SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended June 30, 1998
Commission file number 0-19957
QUANTECH LTD.
(Name of Small Business Issuer in its Charter)
Minnesota 41-1709417
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
1419 Energy Park Drive
St. Paul, Minnesota 55108
(Address of Principal Executive Offices; Zip Code)
Issuer's Telephone Number Including Area Code: (651) 647-6370
Securities Registered Under Section 12(b) of the Act: None
Securities Registered Under Section 12(g) of the Act: Common Stock, no par value
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
X Yes No
Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is contained in this form, and no disclosure will be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Issuer's revenues for the fiscal year ended June 30, 1998 were $0.
The aggregate market value of the Issuer's Common Stock held by nonaffiliates
(persons other than officers, directors or holders of more than 5% of the
outstanding stock) as of September 23, 1998, was approximately $ 2,643,000
(based on the closing sale price of the Issuer's Common Stock on such date).
Shares of Common Stock, no par value, outstanding on September 23, 1998:
2,587,395 shares as adjusted for a 1-for-20 reverse stock split with record date
of June 2, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 1998 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>
INDEX
PART I Page
----
Item 1. Description of Business.............................. 3
Item 2. Description of Property.............................. 28
Item 3. Legal Proceedings.................................... 28
Item 4. Submission of Matters to a Vote of Security Holders.. 28
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 29
Item 6. Management's Discussion and Analysis or Plan of Operation 31
Item 7. Financial Statements................................. 31
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................. 31
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act... 32
Item 10. Executive Compensation............................... 33
Item 11. Security Ownership of Certain Beneficial Owners and
Management........................................... 33
Item 12. Certain Relationships and Related Transactions....... 33
Item 13. Exhibits and Reports on Form 8-K..................... 33
Signatures.............................................................. 34
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Company Summary
General
Quantech Ltd. ("Quantech" or the "Company") is completing development
of its multi-test critical care DBx diagnostic system. The DBx uses Quantech's
proprietary and robust digital biosensor Surface Plasmon Resonance ("SPR")
technology. The use of SPR by Quantech enables it to integrate multiple
diagnostic methodologies, such as immunoassays, DNA probes and chemical binding,
into a single, simple system. This flexibility should allow the DBx to provide
an extensive menu of rapid, quantitative STAT tests in hospital critical care
units.
Excluding home diagnostics, the overall world wide in-vitro diagnostic
market is more than $15 billion. Central and STAT laboratories currently account
for the majority of this market with testing divided between non-urgent and
urgent (STAT) tests. The Company is focused on the STAT testing portion of this
market. STAT tests are required by critical care physicians in areas such as
surgical suites, ICUs/CCUs and emergency departments because of the time
sensitive nature of their treatment. However, results of STAT tests from the
central laboratory can take a minimum of 45 minutes and up to three hours for
physicians to receive. This delay affects patient treatment and increases costs.
Although STAT laboratories have been established to reduce this time delay, test
costs are often 2-4 times that of the central lab and reduced test time
turnaround is not always achieved.
The Emergency Department ("ED") represents the most pressing and unmet
customer need for critical care STAT testing. The ED is a significant market
requiring a complete menu of clinically related, quantitative, rapid turnaround
tests on a single instrument. Although there are some STAT testing products
available for the ED, only systems in the central and STAT labs provide the
required test menu and quality of results. However, time delays and interruption
of batch testing in the central lab, and the cost of tests run in STAT labs,
have caused both to fall well short of meeting the burden of providing fast and
economic STAT test results to the ED and other critical care areas of the
hospital.
Quantech is designing its DBx system for the ED. To meet the needs of
the ED, the DBX is expected to have the STAT test menu and test performance of
central and STAT labs, but with tests results in 10 to 20 minutes. The DBx
system configuration will consist of a bench top instrument and a series of
disposables each offering a single test or a panel of clinically related STAT
tests. The system analyzes both whole blood and urine without preparation or
addition of reagents by lab technicians or removal of sample from the collection
device. This ease of use and ability to locate the DBx in the ED will provide
hospital physicians with faster STAT test results, at a comparable price, to
those run in hospital central laboratories.
<PAGE>
Some of the most important STAT tests in the ED are those for cardiac
markers and pregnancy. Cardiac tests help to identify whether a patient
experiencing chest pain has suffered a myocardial infarction (heart attack) and
represent what Quantech believes is more than a $350 million market. Pregnancy
tests are important in the ED to determine if a procedure that could harm a
fetus can be performed, or to identify an ectopic pregnancy. The DBx is expected
to be launched with a panel of three cardiac tests (myoglobin, CK-MB and
troponin I) and a single whole blood quantitative test for pregnancy. Additional
STAT tests are expected to be added to the DBx system to provide a complete ED
STAT testing menu such as white blood count panel, coagulation panel,
electrolytes, amylase, liver enzymes panel, therapeutic drugs, drugs of abuse
panel and infectious diseases.
The expected extensive test menu of the DBx system is a result of
Quantech's SPR technology. The robust nature of this SPR technology is confirmed
by its ability to be used in many areas other than medical diagnostics. In this
regard, Quantech and The Perkin-Elmer Corporation ("PE"), a leading supplier of
life science systems and analytical instruments with sales in excess of $1
billion, are parties to a License Agreement. The agreement provides PE with
exclusive licenses to certain Quantech technology for use outside of Quantech's
core area of medical diagnostics.
Quantech has licensed back from PE technology that provides a large
density, high throughput diagnostic testing capacity for its SPR technology.
Through the optical and chemistry deposition advancements made by PE, they are
able to read up to 100 test areas on a single 1 cm by 1 cm SPR disposable and
plan to expand capacity to beyond 5,000 tests within the same area. Such two
dimensional (2D) array capability, as now used in genomic screening research,
provides Quantech the ability to expand its digital SPR technology upstream from
the critical care area to the central lab and provide further vertical expansion
to ICU/CCU, ambulatory, doctor office and home testing. Future generations of
Quantech's proposed DBx system may also benefit from the PE technology by
reducing the number of unique disposables needed to perform the same number of
tests which reduces inventory requirements and manufacturing costs.
Quantech has received FDA 510(k) approval for its first cardiac marker
test myoglobin. It has also begun FDA 510(k) data collection on its cardiac
marker test for CK-MB. Quantech expects submission to the FDA of this test in
fall of 1998. Launch of the DBx system is expected in mid 1999. Quantech
believes the capabilities of its DBx system as a diverse diagnostic testing
platform will meet the needs of the critical care STAT testing market enabling
Quantech to be competitive in the global medical diagnostics market and a
valuable strategic partner.
Strategy
Quantech's objective is to establish its DBx system as the standard for
ED STAT testing, steadily increase the number of tests available for its system
through the introduction of additional tests or test panels and expand its SPR
technology platform beyond the ED. To reach these objectives, Quantech intends
to do the following:
<PAGE>
* Complete system and additional test development and submit to the FDA
Quantech's system and tests for the cardiac markers CK-MB and troponin
I and pregnancy marker hCG.
* Pursue strategic relationships in distribution, manufacturing and
testing applications of Quantech's SPR technology outside of Quantech's
core ED market.
* Market initial system with single disposable for cardiac panel
consisting of myoglobin, CK-MB and troponin I and a test disposable for
pregnancy.
* Develop additional clinically relevant STAT tests (white blood count
panel, coagulation panel, electrolytes, amylase, liver enzymes panel,
therapeutic drugs, drugs of abuse panel, infectious diseases, etc.).
* Market system domestically and internationally via strategic
distribution partners.
* Develop second generation system for expansion into additional markets.
The Market
General. Excluding home diagnostics, the overall world wide in-vitro
diagnostic market ("IVD") is more than $15 billion. Central and STAT/rapid
response laboratories currently account for the majority of this market with
testing divided between non-urgent and urgent (STAT) tests. The Company is
focused on the STAT testing portion of this market. STAT tests are required by
critical care physicians in areas such as surgical suites, ICUs/CCUs and
emergency departments because of the time sensitive nature of their treatment.
However, results of STAT tests from the central laboratory can take a minimum of
45 minutes and up to three hours for the physician to receive the results. This
delay affects patient treatment and increases costs. Although STAT laboratories
have been established to reduce this time delay, test costs are often 2-4 times
that of the central lab and reduced test time turnaround is not always achieved.
Point of care ("POC ") testing represents a growing segment of the IVD
market and a response to rising costs of health care that have produced changes
in hospital reimbursement. 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, a primary goal of
critical care medicine is to determine the appropriate care path for a patient
so they may be treated, sent home or moved to a different area of the hospital.
Quick determination of this care path is made possible by rapid, accurate and
clinically relevant quantitative tests. For this reason STAT labs were
established to reduce test turnaround time, but their high test cost and still
often lengthy turnaround time have limited the effectiveness of STAT labs to
reduce patient treatment costs. POC instruments have tried to fill this gap, but
lack of central and STAT lab features have kept them from penetrating the
critical care testing market.
The strategic direction chosen by Quantech is to exploit the inherent
technological advantages of its SPR technology which allow it to address the
shortfalls of the central and STAT labs and POC instruments. As such, Quantech
will focus on the STAT testing needs of hospital Critical Care Units which are
defined as those areas where immediate diagnostic information is needed to
effect either the treatment or processing of a patient. These critical care
areas require a large menu of STAT tests and represent a significant market.
<PAGE>
Critical Care/Emergency Department. Critical Care Units include
Intensive Care Units, Surgical Suites and Emergency Departments (`ED").
Quantech's DBx system will first be marketed to EDs. EDs must respond to
critical patient conditions and conduct tests on an as needed basis in order to
support the health care team when a patient's condition is life threatening.
Most tests conducted in the ED are required STAT (urgent) and are processed 24
hours a day. Tests processed in a STAT manner significantly increase cost as
they require the hospital central or STAT laboratory to remain open whether or
not any tests are being conducted. The hospital must staff laboratories around
the clock, use sophisticated technology, respond to urgent and critical patient
needs, and yet do not have the large test volumes that allow them to spread the
operating and capital costs across a broader base. The solution to this
difficulty and expense is to bring a system designed for STAT testing to the
patient site in a manner that will provide test results promptly and accurately.
Because of space limitations in the ED and a desire not to train
personnel on a number of different instruments, a single instrument for the ED's
STAT test needs is required. Such ED STAT test menu includes:
* Cardiac marker panel (CK-MB, troponin I, myoglobin)
* hCG (Pregnancy)
* White Blood Count panel
* Coagulation Therapeutic Drug Monitoring (Digoxin, Theophylline)
* Drugs of Abuse (e.g., Cocaine, Marijuana)
* Electrolytes
* Amylase
* Liver Enzymes
* Bun/Creatinine
Quantech will introduce its DBx system with a cardiac panel to test for
heart attacks and a test for pregnancy. The combination of these two tests
provides a significant market and is expected to allow initial market
penetration. Quantech will then expand its menu beyond these first tests by
adding the additional STAT tests required by the ED. Since the needs of other
areas of critical care are similar to those tests required by the ED, the
Company anticipates that growth into these other areas will be evolutionary.
