U.S. Securities and Exchange Commission
Washington, D.C. 20549
Second Amendment to
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
The Quantum Group, Inc.
(Name of Small Business Issuer in its charter)
Nevada 95-4255962
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Park Irvine Business Center, 14771 Myford Road, Building B,
Tustin, California 90744
(Address of principal executive Offices) (Zip Code)
Issuer's telephone number: (714) 508-1470
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class to be registered
Securities to be registered under Section 12(g) of the Act:
Common
(Title of Class)
<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
Item 1. Description of Business.
The Quantum Group, Inc., (the "Company") is engaged in the tire
recycling industry. The Company, through its approximately 85% owned
subsidiary, Eurectec, Inc., ("Eurectec") performs world-wide marketing
of
tire recycling equipment manufactured by CISAP SpA ("CISAP"), an
Italian
corporation. In addition to marketing tire recycling equipment, the
Company markets territorial rights to sell CISAP equipment in North
America.
The Company was organized on December 2, 1968 under the laws
of the state of California, as Acqualytic Systems, Inc. Pursuant to an
agreement of merger filed on June 27, 1989 in the state of Nevada,
Acqualytic Systems, Inc., merged with Country Maid, Inc., a Nevada
Corporation. Country Maid, Inc., was incorporated in the state of Nevada
on June 13, 1988. 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 Company changed its name to The Quantum
Group, Inc.
Prior to entering the tire recycling industry, the Company marketed
various products in North America through franchised distribution centers.
The Company sold electronic acupuncture devices and a complete line of
nutritional supplements. In 1992, the Company decided it could more
effectively market its products through a multi-level network, which it
wished to market on an international basis. Pursuant to this desire, the
Company acquired Safety Products Innovations Limited, ("SPI") in a stock
for stock transaction. The Company issued 418,816 restricted common
shares to acquire all of the issued and outstanding shares of SPI. The parties
deemed the per share value of the Company's stock to be $3.00 per share.
SPI had an established international multi-level network, through
which it sold a line of home, auto and personal alarms. The Company
believed it could continue to use SPI's network to market the home, auto
and personal alarms, as well as the electronic acupuncture devices and
nutritional supplement products marketed by the Company. However, at
year end 1992, after acquiring SPI, the Company found that it could not
profitably market the electronic acupuncture devices and the nutritional
supplements through SPI's multi-level network. The Company also
determined at this time that it could not profitably market the alarms and
discontinued all operations of SPI so it could focus all its efforts and
resources on marketing tire recycling equipment.
In 1992, through Eurectec, the Company acquired the exclusive
license to market tire recycling equipment in the United States, Canada and
Mexico. At that time the Company also acquired a non-exclusive world-
wide license to market and sell the recycling equipment. The licenses
acquired from CISAP are to continue until April 26, 1998. On April 26,
1998 the agreement will be automatically renewed for a period of two years
unless terminated by either party pursuant to six months prior notice. This
arrangement shall continue to renew every two years in perpituity unless
terminated by either party pursuant to six months notice prior to the closing
of any given two year period. The license agreements provide that CISAP
will manufacture, ship and install the equipment the Company sells. CISAP
will also provide training in equipment operation to the purchaser. The
exclusive North America license agreement further provides that the
Company has the right to sell sub-licenses to other entities. This allows the
Company to sell to interested parties the exclusive right to market CISAP
equipment within a designated territory in North America. The Company
has the right define a territory based on geography, population or whatever
criteria it deems appropriate. To maintain the exclusive marketing rights to
North America, the Company must sell a minimum of eight granulator
machines or equipment of similar value during each year. (In addition to
manufacturing granulators, CISAP manufactures other tire recycling
equipment including shredders and presses for producing
aftermarket products from crumb rubber.) The number of granulators sold
by the Company is calculated on a world-wide basis and is not limited solely
to sales in North America and the number of sales includes any machines
sold by licensees of the Company. The Company has failed to meet the
minimum number of granulator sales each year since the exclusive license
agreement became effective. Part of the difficulty the Company has
encountered in meeting its minimum sales requirements is directly related to
problems CISAP has had in production, delivery and installation of its
equipment. In recognition of their mutual fault both CISAP and the
Company have continued to operate as though the exclusive license
agreement was in force, even though the Company is technically in default
of said agreement. Based on their experience over the past several years,
CISAP and the Company recently renegotiated certain provisions of the
exclusive licensing agreement so it will more accurately reflect the
production, delivery, installation and sales capabilities of CISAP and the
Company. The agreement continues to provide the Company the exclusive
marketing rights in North America if it sells eight granulators or equipment
of similar value per year. Should the Company fail to meet its sales quota,
CISAP may, in its discretion revoke the exclusive license or allow it to
continue in force.
In the event the Company does not maintain its exclusive right in
North America the license agreement provides that CISAP will honor the
sub-licenses negotiated by the Company.
While the Company hopes to maintain the exclusive marketing
license, it believes it could continue to operate in the industry without the
exclusive marketing license for various reasons. The Company bases this
belief on its friendly relations with CISAP, which would allow the Company
to maintain a non-exclusive marketing right, the specialized nature of the
industry with its barriers to entry and the name recognition the Company has
achieved through participation in trade shows and industry gatherings during
the past three years. Further, while the Company is not currently a major
player in the industry, it has been recognized as more than a "fly by night"
operation. The Company also bases its belief that it can compete in the
industry without the exclusive license because of indications of interest
from other tire recycling equipment manufacturers, with whom the
Company has met to discuss the opportunities that might be available to the
Company should it lose its exclusive marketing license with CISAP.
As stated, there are substantial barriers to entering into the tire
recycling industry. These barriers include high start-up costs and long term
sales cycles. Each granulator the Company sells, currently costs the
Company ITL 998,000,000 (Italian Lira), or approximately $650,450 U.S.
Dollars based on the rate of exchange of Italian Lira to U.S. Dollars on
August 19, 1996. For the Company to be profitable, the Company must sell
the granulators for some price higher than it pays for the granulators, based
solely on the cost of a granulator, the number of potential clients for the
product the Company markets is fairly limited. In addition to the cost of
equipment, potential clients for the equipment must have a facility capable
for use as a tire recycling plant. A tire recycling facility must be large
enough to house the machinery and must have sufficient storage space to
store tires for recycling. While a recycler may not have to store its full
supply of tires at the facility, it would need space to store enough tires to
keep the plant operating between delivery periods of additional tires. Thus,
the costs associated with the space requirements of operating a profitable
tire recycling plant significantly limit the number of potential clients
available to purchase the tire recycling equipment the Company markets.
The barriers to entry into the tire recycling industry make it difficult
for new companies to compete, for this reason the Company does not have
a lot of companies to compete with for business. Because of the high cost
of tire recycling equipment, competition is based to a great deal on price.
However, competition also focuses around customer service, as clients
expect a great deal of customer service after paying so much money for
the tire recycling machinery.
The costs and space requirements associated with tire recycling
plants also tend to elongate the sales cycle for tire recycling equipment.
Typically, it takes six to eighteen months from the time the Company first
contacts a potential customer until the sales transaction is completed, the
machinery is installed and the Company is paid in full. Generally, it takes the
customer time to arrange financing and find and secure the necessary
physical facilities. Further, it takes roughly six months for CISAP to
manufacture a granulator and CISAP does not manufacture the equipment
until the Company orders it. The Company does not order the equipment
until it has received a letter of credit from the prospective client because the
Company could not sustain the loss if it were to pre-order the granulator and
then have the sales transaction fail. After the equipment is finished,
depending upon the location, it takes anywhere from six to eight weeks to
ship and install the granulator at the customers facility. Another problem is
that the Company must rely on the efforts of its officers and directors to
generate sales, in addition to their other duties, with such a small sales force
it has been difficult for the Company to establish any type of steady sales
volume. The extended period of time it takes for the Company to complete
a sales transaction is not atypical for the industry and poses a substantial
burden to entry on potential entrants into the industry.
The Company has struggled with these barriers to entry since
deciding to engage in the marketing of tire recycling equipment. Because
of the time required to complete sales transactions, the Company has
experienced cash flow difficulties. The Company has also encountered cash
flow difficulties because the tire recycling industry is highly competitive.
