-----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, SEgCN4wEBHitsjWLHh+FBh5LbSlFrAirBbSHAtaur9Qzu/R9sG0AaXT0FU1MeK7p w9GmPS8nvBdgdMjRaZpPCQ== 0000950137-02-002974.txt : 20020514 0000950137-02-002974.hdr.sgml : 20020514 ACCESSION NUMBER: 0000950137-02-002974 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 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: 02645355 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 c69585e10qsb.txt QUARTERLY REPORT 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: March 31, 2002 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: 18,666,075 shares of Common Stock, no par value, as of May 8, 2002. Transitional Small Business Disclosure Format: YES NO X ----- ----- Index
PART I. FINANCIAL INFORMATION Page No. -------- Item 1: Financial Statements: Consolidated Balance Sheets as of March 31, 2002 and June 30, 2001 3 Consolidated Statements of Operations for the Three Months and Nine Months Ended March 31, 2002 and 2001 and from inception to March 31, 2002 4 Consolidated Statement of Stockholders' Equity from inception to March 31, 2002 6 Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2002 and 2001 and from inception to March 31, 2002 8 Notes to Financial Statements 9 Item 2: Management's Discussion and Analysis or Plan of Operation 13 PART II. OTHER INFORMATION 17
2 QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET
(UNAUDITED) MARCH 31, JUNE 30, ASSETS 2002 2001 ------------ ------------ CURRENT ASSETS Cash and cash equivalents $ 321,080 $ 2,162,479 8% demand note receivable from officer 148,551 151,963 Prepaid expenses 30,590 29,376 ------------ ------------ Total current assets 500,221 2,343,818 ------------ ------------ PROPERTY AND EQUIPMENT Equipment 2,606,217 2,350,964 Leasehold improvements 119,367 72,059 ------------ ------------ 2,725,584 2,423,023 Less accumulated depreciation (1,128,168) (619,183) ------------ ------------ Total property and equipment 1,597,416 1,803,840 ------------ ------------ OTHER ASSETS License agreement, at cost, less amortization (note 2) 1,510,953 1,755,924 Patents, net 148,998 128,115 Deposits 37,793 37,793 ------------ ------------ Total other assets 1,697,744 1,921,832 ------------ ------------ TOTAL ASSETS $ 3,795,381 $ 6,069,490 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Short term debt (note 8) $ 4,320,747 $ 1,931,871 Accounts payable 1,740,614 871,699 Accrued expenses: Payroll and benefits 173,970 203,234 Interest 9,640 - Current portion of deferred revenue 738,412 1,038,412 ------------ ------------ Total current liabilities 6,983,383 4,045,216 ------------ ------------ DEFERRED REVENUE LESS CURRENT PORTION (NOTE 7) 2,658,348 3,212,157 STOCKHOLDERS' DEFICIT Common stock, no par value; authorized 59,913,000 shares, issued and outstanding 18,666,075 shares and 18,583,712 shares, at March 31, 2002 and June 30, 2001 respectively 33,508,613 33,479,786 Subscriptions receivable (3,105) (9,782) Additional paid-in capital 14,981,342 11,297,626 Deficit accumulated during the development stage (54,333,200) (45,955,513) ------------ ------------ Total stockholders' deficit (5,846,350) (1,187,883) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,795,381 $ 6,069,490 ============ ============
3 QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
PERIOD FROM SEPTEMBER 30, NINE MONTHS NINE MONTHS 1991 (DATE OF ENDED ENDED INCEPTION), TO MARCH 31, MARCH 31, MARCH 31, 2002 2001 2002 -------------------- -------------------- -------------------- Net Revenue: Product sales $ 300,000 $ 40,000 $ 1,402,495 Licensing revenue (note 8) 553,809 28,257 703,240 -------------------- -------------------- -------------------- TOTAL NET REVENUE 853,809 68,257 2,105,735 -------------------- -------------------- -------------------- Expenses: General and administrative 3,415,220 2,053,834 18,615,005 Marketing 182,652 822,461 2,699,778 Research and development 5,207,398 6,391,810 25,569,166 Minimum royalty expense - - 1,300,000 Minority interest - (387,435) (521,592) Other - - 488,978 -------------------- -------------------- -------------------- Total expenses 8,805,270 8,880,670 48,151,335 -------------------- -------------------- -------------------- LOSS FROM OPERATIONS (7,951,461) (8,812,413) (46,045,600) Other: Interest income 26,375 102,565 367,109 Interest expense (452,601) (27,855) (2,492,686) -------------------- -------------------- -------------------- LOSS BEFORE INCOME TAXES (8,377,687) (8,737,703) (48,171,177) Income taxes - - 42,595 -------------------- -------------------- -------------------- NET LOSS $ (8,377,687) $ (8,737,703) $ (48,213,772) ==================== ==================== ==================== Net loss attributable to common shareholders: Net loss $ (8,377,687) $ (8,737,703) Preferred stock accretion - (118,249) Beneficial conversion feature of preferred stock - (2,470,644) -------------------- -------------------- NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (8,377,687) $ (11,326,596) ==================== ==================== Loss per basic and diluted common share $ (0.45) $ (0.79) Weighted average common shares outstanding 18,617,334 14,340,522