Cardiac Markers (heart attack). Cardiac markers are needed to triage
and treat individuals that arrive at the ED with chest pain. Hospitals are aware
of a need for more rapid cardiac diagnosis and in response have started to
establish chest pain centers in emergency departments for triaging patients.
Lacking, however, are rapid cardiac test results. Quantech has chosen a test
panel for heart attacks as one of its initial tests because of the high need,
reimbursement and volume these tests represent.
<PAGE>
During a myocardial infarction ("AMI"), certain proteins are released
from the damaged heart muscle into the blood stream as a result of damage to the
muscle. These proteins are in varying concentrations and consist of CK-MB,
troponin, myosin light chain and myoglobin. Myoglobin is the earliest of the
markers to be detected and the first to leave the body. CK-MB and troponin I are
later markers but stay in the body longer and are more specific to cardiac
damage. Combinations of these markers are thus used to cover the required time
frames.
Cardiac markers are important to help to identify patients who have
suffered an AMI. Such tests, however, are most useful if they can be performed
in under twenty minutes in the ED or mobile care unit so that medical personnel
may take immediate action. Most of the existing test modalities require a
central laboratory system that may delay the results beyond their effective
need. Quantech's system will provide emergency personnel with the ability to
receive quantitative results in 10 to 20 minutes.
An estimated 6 million patients are evaluated for chest pain annually
in the United States with approximately 3 million admitted to an Intensive Care
Unit for further evaluation. Of those admitted, only 30% subsequently "rule-in"
for acute AMI. Assuming an average cost of $3,000 per admission, this represents
a total expenditure of $6 billion annually on patients who do not have AMI. This
also does not take into account that 2-8% of patients with acute chest pain that
are released from the ED without treatment subsequently fulfill criteria for AMI
resulting in deaths and complications that represent greater than 20% of the
malpractice dollars awarded in the field of emergency medicine.
Not only are costs of admission and malpractice claims an important
issue, making a rapid definitive diagnosis of chest pain has become more
important. In the past when a patient was in the early stages of a heart
attack/AMI, there was little treatment available. In the last 10 years,
substantial progress has been made in thrombolytic therapy. If the therapy is
started within four to six hours of the onset of a heart attack, it can dissolve
the blood clot, clear arteries and save heart muscle tissue. Because these
therapies are expensive and present undesirable side effects (allergic
reactions, bleeding) if the patient has not suffered an AMI, rapid accurate
testing for an AMI is very important.
The high cost of therapy, the urgency of the associated conditions and
the difficulty of a definitive diagnosis creates an urgent demand for cardiac
marker tests in the critical care setting. Quantech's disposable test for
cardiac markers is being completed. This disposable, and Quantech's related
reading instrument, are expected to provide the rapid and cost effective tests
required by the ED.
Pregnancy. Along with a test panel for cardiac markers, the Company
intends to also provide a test for the pregnancy marker hCG. Every woman of
child bearing age who enters the ED and requires a procedure that could injure a
fetus (x-ray or drugs) should have a pregnancy test. Because of the delays in
obtaining tests from the central lab, women may be treated without the physician
receiving the results of the pregnancy test or spend considerable time waiting
to be treated.
<PAGE>
A rapid pregnancy test is also important for diagnosis of ectopic
pregnancies. Ectopic pregnancy is a leading cause of abdominal pain for women
presenting to the ED. Determination of an ectopic pregnancy is made through the
quantitative testing of hCG. The ability of the Quantech system to perform
pregnancy and other tests, along with its cardiac marker panel, will show its
advantage as a quantitative multi-test platform.
Product Description
The Instrument. The Company's instrument combines accuracy with
simplicity of use and will process up to four tests at a time on a single
disposable. Additional reading ports will be designed to be attached to the
initial instrument to provide greater throughput required by higher volume
testing facilities. The ability of Quantech's biosensor system to convert
biological data into digital signals will also permit designs that capitalize on
future advances in microcomputer technology.
The Quantech instrument is designed to fill the needs of hospital
Critical Care Units, in particular the ED. Most importantly, the instrument is
designed to be compatible with new test disposables when Quantech introduces
them to the market. As a result, when Quantech adds tests through the
introduction of new disposables, its original instrument will accommodate these
various tests without system obsolescence or significant training of ED
personnel.
The instrument will be of a size capable of sitting on a bench top or
cart and moved from room to room if necessary. It contains a white light source,
a microprocessor, a number of optical components, a computer touch screen and
barcode readers. The light is split into a number of channels, providing for
quality controls and multiple tests per disposable. When the test disposable is
inserted into the instrument, an internal bar-code reader identifies the type of
test to be run. A touch screen and/or an external barcode reader will enable the
user to enter both a user number and the patient or specimen ID number. The
instrument's computer screen will display results of a given test. The data or
results produced by the instrument will also be stored on an internal hard
drive, downloaded to the hospital information system, and may be provided on a
hard copy through use of a printer.
The small size and configuration of the instrument enables it to be
located in the ED or associated STAT or rapid response lab. It is anticipated
that Critical Care Units such as the ED will have several of these instruments
at various locations. Quantech intends to offer several industry standard
reagent rental programs whereby the DBx will be provided to the hospital and it
may retain the instrument without cost as long as a specified number of test
disposables are purchased. For customers who wish to purchase the instrument,
the retail price is anticipated to be $20,000.
<PAGE>
The Disposable. Quantech's disposable consists of an injection molded
plastic carrier containing a metal coated sensor surface. The metallic surface
is overlaid with reagents that react specifically with the analyte to be
identified and measured. An important feature of the Quantech disposable will be
the ability to attach a standard vacutainer tube, complete with its top intact,
to the disposable so that it is easy to use and the user has minimal exposure to
the patient sample. 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. One or more separate tests may be performed on a single disposable
providing Quantech the capability to develop clinically related panels of tests
by simply adding the appropriate reagents. Future disposables for certain tests
may also be configured to handle samples of urine and other body fluids.
A further advantage of Quantech's disposable will be that an operator
will not be required to add reagents. This simplicity translates into easier use
and immediacy of results. Disposables will be configured to provide single tests
or multiple clinically-related tests. Because the same disposable configuration
may be used for all tests, manufacturing and quality control costs should be
minimized. Disposables are expected to have retail prices ranging from $6.50 to
$35.00 per disposable depending on the tests provided. Additional development of
the disposable is currently being conducted and future development will be
undertaken to expand the number of tests that may be performed in general and on
each disposable.
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. These operations consist of sample preparation, addition of
reagents, further method-specific manipulations, and reading and interpretation
of raw data. Each method also requires a specific technology to perform the
particular test. Central and STAT laboratory automated systems have mechanized,
rather than eliminated many of these steps and attempt to combine different
technologies into a single system. Quantech's digital SPR technology, in
contrast, is able to be used for these and other basic testing methods within a
single instrument, but without complicated processing by the operator.
Central labs provide quality results on a menu of tests, but STAT test
results take from 45 minutes to 3 hours to be returned to the ED and STAT tests
disrupt the batch testing of central labs. Although STAT and rapid response labs
have the quality advantages of the central lab with quicker turnaround time,
personnel and equipment requirements of STAT labs result in high test costs.
Point of care instruments have reduced turnaround time, and in some instances
have lower test costs than STAT labs, but fail to meet laboratory quality and
critical care needs due to limited test menu, lack of interface to laboratory
information system, manipulation of patient sample, nonconcordance with central
lab results and lack of quantitative results. Quantech's DBx system is expected
to eliminate all of these disadvantages by providing the following features and
capabilities:
<PAGE>
* STAT test menu (cardiac panel, pregnancy, white blood count
panel, coagulation panel, electrolytes, amylase, therapeutic
drugs, drugs of abuse panel, etc.)
* Rapid turn-around time (10-20 minutes)
* Quantitative results using whole blood (no sample processing by
user)
* Multi-test, single use disposable (up to four clinically
related tests per disposable)
* User-friendly
* Cost effective (comparable to central lab STAT test costs, 2x-4x
less than STAT lab test costs)
* No addition of reagents by the operator
* Transportable, bench top instrument
* Concordance with central lab test results
* Whole blood/closed tube (vacutainer) patient sample capability
* Full-time laboratory information system interface
* Automatic user/patient/test/QC input
Marketing
Introduction. The ED testing market is highly concentrated.
Approximately two thousand (2,000) of the Critical Care institutions represent
over 75% of the potential market. In the United States, the majority of
hospitals belong to a small number of buying groups such as Columbia/HCA and the
Voluntary Hospital Association of America Inc. (VHA). This enables a focused
sales effort to cover a significant amount of the market.
Quantech will form a strategic marketing group of approximately three
persons. Initially this marketing group will begin creating awareness of
Quantech and its DBx system. It is intended that Quantech will engage a
strategic distribution partner with a presence in diagnostic testing to market
its products in the United States and internationally. If this distribution
partner is engaged, the marketing group will support this distribution partner
and maintain contact with customers to help Quantech to monitor the market for
future products. If an appropriate distribution partner cannot be engaged, then
the marketing group will focus on sales of the system to the highest volume
emergency departments. Because of the small number of emergency departments in
the United States, and the large amount of revenue that can be provided by each
one, the Company believes that a small focused sales effort will enable it to
effectively penetrate the ED market.
International. The international market is greater in potential revenue
and size than that of the United States. The regulatory environment is less
stringent in most countries other than the United States. The Company will
manage and support international distributors, if a strategic distribution
partner is not engaged. Quantech expects to begin international sales
approximately six months after its United States market launch.
Clients. The purchasing decision for diagnostic testing equipment is in
the hands of the laboratory manager, although the end user of the Quantech DBx
system will be ED personnel. Under CLIA regulation the laboratory is responsible
for training, instrument calibration and quality assurance of testing systems.