Some of the Company's competitors have longer operating histories and are
financially stronger than the Company which has made it difficult for the
Company to establish itself in the industry. The Company believes that the
equipment it sells is superior to the equipment used by its competitors in
several respects. The competing equipment tends to be large and require a
great deal of space, whereas the equipment sold by the Company is compact
and can be operated in smaller facilities. In addition, the principal method
used by many of its competitors to separate the rubber from the other
materials used in the tire is a cryogenic process which involves freezing the
tires. This process is more cumbersome and expensive than the process used
by the equipment sold by the Company. Further, the cryogenic process has
adverse effects on the elasticity of the rubber. Another advantage to the
equipment the Company sells is that the equipment can granulate the rubber
into many different sizes, which allows the Company's granulated rubber
(known in the industry as "crumb rubber") to be marketed for widely varying
uses from use as an additive to asphalt paving to use in the production of
interlocking tiles, mats and even carpet.
While sales volume has increased more slowly than hoped, the
Company has engaged in various sales transactions. Pursuant to its
agreement with CISAP, the Company has sold various sub-licenses. The
Company has entered into sub-license agreements in Utah and Canada. The
Company also entered into a sub-license agreement for the states of Arizona,
New Mexico and Colorado, however, it is the Company's opinion that this
sub-license is in default. The status of this license agreement is currently
being litigated. (See "Legal Proceedings" infra.) The Company had
negotiated a sub-license agreement in Mexico, however, in 1995, the
Mexican Group discontinued its sub-licensing agreement in default of the
agreement. The Mexican Group returned its licensing right to the Company
and forfeited the licensing fees it paid in 1995 and previous years. Also
during 1995, the Company restructured its relationship with its Canadian
licensee, Evergreen Recycling, Ltd., ("Evergreen"). The Company agreed
to cancel the outstanding accounts receivable on the Evergreen sub-license
in return for the cancellation of Evergreen's exclusive territorial right,
including its right to be the sole provider of CISAP equipment in Canada.
The Company also agreed to cancel the accounts receivable for the
equipment balance, in part due to problems in the delivery and set-up of the
equipment, in return for an equity interest in the Canadian company.
The Company has sold tire recycling equipment to facilities in
Canada, China, Saudi Arabia and Germany. The Company also purchased
equipment several years ago for use in a demonstrational facility the
Company setup in Wilmington, California. The facility was fully operational
and was used to demonstrate CISAP recycling equipment to potential
buyers. In March 1995, the Company closed the Wilmington facility and
began to use Evergreen's facility to demonstrate the tire recycling
equipment. The Canadian facility utilizes newer, larger capacity equipment
than the Wilmington facility and is a currently operating tire recycling
facility rather than merely a demonstrational facility. The Company is
currently storing the equipment from the Wilmington facility while it
contemplates selling the equipment or keeping it and establishing its own
fully functional recycling facility.
The Company currently has no employees. The Company contracts
with an employee service agency to provide office staff and secretarial
services. The Company relies heavily on the efforts of its President,
Ehrenfried Liebich, it also relies upon the services of various consulting
agencies including agencies owned and operated by Keith Fryer, a Company
Vice President and Director and John Pope, the Company Secretary,
Treasurer, a Vice President and Director. (See Item 12 Certain
Relationships and Related Transactions. )
Company Subsidiaries
The majority of the Company's business is transacted through its
85% owned subsidiary Eurectec. As discussed earlier, the Company
negotiated its licensing agreements with CISAP through Eurectec and the
Company uses Eurectec to market and sell the tire recycling equipment.
Eurectec also markets and sells sub-licenses for the Company. Eurectec was
formed in accordance with the laws of the State of Nevada in 1991. The
Company expects to enter into various other businesses most of which will
be related either directly or indirectly to the tire recycling industry.
Pursuant to that expectation, the Company has formed various subsidiaries of
Eurectec which will be used to transact the Company's business dealings in
these areas.
Eurectec International, Ltd., is a wholly owned subsidiary of
Eurectec. Eurectec International was established pursuant to the laws of the
Province of British Columbia and was incorporated in May 1991. The
Company setup Eurectec International to transact the international affairs of
the Company and its subsidiaries. The initial operations of Eurectec
International were funded from proceeds of sales made by Eurectec.
Eurectec International is currently engaging in business transactions.
Eurectec Industries, Ltd., is a wholly owned subsidiary of Eurectec.
Eurectec Industries was formed by the Company pursuant to
the laws of the Province of Alberta and was incorporated in February 1996.
The Company believes that many business opportunities may develop in the
tire recycling and related industries and Eurectec Industries was established
to take advantage of these opportunities. Particularly, the Company believes
that opportunities will develop for aftermarket products made from the
crumb rubber produced from tires. Should sufficient markets develop, the
Company expects to enter into the production of aftermarket products, the
assembly and sales of mixers and presses necessary to produce aftermarket
products, or any other tire recycling related industry. Eurectec Industries
is currently unfunded and transacting no business.
Pacific Rubber Recycling LTD, ("Pacific Rubber") is a wholly owned
subsidiary of Eurectec International. Pacific Rubber was organized pursuant
to the laws of the Province of British Columbia and was incorporated in
May 1995. When cash flow improves, the Company hopes to open its own
tire recycling facility. The Company organized Pacific Rubber to be the
entity that will purchase the equipment, setup a facility and handle the
operations of the facility. The Company currently has not decided upon a
time frame or location for establishment of a fully operational facility.
Pacific Rubber is currently unfunded and transacting no business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL STATEMENTS
Liquidity and Capital Resources
At December 31, 1995, the Company had cash of $26,140 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 1993 and most of 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.
Management believes that pending sales transactions to Florida, the
second phase of the Saudi project, and current sales activities, with the
loan arrangement reached during the 1995 year will provide sufficient
capital and liquidity to meet the company's needs.
Although the loss for the year ended December 31, 1995 ($634,268) is
larger than the loss in the year ended December 31, 1994 ($170,419), the
1995 loss includes an Accounts Receivable write off of $953,634 which is
a non cash expense and does not effect the Company's liquidity.
Net cash used in operations during the year ended December 31, 1995
increased to $188,443 compared to $58,849 in the year ended December
31, 1994. This resulted primarily from the receivables write offs, the
reduction of Customer deposits and expensing of prepaid commissions
because of the delivery of the phase one equipment package to Saudi
Arabia.
Accounts Receivable decreased in the year ended December 31, 1995 by
$453,182. Accounts Receivable increased $306,896 in 1994. Customer
deposit increased $488,938 in the year ended December 31, 1994 because
of the receipt of the deposit for the Saudi Arabia order. Customer deposits
were reduced $244,464 in 1995 with the application of that
amount to revenue because of the delivery of the first phase of the project.
Prepaid commissions were expensed in the year ended December
31, 1995, also, because of the delivery of the first phase of the Saudi
project.
Liquidity was unaffected by a sale to a German company as the cash
received roughly equalled the disbursement for cost of sales, however, the
portion of the sale taken as a note receivable ($345,000) should aid future
cash flow with quarterly payments beginning in June, 1996.
Because of the larger net loss, minority interest was reduced by $112,596
during the year ended December 31, 1995 compared to a reduction of
$28,403 during 1994.
The receipt of loan proceeds of $273,158 during the year ended December
31, 1995 allowed for a decrease in Accounts Payable of $136,579.
Accounts Payable had increased $385,674 in the year ended December 31,
1994 when there was no comparable loan account.
Arrangements have been made for further borrowing during 1996. The
Company received a loan in the year ended December 31, 1995 of $273,158
from a non US lender. The debt is due December 31, 1997 and is at an
interest rate of 16.67%. The Company has arranged, should the need arise,
that it will be able to borrow a like amount during 1996 at the same interest
rate and due date.
The Company has no material commitments for capital expenditures.
RESULTS OF OPERATIONS
Comparison of the year ended December 31, 1995, and the year ended
December 31, 1994.
Revenue for the year ended December 31, 1995 was $2,679,790. This is a
$1,110,830 or 70% increase over the revenues of $1,568,960 generated in
the year ended 1994. This change is the result of increased sales volume,
consisting of phase one of the Saudi project and the German sale. The
Company's sales are recorded only when the equipment is shipped and title
passes to the buyer. Typical sales are by letter of credit, with the funds being
released by the bank when the equipment is placed on the ship. The
Company's projects lend themselves to large, periodic revenue generation
rather than smaller amounts over smaller periods of time.
