As filed with the Securities and Exchange Commission on June 21, 1996
Registration No. 33-_________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under The Securities Act of 1933
QUANTECH LTD.
(Name of Small Business Issuer as specified in its Charter)
Minnesota 3573 41-1709417
(State or other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification
Organization) Code Number) Number)
Quantech Ltd.
1419 Energy Park Drive
St. Paul, Minnesota 55108
(612) 647-6370
(Address and Telephone Number, of Principal
Executive Offices and Principal Place of Business)
R.H. Joseph Shaw, CEO
Quantech Ltd.
1419 Energy Park Drive
St. Paul, Minnesota 55108
(612) 647-6370
(Name, Address and Telephone Number
of Agent for Service)
Copies to:
Timothy M. Heaney, Esq.
Melodie R. Rose, Esq.
Fredrikson & Byron, P.A.
900 Second Avenue South, Suite 1100
Minneapolis, Minnesota 55402
(612) 347-7000
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
If any of the securities being registered on this form to be offered on a
delayed or continuous basis, pursuant to Rule 415 under the Securities Act of
1933, check the following box: |X|
If this Form is filed to register additional securities of an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed
TITLE OF EACH CLASS PROPOSED MAXIMUM MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------- -------------------- ----------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Common Stock ($.01 par value) 46,932,427 shares (2) $0.8435 $39,587,502 $13,651
</TABLE>
(1) For purposes of calculating the registration fee in accordance with
Rule 457(c) under the Securities Act of 1933, as amended, such amount
is based upon the average of the bid and asked prices of registrant's
Common Stock on June 20, 1996.
(2) Includes 9,851,000 shares that may be issued upon exercise of
outstanding Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVENESS UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
QUANTECH LTD.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number and Caption Location or Caption in Prospectus
<S> <C> <C>
1. Front of Registration Statement and Outside Front
Cover Page of Prospectus........................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors.................. Prospectus Summary; Risk Factors
4. Use of Proceeds....................................... *
5. Determination of Offering Price....................... Outside Front Cover Page; Plan of Distribution
6. Dilution.............................................. *
7. Selling Security Holders.............................. Principal and Selling Shareholders
8. Plan of Distribution.................................. Outside Front Cover Page; Plan of Distribution
9. Legal Proceedings..................................... Business; Legal Proceedings
10. Directors, Executive Officers, Promoters and Control
Persons........................................... Management
11. Security Ownership of Certain Beneficial Owners and
Management........................................ Principal and Selling Shareholders; Certain Transactions
12. Description of Securities............................. Description of Securities
13. Interest of Named Experts and Counsel................. *
14. Disclosure of Commission position on Indemnification
for Securities Act Liabilities.................... Indemnification
15. Organization within last Five Years .................. *
16. Description of Business............................... Business
17. Management's Discussion and Analysis or Plan of
Operations........................................ Management's Discussion and Analysis or Plan of Operations
18. Description of Property............................... Business
19. Certain Relationships and Related Transactions........ Certain Transactions
20. Market for Common Equity and Related Shareholder Price Range of Common Stock; Description of Securities; and
Matters........................................... Risk Factors
21. Executive Compensation................................ Management
22. Financial Statements.................................. Financial Statements
23. Change In and Disagreements With Accountants on
Accounting and Financial Disclosure............... *
</TABLE>
- ---------------------
* Not applicable or answer negative.
SUBJECT TO COMPLETION, June 21, 1996
PROSPECTUS
QUANTECH LTD.
46,932,427 SHARES OF COMMON STOCK
This Prospectus relates to the offer and sale of up to 46,932,427
shares of Common Stock (the "Shares"), par value $.01 per share, of Quantech
Ltd., a Minnesota corporation (the "Company" or "Quantech"), by persons who are
currently shareholders of the Company's Common Stock or who may become such
holders upon exercise of Warrants to purchase shares of Company Common Stock
(the "Selling Shareholders"). The Selling Shareholders may offer their Shares
from time to time through or to brokers or dealers in the over-the-counter
market at market prices prevailing at the time of sale or in one or more
negotiated transactions at prices acceptable to the Selling Shareholders. The
Company will not receive any proceeds from sale of Shares by the Selling
Shareholders. See "Plan of Distribution."
The Company will bear all expenses of the offering (estimated at
$35,000), except that the Selling Shareholders will pay any applicable
underwriter's commissions and expenses, brokerage fees or transfer taxes, as
well as any fees and disbursements of counsel and experts for the Selling
Shareholders.
Quantech's Common Stock is traded on the local over-the-counter and
Nasdaq Bulletin Board markets under the symbol of QQQQ. The closing sale price
of the Common Stock on June 20, 1996, as reflected on such markets was $0.85 per
share.
-------------------------
THE COMMON STOCK OFFERED BY THIS PROSPECTUS IS SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6."
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1996
No person is authorized to give any information or to make any
representations, other then those contained or incorporated by reference in this
Prospectus, in connection with the offering contemplated hereby, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
registered securities to which it relates. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained or incorporated by reference herein is
correct as of any time subsequent to its date.
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information and
Financial Statements of the Company and the Notes thereto appearing elsewhere in
this Prospectus, including information under "Risk Factors."
THE COMPANY
Quantech Ltd. ("Quantech" or the "Company") is a development stage
company seeking to commercialize Surface Plasmon Resonance ("SPR") technology.
The Company's initial focus is the development of SPR for the hospital
point-of-care ("POC") medical diagnostic market. SPR, the core technology of
Quantech's proposed medical diagnostic system, enables the Company to integrate
the existing diagnostic methodologies of immunoassays, DNA probes and chemical
binding into a single, simple, economical system in order to provide rapid,
quantitative, diagnostic results. The Quantech system configuration will consist
of a small, bench top instrument and a series of disposables containing a
particular test or tests. It is anticipated that the Quantech system will have
the ability to analyze body fluids (e.g., whole blood, urine, saliva) without
preparation or addition of reagents.
The medical diagnostics market is divided into three broad segments:
the traditional central laboratory, home diagnostics and POC. The overall United
States in-vitro (outside the body) diagnostic market is growing, estimated at
$9.6 billion in 1995 and expected to grow to $14.4 billion by the year 2000.
Central labs account for the majority of this market while POC currently
represents only a small portion, but is expected to grow by some estimates to $1
billion by the end of 1997 as more POC products enter the market. The Company's
market entry strategy focuses its efforts on the POC segment. The POC segment
has become important for health care administrators and third party payers
seeking to bring more rapid decision making to the patient's bedside, thereby
decreasing the overall costs of care. Technologies that meet the stringent
customer needs of this POC segment are expected to achieve a competitive
advantage over many central lab procedures.
Quantech's business strategy is to capitalize on the flexibility,
extreme sensitivity and relatively low cost of its diagnostic system to
penetrate and expand the POC market. Quantech's intended entry into the POC
market will be Critical Care Units of hospitals, the first unit being the
Emergency Department ("ED") where the most pressing and unmet customer needs are
found. Of the current POC market segment, approximately 85% is represented by
testing in Critical Care Units. The Critical Care Units represent a significant
market as they require a number of rapid turn-around tests. Although there are
some POC tests available for the Critical Care Units, the Company is not aware
of any currently existing POC product that provides a single instrument that
will perform most of the tests required in the Critical Care Units and
especially the ED. Additionally, there is minimal current competition for POC
products in the ED from the large, multinational companies that are presently
focused on serving the central lab market.
There are approximately thirty commonly ordered tests in the ED, all of
which are ordered STAT (very urgent). Some of the most important diagnostic
tests in the ED are cardiac markers. These tests help to identify whether a
patient experiencing chest pain has suffered a myocardial infarction (heart
attack). Current POC competition for this approximately $500 million annual
market consists of colorimetric, non-quantitative disposable kits. Quantech's
first two tests, intended to be introduced in late calendar 1996, are expected
to quantify these markers in two to five minutes through its objective,
computer-controlled system. Similar results are presently available from the
central lab in 60 to 90 minutes. Quantech's price to the customer will be less
than the existing POC products while offering the advantages of rapid
quantification and cost reduction when compared to the central lab.
Quantech believes the benefits of its system over other POC systems are
that the same instrument is expected to be able to be used for a full range of
tests and provide quantitative results. After the initial introduction of tests
for myocardial infarction, the Company intends to introduce additional tests at
the rate of one per quarter. Selection of these tests will be based upon market
demand, ease of development, regulatory hurdles and profit margins. The Company
plans to expand into other critical care diagnostic markets which have needs
similar to the ED. The capabilities of the Quantech system as a broad, flexible
diagnostic testing platform should meet the needs identified by the POC market
and the Company's marketing strategy is expected to enable it to be competitive
in the global medical diagnostics market.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered................................... 46,932,427 shares of Common Stock assuming exercise
of all Warrants(1).
Common Stock Outstanding............................. 46,900,759 shares of Common Stock(2).
Use of Proceeds...................................... The Company will not receive any proceeds from
sales of Shares by the Selling Shareholders.
Risk Factors......................................... An investment in the Shares offered hereby involves
a high degree of risk, including the risk of loss
of an investor's entire investment. See "Risk
Factors" for a discussion of factors that investors
should consider before purchasing any of the Shares
offered hereby.
- --------------------------------------
</TABLE>
1. Includes 9,851,000 shares that may be acquired upon exercise of
outstanding warrants.
2. Does not include up to 15,768,103 shares that may be issued upon
exercise of outstanding options and warrants, of which 9,851,000 shares
are registered hereby for resale. See "Capitalization" and "Certain
Transactions."
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data for the periods
indicated for the Company. This information should be read in conjunction with
the Financial Statements and related Notes and "Management's Discussion and
Analysis or Plan of Operations" appearing elsewhere herein.
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 30,
1991
STATEMENT OF NINE MONTHS NINE MONTHS (DATE OF
OPERATIONS DATA: ENDED ENDED YEAR ENDED YEAR ENDED INCEPTION), TO
MARCH 31, 1996 MARCH 31, 1995 JUNE 30, 1995 JUNE 30, 1994 MARCH 31, 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
G&A 919,506 902,981 1,193,285 1,119,295 5,842,303
----------- ----------- ----------- ----------- -----------
R & D 691,585 342,000 503,375 195,118 2,231,003
----------- ----------- ----------- ----------- -----------
Net Loss (1,800,360) (1,523,908) (1,543,888) (9,886,237)
(2,070,292)
=========== =========== =========== =========== ===========
NET LOSS PER
COMMON SHARE:
(.07) (.32) (.31) (.33) (1.23)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING:
25,793,027 4,690,000 6,786,986 4,690,000 8,036,465
=========== =========== =========== =========== ===========
</TABLE>
Balance Sheet Data: March 31, 1996 June 30, 1995
-------------- -------------
Current Assets $ 205,378(1) $ 41,498
Total Assets 2,773,113 2,735,960
Current Liabilities 275,059 4,445,099
Total Liabilities & Equity $2,773,113 $2,735,960
(1) On May 3, 1996, the Company completed a private placement of its Common
Stock and received net proceeds of approximately $3,350,000. As of May
30, 1996 the Company had current assets of approximately $3.2 million,
current liabilities of approximately $200,000 and no long term debt.
RISK FACTORS
An investment in the securities offered hereby is speculative and involves a
high degree of risk In addition to the other information in this Prospectus, the
following factors should be considered carefully by potential purchasers in
evaluating an investment in the Common Stock of the Company.
NO HISTORY OF OPERATIONS; DEVELOPMENT STAGE COMPANY; GOING CONCERN UNCERTAINTY
The Company (through predecessor entities) was organized in December
1989 and acquired its technology in November 1991. Since November 1991, the
Company has been conducting development of SPR technology and the associated
patents and proprietary information encompassed in the License, as defined
below. To date, the Company does not have a product ready to be brought to
market and has experienced delays in completing development, but is continuing
research and development on its prototype and associated test disposables.
Accordingly, the Company has no operating history and its proposed operations
are subject to all of the risks inherent in a new business enterprise, including
commercial development of its products, lack of marketing experience and lack of
production history. See "Business."
The likelihood of the success of the Company must be considered in
light of the expenses, difficulties and delays frequently encountered in
connection with the start-up of new businesses and the competitive environment
in which the Company will operate. The Company has not had significant revenues
to date. As of March 31, 1996, the Company had an accumulated deficit of
$9,886,237. The report of the independent auditors on the Company's financial
Statements for the period ended June 30, 1995, includes an explanatory paragraph
relating to the uncertainty of the Company's ability to continue as a going
concern. The Company is a development stage company which has suffered losses
from operations, requires additional financing, and ultimately needs to
successfully attain profitable operations. These factors raise substantial doubt
about the Company's ability to continue as a going concern. There can be no
assurance that the Company will be able to develop a commercially viable product
or marketing system or attain profitable operations. See "Financial
Statements."
FUTURE CAPITAL NEEDS
On May 3, 1996, the Company completed a private placement of its Common
Stock and received net proceeds of approximately $3,350,000. As of May 30, 1996
the Company had current assets of approximately $3.2 million, current
liabilities of approximately $200,000 and no long term debt. The Company does
not have sufficient funds to commence commercial production and sales of its
system, but anticipates that its current funding is adequate to complete FDA
approval of its first product and start preproduction and premarket activities.
The Company's ability to begin commercial production and sales of its system
will depend upon the continued availability of investment capital, funding made
by strategic partner(s) or licensing revenues, until the revenues from sale of
the instruments and associated test disposables are sufficient to maintain
operations. Additional funds may have to be raised through equity or debt
financing. The Company has no commitments for any additional equity or debt
financing and there can be no assurance that any such commitments can be
obtained on favorable terms, if at all. Such additional financing may result in
dilution to Company shareholders. If funding is not available when needed, the
Company may be forced to cease operations and abandon its business. In such
event, Company shareholders could lose their entire investment. See
"Management's Discussion and Analysis or Plan of Operations."
NEW PRODUCT DEVELOPMENT
The Company's reading instrumentation and associated disposables are
under development. Such development is being conducted by the Company using both
internal resources and outside contractors. To date, the Company and certain of
its outside contractors have had difficulty meeting their development timetables
and budget. Although Quantech believes it will complete development of its
initial product for FDA submission in calendar 1996, no assurance can be given
that the Company's development timetable can be kept, that the budget for
development will be maintained, or that development efforts will be successful.
See "Use of Proceeds" and "Business."
UNCERTAINTY OF MARKET ACCEPTANCE
The commercial success of the Company's products will depend upon their
acceptance by the medical community and third-party payors as useful and
cost-effective. Market acceptance will depend upon several factors, including
the establishment of the utility and cost-effectiveness of the Company's tests,
the receipt of regulatory clearances in the United States and elsewhere and the
availability of third-party reimbursement. The availability of POC test systems
for a wide variety of tests has been limited to date. The Company is thus
targeting an emerging market. Diagnostic tests similar to those developed by the
Company are generally performed by a central laboratory at a hospital or clinic.
The approval of the purchase of diagnostic equipment by a hospital is generally
controlled by its central laboratory. The Company expects there will be
resistance by central laboratories to yield control of tests they have
previously performed. The Company will also have to demonstrate to physicians
that its diagnostic products perform as intended, meaning that the level of
accuracy and precision attained by the Company's products must be comparable to
test results achieved by the central laboratory systems. Failure of the
Company's products to achieve market acceptance or third-party payor approval
would have a material adverse effect on the Company. See "Business - The
Market."
LACK OF MARKETING EXPERIENCE
The Company has had no experience in marketing its system. The Company
believes that the ED market is focused enough that a small sales and marketing
force can produce significant results, however, there is no guaranty that the
Company's sales and marketing plans will succeed.
LACK OF FDA PRODUCT APPROVAL
The Company's products will be regulated as medical devices by the Food
and Drug Administration ("FDA") under the Federal Food, Drug, and Cosmetic Act
("FDC Act"), and as such require premarket regulatory clearance before
commericialization in the United States. The Company believes that premarket
clearance can be obtained for its systems, except for a few tests the Company
may introduce at a later time, through submission of a 510(K) premarket
notification ("510(K) Notification") demonstrating the product's substantial
equivalence to another device legally marketed pursuant to 510(K) Notification
clearance. The Company will have to perform in-house clinical trials designed to
produce the data necessary to demonstrate the substantial equivalence of its
instrument and tests. Although 510(K) submissions are supposed to be completed
by the FDA within 90 days of submission, there can be no assurance the FDA will
approve the Company's initial system pursuant to a 510(K) Notification, or do so
in a timely manner, and therefore there can be no assurance that the Company
will be able to introduce its initial system in the United States by the first
quarter of calendar 1997 as it currently intends. If the Company cannot
establish to the satisfaction of the FDA that its products are substantially
equivalent, the Company will have to seek premarket approval ("PMA") of its
system, requiring submission of a PMA application supported by extensive data to
prove safety and efficacy. If a PMA is required, introduction of the initial
system likely would be significantly delayed, which could have a material
adverse effect on the Company. By regulation, FDA review of PMA applications is
required within 180 days of its acceptance for filing; however, reviews more
often occur over a significantly protracted period, usually 12 to 18 months, and
a number of products have never been cleared. See "Business - Government
Regulation."
LIMITED MANUFACTURING AND PRODUCTION EXPERIENCE
To be successful the Company must manufacture its products in
compliance with regulatory requirements, in sufficient quantities and on a
timely basis, while maintaining product quality and acceptable manufacturing
costs. The Company will have to establish a manufacturing facility, or contract
with a third party for manufacturing, which is registered with the FDA.
Production of the Company's disposables requires the placement of antibodies or
other binding reagents on metalized grating surfaces. The chemical and physical
conditions for coating are substantially equivalent to those used to produce
other solid state binding assays. Although the Company believes that its
production methods will be effective for manufacturing its disposables, there
can be no assurance that the methods will be applicable to all the tests it
expects to develop or that the Company will be able to manufacture accurate and
reliable products in large commercial quantities on a timely basis and at an
acceptable cost. Inability to manufacture a full range of diagnostic tests would
limit the Company's access to its intended market.
COMPETITION
The diagnostic testing market is highly competitive. As POC markets
expand, the Company expects that manufacturers of central and STAT laboratory
testing equipment will compete to maintain their revenue and market share and
that new POC products will be developed. All of the industry leaders and many of
the other companies participating in this market have substantially greater
resources than the resources available to the Company, including, but not
limited to, financial resources and skilled personnel. See "Business -
Competition."
TECHNOLOGICAL OBSOLESCENCE
The Company operates in a market characterized by rapid and significant
technological change. While the Company is not aware of any developments in the
medical industry which would render the Company's current or planned products
less competitive or obsolete, there can be no assurance that future
technological changes or the development of new or competitive products by
others will not do so To remain competitive, the Company must continually make
substantial expenditures for development of both equipment and disposables.
OBTAINING ANTIBODIES AND CHEMISTRIES
Many of the chemistries that will be necessary for the Company's
diagnostic system must be obtained through commercial suppliers or agreements
for the licensing of such chemistries. Although the Company believes it can
obtain the necessary chemistries, there can be no assurance that the Company
will be able to make satisfactory arrangements to provide its customers with as
wide a variety of products as they might desire. The lack of a sufficient number
of chemistries would greatly limit the Company's ability to market its
diagnostic system.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL SKILLED PERSONNEL
The operations and future success of the Company will depend upon the
efforts and abilities of R. H. Joseph Shaw, Chief Executive Officer, Dr. Robert
R. McKiel, Executive Vice President and Director of Research and Development and
Gregory G. Freitag, Chief Financial Officer and Vice President of Corporate
Development. The loss of any of these person's services could adversely affect
the Company. The Company does not have key-person life insurance on any of its
officers. The Company has in place employment agreements with each of Mr. Shaw,
Dr. McKiel and Mr. Freitag. Successful development of the Company's products
will require the services of additional personnel. There can be no assurance
that the Company will be able to attract and retain such persons as employees,
independent contractors, consultants or otherwise. See "Management."
PATENT PROTECTION
No assurance can be given that other companies will not develop
technologies substantially equivalent to those owned or to be acquired or
developed by the Company or that the Company will be able to protect its
proprietary technology. See "Business - Patents and Proprietary Rights." The
Company is not aware of any issued patents that would prohibit the use of any
technology the Company currently has under development. However, patents may
exist or issue in the future to other companies covering elements of the
Company's systems. The existence or issuance of such patents may require the
Company to make significant changes in the design of its systems or operational
plans. Although the Company believes that its proposed products will not
infringe patent rights of others, there can be no assurance that such
infringement does not, or will not, exist with respect to the completed product.
The Company has not conducted an independent patent search or evaluation with
respect to the SPR technology. Ares-Serono, the licensor to the Company of its
basic SPR technology, has made no warranties as to the enforceability of any of
its patents or the commercial potential of the technology. Although Ares-Serono
has the obligation to defend the patents they have licensed to the Company,
Quantech will be responsible for the defense of any patents issued to it. Cost
of defending patents can be substantial. See "Business - Patents and Proprietary
Rights."
GOVERNMENT REGULATION
If the Company becomes a provider of health care diagnostic devices as
intended, the Company will be subject to laws and regulations administered by
federal, State and foreign governments. The degree of regulation and areas of
concern differ in each country or region. The Company will be required to comply
with regulations regarding product approval and performance and, in addition,
regulations concerning electronic devices. The industry in which the Company
expects to operate is subject to frequent regulatory changes and there can be no
assurance that the Company will be able to comply with applicable regulations.
In the event of noncompliance, the Company may be unable to market any products.
See "Business - Government Regulation."
POSSIBILITY OF EXPOSURE TO PRODUCT LIABILITY CLAIMS
The Company could be exposed to risk of product liability claims or
other lawsuits in the event of incorrect diagnosis utilizing the SPR equipment
and disposables developed by the Company. Although the Company will evaluate
obtaining liability insurance when the products come to market, there can be no
assurance that the Company will be able to obtain or maintain such insurance or
that the Company will not be subject to claims in excess of its insurance
coverage.
ABSENCE OF DIVIDENDS
The Company has not declared or paid any cash dividends on its Common
Stock since its inception and the Board of Directors presently intends to retain
all earnings for use by the Company for the foreseeable future. Any future
determination as to declaration and payment of dividends will be made at the
discretion of the Board of Directors and will depend upon a number of factors,
including, among others, earnings of the Company, the operating and financial
condition of the Company, the Company's capital requirements, and general
business conditions.
SHARES ELIGIBLE FOR FUTURE SALE
Including the Shares available pursuant to this Prospectus, all of the
Company's outstanding stock may be sold in the public market. In addition,
9,851,000 of a total of 15,768,103 shares that may be obtained upon exercise of
outstanding options and warrants are also included for resale pursuant to this
Prospectus.
LIMITED MARKET FOR SECURITIES
There is a limited trading market for the Company's Common Stock, which
is not listed on any stock exchange or Nasdaq. Although trading in the Company's
Common Stock in calendar 1996 has occurred on a consistent basis, the volume of
shares traded has been very sporadic. The Company's securities are subject to
the "penny stock rules" adopted pursuant to Section 15(g) of the Securities
Exchange Act of 1934, which applies to non-NASDAQ companies whose common stock
trades at less than $5 per share or has tangible net worth of less than
$2,000,000. These "penny stock rules" require, among other things, that brokers
who sell "penny stock" subject to the rules to persons other than "established
customers" complete certain documentation, make suitability inquiries of
investors and provide investors with certain information concerning trading in
the security, including a risk disclosure document and quote information under
certain circumstances. Many brokers have decided not to trade "penny-stock"
because of the requirements of the "penny stock rules" and, as a result, the
number of broker-dealers willing to act as market makers in such securities is
limited. There can be no assurance that an established trading market will
develop, the current market will be maintained or a liquid market for the
Company's Common Stock will be available in the future. See "Price Range of
Common Stock."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the local over-the-counter and
the National Association of Securities Dealers Bulletin Board markets under the
symbol of QQQQ. At June 20, 1996, the Company had approximately 490 shareholders
of record. On June 20, 1996 the bid, asked and closing sale prices of its Common
Stock were $0.75, $0.973 and $0.85, respectively. The following table summarizes
the high and low sale prices for the periods since the Company's listing.