4 QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, MARCH 31, 2002 2001 -------------------- --------------------- Net Revenue: Product sales $ 300,000 $ - Licensing revenue (note 8) 184,603 28,257 -------------------- --------------------- TOTAL NET REVENUE 484,603 28,257 -------------------- --------------------- Expenses: General and administrative 970,638 799,547 Marketing 15,673 346,665 Research and development 1,074,008 2,577,485 Minority interest - (157,282) -------------------- --------------------- Total expenses 2,060,319 3,566,415 -------------------- --------------------- LOSS FROM OPERATIONS (1,575,716) (3,538,158) Other: Interest income 3,179 21,696 Interest expense (244,151) (3,875) -------------------- --------------------- LOSS BEFORE INCOME TAXES (1,816,688) (3,520,337) Income taxes - - -------------------- --------------------- NET LOSS $ (1,816,688) $ (3,520,337) ==================== ===================== Loss per basic and diluted common share $ (0.10) $ (0.19) Weighted average common shares outstanding 18,636,790 18,648,112
5 QUANTECH LTD (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY PERIOD FROM SEPTEMBER 30, 1991 (DATE OF INCEPTION), TO MARCH 31, 2002
Series B Series C Series D Preferred Stock Preferred Stock Preferred Stock Shares Amount 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 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 0 $0 Net loss 240,000 shares of common stock to be issued Repayments ------------------------------------------------------------------------------ Balance, June 30, 1994 0 $0 0 $0 0 $0 Net loss Common stock issued, June 1995 Warrants issued for services ------------------------------------------------------------------------------ Balance June 30, 1995 0 $0 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 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 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 DEFICIT Accumulated During Additional the Common Stock Paid-In Development Subscriptions Shares Amount Capital Stage Receivable ------------------------------------------------------------------------------ Balance at Inception Net Loss for 15 months ($3,475,608) Common stock transactions: Common stock issued, October 1991 160,000 $3,154,574 Common stock issued, November 1991 30,000 $611,746 $1,788,254 Common stock issuance costs ($889,849) Cumulative translation adjustment Common stock issued, September 1992 35,000 $699,033 $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 225,000 $4,465,353 $1,461,617 ($3,475,608) ($53,689) Net loss ($996,089) Common stock transactions: Common stock issued, January 1993 8,000 $1,600 $118,400 Common stock issued, April 1993 1,500 $300 $11,700 Change in common stock par value resulting from merger ($4,420,353) $4,420,353 Repayments ------------------------------------------------------------------------------ Balance, June 30, 1993 234,500 $46,900 $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 234,500 $46,900 $6,012,070 ($6,015,585) $0 Net loss ($2,070,292) Common stock issued, June 1995 107,500 $21,500 $276,068 ($20,000) Warrants issued for services $40,200 ------------------------------------------------------------------------------ Balance June 30, 1995 342,000 $68,400 $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 308,000 $61,600 $1,304,450 August, 1995 35,880 $7,176 $161,460 September, 1995 690,364 $138,073 $2,370,389 November, 1995 94,892 $18,978 $425,482 December, 1995 560,857 $112,172 $1,292,473 May, 1996 313,750 $62,750 $3,300,422 June, 1996 252 $51 $3,650 Payments received on subscription receivable (960) (192) ($14,808) $20,000 Compensation expense recorded on stock options $125,000 ------------------------------------------------------------------------------ Balance, June 30, 1996 2,345,035 $469,008 $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 500 $100 $2,400 October 1996 8,500 $1,700 $40,800 November 1996 750 $150 $3,600 December 1996 13,500 $2,700 $64,800 ($57,500) January 1997 1,000 $200 $4,800 February 1997 7,500 $1,500 $17,250 March 1997 7,000 $1,400 $33,600 Payments received on subscription receivable $57,500 Compensation expense recorded on stock options $48,000 Common stock issued, June 1997 18,250 $3,650 $105,850 Warrants issued with notes payable $371 ------------------------------------------------------------------------------ Balance, June 30, 1997 2,402,035 $480,408 $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 ($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 $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 (73) ------------------------------------------------------------------------------ Balance, June 30, 1998 2,565,040 $16,308,438 $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 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 $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