Cost of Sales consists of the equipment wholesale costs to the Company plus
freight and insurance, which are billed to the client. The increase in
equipment sales in the year ending December 31, 1995, results in an
increased cost of sales compared to 1994. Different ancillary pieces of
support equipment carry differing profit margins, but changes in support
equipment configurations are not sufficient as to constitute a change in
product mix as they merely support the company's line of tire granulators.
Commission expense for the year ended December 31, 1995 of $329,960
exceeded the 1994 expense of $113,000 by $216,960. This is due to the
increased sales and higher commission rates to secure the sales.
Travel expenses in the year ended December 31, 1995 exceeded 1994 by
$32,980. ($45,468 in 1995 vs. $12,288 in 1994). This was due to the efforts
of completing the Saudi Arabia sale, customer service prior years sales and
an increased domestic sales effort.
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 small office in an office building rather than
using a portion of the demonstration plant. This move took place at the end
of March, 1995. As a result of the move, leasehold improvements were
abandoned and abandonment expenses of $10,000 we recorded during the
three months ended March 31, 1995. The physical relocation was
accomplished with Company personnel at minimum incremental costs. Such
costs were under $2,000.
Occupancy related expenses were reduced as a result of the redefined space
needs. Office expense of $23,846 in the year ended December 31, 1995 are
a reduction of $11,587 (32%) from the 1994 expense of $35,433. Rent and
Utility expenses were reduced from $98,170 in the year ended December 31,
1994 to $57,221 in 1995. Administrative expense was reduced 47% from
the 1994 level of $131,700 to $69,301 in the year ended December 31, 1995
due primarily to reduction in administrative staff from 3 people in 1994 to
the use of contract services from an outside agency throughout the last three
quarters of 1995.
The use of outside consultants was reduced during 1995 and the expense
reduced from $274,478 in 1994 to $164,178 in 1995. Outside consultants
were used for production, marketing and finance and accounting during
1994 and for marketing and accounting in 1995.
Interest expense was increase during 1995 due to the loan arrangements and
borrowing completed during 1995.
During the quarter ended June 30, 1995, the Company restructured its
relationship with its 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 return of the license 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 off the entire receivable rather than establish an asset of uncertain
income generation potential.
During the year ended December 31, 1994, the Company sold and delivered
an minimum equipment package to a customer in mainland China. Ninety
percent of the purchase price was release under the terms of the letter of
credit at the time of shipment. The final 10% was to be released subsequent
to installation. Due to communication difficulties and misunderstandings,
the client has refused to release the balance and the letter of credit has
expired. The Company wrote off the balance of $98,136 during the year
ended December 31, 1995 as uncollectible.
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 investors, 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 year ended December 31, 1994, and the year ended
December 31, 1993.
For the year ended December 31, 1994, the Company had revenue of
$1,568,960. This revenue consisted of sales of equipment to China and
Canada ($1,398,960), sale of a licenses for the State of Utah ($120,000) and
a forfeiture of a deposit from Mexico ($50,000). Revenue for the year ended
December 31, 1993 was $745,712, which was from the sale of the territorial
license for Canada. Cost of Sales of $980,549 in 1994 relate to the
equipment sales only. No comparable cost was incurred in 1993 due to the
sales being an intangible.
Commission expenses of $113,000 were incurred in 1994 from the
equipment sales. No comparable expense was incurred in the year ended
December 31, 1993 as the license sale was generated by a company officer
who was not paid a commissions.
Depreciation Expense increased in the year ended December 31, 1994 due
to the leasehold improvements in the Eurectec, Inc. demonstration facility
opened in 1993 and to the additions to furniture and fixtures for that facility
in 1993 and 1994. Depreciation expense was $16,535 in 1994 compared to
$10,454 in 1993.
Occupancy related expenses related to the demonstration facility also
increased in the year ended December 31, 1994 compared to the year ended
December 31, 1993. Office expenses increase from $31,774 in 1993 to
$35,433 in 1994. Rent and Utility expense increased from $42,151 in 1993
to $98,170 in 1994. Administrative expense increased to $131,700 for 1994
compared to $66,907 in 1993.
Consultant expense increased in the year ended December 31, 1994 from
$78,191 in 1993 to $274,478. This increase was due to increased use of
consultants and the placing of three individuals on retainer to secure almost
full time use of their services in the fields of marketing, plant operations and
accounting and finance.
Interest expense increased from $22,684 in the year ended December 31,
1993 to $41,746 in the year ended December 31, 1994 due to the 1993
refinancing of the Company' property in Florida.
Item 3. Description of Property
On June 25, 1996 the Company entered into a new lease agreement
to lease an industrial conduminium in a multi-tenant building for use as its
principal executive office. The Company will pay $3281.00 per month in
return for 4,495 square feet. The building is located at Park Irvine Business
Center, 14771 Myford Road, Building B, Tustin, California 92780. Prior to
entering the lease, the Company had been leasing space in an executive
office complex and space in a storage facility on a month to month basis.
The new space the Company is leasing is sufficiently large to accomodate all
of its administrative and storage needs.
On March 25, 1991, the Company issued 250,000 shares of common
stock, restricted pursuant to Rule 144, to an unrelated third party to
purchase a residence and a boat house at 900 N.E. 78th Street, Miami,
Florida. The residence was constructed in 1936 and is assessed by Dade
County as having a value of $250,000. The property is currently subject to
a mortgage. The Company used the house as its corporate headquarters
when it was based in Miami. The Company sold the Miami property
because it was no longer needed. The Company sold the house to an
unrelated third party. A term of the sale was that the Company purchase the
adjoining lot from its current owner and sell that lot along with the property
owned by the Company to the third party. The Company acquired the lot
in early 1996, in an arms-length transaction with an unaffiliated third party.
The Company paid $65,000 for the lot, which was its fair market value. The
purchaser paid $382,500 for the Company's property and the adjoining lot,
this price is in accord with the fair market value of the combined properties.
The sale of the property closed on February 19, 1996 and the Company has
recieved the full purchase price from the buyer.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of April 18, 1996, the name and the
number of shares of the Registrant's Common Stock, par value $0.001 per
share, held of record or beneficially by each person who held of record, or
was known by the Registrant to own beneficially, more than 5% of the
9,456,696 issued and outstanding shares of the Registrant's Common Stock,
and the name and shareholdings of each director and of all officers and
directors as a group.
<TABLE>
<S> <C> <C> <C>
Title of Amount and Nature of Percentage
Class Name of Beneficial Owner Beneficial Ownership of Class
Common Ehrenfried Liebich 4,074,363 43.1%
Park Irvine Business Center
14771 Myford Road, Building B
Tustin, CA 90744
Common Keith J. Fryer 10,000 0.1%
Park Irvine Business Center
14771 Myford Road, Building B
Tustin, CA 90744
Common John F. Pope 131,000 1.4%
Park Irvine Business Center
14771 Myford Road, Building B
Tustin, CA 90744
Common Dr. Markus J. Lenger 0 0.0%
Park Irvine Business Center
14771 Myford Road, Building B
Tustin, CA 90744
Common Officers, Directors and Nominees
as a Group: 4,215,636 44.6%
</TABLE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The following table sets forth as of December 31, 1995, the name, age, and
position of each executive officer and director and the term of office of each
director of the Corporation.
<TABLE>
<S> <C> <C> <C>
Name Age Position Director or Officer Since
Ehrenfried Liebich 53 President March 1989
Director March 1989
Keith J. Fryer 46 Vice President March 1995
Director March 1995
John F. Pope 53 Vice President January 1991
Secretary January 1991
Treasurer January 1991
Director March 1989
Markus J. Lenger 31 Vice President February 1996
</TABLE>
All officers hold their positions at the will of the Board of Directors.
All directors hold their positions for one year or until their successors are
elected and qualified.
Set forth below is certain biographical information regarding each of
the Company's executive officers and directors:
Ehrenfried Liebich is the President and a Director of the Company. Mr.
Liebich was born and educated in Germany. After his formal secondary
education in Germany he joined the Merchant Marine, which he left as a
Ship's Officer with the Court Line, London, U.K. Mr. Liebich immigrated
to Canada in 1965 where he started various businesses in the areas of real
estate, investment, chemical distribution and electronics. In March of 1989
he became the President, a Director and controlling shareholder of the
Company. Mr. Liebich is not currently employed in any other business.