High Low
Fiscal 1994
Fourth Quarter $0.25 $0.125
Fiscal 1995
First Quarter $0.25 $0.0625
Second Quarter $0.25 $0.0625
Third Quarter $0.12 $0.09
Fourth Quarter $0.34 $0.125
Fiscal 1996
First Quarter $0.34 $0.187
Second Quarter $0.81 $0.50
Third Quarter $1.06 $0.50
Fourth Quarter through
June 20, 1996 $1.625 $0.68
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock.
The Company currently intends to retain any earnings for use in the operation
and expansion of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996. Such table has not been adjusted for the exercise of any of the
Warrants as there is no assurance that any of the Warrants will be exercised.
This table should be read in conjunction with the Company's Financial
Statements, including the Notes thereto, included elsewhere in this Prospectus.
March 31, 1996
-----------
Current portion of long-term debt............................. $ 0
Long-term debt................................................ 0
Shareholders' equity:
Common Stock, $.01 par value;
60,000,000 shares authorized;
40,659,893 shares issued and
outstanding(1)........................................... $ 406,599
Additional Paid-in Capital 11,997,692
Subscriptions Receivable (20,000)
Deficit Accumulated During Development Stage............. (9,886,237)
-----------
Total shareholders' equity............................ 2,498,054
-----------
Total capitalization................................ 2,498,054
===========
(1) Does not include up to 15,768,103 shares that may be issued upon
exercise of outstanding options and warrants, of which 9,851,000 shares
are registered hereby for resale. See "Capitalization" and "Certain
Transactions."
SELECTED FINANCIAL DATA
The following table has been derived from the Company's financial statements
appearing elsewhere in this Prospectus and sets forth selected financial data
for the periods indicated. The financial statements for the years ended June 30,
1995 and 1994 have been audited by McGladrey & Pullen, LLP. The data in the
table for the nine months ended March 31, 1996 and 1995 and for the period from
September 30, 1991 (date of inception) to March 31, 1996, are derived from the
Company's unaudited financial statements and include all adjustments (consisting
of normal recurring accruals) that the Company considers necessary for a fair
presentation of such data. Results for the nine months ended March 31, 1996 may
not necessarily be indicative of the results expected for the year ending June
30, 1996. The data should be read in conjunction with the Company's Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 30,
NINE MONTHS FISCAL YEAR ENDED JUNE 30, 1991
-------------------------- ------------------------- (DATE OF
ENDED ENDED INCEPTION), TO
MARCH 31, MARCH 31, MARCH 31,
1996 1995 1995 1994 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net Loss (1,800,360) (1,523,908) (2,070,292) (1,543,888) (9,886,237)
----------- ----------- ----------- ----------- -----------
NET LOSS PER COMMON SHARE: (.07) (.32) (.31) (.33) (1.23)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING: 25,793,027 4,690,000 6,786,986 4,690,000 8,036,465
----------- ----------- ----------- ----------- -----------
</TABLE>
MARCH 31, 1996 JUNE 30, 1995
-------------- -------------
FINANCIAL POSITION:
Total assets $ 2,773,113(1) 2,735,960
============== =============
Stockholders equity $ 2,498,054 $ 2,735,960
============== =============
(1) On May 3, 1996, the Company completed a private placement of its Common
Stock and received net proceeds of approximately $3,350,000. As of May
30, 1996 the Company had current assets of approximately $3.2 million,
current liabilities of approximately $200,000 and no long term debt.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
HISTORY
Quantech Ltd. ("Quantech" or the "Company") was formed under the laws
of Minnesota for the purpose of effecting the change of domicile of Spectrum
Diagnostics S.p.A ("SDS") from Italy to the state of Minnesota through a merger
with SDS on April 14, 1993. Quantech had no operations prior to the merger and
is continuing the business of SDS to commercialize Surface Plasmon Resonance
("SPR") technology licensed from Ares-Serono. SPR, the core technology of
Quantech's proposed medical diagnostic system, enables the Company to integrate
the existing diagnostic methodologies of immunoassays, DNA probes and chemical
binding into a single, simple economical system in order to provide rapid,
quantitative, diagnostic results. The Quantech system configuration will consist
of a small, bench top instrument and a series of disposable slides with multiple
tests per slide. The Quantech system will have the ability to analyze body
fluids (e.g., whole blood, urine, saliva) without preparation or addition or
reagents. The Company's initial focus is to develop SPR for the hospital
emergency room point-of-care ("POC") medical diagnostic market. Its first test
will aid physicians in assessing whether a patient has suffered a heart attack.
RESULTS OF OPERATIONS
INTRODUCTION
Quantech is a development stage company which has suffered losses from
operations and will require additional financing to commercialize its product.
The Company's product development must be completed, FDA approval obtained, the
product introduced to the market and ultimately Quantech will need to
successfully attain profitable operations. These factors raise substantial doubt
about the Company's ability to continue as a going concern.
The Company has incurred a net loss of $9,886,237 from September 30,
1991 (date of inception) through March 31, 1996 due to expenses related to
formation and operation of SDS in Italy, continuing costs of raising capital,
normal expenses of operating over an extended period of time, funds applied to
the research and development, royalty payments related to the SPR technology,
losses due to expenses of Quantech's predecessor, Spectrum Diagnostics Inc. and
interest on borrowed funds. In addition, an investment of $3,356,629 was made
when Quantech purchased the exclusive rights to the SPR technology.
In fiscal 1996, the Company has continued to contract for the
development of its prototype instrument and its manufacture; continued to
develop the chemistries necessary to do specific tests; contracted the
development of the disposable slides for the tests; and continued to raise the
necessary funds to stay in operation. Management anticipates that a system
suitable to begin FDA clinical work will be available in the summer of 1996. The
next major step for the Company will be to submit its system to the FDA for
approval which submission is anticipated in the fall of 1996. At the time of
submission to the FDA, the system is expected to be ready for the commercial
market and marketing in the United States will proceed upon approval by the FDA.
Such FDA approval is anticipated in the first calendar quarter of 1997. This
timetable will be influenced by the Company's ability to complete prototype
development of its system and necessary testing for submission of its FDA filing
and delays it may encounter with the FDA in its review of the system.
COMPARISON OF NINE MONTHS ENDED MARCH 31, 1996 TO NINE MONTHS ENDED
MARCH 31, 1995
For the nine months ended March 31, 1996 the Company had interest
income of $23,310 compared to $0 in the same period in 1995, due to cash on hand
as a result of funds remaining from Quantech's private placement in the first
quarter of fiscal 1996. General and administrative expenses increased from
$902,981 to $919,506 for the nine months ended March 31, 1995 as compared to the
same period in 1996. General and administrative expenses, although appearing to
remain basically flat in the comparative nine month periods, have in fact
changed modestly in how funds are expended in such category. In each quarter of
fiscal 1996, Quantech has been able to reduce the significant general and
administrative expenses it has incurred in the past relating to professional
fees, consulting arrangements and other expenses required to maintain an
inadequately funded organization. Such reductions general and administrative
expenses have been absorbed by increases in personal and associated costs which
reflect normal operations. General and administrative expenses are expected to
increase in the future as the Company expands in anticipation of introduction of
its product to the market in the third quarter of fiscal 1997.
Research and development costs increased from $342,000 to $691,585 for
the nine months ended March 31, 1995 compared to the same period in 1996. This
increase was a result of accelerated research and development activity including
hiring of employees and engaging firms to perform contract development work.
Minimum royalty expense decreased for the nine month period ending March 31,
1996 as compared to the same 1995 period as a result of the declining minimum
royalties owed under Quantech's license with Ares-Serono.
For the nine months ended March 31, 1996 the Company had a net loss of
$1,800,360 compared to $1,523,908 for the same period in 1995. This increase was
a result of the rise in research and development expenses in the 1996 nine month
period offsetting decreases in such period in general and administrative,
minimum royalty and financing expenses.
Management believes the reduction from prior periods in general and
administrative and financing expenses while research and development expenses
have increased reflects the Company's current stability. Quantech is now able to
apply an appropriate amount of funds to pursue the development and
commercialization of its product. The Company believes it will be able to
continue to apply funds to the areas most appropriate to complete its system and
introduce it to the market. This forward looking information regarding the
anticipated use of funds will be influenced, however, by the timing of product
introduction, need for additional capital and other factors beyond the Company's
control.
COMPARISON OF YEAR ENDED JUNE 30, 1995 TO YEAR JUNE 30, 1994
The Company incurred a net loss of $8,085,877 from September 30, 1991
(date of inception) through June 30, 1995, due to expenses related to the
formation and operation of SDS in Italy, continuing costs of raising capital,
normal expenses of operating over an extended period of time, funds applied to
the research and development of the SPR technology, royalty payments related to
the SPR technology, losses due to expenses of SDI and interest on borrowed
funds. In addition, an investment was made purchasing exclusive rights to the
SPR technology which through June 30, 1995 had cost the Company $3,356,629. As a
result of the Company's status as a development stage company and its continued
losses from expenses as outline above, a comparison of the results of operations
of fiscal 1995 to fiscal 1994 is not meaningful. In both years the Company
expended considerable funds for general and administrative expenses, although in
fiscal 1995 the Company was able to increase its expenditures for research and
development as it had greater capital availability.
LIQUIDITY AND CAPITAL RESOURCES
From inception to May 6, 1996, Quantech has raised approximately
$15,500,000 through a combination of public stock sales, private stock sales and
debt obligations. Additional funds will be needed to establish sales and
marketing and production capabilities and to begin any significant sales of the
Company's product once development is completed. There can be no assurance that
the Company will obtain additional capital when needed or that additional
capital will not have a dilutive effect on current shareholders.
Since its fiscal year ended June 30, 1995, Quantech has had a number of
events occur affecting its capital resources. With regard to debt conversion
transactions, holders of Quantech 8% debentures due September 30, 1995, totaling
$977,500 plus accrued interest, on such date converted these amounts to Common
Stock at conversion prices ranging from $.125 to $.25 per share. In total,
including accrued interest to September 30, 1995, these debentures were
converted into 7,484,896 shares of Common Stock. In addition, holders of notes
due in March 1996, totaling $1,230,000 plus accrued interest, converted these
notes to Common Stock at a conversion price of $.125 per share on December 31,
1995. In total, including accrued interest, these notes were converted into
11,237,157 shares of Common Stock.
Quantech has also completed three private offerings of its Common
Stock. In September 1995, the Company received approximately $2.88 million of
net proceeds as a result of completion of a private placement of Units at $1.00
per Unit. In November 1995, it received approximately $430,000 of net proceeds
also from the private placement of $1.00 Units. In both of these private
placements the Unit consisted of four (4) shares of Company Common Stock and a
warrant to purchase one share of Common Stock at $.25 per share. The Company
used the proceeds from these offerings for payment of bridge loans, including
interest, minimum royalties due under its license with Ares-Serono, accounts and
accrued payables, purchased equipment and for working capital.
On May 3, 1996, Quantech completed its third private offering of
6,250,000 shares of Common Stock at $.60 per share. Such offering provided the
Company with net proceeds of approximately $3,350,000. Quantech intends to apply
the proceeds of such offering, along with cash on hand, to expenses relating to
product development, FDA submission, establishing sales and marketing and
production capabilities (including capital expenditures) and to provide working
capital. As of May 30, 1996 the Company had current assets of approximately $3.2
million, current liabilities of approximately $200,000 and no long term debt.
Although current funds are expected to allow the Company to proceed through FDA
approval of its system, Quantech will not have sufficient funds to commence
commercial production. Although the Company has a limited lending arrangement
with its bank, it does not anticipate receiving significant funding from
lenders.
For the nine months ended March 31, 1996, Quantech incurred capital
expenditures of approximately $156,000. The Company anticipates capital
expenditures for the three months ended June 30, 1996 to be in excess of
$450,000 for the purchase of production and laboratory equipment. Capital
expenditures for future quarters will be necessary for production equipment and
office expansion as the Company nears product introduction. The timing and
amount of such expenditures will be governed by the Company's development and
market introduction schedules which are subject to change due to a number of
factors including development delays, FDA approval and availability of future
financing. In addition to capital expenditures, the Company has a final minimum
royalty payment of $150,000 due to Ares-Serono on December 31, 1997.
ISSUED BUT NOT YET ADOPTED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123, "Accounting for Stock-Based Compensation", which establishes
financial accounting and reporting standards for stock-based employee
compensation plans. The Company will be required to adopt Statement No. 123 in
fiscal 1997. Quantech has not yet determined what effect, if any, Statement No.
123 will have on the financial statements.
BUSINESS
BACKGROUND
Quantech Ltd. ("Quantech" or the "Company") is a development stage
company seeking to commercialize Surface Plasmon Resonance ("SPR") technology.
The Company's initial focus is the development of SPR for the hospital
point-of-care ("POC") medical diagnostic market. SPR, the core technology of
Quantech's proposed medical diagnostic system, enables the Company to integrate
the existing diagnostic methodologies of immunoassays, DNA probes and chemical
binding into a single, simple, economical system in order to provide rapid,
quantitative, diagnostic results. The Quantech system configuration will consist
of a small, bench top instrument and a series of disposables containing a
particular test or tests. It is anticipated that the Quantech system will have
the ability to analyze body fluids (e.g., whole blood, urine, saliva) without
preparation or addition of reagents.
The medical diagnostics market is divided into three broad segments:
the traditional central laboratory, home diagnostics and POC. The overall United
States in-vitro (outside the body) diagnostic market is growing, estimated at
$9.6 billion in 1995 and expected to grow to $14.4 billion by the year 2000.
Central labs account for the majority of this market while POC currently
represents only a small portion, but is expected to grow by some estimates to $1
billion by the end of 1997 as more POC products enter the market. The Company's
market entry strategy focuses its efforts on the POC segment. The POC segment
has become important for health care administrators and third party payers
seeking to bring more rapid decision making to the patient's bedside, thereby
decreasing the overall costs of care. Technologies that meet the stringent
customer needs of this POC segment are expected to achieve a competitive
advantage over many central lab procedures.
Quantech's business strategy is to capitalize on the flexibility,
extreme sensitivity and relatively low cost of its diagnostic system to
penetrate and expand the POC market. Quantech's intended entry into the POC
market will be Critical Care Units of hospitals, the first unit being the
Emergency Department ("ED") where the most pressing and unmet customer needs are
found. Of the current POC market segment, approximately 85% is represented by
testing in Critical Care Units. The Critical Care Units represent a significant
market as they require a number of rapid turn-around tests. Although there are
some POC tests available for the Critical Care Units, the Company is not aware
of any currently existing POC product that provides a single instrument that
will perform most of the tests required in the Critical Care Units and
especially the ED. Additionally, there is minimal current competition for POC
products in the ED from the large, multinational companies that are presently
focused on serving the central lab market.
There are approximately thirty commonly ordered tests in the ED, all of
which are ordered STAT (very urgent). Some of the most important diagnostic
tests in the ED are cardiac markers. These tests help to identify whether a
patient experiencing chest pain has suffered a myocardial infarction (heart
attack). Current POC competition for this approximately $500 million annual
market consists of colorimetric, non-quantitative disposable kits. Quantech's
first two tests, intended to be introduced in late calendar 1996, are expected
to quantify these markers in two to five minutes through its objective,
computer-controlled system. Similar results are presently available from the
central lab in 60 to 90 minutes. Quantech's price to the customer will be less
than the existing POC products while offering the advantages of rapid
quantification and cost reduction when compared to the central lab.
Quantech believes the benefits of its system over other POC systems are
that the same instrument is expected to be able to be used for a full range of
tests and provide quantitative results. After the initial introduction of tests
for myocardial infarction, the Company intends to introduce additional tests at
the rate of one per quarter. Selection of these tests will be based upon market
demand, ease of development, regulatory hurdles and profit margins. The Company
plans to expand into other critical care diagnostic markets which have needs
similar to the ED. The capabilities of the Quantech system as a broad, flexible
diagnostic testing platform should meet the needs identified by the POC market
and the Company's marketing strategy is expected to enable it to be competitive
in the global medical diagnostics market.
STRATEGY
Quantech's objective is to establish its SPR biosensor diagnostic
technology as the standard for critical POC diagnostics and steadily expand the
number of its tests available for its system through the introduction of
additional disposables. To reach that objective, Quantech intends to do the
following.
* Finalize the development of the prototype system (configured
for the cardiac marker CK-MB)
* Submit the system to the FDA for regulatory review
* Market this initial system (including evaluating strategic
partners with established distribution channels)
* Develop additional cardiac markers (specifically, Troponin,
Myoglobin, Myosin and CA-III).
* Develop additional markers for other high demand critical care
tests in medical diagnostic testing (specifically, pregnancy,
therapeutic drugs such as Digoxin, drugs of abuse and
infectious diseases)
* Assess capabilities of SPR in nonmedical testing applications
THE ARES-SERONO LICENSE
The Company has acquired from Ares-Serono at a total cost of $3.2
million a worldwide exclusive license (the "License"), to certain patents,
proprietary information and associated hardware (e.g. molds, test rigs,
prototypes) related to the SPR technology. The Ares-Serono affiliated companies
(the "Ares-Serono Group"), based in Switzerland, comprise a multinational
organization engaged in the development and marketing of ethical pharmaceuticals
and diagnostic products, primarily in the field of human fertility, human
growth, immunology and virology. The SPR diagnostic technology was developed by
a research and development partnership (the "R&D Partnership"), the General
Partner of which was a company belonging to the Ares-Serono Group.
The License calls for an ongoing royalty of 6 percent on all products
utilizing the SPR technology which are sold by the Company. If the Company
sublicenses the technology, the Company will pay a royalty of 15 percent of all
revenues received by the Company under any sublicense. If the payments of the 6
percent royalty and the sublicense royalty fail to reach at least $1,000,000 by
December 31, 1997, an additional payment of $150,000 by December 31, 1997 will
be required as the Company has paid to date $850,000. If such payment is not
made then Ares-Serono has the right to cause a reversion to Ares-Serono of a
royalty-free license, thereby depriving the Company of its exclusive rights
under the License. The obligations of Quantech to pay royalties terminate when
the total royalty payments (excluding any sublicense royalties paid through July
1, 1996) reach a gross amount of $18 million. After such date, Quantech's rights
in the licensed SPR technology continue in perpetuity with no further
obligations to Ares-Serono.
Ares-Serono specifically reserved, and did not license to Quantech, any
rights with or otherwise integrated with certain fluoresecence capillary fill
device technology (the "FCFD Technology"). The Company believes that such
limitation does not materially impact the value of the License given Quantech's
current plan of commercialization. In addition, the License is subject to the
contingent right of PA Technology, a U.K. corporation, to request a grant of a
non-exclusive royalty-free license to exploit certain rights in the SPR
technology for applications outside the field of the commercial interests of the
Company. Finally, Ares-Serono has retained the right to further develop the SPR
technology, provided, however, that any products commercialized from such
development may only be sold through Ares-Serono under its name. Quantech is
unaware of any attempts by Ares-Serono to further develop the SPR technology.
See "Business-Patents."
THE TECHNOLOGY
[GRAPHIC: DESCRIBED BELOW]
Surface Plasmon Resonance (SPR) Technology. Surface Plasmon Resonance is an
optical-electrical phenomenon involving the interaction of light with the
electrons of a metal. The optical-electronic basis of SPR is the transfer of the
energy carried by photons of light to a group of electrons (a plasmon) at the
surface of a metal. Quantech's SPR sensor is a disposable slide composed of a
clear plastic base with a fine grating molded into its surface. The grating is
coated with a very thin layer of gold (1 ounce of gold is sufficient to produce
approximately 350,000 disposables). Gold is used since it does not oxidize like
other metals. Oxidation on the surface would prevent the creation of an SPR
signal. The gold is subsequently coated with binding molecules. The binding
molecules may be antibodies, DNA probes, enzymes or other reagents chosen
because they react exclusively with a specific analyte. The analyte is the
substance being measured and defines the test to be done such as a cardiac
marker.
The coated metal surface interacts with light at a characteristic
resonant wavelength that depends upon the molecular composition at the metal's
surface. When the coated metal is exposed to a sample that contains analyte, the
analyte becomes bound to the metal through its specific interaction with the
binding molecules. As an analyte is bound, the composition at the surface
changes and consequently the resonant wavelength shifts. The magnitude of the
change in the resonant wavelength is proportional to the amount of binding that
takes place, which is proportional to the concentration of the analyte in the
sample.
[GRAPHIC]
In the examples shown, an antibody is coated onto the surface of the
grating against a specific antigen such as the cardiac marker CK-MB. As the
antigen is captured, the wavelength of light that causes the SPR signal alters
in proportion to the amount of antigen present in the sample.
SPR biosensors combine the strengths of biology and physics into a
single entity. The utilization of the phenomena of SPR produces high
sensitivity. Applications of SPR that have been reported in the scientific
literature or explored by the Company include immunoassays for hormones, drugs,
viruses and bacteria, quantitation of anesthetic gases, and DNA binding assays.
The Company's SPR biosensor technology presents a simple, unified platform that
is capable of performing a wide range of diagnostic tests.
[GRAPHIC]
PRODUCT DESCRIPTION
THE INSTRUMENT
The Quantech instrument will be designed to fill the anticipated needs
of Critical Care Units and in particular the ED. The instrument will be designed
to be compatible with new disposables if and when they are introduced to the
market. Thus, a single instrument will accommodate the various tests necessary
to be performed in the ED. As Quantech adds tests, the same instrument platform
will be utilized. The instrument will sit on a desk or tabletop and have a
built-in keyboard that will enable the user to enter both a user number and the
patient or specimen ID number. The instrument will be equipped with a bar-code
reader that will identify the disposable employed and contain certain
calibration information necessary to effectively maintain quality control. The
data produced will be stored in the instrument thereby allowing the user to
download data to a central computer upon demand.
The instrument contains a white light source, a microprocessor, a
series of lenses and a liquid crystal display to display results of a given
test. The light beam is split into two parts, a unique development that enables
the user to read whole blood samples and a base line thereby providing
quantitative results. A beeping sound will alert the user when the test results
are available. A "strip printer," that may be provided with the instrument, will
produce a hard copy of the results.
The size and configuration of the instrument will enable it be located
at bedside. It is anticipated that Critical Care Units will have several of
these instruments at various locations. The instrument will retail for
approximately $18,500 and several pricing options will be available based upon
the number of test slides purchased.
DISPOSABLES
[GRAPHIC]
Quantech's disposable slide consists of an injection molded plastic
carrier containing up to four grating surfaces. The metallic surface is overlaid
with reagents that react specifically with the analyte to be identified and
measured. The disposable is filled with whole blood directly from a Vacutainer
which is routinely used to collect blood from patients in the ED. The
disposables will be configured identically for all of the tests manufactured by
the Company. The only difference between the disposables will be the reagents
coated on each grating to define the particular test. Future disposables for
certain test may also be configured to handle samples of urine, saliva, or other
body fluid.
Unlike the majority of other disposables on the market, Quantech's
disposables do not require the addition of reagents by the user. This simplicity
translates into lower production costs, quicker development time, easier use,
immediacy of results and reduced costs to the user. Individual disposables will
be packaged in a sterile pouch to provide extended shelf life. Disposables will
be configured to provide single tests or panels of up to three
diagnostically-related tests. Disposables are expected to have retail prices
ranging from $5.00 to $35.00 per disposable slide.
The Company has conducted experiments on a limited scale and initial
indications are that the SPR technology is a viable testing method. The Company
intends to manufacture test disposables based upon such SPR technology. The
Company believes that such test disposables will be easily produced, however,
commercial production may pose difficulties which currently are unforeseen. The
same disposable configuration may be used for all tests and instruments, thus
minimizing manufacturing and quality control costs. Additional development of
the disposable is currently being conducted and future development will continue
to expand the number of tests that may be performed in general and on each
disposal.