As such, the laboratory wishes a STAT testing instrument to have the following
features:
<PAGE>
* Comparable performance to central lab instrument with
concordant results
* One (maximum of two) instruments for ED STAT menu
* Full-time, bi-directional laboratory information system ("LIS")
interface with information automatically downloaded to LIS
* Automated user/patient/test/QC information input
* User ID and lockout capability by laboratory
* Minimum user training
* Physically robust - large enough so it does not get stolen or
dropped
* Costs comparable to central lab STAT tests and less than STAT lab
ED personnel as the ultimate users must also accept any system that
will be used for their STAT testing needs. Although they cannot buy a testing
system without the laboratory agreeing, they are capable of keeping a system
from being purchased. A system that is acceptable to the ED must provide the
following features:
* Comparable performance to central lab instrument with concordant
results
* Rapid turnaround time (less than 20 minutes)
* One (maximum of two) instruments for ED STAT menu
* Whole blood, closed collection tube sampling and transfer
* Automatic LIS download
* User friendly - minimum training and time at instrument
* High reliability and large enough to find and not be stolen or
misplaced
To achieve market penetration of its DBx system, Quantech's marketing
strategy will be focused on achieving the acceptance of both laboratory and ED
personnel. Testing systems to date have been unable to meet the needs of both
groups because of technology limitations. Quantech believes its digital SPR
technology is capable of providing a STAT system that will meet the requirements
of both groups.
Internal Support. A support staff will be maintained to provide 24 hour
product service both in the interpretation of results and the use of the system,
as well as emergency shipping. There will be no field service. Faulty
instruments will be replaced in the event of failure.
The Technology
Biosensors. The Quantech system is a biosensor using the Company's
proprietary Surface Plasmon Resonance (SPR) technology as its core. A biosensor
is defined as an analytical device incorporating a biological sensing element
coupled to a suitable transducer that converts biochemical activity into a
measurable form of energy. Almost all analytical systems combine sensing (i.e.,
detection) and transducing components. The distinct feature of biosensors is
that the two functions are coupled in a single physical entity. A biosensor's
input is a specific biological event (e.g., binding of an antigen to an
antibody). Its output is a measurable signal that corresponds to the input. A
biosensor's biological component provides specificity, the ability to
selectively recognize one type of chemical or event. Its transducer confers
sensitivity, the ability to transform the very low energy of the biological
event into a measurable signal.
<PAGE>
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 composed of a plastic
base with a fine grating molded into its surface through the use of compact
disk/DVD manufacturing technology. The grating is coated with a very thin layer
of gold. Gold is used since it does not oxidize like other metals which can
affect chemistry binding. The gold is subsequently coated with binding molecules
or other substances. 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.
Quantech's SPR biosensor combines the strengths of biology and physics
into a single entity bringing digital diagnostic technology to STAT testing.
Applications of SPR that have been reported in the scientific literature or
explored by the Company include immunoassays for cardiac markers, pregnancy,
hormones, drugs, viruses and bacteria, quantitation of anesthetic gases, DNA
binding assays, glucose, blood coagulation and other tests. The Company's SPR
biosensor technology thus represents a simple, unified platform that is capable
of performing a wide range of diagnostic tests. SPR is also a valuable research
tool that the Company expects will allow it to quickly and efficiently develop
further tests for its system.
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. STAT/rapid response
labs have developed to address the needs of STAT testing and generally use the
same instrumentation found in the central lab. These central lab systems are
generally complex and expensive, incorporating designs appropriate to the
central labs they serve which employ skilled operators who are expected to
perform sample preparation, system calibration and basic instrument maintenance.
<PAGE>
Both the health care providers and their suppliers are heavily
committed to the current central/STAT 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. As a result, hospitals may
maintain their established means of having testing performed.
There is a significant number of companies serving this central
clinical laboratory market. Most of them compete in only one or two segments of
the overall market. Abbott Laboratories, Roche Diagnostics, and Johnson &
Johnson are notable exceptions. These companies have achieved their broad market
penetration by developing several technologies, each targeted for the specific
needs of a market segment and focusing their marketing, distribution and sales
activities on the central lab. The Quantech DBx system in general must compete
with central and /or STAT laboratory systems 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 to be provided on the DBx.
There is significant activity in certain areas of the Critical Care
STAT testing segment. Point of care systems are addressing limited testing areas
such as coagulation, blood gas and basic chemistry (including electrolytes). Two
such systems, i-STAT Corp. and Diametrics Medical, which market biosensor
instruments capable of determining blood gas and electrolyte levels have become
recognized point of care testing instruments. The Company does not believe
current products of i-STAT or Diametrics are capable, however, of providing the
test menu and features required by the ED.
With respect to testing for cardiac markers to diagnose AMI, most
testing is done in the Central and STAT labs with turnaround time from 45 to 90
minutes. The Company is aware of only a limited number of companies that provide
rapid testing for AMI. Of such companies, Spectral Diagnostics Limited, a
Canadian company, markets a manual method available for certain cardiac markers
and Roche Diagnostics through its acquisition of Boehringer Mannheim markets a
manual test for troponin T. As configured, neither Spectral's nor Boehringer's
AMI tests can provide quantitative results. Biosite Diagnostics has introduced
an instrument and tests for the cardiac markers myoglobin, CK-MB and troponin I.
It is unclear what the extent of their sales activity is as they have announced
problems in the supply of their test disposable. However, the Company believes
that such system is not able to provide the breadth of test menu and other STAT
testing requirements expected to be available on the Quantech system and this
menu limitation by its competitors provides Quantech a competitive advantage.
<PAGE>
The Company believes that there is a need for rapid, accurate and
quantitative measurement of cardiac markers, pregnancy and other STAT tests.
Quantech plans to enter the market by serving this unmet need first with tests
for heart attacks and pregnancy and to extend its penetration by delivering a
full range of high value, clinically relevant ED STAT 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 its SPR technology will enable it to provide products to the
Critical Care STAT testing market, a market segment believed by the Company to
lack testing systems that adequately address its needs. There can be no
assurance that current or future companies will not invent systems that will
have broad testing capabilities and features like those expected in Quantech's
DBx system. If Quantech is able to launch its system, no assurance exists that
competitive pressures will not negatively affect its pricing.
Significant Agreements
Ares-Serono License. Quantech has acquired from Ares-Serono at a total
cost of $3.4 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, 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. Quantech has paid
$1,000,000 in minimum royalties to date and must pay additional payments of
$150,000 each December 31 of 1998 and 1999. If such payments are not made,
Ares-Serono has the right to cause a reversion to it 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 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 fluorescence 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.
<PAGE>
The Perkin-Elmer Corporation Agreements. Quantech and The Perkin-Elmer
Corporation ("Perkin-Elmer"), a leading supplier of life science systems and
analytical instruments, are parties to a technology and development agreement.
Such agreement provides Perkin-Elmer with exclusive licenses to certain Quantech
technology for use outside of medical diagnostics and co-exclusive rights to
nucleic acid medical diagnostics. Perkin-Elmer, pursuant to the agreement,
provides technical assistance related to Quantech's medical diagnostic system
and future royalty payments if Perkin-Elmer sells products using Quantech's
technology.
The technical assistance provided by Perkin-Elmer covers many areas
including math, software, system hardware, optics, chemistry, optical molding,
microfluidics, mechanical engineering, environmental and regulatory performance
and value engineering. Four phases of assistance have been established with a
reduction in Perkin-Elmer's royalty each time a phase is completed. Phase I and
II have been completed setting the royalty at 8% of gross sales of Perkin-Elmer
products which include Quantech technology. If all phases are met, the royalty
will be set at 6% of gross sales. Minimum royalties of $500,000 per year begin
in December of 2000, provided, however, that if Perkin-Elmer does not proceed to
commercialize the licensed SPR technology prior to such date all rights revert
back to Quantech.
Quantech granted Perkin-Elmer a warrant to purchase 1.4 million shares
of Quantech Common Stock. The warrant expires in December 2002 and is
immediately exercisable. The exercise price of the warrant is 95% of the average
market price of Quantech's Common Stock for the 25 days prior to the date
Perkin-Elmer provides notice to Quantech of its intent to exercise the warrant.
Quantech, pursuant to an exclusive license agreement with PE, has
licensed PE technology that provides a large density, high throughput diagnostic
testing capacity for Quantech's SPR technology in medical diagnostics other than
nucleic acid testing. Through the optical and chemistry deposition advancements
made by PE, they are able to read up to 100 test areas on a single 1 cm by 1 cm
SPR disposable and plan to expand capacity to beyond 5,000 tests within the same
area. Such two dimensional (2D) array capability, as now used in genomic
screening research, puts Quantech on the leading edge of micro lab/lab on chip
pursuits that are expected to redefine diagnostic testing in the next decade.
Quantech believes this PE technology capability should allow Quantech to expand
its digital SPR technology upstream from the critical care area to the central
lab and provide further vertical expansion to ICU/CCU, ambulatory, doctor office
and home testing. Future generations of Quantech's current DBx system are also
expected benefit from the PE technology by reducing the number of unique
disposables needed to perform the same number of tests which reduces inventory
requirements and manufacturing costs.
The royalty to be owed by Quantech will be 8% of gross sales of
Quantech products which include the PE technology. Minimum royalties of $500,000
per year begin in December of 2000, provided, however, that if Quantech does not
proceed to commercialize the licensed SPR technology prior to such date, all
rights revert back to PE. The PE technology will not be initially incorporated
into the DBx system.
<PAGE>
Patents and Proprietary Rights
The Ares-Serono license covers a total of eight patents. The two
principal patents covering the SPR technology gratings, one patent covering
cellulose nitrate films and one covering calibration notches have been granted
in the United States, Canada, Australia and Europe and all but one of the
granted patents have been issued in Japan. These patents are awaiting
examination in Great Britain. Three of the remaining four patents are either
issued or pending in the United States, Canada, Australia, Europe, Japan and
Great Britain. The remaining patent which is not critical to the Quantech system
has been granted in 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. 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 be filed patents, if
granted, will protect the Company's technology.
Government Regulations
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.
<PAGE>
The Company believes that premarket clearance can be obtained for its
initial system and tests through submission of a 510(k) premarket notification
("510(k) Notification") demonstrating the product's substantial equivalence to
another device legally marketed pursuant to 510(k) Notification clearance. The
FDA may also require, in connection with the 510(k) Notification, that it be
provided with the test results supporting this claim. The FDA may further
require, in connection with the 510(k) Notification, that it be provided with
test results demonstrating the safety and efficacy of the device. Under certain
circumstances, such clinical data can be obtained only after submitting to the
FDA an application for an Investigational Device Exemption ("IDE").
For new products that are not considered to be "substantially
equivalent" to an existing device, two levels of FDA approval will probably be
required before marketing in the United States can begin. First, the FDA and
participating medical institutions must approve the Company's application for an
IDE, permitting clinical evaluations of the product utilizing human samples
under controlled experimental conditions. Second, the FDA must grant to the
Company a Premarket Approval ("PMA"). The FDA should grant a PMA if it finds
that the product complies with all regulations and manufacturing standards. In
addition, the FDA may require further clinical evaluation of the product, or it
may grant a PMA but restrict the number of devices distributed or require
additional patient follow-up for an indefinite period of time. Completion of
this process could take up to 12 months and involve significant costs. The
Company believes it is unlikely that it will be required to obtain a PMA with
respect to any of its currently proposed products, except where mandated by the
FDA such as HIV, cancer and hepatitis detection tests. Any claims of panel
diagnostics are subject to a PMA procedure. The Company anticipates that it will
make claims in reference to its cardiac markers. These claims will be made after
the products are marketed with only single claim implications. Accordingly, the
products should not be delayed in their initial introduction. If a PMA is
required for the Company's initial system and CK-MB test, introduction of the
initial system likely would be significantly delayed, which could have a
material adverse effect on the Company, although preliminary indications from
the FDA are consistent with a 510(k) filing.
