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, 1997 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 Center, 14771 Myford Road, Building 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; 3,153,232 shares outstanding
as of November 11, 1997
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See pages F-1 to F-9 attached
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
General
- -------
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 has been the Company's business since the beginning of 1993.
Sales generally take six to eighteen months to complete. Some cash flow is
generated by customer deposits and miscellaneous charges when a contract is
signed. however, the bulk (generally 80%) of the cash flow is released to the
Company when the product is shipped. Contracts often provide for a final
payment, generally 10% of the contract amount, to be paid when installation is
completed.
Based on the periodic nature of these payments and the ongoing nature of
administrative expenses, the Company intends to increase, beginning in 1997, the
initial payment made when sales agreements are executed and obtain the full
balance when equipment is delivered. In addition, the Company has negotiated
financing arrangements whereby the letters of credit, opened by equipment
purchasers to secure payment of equipment, will be used as collateral for short
term borrowing by the Company. The Company believes that these arrangements
will eliminate many of the cash flow timing problems the Company has experienced
in the past.
The Company's unsecured loans received in 1995 and 1996 from German lenders
are due December 31, 1997. The balance due for rights to technology purchased
from Rothbury Engineering Limited is current and final payment is also due
December 31, 1997. The Company anticipates the amount due the German lenders
and Rothbury will be paid from working capital generated from future period
sales. However, the Company it is also discussing revision of terms with the
two lenders in the event the Company cannot meet its debt obligations at year
end.
Atlanta Rubber Recycling, Inc. Agreement
- ----------------------------------------
Atlanta Rubber Recycling, Inc. has been unable, to date, to raise the
required funds to proceed with their purchase commitments. The Company is
aggressively seeking alternative buyers for the equipment, held in Company
inventory, previously reserved for Atlanta Rubber Recycling, Inc. Presently,
two companies are considering purchasing the CISAP 3000 system held in
inventory. However, to date, the Company has not received any firm commitments
for purchase of the CISAP 3000 system.
Mexico Agreements
- -----------------
The Company's project with Mexico Recycling Technology, is on schedule.
During the first half of 1997, the Company received revenue and cash flow from
the pre equipment delivery phases of the contracts. The initial Phase 1
equipment package was shipped in July, 1997, has been received and is being
installed with completion scheduled for November, 1997. The Company recognized
$2,160,4975 revenue during this third quarter of 1997 from the equipment portion
of the contract.
Negotiations for Phase 2 and Phase 3, representing approximately $1,900,000
and $700,000 respectively, are expected to be concluded during the fourth
quarter of 1997.
The Company anticipates finalizing an agreement with Mexico Recycling
Technology for additional Press equipment to manufacture heated tile units and
continuous roll materials under license from Eurectec. It is expected that the
agreement will be signed in November, 1997 and is valued at approximately
$850,000.
Saudi Agreements
- ----------------
Negotiations for a Phase 3 contract of the Saudi project are continuing.
The Company expects to finalize these negotiations in the fourth quarter of
1997, with equipment delivery scheduled for the second half of 1998. Phase 1
and Phase 2 equipment installation is scheduled to being during the first
quarter of 1998.
Nevada Environmental Technologies, Inc. Agreement
- -------------------------------------------------
Nevada Environmental Technology, Inc. is in the process of raising the $10
to $12 million dollars for the project which includes the $7,500,000 equipment
contract value. It is anticipated that Nevada Environmental Technology, Inc.
should be able to provide a clear indication of their funding status and time
lines by year end. The Company does not anticipate equipment delivery until
1999.
Waste Resources Reclamation Agreement
- -------------------------------------
Negotiations have been completed with Waste Resources Reclamation and the
Company anticipates entering a final agreement by the first quarter of 1998,
following fund raising by Waste Resources Reclamation.
Eco-Etch Agreement
- ------------------
The Company is engaged in negotiations with IN.TEC, GmbH, a German
environmental technology firm, for the exclusive North American distribution
rights to the marketing of the "ECO-ETCH system. ECO-ETCH is the brand name
given to new technology for the recycling and recovery of etching solutions used
in the printed circuit board manufacturing industry. The Company is currently
in the process of finalizing the technology distribution rights for ECO-ETCH.