Keith J. Fryer is a Vice President and a Director of the Company. Mr. Fryer
was educated in England and graduated from the Cheshire College of
Further Education. He also studied at several UK colleges of management
and became a member of the Institute of Marketing London in 1974. He has
been a member of the Marketing Society London since 1989. He is also a
life member of the Wig & Pen Club, The Strand, London. Mr. Fryer
successfully operates Keith Fryer Associates England, a business he formed
in 1986, that provides consulting services in various business areas. In 1992
Mr. Fryer also established Keith Fryer Associates California, Inc. Mr. Fryer
became a Vice President and Director of the Company in March 1995. Mr.
Fryer is not currently employed in any other business.
John F. Pope is the Secretary, Treasurer, a Vice President and a Director of
the Company. Mr. Pope received a B.S. degree in business administration
from Seton Hall University in 1963. He has also done post-graduate study
at New York University and University of Miami. Mr. Pope has been
certified as a Certified Management Accountant by the Institute of
Management Accountants. From November 1987 through January 1991,
Mr. Pope was self-employed as an independent financial consultant to
various public and private companies. Mr. Pope became a Company
Director in March 1989. He became the Secretary, Treasurer and a Vice
President of the Company in January 1991. In addition to his duties as an
officer and director of the Company, to which Mr. Pope dedicates
approximately 20 hours a week, Mr. Pope continues to operate his
independent financial consulting firm, John F. Pope, Inc., which he founded
in 1992.
Dr. Markus J. Lenger became a Company Vice President in February 1996.
Dr. Lenger received a B.S. in electronic engineering from The University in
St. Gallen Switzerland. He also has a Doctorate degree in high energy
physics from the Max Plank Institute in Munich, Germany. Dr. Lenger was
a Vice President of Research and Development for Green Earth
Technologies from September 1993 to May 1995. He was also a Vice
President of Research and Development with BioVersal from January 1989
to November 1991. Dr. Lenger has eight years experience in developing
bioremediation technologies. His technologies have been used in Europe to
successfully decontaminate more than 600,000 tons of highly contaminated
soil. Dr. Lenger also spent eight months in Valdez, Alaska during the Exxon
Valdez oil spill where he developed systems for waste water processing, soil
remediation and biological mixed surfactant systems. Dr. Lenger was self-
employed during the eight months he spent in Alaska. Dr. Lenger is not
currently employed in any other business.
Except as indicated below, to the knowledge of management, during
the past five years, no present or former director, executive officer or person
nominated to become a director or an executive officer of the Company:
(1) filed a petition under the federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer appointed
by a court for the business or property of such person, or any partnership in
which he was a general partner at or within two years before the time of
such filing, or any corporation or business association of which he was an
executive officer at or within two years before the time of such filing;
(2) was convicted in a criminal proceeding or named subject of a
pending criminal proceeding (excluding traffic violations or other minor
offenses);
(3) was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from or otherwise
limiting, the following activities;
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, associated person of any of the foregoing, or
as an investment advisor, underwriter, broker or dealer in securities, or as
an affiliate person, director or employee of any investment company, or
engaging in or continuing any conduct or practice in connection with such
activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the purchase
or sale of any security or commodity or in connection with any violation of
federal or state securities laws or federal commodities laws;
(4) was the subject of any order, judgment, or decree, not
subsequently reversed, suspended, or vacated, of any federal or state
authority barring, suspending, or otherwise limiting for more than 60 days
the right of such person to engage in any activity described above under this
Item, or to be associated with persons engaged in any such activity;
(5) was found by a court of competent jurisdiction in a civil action
or by the Securities and Exchange Commission to have violated any federal
or state securities law, and the judgment in such civil action or finding by the
Securities and Exchange Commission has not been subsequently reversed,
suspended, or vacated
(6) was found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any
federal commodities law, and the judgment in such civil action or finding by
the Commodity Futures Trading Commission has not been subsequently
reversed, suspended or vacated.
Compliance with Section 16(a) of the Exchange Act
The Company is not subject to the requirements of Section 16(a) of
the Exchange Act.
Item 6. Executive Compensation.
The following table sets forth certain summary information
concerning the compensation paid or accrued for each of the Registrant's last
three completed fiscal years to the Registrant's or its principal subsidiaries
chief executive officers and each of its other executive officers that received
compensation in excess of $100,000 during such period (as determined at
December 31, 1995, the end of the Registrant's last completed fiscal year).
<TABLE>
Summary Compensation Table
<S> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
Annual Compensation Awards Payouts
Name and Other Restricted All
Principal Bonus Annual Stock Options/ LTIP Other
Position Year Salary $ Compensation Awards SARs Payout Compensation
Ehrenfried 1995 -0- -0- -0- -0- -0- -0- -0-
Liebich 1994 -0- -0- -0- -0- -0- -0- -0-
President 1993 -0- -0- -0- -0- -0- -0- -0-
Director
John F. Pope 1995 -0- -0- $31,400 -0- -0- -0- $31,400(1)
Secretary/ 1994 -0- -0- $60,000 -0- -0- -0- $60,000(1)
Treasurer 1993 -0- -0- $ 8,833 -0- -0- -0- $ 8,833(1)
Director
Gayle Hickok 1995 -0- -0- -0- -0- -0- -0- -0-
Vice 1994 -0- -0- $12,000 -0- -0- -0- $12,000(2)
President 1993 -0- -0- -0- -0- -0- -0- -0-
Director
Kieth J. 1995 -0- -0- $77,950 -0- -0- -0- $77,950(3)
Fryer Vice 1994 -0- -0- -0- -0- -0- -0- -0-
President 1993 -0- -0- -0- -0- -0- -0- -0-
Director
</TABLE>
(1) Mr. Pope provided consulting services to the Company through his private
consulting business, John F. Pope, Inc. Mr. Pope was paid this money for
accounting and financial services he provided for the Company as an independent
contractor of the Company and not as salary paid to Mr. Pope as an officer of
the Company. These services were provided to the Company on terms at least as
could have been negotiated with an independent party.
(2) Mr. Hickok provided various services to the Company and this money was
paid directly to Mr. Hickok for those services. This money was paid to him as
an independent contractor and not as a salary for services rendered by Mr.
Hickok in his capacity as an officer of the Company. These services were
provided to the Company on terms at least as favorable as could have been
negotiated with an independent party.
(3) Mr. Fryer provided consulting services to the Company through his private
consulting business, Keith Fryer Associates California, Inc. Mr. Fryer was paid
this money for services he provided for the Company as an independent contractor
and not a salary paid to Mr. Fryer as an officer of the Company. These sevices
were provided to the Company on terms at least as favorable as could have been
negotiated with an independent party.
Cash Compensation
None.
Bonuses and Deferred Compensation
None.
Compensation Pursuant to Plans
None.
Pension Table
None
Other Compensation
None.
Compensation of Directors
None.
Termination of Employment and Change of Control Arrangement
There are no compensatory plans or arrangements, including
payments to be received from the Company, with respect to any person
named in Cash Compensation set out above which would in any way result
in payments to any such person because of his resignation, retirement, or
other termination of such person's employment with the company or its
subsidiaries, or any change in control of the Company, or a change in the
person's responsibilities following a changing in control of the Company.
Item 7. Certain Relationships and Related Transactions.
On December 31, 1995 the Company borrowed directly from
Ehrenfried Liebich an amount equaling $58,701. The loan is non-interest
bearing and is payable on demand. Mr. Liebich is the President, a Director
and a beneficial owner of more than 5% of the Company s outstanding
Common Stock. All of these funds were utilized to provide the Company
with needed working capital. This loan was made on terms at least as
favorable as terms the Company could have negotiated with an independent
third party.
Keith Fryer provided consulting services to the Company through
Keith Fryer Associates California, Inc., his private consulting business. Mr.
Fryer is a Company Vice President and a Director. Keith Fryer Associates
California was paid $77,950 for consulting services rendered by Keith Fryer
during 1995. These services were provided on terms at least as favorable as
could have been negotiated with an independent third party.
John Pope provided consulting services to the Company through his
private consulting business John F. Pope, Inc. Mr. Pope is a Company Vice
President, the Secretary and Treasurer and a Director. John F. Pope, Inc.,
was paid $31,400 for accounting and financial services which John Pope
rendered during 1995. These services were provided on terms at least as
favorable as could have been negotiated with an independent third party.
Item 8. Description of Securities.
The Company is presently authorized to issue 50,000,000 shares of
$.001 par value Common Stock. All Shares, when issued, will be fully paid
and nonassessable. All shares are equal to each other with respect to
liquidation and dividend rights. Holders of voting shares are entitled to one
vote for each share they own at any Shareholders' meeting.