For products subject to either 510(k) or PMA regulations, the FDA
requires that the Company conduct any required studies following Good Clinical
Practice and Good Laboratory Practice guidelines. Also, the manufacture of
products subject to 510(k) or PMA regulations both must be in accordance with
current Good Manufacturing Practice. For sale in foreign countries, compliance
with ISO 9000 standards will be required. Sales of medical devices outside the
U.S. are subject to foreign regulatory requirements. For countries in the EU, in
January 1995, CE mark certification procedures became available for medical
devices, the successful completion of which would allow certified devices to be
placed on the market in all EU countries. After June 1998, medical devices may
not be sold in EU countries unless they display the CE mark. The Company's
products will be manufactured according to ISO 9001 and EN 46001 quality
standards and the Company expects to be able to apply the CE mark to its
products. In addition, international sales of medical devices manufactured in
the U.S. but not approved by the FDA for distribution in the U.S. are subject to
FDA export requirements. Under these requirements, the Company must assure that
the product is not in conflict with the laws of the country for which it is
intended for export, in addition to complying with the other requirements of
Section 801(e) of the United States Food, Drug and Cosmetic Act.
<PAGE>
Specific requirements demanded of a laboratory depend upon the
complexity of the test performed. CLIA regulations establish three categories of
laboratory tests, for which regulatory requirements become increasingly
stringent as the complexity of the test rises: (1) tests that require little or
no operator skill which allows for a waiver of the regulations; (2) tests of
moderate complexity; and (3) highly complex tests which require significant
operator skill or training. All laboratories performing tests of moderate or
high complexity must obtain either a registration certificate or a certificate
of accreditation from HCFA or an organization to whom HCFA has delegated such
authority. HCFA has allowed electronic controls for some NP instruments to serve
the function of daily quality control performance to allow non-laboratory
personnel to run such NP systems. The tests to be performed by the Company's
system are initially expected to fall within the moderate complexity class as
defined by current CLIA regulations, as all analogous NP instruments that are
presently on the market are classified in this manner. In practical terms,
performing a test of moderate complexity means that the individual supervising
the test, i.e. the physician, pathologist or laboratory director, must be well
educated and well trained, whereas the individual who operates the machine
requires no formal laboratory education and only task-specific training. The
Company may, but has not yet, applied for the waiver.
The Company has received FDA approval for its myoglobin test for use in
the clinical environment. It will also submit additional tests for hCG and CK-MB
for FDA approval, also for clinical use. The Company will submit its system to
the FDA for approval for use for point-of-care and after such approval obtained
required approvals for test use at the point-of-care.
Research and Development
To be filed by amendment.
Manufacturing
Quantech's system is comprised of an instrument and disposable. The
instrument consists of electronics and optics and does not require complicated
assembly procedures. Production of the instrument will be performed by a
contract manufacturer to Quantech under quality standards set by the Company.
The contract supplier has not yet been selected. Quantech will take delivery of
the instrument, perform final quality inspection and inventory the instrument
for final shipment.
Quantech's disposable consists of two parts, the sensor grating piece
with the metal coating and the carrier for such piece. Both the coated sensor
grating and carrier will be produced by contract suppliers according to Quantech
specifications. These pieces will be shipped to either Quantech or another
contract manufacturer to complete final manufacturing of the disposable. This
final manufacturing will consist of applying the assay (chemistry) on the gold
coated sensor grating, placing the final grating piece into the carrier,
performing the final assembly, labeling the unit and packaging the disposable
for final shipment.
<PAGE>
Employees and Property
The Company employs 14 people on a full and part-time basis and engages
consultants and independent contractors to provide services related to the
development of the DBx system and marketing. The Company expects to hire other
personnel as necessary for chemistry development, quality control, sales and
marketing, manufacturing and administration, including a CEO with diagnostic
industry experience.
The Company leases offices (comprised of approximately 6,800 sq. ft.)
at 1419 Energy Park Drive, St. Paul, Minnesota at a base monthly rent and
operating expenses of approximately $5,600 pursuant to a lease arrangement
which expires February 2000 and will thereafter proceed on a month-to-month
basis.
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.
CAUTIONARY STATEMENTS
Certain statements contained in this Form 10 KSB and other written and
oral statements made from time to time by the Company do not relate strictly to
historical or current facts. As such, they are considered "forward-looking
statements" which provide current expectations or forecasts of future events.
Such statements can be identified by the use of terminology such as
"anticipate," "believe," "estimate," "expect," "intend," "may," "could,"
"possible," "plan," "project," "will," "forecast" and similar words or
expressions. The Company's forward-looking statements generally relate to its
growth strategy, financial results, product approvals, development programs and
marketing efforts. One must carefully consider forward-looking statements and
understand that such statements involve a variety of risks and uncertainties,
known and unknown, and may be affected by inaccurate assumptions, including,
among others, those discussed herein. Consequently, no forward-looking statement
can be guaranteed and actual results may vary materially. The Company notes
these factors as permitted by the Private Securities Litigation Reform Act of
1995. The Company wishes to caution investors that the following important
factors, among others, in some cases have affected and in the future could
affect the Company's actual operations and cause such operations to differ
materially from those anticipated in forward-looking statements made in this
document and elsewhere by or on behalf of the Company:
<PAGE>
Immediate and Future Capital Needs
The Company does not have sufficient funds to complete commercial
development or commence production and sales of its system. The Company's
ability to continue as a going concern, complete its system, submit its
commercial system and tests to the FDA and commence sales will depend upon the
continued availability of investment capital, funding made by strategic
partner(s) or licensing revenues, until the revenues from sale of the
instruments and associated test disposables are sufficient to maintain
operations. In addition, the Company has $3.5 million of promissory notes that
come due September 30, 1998. If such notes are not paid within 30 days of such
date, or arrangements made with the holders of the notes, the note holders will
obtain control of all of the Company's assets. Quantech is attempting to raise
sufficient funds to pay the notes and maintain operations. There can be no
assurance that any such additional financing 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.
No History of Operations; Development Stage Company; Going Concern Uncertainty
To date, the Company does not have a product ready to be brought to
market. 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.
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, those historically encountered
by the Company, and the competitive environment in which the Company will
operate. The Company has not had any significant revenues to date. 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.
No Assurance of Successful and Timely Development of Company's System
The Company's DBx system, consisting of its reading instrumentation and
associated disposables, is under various stages of development. Such development
is being conducted by the Company using both internal and external resources.
Further development and testing will be required to prove additional testing
capability beyond Quantech's current tests, commercial viability of Quantech's
system, and to obtain all required FDA clearances. Until the development process
for the commercial system is completed and cleared through the FDA, there can be
no assurance that such system will be finished according to the Company's
current development timetable and budget, or that development will result in a
system that will perform in the manner anticipated by the Company. Additionally,
the final cost of the Company's instrument and disposables cannot be finalized
until system completion. The Company's success, if any, will depend on its
ability to timely complete its system within estimated cost parameters and
efficiently develop tests to expand the system's menu of tests.
<PAGE>
Uncertainty of Market Acceptance
The commercial success of the Company's DBx system will depend upon its
acceptance by the medical community and third-party payers as reliable, accurate
and economical. 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. Diagnostic tests similar to those
developed by the Company are generally performed by a central or STAT 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 that there will be resistance by some central laboratories to a new
instrument like that of Quantech's. 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 hospital lab. Failure of the
Company's products to achieve market acceptance or third-party payer approval
would have a material adverse effect on the Company.
Lack of Marketing Experience
The Company has had no experience in marketing its system. Quantech
intends to market its system in both the United States and in foreign markets
through a strategic partner(s) with an established distribution system, but no
assurance can be given that such an arrangement can be made. If such a strategic
relationship is not entered into prior to product launch, the Company will
market its system through a combination of its own sales force and distributors.
Establishing a sales and marketing capability sufficient to support the level of
sales necessary for the Company to attain profitability will require substantial
efforts and significant management and financial resources. There can be no
assurance that the Company will be able to recruit and retain direct sales and
marketing personnel in order to build a sales and marketing organization, engage
distributors to supplement the United States direct sales activity and sell
products in foreign markets or have its marketing efforts be successful.
If the Company is required to rely heavily upon distributors, as will
be the case outside of the United States, sales by such distributors could
account for a significant portion of the Company's revenues. There can be no
assurance that these distributors will devote the resources necessary to provide
effective sales and marketing support to the Company. In addition, Company
distributors may not give their full efforts to sell the Company's products.
Company distributors, if any, may not be contractually committed to make future
purchases of the Company's products and could therefore discontinue carrying the
Company's products in favor of a competitor's at any time and for any reason. If
the Company is unable to establish appropriate arrangements with distributors
when required, or if distributors are engaged and they become unwilling or
unable to promote, market and sell the Company's system, the Company's business
and financial condition would be adversely affected.
<PAGE>
Limited Manufacturing and Production Experience
Quantech's system consists of a reading instrument and a series of
disposable testing cartridges. To be successful, the Company must manufacture
these items in compliance with regulatory requirements and Good Manufacturing
Process ("GMP"), in sufficient quantities and on a timely basis, while
maintaining product quality and acceptable manufacturing costs. The instrument
and many components of the test disposables will be manufactured for the Company
by outside vendors. The Company has not entered into agreements with vendors to
manufacture the instrument or certain parts of the disposables. There can be no
assurance that the Company can engage such vendors. Further, if engaged, the
limited control the Company has over any third party manufacturers as to
timeliness of production, delivery and other factors could affect the Company's
ability to supply products on a timely basis.
The Company ultimately intends to chemically coat and assemble its test
disposables. The Company has never operated a manufacturing/assembly business
and it 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 sensor 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.
Government Regulation
The Company's instrument and test disposables are human diagnostic
medical devices subject to regulation by the United States Federal Government
and federal agencies of foreign countries. The United States Food and Drug
Administration ("FDA") under the Federal Food, Drug, and Cosmetic Act ("FDC
Act") will regulate the Company's system as a medical device. As such,
Quantech's system will require pre-market regulatory clearance before its
commercialization in the United States. The Company believes that pre-market
clearance can be obtained for its instrument and substantially all of its test
disposables through submission of a 510(k) pre-market notification ("510(k)
Notification") demonstrating the product's substantial equivalence to another
device legally marketed pursuant to 510(k) Notification clearance. In this
regard, the Company has received FDA approval for its cardiac marker myoglobin
test. 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
<PAGE>
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 within its
anticipated time frame. If the Company cannot establish to the satisfaction of
the FDA that its products are substantially equivalent, the Company will have to
seek pre-market approval ("PMA") of its system pursuant to Section 515 of the
FDC Act, 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 approved.