Phoenix Environmental Group, Inc.
- ---------------------------------
Phoenix Environmental Group, Inc. anticipates building a recycling park in
Detroit, Michigan with initial park development commencing the first quarter of
1998. Phoenix has secured a large site close to the Detroit International
Airport and has prepared a detailed Project Feasibility Study for the recycling
park. The recycling park would include a tire recycling facility and Phoenix
Environmental Group, Inc. has delivered a letter of commitment with the Company
to employ Eurectec technology for the tire recycling facility. Phoenix is in the
process of fund raising to initiate the Detroit project. Phoenix also
anticipates similar recycling park projects in Montana and Texas and plans to
employ Eurectec technology for tire recycling facilities.
Seagal Ventures, Inc.
- ---------------------
Seagal Ventures, Inc., located in the Philippines, is a tile products
manufacturer. The Company has already supplied approximately $80,000 worth of
mixing equipment and binder/coloring materials. Currently, the Company and
Seagal are negotiating a regular monthly shipment of binder/coloring and
possibly adhesive for bonding tiles. The Company anticipates finalizing this
agreement during November, 1997, which may also include the sale of a
granulator.
Current Negotiations
- --------------------
The Company is proceeding with sales discussions and negotiations with
qualified international prospects in Germany, The United Kingdom, and the
Philippines and domestically with prospects in Michigan, New York and Kentucky.
As of September 30, 1997, agreements have not been finalized. The Company
continues pursuing discussions and anticipates one or more of these sales will
be signed and sales deposits received in the fourth quarter of 1997 and/or early
1998.
Web Site
- --------
As part of the Company's ongoing emphasis on global communication, the Web
Site has recently been updated to reflect a number of new products. The Web
Site also includes press releases and detailed information on the Company. The
Company's Web Site address is http//:www.eurectec.com.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1997, the Company had cash of $89,198.
Management believes that proceeds from current equipment sales and license
fees, together with pending sales will provide sufficient capital and liquidity
to meet the company's needs for the next twelve months.
The general business outlook continues to be favorable and ParaDynamiX, a
financial consulting firm, has been engaged by the Company to prepare a detailed
funding plan reflecting the expectations and implementation of the Company's
strategic plan. Once the detailed funding plan is completed, it will be used to
negotiate with potential underwriters and market makers to raise funds for the
Company. Any capital fund raising by the Company would be used for working
capital needs, overhead costs, marketing and promotion plans, new product
developments, debt reduction and increased management team. ParaDynamiX is
scheduled to commence its task in November, 1997 and complete the detailed
funding plan by the end of 1997.
During the first half of 1997, the Company's net cash generated by
operations was $188,041, compared to cash generated of $55,148 during the first
nine months of 1996. In the comparable 1996 period the Company had an increase
of accounts receivable of $400,421 and a decrease in accounts payable of
$176,500 partially off set by a decrease in deposits on inventory of $424,820.
This activity resulted from the delivery of Phase one of the Saudi Project and
revenues and cash flow from the Mexico contract. During the nine months ended
September 30, 1997, the Company reduced accounts payable by $90,766. The large
difference between net cash generated by operations during the first nine months
of 1997 and 1997 is solely the result of the timing of the shipments on large
projects and is not indicative of future trends or Company activity.
During the first nine months of 1997, the Company generated $2,576,792 in
revenues, primarily from the Mexico contract. During the comparable 1996 period,
revenues were $2,443,698. The 1996 revenues were primarily from the Saudi
project.
The Company generated a net profit of $167,776 in the nine months ended
September 30, 1997 compared to a net profit during the same period of $232,708
in 1996.
Accounts receivable of $220,979 are $161,343 less than the September 30,
1996 balance. The Company collected the final payment of phase two of the Saudi
contract ($184,522) during the second quarter of 1997.
Inventory increased during the first nine months of 1997 by $27,457. This
increase is in tile production raw materials for the SMS machine.
