SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: Commission File Number:
March 31, 2000 0 - 19957
Quantech Ltd.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1709417
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification No.)
815 Northwest Parkway, Suite 100
Eagan, MN 55121
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(651)-647-6370
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
1419 Energy Park Drive, St. Paul, MN 55108
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES X NO ____
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date: 5,950,566 shares of Common
Stock, no par value, as of May 8, 2000.
Transitional Small Business Disclosure Format: YES ___ NO X
<PAGE>
Index
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements:
Balance Sheets as of March 31, 2000 and June 30, 1999
Statements of Operations for the Three Months and Nine Months Ended
March 31, 2000 and 1999 and from inception to
March 31, 2000
Statement of Stockholders' Equity from inception
to March 31, 2000
Statements of Cash Flows for the Nine Months ended March 31, 2000 and
1999 and from inception to
March 31, 2000
Notes to Financial Statements
Item 2: Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
<PAGE>
QUANTECH LTD.
(A Development Stage Company)
BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
2000 1999
--------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,512,933 $ 436,223
Prepaid expenses:
Product development expenses - 57,500
Other 51,433 36,037
--------------- ----------------
Total current assets 1,564,366 529,760
--------------- ----------------
EQUIPMENT
Equipment 548,428 427,508
Leasehold improvements 10,745 15,000
--------------- ----------------
559,173 442,508
Less accumulated depreciation (245,920) (276,295)
--------------- ----------------
Total equipment 313,253 166,213
--------------- ----------------
OTHER ASSETS
License agreement, at cost, less amortization 2,164,209 2,409,180
Patents, at cost 16,088 13,045
--------------- ----------------
Total other assets 2,180,297 2,422,225
--------------- ----------------
TOTAL ASSETS $ 4,057,916 $ 3,118,198
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Short term debt $ - $ 746,000
Accounts payable 187,906 111,858
Accrued expenses:
Interest - 3,100
Minimum royalty commitment - 75,000
Accrued payroll/vacation 137,071 120,300
--------------- ----------------
Total current liabilities 324,977 1,056,258
--------------- ----------------
MINORITY INTEREST 111,540 -
REDEEMABLE PREFERRED STOCK 4,511,767 5,113,142
STOCKHOLDERS' EQUITY (DEFICIT)
Series B Preferred Stock, no par value; authorized 2,924,667 shares;
outstanding 2,924,667 and 623,334 shares at
March 31, 2000 and June 30, 1999, respectively 2,055,918 891,500
Series C Preferred Stock, no par value; authorized 1,000,000
shares; outstanding 1,000,000 and 0 shares at
March 31, 2000 and June 30, 1999, respectively 973,100 -
Common stock, no par value; authorized 51,319,098
shares; outstanding 5,811,818 shares and 2,741,534 shares
at March 31, 2000 and June 30, 1999, respectively 19,580,216 16,498,837
Subscriptions receivable (24,500) (60,000)
Additional paid-in capital 6,284,200 2,342,745
Deficit accumulated during the development stage (29,759,302) (22,724,284)
--------------- ----------------
Total stockholders' equity (deficit) (890,368) (3,051,202)
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 4,057,916 $ 3,118,198
=============== ================
</TABLE>
<PAGE>
QUANTECH LTD.
(A Development Stage Company)
STATEMENT OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
Period From
September 30,
Nine Months Nine Months 1991 (Date of
Ended Ended Inception), to
March 31, March 31, March 31,
2000 1999 2000
------------------ ------------------ ------------------
<S> <C> <C> <C>
Interest income $ 9,779 $ 1,475 $ 194,881
------------------ ------------------ ------------------
Expenses:
General and administrative 1,100,346 1,182,265 11,429,499
Marketing 740,204 25,975 1,166,286
Research and development 2,045,509 1,147,396 10,115,302
Minimum royalty expense 75,000 112,500 1,300,000
Losses resulting from transactions
with Spectrum Diagnostics Inc. - - 556,150
Net exchange (gain) - - (67,172)
Interest 33,026 721,145 1,983,391
------------------ ------------------ ------------------
Total expenses 3,994,085 3,189,281 26,483,456
------------------ ------------------ ------------------
Loss before income taxes (3,984,306) (3,187,806) (26,288,575)
Income taxes - - 42,595
------------------ ------------------ ------------------
Net loss $ (3,984,306) $ (3,187,806) $ (26,331,170)
================== ================== ==================
Net loss attributable to common shareholders:
Net loss $ (3,984,306) $ (3,187,806)
Preferred stock accretion (308,042) (242,610)
Beneficial conversion feature of preferred stock (2,742,670) -
------------------ ------------------
Net loss attributable to common shareholders $ (7,035,018) $ (3,430,416)
================== ==================
Loss per basic and diluted common share $ (1.87) $ (1.29)
Weighted average common shares
outstanding 3,771,009 2,652,854
</TABLE>
<PAGE>
QUANTECH LTD.