6 QUANTECH LTD (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY PERIOD FROM SEPTEMBER 30, 1991 (DATE OF INCEPTION), TO MARCH 31, 2002
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 $156,770 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 Unaudited: Net Loss Warrants issued with notes payable Amount attributable to value of debt conversion feature Compensation expense recorded on subsidiary stock options Warrants issued: October 2001 November 2001 December 2001 February 2002 Common stock issued: February 2002 Subsidiary stock and warrant issued Gain on sale of subsidiary stock Payment received on subscriptions receivable ---------------------------------------------------------------------- Balance March 31, 2002 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 $156,770 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 Unaudited: Net Loss Warrants issued with notes payable Amount attributable to value of debt conversion feature Compensation expense recorded on subsidiary stock options Warrants issued: October 2001 November 2001 December 2001 February 2002 Common stock issued: February 2002 82,363 $28,827 Subsidiary stock and warrant issued Gain on sale of subsidiary stock Payment received on subscriptions receivable ------------------------------------------------------------------ Balance March 31, 2002 0 $0 18,666,075 $33,508,613 DEFICIT Accumulated During Additional the Paid for Paid-In Development Subscriptions Not Capital Stage Receivable Issued --------------------------------------------------------------- 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) $0 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) $0 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 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) $0 Unaudited: Net Loss ($8,377,687) Warrants issued with notes payable $163,950 Amount attributable to value of debt conversion feature $310,104 Compensation expense recorded on subsidiary stock options $862,368 Warrants issued: October 2001 $9,700 November 2001 $10,400 December 2001 $64,650 February 2002 $73,000 Common stock issued: February 2002 Subsidiary stock and warrant issued $1,929,544 Gain on sale of subsidiary stock $260,000 Payment received on subscriptions receivable $6,677 --------------------------------------------------------------- Balance March 31, 2002 $14,981,342 ($54,333,200) ($3,105) $0 Due Cumulative From Translation 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 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 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 $156,770 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 Unaudited: Net Loss Warrants issued with notes payable Amount attributable to value of debt conversion feature Compensation expense recorded on subsidiary stock options Warrants issued: October 2001 November 2001 December 2001 February 2002 Common stock issued: February 2002 Subsidiary stock and warrant issued Gain on sale of subsidiary stock Payment received on subscriptions receivable -------------------------- Balance March 31, 2002 $0 $0
7 QUANTECH LTD (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
PERIOD FROM SEPTEMBER 30, 1991 (DATE OF INCEPTION), TO MARCH 31, MARCH 31, 2002 2001 2002 --------------------- --------------------- -------------------- Cash Flows From Operating Activities Net Loss $ (8,377,687) $ (8,737,703) $ (48,213,772) Adjustments to reconcile net loss to net cash used in operating activities: Elimination of cumulative translation adjustment - - (178,655) Depreciation 508,985 72,021 1,273,532 Amortization 244,967 163,315 3,077,733 Gain on disposal of property and equipment - - (1,777) Noncash compensation, services and interest 1,546,559 - 6,922,149 Minority interest in subsidiary - (230,153) - Deferred revenue - - 5,352,495 Amortization of deferred revenue (853,809) - (1,955,735) Other - - 623,650 Change in assets and liabilities: (Increase) decrease in prepaid expenses (1,214) (5,848) 111,001 Increase (decrease) in accounts payable 868,915 91,727 1,397,046 Increase (decrease) in accrued expenses (19,624) (3,750) 457,734 --------------------- --------------------- -------------------- NET CASH USED IN OPERATING ACTIVITIES (6,082,908) (8,650,391) (31,134,599) --------------------- --------------------- -------------------- Cash Flows From Investing Activities Purchase of property and equipment (302,561) (758,326) (2,413,683) Proceeds on disposition of property - - 39,775 Patent costs (20,883) (54,588) (150,537) Organization costs - - (97,547) Deposits - (21,462) (101,092) Officer advances, net - - (109,462) Note receivable from officer 3,412 (7,440) (148,551) 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 (320,032) (841,816) (6,782,537) --------------------- --------------------- -------------------- 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 - 5,555,139 5,555,139 Net proceeds from the sale of common stock and warrants - 1,763,158 14,325,137 Net proceeds from the sale of common and preferred stock of subsidiary 2,165,988 125,000 3,572,846 Proceeds from debt obligations 2,388,876 - 9,621,832 Payments received on stock subscriptions receivable 6,677 - 61,895 Payments on debt obligations - (777,336) (592,457) --------------------- --------------------- -------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 4,561,541 6,665,961 38,034,974 --------------------- --------------------- -------------------- Effect of Exchange Rate Changes on Cash - - 203,242 --------------------- --------------------- -------------------- NET INCREASE (DECREASE) IN CASH (1,841,399) (2,826,246) 321,080 Cash and Cash Equivalents Beginning 2,162,479 1,328,797 - --------------------- --------------------- -------------------- Ending $ 321,080 $ (1,497,449) $ 321,080 ===================== ===================== ====================
8 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 March 31, 2002 and the results of operations and its cash flows for the three month and nine month periods ended March 31, 2002 and 2001, and the period from inception to March 31, 2002. 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. FasTraQ Solutions, Inc. has been established as a wholly owned subsidiary, but there has been no activity to date. 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. OPTION REPRICING During the quarter ended December 31, 2001, HTS Biosystems ("HTS") repriced 1,065,000 shares of stock options. The compensation expense is being recognized over the remaining vesting period of the options and resulted in a charge of $852,000 during the quarter ended December 31, 2001. In addition, variable accounting applies for future periods. NOTE 4. HTS BIOSYSTEMS Quantech's consolidated financial statements include the results of HTS Biosystems, Inc. of which Quantech currently has 57% 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. 9
Three months ended March 31, 2002 Quantech HTS Total - ----------------------------------------------------------------------------------------------------------- Net Revenue $ 52,659 $ 431,944 $ 484,603 Interest Income 2,570 609 3,179 Interest Expense 243,651 500 244,151 Depreciation and amortization 216,984 39,247 256,231 Segment loss (1,156,346) (660,342) (1,816,688) Three months ended March 31, 2001 Quantech HTS Total - ----------------------------------------------------------------------------------------------------------- Net Revenue $ 11,303 $ 16,954 $ 28,257 Interest Income 17,687 4,009 21,696 Interest Expense 3,875 0 3,875 Depreciation and amortization 196,121 4,208 200,329 Segment loss (2,930,539) (589,798) (3,520,337) Nine months ended March 31, 2002 Quantech HTS Total - ----------------------------------------------------------------------------------------------------------- Net Revenue $ 157,977 $ 695,832 $ 853,809 Interest Income 11,118 15,257 26,375 Interest Expense 452,101 500 452,601 Depreciation and amortization 654,115 99,837 753,952 Segment loss (4,404,516) (3,973,171) (8,377,687) Cash 16,749 304,331 321,080 Total assets $ 2,909,964 $ 885,417 $ 3,795,381 - ----------------------------------------------------------------------------------------------------------- Nine months ended March 31, 2001 Quantech HTS Total - ----------------------------------------------------------------------------------------------------------- Net Revenue $ 11,303 $ 56,954 $ 68,257 Interest Income 65,187 37,378 102,565 Interest Expense 27,855 0 27,855 Depreciation and amortization 425,295 10,370 435,665 Segment loss (7,022,972) (1,714,731) (8,737,703) Cash 563,042 1,505,440 2,068,482 Total assets $ 4,330,894 $ 1,649,017 $ 5,979,911 - -----------------------------------------------------------------------------------------------------------