Accounts payable at September 30, 1997 of $114,566 are $244,791 less than
the September 30, 1996 balance of $ 359,357 and is a reduction of $90,766 since
December 31, 1996. Accrued Expenses increased to $178,288 at September 30, 1997
from $133,192 at September 30, 1996. The September 30, 1997 balance is an
increase of $19,466 from December 31, 1996. This increase represents an
increase $49,717 in accrued interest, reduced by $30,251 in cash payments.
1996 Investing Activities consisted of the sale of the Company's
residential property in Miami, Florida, and the purchase of the Rothbury license
agreement during the half of 1996. The company added $24,773 capital
improvements to the SMS Machine during in the current year. Additionally, the
shares issued to the Company as part of the Nevada Environmental Technologies
Inc, agreement are shown as an investment during the nine months ended September
30, 1997.
Financing activity in the nine months ended September 30, 1997 consisted
of a decrease in advances from officers of $30,676 compared to an increase of
$31,163 in 1996. In 1996 the company paid off of the mortgage on the sale of
the residential property and the paid off the vehicle note. There were no
comparable transaction in the nine months ended September 30, 1997. In 1996 the
Company borrowed the funds to purchase the SMS machine.
RESULTS OF OPERATIONS
- ---------------------
Comparison of the three months ended September 30, 1997 and the three months
- ----------------------------------------------------------------------------
ended September 30, 1996.
- -------------------------
The Company generated revenue of $2,335,640 during the three months ended
September 30, 1997. $1,662,149 of revenue was generated in the same period of
the prior year. The 1997 revenue is for the equipment for phase one the Mexico
contract. The differences in revenue for the two periods is the result of the
project nature of the Company's business an is not indicative of a trend in
revenue or Company activities.
Depreciation expense increased from $3,159 to $12,253 due to the purchase
in 1996 of the SMS press equipment and the addition of molds to it in 1997.
Travel Expenses of $12,353 in the third quarter 1997 are $13,769 less than
the $26,689 incurred for travel during the same quarter of 1996. Office
expenses declined during the third quarter of 1997 compared to the third quarter
in 1996 from $19,312 to $9,303 These expenses had been higher in 1996 due to
the administration of the Saudi project.
Interest expenses increased because of the financing of the SMS press
equipment. $10,205 of interest expense was incurred in the third quarter of
1996. The third quarter 1997 interest expense is $18,239.
Minority Interest is $47,865 for the three months ended September 30, 1997.
The minority interest was $52,993 for the quarter ended September 30, 1996.
During the first nine months of 1996, the minority interest in Eurectec, Inc.,
the Company's subsidiary was 12.5%.The minority interest was increased in late
1996 to 20%, and this rate was applied throughout the first nine months of 1997.
Income tax expense of $15,317 represents California income tax accrued for
the nine months ended September 30, 1997. The Company has the benefit of a tax
loss carry forward for Federal Income taxes, but no such provision is in the
California law. The 1996 tax expense for the nine months ended September 30,
1996 of $23,345 is based on a higher pre-tax profit, and is also only a
provision for state income taxes.
Comparison of the nine months ended September 30, 1997 and the nine months ended
- --------------------------------------------------------------------------------
September 30, 1996.
- -------------------
The Company had revenue of $2,576,791 in the nine months ended September
30, 1997. Revenue of $2,443,698 was generated in the same period of the prior
year. The 1996 revenue reflects the shipment of part one of the Saudi project.
The 1997 revenue is for the Mexico contact and the sale of the license agreement
to Nevada Recycling Technologies, Inc. The difference in revenue for the two
periods is the result of the timing of shipments of large contracts and is not
indicative of a trend in revenue or Company activities.
Commission expense of $70,000 was recognized on the completion of phase one
of the Saudi sale in the three months ended September 30, 1996. Commissions of
$37,000 were paid during the three months ended March 31, 1997, but treated as
prepaid as they relate to the equipment portion of the Mexico contract. These
commissions were expensed in the third quarter of 1997 as the sale revenue was
recognized.
