United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File No.
June 30, 1996 0-23812
THE QUANTUM GROUP, INC.
(Exact name of the registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
Park Irvine Business Center
14771 Myford Road, Building B
Tustin, California 92780
(Address of registrant's principal executive offices)
(714) 508-1470
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(b) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
x Yes No
State the number of shares outstanding of each of the registrant s classes of
common equity, as of the latest practicable date.
Common Stock, par value $.001; 9,456,696 shares outstanding as of
August 16, 1996.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE QUANTUM GROUP, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1996 1995 1995
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash $210,192 $10,255 $26,140
Accounts Receivable 382,322 76,896 179,963
Inventory 490,579 503,479 490,579
Deposit on Inventory 424,820 424,820
License Rights 489,255
Loan Receivable 38,750 38,750 38,750
Employee Receivable 34,500 34,500
---------- ---------- ---------
Total Current Assets 1,645,598 1,054,200 1,194,752
PROPERTY & EQUIPMENT
Leasehold Improvements
Furniture and Fixtures 6,986 14,558 10,693
Residential Property 238,297 236,586
Vehicles 749 3,746 2,248
--------- ---------- ---------
Total Property & 7,735 256,601 249,527
Equipment
OTHER ASSETS
Notes Receivable 310,500 310,500
Accounts Receivable
Securities 6,250 6,250 6,250
Deposit 661 660 661
Prepaid Insurance
Prepaid Commissions 67,415 273,500
--------- ---------- ----------
Total Other Assets 384,826 280,410 317,411
---------- ----------- -----------
Total Assets $2,038,159 $1,591,211 $1,761,690
=========== =========== ===========
</TABLE>
<PAGE>
THE QUANTUM GROUP, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1996 1995 1995
LIABILITIES & SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES
Accrued Expenses $133,162 $90,277 $226,856
Accounts Payable 359,357 652,108 476,379
Due Officers 81,701 137,093 58,701
Customer Deposits 648,920 488,938 244,474
Franchise Tax Payable
Capitalized Leases 16,741 16,741 16,741
Current Maturities 1,964 1,964
--------- --------- ---------
Total Current Liabilities 1,239,881 1,387,121 1,025,115
LONG TERM LIABILITIES
Note Payable 626,705 273,158
Vehicle Note Payable 5,878 4,781
Mortgage Payable 165,000 165,000
Less Current Maturities (1,964) (1,964)
--------- ---------- ----------
Total Long Term Liabilities 626,705 168,914 440,975
Minority Interest in Subsidiary 91,104 71,625 107,837
STOCKHOLDER'S EQUITY
Common stock, 50,000,000
shares authorized 9,444,696
shares outstanding in 1994 9,457 9,457 9,457
9,456,696 shares
outstanding in 1995
Paid in Capital 1,678,363 1,676,763 1,676,763
Accumulated Deficit (1,607,351) (1,722,669) (1,498,457)
---------- ----------- ------------
Total Stockholders' Equity 80,469 (36,449) 187,763
TOTAL LIABILITIES & ----------- ----------- -------------
STOCKHOLDERS' EQUITY $2,038,159 $1,591,211 $1,761,690
============ =========== =============
</TABLE>
<PAGE>
THE QUANTUM GROUP, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Six Three Six Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, December
1996 1996 1995 1995 31, 1995
<S> <C> <C> <C> <C> <C>
REVENUE
Equipment Sales $781,549 $37,800 $2,679,790
-------- ---------- -------- ----------- -----------
Total Revenues 781,549 37,800 2,679,790
COST OF SALES 457,813 1,688,947
-------- ---------- -------- ---------- ----------
Gross Profit 323,736 37,800 990,843
EXPENSES
Commission 70,000 329,960
Depreciation 2,604 5,208 3,384 6,768 14,342
Amortization 8,292 8,292
Taxes
Travel 35,058 40,656 4,147 11,502 45,468
Professional Fees 10,000 10,000 6,000 6,000 46,925
Office 16,349 36,783 1,934 2,365 23,846
Rent & Utilities 16,228 30,455 16,764 25,041 57,221
Administration 51,432 89,011 17,150 41,219 69,301
Expenses
Consulting Fees 86,714 162,321 25,156 94,492 164,178
Interest 10,205 21,487 5,994 11,988 69,617
--------- --------- --------- -------- -------
Total Expenses 236,882 474,213 80,529 199,375 820,858
--------- --------- --------- -------- -------
