United States
Securities and Exchange Commission
Washington, DC 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 Number
September 30, 1996 0-23812
THE QUANTUM GROUP, INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or
organization)
95-4255962
(I.R.S. Employer Identification No.)
Park Irvine Business Center
14771 Myford Road, Bldg. B.
Tustin, CA, 92780
(Address of principal executive offices)
(714)-508-1470
(Registrant's telephone number, including area code)
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(d) 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 registrants
classes of common equity, as of the latest practicable date.
Common stock, par value $.001; 9,456,696 shares outstanding
as of November 15, 1996
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE QUANTUM GROUP, INC.
&
Subsidiaries
FINANCIAL STATEMENTS
Three Months and Nine Months ended September 30, 1996
Three Months and Nine Months Ended September 30, 1995
<TABLE>
<CAPTION>
THE QUANTUM GROUP, INC.
BALANCE SHEETS
(UNAUDITED)
<S> <C> <C> <C>
September 30, September 30, December 31,
1996 1995 1995
ASSETS
CURRENT ASSETS
Cash $25,767 $3,895 $26,140
Accounts Receivable 580,384 76,896 179,963
Inventory 490,579 503,479 490,579
Deposit on Invetory 424,820 424,820
License Rights 476,816
Loans Receivable 38,750 38,750 38,750
Employee Receivable 34,500 34,500
_________ _________ _________
Total Current Assets 1,646,797 1,047,840 1,194,752
PROPERTY & EQUIPMENT
Furniture and Fixtures 15,363 12,780 10,693
Residential Property 236,519 236,586
Vehicles 299 2,996 2,248
_________ _________ _________
Total Property 15,662 252,295 249,527
& Equipment
OTHER ASSETS
Notes Receivable 310,500 310,500
Securities 6,250 6,250 6,250
Deposit 661 661 661
Organization
Prepaid Commissions 67,415 273,500
_________ _________ _________
Total Other Assets 384,826 280,410 317,411
___________ ___________ ___________
Total Assets $2,047,285 $1,580,545 $1,761,690
=========== =========== ===========
/TABLE
<PAGE>
THE QUANTUM GROUP, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
September 30, Septmeber 30, December 31
1996 1995 1995
LIABILITIES & SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Accrued Expenses $181,098 $120,277 $226,856
Accounts Payable 299,879 703,692 476,379
Due Officers 89,863 137,966 58,701
Customer Deposits 243,986 488,938 244,474
Franchise Tax Payable 23,345
Capitalized Leases 16,741 16,741 16,741
Current Maturities 1,964 1,964
__________ _________ _________
Total Current 854,912 1,469,578 1,025,115
Liabilities
LONG TERM LIABILITES
Note Payable 626,705 273,158
Vehicle Note Payable 5,478 4,781
Mortgage Payable 165,000 165,000
Less Current Maturites (1,964) (1,964)
__________ __________ __________
Total Long Term 626,705 168,514 440,975
Liabilities
Minority Interest in 143,597 58,384 107,837
Subsidiary
STOCKHOLDER'S EQUITY
Common stock, 50,000,000 shares
authorized 9,456,696
shares outstanding
in 1995 & 1996 9,457 9,457 9,457
Paid in Capital 1,678,363 1,676,763 1,676,763
Accumulated Deficit (1,265,749) (1,802,151) (1,498,457)
__________ __________ __________
Total Stockholders' 422,071 (115,931) 187,763
Equity __________ __________ __________
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $2,047,285 $1,580,545 $1,761,690
========== ========== ==========
</TABLE>
THE QUANTUM GROUP, INC
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Three Nine Three Nine Twelve
Months Months Months Months Months
ended ended ended ended ended
September September September September December
30, 1996 30, 1996 30, 1995 30, 1995 31, 1995
REVENUE
Equipment Sales $1,662,149 $2,443,698 $19,401 $57,201 $2,679,790
License Sales 35,000 35,000
__________ __________ __________ __________ ___________
Total Revenues 1,697,149 2,478,698 19,401 57,201 2,679,790
COSTS OF SALES 1,046,223 1,504,036 21,239 21,239 1,688,947
__________ __________ ___________ __________ __________
Gross Profit 650,926 974,662 (1,838) 35,962 990,843
EXPENSES
Commission 47,936 117,936 329,960
Depreciation 3,159 8,367 3,384 10,152 14,342
Amortization 12,439 20,731
Taxes 26,122 66,778 7,730 19,232 45,468
Travel 10,000 5,000 11,000 46,925
Office 19,312 56,095 986 3,351 23,846
Rent & Utilities 28,689 59,144 6,827 31,868 57,221
Administration 23,247 112,258 9,488 50,707 69,301
Expenses
Consulting Fees 62,377 224,698 51,803 146,295 164,178
Interest 10,205 31,692 5,667 17,655 69,178
Accounts Receivable 882,498 953,634
Written Off