Holders of Shares of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, and upon liquidation are entitled to participate pro-rata
in a distribution of assets available for such a distribution to Shareholders.
There are no conversion, pre-emptive or other subscription rights or
privileges with respect to any Shares.
The Common Stock of the Company does not have cumulative
voting rights which means that the holders of more than 50% of the voting
shares voting for election of directors may elect all of the directors if they
choose to do so. In such event, the holders of the remaining Shares
aggregating less than 50% will not be able to elect any directors.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters.
The Company's common stock is listed in the "Pink Sheets" published by the
National Quotation Bureau, Inc. ("NQB"), under the symbol "QTMG". As
of April 18, 1996, the Company had 264 shareholders holding 9,456,696
shares of common stock. Of the issued and outstanding common stock,
2,213,749 are free trading, the balance are restricted stock as that term is
used in Rule 144. The Company has never declared a dividend on its
Common Stock.
The published bid and ask quotations for the previous two fiscal
years and the first quarter of 1996 are included in the chart below. These
quotations represent prices between dealers and do not include retail
markup, markdown or commissions. In addition, these quotations do not
represent actual transactions.
<TABLE>
<S> <C> <C> <C> <C>
1996 BID PRICES ASK PRICES
HIGH LOW HIGH LOW
Jan. 2 thru
Mar. 29 7/16 1/16 7/8 5/8
Apr. 1 thru
Mar. 29 3/16 1/8 3/4 3/4
July 1 thru
Sept. 6 1/8 1/8 3/4 3/4
1995
Jan. 3 thru
Mar. 31 1/4 1/8 7/8 1/2
Apr. 3 thru
June 30 3/16 1/16 13/16 5/8
July 3 thru
Sept. 29 3/16 1/16 13/16 9/16
Oct. 2 thru
Dec. 29 3/16 1/16 13/16 7/16
1994
Jan. 3 thru
Mar. 31 Not Trading
Apr. 1 thru
Apr. 14 Not Trading
Apr. 15 thru
June 30 1 3/8 1/2 2 1 1/4
July 1 thru
Sept 30 3/4 1/8 1 1/2 3/4
Oct. 3 thru
Dec. 30 3/8 1/16 1 3/8 1/2
</TABLE>
On March 25, 1991, the Company granted stock options to acquire
500,000 shares of its common stock at $1.00 per share to its officers and
other related parties. These options expire five years from the date of
issuance. As of December 31, 1995, none of the options had been exercised.
As of the date of this filing, all of the options expired unexercised.
Item 2. Legal Proceedings.
On March 6, 1995 Herbert and Isabel Kuglmeier commenced an
action against the Company in Federal District Court in the State of Utah.
The Kuglmeiers also named Eurectec and Ehrenfried Liebich, the Company's
President, as defendants in this action. The Kuglmeiers allege that the
Company is liable for breaching certain contracts pertaining to the exchange
of various Nevada mining claims for licenses to operate tire recycling
facilities in three states. The Kuglmeiers seek to recover $275,000 from the
Company for breach of contract. In addition, the Kuglmeiers allege that the
Company, Eurectec, and Liebich, are jointly and severally liable for
fraudulent representations regarding tire recycling technologies available to
the Company. The Kuglmeiers seek to recover $221,000 plus interest for
compensatory damages, $900,000 punitive damages, plaintiffs' costs and
attorney's fees for said representations. The Company plans to vigorously
defend itself in this action based on the Kuglmeiers' failure to fulfill their
contractual duties with regard to the Nevada mining claims.
The Company, Eurectec and Liebich have filed a counterclaim
against the Kuglmeiers for breach of contract and fraudulent representations
regarding the Nevada mining claims. The Company is seeking damages in
the amount of at least $300,000, as well as cost and attorney fees.
Discovery in this matter is currently underway. The final Pre-Trial
Conference is set for June 26, 1996 and the Company expects a trial date to
be set at that time. At this time the Company is unable to predict the
outcome of this proceeding.
Item 3. Changes in and Disagreements with Accountants.
None.
Item 4. Recent Sales of Unregistered Securities.
The following persons acquired shares of common stock of the
Registrant in transactions exempt from registration under section 4(2) of the
Securities Act of 1933. The Registrant did not pay any sales commissions
or discounts to any person for the cash sales of any shares. All shares were
sold in isolated private transactions not involving any public solicitation or
offering.
<TABLE>
<S> <C> <C> <C>
Date Name Number of Shares Consideration
2-12-93 Seemonger, N.V. 418,806 SPI Shares
9-17-93 Diaji Yamada 60,000 $50,000.00
10-18-94 Mike Holt 12,000 Services
</TABLE>
Item 5. Indemnification of Directors and Officers.
There are no provisions in the Nevada corporation law or the
Articles of Incorporation of the Registrant requiring the corporation to
indemnify any of the Registrant officers and directors. The by-laws of the
registrant provide for indemnification as follows:
No officer or director shall be personally liable for any
obligations arising out of any acts or conduct of said officer or director
performed for or on behalf of the Corporation. The Corporation shall and
does hereby indemnify and hold harmless each person and his heirs and
administrators who shall serve at any time hereafter as a director or officer
of the Corporation from and against any and all claims, judgments and
liabilities to which such persons shall become subject by reason of any
action alleged to have been heretofore or hereafter taken or omitted to have
been taken by him as such director or officer, and shall reimburse each such
person for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability; including power to defend such
person from all suits as provided for under the provisions of the Nevada
Corporation Laws; provided, however that no such person shall be
indemnified against, or be reimbursed for, any expense incurred in
connection with any claim or liability arising out of his own negligence or
willful misconduct. The rights accruing to any person under the foregoing
provisions of this section shall not exclude any other right to which he may
lawfully be entitled, nor shall anything herein contained restrict the right of
the Corporation to indemnify or reimburse such person in any proper case,
even though not specifically herein provided for. The Corporation, its
directors, officers, employees and agents shall be fully protected in taking
any action or making any payment or in refusing so to do in reliance upon
the advice of counsel.
The indemnification herein provided shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer or employee and shall inure
to the benefit of the heirs, executors and administrators of such a person.
PART F/S
Financial Statements
THE QUANTUM GROUP, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1995
&
DECEMBER 31, 1994
<PAGE>
Independent Auditors Report
Board of Directors
The Quantum Group, Inc., and Subsidiaries
I have audited the accompanying balance sheets of The Quantum
Group, Inc., and Subsidiaries, as of December 31, 1995 and 1994, and the
related statements of operations, stockholders equity, and cash flows for the
years ended December 31, 1995, 1994, and 1993. These financial
statements are the responsibility of the Company s management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and the
significant estimates made by management, as well as evaluating the overall
financial statements presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the aforementioned financial statements present fairly,
in all material respects, the financial position of The Quantum Group, Inc.,
and Subsidiaries, as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years ended December 31, 1995, 1994,
and 1993, in conformity with generally accepted accounting principles.
