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.