Depreciation expense increase from $8,367 to $35,484 due to the purchase in
1996 of the SMS press equipment and the addition of molds to it in 1997.
Office and Administrative expenses declined during the 1997 period. These
expenses had been higher in 1996 due to the implementation and project
management costs associated with the Saudi project.
Interest expenses increased because of the financing of the SMS press
equipment.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
The Company's issued and outstanding common shares were reverse split
1 for 3, effective July, 1997.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(A) Reports on Form 8-K
On July 14, the Company filed a Report on Form 8-K reporting under Item 5.
Other Events, the one for three reverse split of the Company's issued and
outstanding common shares. No other reports on Form 8-K were filed, or
required to be filed, during the quarter ended September 30, 1997.
(B) Exhibits. The following exhibits are included as part of this report:
Exhibit SEC Exhibit Title of Document Location
Number Ref. Number
------- ----------- ------------------------------- ----------
10.1 10 Phoenix Environmental Group, Inc. Attached
Commitment Letter
27 27 Financial Data Schedule Attached<PAGE>
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 11, 1997
_________________________
Ehrenfried Liebich
Chairman of the Board, President, and
Chief Executive Officer
November 11, 1997
_________________________
John F. Pope
Vice President, Finance
Chief Accounting Officer
<PAGE>
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 11, 1997 /s/ Ehrenfried Liebich
__________________
Ehrenfried Liebich
Chairman of the Board, President, and
Chief Executive Officer
November 11, 1997 /s/ John F. Pope
_____________
John F. Pope
Vice President, Finance
Chief Accounting Officer
<PAGE>
THE QUANTUM GROUP, INC.
&
Subsidiaries
FINANCIAL STATEMENTS
Three Months and Nine Months Ended September 30, 1997
Three Months and Nine Months Ended September 30, 1996
<PAGE>
THE QUANTUM GROUP, INC. (F-1)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30, December 31,
1997 1996 1996
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 89,198 $ 210,192 $ 6,602
Accounts Receivable 220,979 382,322 204,522 Inventory 518,036 490,579 490,579
Loan Receivable 0 0 0
Note Receivable 0 83,960 0
-------------- -------------- --------------
Total Current Assets 828,213 1,167,053 701,703
PROPERTY & EQUIPMENT
Furniture and Fixtures 4,953 6,986 10,651
Residential Property 0 0 0
Vehicles 0 749 0
Equipment 165,131 0 170,144
-------------- -------------- --------------
Total Property & 170,084 7,735 180,795
Equipment
OTHER ASSETS
Cash Pledged 5,122 0 5,122
Accounts Receivable 0 254,221 0
Loan Receivable 0 38,750 0
Securities 100,000 6,250 0
License Rights 427,061 489,255 464,377
Deposit 3,281 661 3,281
Tax Benefit Deferred 80 0 80
Prepaid Commissions 0 67,415 0
-------------- -------------- --------------
Total Other Assets 535,544 856,552 472,860
-------------- -------------- --------------
Total Assets $ 1,533,841 $ 2,031,340 $ 1,355,358
============== ============== ==============
</TABLE>
<PAGE>
THE QUANTUM GROUP, INC. (F-2)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30, December 31,
1997 1996 1996
-------------- -------------- --------------
<S> <C> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued Expenses $ 178,288 $ 133,192 $ 158,822
Accounts Payable 114,566 359,357 205,332
Due Officers 120,480 81,701 151,152
Customer Deposits 2,500 648,920 0
Franchise Tax Payable 14,589 0 0
Capitalized Leases 0 16,741 0
Current Maturities 785,197 266,871 785,197
Note Payable 50,000 0 0
-------------- -------------- --------------
Total Current Liabilities 1,265,620 1,506,782 1,300,503
LONG TERM LIABILITIES
Note Payable - Machinery 170,519 0 170,519
Note Payable - Technology 347,547 0 347,547
Note Payable 267,131 620,418 267,131
Less Current Maturities (785,197) (266,871) (785,197)
-------------- -------------- --------------
Total Long Term 0 353,547 0