(A Development Stage Company)
STATEMENT OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
------------------- --------------------
<S> <C> <C>
Interest income $ 7,969 $ 407
------------------- --------------------
Expenses:
General and administrative 334,839 276,099
Marketing 181,495 500
Research and development 814,292 172,751
Minimum royalty expense - 37,500
Losses resulting from transactions
with Spectrum Diagnostics Inc. - -
Net exchange (gain) - -
Interest 7,250 6,163
------------------- --------------------
Total expenses 1,337,876 493,013
------------------- --------------------
Loss before income taxes (1,329,907) (492,606)
Income taxes - -
=================== ====================
Net loss $ (1,329,907) $ (492,606)
=================== ====================
Net loss attributable to common shareholders:
Net loss $ (1,329,907) $ (492,606)
Preferred stock accretion (44,939) (151,825)
Beneficial conversion feature of preferred stock (2,302,820) -
------------------- --------------------
Net loss attributable to common shareholders $ (3,677,666) $ (644,431)
=================== ====================
Loss per basic and diluted common share $ (0.76) $ (0.24)
Weighted average common shares
outstanding 4,868,685 2,676,864
</TABLE>
<PAGE>
QUANTECH LTD
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period From September 30, 1991 (date of Inception), to March 31, 2000
<TABLE>
<CAPTION>
Series B Series C Additional
Preferred Stock Preferred Stock Common Stock Paid-In
Shares Amount Shares Amount Shares Amount Capital
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Inception
Net Loss for 15 months
Common stock transactions:
Common stock issued, October 1991 160,000 $3,154,574
Common stock issued, November 1991 30,000 $611,746 $1,788,254
Common stock issuance costs ($889,849)
Cumulative translation adjustment
Common stock issued, September 1992 35,000 $699,033 $875,967
Common stock issuance costs ($312,755)
Common stock to be issued
Cumulative translation adjustment
Elimination of cumulative
translation adjustment
Officers advances, net
--------------------------------------------------------------------------
Balance, December 31, 1992 0 $0 0 $0 225,000 $4,465,353 $1,461,617
Net loss
Common stock transactions:
Common stock issued, January 1993 8,000 $1,600 $118,400
Common stock issued, April 1993 1,500 $300 $11,700
Change in common stock par
value resulting from merger ($4,420,353) $4,420,353
Repayments
--------------------------------------------------------------------------
Balance,June 30, 1993 0 $0 0 $0 234,500 $46,900 $6,012,070
Net loss
240,000 shares of common
stock to be issued
Repayments
--------------------------------------------------------------------------
Balance, June 30, 1994 0 $0 0 $0 234,500 $46,900 $6,012,070
Net loss
Common stock issued, June 1995 107,500 $21,500 $276,068
Warrants issued for services $40,200
--------------------------------------------------------------------------
Balance June 30, 1995 0 $0 0 $0 342,000 $68,400 $6,328,338
Net loss
Common stock issued, net of
issuance costs of $848,877:
July, 1995 308,000 $61,600 $1,304,450
August, 1995 35,880 $7,176 $161,460
September, 1995 690,364 $138,073 $2,370,389
November, 1995 94,892 $18,978 $425,482
December, 1995 560,857 $112,172 $1,292,473
May, 1996 313,750 $62,750 $3,300,422
June, 1996 252 $51 $3,650
Payments received on
subscription receivable (960) (192) ($14,808)
Compensation expense recorded
on stock options $125,000
--------------------------------------------------------------------------
</TABLE>
<PAGE>
QUANTECH LTD
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period From September 30, 1991 (date of Inception), to March 31, 2000
(continued)
<TABLE>
<CAPTION>
Series B Series C Additional
Preferred Stock Preferred Stock Common Stock Paid-In
Shares Amount Shares Amount Shares Amount Capital
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996 0 $0 0 $0 2,345,035 $469,008 $15,296,856
Net loss
Stock offering costs ($12,310)
Common stock issued upon exercise
of options and warrants
September 1996 500 $100 $2,400
October 1996 8,500 $1,700 $40,800
November 1996 750 $150 $3,600
December 1996 13,500 $2,700 $64,800
January 1997 1,000 $200 $4,800
February 1997 7,500 $1,500 $17,250
March 1997 7,000 $1,400 $33,600
Payments received on
subscription receivable
Compensation expense recorded
on stock options $48,000
Common stock issued, June 1997 18,250 $3,650 $105,850
Warrants issued with notes payable $371
--------------------------------------------------------------------------
Balance, June 30, 1997 0 $0 2,402,035 $480,408 $15,606,017
Net Loss
Conversion of common stock from par value
to no par value $15,392,446 ($15,392,446)
Common stock issued for license agreement:
September 1997 150,000 $390,000
Common stock issued for equipment and
services received: March 1998 13,078 $45,584
Warrants issued for services received:
March 1998 $15,215
April 1998 $500
Warrants issued with notes payable $939
Amount attributable to value of debt
conversion feature $988,444
Warrants issued for license agreement
December 1997 $230,000
Compensation expense recorded
on stock options $28,000
Adjustment of fractional shares due to 1-for 20
reverse stock split (73)
----------------------------------------------------------------------------
</TABLE>
<PAGE>
QUANTECH LTD