COMPARISON OF PRODUCT TECHNOLOGIES
A number of basic methods, whether performed manually or by automated
instruments, are utilized in diagnostic testing including immunoassays, DNA
probes and chemical reactions. Each of these testing methods requires the
performance of a series of operations by a skilled technologist. This testing
consists of: sample preparation, addition of reagents, further method-specific
manipulations, and reading and interpretation of raw data. Central laboratory
automated systems have been mechanized, rather than eliminated many of these
steps. Based upon the Company's current prototype instrument and test
disposables, The Quantech system will not require sample preparation, addition
of reagents or operation by a skilled technologist. No assurance can be given,
however, that the SPR technology can be commercialized so as to provide an
instrument and disposable that will operate in the manner described or that such
instrument will be accepted by the medical community.
In the Critical Care Units of the hospital, low volume or single test
throughput eliminates the economy of the central lab systems without
significantly shortening turnaround time for test results. Quantech's system
economically employs the same basic technologies, but simplifies the process.
The expected advantages of SPR include:
* Considerably faster test results
* Quantitative results
* Objective results (independent of operator skill or perception)
* Competitively priced instrument and disposables
* Minimal operator training
* No addition of reagents by the operator
* Compact, durable instrument
* Equal to or better sensitivity than other technologies
The Company believes the products to be developed from the SPR
technology will provide the potential to enable medical tests to be conducted at
the patient site with fewer steps, rapid response time, and minimal operator
training. However, the final commercialized SPR product has not been developed
and no assurance can be given that all of the advantages described above will be
attained.
The Company anticipates that the first instrument will be designed for
the POC market described below. It is anticipated that this instrument will be
designed to combine accuracy with simplicity of use and that such an instrument
will be capable of processing only one test disposable at a time. Subsequently
developed instruments may offer more automation, may provide greater throughput
required by larger facilities, and may incorporate a small computer for data
storage and analysis. The ability of biosensors to convert biological data into
digital signals should permit designs that capitalize on future advances in
microcomputer technology.
THE MARKET
GENERAL
The medical diagnostics market can be divided into three broad
segments: the traditional central lab, home diagnostics and point-of-care. The
Company defines point-of-care ("POC") so as to exclude home diagnostics such as
pregnancy and glucose which has grown tremendously over the last ten years. The
overall United States in-vitro diagnostic market is growing, estimated at $9.6
billion in 1995, and expected to grow to $14.4 billion by the year 2000. Central
labs account for the majority of this market while POC currently represents only
a portion, but is expected to grow by some estimates to $1 billion by the end of
1997 as more POC products enter the market. Such testing world wide, excluding
the United States, is at least as large with equal growth opportunities. See
"Business - Competition."
POINT OF CARE
The strategic direction chosen by Quantech is to exploit the inherent
technological advantages of its SPR technology by identifying the diagnostic
market niche where such technological advantages provide both economic savings
and significant patient benefits. The Company's primary strategy will be to
focus on the critical care diagnostics area. Quantech has identified this area
as one that fulfills both the above criteria. At this time, the large medical
diagnostic testing companies have little presence in this niche as they focus
their resources on the central laboratory. This absence should enable Quantech
to competitively enter the market. However, there is no assurance that the
Quantech system will be accepted by its intended market or that competition from
the large diagnostic companies will not be forthcoming.
The home testing market has expanded greatly, being driven largely by
the acceptance of blood glucose monitoring for diabetes and, to a lesser extent,
by home pregnancy testing. These applications, while increasing the availability
of home testing, do not address the needs of POC testing within the wider health
care environment as they are limited in the tests that can be performed.
Effective POC testing has become a significant need within the traditional
testing sites such as hospitals, ambulances and nurse's stations.
POC testing represents one of the most rapidly growing segments of the
in-vitro diagnostics market. Part of this growth is a result of the rising costs
of health care that have produced changes in hospital reimbursement. Pressure
has increased to reduce the length of patient stay and provide a greater portion
of services in ambulatory and outpatient settings. Because the cost of providing
care in Critical Care Units far exceeds those of general medical or surgical
units, one goal of critical care medicine is to shorten the amount of time
patients spend in these settings by instituting therapy based on the rapid
availability of test results.
In the Critical Care departments and surgical suites, a wide variety of
testing is now conducted that was formerly restricted to the main laboratory.
For example, tests that were done in the central labs, like blood gases and
electrolytes, are now available as POC tests. Conducting testing in proximity to
the patient provides immediate results and avoids the delays, communication
problems and increased costs often associated with a centralized testing
process. The continued growth of the POC will be a result of the advantages POC
testing has over central laboratories.
CRITICAL CARE
Critical Care is defined as the area where immediate diagnostic
information is needed to effect either the treatment or processing of a patient.
When test results are needed in these areas they must be processed in a STAT
manner, thereby significantly increasing the cost. The solution to this
difficulty is to bring a system of diagnostic methodologies to the patient site
in a manner that will provide test results promptly.
Part of Critical Care Units are the ED. The Company believes that there
are approximately 30 different diagnostic tests that require prompt results in
the ED. Quantech intends to develop products primarily focused on the ED and
these 30 tests during the first several years of operation. Since the needs of
the other areas of critical care are similar to the ED, the Company anticipates
that growth into these other areas will be evolutionary.
CARDIAC MARKERS
Of the tests needed by the critical care segment of the POC market, the
Company has selected those tests that the Company believes will minimize
development time and regulatory processes and, most importantly, satisfy unmet
demands of the users. Tests for cardiac markers meet all of these criteria.
These markers are needed to triage and treat individuals that arrive at the ED
with chest pain. An estimated 5.5 million patients are evaluated for chest pain
annually in the United States with approximately 3 million admitted to an
intensive-care unit for further evaluation. Of those admitted only 30%
subsequently "rule-in" for acute myocardial infarction ("AMI"). Assuming an
average cost of $3,000 per admission, this represents a total expenditure of $6
billion annually on patients who do not have AMI. This also does not take into
account that 2-8% of patients with acute chest pain that are released from the
ED without treatment subsequently fulfill criteria for AMI resulting in deaths
and complications that result in greater than 20% of the malpractice dollars
awarded in the field of emergency medicine.
Not only are costs of admission and malpractice claims an important
issue, but in the past, making a rapid definitive diagnosis of chest pain was
not as important as it is today. When a patient was in the early stages of a
heart attack/AMI there was not much treatment available. In the last 10 years,
substantial progress has been made in thrombolytic therapy. If the therapy is
started within 6 hours of the onset of a heart attack, it can dissolve the blood
clot, clear arteries and save heart muscle tissue. These therapies are expensive
and present undesirable side effects if the patient has not suffered an AMI.
During an AMI, certain proteins are released from the damaged heart
muscle into the blood stream as a result of damage to the muscle. These proteins
are in varying concentrations and consist of CK-MB, troponin, myosin, light
chain, myoglobin and CA-III. The interaction of these proteins is described in
the chart below.
To identify patients who have suffered an AMI, cardiac markers have
become important. These tests must provide results in under five minutes in the
ED or mobile care unit so that medical personnel may take immediate action.
Presently, there is no method available to provide such results quantitatively.
Most of the existing test modalities require a central laboratory system that
may delay the results beyond their effective need. Quantech's system is expected
to provide emergency personnel with the ability to receive quantitative results
within several minutes.
The high cost of therapy, the urgency of the associated conditions and
the difficulty of a definitive diagnosis creates an urgent demand for these
tests in the critical care setting. Quantech has begun to develop the disposable
slides for this market and intends to introduce the first two disposables in the
United States by the first quarter of calendar 1997.
These test markers will assist in the diagnosis of AMI in the ED. The
instruments and disposables based on SPR to be offered by Quantech will provide
results in a timely and economic manner.
COMPETITION
The majority of in-vitro medical diagnostic testing is conducted in
hospital and commercial reference laboratories. These facilities are
particularly suited for efficiently processing a large number of clinical
samples. While most hospital laboratories must maintain the capability to
perform certain STAT tests on single samples, most of the samples handled by
central laboratories are processed in batches. The competitors for this market
have addressed these laboratories' needs for high sample throughput, low reagent
cost and low labor cost by developing automated systems. These systems are
generally complex and expensive incorporating designs, appropriate to the labs
they serve, which presume skilled operators who are expected to perform sample
preparation, system calibration and basic instrument maintenance.
Both the health care providers and their suppliers are heavily
committed to the current central laboratory model. The laboratories are
constrained by their organization structure, their substantial capital
investment in instrumentation and the task of processing a large number of
routine (i.e., non-STAT) samples. The suppliers' corporate infrastructures,
marketing and sales organizations, research and development activities and
production capabilities are committed to this market. Even though the economic
savings and medical utility afforded by POC is becoming widely recognized, it is
not necessarily immediately attractive to the most successful laboratories and
the strongest suppliers.
There are more than 150 companies serving this central, clinical
laboratory market. Most of them compete in only one or two segments of the
overall market. Abbott Laboratories, Boehringer Mannheim, and Johnson & Johnson
(reinforced by its recent acquisition of Kodak Medical) are notable exceptions.
These companies have achieved their broad market penetration by developing
several technologies, each targeted for the specific needs of a market segment
and focusing their marketing, distribution and sales activities on the central
lab. The POC market in general must compete with the central laboratory to gain
market share and as a result Quantech will meet with competition from these
companies in both sales of its system and the individual tests for such system.
There is significant activity in the Critical Care segment of the POC
market. The majority of current systems address the areas of coagulation, blood
gas and basic chemistry (including electrolytes). Two such systems, i-STAT Corp.
which markets a hand-held biosensor instrument and Abaxis, Inc. (Piccolo) which
markets a tabletop analyzer, are capable of determining blood gas and
electrolyte levels and have become recognized POC instruments. The Company does
not believe current products of i-STAT, Abaxis or others are capable, however,
of diagnosing analytes that indicate cardiac markers or any infectious diseases.
There can be no assurance that current or future POC companies or current
companies providing instruments to the central laboratory market will not invent
systems that will have broad immunoassay testing capabilities like those
expected by the Company's system.
With respect to testing for CK-MB to diagnose AMI, most testing is done
in the Central Labs with turnaround time from 30 to 120 minutes. The Company is
aware of only four companies that provide POC testing for AMI. Of such
companies, Spectral Diagnostics Limited, a Canadian company, markets a manual
method available for two cardiac markers and Boehringer Mannheim has recently
begun to market a manual test for troponin T. As configured, neither Spectral's,
Boehringer's nor the other POC AMI tests can provide quantitative results and
all but Boehringer's test necessitate addition of reagents by the user.
The Company believes there is need for quantitative measurement of
cardiac markers, drugs and other critical care tests and that such need
continues to be unfulfilled. The Company plans to enter the market by serving
the unmet needs for quantitative cardiac markers and to extend its penetration
by delivering the full range of ED tests on a single platform. In doing so, the
Company will compete directly with providers of currently available testing
methods. All of the industry leaders, and many of the other companies
participating in the diagnostic testing market, have substantially greater
resources than those available to the Company, including, but not limited to,
financial resources and skilled personnel. However, the Company believes the SPR
technology will enable it to provide products to the POC market, a market niche
believed by the Company to be less competitive. See "Business -- The Market."
PATENTS AND PROPRIETARY RIGHTS
The License covers a total of eight patents. The two principal patents
covering the SPR technology gratings have been granted in the United States,
Canada, Australia and certain European countries and portions are pending in
Japan and Great Britain. Except for two patents relating to optics, one of which
is pending in the United States and one of which is pending in Canada, the
remaining patents have been granted in the United States, Canada, Australia, and
certain European countries and portions are pending in Japan and Great Britain.
All developments by the Company pursuant to the License, either proprietary or
patentable in nature, will be the property of the Company. The Company has made
a number of advances that it intends to patent. These developments are in the
methodology of chemically coding the SPR disposables, and in enhancements to the
optics that improve the ease and reliability of calibration and eliminate
nonspecific, sample-to-sample variability. Because the Company's licensed
patents do not expire in less than ten years and Quantech intends to file
additional patents, the Company believes that is has the opportunity to complete
development of its product, establish a market position and seek additional
patents on improvements and related technologies. No assurance can be given,
however, that other companies will not develop technologies substantially
equivalent to those owned, or to be developed, by the Company or that granted or
pending and to filed patents, if granted, will protect the Company's technology.
See "Risk Factors - Patent Protection."
GOVERNMENT REGULATION
The Company believes that the products it initially proposes to
manufacture and market will be classified as medical devices and will therefore
be subject to regulation by the United States Food and Drug Administration (the
"FDA") and, in some instances by foreign government authorities. Under the 1976
amendments to the Federal Food, Drug and Cosmetics Act (the "FFDCA") and
regulations promulgated thereunder, manufacturers of medical devices must comply
with certain regulations governing the testing, manufacturing and packaging of
medical devices. Under the FFDCA, medical devices are subject to different
levels of testing and review. The most comprehensive level of review requires
that a clinical evaluation program be conducted before a device receives
premarket approval by the FDA for commercial distribution. As a manufacturer of
medical devices, the Company will also be subject to certain other FDA
regulations, and its manufacturing processes and facilities will be subject to
periodic inspection, without warning, to ensure compliance. Comparable agencies
in certain States and foreign countries will also regulate the Company's
activities. The Company's products could be subject to recall by the FDA or the
Company itself, if it appears that the products and their use do not conform to
regulations.
Generally, medical devices intended for human use that are to be
marketed in the United States are placed in one of three regulatory
classifications depending upon the degree of testing and review to which the
device will be subject. The Company expects that its products will not be
subjected to the highest level of scrutiny because they are in-vitro (outside of
the body) diagnostic devices which do not come into contact directly with a
living human being. Specifically, the systems would be classified as either
Class I or Class II devices as distinct from implantable devices, which are
classified as Class III devices.
The Company believes that premarket clearance can be obtained for its
initial system and tests through submission of a 510(K) premarket notification
("510(K) Notification") demonstrating the product's substantial equivalence to
another device legally marketed pursuant to 510(K) Notification clearance. The
FDA may also require, in connection with the 510(K) Notification, that it be
provided with the test results supporting this claim. The FDA may further
require, in connection with the 510(k) Notification, that it be provided with
test results demonstrating the safety and efficacy of the device. Under certain
circumstances, such clinical data can be obtained only after submitting to the
FDA an application for an Investigational Device Exemption ("IDE"). The FDA must
either deny the 510(K) Notification or require further information within 90
days. If the FDA has not responded within such time period, the applicant may
proceed to market the new product. Generally, a request by the FDA for a 90 day
extension prior to ruling is not uncommon.
For new products that are not considered to be "substantially
equivalent" to an existing device, two levels of FDA approval will probably be
required before marketing in the United States can begin. First, the FDA and
participating medical institutions must approve the Company's application for an
IDE, permitting clinical evaluations of the product utilizing human samples
under controlled experimental conditions. Second, the FDA must grant to the
Company a Premarket Approval ("PMA"). The FDA should grant a PMA if it finds
that the product complies with all regulations and manufacturing standards. In
addition, the FDA may require further clinical evaluation of the product, or it
may grant a PMA but restrict the number of devices distributed or require
additional patient follow-up for an indefinite period of time. Completion of
this process could take up to 12 months and involve significant costs. The
Company believes it is unlikely that it will be required to obtain a PMA with
respect to any of its currently proposed products except where mandated by the
FDA such as HIV, cancer and hepatitis detection tests. Any claims of panel
diagnostics are subject to a PMA procedure. The Company anticipates that it will
make claims in reference to its cardiac markers. These claims will be made after
the products are marketed with only single claim implications. Accordingly, the
products should not be delayed in their initial introduction. If a PMA is
required for the Company's initial system and CK-MB test, introduction of the
initial system likely would be significantly delayed, which could have a
material adverse effect of the Company. Mr. Shaw and Dr. McKiel, the Company's
President and Executive Vice President-Research and Development, respectively,
have extensive experience in FDA approval and compliance matters.
PRODUCT LIABILITY
The Company could be exposed to risk of product liability claims or
other lawsuits in the event of incorrect diagnosis utilizing the SPR equipment
and disposables developed by the Company. Unless the Company maintains product
liability insurance of a sufficient amount, the Company will have to bear the
economic consequences of any claim in excess of its insurance coverage. While
the Company does not presently have such coverage, it will evaluate its
availability at such time as products are commercially introduced. There can be
no assurance that the Company will be able to obtain or maintain such insurance.
EMPLOYEES AND PROPERTIES
The Company employs fourteen people on a full-time basis and engages
consultants and independent contractors to provide services related to the
development of the SPR technology. The Company expects to hire other personnel
in the next twelve months as necessary for FDA work, sales and marketing,
manufacturing and administration. See "Management."
The Company leases offices (comprised of approximately 6,800 sq. ft.)
at 1419 Energy Park Drive, St. Paul, Minnesota at a base monthly rent of
approximately $5,200 pursuant to a lease arrangement which expires February,
2000 and will thereafter proceed on a month-to-month basis. The Company will
require at least 15,000 sq. ft. of space prior to commercial manufacturing of
its system. The Company is currently reviewing additional space to satisfy it
future needs.
LEGAL PROCEEDINGS
The Company is not a party to any litigation that would have a material
adverse effect on its financial condition or results of operations.
HISTORY OF THE COMPANY
The Company is the culmination of developments dating from early 1989.
R. H. Joseph Shaw, the Company's President, learned that Ares-Serono intended to
sell the SPR technology (patents and proprietary information) due to changes in
corporate strategy. Mr. Shaw formed Spectrum Diagnostics Inc. ("SDI") and
purchased an option on the SPR technology. In August 1991, the Company found
itself in the position of having to raise $2 million to make the final payment
on its option with Ares-Serono to acquire the SPR technology or face the loss of
the previous investment. An organization capable of raising the funds within the
necessary time frame was found, New York-based Ital American Securities, but the
financing had to be conducted in Italy Spectrum Diagnostics S.p.A. ("SDS")
purchased the assets of SDI, including the Ares-Serono option, completed the
financing and exercised the option. These funds, while adequate to secure the
technology, were insufficient to fully develop it to a commercial level. In
conjunction with the Italian offering, a concurrent offering was conducted by
Schneider Securities, Inc. in the United States, however, funds raised in such
offering fell short of expectations. The inconvenience and costs associated with
operating under both Italian and U.S. regulations, necessitated a repatriation.
Quantech Ltd. was formed under the laws of Minnesota for the purpose of
effecting the change of domicile of SDS from Italy to the state of Minnesota
through a merger with SDS on April 14, 1993. Quantech had no operations prior to
the merger. SDI's changed its name to Quantech Ltd. primarily to avoid confusion
with other medical companies. Since that time, the Company has financed its
efforts through a series of private placements of securities.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
Name Age Position
R. H. Joseph Shaw 50 President, Chief Executive
Officer and Chairman of the
Board
Robert R. McKiel, Ph.D. 53 Executive Vice President-
Research and Development and
Director
Gregory G. Freitag 34 Chief Financial Officer,
Vice President of Corporate
Development, and Secretary.
James F. Lyons 64 Director
Richard W. Perkins 64 Director
Edward E. Strickland 67 Director
R. H. JOSEPH SHAW has been President, Chief Executive Officer and
Chairman of the Board of the Company and its predecessor entities since their
inception. Mr. Shaw is an honors science graduate with postgraduate work in the
area of medical science. He has taught at McMaster University and Simon Fraser
University in Canada, has served on the Le Dain Royal Commission investigating
the nonmedical use of drugs and was a guest speaker to the U.S. Senate Committee
on Small Business. He has an extensive background in the medical industry and in
1971 started his career with McNeil Laboratories, Ltd., a subsidiary of Johnson
& Johnson ("J&J") in the position of Manager of Scientific Affairs. In that
capacity he monitored clinical programs and interfaced with the Canadian
equivalent of the FDA. Subsequently, he served as Canadian General Manager of
another J&J company. In 1973, Mr. Shaw joined K-Vet/KVL, a privately owned
medical company, as Executive Vice President, in which capacity he was
responsible for all aspects of the corporate organization. In 1978, Mr. Shaw
purchased the Human Diagnostics Division from this group, which he renamed
Cathra International ("Cathra"). Mr. Shaw remained with Cathra as President
until it was sold in 1985 and coordinated the integration of Cathra and the
purchaser's medical groups into a single operating entity, MCT Medical, Inc. Mr.
Shaw was the President of MCT Medical, Inc. through April 1987. From April 1987
until joining the Company, Mr. Shaw was Vice President and head of diagnostics
of Quadra Logic Technologies, Inc., a company listed on NASDAQ and the Toronto
Stock Exchange. Mr. Shaw has extensive experience in both national and
international markets and has managed the scientific and commercial development
of a number of diagnostic products. He also has experience in establishing and
managing strategic alliances in Canada, the United States, Japan and Europe.
ROBERT R. MCKIEL, PH.D., has been Executive Vice President-Research and
Development since 1992 and a director since May 1995. From 1984 to 1987, Dr.
McKiel served as Vice President of Amersham International, a large medical
company based in the United Kingdom. From 1987 until joining the Company he
served as a consultant to various companies in the medical diagnostics industry,
including Ares-Serono and Boehringer Mannheim Corporation. In that capacity, he
has been involved in a variety of projects including the design of a clinical
immunochemistry analyzer, implementation of a GMP (Good Manufacturing Practices)
program for a clinical device manufacturer and a redesign of a pharmaceutical
quality control program. He earned his baccalaureate degree in organic chemistry
at the University of Notre Dame and a doctorate in biological chemistry at the
University of Illinois. After completion of his post-doctoral residency in
clinical chemistry at the University of Illinois Medical Center, he joined the
Illinois Medical Center staff. From 1973 to 1979, he served as an assistant
Director of the University of Illinois Hospital Laboratories and as head of
Radioimmunoassay Laboratory, held various faculty appointments, and taught in
the departments of Biological Chemistry and Pathology. In 1979, Dr. McKiel
joined Amercham Corporation to establish a U.S. based technical support system
for the company's products, and to enhance the Amerchan's effectiveness in the
design and marketing of new products in the U.S. In 1984, he took on the
additional responsibility of managing the marketing of clinical products.
GREGORY G. FREITAG has been Chief Financial Officer, Vice President of
Corporate Development and Secretary of the Company since December 1, 1995. From
1987 until joining the Company Mr. Freitag was a lawyer with the Minneapolis,
Minnesota law firm of Fredrikson & Byron, P.A. As a shareholder with Fredrikson
& Byron he practiced in the corporate, securities and merger and acquisition
areas of law. Mr. Freitag has his J.D. and CPA, has served on securities
advisory committees to the Minnesota Commissioner of Commerce and is included in
the Minnesota Business Guide to Law & Leading Attorneys.
JAMES F. LYONS has served as a director of the Company since September
7, 1995. From September 1983 through October 1994, when he retired, Mr. Lyons
was Chief Executive Officer of Bio-Vascular, Inc., a cardiovascular medical
products company. From 1978 through 1990, Mr. Lyons was President and Chief
Executive Officer of BioMedicus, Inc., a cardiovascular medical products
company. Mr. Lyons is also a Director and Chairman of the Board of AVECOR
Cardiovascular Inc., and a director of ATS Medical, Inc., Bio-Vascular, Inc. and
Spinetech, Inc.
RICHARD W. PERKINS has been a director of the Company since September
7, 1995. Since 1985, Mr. Perkins has been President, Chief Executive Officer and
a director of Perkins Capital Management, Inc., Wayzata, Minnesota. Prior
thereto he was a Senior Vice President of Piper Jaffray Inc., Minneapolis,
Minnesota. He is also a director of Bio-Vascular, Inc., Eagle Pacific
Industries, Inc., Children's Broadcasting Corporation, Discus Acquisition Corp.,
Garment Graphics, Inc., Lifecore Biomedical, Inc., Nortech Systems, Inc., and
CNS, Inc.