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. For example, the European Community has drafted a Directive
for In vitro Diagnostic Products which the Company intends to comply with when
the Directive becomes effective and the Company's products will be required to
have "CE Marks" for sale in major European markets. Additionally, manufacturing
facilities are subject to inspection by the FDA and, for International Standards
Organization ("ISO") certified facilities, by notified bodies, on a periodic
basis. The Company and its contract manufacturers must demonstrate compliance
with applicable quality system requirements. No regulatory clearances have yet
been obtained in any country and there is no assurance that any will be
obtained. Further, regulations and standards are subject to frequent changes. If
regulatory clearances are not obtained, compliance with changes in regulations
or standards are not met or the Company's manufacturing facilities and those of
its contract manufacturers are in violation of applicable regulations, the sale
of the Company's system could be materially adversely affected.
Competition
The diagnostic testing market is highly competitive. The Company
expects that manufacturers of central and STAT laboratory testing equipment will
compete to maintain their revenue and market share and that new testing 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. There can be no assurance that, if the
Company's system is completed, it can successfully compete in its market.
Compliance with CLIA
Quantech's products will be subject to the Clinical Laboratory
Improvement Act of 1988 ("CLIA") which has been implemented by the Health Care
Financing Administration ("HCFA"). This law is intended to ensure the quality
and reliability of all medical testing in the United States regardless of where
tests are performed. The Company's marketing plan is based on non-laboratory
personnel operating its system. HCFA has allowed electronic controls for some
instruments to serve the function of daily quality control performance to allow
non-laboratory personnel to run such testing systems. The Company has not yet
applied for this exception. If the Company is unable to obtain this exception,
it would eliminate the user-friendly operation advantage of the Company's system
which could have an adverse affect on sales. Further, there can be no assurance
that CLIA regulations or future administrative interpretations of CLIA or
various state regulations requiring licensed technicians to operate diagnostic
systems will not have a material adverse effect on the Company.
<PAGE>
Adverse Changes in Government Health Care Policy and Reimbursement
Purchases of the Company's system and test disposables will be affected
by cost reimbursement requirements and regulations, including regulations
promulgated by HCFA, and uncertainties often faced by proposed changes in
government health care policy. Sales volumes and prices of the Company's test
disposables will in part be dependent on the level of availability of
reimbursement to health care providers for tests from third-party payers, such
as government and private insurance plans, health maintenance organizations and
preferred provider organizations. There can be no assurance that current
reimbursement amounts for tests will not be decreased in the future, and that
any such decreases will not reduce the demand for, or the price of, the
Company's tests. Any health care reform measures adopted by the federal
government could adversely affect the amount of test reimbursement available in
the United States, and consequently could adversely affect the prices received
by the Company for its tests.
Technological Obsolescence/Single Technology Basis
The Company's reading instrument and test disposables, all of which are
based upon a single set of core technologies, are currently the Company's only
products and are expected to account for substantially all of the Company's
revenues, if any, for the foreseeable future. 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 testing disposables. Because the Company's system represents
Quantech's sole product focus, lack of market acceptance or obsolescence of its
system would have a significant adverse effect.
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 expand the test menu
for its system and market it.
<PAGE>
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. 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 be issued 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 may defend the patents they have licensed to
the Company, Quantech will be responsible for the defense of any patents
Ares-Serono elects not to defend or those issued to Quantech. Cost of defending
patents can be substantial.
Dependence on the Ares-Serono License
The Company is dependent upon the worldwide license (the "License") it
acquired from Ares-Serono to certain patents, proprietary information and
associated hardware (e.g. molds, test rigs, prototypes) 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. 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. The Company must
make a $150,000 minimum royalty payment on each of December 31, 1998 and 1999.
If such payments are not made, 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.
Ares-Serono specifically reserved, and did not license to Quantech, any
rights to or otherwise integrated with certain fluorescence 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.
<PAGE>
Dependence on Personnel
The Company has a small number of employees and although it believes it
maintains a core group sufficient for it to effectively conduct its operations,
the loss any of its personnel could, to varying degrees, have an adverse effect
on Company operations and system development. The loss of either Robert Case,
CEO or Greg Freitag, COO and CFO would have a material adverse effect on the
Company.
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 caused by a failure of its
system. Although the Company will evaluate obtaining liability insurance when
its products are brought 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 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
All but 30,033 shares of the Company's outstanding Common Stock are
eligible to be sold in the public market along with approximately 932,000 shares
that may be obtained upon exercise of outstanding options or conversion of notes
(assuming conversion of notes at $3.53). The Company intends to file
registrations in the near future making all outstanding shares and shares that
may be obtained upon exercise of options and warrants or conversion of notes
eligible for sale. The sale of a substantial number of the shares available for
sale or shares underlying options, warrants and convertible notes could
adversely affect the market price and liquidity of the Company's securities.
Limited Market for Securities
There is a limited trading market for the Company's Common Stock, which
is quoted on the OTC Bulletin Board. Although trading in the Company's Common
Stock does occur on a consistent basis, the volume of shares traded has been
sporadic. There can be no assurance that an established trading market will
develop, the current market will be maintained or a liquid market for the
Company's Common Stock will be available in the future.
<PAGE>
Volatility of Stock Price
The Company believes that factors such as announcements of developments
by the Company or its competitors, general conditions in the health care or
medical diagnostic markets and conditions in the financial markets could cause
the price of the Company's Common Stock to fluctuate substantially. In addition,
the stock market has recently experienced extreme price and volume fluctuations
which have affected the market prices for many emerging growth companies and
which have often been unrelated to the operating performance of the specific
companies. These market fluctuations may adversely affect the price of the
Company's Common Stock.
Year 2000 Compliance
Although the Company's internal systems and products are year 2000
computer compliant, its customers may not be in compliance. The result of
noncompliance by customers, if any, could result in delays in installing the
Company's systems, extra expense in installation or a failure in the system's
ability to communicate with hospital computers for down-loading information.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases office space (comprised of approximately 6,800 sq.
ft.) at 1419 Energy Park Drive, St. Paul, Minnesota at a base monthly rent and
operating expenses of approximately $5,600 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 will review its space needs prior to
product commercialization.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of fiscal 1998.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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 QQQQ. At September 23, 1998, the Company had approximately 504
shareholders of record and the bid, asked and closing sale prices of its Common
Stock were $0.97, $1.13 and $1.13, respectively. The following table summarizes
the quarterly high and low sale prices for the Company's Common Stock for the
prior two fiscal years as adjusted for a 1-for-20 reverse stock split effected
on June 2, 1998:
<TABLE>
<CAPTION>
High Low
------------------ ------------------
<S> <C> <C>
Fiscal 1997
First Quarter $21.20 $11.80
Second Quarter $15.00 $ 9.40
Third Quarter $12.40 $ 8.20
Fourth Quarter $ 8.00 $ 4.20
Fiscal 1998
First Quarter $ 5.60 $ 2.20
Second Quarter $ 5.60 $ 2.80
Third Quarter $ 4.00 $ 2.70
Fourth Quarter $ 7.00 $ 2.60
</TABLE>
The Company has never paid a cash dividend on its Common Stock. Payment
of dividends is at the discretion of the Board of Directors. The Board of
Directors plan to retain earnings, if any, for operations and does not intend to
pay dividends in the near future.
During May 1998 holders of the Company's Convertible Secured Promissory
Notes agreed to convert $219,300 of accrued interest into Notes and extend the
maturity date of the Notes to September 30, 1998 from June 1, 1998. The Note
holders received warrants to purchase 178,618 shares of Common Stock. The
extension of the Notes and issuance of the warrants were made in reliance upon
exemptions from registration provided under Section 4(2) of the 1933 Act and
Rule 506 of Regulation D. The holders of these notes and warrants acquired these
securities for their own account and not with a view to any distribution thereof
to the public.
During May through August 1998, the Company completed an offering of
Convertible Secured Promissory Notes in the principal amount of $497,500 to
accredited investors and issued warrants in connection with the sale of such
notes to the investors for the purchase of 74,625 shares of Common Stock. The
sales were made in reliance upon exemptions from registration provided under
Section 4(2) of the 1933 Act and Rule 506 of Regulation D. The Company paid
commissions and accountable expenses in the aggregate amount of $20,900 to a
registered investment bank for acting as selling agent and issued the investment
bank a warrant to purchase up to 3,134 shares of Common Stock as additional
compensation. Such warrant was sold pursuant to Section 4(2) of the 1933 Act.
The purchasers of these notes and warrants acquired these securities for their
own account and not with a view to any distribution thereof to the public.
<PAGE>
In July 1998 the Company began offering for sale a minimum of $3.75
million and a maximum of $7.5 million shares of its Series A Convertible
Preferred Stock to accredited investors. The shares are priced at the lesser of
70% of the average closing market price of Quantech Common Stock for the ten
consecutive trading days prior to the closing of the Minimum Offering or $4.50.
Each share will be convertible into one share of Common Stock. The sales will be
made in reliance upon exemptions from registration provided under Section 4(2)
of the 1933 Act and Rule 506 of Regulation D. The purchasers will acquire these
securities for their own account and not with a view to any distribution thereof
to the public.
In July 1998 the Company sold 9,196 shares of its Common Stock at $3.00
per share to an accredited investor. The shares were sold pursuant to Section
4(2) of the 1933 Act. The purchaser of such Common Stock acquired these
securities for its own account and not with a view to any distribution thereof
to the public.
Also in July 1998, 2,000 shares of Common Stock were issued pursuant to
conversion of a promissory note. The shares were sold pursuant to Section 4(2)
of the 1933 Act. The purchaser of such Common Stock acquired these securities
for its own account and had available Rule 144 pursuant to the 1933 Act for
distribution thereof to the public.
In August 1998 the Company sold 5,714 shares of its Common Stock at
$3.50 per share to an accredited investor. The shares were sold pursuant to
Section 4(2) of the 1933 Act. The purchaser of such Common Stock acquired these
securities for its own account and not with a view to any distribution thereof
to the public.
Also in August 1998, 2,045 shares of Common Stock were issued pursuant
to exercise of a warrant. The shares were sold pursuant to Section 4(2) of the
1933 Act. The purchaser of such Common Stock acquired these securities for its
own account and not with a view to any distribution thereof to the public.