_________ _________ _________ _________ _________
Total Expenses 223,486 707,699 90,885 1,172,758 1,774,492
_________ _________ _________ _________ _________
Net Profit or 417,440 266,963 (92,723) (1,136,796) (783,649)
(Loss) from
Operations
NON OPERATING EXPENSES
Write Down of Securities 12,500 12,500
Abandonment of Asset (10,500) (10,500)
Gain on Sale of Asset 24,850
___________ _________ __________ __________ ________
Profit or (Loss) 417,440 291,813 (92,723) (1,134,796) (783,649)
Provision for 23,345 23,345 (34,785) (34,785)
Taxes
Minority Interest 52,493 35,760 (13,241) (162,049) (112,596)
Provision for Taxes ______ _______ ________ _________ _________
& Minority Interest 75,838 59,105 (13,241) (196,834) (147,381)
Net Profit or (Loss)______ _______ ________ _________ _________
After Tax & Minority
Interest $341,602 $232,708 ($79,482) ($937,962) ($634,268)
======== ========= ========= ========== ==========
Net Profit or (Loss)
Per Share $0 $0 ($0) ($0) ($0)
Weighted Average
SharesOutstanding 9,456,696 9,456,696 9,456,696 9,456,696 9,456,696
</TABLE>
THE QUANTUM GROUP, INC
STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMMON STOCK PAID IN ACCUMULATED
CAPITAL DEFICIT
SHARES AMOUNT
Balance,
January 1, 1993 8,506,090 $8,506 $958,637 ($980.162)
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 (170,419)
December 31,1994 __________ ________ _________ __________
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)
__________ ________ _________ __________
Sale of Shares by
Subsidiary
(Eurectec, Inc.) 1,600
Profit Nine Months ended
September 30, 1996 232,708
___________ ________ __________ __________
Balance,
September 30, 1996 9,456,696 9,457 1,678,363 (1,265,749)
=========== ======= ========== =========
</TABLE>
THE QUANTUM GROUP, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NINE MONTHS NINE MONTHS YEAR
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1995 1995
Cash Flows From
Operating Activities
Net Profit (Loss) $232,708 ($937,962) ($634,268)
Adjustments to reconcile
net profit or (loss)
to net cash:
Amortization &
Depreciation 29,098 11,574 14,342
Non Cash Expenses
Loss on Abandonment
of Asset 10,500
Minority Interest 35,760 (132,049) (112,596)
Changes in Operating
Assets & Liabilities
(Increase)Decrease in
Accounts Receivable (400,421) 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)Decrease 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 (45,758) 136,579
Increase(Decrease) in
Accounts Payable (176,500) 178,096 (49,217)
Increase(Decrease) in
Tax Payable 23,345 (34,785) (34,785)
Increase in Customer
Deposits (488) (244,464)
_________ _________ __________
Net Cash Generated
(Used) by Operating
Activities (442,398) (15,785) (175,943)
__________ _________ _________
THE QUANTUM GROUP, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
Continued
NINE MONTHS NINE MONTHS YEAR
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
Cash Flows From
Investing activities
Purchase (Abandonment)
of Leasehold Improvements 10,500
Purchase of Vehicle
Sale of Residential
Property 236,586
Purchase of Furniture (11,089)
Increase in Loans Receivable
Increase in Security
Net Cash Provided (Used) _________ _________ _________
by Investing Activities 225,497 10,500
Cash Flows From
Financing Activities
Payment of Long Term Debt (1,300) (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 31,162 9,365 (69,900)
Sale of Common Stock 1,600
________ _________ _________
Net Cash Provided by
Financing Activities 216,528 8,065 201,261
________ _________ _________
Increase(Decrease)
in Cash (373) 3,073 25,318
Cash at Beginning
of Period 26,140 822 822
________ _________ __________
Cash at end of Period $25,767 $3,895 $26,140
======== ========= ==========
</TABLE>
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 1, 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 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
September 30, 1996
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 September 30, 1996.
The Quantum Group, Inc. and Subsidiaries
Notes to Financial Statements - Continued
Note # 1 - 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 as cash.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
STATEMENTS
Liquidity and Capital Resources
At September 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 nine months ended September 30, 1996, the Company's
net cash used in operations was $442,398 compared to cash
utilized of $15,492 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.