Liabilities
Minority Interest
in Subsidiary 130,329 81,049 84,739
STOCKHOLDER'S EQUITY
Common stock, 50,000,000
shares authorized
3,152,232 shares
outstanding 3,152 3,152 3,152
Paid in Capital 1,684,668 1,684,668 1,684,668
Accumulated Deficit (1,549,928) (1,597,778) (1,717,704)
-------------- -------------- --------------
Total Stockholders' 137,892 90,042 (29,884)
Equity
TOTAL LIABILITIES & -------------- -------------- --------------
STOCKHOLDERS' EQUITY $ 1,533,841 $ 2,031,420 $ 1,355,358
============== ============== ==============
</TABLE>
<PAGE>
THE QUANTUM GROUP, INC. (F-3)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Nine Three Nine Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
September September September September December
30, 1997 30, 1997 30, 1996 30, 1996 31, 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE
Equipment Sales $2,335,640 $2,576,792 $1,662,149 $2,443,698 $2,872,679
License Sales 0 100,000 35,000 35,000 35,000
Other 592 890 0 0 0
----------- ----------- ----------- ----------- -----------
Total Revenues 2,336,232 2,677,682 1,697,149 2,478,698 2,907,679
COST OF SALES 1,896,137 1,896,137 1,046,223 1,504,036 1,895,468
----------- ----------- ----------- ----------- -----------
Gross Profit 440,095 781,545 650,926 974,662 1,012,211
EXPENSES
Commission 37,008 37,008 47,936 117,936 195,077
Depreciation 12,253 35,484 3,159 8,367 22,926
Amortization 12,439 37,317 12,439 20,731 33,169
Travel 12,353 38,224 26,122 66,778 67,586
Professional Fees 485 1,641 0 10,000 68,147
Office 9,303 35,175 19,312 56,095 21,546
Rent & Utilities 13,221 51,334 28,689 59,144 83,103
Administration
Expenses 23,914 62,974 23,247 112,258 87,283
Consulting Fees 61,554 177,015 62,377 224,698 265,375
Interest 18,239 77,417 10,205 31,692 88,161
Accounts Receivable
Written Off 0 0 0 0 376,931
Foreign Currency
Translation 0 0 0 0 (6,344)
----------- ----------- ----------- ----------- -----------
Total Expenses 200,769 553,589 233,486 707,699 1,302,960
----------- ----------- ----------- ----------- -----------
Net Profit or
(Loss)from
Operations 239,326 227,956 417,440 266,963 (290,749)
</TABLE>
<PAGE>
THE QUANTUM GROUP, INC. (F-4)
STATEMENT OF OPERATIONS
(UNAUDITED)
-Continued-
<TABLE>
<CAPTION>
Three Nine Three Nine Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
September September September September December
30, 1997 30, 1997 30, 1996 30, 1996 31, 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Other Income &
(Expenses)
Interest Income 0 0 0 0 122
Gain of Sale
of Residence 0 0 0 24,850 38,327
Loss on Investment 0 0 0 0 (6,250)
Income
- Capital Lease 0 0 0 0 16,741
----------- ----------- ----------- ----------- -----------
Total Other
Income &
(Expenses) 0 0 0 24,850 48,940
Profit or (Loss) 239,326 227,956 417,440 291,813 (241,809)
Taxes & Minority
Interest
Minority Interest (47,865) (45,591) (52,493) (35,760) 12,989
Provision for Taxes (15,317) (14,589) (23,345) (23,345) 0
Provision for Taxes ----------- ----------- ----------- ----------- -----------
& Minority
Interest (63,182) (60,180) (75,838) (59,105) 12,989
----------- ----------- ----------- ----------- -----------
Net Profit or
(Loss) After
Tax & Minority
Interest $ 176,144 $ 167,776 $ 341,602 $ 232,708 $ (228,820)
=========== =========== =========== =========== ===========
Net Profit or
(Loss) Per Share $ 0.06 $ 0.05 $ 0.11 $ 0.07 $ (0.07)
Weighted Average
Shares
Outstanding 3,152,232 3,152,232 3,152,232 3,152,232 3,152,232
Diluted Net
Profit or (Loss)
Per Share N/A N/A N/A N/A N/A
Weighted Average
Shares Outstanding N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
THE QUANTUM GROUP, INC. (F-5)
STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
From January 1, 1994 to June 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Balance,
December 31, 1993 3,148,232 $ 3,148 $ 1,671,072 $ (693,770)
Shares issued for
Commission in Lieu
of Cash 4,000 4 11,996
Loss for the year ended
December 31, 1994 (170,419)
------------ ----------- ------------ -------------