EDWARD E. STRICKLAND has been a director of the Company since September
7, 1995. Mr. Strickland has been an independent financial consultant for more
than seven years. From October 1990 to January 1991, he performed the duties of
Chief Executive Officer while serving on the Executive Committee of the Board of
Directors of Reuter, Inc. Mr. Strickland also serves as a director of
Bio-Vascular, Inc., Hector Communications Corp., Communication Systems, Inc.,
and AVECOR Cardiovascular Inc.
ELECTION OF OFFICERS AND DIRECTORS; COMMITTEES OF THE BOARD OF DIRECTORS
Executive officers of the Company are elected by the Board of Directors
on an annual basis and serve at the discretion of the Board of Directors. The
Company's Board of Directors is divided into three classes with each class being
elected for a term of three years after their initial term is completed. The
Company's directors hold office until their term has expired and their
successors have been elected and qualified. John G. Kinnard and Company,
Incorporated ("JGK"), the Company's investment banker, has the option to
nominate two directors who are not a director, officer, partner, employee or
affiliate of JGK. Messrs. Strickland and Lyons are such designees. JGK's right
to appoint such directors terminates on the earlier of September 22, 2000 or the
closing of a Company public offering of securities in excess of $10 million. See
"Plan of Distribution - The Agent and the Agency Agreement."
The Company's Board of Directors has established two committees. The
Audit Committee has the responsibility of selecting Quantech's independent
auditors and communicating with such auditors on matters of auditing and
accounting. The Audit Committee is comprised of directors Perkins, Lyons and
Strickland with Mr. Strickland as Chairman. The Compensation Committee has the
responsibility of reviewing on an annual basis all officer compensation and
administering any employee options and plans related thereto. The Compensation
Committee is also comprised of directors Perkins, Lyons and Strickland with Mr.
Lyons as Chairman.
SCIENTIFIC ADVISORY BOARD
The Company has established a Scientific Advisory Board comprised of
persons knowledgeable in the area of biosensors, SPR and medical products who
can provide insight into the direction of the Company and its technology. The
Company provided each advisor in April 1996 an option to purchase 50,000 shares
of Company Common Stock at $.60 per share and reimburses them for out-of-pocket
expenses. The persons on the advisory board are as follows:
DR. MICHAEL FLANAGAN is a Professor of Bioelectronics at University
College London. Dr. Flanagan has served as a consultant to numerous companies
investigating the commercial application of biosensors. He is a world recognized
expert in the area of optical sensors. Dr. Flanagan received his B.S. and Ph.D.
degrees from the University of Sheffield, England. His thesis work was in the
area of mapping of protein.
DR. JOHN G. HURRELL, is Vice President of Diagnostic Technology for
Genzyme Corp. Previously he was Senior Vice President, R&D Operations for
Boehringer Mannheim and was responsible for the successful development and
launch of the two leading self-blood glucose monitoring systems, Accu Check Easy
and Accu Check Advantage, as well as the Coagu Check coagulation product
presently available in Europe. Dr. Hurrell was Worldwide Technical Director for
Serono Diagnostics, Waking, England, before joining Boehringer Mannheim. With
Serono Diagnostics, he directed immunoassay systems and optical biosensor
development. Dr. Hurrell was with the founding management team at Allelix, a
diversified biotechnology company in Toronto, Canada, where he cofounded ADI
Diagnostics Inc. An Australian by birth, Dr. Hurrell received his Ph.D. from the
University of Melbourne and was a Fulbright Fellow at Harvard Medical School in
the Cardiac Unit of Massachusetts General Hospital. Dr. Hurrell's research
interests cover biosensor, protein engineering and new diagnostic methods.
binding sites using fluorescent probes.
DR. JOSEPH P. LEVERONE is a partner in Central Regional Pathology
Laboratories, P.A., an independent pathology practice which provides anatomic
and clinical pathology services to twelve urban and rural hospitals in Minnesota
and Wisconsin as well as several medical clinics. Dr. Leverone has been in the
practice of pathology since 1976. He received his M.D. degree from the
University of Minnesota and received his specialty training at Los Angeles
County - USC Medical Center in Los Angeles and St. Paul-Ramsey Medical Center in
St. Paul, Minnesota. Dr. Leverone has served on several committees and task
forces of the College of American Pathologists and has been an inspector in the
CAP's Laboratory Accreditation Program since 1979.
DR. ROGER C. LUCAS is Vice Chairman of Techne Corporation, parent
company to Research & Development Systems, Inc. and the Chief Scientific Advisor
to its Board of Directors. Prior to co-founding R&D Systems in 1980, Dr. Lucas
was an Assistant Professor in the Department of Biochemistry in the medical and
graduate schools of the State University of New York in Brooklyn. Dr. Lucas has
published more than one dozen recent articles in the field of immune system
response modifiers. He established a diagnostic group at R&D Systems to detect
these molecules in blood. These diagnostic assays now dominate their segment of
the marketplace. As both a National Institutes of Health and Muscular Dystrophy
Association Post-doctoral Fellow, he has performed extensive work on the
troponins and myosin light chains. His interests include molecular biology,
genetic engineering and the use of nucleic acid probes to diagnose genetic
disorders.
JON K. NISPER is Manager of Optical Technology for Donnelly Corp. where
he developed and patented a method for injection molding nanostructures and
diffractive optical elements. He is responsible for managing technical aspects
including optical design and engineering. He previously worked as a Principal
Optical Engineer for Martin Marietta Corp. While there he held top secret
compartmentalized clearance and was responsible for design, analysis, and
fabrication of supersonic sensor window technology and frequency selective
surfaces. He also worked as a member of the technical staff for the Rocketdyne
Division of Rockwell International, where he was responsible for High Energy
Excimer Laser Development and Analysis. He received his B.S. in Electrical
Engineering from the University of Michigan in 1984. Since graduation, he has
continued course work in electro-magnetics and optics at California Institute of
Technology and University of Central Florida.
KEMAL SCHANKERELI is presently Vice President of Research and
Development for Bio-Vascular, Inc., a manufacturer of long term implantable
disposable medical devices. His previous work background includes that of
Manager of Research and Development for St. Jude Medical, Senior Scientist for
Meadox Medical and Machida Medical, and as polymer chemist for GAF Corporation.
Mr. Schankereli's primary area of expertise resides in material
characterization, development of coatings, and the development of biomedical
devices intended for cardiovascular applications.
DR. LAWRENCE WEAVER is a past director of Quantech. From 1953 through
1959, he was in Research and Administration for Pitman-Moore Co., Division of
Allied Laboratories and from 1959 through 1966, for Pitman-Moore Co., Division
of Dow Chemical Co. From 1966 through 1984, he served as Dean and Professor of
Pharmacology, College of Pharmacy, University of Minnesota. He has served as
Vice President, Pharmaceutical Manufacturers Association and is presently Dean
of the College of Pharmacy, University of Minnesota. Dr. Weaver served on the
Board of Directors of Fuller Laboratories at the time it was merged into
Parke-Davis Co., and on the Board of Directors for Rowell Laboratories when it
was merged into Reid-Provident.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, the cash and noncash for each of the
last three fiscal years awarded to or earned by the Chief Executive Officer of
the Company and to all executive officers whose compensation exceeded $100,000
for such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ----------------
AWARDS
----------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) DOLLARS OPTIONS (#) ($)
------------------ ------ ------ ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
R.H. Joseph Shaw 1995 $150,000 -- $7,800 0 0
Chief Executive 1994 $150,000 -- $7,800 0 0
Officer 1993 $ 50,000(1) -- $7,800 0 0
</TABLE>
- ---------------------
(1) During this period, the Company changed its fiscal year from December
31 to June 30 and the salary is reflective of the 6-month period ended
June 30, 1993.
The Company does not currently compensate its directors. The Company
has, however, granted options to its directors from time to time. Additional
directors' options may be granted in the future to attract and retain qualified
personnel to its Board of Directors. The Company's officers are appointed by,
and serve at the discretion of, its Board of Directors. See "Risk Factors -
Dependence on Key Personnel; Need for Skilled Personnel."
The following table shows, as to the individuals named in the Summary
Compensation Table, information concerning stock options granted during the year
ended June 30, 1995.
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE
GRANTED EMPLOYEES PRICE EXPIRATION
(#)(1) IN 1995 ($/SHARE) DATE
------ ------- --------- ----------
<S> <C> <C> <C> <C>
R.H. Joseph Shaw 1,246,262 53.6% .25 5/15/2000
</TABLE>
- --------------------
(1) Options indicated vest and become exerciseable over a one year period
from the date of grant.
The following table sets forth, for each of the executive officers
named in the Summary Compensation Table above, the year-end value of unexercised
options.
OPTION EXERCISES AND VALUE OF OPTIONS AT END OF FISCAL 1995
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED END OF FISCAL 1995 AT END OF FISCAL 1995 (1)
ON VALUE -------------------------------- --------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R.H. Joseph Shaw -- N/A 623,131 623,131 $0 $0
</TABLE>
- ------------------------
(1) Value based on market value of the Company's Common Stock on August 1,
1995 less the exercise price.
EMPLOYMENT AGREEMENTS
In May 1995, the Company entered into three-year employment agreements
with Messrs. Shaw and McKiel and in December of 1995 entered into a two year
employment agreement with Mr. Freitag (the "Employment Agreements"), which
provide for annual base salaries of $150,000, $110,000 (subsequently raised to
$125,000) and $125,000, respectively, and further provide that Messrs. Shaw,
McKiel and Freitag are entitled to certain severance benefits in the event that
their employment is terminated by the Company "without cause" or by such
executive following a "change of control" (both as defined in the Employment
Agreements). In such cases, the executive would receive, in a lump sum payment
at termination, the greater of (i) the salary such executive would have received
for the remaining term of the Employment Agreement, or (ii) one year's salary
with respect to Messrs. Shaw and McKiel and two year's salary and bonus with
respect to Mr. Freitag following notice of termination. Each of the Employment
Agreements contains a covenant not to compete with the Company for twelve months
following termination, in the event of their termination by the Company "without
cause" or at their election upon a "change of control." Finally, Mr. Shaw is
provided an automobile allowance.
STOCK OPTION PLAN
The Company to date has provided employees, directors and scientific
advisory members nonqualified stock options and warrants for the purchase of up
to 5,667,103 shares of Common Stock ranging in exercise prices from $.25 to
$.60, except for 60,000 options granted at an exercise price of $1.31 per share.
It is expected that the Company at its next annual shareholders meeting will
submit for approval a formal employee stock option plan under which future
options will be granted. The Company will determine the number of shares to be
reserved under such Option Plan at such time as the Compensation Committee of
the Board of Directors takes action to establish it.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation, as amended, limit the
liability of directors in their capacity as directors to the Company or its
shareholders to the full extent permitted by Minnesota law. The Articles provide
that a director shall not be liable to the Company or its shareholders for
monetary damages for breach of fiduciary duty as a director, except (i) for any
breach of the director's duty of loyalty to the Company or its shareholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for dividends, stock repurchases
and other distributions made in violation of Minnesota law or for violations of
the Minnesota securities laws, (iv) for any transaction from which the director
derived an improper personal benefit or (v) for any act or omission occurring
prior to the effective date of the provision in the Company's Articles of
Incorporation, as amended, limiting such liability. These provisions do not
affect the availability of equitable remedies, such as an action to enjoin or
rescind a transaction involving a breach of fiduciary duty, although, as a
practical matter, equitable relief may not be available. The above provisions
also do not limit liability of the directors for violations of, or relieve them
from the necessity of complying with, the federal securities law.
The Articles of Incorporation of the Company, as amended, also provide
that the Company will exercise, to the extent permitted by law, its power of
indemnification, and that the foregoing right of indemnification shall not be
exclusive of other rights to which a person shall be entitled as a matter of
law. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
CERTAIN TRANSACTIONS
The Company entered into a Consulting Agreement with Weems E. Estelle,
a former director and Chairman of the Board of the Company, in September 1993
and amended the Agreement in May 1995. Under the terms of the amendment, Mr.
Estelle agreed to reduce the cumulative amount of fees owing to him for
consulting services from $213,000 in exchange for $20,000 in cash and 560,000
shares of the Company's Common Stock valued at $.125 per share ($70,000).
R. H. Joseph Shaw and Robert McKiel, officers and directors of the
Company, from time to time over the last three years have either been indebted
to the Company for funds advanced pursuant to authorization by the Board of
Directors or owed money by the Company for services rendered by them which the
Company was unable to pay on a current basis. At the present time, the Company
is not indebted to such persons and does not intend to be in the future. Mr.
Shaw is indebted to the Company in the approximate amount of $4,500.
The Company has authorized 60,000,000 shares of its Common Stock. As of
the date of this Prospectus the Company had 46,900,759 shares of Common Stock
outstanding and 15,768,103 shares issuable upon the exercise of options and
warrants. Because the total number of shares outstanding and issuable upon
exercise of options and warrants exceeds the Company's authorized shares by
2,418,862 shares, Messrs. Freitag, Perkins, Strickland and Lyons have agreed to
amend their stock options for the purchase of up to 500,000 shares each and Mr.
Shaw his warrant for up to 346,262 shares to provide that they are not
exercisable for such number of shares until the shareholders of the Company
approve an increase in the aggregate number of authorized shares of Company
Common Stock.
All future transactions with directors, officers or shareholders
holding more than 5% of Quantech's outstanding Common Stock, or affiliates of
any such persons, including loans to such persons, will be approved by a
disinterested majority of Quantech's directors.
PRINCIPAL AND SELLING SHAREHOLDERS
Set forth below are the names of: (a) persons who are known to own more
than 5% of the Company's Common Stock; (b) each executive officer named in the
Summary Compensation table; (c) each director of the Company; (d) all directors
and executive officers as a group; and (e) Selling Shareholders. The following
table sets forth as of the date of the Prospectus beneficially owned shares
which include any shares that may be acquired within 60 days of the date of this
Prospectus upon exercise of options or warrants, the number of Shares offered
hereby and the percentage of the outstanding Common Stock to be owned if all of
the Shares registered hereunder are sold by the Selling Shareholders.
<TABLE>
<CAPTION>
NUMBER OF SHARES % OF
BENEFICIALLY OWNED NO. SHARES
-------------------------------- SHARES OWNED
WARRANT OFFERED AFTER
NAME SHARES SHARES HEREBY OFFERING
- --------------------------------------------------- --------- -------- -------- --------
<S> <C> <C> <C> <C>
Ted & Mary Adams 25,000 25,000 *
Theodore P. Adams 40,000 10,000 50,000 *
American Heritage Fund 250,000 250,000 *
Gerald L. Anderson 25,000 25,000 *
Roy Anderson Jr. 200,000 50,000 250,000 *
Roy Anderson III 200,000 50,000 250,000 *
Gregory & Ann Anklam 40,000 10,000 50,000 *
Menesa Anstalt 50,000 50,000 *
Meleah T. & David M. Arnold 400,000 100,000 500,000 *
J. Marc Ashton 40,000 10,000 50,000 *
Atwell & Co. 928,000 928,000 *
Larry Auriana 598,000 598,000 *
Bernard C. Baier 50,000 50,000 *
John G. Ballenger 200,000 50,000 250,000 *
Bank Heusser & Co. LTD 400,000 100,000 500,000 *
W. William & Colette M. Bednarczyk 125,000 125,000 *
Richard T. Bennett 50,000 50,000 *
Denis Berger 250,000 250,000 *
Les Biller 454,704 454,704 *
Nicolas C. Bluhm 360,000 115,000 475,000 *
Jeffrey A. & Brenda L. Bowen 50,000 50,000 *
Donald A. Brattain 450,000 50,000 500,000 *
Courtney W. Brown 210,664 10,000 220,664 *
Paul R. Braun 33,335 33,335 *
Richard M. Brown 25,000 25,000 *
Ralph D. Burgess Jr. 50,000 50,000 *
Timothy H. Burton 50,000 50,000 *
Anthony Carideo 40,000 10,000 50,000 *
Fred & Wendy Caslavka 10,000 10,000 *
Joseph B. Catarious 200,000 50,000 250,000 *
James A. Chapman 30,000 30,000 *
Walter L. Chapman 54,264 54,264 *
Lee S. Chapman 538,000 25,000 235,000 0.7%
Martin Chelstrom 10,000 10,000 *
Christianson Investment Co. LP 500,000 100,000 600,000 *
Ann M. Christianson 19,750 4,937 24,687 *
Lynn A. Christianson 19,750 4,937 24,687 *
Warren G. Christianson 800,036 120,378 920,414 *
Warren T. A. Christianson 19,750 4,937 24,687 *
Dual B. & Adelle Cooper 10,000 10,000 *
Dave Cowley Pension Trust 50,000 50,000 *
Thomas A. Cullinan 25,000 25,000 *
Francisco E. dela Rosa Jr. 17,000 17,000 *
Robert W. & Rita M. deWerd 48,000 12,000 60,000 *
Glenn Diamond 1,115,037 600,000 1,715,037 *
Robert Diamond 227,200 227,200 *
Michael H. Diemer 50,000 50,000 *
John P. & Emily W. Dirksen 80,000 20,000 100,000 *
Arthur T. Donaldson 25,000 25,000 *
DRAFTCO 200,000 50,000 250,000 *
Neil Durhman 200,000 200,000 *
Paul Ehlen 36,670 5,000 41,670 *
Stanley G. & Carol R. Eilers 958,000 190,000 790,000 *
Engelkes-Abels Funeral Home Inc. 80,000 20,000 100,000 *
W. Bruce Erickson 167,464 167,464 *
James E. Ernst 17,500 17,500 *
Weems Estelle 560,000 450,000 1,010,000 *
Robert J. Evans 40,000 10,000 50,000 *
Harvey Feldman 25,000 25,000 *
Lee Felicetta 40,000 10,000 50,000 *
Mary Jane Fleming 84,268 84,268 *
Founding Partners Limited Partnership II 200,000 200,000 *
Carol M. Freeman 19,750 4,937 24,687 *
Gregory G.Freitag 505,500(1) 100,000 100,000 1.1%
Robert D. Furst Jr. 289,800 289,800 *
James M. Gahlon 80,000 80,000 *
James Gahlon 92,008 92,008 *
Robert W. Jr. & Patricia T. Gaines 100,000 100,000 *
Robert D. Gearou 50,000 50,000 *
Robert L. Gearou 250,000 62,500 312,500 *
Thomas W. Gearou 250,000 50,000 300,000 *
Marvin A. Ginsburg 40,000 10,000 50,000 *
Michael J. Glass 16,670 16,670 *
Ronald L. Glassman 50,000 50,000 *
Glymar Inc. 40,000 10,000 50,000 *
David S. Goldsteen 3,025,056 3,025,056 *
Mark Goldsteen 400,000 100,000 500,000 *
Franklin N. Groves IRA 25,000 25,000 *
Gummow Investments 50,000 50,000 *
Troy Gummow 50,000 50,000 *
Warren Guy & Lonnie K. Gummow 50,000 50,000 *
H. Eugene Hall 52,232 40,000 *
James W. Hansen 50,000 50,000 *
Thomas Harkness 100,000 50,000 150,000 *
Craig Hartsburg 25,000 25,000 *
Bill R. Hay 80,000 15,000 95,000 *
Timothy Heaney 20,000 5,000 25,000 *
Timothy Heaney IRA 8,335 8,335 *
Heartland Limited Partnership I 750,000 750,000 *
Thomas Craig Hense 50,000 50,000 *
Julie A. Higgins 19,750 4,937 24,687 *
George Holbrook 454,672 454,672 *
Bruce Hubbard 32,000 8,000 40,000 *
Richard G. & Diane L. Hubers 20,000 20,000 *
H. K. Financial Corp 1,420,664 100,000 924,000 1.3%
Hynan Real Estate Partnership 25,000 25,000 *
Industricorp & Co. Inc. 127,600 44,400 172,000 *
Intermed Anstalt 275,000 50,000 325,000 *
Charles A. Jacob 20,000 20,000 *
Stanley J. Johnson 250,000 75,000 325,000 *
Theodore Johnson 100,000 25,000 125,000 *
Wesley E. Johnson Jr. 65,000 10,000 75,000 *
James C. Jordan 25,000 25,000 *
E. Elmer &E. Joyce Jutila 40,000 10,000 50,000 *
Jon E. Jutila 40,000 10,000 50,000 *
Nasser J. Kazeminy 85,000 85,000 *
Bernard M. S. Kegan 40,000 10,000 50,000 *
Kessler Ashler Group Limited Partnership 800,000 200,000 1,000,000 *
Kurt King DDS, IRA 100,000 25,000 125,000 *
Steven G. King 100,000 25,000 125,000 *
John G. Kinnard & Company Inc. 3,078,500 3,078,500 *
Brandon Koress 116,670 25,000 141,670 *
Mitchell Krieger 175,000 37,500 212,500 *
David J. & Kathryn J. Kruskopf 40,000 10,000 50,000 *
Martin Lackner 116,670 25,000 141,670 *
Lakewood Ortho Clinic-Mark Mills 40,000 10,000 50,000 *
Dennis J. LaValle 1,084,345 175,000 886,345 0.8%
Bruce A. Lawin 40,000 10,000 50,000 *
Thomas F. Leahy 100,000 100,000 *
Frank Lee 92,800 92,800 *
Cheri E. Lefebvre 10,000 10,000 *
Donald S. & Mary A.Leonard 84,264 84,264 *
Peter Lerner 460,000 460,000 *
Lopresti Gabbay & Associates Inc. 400,000 400,000 *
C. S. Lozinski 60,000 15,000 75,000 *
Roger Lucas 100,000 25,000 125,000 *
Wayne K. Lund 792,000 150,000 590,000 *
James F. Lyons 750,000(2) 50,000 300,000 1.1%
James F. Lyons & Eleanor Lyons 50,000 50,000 *
Plato Mavroulis 100,000 25,000 125,000 *
Lyle H. Maschoff 25,000 25,000 *
Kenneth Maus 50,000 50,000 *
Victor Mavar 100,000 25,000 125,000 *
Adolfo M. Maglaya 22,120 16,000 *
Trustees of Adolfo Maglaya Profit Sharing Trust 33,762 24,000 *
David Metz 50,000 12,500 62,500 *
Robert T. Montague 100,808 100,808 *
Joseph Mooibroek 60,000 15,000 75,000 *
Sheliah Mulvaney 16,665 16,665 *
James S. Murphy 80,000 20,000 100,000 *
Michael Nagel 22,898 22,898 *
Andrea McCallister O'Connell 127,664 12,500 140,164 *
Robert R. McKiel 881,330(3) 1.8%
H. Vincent O'Connell 345,864 32,500 378,364 *
Steve O'Hara 40,000 10,000 50,000 *
Okabena Partnership K 2,765,328 2,765,328 *
Jay Osman 5,000 5,000 *
John & Delores Owensby 340,000 90,000 430,000 *
Deming L. Payne 260,000 90,000 350,000 *
Richard W. Perkins 800,000(4) 50,000 350,000 0.9%
Jeff Peterson 41,864 41,864 *
Patrick Peyton 16,744 16,744 *
Thomas J. Pierce 40,000 10,000 50,000 *
William W. Prain 100,000 25,000 125,000 *
Charlie H. Pulley 342,000 75,000 417,000 *
Arthur Querfeld 40,000 40,000 *
Mary J. Rasley 19,750 4,937 24,687 *
Willard Charles Rehbein 400,000 150,000 550,000 *
Victor P. Reim 50,000 50,000 *
Ben Reuben 25,000 25,000 *
Kenneth S. Roberts 50,000 50,000 *
Richard Rog 25,000 25,000 *
Douglas Schmid 25,000 25,000 *
Robert A. & Lois R. Schmiege 100,000 37,500 137,500 *
Schneider Securities Inc. 17,500 17,500 *
Thomas J. Schrade 100,000 100,000 *
James R. Schroeder 25,000 25,000 *
John P. & Gloria E. Schweich 50,000 12,500 62,500 *
Sekhavat Ltd. Partnership 560,000 190,000 750,000 *
Byron G. Shaffer 335,000 335,000 *
R.H. Joseph Shaw 1,470,242(5) 3.1%
Gerald J. Shink 50,000 50,000 *
Patrick M. Sidders 72,136 5,000 77,136 *
Ronald & Catherine M. Silver 50,000 50,000 *
Terryl Sinko 50,000 50,000 *
Six C's Investment Corporation 300,000 100,000 400,000 *
Soldier Creek Family Limited Partnership 2,200,000 2,200,000 *
Jeannette A. & John E. Slaughter 25,000 25,000 *
Allan P. Steffes 100,000 25,000 125,000 *
Thomas E. Steinhaus 50,000 50,000 *
Ross Strehlow 20,000 20,000 *
Edward E. Strickland 800,000(6) 50,000 350,000 0.9%
Douglas V. & Kathleen L. Swanson 25,000 25,000 *
William R. & Catherine A. Swanson 40,000 10,000 50,000 *
Curtis R. Swenson 25,000 25,000 *
James W. Swenson 200,400 50,100 250,500 *
James E. Tarr 25,000 25,000 *
David M. & Susan M. Thymian 508,000 50,500 202,500 *
Elizabeth J. Tonne 50,000 50,000 *
John M. Tonne 50,000 50,000 *
Larry & Gayla Torguson 40,000 10,000 50,000 *
Marlin F. Torguson 1,000,000 275,000 1,275,000 *
Ben Trainer 255,000 75,000 330,000 *
Charles E. Underbrink 325,000 125,000 450,000 *
Greg & Patricia Vogelpohl 35,000 35,000 *
Randall S.& Nancy Brostrom Vollertdon 17,500 17,500 *
Chris Warren 100,000 100,000 *
Larry Weaver 5,861 250,000 250,000 *
George Vitalis 61,000 250,000 250,000 *
Paul Walker 25,000 25,000 *
Willard Weikle 45,000 45,000 *
Kevin E. & Delana S. Were 17,000 17,000 *
Donald Westrup 272,328 250,000 *
Dr. Henry & Dr. Carolyn Wiggins 248,302 220,000 *
Frank W. Worms 85,000 85,000 *
Jeff M Zalasky 310,024 310,024 *
Alvin Zelickson 50,000 12,500 62,500 *
Richard J. Zentgraf 50,000 50,000 *
All directors and executive officers as a Group
(6 persons) 5,257,072(7) 250,000 1,150,000 8.0%
</TABLE>
* Less than 0.5%.