Net Profit or (Loss)
from Operations (236,882) (150,477) (80,529) (161,575) 169,985
INCOME & (EXPENSES)
Accounts Receivable
Write off (882,498) (882,498) (953,634)
Asset Abandonment (10,500) (10,500)
Write Down of Securities 12,500 12,500 12,500
Gain on Sale of Asset 24,850
-------- ----------- --------- --------- ---------
Total other Income
& Expenses 24,850 (869,998) (880,498) (951,634)
--------- ---------- --------- --------- ---------
Profit or (Loss) (236,882) (125,627) (950,527)(1,042,073)(781,649)
Provision for Taxes (8,900) (34,785) 34,785
Minority Interest (34,111) (16,733) 135,735 148,808 112,596
Provision for Taxes --------- --------- ---------- -------- --------
Minority Interest (43,011) (16,733) 135,735 183,593 147,381
Net Profit or
(Loss) After Tax & ---------- ---------- ---------- -------- -------
Minority Interest ($193,871) ($108,894) ($814,792)($858,480)($634,268)
========= ======== ======== ======== =========
Net Profit or (Loss)
Per Share ($0.02) ($0.01) ($0.09) ($0.09) ($0.07)
Weighted Average
Shares Outstanding 9,456,696 9,456,696 9,456,696 9,456,696 9,456,696
</TABLE>
<PAGE>
THE QUANTUM GROUP, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
January 1, 1993 to June 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
<S> <C> <C> <C> <C>
Balance,
January 1, 1993 8,506,090 $8,506 $958,637 ($960,162)
Shares issued for Cash 938,606 939 227,817
Sale of Shares by Subsidiary
Eurectec, Inc.) 478,321
Profit for the year ended
December 31, 1993 266,392
----------- ---------- ---------- ------------
Balance,
December 31, 1993 9,444,696 9,445 1,664,775 (693,770)
Shares issued for Commission
in Lieu of Cash 12,000 12 11,988
Loss for the year ended
December 31, 1994 (170,419)
----------- --------- ------------ ------------
Balance,
December 31, 1994 9,456,696 9,457 1,676,763 (864,189)
----------- --------- ------------ ------------
Loss for the year ended
December 31, 1995 (634,268)
Balance,
December 31, 1995 9,456,696 9,457 1,676,763 (1,498,457)
----------- --------- ------------ ------------
Sale of Shares by
Subsidiary (Eurectec, Inc.) 1,600
Loss for the Six Months ended
June 30, 1996 (108,894)
---------- -------- ------------- ------------
Balance, June 30, 1996 9,456,696 $9,457 $1,678,363 (1,607,351)
========== ======== ============ =============
</TABLE>
<PAGE>
THE QUANTUM GROUP, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months Year
Ended Ended Ended
June 30, June 30, December 31,
1996 1995 1995
<S> <C> <C> <C>
Cash Flows From
Operating Activities
Net Profit (Loss) ($108,894) ($858,480) ($634,268)
Adjustments to reconcile
net profit or (loss)
to net cash:
Amortization &
Depreciation 13,498 7,268 14,342
Non Cash Expenses
Loss on Abandonment of Asset 10,500
Minority Interest (16,733) (148,808) (112,596)
Changes in Operating
Assets and Liabilities
(Increase) Decrease in
Accounts Receivable (202,359) 556,249 453,182
(Increase) Decrease in
Inventory 12,900
(Increase) in Deposit on
Inventory 424,820
(Increase) in License
Rights (497,547)
Decrease (Increase) in Long Term
Accounts Receivable 326,249 326,249
(Increase) Decrease in
Loan Receivable 7,816 7,816
(Increase) Decrease in
Prepaid Insurance 984 984
(Increase) in Prepaid
Commissions (67,415) 273,500
(Increase) Decrease in
Deposits 8,336 8,335
Increase (Decrease) in
Notes Receivable (345,000)
Increase (Decrease) in
Accrued Expenses (93,694) 136,579
Increase (Decrease) in
Accounts Payable (117,022) 126,512 (49,217)
Increase (Decrease) in
Tax Payable (34,785) (34,785)
Increase in Customer
Deposits 404,446 (244,464)
----------- ----------- -------------
Net Cash Generated (Used) by
Operating Activities (260,900) (8,659) (175,943)
----------- ------------ ------------
Cash Flows From
Investing Activities
Purchase (Abandonment)
of Leasehold Improvements 10,500
Purchase of Vehicle
Sale of Residential
Property 236,586
Purchase of Furniture
Increase in Loans Receivable
Increase in Security
Net Cash Provided (Used) ----------- ------------ --------------
by Investing Activities 236,586 10,500
Cash Flows From
Financing Activities
Payment of Long Term Debt (900) (1,997)
Increase (Decrease) in