Balance,
December 31, 1994 3,152,232 3,152 1,683,068 (864,189)
------------ ----------- ------------ -------------
Loss for the year ended
December 31, 1995 (624,695)
Balance,
December 31, 1995 3,152,232 3,152 1,683,068 (1,488,884)
------------ ----------- ------------ -------------
Contributed Capital 1,600
Loss for the year ended
December 31, 1996 (228,820)
------------ ----------- ------------ -------------
Balance,
December 31, 1996 3,152,232 $ 3,152 $ 1,684,668 (1,717,704)
------------ ----------- ------------ -------------
Profit for the
Nine Months ended
September 30, 1997 167,776
------------ ----------- ------------ -------------
Balance,
Sepember 30, 1997 3,152,232 $ 3,152 $ 1,684,668 $ (1,549,928)
============ =========== ============ =============
</TABLE>
<PAGE>
THE QUANTUM GROUP, INC. (F-6)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Nine Twelve
Months Months Months
Ended Ended Ended
September September December
30, 1997 30, 1996 31, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows From
Operating Activities
Net Profit (Loss) $ 167,776 $ 232,708 $ (228,820)
Adjustments to reconcile
net profit or (loss)
to net cash:
Write Off Investment 0 0 6,250
Write Off Loan Receivable 0 0 38,750
Write Off Long Term Receivable 0 0 338,181
Amortization & Depreciation 72,800 29,098 56,095
Foreign Currency Remeasurement 0 0 (6,344)
Non Cash Income 0 0 (16,741)
Minority Interest 45,591 35,760 (12,989)
Changes in Operating
Assets and Liabilities
(Increase) Decrease in
Accounts Receivable (16,457) (400,421) (24,559)
(Increase) Decrease in
Inventory (27,457) 0 0
(Increase) in Deposit on
Inventory 0 424,820 424,820
Decrease (Increase) in Long Term
Accounts Receivable
(Increase) Decrease in
Loan Receivable
(Increase) in Prepaid
Commissions 0 (67,415) 0
(Increase) Decrease in
Deposits 0 0 (3,281)
Increase (Decrease) in
Notes Receivable
Increase (Decrease) in
Accrued Expenses 19,466 (45,759) (68,034)
Increase (Decrease) in
Accounts Payable (90,766) (176,500) (271,047)
Increase (Decrease) in
Tax Payable 14,589 23,345 0
Increase in Customer
Deposits 2,500 (488) (244,464)
Increase in Cash Pledged (5,122)
Rounding (1) 0 (3)
------------- ------------- -------------
Net Cash Generated (Used) by
Operating Activities 188,041 55,148 (17,308)
------------- ------------- -------------
</TABLE>
<PAGE>
THE QUANTUM GROUP, INC. (F-7)
STATEMENT OF CASH FLOWS
(UNAUDITED)
Continued
<TABLE>
<CAPTION>
Nine Nine Twelve
Months Months Months
Ended Ended Ended
September September December
30, 1997 30, 1997 31, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows From
Investing Activities
Purchase of Equipment (24,773) 0 (182,295)
Purchase of License Rights 0 (497,547) (497,547)
Sale of Residential Property 0 236,586 252,532
Purchase of Furniture (11,089) (11,086)
Purchase of Securities (100,000) 0 0
------------- ------------- -------------
Net Cash Provided (Used)
by Investing Activities (124,773) (272,050) (438,396)
Cash Flows From
Financing Activities
Payment of Long Term Debt (165,000) (169,781)
Increase (Decrease) in Notes
Payable 50,000 353,547 511,896
Increase (Decrease) in Vehicle
Note Payable 0 (4,781) 0
Increase (Decrease) in
Amounts Due Officers (30,672) 31,163 92,451
Contributed Capital 0 1,600 1,600
------------- ------------- -------------
Net Cash Provided by
Financing Activities 19,328 216,529 436,166
------------- ------------- -------------
Increase (Decrease)
In Cash 82,596 (373) (19,538)
Cash at Beginning
of Period 6,602 26,140 26,140
------------- ------------- -------------
Cash at End of Period $ 89,198 $ 25,767 $ 6,602
============= ============= =============
</TABLE>
Significant Non-Cash Transactions:
On June 3, 1997, The Company issued a license agreement to Nevada
Environmental Technology, Inc. The licence agreement fee was $100,000
which was paid by $100,000 of common shares of the licensee's parent
Keystone Energy Service, Inc. (KESE)
<PAGE>
The Quantum Group, Inc., and Subsidiaries (F-8)
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.