(1) Includes 500,000 shares issuable upon exercise of options.
(2) Includes 500,000 shares issuable upon exercise of options.
(3) Includes 830,841 shares issuable upon exercise of warrants.
(4) Includes 500,000 shares issuable upon exercise of options
(5) Includes 1,246,262 shares issuable upon exercise of warrants and 37,000
shares held by Mr. Shaw's wife. Also includes 150,980 shares held by
Spectrum Diagnostics, Inc., of which company Mr. Shaw is an officer and
director, but not a shareholder, and by such position has voting and
dispositive power over such shares.
(6) Includes 500,000 shares issuable upon exercise of options.
(7) Includes 4,077,103 shares issuable upon exercise of options and
warrants. Also includes 150,980 shares held by Spectrum Diagnostics,
Inc. referenced in note 5 above. The address of each executive officer
and director of the Company is 1419 Energy Park Drive, St. Paul,
Minnesota, 55108.
DESCRIPTION OF SECURITIES
The following description of the Company's capital stock is qualified in its
entirety by reference to the Company's Articles of Incorporation, as amended,
its Bylaws, and the Minnesota Business Corporation Act (the "MBCA").
GENERAL
The Company's Articles of Incorporation authorize the issuance of up to
60 million shares of Common Stock, par value $0.01 per share. None of the
holders of any class or series of the Company's capital stock have preemptive
rights or a right to cumulative voting.
COMMON STOCK
As of the date of this Memorandum, there were 46,900,759 shares of the
Company's Common Stock issued and outstanding. The Board of Directors may issue
additional shares of Common Stock without the consent of the holders of Common
Stock.
Each outstanding share of Common Stock is entitled to one vote except
as may be otherwise required under the terms of the MBCA. All outstanding shares
of Common Stock are fully paid and non-assessable.
Holders of Common Stock are entitled to receive such dividends as may
be declared by the directors out of funds legally available therefor, and to
share pro rata in any distributions to holders of Common Stock upon liquidation
or otherwise. However, the Company has not paid cash dividends on its Common
Stock, and does not expect to pay such dividends in the foreseeable future.
Under the provisions of the MBCA, which governs the actions of the
Company, an amendment to the Articles of Incorporation of the Company generally
may be adopted by the affirmative vote of the holders of a majority of the
voting power of the shares present and entitled to vote at a shareholders'
meeting at which an amendment is proposed. Under the statute, a majority of the
voting power of the shares entitled to vote at a meeting is generally a quorum
for the transaction of business. Accordingly, it is possible that the
affirmative vote of shares in excess of 25 percent of the outstanding shares
could authorize an amendment to the Company's Articles of Incorporation. Under
the Statute, the affirmative vote of the holders of a majority of the voting
power of all shares entitled to vote is necessary to approve a plan of merger, a
plan of exchange, a sale of all or substantially all of the assets of the
Company, or its dissolution.
OPTIONS AND WARRANTS
The Company has granted options and warrants to purchase up to
15,768,103 shares of Common Stock to officers, directors, scientific advisors,
consultants, investors, and financial advisors at exercise prices ranging from
$.125 to $1.31 per share.
CONTROL SHARE ACQUISITION ACT
Section 302A.671 of the MBCA applies to any acquisition of Common Stock
of the Company (from a person other than the Company, and other than in
connection with certain mergers and exchanges to which the Company is a party)
resulting in beneficial ownership (including the power to vote and direct
disposition) of 20% or more of the Common Stock then outstanding. Section
302A.671 requires a majority vote of approval of any such acquisition by the
shareholders of the Company prior to its consummation. In general, shares
acquired in the absence of such approval are denied voting rights and are
redeemable by the Company within 30 days after certain specified events at
market value at the time of redemption.
Furthermore, Section 302A.673 of the MBCA generally prohibits any
business combination by the Company, or any subsidiary of the Company, with any
interested shareholder of the Company within five years following the interested
shareholder's share acquisition date, unless the business combination is
approved by a committee of the Board of Directors of the Company before the
interested shareholder's share acquisition date. These provisions under the MBCA
may impede or deter unsolicited tender offers or takeover proposals with respect
to the Company and may, therefore, adversely affect the value of the Company's
shares.
TRANSFER AGENT
Norwest Bank Minnesota, N.A., St. Paul, Minnesota is the transfer agent
for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has outstanding 46,900,759 shares of Common Stock. In
addition, as of the date of this Prospectus, the Company has outstanding
15,768,103 shares reserved for issuance upon exercise of options and warrants.
All of the Company's outstanding shares and 9,851,000 shares issuable upon
exercise of warrants, when and if such warrants are exercised, will be freely
tradable without restrictions or registration under the Securities Act, except
that Officers and directors of the Company, who beneficially hold 5,507,072
shares of the Company's Common Stock, are subject to the restrictions of Rule
144 with respect to the sale of such shares.
In general, under Rule 144 a person (or persons whose sales are
aggregated) who beneficially owns shares acquired privately from the Company or
an affiliate of the Company at least two years previously and an affiliate of
the Company who beneficially owns shares acquired (whether or not such shares
were acquired privately) from the Company or an affiliate of the Company at
least two years previously, are entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of the Company's Common Stock or the average weekly trading volume in the
Company's Common Stock during the four calendar weeks preceding the filing of
notice with the Commission in connection with such sale. Sales under Rule 144
are also subject to certain manner-of-sale provisions, notice requirements and
the availability of current public information about the Company. A person who
has not been an affiliate of the Company at any time during the three months
preceding a sale and who beneficially owns shares acquired from the Company or
an affiliate of the Company at least three years previously is entitled to sell
all such shares under Rule 144 without regard to any of the limitations of the
Rule.
In addition, Rule 144A under the Securities Act, as currently in
effect, in general, permits unlimited resales of certain restricted securities
of any issuer provided that the purchaser is an institution that owns and
invests on a discretionary basis at least $100 million in securities or is a
registered broker-dealer that owns and invests $10 million in securities. Rule
144A allows the existing shareholders of the Company to sell their shares to
such institutions and registered broker-dealers without regard to any volume or
other restrictions. Unlike under Rule 144, restricted securities sold under Rule
144A to nonaffiliates do not lose their status as restricted securities.
The Company cannot predict the effect, if any, that sales of the Shares
offered hereby or pursuant to Rule 144 could have on the market price of the
Company's Common Stock, if any, prevailing from time to time. Nevertheless,
sales of substantial amounts of the Company's securities, including the
securities offered hereby, could adversely affect prevailing market prices of
the Company's securities and the Company's ability to raise additional capital
by occurring at a time when it would be beneficial for the Company to sell
securities.
PLAN OF DISTRIBUTION
All or a portion of the Shares offered by the Selling Shareholders
hereby may be sold from time to time by the Selling shareholders or by pledgees,
donees, transferees or other successors in interest. Such sales may be made in
the over-the-counter market or otherwise at prices and at terms then prevailing
or at prices related to the then current market price, or in negotiated
transactions. The Shares may be sold by one or more of the following means: (a)
ordinary brokerage or market making transactions and transactions in which the
broker or dealer solicits purchasers; (b) block trades in which the broker or
dealer so engaged will attempt to sell the Shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; and
(c) purchases by a broker or dealer as principal and resales by such broker or
dealer for its account pursuant to this Prospectus. In effecting sales, brokers
or dealers engaged by the Selling Shareholders may arrange for other brokers or
dealers to participate. Brokers or dealers will receive commissions or discounts
from the Selling Shareholders in amounts to be negotiated immediately prior to
the sales. Such brokers or dealers and any other participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended, in connection with such sales. In addition, any
securities covered by this Prospectus which qualify for sale pursuant to Rule
144 under the Act may be sold under Rule 144 rather than pursuant to this
Prospectus.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Fredrikson & Byron, P.A.
EXPERTS
The financial statements of the Company as of June 30, 1995, and 1994,
and for the years ended June 30, 1995, and 1994 and the period from September
30, 1991 (date of inception) to June 30, 1995, included herein and elsewhere in
the Registration Statement, of which this Prospectus is a part, have been
audited by McGladery & Pullen, L.L.P., independent certified public accountants,
as set forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and are included herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
Prior to this Offering, the Company has been subject to the reporting
requirements of the Securities Exchange Act of 1934. The Company has filed with
the Washington, D.C. Office of the Commission a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
sale of the Shares. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Shares, reference is made to the
Registration Statement, including the exhibits thereto. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement. The Registration Statement may be inspected by anyone without charge
at the principal office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, or at one of the Commission's regional offices: 500 West Madison,
Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor,
New York, New York, 10048. Copies of all or any part of such material may be
obtained upon payment of the prescribed fees from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
INDEX TO FINANCIAL STATEMENTS
QUANTECH LTD.
<TABLE>
<CAPTION>
Page
-----
<S> <C>
FINANCIAL STATEMENTS FOR THIRD QUARTER OF FISCAL YEARS 1996 AND 1995 (UNAUDITED)
Balance Sheets as of March 31, 1996........................................................... F-1
Statement of Operations for the Nine Months Ended March 31, 1996
and 1995 and from inception to March 31, 1996................................................ F-2
Statement of Stockholders' Equity from inception to March 31, 1996............................ F-3
Statement of Cash Flows for the Nine Months ended March 31, 1996 and 1995 and from
inception to March 31, 1996.................................................................. F-4
Notes to Financial Statements................................................................. F-5
FINANCIAL STATEMENTS FOR FISCAL YEARS 1995 AND 1994
Report of Independent Auditors................................................................ F-6
Balance Sheets as of June 30, 1995 and 1994................................................... F-7
Statements of Operations For the Period from Inception (September 30, 1991) through
June 30, 1995 and for the Years Ended June 30, 1994 and 1995................................. F-9
Statements of Stockholders' Equity (Deficit) For the Period from Inception
(September 30, 1991) through June 30, 1995 and for the Years Ended June 30, 1994 and 1995.... F-10
Statement of Cash Flows For the Period from Inception (September 30, 1991)
through June 30, 1995 and for the Years Ended June 30, 1994 and 1995......................... F-14
Notes to Finical Statements................................................................... F-17
</TABLE>
QUANTECH LTD.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(Unaudited)
March 31,
1996
------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 167,117
Other current assets 38,261
------------
205,378
------------
EQUIPMENT
Equipment 237,136
Leasehold Improvements 15,000
------------
252,136
Less:accumulated depreciation (69,141)
------------
182,995
OTHER ASSETS
Deferred offering costs 0
License agreement, at cost, less amortization 2,376,278
Organization expenses, at cost, less amortization 8,462
------------
2,384,740
------------
TOTAL ASSETS $ 2,773,113
============
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
CURRENT LIABILITIES
Short term debt $ 28,872
Accounts Payable 144,937
Accrued Expenses:
Minimum Royalty Commitment 18,750
Spectrum Diagnostics Inc. obligations 65,000
Other 17,500
------------
Total Current Liabilites 275,059
------------
STOCKHOLDERS EQUITY (DEFICIT)
Common stock, $.01 par value; authorized 60,000,000
shares issued and outstanding 40,659,893 shares at
March 31, 1996; and 6,840,000 at June 30, 1995 $ 406,599
Additional paid-in capital 11,997,692
Subscriptions receivable (20,000)
Deficit accumulated during the development stage (9,886,237)
------------
Total Stockholders Equity 2,498,054
------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 2,773,113
============
QUANTECH LTD.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS-UNAUDITED
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 30,
1991
NINE MONTHS NINE MONTHS (DATE 0F
ENDED ENDED INCEPTION), TO
MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME $ 23,310 $ -- $ 71,199
------------ ------------ ------------
EXPENSES:
GENERAL & ADMINISTRATIVE 919,506 902,981 5,842,303
RESEARCH AND DEVELOPMENT 691,585 342,000 2,231,003
MINIMUM ROYALTY EXPENSE 106,250 131,250 868,750
LOSES RESULTING FROM TRANSACTIONS
WITH SPECTRUM DIAGNOSTICS INC -- -- 556,150
NET EXCHANGE (GAIN) -- -- (67,172)
FINANCING 106,329 147,677 483,807
------------ ------------ ------------
1,823,670 1,523,908 9,914,841
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,800,360) (1,523,908) (9,843,642)
INCOME TAXES -- -- 42,595
============ ============ ============
NET LOSS $ (1,800,360) $ (1,523,908) $ (9,886,237)
============ ============ ============
LOSS PER COMMON SHARE $ (0.07) $ (0.32) $ (1.23)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 25,793,027 4,690,000 8,036,465
</TABLE>
QUANTECH LTD
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY-UNAUDITED
Period From June 30, 1995 to March 31, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
During
Par Additional the
Shares Value Paid-In Development Subscriptions
Issued Amount Capital Stage Receivable
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1995 6,840,000 $ 68,400 $ 6,328,338 ($ 8,085,877) ($ 20,000)
Common stock issued , Sept. 95 13,200,000 $ 132,000 $ 2,750,952
Debenture conversions including
accrued interest to 9/30/95 7,484,896 $ 74,849 $ 1,085,647
Compensation expense recorded
on stock option grants $ 125,000
Common stock issued Nov. 1995 1,897,840 $ 18,978 $ 415,482
Debenture conversions including
accrued interest to 12/31/95 11,237,157 $ 112,372 $ 1,292,273
Net Loss ($ 1,800,360)
------------ ------------ ------------ ------------ ------------
Balance March 31, 1996
(Unaudited) 40,659,893 $ 406,599 $ 11,997,692 ($ 9,886,237) ($ 20,000)
============ ============ ============ ============ ============
</TABLE>
QUANTECH LTD
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 30,
NINE NINE 1991
MONTHS MONTHS (DATE OF
ENDED ENDED INCEPTION), TO
MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (1,800,360) $ (1,523,908) $ (9,886,237)
Adjustments to reconcile net loss to net cash used in
operating activities:
Elimination of cumulative translation adjustment -- -- (178,655)
Depreciation 27,884 22,786 115,495
Amortization 179,195 179,195 1,068,548
Noncash compensation and interest 125,000 90,200 427,200
Losses resulting from transactions with
Spectrum Diagnostics Inc. -- -- 556,150
Write down of investment -- -- 67,500
Change in assets and liabilities, net of effects
from purchase of Spectrum Diagnostics Inc.:
(Increase) decrease in prepaid expenses (1,039) (25,596) (38,261)
Increase (decrease)in accounts payable (640,184) 261,964 143,382
Increase (decrease) in accrued expenses (536,784) 102,708 475,747
------------ ------------ ------------
Net cash used in operating activities (2,646,288) (892,651) (7,249,131)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (156,789) (17,922) (291,519)
Organization expenses -- -- (97,547)
Officer advances -- -- (109,462)
Purchase of investment -- -- (225,000)
Purchase of license agreement -- -- (1,950,000)
Advances to Spectrum Diagnostics, Inc. -- -- (320,297)
Prepaid securities issuance costs -- -- (22,943)
Purchase of Spectrum Diagnostics, Inc., net of cash -- -- --
and cash equivalents acquired -- -- (1,204,500)
------------ ------------ ------------
Net cash used in investing activities (156,789) (17,922) (4,221,268)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from the sale of common stock $ 3,312,952 $ -- $ 9,245,063
Proceeds on debt obligations -- 1,006,172 2,627,880
Payments on debt obligations (347,034) (59,863) (438,669)
------------ ------------ ------------
Net cash provided by financing activities 2,965,918 946,309 11,434,274
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- -- 203,242
------------ ------------ ------------
Net increase in cash 162,841 35,736 167,117
CASH
Beginning 4,276 36,167 --
------------ ------------ ------------
Ending $ 167,117 $ 71,903 $ 167,117
============ ============ ============
</TABLE>
QUANTECH LTD.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
In the opinion of the management of the Company, the accompanying unaudited
financial statements contain all adjustments (consisting of only normal,
recurring adjustments) necessary to present fairly the financial position of the
Company as of March 31, 1996 and the results of operations and its cash flows
for the three-month and nine month periods ended March 31, 1996 and March 31,
1995. The results of operations for any interim period are not necessarily
indicative of the results for the year. These interim financial statements
should be read in conjunction with the Company's annual financial statements and
related notes in the Company's Annual Report on Form 10-KSB for the year ended
June 30, 1995.
NOTE 2. DEBT CONVERSION
The Holders of the 8% debentures due September 1995, totaling $977,500 plus
accrued interest, converted these amounts to Common Stock at conversion prices
ranging from $.125 to $.25 per share on September 30, 1995. In total, including
accrued interest to September 30, 1995, these debentures were converted to
7,484,896 shares of Common Stock. The Holders of the notes due in March 1996,
totaling $1,230,000 plus accrued interest, converted these amounts to Common
Stock at a conversion price of $.125 per share on December 31, 1995. Principal
and interest on these notes were converted into 11,237,157 shares of Common
Stock.
NOTE 3. PRIVATE PLACEMENT CLOSING
In September 1995, the Company received $2,882,952 of net proceeds as a result
of the completion of a private placement of the Company's Units at $1.00 per
Unit. In November 1995, the Company received $430,000 of net proceeds from the
sale of the Units at $1.00 per Unit. Each Unit consisted of four shares of
Common Stock and a warrant to purchase one share of Common Stock. The Company
used the proceeds from the offering for payment of bridge loans, including
interest, royalty due under the license referenced in Note 4, accounts payable
and accrued expenses, purchase of fixed assets and working capital.
NOTE 4. LICENSE AGREEMENT
The Company has a license agreement for certain patents, proprietary information
and associated hardware related to SPR technology. The license calls for an
ongoing royalty of 6 percent on all products utilizing the SPR technology which
are sold by the Company. In addition, if the Company sublicenses the technology,
the Company will pay a royalty of 15 percent of all revenues received by the
Company under any sublicense (provided that, until July 1996, the sublicense
payments shall be in an amount not less than 1/2 percent of the net sales of the
products sublicensed). If the cumulative payments of these two royalties fail to
reach at least $1,000,000 by December 31, 1997, the licensor has the right to
deprive the Company of its exclusive rights under the license agreement. As of
May 6, 1996 the Company has paid $850,000 in minimum royalties and will owe the
balance of $150,000 on December 31, 1997.
NOTE 5. SUBSEQUENT EVENT
On May 3, 1996, the Company completed a private placement of its Common Stock at
$.60 per share which provided approximately $3,350,000 of net proceeds. The
Company intends to apply the proceeds of such offering, along with cash on hand,
to expenses relating to product development, FDA submission, establishing sales
and marketing and production capabilities (including capital expenditures) and
to provide working capital.
[MCGLADREY & PULLEN, LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and the
Board of Directors
Quantech Ltd.