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period From September 30, 1991 (date of Inception), to March 31, 2000
(continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
During
the Sub- Paid for Due Cumulative
Development scriptions Not From Translation
Stage Receivable Issued Officers Adjustment
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at Inception
Net Loss for 15 months ($3,475,608)
Common stock transactions:
Common stock issued, October 1991
Common stock issued, November 1991
Common stock issuance costs
Cumulative translation adjustment $387,754
Common stock issued, September 1992 ($53,689)
Common stock issuance costs
Common stock to be issued $120,000
Cumulative translation adjustment ($209,099)
Elimination of cumulative
translation adjustment ($178,655)
Officers advances, net ($27,433)
----------------------------------------------------------------------------
Balance, December 31, 1992 ($3,475,608) ($53,689) $120,000 ($27,433) $0
Net loss ($996,089)
Common stock transactions:
Common stock issued, January 1993 ($120,000)
Common stock issued, April 1993
Change in common stock par
value resulting from merger
Repayments $5,137
-----------------------------------------------------------------------------
Balance,June 30, 1993 ($4,471,697) ($53,689) $0 ($22,296) $0
Net loss ($1,543,888)
240,000 shares of common
stock to be issued $30,000
Repayments $53,689 $22,296
-----------------------------------------------------------------------------
Balance, June 30, 1994 ($6,015,585) $0 $30,000 $0 $0
Net loss ($2,070,292)
Common stock issued, June 1995 ($20,000) ($30,000)
Warrants issued for services
-----------------------------------------------------------------------------
Balance June 30, 1995 ($8,085,877) ($20,000) $0 $0 $0
Net loss ($2,396,963)
Common stock issued, net of
issuance costs of $848,877:
July, 1995
August, 1995
September, 1995
November, 1995
December, 1995
May, 1996
June, 1996
Payments received on
subscription receivable $20,000
Compensation expense recorded
on stock options
-----------------------------------------------------------------------------
</TABLE>
<PAGE>
QUANTECH LTD
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period From September 30, 1991 (date of Inception), to March 31, 2000
(continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
During
the Sub- Paid for Due Cumulative
Development scriptions Not From Translation
Stage Receivable Issued Officers Adjustment
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996 ($10,482,840) $0 $0 $0 $0
Net loss ($3,925,460)
Stock offering costs
Common stock issued upon exercise
of options and warrants
September 1996
October 1996
November 1996
December 1996 ($57,500)
January 1997
February 1997
March 1997
Payments received on
subscription receivable $57,500
Compensation expense recorded
on stock options
Common stock issued, June 1997
Warrants issued with notes payable
--------------------------------------------------------------------------------
Balance, June 30, 1997 ($14,408,300) $0 $0 $0 $0
Net Loss ($3,648,748)
Conversion of common stock from par value
to no par value
Common stock issued for license agreement:
September 1997
Common stock issued for equipment and
services received: March 1998
Warrants issued for services received:
March 1998
April 1998
Warrants issued with notes payable
Amount attributable to value of debt
conversion feature
Warrants issued for license agreement
December 1997
Compensation expense recorded
on stock options
Adjustment of fractional shares due to 1-for 20
reverse stock split
---------------------------------------------------------------------------------
</TABLE>
<PAGE>
QUANTECH LTD
(A Developmental Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period from September 30, 1991 (date of inception), to March 31, 2000
<TABLE>
<CAPTION>
Series B Series C Additional
Preferred Stock Preferred Stock Common Stock Paid-In
Shares Amount Shares Amount Shares Amount Capital
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 0 $0 2,565,040 $16,308,438 $1,476,669
Net Loss
Warrants issued with notes payable $76
Common stock issued upon conversion
of notes payable:
July 1998 2,000 $7,060
September 1998 3,400 $12,002
October 1998 25,000 $18,750
Common stock issued upon exercise of
warrant: August 1998 2,045 $5,114
Common stock issued for equipment and
services received:
July 1998 5,714 $20,000
August 1998 9,196 $27,589
September 1998 12,557 $11,318
December 1998 6,078 $5,688
Stock options issued for services:
October 1998 $42,000
Compensation expense recorded
on stock options $43,000
Common stock issued upon conversion
of preferred stock:
November 1998 74,052 $55,539
January 1999 15,952 $11,964
March 1999 500 $375
April 1999 20,000 $15,000
Warrants issued for services:
November 1998 $781,000
Series B Preferred Stock issued:
June 1999 623,334 $891,500
Accrete to redemption value on
Series A Preferred Stock
----------------------------------------------------------------------------------
Balance, June 30, 1999 623,334 $891,500 - $0 2,741,534 $16,498,837 $2,342,745
Net Loss
Series B Preferred Stock issued:
July 1999 216,666 $291,829
August 1999 86,667 $116,989
September 1999 16,667 $22,500
October 1999-adjust price to $1.00 471,666
November 1999 100,000 $100,000
December 1999 480,000 $472,500
January 2000 600,000 $425,500
February 2000 1,318,000 $737,600
Beneficial conversion expense on
Preferred Stock $2,742,670