In September 1998, 3,400 shares of Common Stock were issued pursuant to
conversion of a promissory note. The shares were sold pursuant to Section 4(2)
of the 1933 Act. The purchaser of such Common Stock acquired these securities
for its own account and had available Rule 144 pursuant to the 1933 Act for
distribution thereof to the public.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
To be filed by amendment.
ITEM 7. FINANCIAL STATEMENTS
To be filed by amendment.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The names, ages and positions of the Company's executive officers are
as follows:
Name Age Position
Robert Case 54 Chief Executive Officer and Director
Gregory G. Freitag 36 Chief Financial Officer, Chief Operating Officer
and Director
Robert Case has been Chief Executive Officer since June 1997 and a
director since October 1996. Mr. Case founded Case + Associates, Inc. in 1978
and has been its President since such time. Case + Associates is a leading
consultant in the research, design, development and engineering of medical
products. Its consulting activities include work for major multinational, as
well as development stage, medical companies in the design of products from
diagnostic instrumentation and implantable devices to surgical instruments. He
has served as a Chairman of the Industrial Designers Society of America, and was
a member of its national Board of Directors. Mr. Case has also been a longtime
member of the Biomedical Marketing Association. In addition, Mr. Case conducts
both US and European seminars in product definition and development for Frost &
Sullivan, the Society of Plastics Engineers, the Society for the Advancement of
Medical Packaging Institute and Northwestern University. His educational
background includes product design, engineering and marketing at Syracuse
University, the Illinois Institute of Technology and DePaul University.
Gregory G. Freitag has been Chief Operating Officer of the Company
since June 1997, and Chief Financial Officer and Secretary of the Company since
December 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, was included in the Minnesota Business Guide to Law & Leading
Attorneys, and received from City Business its "40 Under 40" award recognizing
Mr. Freitag as one of the Twin Cities' next generation of business and community
leaders.
The information required by Item 9 relating to directors is
incorporated herein by reference to the section entitled "Election of Directors"
which appears in the Company's definitive proxy statement for its 1998 Annual
Meeting of Shareholders.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated herein by reference
to the section entitled "Executive Compensation" which appears in the Company's
definitive Proxy Statement for its 1998 Annual Meeting of Shareholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated herein by reference
to the section entitled "Shareholdings of Principal Shareholders and Management"
which appears in the Company's definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated herein by reference
to the section entitled "Certain Transactions" in the Company's definitive Proxy
Statement for its 1998 Annual Meeting of Shareholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See "Exhibit Index" on page following signatures.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
fourth quarter ended June 30, 1998.
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 of the Securities
Exchange Act of 1934, the Registrant caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
QUANTECH LTD.
("Registrant")
Dated: September 23, 1998 By: /s/ Robert Case
----------------
Robert Case,
CEO
In accordance with the requirements of the Securities Exchange Act of
1934, this Report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
(Power of Attorney)
Each person whose signature appears below constitutes and appoints
ROBERT CASE and GREGORY G. FREITAG as his true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this Annual Report on Form 10-KSB and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
Signature Title Date
/s/ Robert Case Chief Executive Officer, and September 23, 1998
Robert Case Director
/s/ Gregory G. Freitag Chief Financial Officer, COO, September 23, 1998
Gregory G. Freitag Secretary and Treasurer (Chief
Financial and Accounting
Officer)
/s/ James F. Lyons Chairman September 23, 1998
James F. Lyons
/s/ Richard W. Perkins Director September 23, 1998
Richard W. Perkins
/s/ Edward E. Strickland Director September 23, 1998
Edward E. Strickland
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C.
EXHIBIT INDEX TO FORM 10-KSB
OF
QUANTECH LTD.
For The Fiscal Year Ended June 30, 1998
Commission File Number: 0-19957
Exhibit Description
Number
3.1 Articles of Incorporation of Quantech Ltd., as amended (incorporated by
reference to Exhibit 3.2 of the Registrant's Registration Statement on
Form S-4; Reg. No. 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 (incorporated by reference to Exhibit
4.2 of the Registrant's Registration Statement on Form SB-2; Reg. No.
333-6809).
10.1 Lease for office space 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 Letter of Amendment to Ares-Serono License (incorporated by reference
to Exhibit 10.6 of the Registrant's Form 10-KSB for the Year Ended June
30, 1995).
10.4* Employment Agreement with Gregory G. Freitag (incorporated by reference
to Exhibit 10.1 of the Registrant's Form 10-Q for the Quarter Ended
March 31, 1998).
<PAGE>
10.5* Employment Agreement with Robert Case (incorporated by
reference to Exhibit 10.2 of the Registrant's Form 10-Q for
the Quarter Ended March 31, 1998).
10.6* Technology and Development License Agreement dated December
16, 1997 (incorporated by reference to Exhibit 1 of Schedule
13D filed by The Perkin-Elmer Corporation on December 23,
1997, File No. 0-19957).
10.7 Perkin Elmer/Quantech License Agreement dated June 29, 1998
21 Quantech has no subsidiaries.
23** Accountants Consent
24 Power of Attorney (included on signature page)
27** Financial Data Schedule
* Management contract or compensatory plan or arrangement.
** To be filed by amendment.
PERKIN ELMER/QUANTECH LICENSE AGREEMENT
Effective Date: June 29, 1998
PARTIES:
Quantech, Ltd. ("Quantech")
a Minnesota corporation
1419 Energy Park Drive
Saint Paul, Minnesota 55108
The Perkin Elmer Corporation ("PE")
a New York corporation
761 Main Avenue
Norwalk, Connecticut 06589-0001
RECITALS:
A. Quantech and PE are parties to an agreement dated 16 December 1997 (the
"December Agreement") relating to certain SPR technology.
B. PE wishes to grant to Quantech a license to certain PE technology (as
described in US provisional patent application no. 60/069,356, entitled "Surface
Plasmon Array System") which preceded and was therefore excluded from the
December Agreement that Quantech will use in conjunction with its SPR Technology
(as defined in the December Agreement).
C. Quantech desires to acquire such a license from PE to enable it to make,
use and sell devices incorporating the PE Technology.
The Parties therefore agree as follows:
1. DEFINITIONS
As used herein, the following words shall have the designated meanings:
1.1. "Affiliate" means a Person who, directly or indirectly, controls, is
controlled by, or is under common control with the specified entity.
1.2. "Calendar Quarter" means each three-month period ending March 31, June
30, September 30 and December 31.
<PAGE>
1.3. "Consumable" means parts incorporating or designed to utilize
grating-coupled SPR Technology on which chemical analysis is
conducted. It is to be understood that Consumables shall not include
any instrument necessary for conducting the chemical analysis.
1.4. "Instrument" means read-out instruments incorporating or designed to
utilize PE Technology which are used to conduct chemical analysis.
1.5. "Joint Invention" means any invention made jointly by at least one
employee or Assignor of each party. Assignors are defined as
non-employees who are required to assign inventions to a party.
1.6. "Licensed Products" means any Licensed Consumable or Licensed
Instrument.
1.7. "Licensed Consumable" means any Consumable which employs
grating-coupled SPR Technology and (i) but for the license granted
herein, the manufacture, use or sale of which would infringe any
Patent Rights; or (ii) is produced through the use of or otherwise
incorporates PE Confidential Information which has been disclosed to
Quantech in furtherance of the present Agreement.
1.8. "Licensed Instrument" means any Instrument which employs
grating-coupled SPR Technology and (i) but for the license granted
herein, the manufacture, use or sale of which would infringe any
Patent Rights; or (ii) is produced through the use of or otherwise
incorporates PE Confidential Information which has been disclosed to
Quantech in furtherance of the present Agreement.
1.9. "Medical Diagnostics" means those fields, applications and products
which: (i) under current laws and regulations as of the Effective
Date, require United States Food and Drug Administration approval for
sale or distribution or would require such approval if the application
or product incorporating the application or field were to be sold in
the United States; and/or (ii) are useful in veterinary medicine for
the treatment of animals.
1.10."Net Sales" means Quantech's gross receipts from sales of Licensed
Products, less actual transportation costs, taxes, and credits for
returns.
1.11."Nucleic Acid Diagnostics" means Medical Diagnostics which involve
the identification and/or quantification of nucleic acids and research
applications and products which involve the identification and/or
quantification of nucleic acids.
1.12."Patent Rights" means claims which provide or which, upon issuance,
would provide a right to sue infringers and which result or are
derived from US provisional patent application no. 60/069,356,
entitled "Surface Plasmon Array System" (the "Provisional Patent
Application"), together with any continuations, continuations-in-part
relating to substantially the same subject matter as the Provisional
Patent Application, divisions, reissues and/or extensions thereof and
any foreign counterparts to such patents and applications, including
any US or foreign patents which may issue on any such application.
<PAGE>
1.13."PE Confidential Information" means all PE Technology disclosed to
Quantech under the present Agreement, but excluding any information
which i) is generally available to the public or becomes generally
available to the public through no act or failure to act of Quantech,
or ii) Quantech can demonstrate it possessed prior to PE's disclosure
thereof to Quantech.
1.14."PE Intellectual Property" means PE's proprietary information as
described in the Provisional Patent Application.
1.15."PE Technology" means the Patent Rights and the PE Intellectual
Property, together with all information provided by PE to Quantech in
furtherance of its obligations to provide technical assistance to
Quantech under Section 3.1 below.
1.16."Person" shall mean any natural person, corporation, partnership,
trust, joint venture or other entity.
1.17."Quantech Confidential Information" means all Quantech Intellectual
Property disclosed to PE under the present Agreement, but excluding
any information which i) is generally available to the public or
becomes generally available to the public through no act or failure to
act of PE, or ii) PE can demonstrate it possessed prior to Quantech's
disclosure thereof to PE.
1.18."Quantech Intellectual Property" means Quantech's proprietary
information (including, but not limited to, data, substances,
processes, materials, formulae, know how, trade secrets, computer
programs, software, firmware, and inventions) relating to
grating-coupled SPR Technology which exists as of the Effective Date
of this Agreement or which Quantech develops or in which Quantech
acquires an interest during the term of this Agreement.
1.19."Quantech License" means those licenses granted by PE to Quantech in
Section 2 below.
1.20."Quantech Sublicensee" means a third party to which Quantech has
granted a sublicense under Section 2 to manufacture Licensed Products
and to sell such manufactured Licensed Products to a party other than
Quantech.
1.21."Quantech Sublicensee Royalties" means all monies received by
Quantech from a Quantech Sublicensee under an agreement sublicensing
the rights granted to Quantech in this Agreement, less any monies
received from the Quantech Sublicensee solely to compensate Quantech
for research or consulting services.
<PAGE>
1.22."Royalty Year" means a calendar year except for the first Royalty
Year, which shall be that period of time between the Effective Date of
this Agreement and 31 December 1998.