(s)Darrell Scvaneveldt
Darrell Scvanveldt
Salt Lake City, Utah
March 27, 1996<PAGE>
<TABLE>
The Quantum Group Inc., and Subsidiaries
Balance Sheets
December 31, 1995 and 1994
<S> <C> <C>
December December
31, 1995 31, 1994
ASSETS
Current Assets
Cash $ 26,140 $ 822
Accounts Receivable 179,963 633,145
Inventory 490,579 503,479
Deposit on Inventory 424,820 424,820
Employee Advance -0- 7,816
Note Receivable 34,500 -0-
Total Current Assets 1,156,002 1,570,082
Property & Equipment
Leasehold Improvements -0- 11,000
Furniture & Fixtures 10,693 18,114
Residential Property 236,586 240,009
Vehicles 2,248 5,246
Total Property & Equipment 249,527 274,369
Other Assets
Notes Receivable 310,500 -0-
Account Receivable -0- 326,249
Loan Receivable 38,750 38,750
Investment 6,250 6,250
Deposit 661 8,996
Prepaid Insurance -0- 984
Prepaid Commissions -0- 273,500
Other Assets 356,161 654,729
TOTAL ASSETS $ 1,761,690 $ 2,499,180
The accompanying notes are an integral part of these financial statements<PAGE>
The Quantum Group, Inc., and Subsidiaries
Balance Sheet - Continued
December 31, 1995 and 1994
December December
31, 1995 31, 1994
LIABILITIES & STOCKHOLDERS EQUITY
Current Liabilities
Accrued Expenses $ 226,856 $ 90,277
Accounts Payable 476,379 525,596
Due Officers 58,701 128,601
Customer Deposits 244,474 488,938
Franchise Tax Payable -0- 34,785
Capitalized Lease Payable 16,741 16,741
Current Maturities 1,964 1,964
Total Current Liabilities 1,025,115 1,286,902
Long Term Liabilities
Note Payable 273,158 -0-
Vehicle Note Payable 4,781 6,778
Mortgage Payables 165,000 165,000
Less Current Maturities (1,964) (1,964)
Total Long Term Liabilities 440,975 169,814
Minority Interest in Subsidiary 107,837 220,433
Stockholders Equity
Common Stock 50,000,000 Shares
Authorized; Par Value of $0.001
Per Share
9,456,696 Shares Issued 9,457 9,457
Paid In Capital 1,676,763 1,676,763
Accumulated Deficit (1,498,457) (864,189)
Total Stockholders Equity 187,763 822,031
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY $ 1,761,690 $ 2,499,180
The accompanying notes are an integral part of these financial statements<PAGE>
The Quantum Group Inc., and Subsidiaries
Statements of Operations
For the Years Ended December
31, 1995, 1994 and 1993
December December December
31, 1995 31, 1994 31, 1993
Revenues
Equipment Sales $ 2,679,790 $ 1,398,960 $ -0-
License Sales -0- 120,000 745,712
Other Income -0- 50,000 -0-
Total Revenues 2,679,790 1,568,960 745,712
Cost of Sales 1,688,947 980,549 -0-
Gross Profit 990,843 588,411 745,712
Expenses
Commission 329,960 113,000 -0-
Depreciation 14,342 16,535 10,454
Amortization -0- 113 1,113
Taxes -0- -0- 9,397
Travel 45,468 12,488 17,856
Professional Fees 46,925 63,566 46,885
Office 23,846 35,433 31,774
Rent & Utilities 57,221 98,170 42,151
Administrative Expenses 69,301 131,700 66,907
Consultant Fees 164,178 274,478 78,191
Interest 69,617 41,746 22,684
Accounts Receivable
Written Off 953,634 -0- -0-
Total Expenses 1,774,492 787,229 327,412
Net Profit or (Loss)
From Operations (793,649) (198,818) 418,300
The accompanying notes are an integral part of these financial statements<PAGE>
The Quantum Group Inc., and Subsidiaries
Statements of Operations -Continued-
For the Years Ended December
31, 1995, 1994 and 1993
December December December
31, 1995 31, 1994 31, 1993
Other Income & (Expenses)
Sale of Securities Previously
Written Off 12,500 -0- -0-
Asset Abandonment (10,500) -0- -0-
Write Down of Securities -0- -0- (44,271)
Total Other Income & (Expense) 2,000 -0- (44,271)
Net Profit or (Loss) (781,649) (198,818) 374,029
Taxes & Minority Interest
Minority Interest 112,596 28,399 (72,852)
Provisions for Taxes 34,785 -0- (34,785)
Total Taxes & Minority
Interest 147,381 28,399 (107,637)
Net Profit or (Loss) $ (634,268) $ (170,419) $ 266,392
Net Profit or (Loss) Per Share (.07) (.02) .04
Weighted Average Shares
Outstanding 9,456,696 9,456,696 8,832,672
The accompanying notes are an integral part of these financial statements <PAGE>
The Quantum Group, Inc., and Subsidiaries
Statements of Stockholders Equity
From January 1, 1993 to December 31, 1995
Common Stock Paid In Accumulated
Stock Amount Capital Deficit
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 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 Year Ended
December 31, 1994 (170,419)
Balance,
December 31, 1994 9,456,696 9,457 1,676,763 (864,189)
Loss for Year Ended
December 31, 1995 (634,268)
Balance,
December 31, 1995 $ 9,456,696 $ 9,457 $ 1,676,763 $ (1,498,457)
The accompanying notes are an integral part of these financial statements<PAGE>
The Quantum Group, Inc., and Subsidiaries
Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash Flows from Operating Activities
Net Profit or (Loss) $ (634,268) $ (170,419) $ 266,392
Adjustments to Reconcile Net Profit
or (Loss) to Net Cash:
Amortization & Depreciation 14,342 16,648 11,567
Non Cash Expenses -0- 12,000 46,914
Gain on Sale TSI Stock (12,500) -0- -0-
Loss on Abandonment of Asset 10,500 -0- -0-
Reserve for Discontinued Operations -0- (25,000) -0-
Minority Interest (112,596) (28,403) 72,852
Changes in Operating Assets & Liabilities:
(Increase) Decrease in Accounts
Receivable 453,182 (306,896) (326,249)
(Increase) Decrease in Inventory 12,900 1,535 (125,437)
(Increase) Decrease in Deposit on Inventory -0- (150,000) (274,820)
Decrease (Increase) in Long-Term
Accounts Receivable 326,249 -0- (326,249)
Decrease (Increase) in Long-Term
Loan Receivable 7,816 (7,816) -0-
(Increase) Decrease in Prepaid Insurance 984 974 (1,958)
Decrease (Increase) in Prepaid
Commissions 273,500 (273,500) -0-
(Increase) Decrease in Deposits 8,335 (600) (7,735)
(Increase) Decrease in Notes
Receivable (345,000) -0- -0-
Increase (Decrease) in Accrued
Expenses 136,579 (1,984) 46,753
Increase (Decrease) in Accounts
Payable (49,217) 385,674 (89,072)
(Decrease) Increase in Tax Payable (34,785) -0- 34,785
(Decrease) Increase in Customer
Deposits (244,464) 488,938 -0-
Net Cash (Used) by Operating
Activities (188,443) (58,849) (672,257)
The accompanying notes are an integral part of these financial statements<PAGE>
The Quantum Group, Inc., and Subsidiaries
Statements of Cash Flows -Continued-
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash Flows from Investing Activities
Gross Proceeds from Sale TSI Stock 12,500 -0- -0-
Purchase of Leasehold Improvements -0- -0- (15,000)
Purchase of Vehicles -0- -0- (8,994)
Additions to Residential Property -0- -0- (2,688)
Purchase of Furniture -0- (3,684) (3,017)
Increase in Loan Receivable -0- -0- (38,750)
Increase in Security -0- -0- (6,250)
Net Cash Provided (Used) by
Investing Activities 12,500 (3,684) (74,699)
Cash Flows from Financing Activities
Payment on Long Term Debt (1,997) (1,751) -0-
Increase (Decrease) in Notes Payable 273,158 -0- 8,529
Increase (Decrease) in Amounts
Due Officers (69,900) 58,545 (157,067)
Sales of Common Stock -0- -0- 850,243
Net Cash Provided by Financing
Activities 201,261 56,794 701,705
Increase (Decrease) in Cash 25,318 (5,739) (45,251)
Cash at Beginning of Period 822 6,561 51,812
Cash at End of Period $ 26,140 $ 822 $ 6,561
Disclosures from Operating Activities:
Interest $ 69,617 $ 41,746 $ 22,684
Taxes -0- -0- 34,785
Significant Non Cash Transactions:
12,000
Shares Common Stock Issued to
Pay Commissions $ -0- $ 12,000 $ -0-
The accompanying notes are an integral part of these financial statements
/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 Systems, 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 the 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 rights to import and market equipment used
in the tire recycling industry. 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 state 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 directly related expenses are recognized in the period
when the goods are shipped to the customer.
(C) The Company considers all short term, highly liquid investments that
are readily convertible, within three months, to known amounts as cash
equivalents. The Company currently has no cash equivalents. <PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #2 - Significant Accounting Policies -Continued-
(D) Primary Earnings Per Share amounts are based on the weighted
average number of shares outstanding at the dates of the financial
statements. Fully Diluted Earnings Per Shares shall be shown on stock
options and other convertible issues that may be exercised within ten years
of the financial statement dates.
(E) Inventories: Inventories are stated at the lower of cost, determined
by the FIFO method or market.
(F) Consolidation Policies: The accompanying consolidated financial
statements include the accounts of the company and its majority - owned
subsidiary. Intercompany transactions and balances have been eliminated in
consolidation.