Series C Preferred Stock issued:
February 2000 1,000,000 $973,100
Common stock issued: February 2000 125,000 $187,500
Common stock issued upon conversion
of preferred stock:
July 1999 32,000 $24,000
August 1999 (33,333) ($50,000) 179,121 $159,341
September 1999 80,852 $60,639
October 1999 50,000 $37,500
December 1999 13,252 $9,939
January 2000 (880,000) ($880,000) 890,000 $887,500
February 2000 866,664 $649,998
March 2000 (75,000) ($72,500) 89,000 $83,000
</TABLE>
<PAGE>
QUANTECH LTD
(A Developmental Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period from September 30, 1991 (date of inception), to March 31, 2000
(continued)
<TABLE>
<CAPTION>
Series B Series C Additional
Preferred Stock Preferred Stock Common Stock Paid-In
Shares Amount Shares Amount Shares Amount Capital
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued upon exercise
of warrants:
September 1999 454,545 $500,000
February 2000 24,256 $18,192
March 2000 60,263 $147,835
Warrant issued:
September 1999 $10,000
November 1999 $15,000
January 2000 $152,000
February 2000 $469,000
March 2000 $25
Common stock issued upon exercise
of options:
January 2000 2,000 $2,750
February 2000 200 $226
Common stock issued for equipment and
services received:
January 2000 2,275 $2,275
February 2000 200,856 $310,684
Compensation expense recorded
on stock options $157,300
Subsidiary stock issued $395,460
Payment received on
subscriptions receivable
Accrete to redemption value on
Series A Preferred Stock
----------------------------------------------------------------------------------
Balance March 31, 2000 2,924,667 $2,055,918 1,000,000 $973,100 5,811,818 $19,580,216 $6,284,200
</TABLE>
<PAGE>
QUANTECH LTD
(A Developmental Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period from September 30, 1991 (date of inception), to March 31, 2000
(continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
During
the Sub- Paid for Due Cumulative
Development scriptions Not From Translation
Stage Receivable Issued Officers Adjustment
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1998 ($18,057,048) $0 $0 $0 $0
Net Loss ($4,289,816)
Warrants issued with notes payable
Common stock issued upon conversion
of notes payable:
July 1998
September 1998
October 1998
Common stock issued upon exercise of
warrant: August 1998
Common stock issued for equipment and
services received:
July 1998
August 1998
September 1998
December 1998
Stock options issued for services:
October 1998
Compensation expense recorded
on stock options
Common stock issued upon conversion
of preferred stock:
November 1998
January 1999
March 1999
April 1999
Warrants issued for services:
November 1998
Series B Preferred Stock issued:
June 1999 ($60,000)
Accrete to redemption value on
Series A Preferred Stock ($377,420)
----------------------------------------------------------------------------------
Balance, June 30, 1999 ($22,724,284) ($60,000) $0 $0 $0
Net Loss ($3,984,306)
Series B Preferred Stock issued:
July 1999
August 1999
September 1999
October 1999 - adjust price
November 1999
December 1999 ($20,000)
January 2000
February 2000
Beneficial conversion expense on
Preferred Stock ($2,742,670)
Series C Preferred Stock issued:
February 2000
Common stock issued: February 2000 ($4,500)
Common stock issued upon conversion
of preferred stock:
July 1999
August 1999
September 1999
October 1999
December 1999
January 2000
February 2000
March 2000
</TABLE>
<PAGE>
QUANTECH LTD
(A Developmental Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period from September 30, 1991 (date of inception), to March 31, 2000
(continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
During
the Sub- Paid for Due Cumulative
Development scriptions Not From Translation
Stage Receivable Issued Officers Adjustment
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued upon exercise
of warrants:
September 1999
February 2000
March 2000
Warrant issued:
September 1999 ($10,000)
November 1999 ($15,000)
January 2000
February 2000
March 2000
Common stock issued upon exercise
of options:
January 2000
February 2000
Common stock issued for equipment and
services received:
January 2000
February 2000
Compensation expense recorded
on stock options
Subsidiary stock issued
Payment received on
subscriptions receivable $85,000
Accrete to redemption value on
Series A Preferred Stock ($308,042)
----------------------------------------------------------------------------------
Balance March 31, 2000 ($29,759,302) ($24,500) $0 $0 $0
</TABLE>
<PAGE>
QUANTECH LTD
(A Development Stage Company)
STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
Period From
September 30,
Nine Months Nine Months 1991 (Date of
Ended Ended Inception), to
March 31, March 31, March 31,
2000 1999 2000
----------- ------------ ---------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Loss $ (3,984,306) $ (3,187,806) $ (26,331,170)
Adjustments to reconcile net loss to net cash used in
operating activities:
Elimination of cumulative translation adjustment - - (178,655)
Depreciation 63,913 54,893 386,562
Amortization 302,471 331,220 2,480,442
Noncash compensation, services and interest 1,091,259 1,011,296 3,819,179
Losses resulting from transactions with
Spectrum Diagnostics Inc. - - 556,150
Write down of investment - - 67,500
Change in assets and liabilities, net of effects from
purchase of Spectrum Diagnostics Inc.:
(Increase) decrease in prepaid expenses (15,396) (3,139) 32,659
Increase (decrease) in accounts payable 76,048 63,466 179,683
Increase (decrease) in accrued expenses (61,329) (66,752) 411,195
------------ ------------- -------------
Net cash used in operating activities (2,527,340) (1,796,822) (18,576,455)
------------ ------------- -------------
Cash Flows From Investing Activities
Purchase of property and equipment (210,953) (15,976) (710,219)
Proceeds on disposition of property - - 37,375
Patent expenses (3,043) (4,016) (16,088)
Organization expenses - - (97,547)
Officer advances, net - - (109,462)
Purchase of investment - - (225,000)
Purchase of license agreement - - (1,950,000)
Advances to Spectrum Diagnostics, Inc. - - (320,297)
Prepaid securities issuance costs - - (101,643)
Purchase of Spectrum Diagnostics, Inc., net of cash
and cash equivalents acquired - - (1,204,500)
------------ ------------- -------------
Net cash used in investing activities (213,996) (19,992) (4,697,381)
------------ ------------- -------------
Cash Flows From Financing Activities
Net proceeds from the sale of Series A Preferred Stock - 1,671,464 1,523,909
Net proceeds from the sale of Series B Preferred Stock 2,166,918 - 2,998,418
Net proceeds from the sale of Series C Preferred Stock 973,100 973,100
Net proceeds from the sale of Common Stock and warrants 881,528 - 13,762,325
Net proceeds from the sale of subsidiary Common Stock 507,000 507,000
Proceeds on debt obligations - 502,230 6,047,085
Payments received on stock subscriptions receivable 35,500 - 40,500
Payments on debt obligations (746,000) - (1,268,810)
------------ ------------- -------------
Net cash provided by financing activities 3,818,046 2,173,694 24,583,527
------------ ------------- -------------
Effect of Exchange Rate Changes on Cash - - 203,242
------------ ------------- -------------
Net increase (decrease) in cash 1,076,710 356,880 1,512,933
Cash
Beginning 436,223 46,135 -
------------ ------------- -------------
Ending $ 1,512,933 $ 403,015 $ 1,512,933
============ ============= =============
</TABLE>
<PAGE>
QUANTECH LTD.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. BASIS OF PRESENTATION
In the opinion of the management of Quantech, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal, recurring adjustments) necessary to present fairly the financial
position of Quantech as of March 31, 2000 and the results of operations for the
three and nine month periods and its cash flows for the nine month periods ended
March 31, 2000 and 1999. The results of operations for any interim period are
not necessarily indicative of the results for the year. These interim financial
statements should be read in conjunction with Quantech's annual financial
statements and related notes in Quantech's Annual Report on Form 10-KSB for the
year ended June 30, 1999.
Note 2. LICENSE AGREEMENT
Quantech has a license agreement with Ares-Serono for certain patents,
proprietary information and associated hardware related to SPR technology. The
license calls for an ongoing royalty of 6 percent on all products utilizing the
SPR technology which are sold by Quantech. In addition, if Quantech sublicenses
the technology, Quantech will pay a royalty of 15 percent of all revenues
received by Quantech under any sublicense. To date, Quantech has paid $1,300,000
of cumulative royalty payments. This amount satisfies the requirements of the
license agreement until royalty accruals based on revenues exceed such minimum
payment amount.
Note 3. SERIES A CONVERTIBLE PREFERRED STOCK
In November 1998, Quantech established an additional class of shares as Series A
convertible preferred stock (the "Series A Preferred Stock"). Quantech has
designated 2,500,000 of its authorized shares as Series A Preferred Stock. As of
May 8, 2000 there were 1,359,881 shares of Series A Preferred Stock issued and
outstanding. See also Part II, Item 2.
Note 4. HTS BIOSYSTEMS
Quantech's consolidated financial statements include the results of HTS
BioSystems ("HTS") of which Quantech currently has 73% ownership. HTS was formed
around a combination of SPR technologies and intellectual property from both
Quantech and PE Biosystems (NYSE:PEB). This technology supports the accelerated
development of label-free, cost effective detection systems, initially for the
scientific research market. HTS intends to become the definitive source of
analytical systems and chemistry for the high-speed detection of molecular and
cellular interactions in the fields of functional genomics, proteomics and drug
discovery. HTS expects its first product, the FLEX CHIP Kinetic Analysis System,
to be available next year.
Note 5. BENEFICIAL CONVERSION FEATURE EXPENSE
Quantech's earnings per share figures reflect large non-cash charges resulting
from the timing of convertible securities sales. A rapid increase in the price
of Quantech's common stock occurred after Quantech had negotiated pricing terms
for its Series B and Series C preferred stock, resulting in large beneficial
conversion feature charges for the difference between the conversion price of
the preferred stock and the market price of the common stock. These charges were
due to the timing of equity sales and had no effect on cash flow.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
History
Quantech Ltd. is a Minnesota company originally founded in 1991.