1.23."Royalty-Bearing Instrument" means any Licensed Instrument which does
not utilize a new Consumable for each sample. In the case of an
instrument that combines licensed and unlicensed technologies, the
royalty shall apply uniquely to the detector portion of the instrument
and royalties will be paid only if such detector contains PE
Technology. The detector includes a grating-coupled SPR, optics, and a
sample holder.
1.24. "SPR" means surface plasmon resonance.
1.25."SPR Technology" means the use of thin conductive films on a surface
or surfaces of a grating or other diffracting substrate to conduct
chemical analysis.
1.26. "Territory" means the world.
1.27."Total Royalties" means the sum of the Consumable Royalties,
Instrument Royalties and Sublicense Royalties defined in Section 4.1
of this Agreement.
2. LICENSE TO QUANTECH
2.1. Quantech License. Subject to the terms and conditions of this
Agreement, PE hereby grants to Quantech an exclusive license (the
"Quantech License") under the PE Technology and PE Intellectual
Property upon the terms and conditions of this Agreement to make, have
made for it, use, and sell Licensed Products throughout the Territory
for use only in the field of Medical Diagnostics, but excluding
Nucleic Acid Diagnostics.
2.2. Quantech's Right to Sublicense. Quantech shall have the right to
sublicense its rights under the Quantech License, provided that no
such sublicense shall be granted unless PE has first approved the
terms of the sublicense agreement, which approval shall not be
withheld unreasonably.
3. TECHNICAL ASSISTANCE
3.1. Technical Assistance to Quantech. Within thirty (30) days after the
effective date of this Agreement, PE shall deliver to Quantech such
documentation as is reasonably available reflecting the PE Technology
and the PE Intellectual Property. PE shall provide Quantech with
reasonable access to its ongoing development of the invention
described in the Provisional Patent Application, including the ability
to review actual prototypes and any schematic diagrams or other
documentation pertaining thereto. PE shall also provide further
<PAGE>
technical assistance to Quantech upon Quantech's reasonable request to
enable Quantech to manufacture the Licensed Products, but excluding 1)
any confidential information of a third party which PE is prevented
from disclosing to Quantech under an obligation of confidentiality to
a third party or 2) any license PE obtains under a third party's
technology unless that license permits PE to sublicense to Quantech
the third party's technology.
While PE will strive to provide such further technical assistance
promptly, there may be occasions when PE personnel cannot reasonably
be spared from their regular duties, and Quantech acknowledges that PE
cannot and does not warrant that it will be able to provide such
technical assistance at the particular times requested by Quantech.
3.2. Ownership of Inventions. Each party shall own an undivided one-half
interest in Joint Inventions. Each inventor shall assign all rights in
a Joint Invention to PE and PE shall assign (and hereby does assign)
an undivided one-half interest in each such Joint Invention to
Quantech. If either party deems it appropriate, the parties shall
retain mutually acceptable patent counsel to render an opinion as to
the patentability of a Joint Invention and to prepare, file, and
prosecute such patent applications as may reasonably be required to
provide protection for such Joint Inventions. With respect to Joint
Inventions, PE shall not grant any license under its rights therein to
any third party to make, have made, use or sell Medical Diagnostics
and Quantech shall not grant any license under its rights therein to
any third party to make, have made, use or sell products which are not
Medical Diagnostics. Should either party choose to bring suit for
infringement by a third party of any patent in a Joint Invention, the
party bringing suit shall have the right to joint the other party as a
party to the suit to the extent required by law, provided the party
bringing suit must indemnify, defend and hold the other party harmless
against any costs, fees, damages, liabilities or other expenses
relating thereto. The parties agree to execute and exchange upon
request such documents as may be necessary or desirable to carry out
the provisions of this Section 3.2. Each party shall have the right to
practice in its respective field Joint Inventions throughout the
Territory without accounting to the other party.
4. ROYALTIES AND REPORTS
4.1. Royalties. Quantech shall pay Total Royalties on sales of Licensed
Products as follows:
a) Quantech shall pay Consumable Royalties of 8% of Quantech's Net
Sales of Licensed Consumables. Quantech shall pay such Consumable
Royalties for Licensed Consumables disclosed in the Provisional
Patent Application and claimed in any other patent application
<PAGE>
giving rise to Patent Rights; provided, however, that if no
patent claiming priority from the Provisional Patent Application
actually issue in the United States, Japan or the European Patent
Office within the first five (5) Royalty Years, the Consumable
Royalty shall be reduced to 4% of Quantech's Net Sales of
Licensed Consumables until such date as PE notifies Quantech in
writing that such a patent has been issued by at least one of the
United States, Japan and the European Patent Office. On any such
date, the Consumable Royalties on any Licensed Consumable falling
within the scope of any claim of such issued patent shall again
be 8% of Quantech's Net Sales of Licensed Consumables.
b) Quantech shall pay Instrument Royalties of 4% on Quantech's Net
Sales of Royalty-Bearing Instruments. Quantech shall pay such
Instrument Royalties for Royalty-Bearing Instruments disclosed in
the Provisional Patent Application and claimed in any other
patent application giving rise to Patent Rights; provided,
however, that if no patent claiming priority from the Provisional
Patent Application actually issues in the United States, Japan or
the European Patent Office within the first five (5) Royalty
Years, the Instrument Royalty shall be reduced to 2% of
Quantech's Net Sales of Royalty-Bearing Instruments until such
date as PE notifies Quantech in writing that such a patent has
been issued by at least one of the United States, Japan and the
European Patent Office. On any such date, the Instrument
Royalties on any Royalty-Bearing Instruments falling within the
scope of any claim of such issued patent shall again be 4% of
Quantech's Net Sales of Royalty-Bearing Instruments.
c) Quantech shall pay Sublicense Royalties of 15% of all Quantech
Sublicensee Royalties.
4.2. Minimum Royalties. Quantech does not need to make any minimum payments
to PE for any of the first 3 Royalty Years. At the beginning of the
fourth Royalty Year, and for every Royalty Year thereafter, the
Minimum Royalty shall be $500,000 for a given year. If the cumulative
Total Royalties payable under Section 4.1 during the term of this
Agreement, including any Deficiency Payment (defined below), are less
than the cumulative Minimum Royalty at the end of any Royalty Year,
Quantech shall pay, with the payment for the last Calendar Quarter for
such Royalty Year, a non-refundable Deficiency Payment in an amount
sufficient to bring the total payments to PE up to the cumulative
Minimum Royalty. If Quantech shall not make a sufficient and timely
Deficiency Payment, PE may notify Quantech of its failure to reach the
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cumulative Minimum Royalty. If Quantech shall fail to pay a sufficient
Deficiency Payment within two months of PE's notice, Quantech's
license rights granted in Section 2 shall immediately terminate.
Quantech shall not have any right to a refund of any payments made
under this Section 4.2 upon termination of this Agreement.
4.3. Status Reports. If Quantech shall not have begun selling Licensed
Products within one year of the Effective Date of this Agreement, at
the end of each Calendar Quarter thereafter Quantech shall deliver to
PE a Statement of Intent signed by a duly authorized employee of
Quantech (initially Gregory Freitag) stating that Quantech is
continuing to pursue commercialization of Licensed Products. The
obligation to provide such quarterly Statements of Intent shall
terminate upon the earlier of the first royalty payment under Section
4.1 or the payment of the Deficiency Payment under Section 4.2. If
Quantech shall fail to timely deliver a Statement of Intent, PE may
notify Quantech of this failure. If Quantech fails to deliver the
Statement of Intent within two months of PE's notice, Quantech's
license rights granted in Section 2 shall immediately terminate.
4.4. Reports and Payments. Within thirty (30) days after the end of each
Calendar Quarter, Quantech shall provide PE with a written report
itemizing the number of Licensed Consumables and the number of
Licensed Instruments sold, the Net Sales price of each Licensed
Product and a calculation of the Royalty for such Calendar Quarter. PE
shall respond in writing to confirm agreement with reported sales and
proposed payments which will cause Quantech to pay the entire Total
Royalties to PE within 30 days.
4.5. Records. Quantech agrees to keep accurate written records sufficient
in detail to enable the royalties payable under this Agreement by
Quantech to be determined and verified. Such records for a particular
calendar year shall be retained by Quantech for a period consistent
with its then corporate record retention policy.
4.6. Audit of Records. Upon reasonable notice and during regular business
hours, Quantech shall make available such records for audit by an
independent accountant selected by PE to verify the accuracy of the
reports provided to PE. Such audits shall be at the expense of PE,
provided, however, that if any such audit reveals underpayment of
royalties by the greater of $50,000 or 10% then Quantech shall pay the
cost of such audit.
5. TERM AND TERMINATION
5.1. Term. Unless license rights are otherwise terminated under provisions
of this Article 5, royalties owed pursuant to this Agreement shall
continue for twenty years from the execution of this Agreement or
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until the expiration of all Patent Rights, whichever is later, after
which the Quantech License shall be deemed fully paid-up.
5.2. Termination. If either party breaches any of the material terms,
conditions or agreements of this Agreement, then the other party may
terminate this Agreement, at its option and without prejudice to any
of its other legal and equitable rights and remedies, by giving the
breaching party thirty (30) days notice in writing, particularly
specifying the breach. Such notice of termination shall not be
effective if the other party cures the specified breach within such
thirty (30) day period, or, in the case of breaches not reasonably
curable within such thirty (30) days, if such party commences the cure
thereof within such thirty (30) days and diligently thereafter
prosecutes such cure.
5.3. Survival. Without limitation, termination of this Agreement shall not
relieve Quantech from its obligation to make all royalty payments and
reports, including a terminal report, provided for herein. PE shall
have the right to make a final audit within 60 days after receiving
Quantech's terminal report.
5.4. Sale of Inventory. Upon termination of the Licenses pursuant to
Section 5.2, Quantech shall cease production of Licensed Products.
Quantech shall be permitted to sell its inventory of Licensed
Products, and shall provide PE with a terminal royalty report within
30 days after the last such sale of Licensed Products.
5.5. Sublicenses. Termination of this Agreement shall cause sublicenses
granted hereunder to revert to PE.
5.6. End-User Licenses. Any license to end users will remain in effect upon
termination of this agreement and at no additional payment by the end
user.
6. CONFIDENTIALITY
6.1. Intellectual Property. The parties acknowledge that the PE
Confidential Information and the Quantech Confidential Information are
proprietary and confidential. The parties respectively agree,
therefore, to make all commercially reasonable efforts to preserve the
confidentiality of such information. Notwithstanding the foregoing, a
party may disclose such information as follows:
a) If disclosure is required by any applicable government agency,
regulation, or statute; however, the other party shall be
notified in time to permit it to obtain a protective order with
respect to such Confidential Information; or
b) If prior written consent is obtained from the other party.
