increase (decrease) in cash (1,402,438) 1,608,128 760,041 Cash and Cash Equivalents Beginning 2,162,479 1,328,797 -- ------------ ------------ ------------ Ending $ 760,041 $ 2,936,925 $ 760,041 ============ ============ ============
7 QUANTECH LTD. ( A DEVELOPMENT STAGE COMPANY ) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION In the opinion of the management of Quantech, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the financial position of Quantech as of September 30, 2001 and the results of operations and its cash flows for the three month periods ended September 30, 2001 and 2000, and the period from inception to September 30, 2001. 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 Quantech's annual financial statements and related notes in Quantech's Annual Report on Form 10-KSB for the year ended June 30, 2001. NOTE 2. LICENSE AGREEMENT Quantech has a license agreement with Ares-Serono for certain patents, proprietary information and associated hardware related to Surface Plasmon Resonance ("SPR") technology which was acquired for approximately $4.3 million and is being amortized over its estimated useful life of 15 years. In addition, the license calls for an ongoing royalty of 6 percent on all products utilizing the SPR technology which are sold by Quantech. Also, 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. NOTE 3. CONVERTIBLE PREFERRED STOCK On October 2, 2000, Quantech closed on a private equity offering greater than $5 million causing all of its Series A redeemable, B, C and D preferred stock to automatically convert into common shares. NOTE 4. HTS BIOSYSTEMS Quantech's consolidated financial statements include the results of HTS Biosystems, Inc. ("HTS") of which Quantech currently has 72% ownership. The HTS PROTEOMATRIX(TM) solution is a portfolio of proprietary detection technologies, chemistries and bioinformatics forming a matrix of tools that addresses the proteomics market. HTS Biosystems was formed by combining technology and intellectual property from its initial shareholders Quantech and Applied Biosystems. NOTE 5. SEGMENTS The Company has two reportable segments: Quantech Ltd. (Quantech) and HTS Biosystems, Inc. (HTS). Quantech is completing development of a system for the hospital emergency department that is expected to run tests for a number of different medical conditions utilizing its proprietary technology, surface plasmon resonance (SPR) and other technologies. HTS is focused on the proteomics market, and is developing detection systems using SPR as well as fluorescence and chemiluminescent based technologies for drug discovery and the development of unique diagnostics. The accounting policies of the segments are the same as those described in the summary of significant accounting policies included in Quantech's annual report on Form 10-KSB. 8
Three months ended September 30, 2001 Quantech HTS Total - ---------------------------------------------------------------------------------------------------------- Net Revenue $ 52,659 $ 131,944 $ 184,603 Interest Income 5,159 12,334 17,493 Interest Expense 62,720 0 62,720 Depreciation and amortization 219,566 25,632 245,198 Segment loss (1,788,239) (1,142,642) (2,930,881) Cash 275,310 484,731 760,041 Total assets $ 3,596,681 $ 986,818 $ 4,583,499 - ----------------------------------------------------------------------------------------------------------
Three months ended September 30, 2000 Quantech HTS Total - ---------------------------------------------------------------------------------------------------------- Net Revenue $ 0 $ 40,000 $ 40,000 Interest Income 8,108 20,841 28,949 Interest Expense 19,226 0 19,226 Depreciation and amortization 113,683 1,546 115,229 Segment loss (1,762,435) (307,380) (2,069,815) Cash 2,028,642 908,283 2,936,925 Total assets $ 5,486,893 $ 1,100,275 $ 6,587,168 - ----------------------------------------------------------------------------------------------------------
NOTE 6. PRONOUNCEMENTS ISSUED NOT YET ADOPTED In July, 2001, the Financial Accounting Standards Board issued two statements - Statement 141, Business Combinations, and Statement 142, Goodwill and Other Intangible Assets, which will potentially impact the Company's accounting for its reported intangible assets. The standards generally are required to be implemented by the Company in its 2002 financial statements. The adoption of these standards is not expected to have a material impact on the Company's financial statements. In September 2001, the FASB issued Statement 143, Asset Retirement Obligations. This Statement addresses financial accounting and reporting for obligation associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Statement will be effective for the Company's fiscal year ending June 30, 2003. Management expects the adoption of this standard will not have a material impact on the financial statements. In August 2001, the FASB issued Statement 144, Accounting for Impairment or Disposal of Long-Lived Assets. This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Statement will be effective for the Company's fiscal year ending June 2003. The Company does not believe that the adoption of this pronouncement will have a material effect on its financial statements. NOTE 7. DEFERRED REVENUE During fiscal year 2001, Quantech and HTS recorded deferred revenue for payments received from Mitsubishi Chemical Corporation ("Mitsubishi") for future product deliveries and license and distribution agreements. Quantech received payments of $900,000 and $350,000, respectively, for license and distribution rights. HTS received payments of $1,350,000 and $1,500,000, respectively, for license and distribution rights, and received $300,000 for evaluation systems to be delivered during fiscal year 2002. The patent licensing revenue is being recognized over the remaining life of the patents of approximately 8 years, and the distribution agreement revenue is being recognized over the term of the agreement which runs through January 2006. Revenue for the evaluation systems will be recognized when the systems are shipped to and accepted by Mitsubishi. 