Quantech is completing development of a system that is expected to run tests for
a number of different medical conditions. We call our system the FasTraQTM. The
FasTraQ consists of an instrument that sits on the top of a counter or cart and
reads PrePaQTM disposable test cartridges developed by Quantech. Each Quantech
PrePaQ test cartridge will contain from one to four different medical tests such
as those for a heart attack or pregnancy. Hand-held communication devices called
ReaLinQTM communicators provide real time test results directly from the FasTraQ
instrument to the medical staff members treating a patient.
The FasTraQ produces test results in a manner different than other
testing systems because it uses Quantech's proprietary technology based on the
quantum physics phenomenon known as surface plasmon resonance ("SPR"), which
involves the interaction of light with the electrons of metal. Quantech's
technology creates SPR in a controlled environment which enables the FasTraQ to
detect and transmit information concerning the presence and quantity of certain
native and foreign molecules in blood, urine or other fluids which may be
associated with specific diseases or medical conditions.
Excluding tests that can be conducted in the home, the overall world
wide diagnostic market is more than $20 billion. Routine and "STAT" (from the
Latin statim meaning urgent) laboratory tests currently account for the majority
of this market. Routine tests required in the hospital are conducted on testing
systems located in either the hospital's central laboratory or sent to a
laboratory that is not within the hospital. STAT tests are conducted by a
hospital's central laboratories or a smaller, more conveniently located version
of the central laboratories called STAT labs. Obtaining test results from
central laboratories can take a minimum of 45 minutes and up to three hours.
This delay negatively affects patient treatment and increases costs. Although
STAT labs have been established to reduce the time delay, test costs are higher
in STAT labs than central laboratories and turnaround time for tests is not
always reduced. We are designing the FasTraQ to address what we believe is a
pressing need for a test system that can quickly, in less than 15 minutes, and
cost effectively provide test results, especially for patients with critical
problems in emergency departments.
Quantech also owns 73% of HTS BioSystems, Inc. ("HTS"). HTS was formed
around a combination of SPR technologies and intellectual property from both
Quantech and PE Biosystems (NYSE:PEB). This technology supports the accelerated
development of label-free, cost effective detection systems, initially for the
scientific research market. HTS intends to become the definitive source of
analytical systems and chemistry for the high-speed detection of molecular and
cellular interactions in the fields of functional genomics, proteomics and drug
discovery. HTS expects its first product, the FLEX CHIP Kinetic Analysis System,
to be available next year.
The FasTraQ will be launched with at least a panel of three heart
attack tests and a single test for pregnancy. Other tests are under development
and are expected to be added to the FasTraQ system to provide the number of
different quantitative tests the emergency department requires on an urgent
basis. We have received clearance from the U.S. Food and Drug Administration to
market for clinical use our tests for the cardiac enzymes Myoglobin and CK-MB
and the pregnancy enzyme hCG.
Quantech is a development stage company which has suffered significant
losses from operations, requires additional financing, and ultimately needs to
complete development of its product, generate revenues, and successfully attain
profitable operations to realize the value of its license agreement. These
factors raise substantial doubt about Quantech's ability to continue as a going
concern.
<PAGE>
Results of Operations
Quantech has incurred a net loss of $26,331,170 from September 30, 1991
(date of inception) through March 31, 2000 due to expenses related to formation
and operation of Quantech's predecessor, Spectrum Diagnostics Inc. ("SDS") in
Italy, continuing costs of raising capital, normal expenses of operating over an
extended period of time, funds applied to research and development, royalty
payments related to the SPR technology, losses due to expenses of SDS and
interest on borrowed funds. In addition, an investment of $3,356,629 was made
when Quantech purchased the exclusive rights to the SPR technology, and
$1,300,000 of minimum royalties have been paid on the license.
General and administration expenses increased to $334,839 for the three
months ended March 31, 2000 from $276,099 for the same period in 1999 primarily
due to costs related to company expansion. Expenses for the nine months ended
March 31, 2000 decreased slightly to $1,100,346 from $1,182,265 during the same
period in 1999 as higher costs related to company expansion were offset by lower
expenses associated with financing activities. We expect general and
administrative expenses to increase in the future as we complete development of
our system, prepare for market launch and begin to manufacture and distribute
our products.
Marketing expenses increased to $181,495 and $740,204 for the three
months and nine months ended March 31, 2000 from $500 and $25,975 for the same
periods in 1999 due to higher market research expenses including fees paid to
consultants and research firms, non-cash option expenses for advisors, and costs
to attend industry trade shows. We expect marketing expenses to increase in the
future as we prepare for market launch and begin to distribute our products.
Research and development costs increased to $814,292 and $2,045,509 for
the three months and nine months ended March 31, 2000 from $172,751 and
$1,147,396 for the same periods in 1999 primarily due to increased internal and
outside development work. We expect R&D spending to significantly increase as we
complete the commercial development of our system, conduct additional FDA work,
and begin to establish higher volume manufacturing capabilities.
Minimum royalty expense decreased to $0 and $75,000 for the three
months and nine months ended March 31, 2000 compared to $37,500 and $112,500 for
the same periods in 1999 due to the final minimum royalty payment made in
January 2000. In the future we expect to incur additional royalty expense when
royalties based on revenues exceed minimum payments (see Notes to Financial
Statements, Note 2 - License Agreement).