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6.2. Disclosure of Agreement. Neither party may make any public
announcement regarding this Agreement or otherwise disclose the terms
of this Agreement without the prior approval of the other party except
as required by law.
7. QUANTECH'S REPRESENTATIONS AND WARRANTIES
7.1. Right to Grant License. Quantech represents and warrants to PE that,
aside from the restrictions on it set forth in the Serono Agreement
(as defined in the December Agreement), it has the full and
unrestricted right to enter into this Agreement.
7.2. Product Liability. Quantech hereby agrees to indemnify, defend and
hold PE harmless from and against any and all claims, actions,
liabilities, damages, losses, costs and expenses, including reasonable
attorneys' fees, in connection with any product liability claims
arising in connection with this License Agreement or any Licensed
Products Quantech manufactures, has manufactured, uses or sells
hereunder.
7.3. Limitation of Representations. Nothing in this Agreement shall be
construed as (i) a warranty or representation by Quantech that any
Licensed Product or any process practiced under the PE License does
not infringe any patents of third persons; or (ii) a requirement that
Quantech file any patent application, secure any patent, maintain any
patent in force, or bring or prosecute actions or suits against third
parties for infringement of any patent; or (iii) granting by
implication, estoppel, or otherwise any license other than that
specifically granted herein.
7.4. DISCLAIMER OF WARRANTIES. THE WARRANTY SET FORTH ABOVE IS PROVIDED
ONLY TO PE AND IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
WHICH ARE HEREBY DISCLAIMED AND EXCLUDED BY QUANTECH WITH RESPECT TO
THE LICENSED PRODUCTS, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT
AND WARRANTIES ARISING FROM COURSE OF DEALING OR USAGE OF TRADE. NO
AGENT, EMPLOYEE OR REPRESENTATIVE OF QUANTECH HAS ANY AUTHORITY TO
BIND PE TO ANY AFFIRMATION, REPRESENTATION OR WARRANTY EXCEPT AS
STATED IN THIS WRITTEN WARRANTY POLICY.
8. PE'S REPRESENTATIONS AND WARRANTIES
8.1. Right to Grant License. PE represents and warrants to Quantech that it
has the full and unrestricted right to enter into this Agreement and
to grant the licenses set forth in Section 2.
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8.2. Product Liability. PE hereby agrees to indemnify, defend and hold
Quantech harmless from and against any and all claims, actions,
liabilities, damages, losses, costs and expenses, including reasonable
attorneys' fees, in connection with any product liability claims
arising in connection with this License Agreement or any Licensed
Products PE manufactures, has manufactured, uses or sells hereunder.
8.3. Limitation of Representations. Nothing in this Agreement shall be
construed as (i) a warranty or representation by PE as to the validity
or scope of any Patent Rights or that any Licensed Product or any
process practiced under the Quantech License does not infringe any
patents of third persons; or (ii) a requirement that PE file any
patent application, secure any patent, maintain any patent in force,
or bring or prosecute actions or suits against third parties for
infringement of any patent; or (iii) granting by implication,
estoppel, or otherwise any license other than that specifically
granted herein.
8.4. DISCLAIMER OF WARRANTIES. THE WARRANTY SET FORTH ABOVE IS PROVIDED
ONLY TO QUANTECH AND IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, WHICH ARE HEREBY DISCLAIMED AND EXCLUDED BY PE, WITH RESPECT
TO THE PATENT RIGHTS, PE KNOW-HOW OR ANY LICENSED PRODUCTS, INCLUDING
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, NON-INFRINGEMENT AND WARRANTIES ARISING FROM
COURSE OF DEALING OR USAGE OF TRADE. NO AGENT, EMPLOYEE OR
REPRESENTATIVE OF PE HAS ANY AUTHORITY TO BIND PE TO ANY AFFIRMATION,
REPRESENTATION OR WARRANTY EXCEPT AS STATED IN THIS WRITTEN WARRANTY
POLICY.
9. LITIGATION
9.1. Charges of Quantech Infringement. If notice is received by either
party charging that any Licensed Product(s) made by, made for, used by
or sold by Quantech infringes any patent, copyright, trade secret,
intellectual property, or other proprietary right of such third party,
the party receiving such notice will promptly notify the other party
to this Agreement. Quantech and PE agree to enter into discussions,
and where necessary, to work out, if possible, a mutually acceptable
change in such Licensed Product(s) to avoid such alleged infringement.
If no such mutually satisfactory change can be worked out, Quantech
and PE agree to collaborate and enter into discussions with such third
party for the purpose of negotiating a settlement. If no settlement
can be agreed upon, Quantech shall have the right but not the
obligation to defend any suit for infringement brought against it by
the third party. If Quantech shall elect not to defend such an
infringement suit, Quantech shall promptly notify PE to that effect
and PE shall thereafter have the right but not the obligation to
defend the suit.
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9.2. Charges of Third Party Infringement. If either party knows or has
reason to believe that any rights in any Joint Invention or any rights
under the Patent Rights, Quantech Intellectual Property or PE
Intellectual Property licensed hereunder is being infringed directly,
by inducement, or contributorily by a third party, the party
possessing such knowledge or belief shall promptly notify the other
party thereof. PE shall have the first right to commence judicial
proceedings for its own benefit to attempt to stop such infringement
but shall not be obligated to do so. If, within one hundred eighty
(180) days after first obtaining such knowledge or belief concerning
infringement, PE has failed either to stop such infringement or to
initiate judicial proceedings, or if PE in writing so authorizes
Quantech, Quantech shall have the right to initiate for its own
benefit such judicial proceedings in its own name provided, however,
that Quantech shall indemnify, defend and hold PE harmless against any
costs, fees, damages, liabilities or other expenses relating thereto.
The party initiating judicial proceedings shall be entitled to retain
any award resulting therefrom.
9.3. Validity and Construction. If a judgment or decree is entered in any
proceeding in which the validity or infringement of any claim of any
Patent Rights is in issue, which judgment or decree is not appealed or
further appealable (such judgment or decree being hereinafter referred
to as an "Irrevocable Judgment"), the validity of and/or construction
placed upon any such claim by the Irrevocable Judgment shall
thereafter be followed. If there are two or more conflicting
Irrevocable Judgments with respect to the same claim, the decision of
the higher court shall be followed. If an Irrevocable Judgment holds
one or more of the Patent Rights or any claims thereof to be invalid
or unenforceable, Quantech hereby agrees, in consideration of its
freedom to make, use and sell Licensed Products prior to such
Irrevocable Judgment without fear of suit by PE, and of PE's
refraining from bringing suit against Quantech for infringement, and
regardless of whatever action Quantech might take subsequent to such
Irrevocable Judgment, that it shall not be entitled to the retention
or return of any royalties, Deficiency Payment or Minimum Royalty
Payment payable or paid by Quantech to PE hereunder prior to the date
of such Irrevocable Judgment.
10. MISCELLANEOUS PROVISIONS
10.1.Trademarks. Nothing in this Agreement shall be deemed to grant either
party any right to use any trademark owned by the other party in
connection with the sales of the party's products.
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10.2.Marking. Quantech shall use all commercially reasonable efforts to
see to it that all Licensed products sold shall be appropriately
marked with the applicable patent number(s) of the Patent Rights, in
conformity with applicable law.
10.3.LIMITATION OF REMEDIES. PE SHALL HAVE NO LIABILITY TO ANY PERSON FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES OF ANY
DESCRIPTION, WHETHER ARISING OUT OF WARRANTY OR CONTRACT, NEGLIGENCE
OR OTHER TORT, OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY
DAMAGES RESULTING FROM LOST PROFITS OR LOST BUSINESS OPPORTUNITY.
10.4.Survival. All of the representations, warranties, and
indemnifications made in this Agreement and all terms and provisions
hereof intended to be observed and performed by the parties after the
termination hereof, including the obligations of confidentiality,
shall survive such termination and continue thereafter in full force
and effect.
10.5.Complete Agreement. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter described in this
Agreement and shall supersede all previous negotiations, commitments
or writings regarding such subject matter, including the December
Agreement.
10.6.Waiver, Discharge, etc. This Agreement may not be released,
discharged, abandoned, changed or modified in any manner, except by an
instrument in writing signed on behalf of each of the parties to this
Agreement by their duly authorized representatives. The failure of
either party to enforce at any time any of the provisions of this
Agreement shall in no way be construed to be a waiver of any such
provision, nor in any way to affect the validity of this Agreement or
any part of it or the right of either party after any such failure to
enforce each and every such provision. No waiver of any breach of this
Agreement shall be held to be a waiver of any other or subsequent
breach.
10.7.Applicable Law. This Agreement shall be governed by, and interpreted
in accordance with the laws of the State of New York.
10.8.Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their
successors or assigns, provided that, except as otherwise provided
herein, the rights and obligations of either party under this
Agreement may not be assigned without the written consent of the other
party, which consent shall not be unreasonably withheld.
10.9.Execution in Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same
agreement, and shall become a binding agreement when one or more
counterparts have been signed by each party and delivery to the other
party.
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10.10.Titles and Headings; Construction. The titles and headings to
Sections herein are inserted for the convenience of reference only and
are not intended to be a part of or to affect the meaning or
interpretation of this Agreement. This Agreement shall be construed
without regard to any presumption or other rule requiring construction
hereof against the party causing this Agreement to be drafted.
10.11.Benefit. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties to this
Agreement or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this
Agreement.
10.12.Notices. Any notice or other communication required or permitted
under this Agreement shall be in writing and shall be deemed to have
been given, when received, if personally delivered or delivered by
telegram, telex or facsimile, or, when deposited, if placed in the
U.S. Mails for delivery by registered or certified mail, return
receipt requested, postage prepaid and addressed to the appropriate
party at the addresses set forth on the first page of this Agreement.
Addresses may be changed by written notice given pursuant to the
provisions of this paragraph; however, any such notice shall not be
effective, if mailed, until five (5) working days after depositing in
the U.S. Mails or when actually received, whichever occurs first.
10.13.Severability. If any provision of this Agreement is held invalid by
a court of competent jurisdiction, the remaining provisions shall
nonetheless be enforceable according to their terms. Further, if any
provision is held to be overbroad as written, such provision shall be
deemed amended to narrow its application to the extent necessary to
make the provision enforceable according to applicable law and shall
be enforced as amended.
10.14.Execution of Further Documents. Each party agrees to execute and
deliver without further consideration any further applications,
licenses, assignments or other documents, and to perform such other
lawful acts as the other party may reasonably require to fully secure
and/or evidence the rights or interests herein.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
in the manner appropriate to each, effective as of the date first above written.
Quantech Ltd. The Perkin-Elmer Corporation
By: By:
Name: Gregory G. Freitag Name: David H. Tracy
Title: COO & CFO Title: VP, AI Science & Technology