Notes Payable 353,547 273,158
Increase (Decrease) in
Mortgage Payable (165,000)
Increase (Decrease) in
Vehicle Note Payable (4,781)
Increase (Decrease) in
Amounts Due Officers 23,000 8,492 (69,900)
Sale of Common Stock 1,600
Net Cash Provided by ---------- ----------- ------------
Financing Activities 208,366 7,592 201,261
---------- ----------- ------------
Increase (Decrease)
In Cash 184,052 9,433 25,318
Cash at Beginning
of Period 26,140 822 822
---------- ----------- ------------
Cash at End of Period $210,192 $10,255 $26,140
========== =========== ============
</TABLE>
<PAGE>
The Quantum Group, Inc. and Subsidiaries
Notes to Financial Statements
NOTE #1 - Corporate History
The Company was organized on December 2, 1968, under the laws of the State
of California, as Acqualytic Systems, Inc. The Company was suspended on
June 1, 1971 for failure to comply with statutory laws of California. On June
15, 1989, the Company was reinstated after paying the applicable taxes and
fees to the State of California. During the period of its suspension the
Company transacted no business with the exception of its President, Mr. Frank
Scoville, transferring stock previously issued to him to a number of other
individuals. the Company acted as its own transfer agent.
Pursuant to an agreement of merger filed on June 27, 1989, in the State of
Nevada, Acqualytic System, Inc., a California Corporation, merged with
Country Maid, Inc., a Nevada Corporation. The Nevada Corporation was
incorporated in the State of Nevada on June 13, 1988, and on June 30, 1989
Country Maid, Inc., filed applicable documents with the State of Nevada and
received a Certificate of Reinstatement. Country Maid, Inc., was the survivor
corporation pursuant to the merger agreement. The surviving Corporation
changed its name to Transcontinental Video Robotics, Inc., on June 27, 1989.
On September 18, 1992, the name of the Company was changed to The
Quantum Group, Inc.
During 1991 and 1992, the Company marketed electronic acupuncture devices
and a complete line of nutritional supplements through franchised distribution
centers. In December 1992, all operations of the subsidiary involved with
acupuncture devices and nutritional supplements were suspended. Losses
incurred in these operations have been treated as operating losses in 1991 and
1992.
In 1992, the Company acquired the rights to import and market equipment used
in the tire recycling industry. The Company has imported equipment for one
plant that has been made operational in California, and is presented on the
financial statements as inventory. The tire recycling operation is the
thrust of the Company's operations at December 31, 1995.
Through its subsidiary, Eurectec, Inc., the Company acquired mining claims in
the State of Nevada by granting license rights for the tire recycling and
recovery technology for the states of Colorado, Arizona and New Mexico. The
mining claims have no basis for financial reporting because of the trade. In
addition, the Company has not paid required assessment work on the mining
leases and they are in default at December 31, 1995.
NOTE #2 - Significant Accounting Policies
(A) The Company uses the accrual method of accounting.
(B) Revenues and expenses are recognized in the period in which the
activities occur.
(C) The Company considers all short term, highly liquid investments, that are
readily convertible, within ninety days, to known amounts of cash
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL STATEMENTS
Liquidity and Capital Resources
At June 30, 1996, the Company had cash of $210,192 on hand.
The management of the Company made the decision at year end 1992 to
concentrate its resources and management efforts on the Company's tire
recycling operations. This start up effort eliminated the Company's ability to
generate revenue throughout of 1993 and 1994, as sales take six to twenty
months to complete. As such the Company experienced cash flow difficulties
through 1993, 1994 and most of 1995.
Equipment sales of the Second Saudi Unit and deposits on Phase Two of the
Saudi project provided an increase in working capital.