Interest expense decreased to $33,026 for the nine months ended March
31, 2000 from $721,145 during the same period in 1999 as a result of reduced
debt. Interest expense is expected to remain lower for the remainder of the
fiscal year as Quantech does not anticipate any debt other than borrowing up to
$750,000 from its bank credit facility and $125,000 of capital lease
obligations.
For the three and nine months ended March 31, 2000 Quantech had losses
of $1,329,907 and $3,984,306 as compared to $492,606 and $3,187,806 for the same
periods in 1999. The higher losses were primarily due to higher operating
expenses. On a year-to-date basis, the higher operating expenses were partially
offset by lower interest expense.
Quantech's earnings per share figures reflect large non-cash charges
resulting from the timing of convertible securities sales. A rapid increase in
the price of Quantech's common stock occurred after Quantech had negotiated
pricing terms for its Series B and Series C preferred stock, resulting in large
beneficial conversion feature charges for the difference between the conversion
price of the preferred stock and the market price of the common stock. These
charges were due to the timing of equity sales and had no effect on cash flow.
<PAGE>
The timetable for submitting additional tests to the FDA and
introduction of Quantech's system to the market will be influenced by Quantech's
ability to obtain further funding, enter into strategic relationships, complete
commercial prototype development of its system and develop further tests, and
delays it may encounter with the FDA in its review of Quantech's tests and
system. There can be no assurance that Quantech will be able to obtain the
required funding, enter into any strategic agreements or ultimately complete its
commercial system.
Liquidity and Capital Resources
From inception to March 31, 2000, Quantech has raised approximately
$25,800,000 through a combination of public stock sales, private stock sales and
debt obligations. Quantech is currently pursuing a number of sources of equity
capital, which it intends to complete by the end of June.
In May, Quantech engaged an outside engineering firm to assemble an
automated chemistry coating system for cartridge production. Quantech expects
the total cost of the system to be approximately $900,000 over the next four
months, and that funds from the sale of the above mentioned equity securities
will be used to purchase the system.
Quantech anticipates that its cash on hand will allow it to maintain
operations through July 2000. Additional financing of approximately $10 million
will be needed to develop and submit to the FDA additional tests, complete
clinical evaluation of the system, establish manufacturing capabilities and
prepare for sales of the system. Quantech is currently reviewing multiple
avenues of future funding including private sale of equity or debt with equity
features or arrangements with strategic partners. Quantech does not have any
commitments for any such financing and there can be no assurance that Quantech
will obtain additional capital when needed or that additional capital will not
have a dilutive effect on current stockholders. See "Cautionary Statements -- We
expect to incur losses in the future and we need additional financing to achieve
sales necessary to reach a break-even cash flow." Although Quantech has a
limited lending arrangement with its bank to a maximum of $750,000, all of which
credit line will be used by July 2000, it does not anticipate receiving any
additional significant funding from commercial lenders.
Quantech incurred capital expenditures of $210,953 in the nine month
period ended March 31, 2000 primarily related to setting up and furnishing a new
facility, and for cartridge tooling. Quantech anticipates significant capital
expenditures in the future for production equipment and office expansion as
Quantech nears product introduction. The timing and amount of such expenditures
will be governed by Quantech's development and market introduction schedules
which are subject to change due to a number of factors including development
delays, FDA approval and availability of future financing.
As of May 8, 2000 Quantech had 5,950,566 shares of common stock
outstanding. It also had options and warrants outstanding to purchase an
additional 5,864,702 shares at exercise prices from $0.75 to $14.40, and Series
A, B and C Preferred Stock convertible into 9,364,191 shares of common stock.
Cautionary Statements
Quantech wishes to caution investors that the following important
factors, among others, in some cases have affected, and in the future could
affect, Quantech's actual results of operations and cause such results to differ
materially from those anticipated in forward-looking statements regarding
financing needs, expenditures and other matters made in this document and
elsewhere by or on behalf of Quantech.
We expect to incur losses in the future and we need additional financing to
achieve sales necessary to reach a break-even cash flow.
We have incurred net losses in each year since inception. We expect to
increase significantly our research and development, sales and marketing,
<PAGE>
manufacturing and general and administrative expenses in the future. We will
spend these amounts, estimated to be $10-$15 million before we receive any
incremental revenue from these efforts. Further financing will be necessary to
achieve the sales level required to achieve a break-even cash flow. Additional
financing through investment capital, funding by strategic partner(s) or
licensing revenues will be needed to operate until revenues can be generated in
an amount sufficient to support operations. Quantech does not have any
commitments for any such additional financing and does not anticipate receiving
any additional significant funding from commercial lenders until product sales
commence. There can be no assurance that any such additional financing can be
obtained on favorable terms, if at all. Any additional equity financing may
result in dilution to Quantech stockholders and could depress the market price
of our common stock.
"Going concern" statement in auditor's report may make it difficult to raise new
capital.
Quantech has not had any significant revenues to date. As of June 30,
1999 and March 31, 2000, we had accumulated deficits of $22,724,284 and
$34,221,816, respectively. The report of the independent auditors on Quantech's
financial statements for the year ended June 30, 1999, includes an explanatory
paragraph relating to the uncertainty of Quantech's ability to continue as a
going concern, which may make it more difficult for Quantech to raise additional
capital.