9 NOTE 8. CONVERTIBLE DEBT During August 2001, Quantech sold $1,085,000 of convertible promissory notes and warrants to accredited investors. The notes have an interest rate of 10% per year paid semi-annually and are due upon demand after one year. The Company pledged as collateral 1,388,800 shares of HTS common stock owned by Quantech. The notes may be converted into shares of the equity security (the "Next Financing Shares") sold by Quantech in its next equity financing of at least $5 million (the "Next Financing"). Noteholders will have the option of converting their notes at a price equal to the lesser of 80% of the per share price of the Next Financing Shares or 80% of the applicable conversion price of such shares. If the Next Financing does not occur within one year from the issuance date of the notes, the noteholders may, at their option, convert the notes into shares of Quantech common stock at $1.00 per share. The noteholders also received a five-year warrant to purchase one Next Financing Share for each Next Financing Share into which such investor's note is convertible. The warrant exercise price shall be the lesser of 80% of the purchase price per share of the Next Financing Shares or 80% of the applicable conversion price of such shares. If the Next Financing does not occur within one year from the issuance date of the warrant, the warrant becomes exercisable to purchase, at $1.00 per share, the number of shares of common stock into which the note is then convertible. Quantech paid commissions and expenses in the aggregate amount of $126,040 to registered investment banks for acting as selling agents, and in addition issued the investment banks warrants to purchase common shares of up to 10% of shares of common stock into which the notes are convertible. The warrants were valued at $130,200 and are being accreted using the interest method over one year, the term of the debt. The Company also recognized a beneficial conversion feature of $130,200, which is also being accreted using the interest method over one year. The unamortized amount of the warrant value and beneficial conversion feature of $249,550 has been offset against the outstanding note amount on the balance sheet. 10 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION HISTORY Quantech Ltd. is a Minnesota company originally founded in 1991. Quantech 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 one or more 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. The FasTraQ system also incorporates non-SPR technologies for certain tests with all tests run from the same user interface. 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 laboratory or a smaller, more conveniently located version of the central laboratories called STAT labs. Obtaining test results from central laboratories can take on average 45 to 90 minutes. 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 on average, and cost effectively provide test results, especially for patients with critical problems in emergency departments. We have filed an application with the United States Food and Drug Administration (the "FDA") for clearance of our SPR point-of-care instrument and a test for the pregnancy enzyme hCG, and expect to file an application for the cardiac enzymes myoglobin, troponin I and CK-MB in the near future. Other tests and instrument modules are under development and are expected to be added to the FasTraQ system to provide the various quantitative tests the emergency department requires on an urgent basis. Quantech intends to launch the FasTraQ system initially through a Charter Customer rollout program with approximately five U.S. hospitals. It is anticipated that Quantech will begin implementation of the rollout program in the first quarter of 2002 with its SPR instrument module and the hCG and cardiac panel cartridges. As Quantech completes additional modules and cartridges, they would be provided to the Charter Customers. Quantech expects to launch sales of the FasTraQ to customers in various areas of the U.S. after it has received FDA clearance for its launch menu consisting of six cartridges and related modules that provide the capability to run most of the tests commonly ordered by the ED. It is anticipated that launch menu sales will begin approximately nine months after the initial rollout to Charter Customers. Quantech also owns 72% of HTS Biosystems, Inc. ("HTS"). The HTS PROTEOMATRIX(TM) solution is a unique portfolio of innovative, proprietary detection technologies, chemistries and bioinformatics forming a matrix of tools that addresses the proteomics market. This portfolio includes novel label-free detection systems as well as advanced fluorescence and chemiluminescent based technologies supporting all phases of drug discovery and development of unique diagnostics. HTS Biosystems was formed by combining technology and intellectual property from its initial shareholders Quantech and Applied Biosystems. This technology portfolio has been expanded, and collaborations with 11 Protein Sciences Corporation, Ciencia, Inc., Boston Probes, Inc., and Mitsubishi Chemical Corporation have been formed, positioning the PROTEOMATRIX solution as a powerful tool for the high-throughput detection of molecular interactions and cellular changes. RESULTS OF OPERATIONS Quantech has incurred a net loss of $42,766,966 from September 30, 1991 (date of inception) through September 30, 2001 due to expenses related to formation and operation of Quantech's predecessor, Spectrum Diagnostics Inc. ("SDS") in Italy, continuing costs of raising capital, normal expenses of operating over the period since inception, funds applied to research and development, royalty payments related to the SPR technology, losses due to expenses of SDS and HTS and interest on borrowed funds. For the three months ended September 30, 2001, Quantech had losses of $2,930,881 as compared to $2,069,815 for the same period in 2000. The higher loss was primarily due to higher operating expenses, especially for research and development. Net revenue increased to $184,603 for the three months ended September 30, 2001 from $40,000 for the same period in 2000 from the amortization of licensing and distribution revenue (see Notes to Financial Statements, Note 7 - Deferred Revenue). We expect additional sales of evaluation systems and licensing and distribution revenue amortization during the remainder of the year, but do not expect revenue from the sale of commercial systems. General and administration expenses increased to $866,352 for the three months ended September 30, 2001 from $634,735 for the same period in 2000 primarily due to expansion of HTS operations. We expect general and administrative expenses to increase in the future as Quantech and HTS complete development of their systems, prepare for market launch and begin to manufacture and distribute their products. Marketing expenses decreased to $83,599 for the three months ended September 30, 2001 from $197,153 for the same period in 2000 due to reduced market research spending at Quantech. We expect marketing expenses to increase in the future as we prepare for market launch and begin to distribute our products. Research and development costs increased to $2,124,338 for the three months ended September 30, 2001 from $1,370,643 for the same period in 2000 primarily due to expanded development work at HTS, and spending at Quantech to conduct FDA clinical trials. We expect R&D spending to increase as Quantech and HTS complete the commercial development of their systems. Minority interest in the HTS net loss decreased to $4,032 for the three months ended September 30, 2001 from $82,993 during the same periods in 2000. The balance sheet account for the minority interest in HTS dropped to zero during 2001, and therefore subsequent HTS losses were fully absorbed in the Quantech consolidated financial statements. Interest income decreased to $17,493 for the three months ended September 30, 2001 compared to $28,949 for the same period in 2000 as a result of less cash on hand from the proceeds of offerings for Quantech and HTS. Interest expense increased to $62,720 for the three months ended September 30, 2001 from $19,226 during the same period in 2000 as a result of higher average debt at Quantech. The timetable for submitting additional tests to the FDA and introduction of Quantech's system to the market will be influenced by Quantech's ability to obtain further funding, enter into strategic relationships, complete commercial prototype development of its system and 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 Quantech will be able to obtain the required funding, enter into any strategic agreements or ultimately complete its commercial system. 12 LIQUIDITY AND CAPITAL RESOURCES From inception to September 30, 2001, Quantech has raised approximately $38,700,000 through a combination of public stock sales, private sales of stock and convertible debt obligations and receipts from strategic partners. In July 2001, Quantech implemented a company-wide plan to conserve cash while pursuing additional funding for system commercialization. The cash conservation plan included a 20% reduction in workforce and temporary salary reductions by senior personnel. In August 2001, Quantech raised bridge financing with net proceeds of $958,960 through the sale of convertible promissory notes and warrants, and, in October 2001, raised additional net proceeds of $44,500. The warrants were valued at $136,200. In addition, the beneficial conversion feature of $136,200 was recognized. Quantech also has a bank credit facility of up to $2.5 million, in which certain of the directors participated as co-borrowers. The credit facility expires on December 1, 2001, and Quantech has begun discussions with the bank to extend the facility. As of November 9, 2001, $2,489,871 was outstanding on this credit facility. Quantech is seeking to raise approximately an additional $1.5 million of bridge financing through the issuance of promissory notes and/or equity. The Company has signed an engagement agreement with an investment bank to assist in raising the bridge financing. With the additional bridge financing, Quantech will be able to maintain its current level of operations into the first quarter of 2002. If the financing is not raised by approximately December 1, 2001, the Company will have to significantly scale back its operations until it is able to obtain funding. Additional financing of approximately $10 to $12 million will be needed to develop and submit to the FDA additional tests, complete customer evaluations 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. Subsequently, the Company will need to raise additional funding when it begins sales of its systems. 