During the six months ended June 31, 1996, the Company's net cash used in
operations was $260,900 compared to cash utilized of $8,659 in the same
period of 1995. This is due to the a number of factors within the accounting for
cash format. The Company wrote off it's Accounts Receivable from the
Canadian licensee during the three months ended June 30, 1995, this results in
an addition to operating loss and a "source" of funds which are practically
offsetting. Additionally, the effect of the write off in decreasing minority
interest becomes a "use" of funds which is offset by the increase in accounts
payable which was the Company's cash flow source for the period. The write off
was a total of $882,498, the net loss for the three months ended June 30, 1995
was $814,792. The loss, includes of an operating loss of $80,529 before the
addition of the non operating loss. The minority interest adjustment was
$148,808, while accounts payable increased $126,512. In the Six months
ended June 30, 1996, Receivables increase $202,359, and the purchase of a
license for tile manufacturing reduced cash by $497,547 (less the note payable
of $353,547 reflected as a financing activity). Customer deposits of $404,446
and the utilization of deposits on inventory of $424,829 partially offset the
cash outflows. Accrued Expenses and accounts payable were reduced $93,694 and
$117,022 respectively adding to the cash utilization.
Investing Activities consisted solely of the proceeds from the sale of the
Company's residential property in Miami Florida, during the fist Quarter of
1996. Abandonment of assets of $10,500 was the only activity in the Six
Months ended June 30, 1995.
Financing activity in the six months ended June 30, 1996 consisted cash sources
from the increase of Notes Payable which is the non cash portion of the tile
license referred to above, of an increase in advances from officers of $23,000
and $1,600 from the exercise of a stock option in the Company's subsidiary,
Eurectec, Inc. Cash was utilized in the payoff off the mortgage on the sale of
the Company's Miami property and the payoff of the vehicle note. During the Six
Months ended June 30, 1996, Financing activity consisted solely of and increase
in the amounts due offices of $8,492 reduced by a pay down of $900 on the
vehicle note.
The Company has no material commitments for capital expenditures.
RESULTS OF OPERATIONS
Comparison of the Three Months ended June 30, 1996, and the Three Months
ended June 30, 1995.
The Company had no revenue during the three months ended June 30, 1996 or
for the same three months of 1995.
Depreciation expense of $2,604 is less than the comparable period last year
solely because of the sale of the residential property in the prior quarter.
Amortization expense of $8,292 in the current quarter is due to the signing of
the tile license agreement. This agreement is for five years beginning June,
1996. One months amortization was charged in the current quarter, no such
charge was made in the prior year.
Travel Expense ($35,058 vs. $4,147), Office Expense ($16,349 vs. $1,934),
Administrative expense ($51,432 vs. $17,150) and Consulting Fees
($86,714 vs. $25,156) all increased in the quarter ended June 30, 1996 as
compared with the same quarter 1995. This increase is do to an increased level
of sales activity in the existing product line and addition activities due to
starting The tile molding activities.
In the second quarter of 1995, Accounts Receivable in the amount of $882,498
were written off. No write offs were incurred in the current year.
Minority Interest is a credit of $34,111 in the second quarter of 1996, which
is $101,624 less than the same quarter of 1995 because the loss is in 1996
than for the same quarter 1995.
Comparison of the six months ended June 30, 1996, and the six months ended
June 30, 1995
Revenues for the six months ended June 30, 1996 are $782,549 compared to
$37,800 in the comparable 1995 period. This is due to the delivery of Eurectec,
Inc., Equipment to Saudi in 1996. Cost of goods sold is larger in 1996 for the
same reason.
Amortization Expense of $8,292 in 1996 has no comparable expense in 1995.
As with the current quarter, travel expense, office expense, administrative
expense and consulting fees are larger in the six months ended June 30 1996 as
compared to the six months ended June 30, 1995 due to increased sales
activities and to the preparation of the molded tile line.
Because there were no significant sales in the six months ended June 30, 1995,
no commissions were paid, the delivery of the Saudi equipment in the first
quarter of 1996 cause $70,000 of commission expense.
The Company recognized a $12,500 gain on the sale of previously written off
securities in the first quarter of 1995. No comparable gain occurred in 1996,
however, the Company realized a gain of $25,850 on the sale of the Miami
property in 1996 with no comparable 1995 gain.
Comparison of the three months ended June 30, 1995, and the three months
ended June 30, 1994.
The Company generated no revenue during the three months ended June 30,
1995. $50,000 of revenue was generated in the same period of the prior year.
The 1994 revenue is from the forfeiture of the deposit for license rights in
Mexico.