(G) Foreign Currency Translation / Remeasurement Policy: The
company has no on site operations in foreign countries. All purchases and
sales in foreign countries are concluded in American dollars. If at future
dates assets and liabilities occur in foreign countries they will be recorded
at historical cost and translated at exchange rates in effect at the end of the
year. Income Statement accounts are translated at the average exchange
rates for the year. Translation gains and losses shall be recorded as a
separate line item in the equity section of the financial statements.
(H) Depreciation: The cost of property and equipment is depreciated
over the estimated useful lives of the related assets. The cost of leasehold
improvements is depreciated (amortized) over the lesser of the length of the
related assets or the estimated lives of the assets. Depreciation is computed
on the straight line method for reporting purposes and for tax purposes.
(I) Issuance of Subsidiary s Stock: The Company has elected to
accounts for shares issued by its subsidiary as an equity transactions.
NOTE #3 - Inventory and Deposits
In November 1992, Eurectec, Inc., a subsidiary purchased a granulator
compact 3000 machine from an Italian manufacturer for $605,000 (DM), or
$379,577 (USD). In 1993, Eurectec, Inc., purchased equipment, paid
import fees thereon, freight, and set up fees for an additional $125,437
(USD) bringing the inventory to $505,014 (USD) at December 31, 1993.
In 1994, the Company received credit from the manufacturer adjusting the
total inventory to $503,479 (USD). In 1995, the Company used a Model
66 Electric De-
Beader
machine with a cost of $12,900 (USD) to settle
claims for consulting fees by a former employee.
In 1993, the Company deposited with CISAP (the Italian manufacturing
firm) $274,820 (USD) for future purchases of equipment. This deposit was
increased to $424,820 (USD) in 1994, and remain on deposit at 1995.
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #4 - Noncash Investing and Financing Activities
Texas Securities, Inc.:
On December 6, 1990, the Company issued to Texas Securities, Inc., (TSI),
100,000 shares of its common stock, restricted as to Rule 144, for
1,000,000 shares of stock of TSI. At the date of the exchange TSI, was
trading at $.25 to $.30 per share. Inasmuch as shares exchanged were
restricted and the Company acquired approximately 9% of the shares
outstanding. The shares received were valued at $75,000, which was
approximately 9% of the book value of the stockholders equity of TSI, as
per their audited financial reports at year end July 31, 1990.
In 1991, the Company made adjustments reducing its investments in TSI,
based upon the audited financial statements of TSI. In 1992, the Company s
position in TSI, did not decline and no revaluation was made. In 1994, TSI
filed bankruptcy in North District Bankruptcy Court of Texas. Because of
the uncertainty created by the bankruptcy filing as a subsequent event, the
Company has written off its entire investment in TSI.
In 1995, an unrelated party and a stockholder of TSI offered to buy the
Company s shares in TSI to enhance his position for a lawsuit he sought to
bring against TSI. The Company sold him 500,000 shares of the TSI stock
for $12,500.
Residential, Real Estate
Dade County, Florida:
Pursuant to an agreement dated March 25, 1991, the Company issued
250,000 shares of its common stock restricted, as to Rule 144 to an
unrelated seller in consideration for a residence and a boat house in Miami,
Florida. At the time of the exchange, shares of the Company were trading
for $1.50 to $2.50 per share. The residence constructed in 1936 is assessed
by Dade County, as having a value of $250,000. Other real estate valuation
techniques were applied and found that similar properties were selling at
approximately the same price or higher. (See Note #18 Subsequent Events).
Yacht:
In July 1991, the Company issued 330,000 shares of its common stock,
restricted as to Rule 144, to acquire a yacht from an unrelated seller in
Spain. The Company intended to transport the yacht to Florida to use in its
promotional efforts of its franchise centers efforts with Food Nutritional
Products. When the Company suspended its operations in the acupuncture
and nutritional supplement field, it also did not bring the yacht to the U.S.
and has written the yacht off retro-actively to its acquisition date. Financial
statements have been restated reflecting the issuance of the shares but no
assets acquired.
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #5 - Stock Options
On March 25, 1991, the Company granted stock options to acquire 500,000
shares of its common stock at $1.00 per share, expiring five years from
option date to its officers and other related parties. No shares were issued
pursuant to the options and they expired prior to the date of this report.
In 1992, the Company s subsidiary Eurectec, Inc., issued options to
perspective investors to purchase 2,800,000 shares of its common stock,
restricted as to Rule
144k
, of the 1933 Securities Act. These options were
exercised in 1993.
NOTE #6- Capitalized Lease Payables
During 1991, the Company purchased two copiers and a computer using the
capital lease option method.
<TABLE>
<S> <C> <C> <C> <C>
Lease Interest Total
Term Cost Factor Obligation
Compute 48 $10,450 $5,419 $15,869
Copiers 36 8,250 3,559 11,809
Total $18,700 $8,978 $26,678
Lease obligations on these leases were as follows:
<S> <C>
1993 $ 6,994
1994 7,628
1995 2,119
Total $ 16,741
</TABLE>
In 1992, the Company defaulted on the leases but retains the equipment,
both lessors had demanded payment of the obligation, but have not pursued
these demands.
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #7 - Notes Payable
<TABLE>
The Company has the following notes payable obligations.
<S> <C> <C>
1995 1994
Notes Payable to a Non U.S.
Entity, Stated in US Dollars:
No Collateral: Due December 31,
1997, Interest at 16.67% $273,158 $-0-
Notes Payable to an Auto Leasing
Company, Monthly Payments for
36 Months of $176.13 4,781 6,778
Mortgage Payable on Florida
Residential Property, Due
January 9, 1999, Interest at 13.5% 165,000 165,000
Total Notes Payable 442,939 171,778
Less Current Obligation (1,964) (1,964)
Net Long Term $440,975 $169,814
</TABLE>
NOTE #8 - Other Lease Commitments
The Company leased office space and industrial space at Wilmington,
California. In March of 1995, the Company negotiated a termination of the
lease and moved the inventory to a warehouse facility. The Company did not
incur any cost as a result of the lease termination. The Company currently
rents office space in a shared office complex on a month to month basis
and warehouse space in Compton, California on a month to month basis.
NOTE #9 - Depreciation
The Company capitalizes the purchase of equipment and fixtures for major
purchases in excess of $1,000 per item. Capitalized amounts are depreciated
over the useful life of the assets using the straight-line method of
depreciation.
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #9 - Depreciation -Continued-
Scheduled below are the assets, costs, lives, and accumulated depreciations
at December 31, 1995 and December 31, 1994.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, Depreciation Accumulated
1995 1994 Expense Deprecation
Assets Cost Cost Life 1995 1994 1995 1994
Furniture
& Fixture $37,103 $37,103 5 $7,421 $7,114 $26,410 $18,989
Vehicles 8,994 8,994 3 2,998 2,998 6,746 3,748
Leasehold
Improvements -0- 15,000 5 506 3,000 -0- 4,000
Residential
Property 102,688 102,688 30 3,423 3,423 16,102 12,679
Residential Land 150,000 150,000 --- -0- -0- -0- -0-
Totals $298,785 $313,785 $14,348 $16,535 $49,258 $39,416
</TABLE>
NOTE #10 - Notes Receivable
1995 1994
Notes Receivable from Sale of Equipment
to A. Geist of Hecklingen, Germany,
$500,000 Deutsche Marks Converted
at $.69, Payable $20,990 USD
Quarterly at 8% Interest $345,000 $-0-
NOTE #11 - Compensation Agreement
The Company has no agreements with its officers and directors to pay any
compensation, except for reimbursement for out of pocket expenditures for
activities on the Company s behalf.
The Company has no accrued vacation or other employee benefits that
should be recognized as part of these statements.
NOTE #12 - License Agreement
Eurectec, Inc., (a subsidiary) holds a license granted by CISAP, SpA (an
Italian Corporation), which grants exclusive rights and license to technology
and plant operations for tire recycling and recovery facilities in North and
Central America. The Company's subsidiary Eurectec, Inc., has the right to
sublicense the technology. Eurectec, Inc., has a sublicense in Utah.
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #12 - License Agreement -Continued-
The subsidiary exchanged a license in Colorado, Arizona, and New Mexico,
for mining claims in Nevada. (See Notes #1 and #19).
The mining leases were obtained from Mr. Herbert Kugelmeier and Mrs
Isabel Kugelmeier. Mr. Kugelmeier was unable to provide the company
with unencumbered title to the leases on the mining properties. The
Company maintains that it never had valid unencumbered title to the mining
properties, and that the default actually occurred prior to the time that the
Kugelmeiers purported to make the transfer. Mr Kugelmeier was
required
by the license acquisitor to purchase equipment from the subsidiary for the
operation of the license. He failed to do this.