In the nine months ended September 30, 1996, receivables increased
$400,421, due primarily to the addition of retainage on projects
shipped. Accounts payable in the nine months ended September 30,
1996 decreased by $176,500 and accrued expenses deceased $45,758
compared to increases of $178,096 and $30,000 respectively, in the
nine months ended September 30, 1995 adding to cash utilization.
The Company purchased a license for tile manufacturing reduced cash
by $497,547 (less the note payable of $353,547 reflected as a
financing activity).
Customer deposits were applied to purchases resulting in only a
minor change $488. The utilization of deposits on inventory of
$424,829 partially offset the cash outflows.
Investing Activities consisted of the proceeds from the sale of the
Company's residential property in Miami, Florida, during the first
quarter, and the purchase furniture and fixtures of $11,089 in the
third quarter of 1996. This purchase was of telephone and computer
equipment for the new office. Abandonment of Assets of $10,500
was the only activity in the nine months ended September 30, 1995.
Financing activity in the nine months ended September 30, 1996
consisted of cash sources from the increase of Notes Payable which
is the non cash portio of the tile license referred to above, of an
increase in advances from officers of $31,1620 and $1,600 from the
exercise of a stock option in the Company's subsidiary, Eurectec,
Inc. Cash was utilized in the payoff of the mortgage on the sale
of the Company's Miami property ($165,000) and the payoff of the
vehicle note($4,781). During the nine months ended September 30,
1995, financing activity consisted of an increase in the amounts
due offices of $9,365 reduced by a pay down of $1,300 on the
vehicle note.
The Company has no material commitments for capital expenditures.
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 1996, and the
three months ended September 30, 1995.
The Company had revenue of $1,697,149 during the three months ended
September 30, 1996 compared to $19,401 for the same three months of
1995. The 1996 Revenue consisted of Equipment sales to Saudi
Arabia of $1,1662,149 and the sale of a license in Florida for
$35,000.
Depreciation expense of $3,159 is only slightly less than the
comparable period last year because of the sale of the residential
property in the prior quarter, offset by adding depreciation for
the furniture and fixtures purchased during the third quarter of
1996. Amortization expense of $12,439 in the current quarter is
due to the signing of the tile license agreement. This agreement
is for five years beginning June, 1996, no such charge was made in
the prior year.
Travel Expense ($26,122 vs. $7,730), Office Expense ($19,312 vs.
$986), Administrative Expense ($23,247 vs. $9,488) and Consulting
Fees ($62,377 vs. $51,803) all increased in the quarter ended
September 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 charge of $52,34,111 in the third quarter of
1996, which compares to a credit of $13,241 for the same quarter of
1995 because of the profit in 1996 rather than the loss for the
same quarter 1995.
Tax expense of $23,345 is provided in the third quarter of 1996.
This provision is for state taxes only, as California does not have
loss carry back provisions similar to federal tax rules. No
provision was made in 1995 due to the loss.
Comparison of the nine months ended September 30, 1996, and the
nine months ended September 30, 1995.
Revenues for the nine months ended September 30, 1996 are
$1,697,149 compared to $57,201 in the comparable 1995 period. This
is due to the delivery of Eurectec, inc. Equipment to Saudi in
1996, and the sale of a license in Florida. The cost of goods sold
is larger in 1996 for the same reason.
Amortization Expense of $20,731 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 nine
months ended September 30, 1996 as compared to the nine months
ended September 30, 1995 due to increased sales activities and to
the preparation of the molded tile line.
Because there were no significant sales in the nine months ended
September 30, 1995, no commissions were paid. The delivery of the
Saudi equipment in 1996 caused $117,936 of commission expense to
be paid or accrued in the nine months ending September 30, 1996.
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.
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 September 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.
November 15, 1996 /S/ Ehrenfried Liebich
Ehrenfried Liebich
Chairman of the Board,
President, and
Chief Executive Officer
November 15, 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 THIRD 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 25,767
<SECURITIES> 6,250
<RECEIVABLES> 310,500
<ALLOWANCES> 0
<INVENTORY> 490,579
<CURRENT-ASSETS> 1,646,797
<PP&E> 15,662
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,047,285
<CURRENT-LIABILITIES> 854,912
<BONDS> 0
0
0
<COMMON> 9,457
<OTHER-SE> 1,678,363
<TOTAL-LIABILITY-AND-EQUITY> 2,047,285
<SALES> 2,478,698
<TOTAL-REVENUES> 2,478,698
<CGS> 1,504,036
<TOTAL-COSTS> 707,699
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224,698
<INCOME-PRETAX> 266,963
<INCOME-TAX> 23,345
<INCOME-CONTINUING> 232,708
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232,708
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