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.
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.
(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) The inventory is stated at the lower of cost or market. The inventory is a
single recycling system that the Company intends to sell as a system. The
Company is currently pursuing several prospects to sell the system.
<PAGE>
The Quantum Group, Inc., and Subsidiaries (F-9)
Notes to Financial Statements -Continued-
NOTE #2 - Significant Accounting Policies -Continued-
(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 us eful 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.
(J) Estimates: The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates
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Phoenix Environmental Group, Inc.
"The Environmental Solution People"
Tel: 916.983.3248
22 October, 1997
Mr. Keith J. Fryer
Executive Vice President
Eurectec, Inc.
Dear Keith:
I understand that you will be traveling to Europe over the next nine days and
wanted to bring you up to date on our project. I also wish to convey to you our
complete satisfaction with the Eurectec process and the very professional
informational packages provided to us as well as your individual assistance
whenever we have called your offices. Let me affirm our total commitment to
installing a minimum of three Eurectec lines and that your tire recycling system
will be the anchor as well as one of the showcases of our environmental
technology parks. Presently we are moving ahead with the technologies and plans
as stated below.
- - Primary focus is on our 54 acre Detroit, Michigan property which is zoned
prime industrial, is ten minutes from the international airport as well as
having rail and interstate access. The Eurectec line will be the anchor
technology in this facility.
- - The PCB processing technology is now owned by Phoenix and we have obtained
the complete EPA license for operating this technology anywhere within the
United States. This technology will recover PCB's from ballast
transformers (fluorescent lights), lamps (mercury vapor & halogen) as well
as recovering mercury.
- - Plasma-Arc technology which will handle bio-medical waste, special wastes,
and eventually hazardous waste disposal. This is cutting edge and we have
developed it for mobile platforms which eliminates costly and dangerous
hauling of the waste to a stationary disposal facility (although we will
install some stationary units in our parks).
- - Medical-Detect Systems: We have acquired the US and international rights to
manufacture and market a new technology which will be able to be applied to
a number of applications in the health field, particularly hospitals and
clinics. This technology eliminates costly loss of medical tools,
equipment, surgical instruments, etc. through the normal hospital waste
stream.
Our plan in the design (and welcoming your input also) is to develop one of the
first environmental technology industrial parks meeting or exceeding the ISO
9000 and 14,000 standards. Our intent is to make this a showplace for
international visitors and potential clients. This same design will be
implemented in at least two other locations of which we are currently
negotiating, to be located in Montana and Texas.
They would basically be mirror images of the Detroit property; with future plans
for taking the technologies and concept internationally. We would of course
welcome any input from you or your associates and are open to joint venture or
strategic alliances.
In closing I would like to reiterate our commitment to develop a strategic
business alliance with you and your associates for a long term relationship in
the marketing and management arenas.
Best personal regards,
/s/: Jim Skaff
Jim Skaff
President, Phoenix Environmental Group, Inc.