St. Paul, Minnesota
We have audited the accompanying balance sheets of Quantech Ltd. (A Development
Stage Company) as of June 30, 1995 and 1994, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
June 30, 1995 and 1994, and the period from September 30, 1991 (date of
inception), to June 30, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Quantech Ltd. (A Development
Stage Company) as of June 30, 1995 and 1994, and the results of its operations
and its cash flows for the years ended June 30, 1995 and 1994, and the period
from September 30, 1991 (date of inception), to June 30, 1995, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is a development stage company which has
suffered losses from operations, has negative working capital, requires
additional financing and ultimately needs to successfully attain profitable
operations. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ McGladrey & Pullen, LLP
Minneapolis, Minnesota
August 29, 1995
QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS (NOTE 3) 1995 1994
---------- ----------
<S> <C> <C>
Current Assets
Cash $ 4,276 $ 36,167
Prepaid expenses 37,222 7,166
---------- ----------
TOTAL CURRENT ASSETS 41,498 43,333
---------- ----------
Property and Equipment
Equipment 87,347 64,494
Leasehold improvements 8,000 46,354
---------- ----------
95,347 110,848
Less accumulated depreciation 41,257 60,106
---------- ----------
54,090 50,742
---------- ----------
Other Assets
License agreement, at cost, less amortization (Note 4) 2,544,110 2,767,886
Organization expenses, at cost, less amortization 19,825 34,975
Deferred offering costs 76,437 --
---------- ----------
2,640,372 2,802,861
---------- ----------
$2,735,960 $2,896,936
========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1995 1994
----------- -----------
<S> <C> <C>
Current Liabilities
Short-term debt (Note 3) $ 2,628,120 $ 150,084
Accounts payable 785,121 409,084
Accrued expenses:
Minimum royalty commitment, current portion (Note 4) 562,500 400,000
Spectrum Diagnostics, Inc. obligations (Note 8) 65,000 120,000
Compensation 104,989 99,099
Interest 283,451 111,744
Other 15,918 58,700
----------- -----------
TOTAL CURRENT LIABILITIES 4,445,099 1,348,711
----------- -----------
Long-Term Obligations
Long-term debt (Note 3) -- 1,387,340
Minimum royalty commitment (Note 4) -- 87,500
----------- -----------
-- 1,474,840
----------- -----------
Commitments and Contingencies (Notes 4, 5 and 8)
Stockholders' Equity (Deficit) (Notes 2, 3 and 6)
Common stock, no par value; authorized 30,000,000 shares;
shares outstanding, 6,840,000 and 4,690,000 in 1995
and 1994, respectively 68,400 46,900
Additional paid-in capital 6,328,338 6,012,070
Paid for, but not issued -- 30,000
Subscriptions receivable (20,000) --
Deficit accumulated during the development stage (8,085,877) (6,015,585)
----------- -----------
(1,709,139) 73,385
----------- -----------
$ 2,735,960 $ 2,896,936
=========== ===========
</TABLE>
QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995 AND 1994, AND PERIOD FROM SEPTEMBER 30, 1991
(DATE OF INCEPTION), TO JUNE 30, 1995
<TABLE>
<CAPTION>
September 30,
1991 (Date of
Years Ended June 30 Inception), to
-------------------------- June 30,
1995 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest income $ -- $ 314 $ 47,889
----------- ----------- -----------
Expenses:
General and administrative 1,193,285 1,119,295 4,922,797
Research and development 503,375 195,118 1,539,418
Minimum royalty expense (Note 4) 175,000 87,500 762,500
Losses resulting from transactions with Spectrum
Diagnostics, Inc. (Note 8) -- 39,000 556,150
Net exchange gain -- -- (67,172)
Financing 198,632 103,289 377,478
----------- ----------- -----------
2,070,292 1,544,202 8,091,171
----------- ----------- -----------
LOSS BEFORE INCOME TAXES (2,070,292) (1,543,888) (8,043,282)
Income taxes (Note 7) -- -- 42,595
----------- ----------- -----------
NET LOSS $(2,070,292) $(1,543,888) $(8,085,877)
=========== =========== ===========
Loss per common share $ (.31) $ (.33) $ (1.82)
=========== =========== ===========
Weighted average common shares outstanding 6,786,986 4,690,000 4,452,570
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM SEPTEMBER 30, 1991 (DATE OF INCEPTION), TO JUNE 30, 1995
<TABLE>
<CAPTION>
Common Stock
------------------------- Additional
Shares Par Value Paid-In
Issued Amount Capital
----------- ----------- -----------
<S> <C> <C>
Balance, at inception -- $ -- $ --
Net loss -- -- --
Common stock transactions:
Common stock issued, October 1991 3,200,000 3,154,574 --
Common stock issued, November 1991 600,000 611,746 1,788,254
Common stock issuance costs -- -- (889,849)
Cumulative translation adjustment -- -- --
----------- ----------- -----------
Balance, December 31, 1991 3,800,000 3,766,320 898,405
Net loss -- -- --
Common stock transactions:
Common stock issued, September 1992 700,000 699,033 875,967
Common stock issuance costs -- -- (312,755)
160,000 shares of common stock to be issued -- -- --
Officer advances, net -- -- --
Cumulative translation adjustment -- -- --
Elimination of cumulative translation adjustment -- -- --
----------- ----------- -----------
Balance, December 31, 1992 4,500,000 4,465,353 1,461,617
Net loss -- -- --
Common stock transactions:
Common stock issued, January 1993 160,000 1,600 118,400
Common stock issued, April 1993 30,000 300 11,700
Change in common stock par value resulting
from merger -- (4,420,353) 4,420,353
Repayments -- -- --
----------- ----------- -----------
Balance, June 30, 1993 4,690,000 46,900 6,012,070
Net loss -- -- --
240,000 shares of common stock to be issued -- -- --
Repayments -- -- --
----------- ----------- -----------
</TABLE>
(Continued)
Deficit
Accumulated
Paid For, During the Cumulative
But Not Subscriptions Due From Development Translation
Issued Receivable Officers Stage Adjustment
- ----------- ----------- ----------- ----------- -----------
$ -- $ -- $ -- $ -- $ --
-- -- -- (594,620)
-- -- -- -- --
-- -- -- -- --
-- -- -- -- --
-- -- -- -- 387,754
- ----------- ----------- ----------- ----------- -----------
-- -- -- (594,620) 387,754
-- -- -- (2,880,988) --
-- (53,689) -- -- --
-- -- -- -- --
120,000 -- -- -- --
-- -- (27,433) -- --
-- -- -- -- (209,099)
-- -- -- -- (178,655)
- ----------- ----------- ----------- ----------- -----------
120,000 (53,689) (27,433) (3,475,608) --
-- -- -- (996,089) --
(120,000) -- -- -- --
-- -- -- -- --
-- -- -- -- --
-- -- 5,137 -- --
- ----------- ----------- ----------- ----------- -----------
-- (53,689) (22,296) (4,471,697) --
-- -- -- (1,543,888) --
30,000 -- -- -- --
-- 53,689 22,296 -- --
- ----------- ----------- ----------- ----------- -----------
QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) PERIOD FROM SEPTEMBER
30, 1991 (DATE OF INCEPTION), TO JUNE 30, 1995
Common Stock
----------------------- Additional
Shares Par Value Paid-In
Issued Amount Capital
---------- ---------- ----------
Balance, June 30, 1994 4,690,000 46,900 6,012,070
Net loss -- -- --
Common stock issued, June 1995 2,150,000 21,500 276,068
Warrants issued for services -- -- 40,200
---------- ---------- ----------
Balance, June 30, 1995 6,840,000 $ 68,400 $6,328,338
========== ========== ==========
See Notes to Financial Statements.
Deficit
Accumulated
Paid For, During the Cumulative
But Not Subscriptions Due From Development Translation
Issued Receivable Officers Stage Adjustment
- ----------- ----------- --------- ----------- ---------
30,000 -- -- (6,015,585) --
-- -- -- (2,070,292) --
(30,000) (20,000) -- -- --
-- -- -- -- --
- ----------- ----------- --------- ----------- ---------
$ -- $ (20,000) $ -- $(8,085,877) $ --
=========== =========== ========= =========== =========
QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995 AND 1994, AND PERIOD FROM SEPTEMBER 30, 1991
(DATE OF INCEPTION), TO JUNE 30, 1995
<TABLE>
<CAPTION>
September 30,
1991 (Date of
Years Ended June 30 Inception), to
-------------------------- June 30,
1995 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(2,070,292) $(1,543,888) $(8,085,877)
Adjustments to reconcile net loss to net cash used
in operating activities:
Elimination of cumulative translation adjustment -- -- (178,655)
Depreciation 27,505 36,316 87,611
Amortization 238,926 240,803 889,353
Noncash compensation and interest 90,200 80,000 302,200
Losses resulting from transactions with
Spectrum Diagnostics, Inc. (Note 8) -- 39,000 556,150
Write-down of investment -- -- 67,500
Change in assets and liabilities, net of effects from purchase of
Spectrum Diagnostics, Inc.:
Increase in prepaid expenses (30,056) -- (37,222)
Increase (decrease) in accounts payable 379,600 163,766 783,566
Increase (decrease) in accrued expenses 221,758 318,240 1,012,531
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,142,359) (665,763) (4,602,843)
----------- ----------- -----------
Cash Flows From Investing Activities
Purchase of property and equipment (30,853) (6,456) (134,730)
Organization expenses -- -- (97,547)
Officer advances, net -- (57,166) (109,462)
Purchase of investment -- -- (225,000)
Purchase of license agreement -- -- (1,950,000)
Advances to Spectrum Diagnostics, Inc. -- -- (320,297)
Prepaid securities issuance costs -- -- (22,943)
Purchase of Spectrum Diagnostics, Inc., net of
cash and cash equivalents acquired -- -- (1,204,500)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (30,853) (63,622) (4,064,479)
----------- ----------- -----------
</TABLE>
(Continued)
QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1995 AND 1994, AND PERIOD FROM SEPTEMBER 30, 1991
(DATE OF INCEPTION), TO JUNE 30, 1995
<TABLE>
<CAPTION>
September 30,
1991 (Date of
Years Ended June 30 Inception), to
------------------------- June 30,
1995 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Financing Activities
Net proceeds from the sale of common stock -- -- 5,932,111
Proceeds on debt obligations 1,202,422 680,500 2,627,880
Payments on debt obligations (61,101) (7,422) (91,635)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,141,321 673,078 8,468,356
----------- ----------- -----------
Effect of Exchange Rate Changes on Cash -- -- 203,242
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (31,891) (56,307) 4,276
Cash
Beginning 36,167 92,474 --
----------- ----------- -----------
Ending $ 4,276 $ 36,167 $ 4,276
=========== =========== ===========
Cash Payments for Interest $ 26,925 $ 2,809 $ 83,435
=========== =========== ===========
Supplemental Schedule of Noncash Investing and
Financing Activities
Acquisition of Spectrum Diagnostics, Inc.
(Note 8):
Cash purchase price, less $5,199 cash
acquired $ -- $ -- $ 1,204,500
=========== =========== ===========
Fair value of other assets acquired,
principally the license agreement $ -- $ -- $ 1,489,500
Liabilities assumed -- -- (285,000)
----------- ----------- -----------
$ -- $ -- $ 1,204,500
=========== =========== ===========
</TABLE>
(Continued)
QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARSENDED JUNE 30, 1995 AND 1994, AND PERIOD FROM SEPTEMBER 30, 1991
(DATE OF INCEPTION), TO JUNE 30, 1995
<TABLE>
<CAPTION>
September 30,
1991 (Date of
Years Ended June 30 Inception), to
--------------------- June 30,
1995 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Supplemental Schedule of Noncash Investing and
Financing Activities (Continued)
Advances to Spectrum Diagnostics, Inc. (Note 8) $ -- $ -- $ 20,000
Prepaid security issuance costs (acquired from
Spectrum Diagnostics, Inc.) ultimately used
to reduce proceeds from the sale of
common stock -- -- 58,830
Due from Ital-American Securities, Inc. -- -- (674,734)
Stock issuance costs to be paid 76,437 -- 237,201
Subscriptions receivable offset by accrued
compensation -- 53,689 53,689
Officer advances offset by accrued compensation -- 79,462 109,462
Issuance of debt obligation for services and
accounts payable 40,000 50,000 90,000
Issuance of warrants for services 40,200 -- 40,200
========= ========= =========
Common stock issued/to be issued for:
Services and interest $ 50,000 $ 30,000 $ 212,000
Subscriptions receivable 20,000 -- 20,000
Debt obligations 90,625 -- 90,625
Accounts payable 40,000 -- 40,000
Accrued expenses 66,943 -- 66,943
--------- --------- ---------
$ 267,568 $ 30,000 $ 429,568
========= ========= =========
</TABLE>
See Notes to Financial Statements.
QUANTECH LTD. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: Quantech Ltd. (Quantech or the Company) was formed under the
laws of Minnesota, for the purpose of effecting the change in domicile of
Spectrum Diagnostics S.p.A (SDS) from Italy to the state of Minnesota through a
merger with SDS on April 14, 1993. The merger has been accounted for as a
pooling of interests and, accordingly, all prior financial statements include
SDS. The Company's fiscal year end is June 30 and SDS' fiscal year end was
December 31.
The Company had no operations prior to the merger and is continuing the business
of SDS to commercialize the Surface Plasmon Resonance (SPR) technology.
Commercialization will consist of developing and introducing an instrument which
will run various tests capable of diagnosing various human health conditions,
and which the Company intends to market to the world medical diagnostic
industry. The Company anticipates that it will grant trade credit to future
customers on credit terms it establishes with individual customers.
A summary of the Company's significant accounting policies follows:
OTHER ASSETS: The license agreement is being amortized by the straight-line
method over the remaining life of the related patents of 15 years (Note 4).
Organization expenses are being amortized by the straight-line method over 5
years.
The Company reviews its intangible assets quarterly to determine potential
impairment by comparing the carrying value of the intangibles with expected
future net cash flows provided by operating activities of the business. Should
the sum of the expected future net cash flows be less than the carrying value,
the Company would determine whether an impairment loss should be recognized. An
impairment loss would be measured by comparing the amount by which the carrying
value exceeds the fair value of the intangible. Fair value will be determined
based on estimated expected future discounted cash flows. To date, management
has determined that no impairment of intangible assets exists.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciation
is computed by the straight-line method over five years.
INCOME TAXES: Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
LOSS PER COMMON SHARE: Loss per common share is computed based upon the weighted
average number of common shares outstanding during the period. Fully diluted and
primary loss per common share are the same amounts for all periods presented.
TRANSLATION OF FOREIGN CURRENCY STATEMENTS: Prior to September of 1992, the
functional and reporting currency for SDS was the Italian lire. Concurrent with
the receipt of net proceeds from its initial public offering of common stock in
the United States in September 1992, and in connection with the phase out of its
Italian operations, the functional and reporting currency of SDS changed from
the Italian lire to the United States dollar. As a result, the cumulative
translation adjustment component of equity was eliminated in 1992.
NOTE 2. BASIS OF PRESENTATION
The Company was incorporated for the purpose of acquiring, developing and
commercializing SPR technology for use in medical diagnostics. The Company has
had no sales and the only revenue generated by the Company since its inception
has been interest income.
The Company is a development stage company which has suffered losses from
operations, has negative working capital, requires additional financing and
ultimately needs to successfully attain profitable operations. In addition, the
Company will need to pay minimum royalty payments to maintain exclusive rights
under a license agreement (Note 4). These factors raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not reflect any adjustments which might be necessary should the Company not
remain a going concern.
Management intends to pursue funding of future operations through private common
stock placements or a public offering of common stock, conversion of certain
obligations into common stock (see Notes 3, 4, and 8), and commercial
distribution of its product.
In that regard, in March 1995, the Company signed a letter of intent with a
placement agent to undertake a private placement of the Company's common stock
at $1.00 per unit. Each unit consists of four shares of common stock and a
warrant to purchase one share of common stock. Gross proceeds from the offering
will be a minimum of $1,500,000 and a maximum of $3,000,000. In addition, the
investors in this private placement will receive piggy-back registration rights
and the placement agent will purchase, for a nominal amount, a five-year warrant
to purchase common stock at $0.25 per share equal to 10 percent of the number of
shares sold.
Subsequent to year end, the Company closed on $1,719,400 of the offering and
realized net proceeds of $1,527,254. The Company is currently seeking additional
investors to complete the balance of the offering.
NOTE 3. DEBT OBLIGATIONS AS OF JUNE 30, 1995 AND 1994, ARE AS FOLLOWS:
<TABLE>
<CAPTION>
June 30
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
8% convertible debentures, due on demand, convertible to
common stock at $0.75 per share, unsecured $ 25,000 $ 25,000
8% convertible debentures, due September 1995, at which time they
will automatically convert to common stock at $0.125 per
share, unsecured (a) 622,500 450,500
8% convertible debentures, due September 1995, at which time they
will automatically convert to common stock at $0.25 per
share, unsecured (a) 375,000 375,000
8% convertible debentures, due March 1996, convertible to common
stock at $0.125 per share:
Secured by corporate assets 1,015,000 415,000
Unsecured 65,000 50,000
8% convertible debentures, paid in 1995 with $75,000 cash and
issuance of 600,000 shares of common stock at $0.125 -- 125,000
10% convertible debentures, due March 1996, convertible at $0.125
per share, secured by corporate assets, personally
guaranteed by chief executive officer 150,000 65,000
10% convertible note, converted, including accrued interest, to
80,000 shares of common stock in May 1995, unsecured -- 15,625
11.5% note, due on demand, personally guaranteed by chief
financial officer 25,000 --
12% notes, due November 1, 1995, unsecured (b) 327,500 --
Obligations under capital lease agreements, due in monthly
installments of $1,560, expiring between January 1996 and
November 1997, personally guaranteed by the chief executive
and financial officers 23,120 16,299
---------- ----------
$2,605,000 $1,521,125
========== ==========
</TABLE>
(a) converted to approximately 7,505,000 shares of common stock on
September 30, 1995, with registration rights.
(b) The note holders were also issued warrants to purchase 655,000 shares
of common stock at $0.25 (see Note 6). Subsequent to year end, these
notes were paid with funds from the private placement (see Note 2).
These obligations are classified in the accompanying financial statements as
follows:
<TABLE>
<CAPTION>
June 30
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Short-term debt obligations $2,628,120 $ 150,084
Long-term obligations -- 1,387,340
---------- ----------
$2,628,120 $1,537,424
---------- ----------
</TABLE>
NOTE 4. AGREEMENTS
LICENSE AGREEMENT: The Company has a license agreement for certain patents,
proprietary information and associated hardware related to the SPR technology.
The license calls for an ongoing royalty of 6 percent on all products utilizing
the SPR technology which are sold by the Company. In addition, if the Company
sublicenses the technology, the Company will pay a royalty of 15 percent of all
revenues received by the Company under any sublicense (provided that, until July
1996, the sublicense payments shall be in an amount not less than 1/2 percent of
the net sales of the products sublicensed). If the cumulative payments of these
two royalties fail to reach at least $500,000 by December 31, 1993, $850,000 by
December 31, 1995, and $1,000,000 by December 31, 1997, then each time one of
such benchmarks is not met, the licensor has the right to deprive the Company of
its exclusive rights under the license agreement. As of June 30, 1995, the
Company has paid $200,000 of the first $500,000 cumulative payment and has
received an extension for the remaining $300,000, which was paid with proceeds
from the private placement (see Note 2). The Company has also ratably accrued
additional minimum royalty payments of $262,500 as of June 30, 1995, because
sales or sublicense revenues through December 31, 1995, may not be adequate to
meet the cumulative minimum royalty payments.
The obligations of the Company to pay royalties terminates on the earlier of
such time as the total royalty payments (excluding any sublicense royalties paid
through July 1, 1996) reach a gross amount of $18,000,000, which amount would be
increased by $2,000,000 each time a benchmark is not met. After such date, the
Company's rights in the licensed SPR technology continue in perpetuity with no
further royalty obligations.
Certain of the convertible debenture holders have been granted licensing rights
to the SPR technology as it applies to the research market, whereby proceeds of
such licensing relationships executed by these debenture holders will be divided
40 percent to the Company and 60 percent to the debenture holders. Furthermore,
these debenture holders will receive a 10 percent royalty on revenues resulting
from research market licensing relationships executed by the Company.
DEVELOPMENT AND SUPPLY AGREEMENT: In September 1994, the Company signed an
agreement with a developer of medical diagnostic instrumentation devices to
complete the design and development of a new SPR system and thereafter
manufacture said SPR system for the Company to market. As compensation for these
design and development activities, the developer will be entitled to receive the
sum of $500,000 payable as follows:
(a) $35,000 upon execution of the agreement.
(b) $35,000 upon delivery of preliminary specifications.
(c) $45,000 commencing on the month after delivery of the
specifications and continuing for eight months.
(d) upon delivery of a reproduction SPR system.
Development expense under this agreement was $391,000 for the year ended June
30, 1995. Amounts due to developer at June 30, 1995, was $326,000. Subsequent to
year end, this amount was paid with funds from the private placement (see Note
2).
EMPLOYMENT AGREEMENTS: In May 1995, the Company entered into a three-year
employment agreement with its chief executive officer and its vice president of
research and development. Annual salaries under the agreements are $150,000 for
the chief executive officer and $110,000 for the vice president of research and
development with such adjustments and bonuses as may be determined by the Board
of Directors. In the event the employment agreements are terminated for any
reason by the Company, other than for cause as defined in the agreements, the
officers would receive compensation for the greater of (i) the salary due under
the remaining terms of the agreement, or (ii) one year's salary.
CONSULTING AGREEMENTS: The Company had an agreement with a member of the Board
of Directors whereby the Company agreed to pay the Board member for consulting
services. Upon execution of this agreement in September 1993, the chairman
received an option to purchase 200,000 shares of common stock at $0.125 per
share (see Note 6). Consulting expense under this agreement was $45,000 for the
years ended June 30, 1995 and 1994, $70,000 of which was paid by issuing stock
at $0.125 per share.
In August 1993, the Company entered into an agreement with a consultant whereby
the consultant would provide assistance to the Company with respect to
financing, corporate development and other business matters. In consideration
for these services, the consultant was to receive a monthly fee and a
combination of cash and warrants based on performance. The consultant earned the
following under this agreement:
* warrant for the purchase of 150,000 shares of common stock at $0.125
upon entering into the agreement (see Note 6);
* a warrant for the purchase of 450,000 shares of common stock at $0.125
based on fund raising performance (see Note 6); and
* $118,250 in consulting fees; $40,000 and $78,250 was earned during the
years ended June 30, 1995 and 1994, respectively. $28,250 of the fees
were paid in cash and the balance is payable in convertible promissory
notes (see Note 3).
In April 1995, this agreement was canceled and no further obligations are due
this consultant.
In July 1994, the Company entered into a consulting agreement with a consultant
who is also a secured creditor of the Company, being the holder of $300,000 in
convertible debentures (see Note 3). The consultant earned $60,000 under this
agreement consisting of $10,000 in cash and 400,000 shares of stock issued at
$0.125. In May 1995, this agreement was canceled and no further obligations are
due this consultant.
NOTE 5. LEASES
The Company leases its office space under an agreement which expires February
28, 2000. The Company leases vehicles and office equipment under various lease
agreements which expire at various dates through 1997. Approximate minimum
aggregate rental commitments under these leases are as follows:
Years ending June 30:
1996 $ 44,900
1997 46,600
1998 39,000
1999 38,000
2000 26,000
Rental expense for the years ended June 30, 1995 and 1994, and the period from
September 30, 1991 (date of inception), to June 30, 1995, was $103,681, $103,177
and $292,933, respectively.
Subsequent to June 30, 1995, the Company entered into a lease for computer
equipment. The terms of the lease require a down payment of $5,320 along with
payments of $1,235 for 24 months beginning September 1995. The lease is
personally guaranteed by the chief executive and chief financial officers.
NOTE 6. COMMON STOCK PURCHASE WARRANTS AND OPTIONS
COMMON STOCK PURCHASE WARRANTS: Common stock purchase warrants outstanding as of
June 30, 1995, are summarized below:
Shares of
Common Exercise Exercisable Redemption
Warrant Class Stock Price Until Feature
- ------------- ----- ----- ----- -------
A - expired -- $ -- -- $ --
B 1,403,200 5.070 January 1996 0.07 (a)
Undesignated 150,000 0.125 February 1997 --
450,000 0.125 August 1998 --
250,000 0.250 May 2000 --
1,173,000 0.125 May 2000 --
655,000 0.250 June 2000 --
Unit 17,500 5.400 September 1998 --
(a) Provided that the market price per share of commo stock exceeds $6.09
for 30 consecutive days prior to notice of redemption.
STOCK OPTION PLAN: The Company had 400,000 shares of its common stock reserved
for issuance under a 1992 Stock Option Plan (the Plan) and had granted options
for the purchase of 307,500 shares. In May 1995, the Plan, along with options
granted thereunder, was canceled. As of the date of this report, the Company has
not established a new plan.
NONQUALIFIED STOCK OPTIONS: In May 1995, the Company granted nonqualified stock
options for the purchase of 3,377,103 shares of common stock to officers and
directors. Options with respect to 450,000 shares are exercisable at $0.125,
with the balance exercisable at $0.25. Options with respect to 1,300,000 shares
are immediately exercisable, with the balance 50 percent vested upon closing of
the private placement and 50 percent one year later. The options expire in May
2000.
All options and warrants were issued at or above market prices and accordingly
no compensation expense was recorded for all periods presented.
NOTE 7. INCOME TAXES
The Company's income tax expense consists solely of a franchise tax in Italy
during the year ended December 31, 1992, as the Company has incurred no United
States income taxes. For United States income tax purposes, under provisions of
the Internal Revenue Code, the Company has approximately $5,800,000 in net
operating loss carryforwards and $46,000 in research and development credits at
June 30, 1995, which may be used to offset otherwise future taxable income.
These carryforwards expire in varying amounts through June 30, 2010. Future
utilization of these loss credit carryforwards are subject to certain
limitations under the provisions of the Internal Revenue Code, including
limitations subject to Section 382, which relates to a 50 percent change in
control over a 3-year period, and are further dependent upon the Company
attaining profitable operations. This may subject the Company to annual net
operating loss carryforward limitations in the future and may result in the
expiration of a portion of the carryforward before it can be used.