Development of the FasTraQ is not complete and may not be completed on the
current timetable and budget.
Components of the FasTraQ system are under various stages of
development. Until the FasTraQ development is completed and cleared through the
FDA, there can be no assurance that the FasTraQ system will be finished
according to our current development timetable and budget. Failure to timely
finish on budget will require Quantech to seek funding greater than currently
anticipated, thus intensifying the risks described in "We expect to incur losses
in the future and we need additional financing to achieve sales necessary to
obtain break-even cash flow" above. Additionally, the final price that we will
need to charge to cover the costs of the FasTraQ instrument and the PrePaQ test
cartridges cannot be determined until development is complete and FDA clearances
have been obtained. If Quantech cannot receive FDA approval and offer the
FasTraQ system with certain required features and tests at a cost acceptable to
potential customers, it will be impossible for Quantech to continue operations.
Failures in any of these areas will disappoint investors and could result in a
decline in our stock price thus causing investors to lose substantial money.
Other Factors
As described in Quantech's Form 10-KSB for the year ended June 30, 1999
under Cautionary Statements, there are additional factors concerning the Company
that should be considered including: uncertainty of market acceptance of
Quantech's product once introduced, inability or delay in obtaining FDA product
approval, competition, lack of marketing and manufacturing experience,
technological obsolescence, ability to maintain patent protection on the
Company's technology and not violate others' rights, effects of government
regulation on Quantech's product and its sale, ability to manufacture its
product, dependence on key personnel, exposure to the risk of product liability
and the limited market for the Company's shares.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
During January and February 2000, Quantech sold 1,918,000 shares of
Series B Preferred Stock to accredited investors at a price of $1.00 per
share. Each share of Series B Preferred Stock is convertible into one
share of Quantech common stock. The sale of such shares was deemed to be
exempt from registration under Section 4(2) of the Securities Act of
1933 (the "1933 Act") and Rule 506 promulgated thereunder. The Company
paid commissions and accountable expenses in the aggregate amount of
$133,900 to registered investment banks for acting as selling agents and
issued the investment banks warrants to purchase up to 181,067 shares of
common stock at an exercise price of $1.00 per share as additional
compensation. The purchasers acquired these securities for their own
account and not with a view to any distribution thereof to the public.
During January through March 2000, Quantech issued 1,845,664 shares of
common stock pursuant to conversion of preferred stock. The sale of such
shares was deemed to be exempt from registration under Section 3(a)(9)
of the 1933 Act. The purchasers acquired these securities for their own
accounts and not with a view to any distribution thereof to the public.
During February and March 2000, Quantech issued 84,519 shares of common
stock pursuant to the exercise of warrants by accredited investors. The
sale of such shares was deemed to be exempt from registration under
Section 4(2) of the 1933 Act. The purchasers acquired these securities
for their own accounts and not with a view to any distribution thereof
to the public.
During January 2000, Quantech sold 2,275 shares of common stock to an
accredited investor at a price of $1.00 per share. The sale of such
shares was deemed to be exempt from registration under Section 4(2) of
the Securities Act of 1933 (the "1933 Act") and Rule 506 promulgated
thereunder. The purchaser acquired these securities for its own account
and not with a view to any distribution thereof to the public.
During February 2000, Quantech sold 320,856 shares of common stock to
accredited investors at a price of $1.50 per share. The sale of such
shares was deemed to be exempt from registration under Section 4(2) of
the Securities Act of 1933 (the "1933 Act") and Rule 506 promulgated
thereunder. The purchasers acquired these securities for their own
accounts and not with a view to any distribution thereof to the public.
During February 2000, Quantech sold 1,000,000 shares of Series C
Preferred Stock to an accredited investor at a price of $1.00 per share.
Each share of Series C Preferred Stock is convertible into one share of
Quantech common stock. The sale of such shares was deemed to be exempt
from registration under Section 4(2) of the Securities Act of 1933 (the
"1933 Act") and Rule 506 promulgated thereunder. The Company paid
expenses related to the offering of $10,000 cash and 5,000 shares of
common stock valued at $16,900. The purchaser acquired these securities
for its own account and not with a view to any distribution thereof to
the public.
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
<PAGE>
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on 8-K
a. Exhibits -
27 Financial Data Schedule (filed in electronic format only)
b. Reports on Form 8-K - A report on Form 8-K was filed on
January 25, 2000 reporting under Item 5 the establishment of
subsidiary company HTS Biosystems, Inc.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
QUANTECH LTD
/s/ Robert Case
Robert Case
Chief Executive Officer
/s/ Gregory G. Freitag
Gregory G. Freitag
Chief Operating Officer and
Date: May 15, 2000 Chief Financial Officer
<PAGE>
EXHIBIT INDEX
QUANTECH LTD.
FORM 10-QSB for Quarter Ended
March 31, 2000
Exhibit Number Description
- ------------- --------------------------------
27 Financial Data Schedule (filed in electronic format only)
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