NOTE 6. RECENT ACCOUNTING PRONOUNCEMENTS 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 Company has determined that the adoption of these standards will not 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. 10 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 was recognized when the systems were shipped to and accepted by Mitsubishi. NOTE 8. CONVERTIBLE DEBT During August and October 2001, Quantech sold $1,135,000 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 1,452,800 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 $131,540 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 $136,200 and were recorded as paid in capital and debt discount. The discount is being accreted using the interest method over one year, the term of the debt. The Company also recognized a beneficial conversion feature of $136,200, which was similarly accounted for and is also being accreted using the interest method over one year. The unamortized amount of the debt discount attributable to the warrant value and beneficial conversion feature of $182,600 has been offset against the outstanding note amount on the balance sheet. During February 2002, Quantech sold $500,000 of convertible debentures and warrants to accredited investors. The debentures have an interest rate of 8% per year and are due on July 31, 2002. The debentures may be converted into shares of Quantech common stock at the lesser of $0.39 per share or 80% of the closing share price for the 15 days prior to conversion. The investors also received warrants to purchase shares of Quantech common stock equal to 10% of the number of shares their debentures will convert into at an exercise price of $0.39 per share. 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 $65,000 to a registered investment bank for acting as selling agent, and in addition issued the investment bank warrants to purchase 250,000 common shares of Quantech common stock. 11 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION HISTORY Quantech Ltd. is a Minnesota company originally founded in 1991 which has been developing the "FasTraQ(TM)-ER" Patient Treatment Information System. The FasTraQ system employs Quantech's proprietary surface plasmon resonance ("SPR") and other technologies, in the field of emergency room ("ER") point-of-care diagnostics and patient information management. In December 2001, Quantech's created a wholly-owned subsidiary, FasTraQ Solutions, Inc. ("FSI"), but there has been no activity to date. In the event that FSI raises financing sufficient to continue development of the FasTraQ system, Quantech would license the FasTraQ and related technology to FSI in exchange for future royalties and other payments. Following such a restructuring, Quantech's primary assets would be the FSI stock, note and license agreement and, as discussed below, the HTS Biosystems, Inc. stock and license agreement. Quantech would also own the rights to certain non-ER applications of the SPR and related technologies but is not planning to pursue development of these applications in the foreseeable future. In January 2002, Quantech received clearance from the United States Food and Drug Administration (the "FDA") to market for public sale the FasTraQ system and a test for the pregnancy enzyme hCG. In December 2001, Quantech filed an application for a test to detect the cardiac enzymes myoglobin, troponin I and CK-MB. After reviewing the filing, the FDA requested additional data. Quantech intends to collect the data and resubmit the filing when it obtains the financing needed to expand its operations from the current minimal level of activity. 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 also owns a majority interest in HTS Biosystems, Inc. ("HTS"). HTS has identified and acquired proprietary detection technologies and strategic partnerships to create its PROTEOMATRIX(TM) Portfolio. From the Proteomatrix Portfolio, HTS is developing and integrating technologies to provide solutions to the Proteomics research market. The first product from this Portfolio is the FLEX CHIP Kinetic Analysis System, a novel, high throughput, label-free detection system that will be used in biotechnology research for new drug discovery and improved diagnostic tests. HTS is preparing the FLEX CHIP for market launch with its distribution partners Applied Biosystems, Inc. and Mitsubishi Chemical Corporation. RESULTS OF OPERATIONS Quantech has incurred a net loss of $48,213,772 from September 30, 1991 (date of inception) through March 31, 2002 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. Quantech reported losses of $1,816,688 and $8,377,687 for the three months and nine months ended March 31, 2002 as compared to $3,520,337 and $8,737,703 for the same periods in 2001. The lower losses were primarily due to increased revenues and lower operating expenses at Quantech, partially offset by higher spending at HTS and higher interest expense. Net revenue increased to $484,603 and $853,809 for the three months and nine months ended March 31, 2002 from $28,257 and $68,257 for the same periods in 2001 due to higher shipments of evaluation systems and 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, and we remain in the development stage. General and administration expenses increased to $970,638 and $3,415,220 for the three months and nine months ended March 31, 2002 from $799,547 and $2,053,834 for the same periods in 2001 12 primarily due