The tax effects of principal temporary differences at an assumed effective
annual rate of 34 percent are shown in the following table:
June 30
--------------------------
1995 1994
----------- -----------
Loss carryforwards $ 1,978,000 $ 1,353,000
Minimum royalty commitment 21,000 30,000
Research and development credits and deductions 251,000 225,000
Guarantee of Spectrum Diagnostics, Inc. debt 137,000 156,000
Accrued payroll 30,000 34,000
Other 6,000
----------- -----------
Gross deferred tax assets 2,417,000 1,804,000
Valuation allowance for deferred tax assets (2,417,000) (1,804,000)
----------- -----------
$ -- $ --
----------- -----------
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income for the years ended
June 30, 1995 and 1994, due to the valuation allowance recorded against deferred
tax assets.
NOTE 8. SPECTRUM DIAGNOSTICS, INC.
During 1991, SDS acquired substantially all of the assets of Spectrum
Diagnostics, Inc. (SDI) for 1,200,000 shares of SDS common stock plus the
assumption of certain SDI liabilities and guarantees. A summary of the
transaction follows:
In order to comply with acquisition requirements of Italian law, this
transaction was structured with Penguin Investment Ltd, (Penguin) purchasing the
SDI assets instead of SDS purchasing the SDI assets directly. Initially, Penguin
purchased 3,200,000 shares of SDS common stock for cash consideration of
approximately $3,200,000. Penguin then purchased SDI for 1,200,000 shares of SDS
common stock, plus the assumption of $285,000 of SDI liabilities and the
guarantee of $353,000 of SDI liabilities. Of the 1,200,000 shares of SDS common
stock, 1,025,000 shares were distributed directly to SDI shareholders and
175,000 shares (of Quantech common stock after the merger described in Note 1)
are held in escrow for the benefit of SDI creditors.
Immediately after Penguin's purchase of SDI, SDS acquired substantially all of
the SDI assets from Penguin for approximately $1,200,000 in cash, the assumption
of the $285,000 of SDI liabilities assumed by Penguin and guarantee of the
$353,000 of SDI liabilities previously guaranteed by Penguin.
The acquisition has been accounted for as a purchase. The allocation of the
purchase price was as follows:
License agreement $1,417,330
Prepaid security issuance costs 60,000
Equipment 6,971
Cash 5,199
----------
$1,489,500
----------
As a result of its merger with SDS (see Note 1), Quantech now guarantees payment
of certain SDI liabilities previously guaranteed by SDS. SDI expects to sell an
investment it has in Quantech's common stock, the proceeds of which are expected
to be used to pay certain of SDI's obligations, but are not expected to be
sufficient to pay the entire amount guaranteed by Quantech.
Quantech has accrued its estimated loss which may result should SDI be unable to
pay the obligations discussed above. In May 1995, the Company settled
approximately $55,000 of this liability by issuing 350,000 shares of common
stock, reducing the recorded liability to $65,000 as of June 30, 1995.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 302A.521 of the Minnesota Business Corporation Act provides
that a corporation shall indemnify any person who was or is threatened to be
made a party to any proceeding by reason of the former or present official
capacity of such person , against judgments, penalties and fines, including,
without limitation , excise taxes assessed against such person with respect to
an employee benefit plan, settlements and reasonable expenses, including
attorneys' fees and disbursements, incurred by such person in connection with
the proceeding, if, with respect to the acts or omissions of such person
complained of in the proceeding such person has not been indemnified by another
organization or employee benefit plan for the same expenses with respect to the
same acts or omissions, acted in good faith, received no improper personal
benefit and Section 302A.255 (which pertains to director conflicts of interest),
if applicable, has been satisfied; in the case of a criminal proceeding, had no
reasonable cause to believe the conduct was unlawful; and in the case of acts or
omissions by a person in their official capacity for the corporation, reasonably
believed that the conduct was in the best interests of the corporation, or in
the case of acts or omissions by persons in their capacity for other
organizations, reasonably believed that the conduct was not opposed to the best
interests of the corporation.
The Minnesota Business Corporation Act also permits Minnesota
corporations in their Articles of Incorporation to limit or eliminate personal
liability of directors to the corporation or its shareholders for monetary
damages for breach of fiduciary duty; however, for bids any limitation or
elimination of director liability for (i) a breach of the director's duty of
loyalty, (ii) acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) corporate distributions which
are either illegal or in contravention of restrictions in the Articles, Bylaws
or any agreement to which the corporation is a party, (iv) violations of
Minnesota securities laws, (v) any transaction from which the director derived
an improper personal benefit, or (vi) any act or omission occurring prior to the
effective date of the provision in the corporation's Articles eliminating or
limiting liability.
Article 8 of the Registrant's Articles of Incorporation reads as
follows:
"To the fullest extend permitted by Chapter 302A, Minnesota Statutes,
as the same exists or may hereafter be amended, a director of this corporation
shall not be personally liable to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director."
The Registrant's Bylaws provide for the indemnification of its
directors, officers, employees and agents in accordance with, and to the fullest
extent permitted by, Section 302A.521 of the Minnesota Business Corporation Act,
as amended form time to time.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering are as follows:
Securities and Exchange Commission Filing Fee....... $ 13,651
Legal Fees and Expenses............................. $ 7,500
Accounting Fees and Expenses........................ $ 7,500
Printing............................................ $ 5,000
Miscellaneous....................................... $ 1,349
Total Expenses...................................... $ 35,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant has sold the following
securities pursuant to exemptions from registration under the Securities Act of
1933, as amended (the "Act"):
(i) The Registrant in a number of individual transactions from May 1,
1993 through June 1995 sold 20,831,861 shares of its Common Stock at prices
ranging from $.125 to $.25 per share to accredited investors. The transactions
were made in reliance upon the exemptions from registration provided under
Section 4(2) of the Securities Act. The registrant paid commissions in the
aggregate amount of $76,700 to John G. Kinnard and Company, Incorporated ("JGK")
for certain of these sales and issued JGK a warrant to purchase up to 1,173,000
shares at $.125 per share as additional compensation. Such warrants were granted
in reliance upon the exemption from registration provided under Section 4(2) of
the Act. The purchasers of such Common Stock and warrants acquired such
securities for their own account and not with a view to any distribution thereof
to the public.
(ii) In September 1995, the Registrant sold 3,300,000 Units at $1.00
per Unit to a number of accredited investors. Each Unit consisted of four (4)
shares of Company Common Stock and a warrant to purchase one share of Common
Stock at $.25 per share. The transactions were made in reliance upon the
exemptions from registration provided under Section 4(2) of the Securities Act
and Rule 505 of Regulation D. The registrant paid commissions and accountable
expenses in the aggregate amount of $354,950 to John G. Kinnard and Company,
Incorporated ("JGK") for acting as selling agent in the offering and issued JGK
a warrant to purchase up to 1,320,000 shares at $.25 per share as additional
compensation. Such warrants were granted in reliance upon the exemption from
registration provided under Section 4(2) of the Act. The purchasers of such
Common Stock and warrants acquired such securities for their own account and not
with a view to any distribution thereof to the public.
(iii) In November 1995, the Registrant sold 450,000 Units at $1.00 Unit
to five accredited investors. Each Unit consisted of four (4) shares of Company
Common Stock and a warrant to purchase one share of Common Stock at $.25 per
share. The transactions were made in reliance upon the exemptions from
registration provided under Section 4(2) of the Securities Act and Rule 505 of
Regulation D. No commissions were paid on such sales. The purchasers of such
Common Stock and warrants acquired such securities for their own account and not
with a view to any distribution thereof to the public.
(iv) On May 3, 1996, the Registrant sold 6,250,000 shares of Common
Stock at $.60 per share. The transactions were made in reliance upon the
exemptions from registration provided under Section 4(2) of the Securities Act
and Rule 506 of Regulation D. The registrant paid commissions and accountable
expenses in the aggregate amount of $363,841 to John G. Kinnard and Company,
Incorporated ("JGK") for acting as selling agent in the offering and issued JGK
a warrant to purchase up to 597,500 shares at $.72 per share as additional
compensation. Such warrants were granted in reliance upon the exemption from
registration provided under Section 4(2) of the Act. The purchasers of such
Common Stock and warrants acquired such securities for their own account and not
with a view to any distribution thereof to the public.
(v) On November 8, 1995 the Company sold 80,000 shares of Common Stock
at $.25 per share and on December 8, 1995 17,840 shares of Common Stock at $.60
per share to two investors and a consultant to the Company. On June 1, 1996 the
Company made an additional sale of 5,058 shares to a consultant to the Company
at $.86 per share. The transactions were made in reliance upon the exemptions
from registration provided under Section 4(2) of the Securities Act. No
commissions were paid on such sales. The purchasers of such Common Stock and
warrants acquired such securities for their own account and not with a view to
any distribution thereof to the public.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See Exhibit Index on page following signatures.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(I) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(II) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(III) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the City of St. Paul,
State of Minnesota, on June 20, 1996.
QUANTECH LTD.
By /s/ R. H. Joseph Shaw
R. H. Joseph Shaw,
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints R. H.
Joseph Shaw and Gregory G. Freitag, and each of them, as his or her true and
lawful attorney-in-fact and agent, with full power of substitution, to sign on
his or her behalf individually and in the capacity stated below and to perform
any acts necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in connection with this Registration Statement or
the amendments thereto, and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his or her substitutes,
shall do or cause to be done by virtue hereof.
Signatures Title Date
/s/R. H. Joseph Shaw Chief Executive Officer and June 20, 1996
R. H. Joseph Shaw Chairman of the Board
/s/ Robert R. McKiel Executive Vice President-Research June 20, 1996
Robert R. McKiel and Development and Director
/s/ Gregory G. Freitag Chief Financial Officer, Vice June 20, 1996
Gregory G. Freitag President of Corporate Development
and Secretary
/s/ James F. Lyons Director June 20, 1996
James F. Lyons
/s/ Richard W. Perkins Director June 20, 1996
Richard W. Perkins
/s/ Edward E. Strickland Director June 20, 1996
Edward E. Strickland
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quantech Ltd.
EXHIBIT INDEX TO FORM SB-2
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
2.1 Plan of Reorganization, dated November 24, 1992, by and among Quantech
Ltd. and Spectrum Diagnostics S.p.A. (incorporated by reference to
Exhibit 2.1 of the Registrant's Registration Statement on Form S-4;
Reg. No. 33-55356).
2.2 Amendment and Restatement Agreement and Plan of Merger dated January
20, 1993 by and among Quantech Ltd., Spectrum Diagnostics S.p.A. and
Spectrum Diagnostics Corp. (incorporated by reference to Exhibit 2.2 of
the Registrant's Registration Statement on Form S-4; Reg. No.
33-55356).
3.1 Articles of Incorporation of Quantech Ltd. (incorporated by reference
to Exhibit 3.1 of the Registrant's Registration Statement on Form S-4;
Reg. 33-55356).
3.2 Bylaws of Quantech Ltd. (incorporated by reference to Exhibit 3.2 of
the Registrant's Registration Statement on Form S-4; Reg. No.
33-55356).
4.1 Form of Stock Certificate (incorporated by reference to Exhibit 4.1 of
the Registrant's Registration Statement on Form S-4; Reg. No.
33-55356).
4.2 Form of Private Placement Warrant.
5.1 Opinion and Consent of Fredrikson & Byron, P.A. *
10.1 Lease for office at 1419 Energy Park Drive, St. Paul, MN 55108
(incorporated by reference to Exhibit 10.1 of the Registrant's Form
10-KSB for the Year Ended June 30, 1995).
10.2 Option Agreement with Ares-Serono, as amended (including license)
assigned to Quantech Ltd. pursuant to the Merger (incorporated by
reference to Exhibit 10.2 of the Registrant's Registration Statement on
Form S-4; Reg. No. 33-55356).
10.3 Employment Agreement with R.H. Joseph Shaw (incorporated by reference
to Exhibit 10.3 of the Registrant's Form 10-KSB for the Year Ended June
30, 1995).
10.4 Employment Agreement with Robert M. McKiel (incorporated by reference
to Exhibit 10.4 of the Registrant's Form 10-KSB for the Year Ended June
30, 1995).
10.5 Letter of amendment to Ares-Serono License (incorporated by reference
to Exhibit 10.6 of the Registrant's Form 10-KSB for the Year Ended June
30, 1995).
10.6 Agreement with Donnelly Corporation.
10.7 Stock Option to purchase 1,246,000 shares by R.H. Joseph Shaw
(incorporated by reference to Exhibit 10.12 of the Registrant's Form
10-KSB for the Year Ended June 30, 1995).
10.8 Stock Option to purchase 830,841 shares by Robert M. McKiel
(incorporated by reference to Exhibit 10.13 of the Registrant's Form
10-KSB for the Year Ended June 30, 1995).
10.9 Employment Agreement with Gregory G. Freitag *
10.10 First Amendment to Warrant of Messrs. Strickland, Perkins, Lyons,
Freitag and Shaw
22 Quantech has no subsidiaries.
23.1 Consent of Fredrikson & Byron, P.A. (included in Exhibit 5.1)
23.2 Consent of McGladery & Pullen L.L.P.
24 Power of Attorney (included on signature page to Registration
Statement)
</TABLE>
* To be filed by amendment
FORM WARNT95.DOT
The Warrant represented by this certificate has not been registered,
under either the Securities Act of 1933, as amended, or applicable state
securities laws. They may not be sold, offered for sale or transferred in the
absence of an effective registration under the Securities Act of 1933, as
amended, and the applicable state securities laws or an opinion of counsel
satisfactory in form and substance to counsel for the Company that such
transaction will not result in a prohibited transaction under the Securities Act
of 1933, as amended, or the applicable state securities laws.
WARRANT
-------
To Purchase _____ Shares of Common Stock
of
Quantech Ltd.
THIS CERTIFIES THAT, for good and valuable consideration __________,
(the "Investor") or his, her or its registered assigns, is entitled to subscribe
for and purchase from Quantech Ltd. a Minnesota corporation (the "Company"), at
any time to and including September 22, 2000, ______ Thousand _____ Hundred
(______) fully paid and nonassessable shares of the Common Stock of the Company,
subject to the redemption provisions of this Warrant, at the price of $.25 per
share (the "Warrant Exercise Price"), subject to the antidilution provisions of
this Warrant. Reference is made to this Warrant in the Company's Private
Placement Memorandum (the "Memorandum") dated May 15, 1995. The shares which may
be acquired upon exercise of this Warrant are referred to herein as the "Warrant
Shares." As used herein, the term "Holder" means the Investor any party who
acquires all or a part of this Warrant as a registered transferee of the
Investor, or any record holder or holders of the Warrant Shares issued upon
exercise, whether in whole or in part, of the Warrant; the term "Common Stock"
means and includes the Company's presently authorized common stock, no par
value, and shall also include any capital stock of any class of the Company
hereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends or in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution, or winding up of the Company; and the term "Convertible Securities"
means any stock or other securities convertible into, or exchangeable for,
Common Stock.
This Warrant is subject to the following provisions, terms and
conditions:
Exercise; Transferability.
The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of
Common Stock), by written notice of exercise (in the form attached
hereto) delivered to the Company at the principal office of the Company
prior to the expiration of this Warrant and accompanied or preceded by
the surrender of this Warrant along with a check in payment of the
Warrant Exercise Price for such shares.
This Warrant is transferable in whole or in part, subject to
applicable federal and state securities laws and regulations. This
Warrant may not be sold, transferred, assigned, hypothecated or divided
into two or more Warrants of smaller denominations, nor may any Warrant
shares issued pursuant to exercise of this Warrant be transferred,
except as provided in Section 7 hereof.
Exchange and Replacement. Subject to Sections 1 and 7 hereof,
this Warrant is exchangeable upon the surrender hereof by the Holder to
the Company at its office for new Warrants of like tenor and date
representing in the aggregate the right to purchase the number of
Warrant Shares purchasable hereunder, each of such new Warrants to
represent the right to purchase such number of Warrant Shares (not to
exceed the aggregate total number purchasable hereunder) as shall be
designated by the Holder at the time of such surrender. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction, or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant
of like tenor, in lieu of this Warrant; provided, however, that if the
Underwriter shall be such Holder, an agreement of indemnity by such
Holder shall be sufficient for all purposes of this Section 2. This
Warrant shall be promptly canceled by the Company upon the surrender
hereof in connection with any exchange or replacement. The Company
shall pay all expenses, taxes (other than stock transfer taxes), and
other charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Section 2.
Issuance of the Warrant Shares.
The Company agrees that the shares of Common Stock purchased
hereby shall be and are deemed to be issued to the Holder as of the
close of business on the date on which this Warrant shall have been
surrendered and the payment made for such Warrant Shares as aforesaid.
Subject to the provisions of the next section, certificates for the
Warrant Shares so purchased shall be delivered to the Holder within a
reasonable time, not exceeding fifteen (15) days after the rights
represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to
purchase the number of Warrant Shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be delivered
to the Holder within such time.
Notwithstanding the foregoing, however, the Company shall not
be required to deliver any certificate for Warrant Shares upon exercise
of this Warrant except in accordance with exemptions from the
applicable securities registration requirements or registrations under
applicable securities laws. Nothing herein, however, shall obligate the
Company to effect registrations under federal or state securities laws,
except as provided in Section 9. If registrations are not in effect and
if exemptions are not available when the Holder seeks to exercise the
Warrant, the Warrant exercise period will be extended, if need be, to
prevent the Warrant from expiring, until such time as either
registrations become effective or exemptions are available, and the
Warrant shall then remain exercisable for a period of at least 30
calendar days from the date the Company delivers to the Holder written
notice of the availability of such registrations or exemptions. The
Holder agrees to execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company, or the registrations made, for
the issuance of the Warrant Shares.
Covenants of the Company. The Company covenants and agrees
that all Warrant Shares will, upon issuance, be duly authorized and
issued, fully paid, nonassessable, and free from all taxes, liens, and
charges with respect to the issue thereof The Company further covenants
and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have
authorized and reserved for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise
of the rights represented by this Warrant.
Antidilution Adjustments. The provisions of this Warrant are
subject to adjustment as provided in this Section 5.
The Warrant Exercise Price shall be adjusted from time to time
such that in case the Company shall hereafter:
pay any dividends on any class of stock of the Company payable
in Common Stock or securities convertible into Common Stock;
subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect
immediately prior to such event shall (until adjusted again pursuant
hereto) be adjusted immediately after such event to a price (calculated
to the nearest full cent) determined by dividing (a) the number of
shares of Common Stock outstanding immediately prior to such event,
multiplied by the then existing Warrant Exercise Price, by (b) the
total number of shares of Common Stock outstanding immediately after
such event (including the maximum number of shares of Common Stock
issuable in respect of any securities convertible into Common Stock),
and the resulting quotient shall be the adjusted Warrant Exercise Price
per share. An adjustment made pursuant to this Subsection shall become
effective immediately after the record date in the case of a dividend
or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to
this Subsection, the Holder of any Warrant thereafter surrendered for
exercise shall become entitled to receive shares of two or more classes
of capital stock or shares of Common Stock and other capital stock of
the Company, the Board of Directors (whose determination shall be
conclusive) shall determine the allocation of the adjusted Warrant
Exercise Price between or among shares of such classes of capital stock
or shares of Common Stock and other capital stock. All calculations
under this Subsection shall be made to the nearest cent or to the
nearest 1/100 of a share, as the case may be. In the event that at any
time as a result of an adjustment made pursuant to this Subsection, the
holder of any Warrant thereafter surrendered for exercise shall become
entitled to receive any shares of the Company other than shares of
Common Stock, thereafter the Warrant Exercise Price of such other
shares so receivable upon exercise of any Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to Common
Stock contained in this Section.
Upon each adjustment of the Warrant Exercise Price pursuant to
Section 5(a) above, the Holder of each Warrant shall thereafter (until
another such adjustment) be entitled to purchase at the adjusted
Warrant Exercise Price the number of shares, calculated to the nearest
full share, obtained by multiplying the number of shares specified in
such Warrant (as adjusted as a result of all adjustments in the Warrant
Exercise Price in effect prior to such adjustment) by the Warrant
Exercise Price in effect prior to such adjustment and dividing the
product so obtained by the adjusted Warrant Exercise Price.
In case of any consolidation or merger to which the Company is
a party other than a merger or consolidation in which the Company is
the continuing corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, or in the case of any statutory exchange
of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company),
there shall be no adjustment under Subsection (a) of this Section above
but the Holder of each Warrant then outstanding shall have the right
thereafter to convert such Warrant into the kind and amount of shares
of stock and other securities and property which he would have owned or
have been entitled to receive immediately after such consolidation,
merger, statutory exchange, sale, or conveyance had such Warrant been
converted immediately prior to the effective date of such
consolidation, merger, statutory exchange, sale, or conveyance and in
any such case, if necessary, appropriate adjustment shall be made in
the application of the provisions set forth in this Section with
respect to the rights and interests thereafter of any Holders of the
Warrant, to the end that the provisions set forth in this Section shall
thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock and other securities
and property thereafter deliverable on the exercise of the Warrant. The
provisions of this Subsection shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances.
Upon any adjustment of the Warrant Exercise Price, then and in
each such case, the Company shall give written notice thereof, by
first-class mail, postage prepaid, addressed to the Holder as shown on
the books of the Company, which notice shall state the Warrant Exercise
Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares of Common Stock purchasable at such price
upon the exercise of this Warrant, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is
based.
No Voting Rights. This Warrant shall not entitle the Holder to
any voting rights or other rights as a shareholder of the Company.
Notice of Transfer of Warrant or Resale of the Warrant Shares.
Subject to the sale, assignment, hypothecation, or other
transfer restrictions set forth in Section 1 hereof, the Holder, by
acceptance hereof, agrees to give written notice to the Company before
transferring this Warrant or transferring any Warrant Shares of such
Holder's intention to do so, describing briefly the manner of any
proposed transfer. Promptly upon receiving such written notice, the
Company shall present copies thereof to the Company's counsel and to
counsel to the original purchaser of this Warrant. If in the opinion of
each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities
laws), the Company, as promptly as practicable, shall notify the Holder
of such opinion, whereupon the Holder shall be entitled to transfer
this Warrant or to dispose of Warrant Shares received upon the previous
exercise of this Warrant, all in accordance with the terms of the
notice delivered by the Holder to the Company; provided that an
appropriate legend may be endorsed on this Warrant or the certificates
for such Warrant Shares respecting restrictions upon transfer thereof
necessary or advisable in the opinion of counsel and satisfactory to
the Company to prevent further transfers which would be in violation of
Section 5 of the Securities Act of 1933, as amended (the "1933 Act")
and applicable state securities laws; and provided further that the
prospective transferee or purchaser shall execute such documents and
make such representations, warranties, and agreements as may be
required solely to comply with the exemptions relied upon by the
Company for the transfer or disposition of the Warrant or Warrant
Shares.
If in the opinion of either of the counsel referred to in this
Section 7, the proposed transfer or disposition of this Warrant or such
Warrant Shares described in the written notice given pursuant to this
Section 7 may not be effected without registration or qualification of
this Warrant or such Warrant Shares the Company shall promptly give
written notice thereof to the Holder, and the Holder will limit its
activities in respect to such as, in the opinion of both such counsel,
are permitted by law.
Fractional Shares. Fractional shares shall not be issued upon
the exercise of this Warrant, but in any case where the holder would,
except for the provisions of this Section, be entitled under the terms
hereof to receive a fractional share, the Company shall, upon the
exercise of this Warrant for the largest number of whole shares then
called for, pay a sum in cash equal to the sum of (a) the excess, if
any, of the Market Price of such fractional share over the proportional
part of the Warrant Exercise Price represented by such fractional
share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the
term "Market Price" with respect to shares of Common Stock of any class
or series means the last reported sale price or, if none, the average
of the last reported closing bid and asked prices on any national
securities exchange or quoted in the National Association of Securities
Dealers, Inc.'s Automated Quotations System (NASDAQ), or if not listed
on a national securities exchange or quoted in NASDAQ, the average of
the last reported closing bid and asked prices as reported by Metro
Data Company, Inc. from quotations by market makers in such Common
Stock on the Minneapolis-St. Paul local over-the-counter market.