Because of the opening of the Canadian licensee's plant, the need for the
Eurectec, Inc. demonstration facility in Wilmington, Ca was reviewed during
the first quarter of 1995. The decision was made to close the facility and move
the Company offices to a more "Office" environment. This move took place at
the end of March, 1995. As a result of the move, leasehold improvements were
abandoned and the abandonment expensed during the three months ended
March 31, 1995.
During the three months ended June 30, 1995, the Company restructured its
relationship with i's Canadian licensee. Due to change in ownership, the
objectives of the Canadian group also changed. The Company agreed to cancel
the outstanding Accounts Receivable for the Canadian license in return for the
rights to the Company. The Company also agreed to cancel the Accounts
Receivable equipment balance in return for an equity interest in the Canadian
company. Because the valuation of the equity interest is immaterial and of
uncertain value. The Company choose to write of the entire Receivable rather
than establish an asset of uncertain income generation potential.
Total operating expenses were reduced from $149,864 in the three months
ended June 30, 1994 to $80,529 in the three months ended June 30, 1995. This
reduction of $69,335 (46%), represents a continuing effort to curtail expenses
in recognition of the elongated time spans for sales.
Minority Interest credit of $137,735 for the quarter ended June 30,1995 is
significantly larger ($115,742) than the credit in the comparable quarter of
1994 (19,993) due the Accounts Receivable write off.
During the three months ended June 30, 1995, the Company was able to sell
half of it's interest in Texas Securities, Inc. The Company had written off
this holding in 1993, when Texas Securities filed for Chapter 7 liquidation
under Federal bankruptcy law. A group of investor's, of which the Company is
not a party, have challenged the proceedings and wished to consolidate the
ownership Of the Texas Securities, Inc. shares. The Company retained the
balance of its'interest in the hope of benefiting from this effort in excess of
the $12,500 received. Only the cash receipt for the portion sold was
recognized as the value of the remaining portion is uncertain.
Comparison of the six months ended June 30, 1995, and the six months ended June
30, 1994.
Revenue for the six months ended June 30, 1995 were $37,800. Revenue for
the comparable 1994 period were $170,000. Neither six month period reflects
the sale of any Eurectec, Inc., equipment packages.
Operating expense for the six months ended June 30, 1995 ($199,375) were
$119,650 or 37% less than the $319,025 incurred in the 1994 period.
Occupancy related expenses continue below prior year. Travel expense in the
six months ended June 30, 1995 exceed the expenses of 1994 by $7,628
($11,502 vs. $3,874) due to increased foreign travel to finalize arrangements
for the equipment delivery to Saudi Arabia later in the year.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of the Shareholders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed, or required to be filed, during the
quarter ended June 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this to be signed on its behalf by the undersigned
thereunto duly authorized.
The Quantum Group, Inc.
August 27, 1996 /s/ Ehrenfried Liebich
Ehrenfried Liebich
Chairman of the Board,
President, and
Chief Executive Officer
August 27, 1996 /s/ John F. Pope
John F. Pope
Vice President, Finance
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this to be signed on its behalf by the undersigned
thereunto duly authorized.
The Quantum Group, Inc.
August 27, 1996 /s/ Ehrenfried Liebich
Ehrenfried Liebich
Chairman of the Board,
President, and
Chief Executive Officer
August 27, 1996 /s/ John F. Pope
John F. Pope
Vice President, Finance
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED SECOND QUARTER 1996 BALANCE SHEET, INCOME STATEMENT AND PROFIT
AND LOSS STATEMENT OF THE QUANTUM GROUP, INC., AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH UNAUDITED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 210,192
<SECURITIES> 6,250
<RECEIVABLES> 310,500
<ALLOWANCES> 0
<INVENTORY> 490,579
<CURRENT-ASSETS> 1,645,598
<PP&E> 7,735
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,038,159
<CURRENT-LIABILITIES> 1,239,881
<BONDS> 0
0
0
<COMMON> 9,457
<OTHER-SE> 1,678,363
<TOTAL-LIABILITY-AND-EQUITY> 2,038,159
<SALES> 781,549
<TOTAL-REVENUES> 781,549
<CGS> 457,813
<TOTAL-COSTS> 474,213
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,487
<INCOME-PRETAX> (150,477)
<INCOME-TAX> 0
<INCOME-CONTINUING> (108,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (108,894)
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