to expansion of HTS operations partially offset by lower spending at Quantech. Year-to-date results include a non-cash charge of $852,000 for HTS option repricing. As Quantech and HTS raise funding, complete development of their systems, prepare for market launch and begin to manufacture and distribute their products, we expect general and administration expenses to increase. Marketing expenses decreased to $15,673 and $182,652 for the three months and nine months ended March 31, 2002 from $346,665 and $822,461 for the same periods in 2001 due to reduced 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 decreased to $1,074,008 and $5,207,398 for the three months and nine months ended March 31, 2002 from $2,577,485 and $6,391,810 for the same periods in 2001 primarily due to reduced spending at Quantech partially offset by higher spending at HTS. We expect R&D spending to increase in the future as Quantech and HTS raise funding to complete the commercial development of their systems. Minority interest in the HTS net loss was $0 for the three months and nine months ended March 31, 2002 as compared to ($157,282) and ($387,435) during the same periods in 2001. The accounting treatment during the current fiscal year is to fully absorb the HTS losses in the Quantech consolidated financial statements. Interest income decreased to $3,179 and $26,375 for the three months and nine months ended March 31, 2002 compared to $21,696 and $102,565 for the same periods in 2001 as a result of less cash on hand from the proceeds of offerings for Quantech and HTS. Interest expense increased to $244,151 and $452,601 for the three months and nine months ended March 31, 2002 from $3,875 and $27,855 during the same periods in 2001 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. LIQUIDITY AND CAPITAL RESOURCES From inception to March 31, 2002, Quantech has raised approximately $42 million through a combination of sales of public stock, private stock and convertible debt obligations and receipts from strategic partners. In February 2002, Quantech raised bridge financing with net proceeds of $425,000 through the sale of convertible debentures and warrants. In early March 2002, Quantech experienced a serious cash shortage and was forced to scale back its operations. Later in March and during April it obtained $361,250 in funding through the sale of 501,923 shares of HTS stock to accredited investors and certain Quantech directors, which allowed Quantech to continue its operations. Quantech is currently seeking additional funding, including private sales of equity or debt with equity features and sales of additional HTS Biosystems stock. If we fail to obtain immediate additional financing we may have to cease operations. Quantech also has a bank credit facility of up to $2.5 million, in which certain of Quantech's directors participated as co-borrowers. The credit facility expires on December 5, 2002. As of May 8, 2002, $2.5 million was outstanding on this credit facility. Quantech does not anticipate receiving any significant additional funding from commercial lenders. 13 We will require approximately $12 million to develop and submit to the FDA additional tests, complete customer evaluations of the FasTraQ system, establish manufacturing capabilities and prepare for sales of the FasTraQ system. We are currently reviewing multiple avenues of future funding including private sales of equity or debt with equity features or arrangements with strategic partners. There are currently no commitments for any such financing and there can be no assurance that we will obtain any capital on favorable terms, if at all. Subsequently, we will need to raise additional funding when we begin sales of our systems. In addition, HTS is seeking additional equity capital. An equity financing by HTS would result in a dilution of Quantech ownership of HTS. Although HTS is consolidated with Quantech for financial reporting purposes, HTS funds its own operations and does not receive funds from Quantech. 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 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 REQUIRE IMMEDIATE FINANCING TO SERVICE OUR OUTSTANDING INDEBTEDNESS AND SURVIVE. WE ALSO NEED SUBSTANTIAL ADDITIONAL FINANCING TO COMPLETE DEVELOPMENT OF THE FASTRAQ SYSTEM. While we have recently significantly scaled back our operations to reduce our burn rate, we currently have over $5 million in trade and other short term debt outstanding. We are not currently generating any cash from operations, and there can be no assurances that we ever will. Therefore, we need immediate additional financing to service our outstanding short term debt. Additionally, we will require significant additional financing to complete development of the FasTraQ system, submit to the FDA additional tests, complete customer evaluations