Registration Rights.
If the Company at any time within two (2) years after complete
exercise of this Warrant, but no more than seven (7) years from the
date of this Warrant, proposes to register under the 1933 Act (except
by a Form S-4 or Form S-8 Registration Statement or any successor forms
thereto) or qualify for a public distribution under Section 3(b) of the
1933 Act, any of its securities, it will give written notice to all
Holders of this Warrant, any Warrants issued pursuant to Section 2
and/or Section 3(a) hereof, and any Warrant Shares of its intention to
do so and, on the written request of any such Holder given within
twenty (20) days after receipt of any such notice (which request shall
specify the interest in this Warrant or the Warrant Shares intended to
be sold or disposed of by such Holder and describe the nature of any
proposed sale or other disposition thereof), the Company will use its
best efforts to cause all such Warrants and Warrant Shares, the Holders
of which shall have requested the registration or qualification
thereof, to be included in such registration statement proposed to be
filed by the Company; provided, however, that if a greater number of
Warrants and Warrant Shares is offered for participation in the
proposed offering than in the reasonable opinion of the managing
underwriter of the proposed offering can be accommodated without
adversely affecting the proposed offering, then the amount of Warrant
and Warrant Shares proposed to be offered by such Holders for
registration, as well as the number of securities of any other selling
shareholders participating in the registration, shall be
proportionately reduced to a number deemed satisfactory by the managing
underwriter.
Further, on a one-time basis only, provided Form S-3, or such
successor form as may be adopted, is available, during the term of this
Warrant, upon request by the Holder or Holders of a majority in
interest of this Warrant, of any Warrants issued pursuant to Section 2
and/or Section 3(a) hereof, and of any Warrant Shares, the Company will
promptly take all necessary steps to register or qualify, under the
1933 Act and the securities laws of such states as the holders may
reasonably request, this Warrant and such number of Warrant Shares
issued and to be issued upon conversion of the Warrants requested by
such holders in their request to the Company. The Company shall keep
effective and maintain any registration, qualification, notification,
or approval specified in this Paragraph (b) for such period as may be
reasonably necessary for such Holder or Holders of such Warrants and/or
such Warrant Shares to dispose thereof and from time to time shall
amend or supplement the prospectus used in connection therewith to the
extent necessary in order to comply with applicable law.
With respect to each inclusion of securities in a registration
statement pursuant to this Section 9, the Company shall bear the
following fees, costs, and expenses: all registration, filing and NASD
fees, printing expenses, fees and disbursements of counsel and
accountants for the Company, fees and disbursements of counsel for the
underwriter or underwriters of such securities (if the Company is
required to bear such fees and disbursements), all internal expenses,
the premiums and other costs of policies of insurance against liability
arising out of the public offering, and legal fees and disbursements
and other expenses of complying with state securities laws of any
jurisdictions in which the securities to be offered are to be
registered or qualified. Fees and disbursements of special counsel and
accountants for the selling Holders, underwriting discounts and
commissions, and transfer taxes for selling Holders and any other
expenses relating to the sale of securities by the selling Holders not
expressly included above shall be borne by the selling Holders;
The Company hereby indemnifies each of the Holders of this
Warrant and of any Warrant Shares, and the officers and directors, if
any, who control such Holders, within the meaning of Section 15 of the
1933 Act, against all losses, claims, damages, and liabilities caused
by (1) any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement or Prospectus (and as
amended or supplemented if the Company shall have furnished any
amendments thereof or supplements thereto), any Preliminary Prospectus
or any state securities law filings; (2) any omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading except
insofar as such losses, claims, damages, or liabilities are caused by
any untrue statement or omission contained in information furnished in
writing to the Company by such Holder expressly for use therein; and
each such Holder by its acceptance hereof severally agrees that it will
indemnify and hold harmless the Company, each of its officers who signs
such Registration Statement, and each person, if any, who controls the
Company, within the meaning of Section 15 of the 1933 Act, with respect
to losses, claims, damages, or liabilities which are caused by any
untrue statement or omission contained in information furnished in
writing to the Company by such Holder expressly for use therein.
Redemption of Warrants.
The Warrants may be redeemed at the option of the Company as a
whole or in part at any time after the Company's Common Stock trades at
greater than $1.25 per share, subject to adjustment pursuant to Section
5(a) hereof, for at lease 20 consecutive trading days, upon notice as
set forth in Subsection (b) below, and at a redemption price equal to
$.05 per Warrant.
In the case of any redemption of Warrants, the Company shall
give notice of such redemption to the holders of the Warrants to be
redeemed as hereinafter provided in this Subsection (b). Notice of
redemption to the holders of Warrants shall be given by mailing by
first-class mail a notice of such redemption not less than 30 days
prior to the date fixed for redemption. Any notice which is given in
the manner herein provided shall be conclusively presumed to have been
duly given, whether or not the holder receives the notice. In any
notice, to the holder of any Warrant Certificate shall not affect the
validity of the proceedings for the redemption of Warrants represented
by any other Warrant Certificate. Each such notice shall specify the
date fixed for redemption, the number of Warrants held by the
individual Warrant holder to be redeemed, the place of redemption and
the redemption price of $.05 at which each Warrant is to be redeemed,
and shall state that payment of the redemption price of the Warrants
will be made on surrender of the Warrants at said place of redemption,
and that after said date, the exercise rights of the Warrants
identified for redemption shall expire. Such notice shall also state
the current Purchase Price and the date on which the right to exercise
the Warrants will expire.
If notice of redemption shall have been given as provided in
Subsection (b), the redemption price of $.05 per Warrant shall, unless
the Warrant is theretofore exercised pursuant to the terms hereof,
become due and payable on the date and at the place stated in such
notice. On and after such date of redemption, provided that cash
sufficient for the redemption thereof shall then be deposited by the
Company with the Warrant Agent for that purpose, the exercise rights of
the Warrants identified for redemption shall expire. On presentation
and surrender of Warrant Certificates at said place of payment in said
notice specified, the Warrants identified for redemption shall be paid
and redeemed at the redemption price of $.05 per Warrant. In the event
not all Warrants represented by a warrant Certificate are identified
for redemption, a new Warrant Certificate shall be issued representing
the number of Warrants not redeemed. Prior to the date fixed for
redemption, the Company shall deposit with the Warrant Agent an amount
of money sufficient to pay the redemption price of all the Warrants
identified for redemption. Any moneys which shall have been deposited
with the Warrant Agent for redemption of Warrants and which are not
required for that purpose by reason of exercise of Warrants shall be
repaid to the Company upon delivery to the Warrant Agent of evidence
satisfactory to it of such exercise.
IN WITNESS OF, Quantech Ltd. has caused this Warrant to be signed by
its duly authorized officer and this Warrant to be dated _________, 199_.
"Company"
QUANTECH LTD.
By _________________________________
Gregory G. Freitag
Chief Financial Officer
To: Quantech Ltd.
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder
in Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, ___________________ of the shares issuable upon the exercise
of such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
_________________________________
(Print Name)
Please insert social security
or other identifying number
of registered holder of
certificate (____________) Address:
_________________________________
_________________________________
Date: ________________, 19__ _________________________________
Signature*
*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto __________________________ the right to purchase the securities
of Quantech Ltd. to which the within Warrant relates and appoints
______________________, attorney, to transfer said right on the books of
Quantech Ltd. with full power of substitution in the premises.
Dated: ______________________ _________________________________
(Signature)
Address:
_________________________________
_________________________________
LETTER OF UNDERSTANDING
This Letter of Understanding ("Agreement") is entered into by and
between Quantech Ltd. ("Quantech") and Donnelly Corporation. (the "Company")
this 31st day of March, 1996.
RECITALS:
A. The Company is performing development work on a contract basis for
Quantech with respect to Quantech's SPR reading instrument (the "Instrument")
and related disposable (the "Disposable").
B. The Company has agreed to perform such development in partial
consideration for Quantech providing the Company the right to negotiate for the
production of the Quantech Disposable upon terms to be mutually agreed upon by
Quantech and the Company.
C. Currently there is insufficient information to allow the Company and
Quantech to negotiate the terms of the Disposable Production Contract (the
"Contract") and as a result the Company and Quantech are entering into this
Agreement until the Contract can be negotiated.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree as follows:
1. Payment by Quantech. Quantech shall pay to the Company the total
amount of $1,000,000 immediately upon the occurrence of one of the following
events:
(a) Quantech completes a consolidation or merger or Quantech
or its shareholders complete a sale of its or their equity in a single
transaction or series of related transactions which results in a change
of 50% or more of Quantech's ownership;
(b) Quantech sells all or substantially all of its assets to
another corporation; or
(c) Quantech enters into an agreement whereby it no longer has
exclusive authority to determine who may produce the Disposable.
2. Good Faith Negotiation of Contract. Quantech and the Company agree
to negotiate in good faith to finalize the terms of, and enter into, the
Contract. If Quantech and the Company are unable to enter into the Contract by
October 1, 1996, then neither party shall be obligated to the other for any
damages, fees or payments (including the payment provided in Section 1 above),
except for any amounts owing the Company for development work performed on
behalf of Quantech. Provided, however, that if Quantech or its shareholders had
begun negotiations with any party for sale, merger or consolidation prior to
October 1, 1996 and subsequently enters into a transaction described in
paragraph 1(a)-(c) with the same party or any affiliated party by January 1,
1998, then Quantech shall owe the Company the $1,000,000 provided in paragraph
1.
3. Termination of Agreement. This Agreement will terminate upon: (i)
the date of execution of the Contract by Quantech and the Company; (ii) October
1, 1996 if the Contract has not been executed; or (iii) on such date as the
Company is rendered incapable of producing the Disposable upon the
specifications and in the quantities required by Quantech provided the Company
has been supplied adequate equipment and lead times by Quantech. In the event
this Agreement is terminated as a result of subsection (iii) above, Quantech
shall have the right to have all molds for the Disposable provided to it for
Quantech's unlimited use in producing the Disposable.
4. Governing Law. Any disputes arising under this Agreement shall be
governed by the laws of the State of Minnesota. The parties further agree to
submit themselves to the non-exclusive jurisdiction of the state and federal
courts of the State of Minnesota in the event that any dispute arises under this
Agreement.
5. Full Agreement. This Agreement contains the full agreement of the
parties and may not be modified, altered, or changed in any respect except upon
the express written consent of both parties. The parties have read this
Agreement, have consulted with their attorneys, and understand the meaning of
its terms. They enter into this Agreement freely and voluntarily.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date written above.
QUANTECH LTD.
BY: ___________________________________
ITS: ___________________________________
DONNELLY CORPORATION
BY: ___________________________________
ITS: ___________________________________
FIRST AMENDMENT
TO
WARRANT
THE FIRST AMENDMENT TO WARRANT is made and executed as of this 1st day
of May, 1996, by and between RICHARD W. PERKINS (the "Warrant Holder") and
QUANTECH LTD., a Minnesota corporation (the "Company").
WHEREAS, under that certain stock option dated September 28, 1995 (the
"Warrant"), the Warrant Holder or his registered assign is entitled to subscribe
for and purchase from the Company, at any time through November 8, 2000, five
hundred thousand (500,000) fully paid and nonassessable shares of the common
stock of the Company,
WHEREAS, the Company previously authorized a private placement of
securities with a maximum aggregate offering price of $2,500,000 through John G.
Kinnard and Company, Incorporated (the "Agent") pursuant to that certain
Confidential Private Placement Memorandum dated February 5, 1996 (the "Private
Placement Memorandum");
WHEREAS, the Agent has advised the Company that the private placement
is oversubscribed and the Board of Directors believes it is in the best interest
of the Company to raise an additional $1,250,000 of capital in that private
placement by offering an additional 416,667 Units for sale, each Unit consisting
of five shares of common stock at a price of $3.00 per Unit;
WHEREAS, the number of authorized shares of common stock of the
Company, which is currently 60,000,000, must be increased in order to complete
the offering of such additional Units under the Private Placement Memorandum,
which would result in the issuance of an additional 2,083,335 shares of common
stock of the Company; and
WHEREAS, the Warrant Holder and the Company wish to amend the Warrant
as set forth herein to facilitate the offering of such additional Units.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein the parties agree as follows:
1. The Warrant shall not be exercisable by the Warrant Holder, his
registered assign, or any other holder thereof until the Company's shareholders
have approved and ratified at a duly convened meeting, an increase in the
aggregate number of shares of common stock which the Company shall have
authority to issue by at least such amount as is necessary to have available in
reserve a sufficient number of shares for issuance upon exercise of all warrants
and options granted by the Company as of the date of this Amendment. When the
foregoing approval has been received and the appropriate amendment to the
Company's Articles of Incorporation has been filed with the Minnesota Secretary
of State, the Warrant Holder shall be immediately entitled to exercise the
Warrant for such number of shares as the Warrant Holder would have otherwise
been entitled to receive.
2. The terms and conditions of the Warrant shall remain the same in
every respect other than that stated in paragraph 1 above.
3. This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof. This Agreement may be amended only by a
writing signed by both of the parties hereto. This Agreement shall be governed
by and construed in accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties have set their hands hereto as of the
date first set forth above.
QUANTECH LTD.
By ___________________________
Its _______________________
_________________________________
Richard W. Perkins
FIRST AMENDMENT
TO
WARRANT
THE FIRST AMENDMENT TO WARRANT is made and executed as of this 1st day
of May, 1996, by and between EDWARD E. STRICKLAND (the "Warrant Holder") and
QUANTECH LTD., a Minnesota corporation (the "Company").
WHEREAS, under that certain stock option dated September 28, 1995 (the
"Warrant"), the Warrant Holder or his registered assign is entitled to subscribe
for and purchase from the Company, at any time through November 8, 2000, five
hundred thousand (500,000) fully paid and nonassessable shares of the common
stock of the Company,
WHEREAS, the Company previously authorized a private placement of
securities with a maximum aggregate offering price of $2,500,000 through John G.
Kinnard and Company, Incorporated (the "Agent") pursuant to that certain
Confidential Private Placement Memorandum dated February 5, 1996 (the "Private
Placement Memorandum");
WHEREAS, the Agent has advised the Company that the private placement
is oversubscribed and the Board of Directors believes it is in the best interest
of the Company to raise an additional $1,250,000 of capital in that private
placement by offering an additional 416,667 Units for sale, each Unit consisting
of five shares of common stock at a price of $3.00 per Unit;
WHEREAS, the number of authorized shares of common stock of the
Company, which is currently 60,000,000, must be increased in order to complete
the offering of such additional Units under the Private Placement Memorandum,
which would result in the issuance of an additional 2,083,335 shares of common
stock of the Company; and
WHEREAS, the Warrant Holder and the Company wish to amend the Warrant
as set forth herein to facilitate the offering of such additional Units.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein the parties agree as follows:
1. The Warrant shall not be exercisable by the Warrant Holder, his
registered assign, or any other holder thereof until the Company's shareholders
have approved and ratified at a duly convened meeting, an increase in the
aggregate number of shares of common stock which the Company shall have
authority to issue by at least such amount as is necessary to have available in
reserve a sufficient number of shares for issuance upon exercise of all warrants
and options granted by the Company as of the date of this Amendment. When the
foregoing approval has been received and the appropriate amendment to the
Company's Articles of Incorporation has been filed with the Minnesota Secretary
of State, the Warrant Holder shall be immediately entitled to exercise the
Warrant for such number of shares as the Warrant Holder would have otherwise
been entitled to receive.
2. The terms and conditions of the Warrant shall remain the same in
every respect other than that stated in paragraph 1 above.
3. This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof. This Agreement may be amended only by a
writing signed by both of the parties hereto. This Agreement shall be governed
by and construed in accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties have set their hands hereto as of the
date first set forth above.
QUANTECH LTD.
By ___________________________
Its _______________________
_________________________________
Edward E. Strickland
FIRST AMENDMENT
TO
WARRANT
THE FIRST AMENDMENT TO WARRANT is made and executed as of this 1st day
of May, 1996, by and between GREGORY G. FREITAG (the "Warrant Holder") and
QUANTECH LTD., a Minnesota corporation (the "Company").
WHEREAS, under that certain stock option dated December 1, 1995 (the
"Warrant"), the Warrant Holder or his registered assign is entitled to subscribe
for and purchase from the Company, at any time through November 8, 2000, five
hundred thousand (500,000) fully paid and nonassessable shares of the common
stock of the Company,
WHEREAS, the Company previously authorized a private placement of
securities with a maximum aggregate offering price of $2,500,000 through John G.
Kinnard and Company, Incorporated (the "Agent") pursuant to that certain
Confidential Private Placement Memorandum dated February 5, 1996 (the "Private
Placement Memorandum");
WHEREAS, the Agent has advised the Company that the private placement
is oversubscribed and the Board of Directors believes it is in the best interest
of the Company to raise an additional $1,250,000 of capital in that private
placement by offering an additional 416,667 Units for sale, each Unit consisting
of five shares of common stock at a price of $3.00 per Unit;
WHEREAS, the number of authorized shares of common stock of the
Company, which is currently 60,000,000, must be increased in order to complete
the offering of such additional Units under the Private Placement Memorandum,
which would result in the issuance of an additional 2,083,335 shares of common
stock of the Company; and
WHEREAS, the Warrant Holder and the Company wish to amend the Warrant
as set forth herein to facilitate the offering of such additional Units.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein the parties agree as follows:
1. The Warrant shall not be exercisable by the Warrant Holder, his
registered assign, or any other holder thereof until the Company's shareholders
have approved and ratified at a duly convened meeting, an increase in the
aggregate number of shares of common stock which the Company shall have
authority to issue by at least such amount as is necessary to have available in
reserve a sufficient number of shares for issuance upon exercise of all warrants
and options granted by the Company as of the date of this Amendment. When the
foregoing approval has been received and the appropriate amendment to the
Company's Articles of Incorporation has been filed with the Minnesota Secretary
of State, the Warrant Holder shall be immediately entitled to exercise the
Warrant for such number of shares as the Warrant Holder would have otherwise
been entitled to receive.
2. The terms and conditions of the Warrant shall remain the same in
every respect other than that stated in paragraph 1 above.
3. This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof. This Agreement may be amended only by a
writing signed by both of the parties hereto. This Agreement shall be governed
by and construed in accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties have set their hands hereto as of the
date first set forth above.
QUANTECH LTD.
By ___________________________
Its _______________________
_________________________________
Gregory G. Freitag
FIRST AMENDMENT
TO
WARRANT
THE FIRST AMENDMENT TO WARRANT is made and executed as of this 1st day
of May, 1996, by and between JAMES F. LYONS (the "Warrant Holder") and QUANTECH
LTD., a Minnesota corporation (the "Company").
WHEREAS, under that certain stock option dated September 28, 1995 (the
"Warrant"), the Warrant Holder or his registered assign is entitled to subscribe
for and purchase from the Company, at any time through November 8, 2000, five
hundred thousand (500,000) fully paid and nonassessable shares of the common
stock of the Company,
WHEREAS, the Company previously authorized a private placement of
securities with a maximum aggregate offering price of $2,500,000 through John G.
Kinnard and Company, Incorporated (the "Agent") pursuant to that certain
Confidential Private Placement Memorandum dated February 5, 1996 (the "Private
Placement Memorandum");
WHEREAS, the Agent has advised the Company that the private placement
is oversubscribed and the Board of Directors believes it is in the best interest
of the Company to raise an additional $1,250,000 of capital in that private
placement by offering an additional 416,667 Units for sale, each Unit consisting
of five shares of common stock at a price of $3.00 per Unit;
WHEREAS, the number of authorized shares of common stock of the
Company, which is currently 60,000,000, must be increased in order to complete
the offering of such additional Units under the Private Placement Memorandum,
which would result in the issuance of an additional 2,083,335 shares of common
stock of the Company; and
WHEREAS, the Warrant Holder and the Company wish to amend the Warrant
as set forth herein to facilitate the offering of such additional Units.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein the parties agree as follows:
1. The Warrant shall not be exercisable by the Warrant Holder, his
registered assign, or any other holder thereof until the Company's shareholders
have approved and ratified at a duly convened meeting, an increase in the
aggregate number of shares of common stock which the Company shall have
authority to issue by at least such amount as is necessary to have available in
reserve a sufficient number of shares for issuance upon exercise of all warrants
and options granted by the Company as of the date of this Amendment. When the
foregoing approval has been received and the appropriate amendment to the
Company's Articles of Incorporation has been filed with the Minnesota Secretary
of State, the Warrant Holder shall be immediately entitled to exercise the
Warrant for such number of shares as the Warrant Holder would have otherwise
been entitled to receive.
2. The terms and conditions of the Warrant shall remain the same in
every respect other than that stated in paragraph 1 above.
3. This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof. This Agreement may be amended only by a
writing signed by both of the parties hereto. This Agreement shall be governed
by and construed in accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties have set their hands hereto as of the
date first set forth above.
QUANTECH LTD.
By ___________________________
Its _______________________
_________________________________
James F. Lyons
FIRST AMENDMENT
TO
WARRANT
THE FIRST AMENDMENT TO WARRANT is made and executed as of this 1st day
of May, 1996, by and between R. H. JOSEPH SHAW (the "Warrant Holder") and
QUANTECH LTD., a Minnesota corporation (the "Company").
WHEREAS, under that certain warrant dated May 15, 1995 (the "Warrant"),
the Warrant Holder or his registered assign is entitled to subscribe for and
purchase from the Company, at any time through November 8, 2000, one million two
hundred thousand (1,200,000) fully paid and nonassessable shares of the common
stock of the Company,
WHEREAS, the Company previously authorized a private placement of
securities with a maximum aggregate offering price of $2,500,000 through John G.
Kinnard and Company, Incorporated (the "Agent") pursuant to that certain
Confidential Private Placement Memorandum dated February 5, 1996 (the "Private
Placement Memorandum");
WHEREAS, the Agent has advised the Company that the private placement
is oversubscribed and the Board of Directors believes it is in the best interest
of the Company to raise an additional $1,250,000 of capital in that private
placement by offering an additional 416,667 Units for sale, each Unit consisting
of five shares of common stock at a price of $3.00 per Unit;
WHEREAS, the number of authorized shares of common stock of the
Company, which is currently 60,000,000, must be increased in order to complete
the offering of such additional Units under the Private Placement Memorandum,
which would result in the issuance of an additional 2,083,335 shares of common
stock of the Company; and
WHEREAS, the Warrant Holder and the Company wish to amend the Warrant
as set forth herein to facilitate the offering of such additional Units.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein the parties agree as follows:
1. The Warrant shall not be exercisable by the Warrant Holder, his
registered assign, or any other holder thereof for only nine hundred thousand
(900,000) shares of the common stock of the Company until the Company's
shareholders have approved and ratified at a duly convened meeting, an increase
in the aggregate number of shares of common stock which the Company shall have
authority to issue by at least such amount as is necessary to have available in
reserve a sufficient number of shares for issuance upon exercise of all warrants
and options granted by the Company as of the date of this Amendment. When the
foregoing approval has been received and the appropriate amendment to the
Company's Articles of Incorporation has been filed with the Minnesota Secretary
of State, the Warrant Holder shall be immediately entitled to exercise the
Warrant for such number of shares as the Warrant Holder would have otherwise
been entitled to receive.
2. The terms and conditions of the Warrant shall remain the same in
every respect other than that stated in paragraph 1 above.
3. This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof. This Agreement may be amended only by a
writing signed by both of the parties hereto. This Agreement shall be governed
by and construed in accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties have set their hands hereto as of the
date first set forth above.
QUANTECH LTD.
By ___________________________
Its _______________________
_________________________________
R. H. Joseph Shaw
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Quantech, Ltd.
St. Paul, Minnesota
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report, dated August 29, 1995, relating to the financial statements of Quantech,
Ltd., and to the reference to our Firm under the captions "Experts" and
"Selected Financial Data" in the Prospectus.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
June 24, 1996