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 does not anticipate receiving any significant funding from commercial lenders other than the $2.5 million credit facility mentioned above. In addition, HTS Biosystems anticipates raising additional capital. An equity financing by HTS would result in a dilution of Quantech ownership of HTS. In October 2001, HTS began offering for sale up to $1.5 million of units consisting of one share of series A preferred stock and a warrant to purchase a half share of common stock. Although HTS is consolidated with Quantech for financial reporting purposes, HTS funds its own operations and does not receive funds from Quantech. Consolidated capital expenditures were $144,481 during the three month period ended September 30, 2001 primarily for establishing an HTS research and development facility in East Hartford, Connecticut. We anticipate significantly higher capital expenditures in the near future for laboratory and production equipment and office expansion as Quantech and HTS 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. CAUTIONARY STATEMENTS MANY OF THE STATEMENTS CONTAINED IN THIS 10-QSB CONSTITUTE "FORWARD LOOKING STATEMENTS." SUCH STATEMENTS ARE MANAGEMENT'S EXPECTATIONS OR FORECASTS, NOT HISTORICAL FACTS, AND TYPICALLY RELATE TO PRODUCT DESIGN AND 13 DEVELOPMENT, FDA APPROVAL, COMMERCIALIZATION, FINANCING NEEDS AND FINANCIAL RESULTS, AMONG OTHERS. FORWARD LOOKING 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. SUCH STATEMENTS CANNOT BE GUARANTEED AND INVOLVE RISK AND UNCERTAINTIES, KNOWN AND UNKNOWN, INCLUDING THOSE IDENTIFIED BELOW AND ELSEWHERE IN THIS REPORT AND OTHER FILINGS WITH THE SEC. SUCH RISKS MAY CAUSE ACTUAL RISKS TO DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS. QUANTECH UNDERTAKES NO OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS. IT IS NOT POSSIBLE TO FORESEE OR IDENTIFY ALL FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM EXPECTED OR HISTORIC RESULTS. AS SUCH, INVESTORS SHOULD NOT CONSIDER ANY LIST OF SUCH FACTORS TO BE AN EXHAUSTIVE STATEMENT OF ALL RISKS, UNCERTAINTIES OR POTENTIALLY INACCURATE ASSUMPTIONS. 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 Quantech'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 capital 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, 2001 and September 30, 2001, we had accumulated deficits of $45,955,513 and $48,886,394 respectively. The report of the independent auditors on Quantech's financial statements for the year ended June 30, 2001, 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. To date, Quantech has been unable to meet such 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. 14 OTHER FACTORS As described in Quantech's Form 10-KSB for the year ended June 30, 2001 under Cautionary Statements, there are factors concerning Quantech in addition to those identified above that should be considered including, but not limited to: uncertainty of market acceptance of Quantech's product once introduced, inability or delay in obtaining FDA product approval, competition, lack of marketing and manufacturing experience, technological obsolescence, ability to maintain patent protection on Quantech's technology and not violate others' rights, effects of government regulation on Quantech's product and its sale, ability to manufacture its product, dependence on key personnel, exposure to the risk of product liability, risk of loss of investment in HTS and the limited market for Quantech shares. PART II OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities During August 2001, Quantech sold $1,085,000 of convertible promissory notes and warrants to accredited investors. The notes have an interest rate of 10% per year paid semi-annually and are due upon demand after one year. The Company pledged as collateral 1,388,800 shares of HTS common stock owned by Quantech. The notes may be converted into shares of the equity security (the "Next Financing Shares") sold by Quantech in its next equity financing of at least $5 million (the "Next Financing"). Noteholders will have the option of converting their notes at a price equal to the lesser of 80% of the per share price of the Next Financing Shares or 80% of the applicable conversion price of such shares. If the Next Financing does not occur within one year from the issuance date of the notes, the noteholders may, at their option, convert the notes into shares of Quantech common stock at $1.00 per share. The noteholders also received a five-year warrant to purchase one Next Financing Share for each Next Financing Share into which such investor's note is convertible. The warrant exercise price shall be the lesser of 80% of the purchase price per share of the Next Financing Shares or 80% of the applicable conversion price of such shares. If the Next Financing does not occur within one year from the issuance date of the warrant, the warrant becomes exercisable to purchase, at $1.00 per share, the number of shares of common stock into which the note is then convertible. The sale of such notes and warrants was deemed to be exempt from registration under Section 4(2) of the 1933 Act and rule 506 promulgated thereunder. Quantech paid commissions and expenses in the aggregate amount of $126,040 to registered investment banks for acting as selling agents, and in addition issued the investment banks warrants to purchase common shares of up to 10% of shares of common stock into which the notes are convertible. The purchasers acquired these securities for their own accounts and not with a view to any distribution thereof to the public. Item 3. Defaults upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on 8-K a. Exhibits - None b. Reports on Form 8-K - None 15 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/ Edward L. Zeman ---------------------- Edward L. Zeman Date: November 14, 2001 Chief Financial Officer 16 EXHIBIT INDEX QUANTECH LTD. FORM 10-QSB for Quarter Ended September 30, 2001
Exhibit Number Description - ------------------------ ----------------------------------------
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