of the system, establish manufacturing capabilities and prepare for commercial sales of the system. Thereafter, we will require additional capital to establish sales and marketing capacity to put us in a position to achieve a sales level sufficient to generate break-even cash flow. We are currently reviewing multiple avenues of short and long term funding, including private sales of equity or debt with equity features and sales of a portion of our HTS Biosystems stock. We do not currently have any commitments for any financing, and we cannot assure you that we will obtain any funds on favorable terms, if at all. Any additional equity financing by us may result in dilution to our shareholders and could depress the market price of our stock. Further, any equity financing by FasTraQ Solutions or a sale of a portion of our HTS stock would result in a dilution of our ownership in these subsidiaries. We are also pursuing a sale of our business or the licensing of all of our technology, although we have received no commitments for any such transaction. If we fail to obtain immediate additional financing to service our outstanding indebtedness or to sell the business, we may have to cease operations or 14 be forced into bankruptcy. Likewise, if we fail to obtain the significant additional financing necessary to complete development of and thereafter commercialize the FasTraQ system, we may have to cease operations. If we were to cease operations or become bankrupt, our stock would likely become worthless. WE HAVE INCURRED SIGNIFICANT LOSSES IN THE PAST, WILL CONTINUE TO INCUR LOSSES FOR THE FORESEEABLE FUTURE AND MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN. We have incurred net losses in each year since inception (1991) and expect to continue to do so for the foreseeable future. We have not had any significant revenues to date. As of June 30, 2001 and March 31, 2002, we had accumulated deficits of $45,955,513 and $54,333,200 respectively. Our business model and financial prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their development stage. As indicated in the "going concern" statement in the independent auditor's report and Note 2 to the financial statements as of June 30, 2001, we are a development stage company which has suffered significant losses from operations, requires significant additional financing, and needs to continue development of its product, obtain FDA approval, generate significant revenues, and successfully attain profitable operations to remain a going concern. This "going concern" statement may make it more difficult for us to raise the necessary capital to allow us to continue operations. DEVELOPMENT OF THE FASTRAQ SYSTEM IS NOT COMPLETE AND HAS BEEN SIGNIFICANTLY SCALED BACK. Components of the FasTraQ system are under various stages of development. However, due to our current cash situation, we have had to greatly scale back our development efforts. Therefore, we cannot predict when development will be completed, if at all. Until the FasTraQ development is completed and cleared through the FDA, we do not have any salable products. 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 we 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 us 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. 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 and the FasTraQ system in addition to those identified above that should be considered, including, but not limited to: uncertainty of market acceptance of the FasTraQ system 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 technology and not violate others' rights, effects of government regulation on the FasTraQ system 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. 15 PART II OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities During February 2002, Quantech sold $500,000 of convertible debentures and warrants to accredited investors. The debentures have an interest rate of 8% per year and are due on July 31, 2002. The debentures may be converted into shares of Quantech common stock at the lesser of $0.39 per share or 80% of the closing share price for the 15 days prior to conversion. The investors also received warrants to purchase shares of Quantech common stock equal to 10% of the number of shares their debentures will convert into at an exercise price of $0.39 per share. 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 $65,000 to a registered investment bank for acting as selling agent, and in addition issued the investment bank warrants to purchase 250,000 common shares of Quantech common stock. 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 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/ James Lyons --------------- James Lyons Chief Executive Officer and Interim Chief Financial Officer Date: May 15, 2002 16 -----END PRIVACY-ENHANCED MESSAGE-----