The Company acknowledges the default of a Mexican group who
discontinued it s sub-licensing efforts. The Mexican Group returned the
licensing right and forfeited the licensing fees recognized in 1994.
During 1995, the Company restructured its relationship with its Canadian
licensee. Due to change in ownership, the objectives of the Canadian group
also changed. The Company agreed to cancel the outstanding accounts
receivable of $625,000 for the Canadian license in return for the license
rights to the Company. The Company also agreed to cancel the accounts
receivable of $230,000 for the 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
off the entire receivable rather than establish an asset of uncertain income
generation potential.
NOTE #13 - Related Party Transactions
The Company has reimbursed two of its officers for travel and entertainment
funds for services related to the Company s business. Scheduled below are
payments for reimbursed expenses, consulting, accounting and financial
services by related parties
<TABLE>
<S> <C> <C> <C>
Accounting &
Reimbursed Consulting Financial
Expenses Fees Services
1995
Keith Fryer $ 8,501 $ 77,950 $ -0-
John Pope -0- -0- 31,400
Gayle Hickok 2,600 -0- -0-
1994
Keith Fryer 17,325 128,420 -0-
John Pope 1,100 -0- 60,000
Gayle Hickok -0- 12,000 -0-
1993
John Pope 1,048 -0- 8,833
Keith Fryer 4,994 -0- 16,433
</TABLE>
An officer of the Company has loaned the Company $128,601 at December
31, 1994, and $58,701 at December 31, 1995 to fund its operations. The
loan is non interest bearing and is due on demand.
NOTE #14 - Net Operating Loss Carryforward for Income Tax Purposes
The Company has incurred losses that can be carried forward to offset future
earnings if conditions of the Internal Revenue Codes are met. These losses
are as follows:
Year of Expiration
Loss Amount Date
1992 $ 670,375 2007
1993 -0- 2008
1994 198,818 2009
1995 746,864 2010
The Company has adopted FASB 109 to account for income taxes. The
Company currently has no issues that create timing differences that would
mandate deferred tax expense. Net operating losses would create
possible tax assets in future years. Due to the uncertainty as to the
utilization of net operating loss carryforwards an evaluation allowance
has been made to the extent of any tax benefit that net operating losses
may generate.
1995 1994
Current Tax Asset Value of Net
Operating Loss Carryforwards at
Current Prevailing Federal Tax Rate $ 549,500 $ 295,525
Evaluation Allowance (549,500) (295,525)
Net Tax Asset $ -0- $ -0-
Current Income Tax Expense $ -0- $ -0-
Deferred Income Tax Expense -0- -0-
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #15 - Minority Interest
The Company s subsidiary Eurectec, Inc., has issued 4,812,000 shares of its
common stock to minority interest since its inception in 1992. All of these
shares have been sold to non U.S. persons pursuant to regulations in
Germany.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Minority Interest
Total
Shares Percentage Par Paid in Retained Minority
Issued Owned Value Capital Earnings Interest
1993 4,812,000 15.62 4,812 $161,083 $82,941 $248,836
1994 4,812,000 15.62 4,812 161,083 54,538 220,433
1995 4,812,000 15.62 4,812 161,083 (58,058) 107,837
</TABLE>
The minority investment in the subsidiary is 4,812,000 shares purchased for
$414,578 in 1992 and $619,487 in 1993. Minority interest holds 15.62%
of issued shares of the subsidiary and the minority interest incurred a dilution
of $868,170 upon investment, and $58,058 in accumulated losses for 1995.
In 1994 minority interest increased by its shares of accumulated earnings of
$54,538.
NOTE #16 - Securities & Loan Receivables
On June 8, 1993, the Company became a 10% minority interest holder in
Eurectec Deutschland GmbH. The Company invested $6,250 (USD) in the
Company and loaned to them $38,750 (USD). The loan is payable on
demand and carries no interest factor.
Eurectec Deutschland GmbH had has no operations at December 31, 1995,
1994 and 1993. In 1995, it acted as agent for the Company in a sales
transaction with a German buyer. The Company incurred no expenses to
Eurectec Deutschland for its service.
The loan is a demand loan payable thirty days after demand is made.
However, the Company does not anticipate making any demand for payment
in the near future.
NOTE #17 - Accounts Receivable Written Off
In 1995, the Company made adjustments to accounts receivables for sales
made in prior periods.
Canadian License Fees $ 652,498
Canadian Equipment 230,000
Chinese Equipment Sal 71,136
Total Accounts Written Off $ 953,634
NOTE
#18 - Subsequent Events
On February 16, 1996, the Company concluded provisions of the escrow
agreement entered into in 1995, and sale of the residential property in
Florida was concluded. As a term of the sale the Company purchased the
adjoining lot from its current owner for $65,000 and sold it to the purchaser.
The purchaser has agreed to pay $382,500 for the company s property and
the adjoining lot. The company believes that the price is in accord with the
fair market value of the combined properties.
NOTE #19 - Litigation Matters
The Company s subsidiary Eurectec, Inc., has been named as a defendant in
a suit brought be Herbert & Isabel Kuglmeier. The suit alleges breach of
contract with regard to the exchange of certain mining claims in the state of
Nevada for licenses to operate tire recycling plants in three states. The suit
seeks to recover from the Company $275,000 in damages.
The Company plans to vigorously defend itself in the action based on the
failure of the Kuglmeiers to provide audited cost, (known as predecessor
costs) of the mining claims, failure to provide claims that can have
capitalized values and failure to provide the Company with unencumbered
titles to the mining claims.
Further the Company feels that the allegations are in large part based upon
erroneous assumptions, not contained in the contractual agreements.
NOTE #20 - Export Sales
The Company s sales have occurred in foreign countries and the aggregate
sales to unaffiliated customers in foreign countries exceeds 10% of the total
revenues.
<TABLE>
<S> <C> <C> <C>
Country 1995 Sales 1994 Sales 1993 Sales
Canada $ 630,000 $ 745,713
China 888,960
Mexico 50,000
Saudi Arabia $ 2,024,290
Germany 655,500
Total $ 2,679,790 $ 1,568,960 $ 745,713
</TABLE>
NOTE #21 - Stock Issuance by Subsidiary
In 1993, the Company s subsidiary Eurectec, Inc., issued 2,385,423 at $0.25
per shares of its common stock to outsiders. This sale decreased the
Company ownership in the subsidiary from 91.50% to 84.38%. The
subsidiary received in U.S. dollars $619,487.
PART III
Item 1. Index and Description of Exhibits.
2.01 Articles of Incorporation, as amended Incorporated by Reference
2.02 Bylaws Incorporated by Reference
6.01 CISAP License Agreement Incorporated by Reference
6.02 Canadian License Agreement Incorporated by Reference
6.03 1990 Non-Qualified Stock Option Plan Incorporated by Reference<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated:
The Quantum Group, Inc.
Date: September 19, 1996 By: /s/ Ehrenfried Liebich
Ehrenfried Liebich, President and
Director (Principal Executive
Officer)
Date: September 19, 1996 By: /s/ John F. Pope
John F. Pope, Principal Financial
and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Date: September 19, 1996 By: /s/ Ehrenfried Liebich
Ehrenfried Liebich, Director
Date: September 19, 1996 By: /s/ Keith J. Fryer
Keith J. Fryer, Director
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED YEAR END 1995 BALANCE SHEET, INCOME STATEMENT AND PROFIT AND LOSS
STATEMENT OF THE QUANTUM GROUP, INC., AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH AUDITED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 26,140
<SECURITIES> 6,250
<RECEIVABLES> 349,250
<ALLOWANCES> 0
<INVENTORY> 490,579
<CURRENT-ASSETS> 1,156,002
<PP&E> 249,527
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,761,690
<CURRENT-LIABILITIES> 1,025,115
<BONDS> 0
0
0
<COMMON> 9,457
<OTHER-SE> 1,676,763
<TOTAL-LIABILITY-AND-EQUITY> 1,761,690
<SALES> 2,679,790
<TOTAL-REVENUES> 2,679,790
<CGS> 1,688,947
<TOTAL-COSTS> 1,774,492
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,617
<INCOME-PRETAX> (793,649)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (634,268)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
