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, in
early December 1992, 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.
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, after
acquiring SPI, the Company realized it could not profitably market the
electronic acupuncture devices and the nutritional supplements through SPI's
multi-level network. The Company also determined that it could not
profitably market the alarms, therefore effective January 1, 1993, the
Company discontinued all operations of SPI and chose to focus its efforts and
resources into 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 perpetuity 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 the exclusive right to market CISAP equipment within a
designated territory in North America, to interested buyers.. The Company
has the right to 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 purchase 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 various
presses.) The Company has failed to meet the minimum number of granulator
purchases or purchases of other equipment of similar value each year since
the exclusive license agreement became effective. Part of the difficulty the
Company has encountered in meeting its minimum purchase requirements is
directly related to problems CISAP has had in the production and operation of
its equipment. For instance, the crumb rubber output levels calculated by
CISAP and used by the Company in selling the CISAP machinery quote a certain
level of crumb rubber production. However, when the equipment was installed
in China and put to use the output realized by the Chinese differed from the
output levels represented by CISAP and the Company. Upon further
investigation, CISAP found that the tires the Chinese were recycling
contained a much higher fabric content than the tires used to calculate
production figures, as a result the crumb rubber output at the Chinese plant
was lower than projected. From this experience, CISAP and the Company
realized that greater research and testing needed to be done on the CISAP
equipment to better understand the outputs attainable by the equipment based
on different variables.
Based on the Chinese experience and its research and development, CISAP
has made significant improvements to its equipment in the past few years. In
the last year, CISAP has redesigned its granulator to increase output while
decreasing down-time and wear and tear on the machinery. CISAP accomplished
this by redesigning the way the tires are processed prior to granulation.
CISAP's older granulators would shred the tires and then send the entire
contents of the tire through the granulation process. In other words, the
steel and fabric used in the tires were sent through the granulation process.
This caused considerable wear and tear to the granulating equipment, which
led to excessive maintenance and down-time and decreased production. In
CISAP's new equipment, almost all of the steel and fabric is sorted out from
the rubber and removed from the system prior to the granulation process.
With the new equipment, the material that enters the granulation process is
at least 90% pure rubber, this helps decrease the wear and tear on the
granulation equipment and the associated down-time while increasing output
levels. These changes have helped improve the output and reliability of the
CISAP equipment.
In recognition of the difficulties CISAP and the Company have
encountered with the CISAP equipment, the two parties have continued to
operate as though the exclusive license agreement was in force, even though
the Company was in default of said agreement for not meeting its minimum
purchase requirements.. Based on their experience over the past several
years, CISAP and the Company recently renegotiated certain provisions of the
exclusive licensing agreement. The major emphasis of the renegotiated
agreement, dated March 31, 1996, was to affirm the continuance of the
Company's exclusive marketing rights in North America if it purchases eight
granulators or machines of similar value per year. Should the Company fail
to meet its purchase 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 that even though it is not currently a major player in
the tire recycling industry, it could continue to operate in the industry
without the exclusive marketing license for various reasons. It 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.
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. As of September 1996, the estimated cost of establishing a
fully operational tire recycling facility utilizing the CISAP equipment was
approximately $1,742,735. Based solely on the cost of establishing an
operational facility, 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 location 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 customer's 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 in the recycling 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.
Many 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 (freezing) process. This process
is cumbersome and expensive and reduces the elasticity of the rubber, which
limits the usefulness of the crumb rubber for after market products. The
process employed by the CISAP equipment does not require the tires be frozen
to extract the non-rubber materials. Thus, the Company believes, the
process employed by the CISAP equipment is superior to it competitors because
it does not incur the costs associated with the cryogenic process nor does it
have an adverse effect on the elasticity of the rubber. Another advantage of
the equipment the Company sells is its ability to 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 exclusive sub-licenses.
The Company has entered into exclusive sub-license agreements in Utah and
Canada. The Company had negotiated an exclusive 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 and non-exclusive territorial right, including its
right to be the sole provider of CISAP equipment in Canada, except in
Alberta, where Evergreen continues to maintain an exclusive sub-license to
market and sell CISAP equipment. 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. (See Note 12 of the Financial Statements.)
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 uses newer, larger capacity equipment than the Wilmington
facility and is currently an operating tire recycling facility rather than
merely a demonstrational facility. The Company is storing the equipment from
the Wilmington facility while it contemplates selling the equipment or
keeping it and establishing its own fully functional recycling facility.
In addition to its agreement with CISAP, the Company, through Eurectec,
recently entered an agreement with SMS Sondermaschinen GmbH, a German
corporation, ("SMS") which grants the Company the exclusive right to sell and
market SMS equipment and machinery on a worldwide basis. SMS has expertise
in the manufacturing of machinery and equipment used in the recycling of
tires and the manufacturing of after-market products using crumb rubber. The
agreement grants to the Company the exclusive right to market and sell
worldwide any machinery, equipment, product, binder, process, application or
license using any of the know-how, trade secrets, patents, confidential
information or other technology of SMS (collectively "SMS products"), which
is either currently owned by SMS or developed or acquired by SMS in the
future. To date, the Company has not sold any SMS products, however, the
Company believes this agreement will enhance its ability to compete in the
tire recycling industry. As stated, SMS manufactures various products. Of
the products SMS manufactures, the Company intends, at this time, to focus
its efforts on marketing the SMS molds and presses that are used to create
after-market products from crumb rubber. In acquiring the exclusive right to
market and sell SMS products, the Company now has the ability to supply its
customers with both tire recycling equipment and the molds or presses
necessary to turn the crumb rubber into finished product. The Company
believes its ability to sell equipment to customers wishing to establish
tire recycling facilities will be enhanced by the SMS agreement because it
now has the ability to sell a customer both tire recycling equipment and the
machinery required to turn those recycled tires into marketable after-market
rubber products.
The other benefit of the SMS agreement is that it significantly
decreases the Company's dependence on CISAP. The Company's ability to
continue as a going concern in the tire recycling industry is no longer
dependent on a single manufacturer because SMS also produces a line of tire
recycling equipment similar to the equipment produced by CISAP. At this
time, the Company's relationship with CISAP is positive, and the Company
intends to continue selling the CISAP tire recycling equipment as its primary
line of tire recycling equipment. The Company intends to focus its sales
efforts of SMS products on SMS's other lines of equipment and machinery,
particularly its presses and molds for producing after-market products.
The SMS agreement provides that it will continue in perpetuity unless
terminated by SMS for a breach by the Company of one of the agreements
provisions. The Company may terminate the agreement at any time. If either
party wishes to terminate the agreement it must give the other party 6 months
notice of its intention to termintate.
Currently the Company 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. The remaning 15% interest in Eurectec is held
by 67 shareholders, none of whom are officers, directors, control persons or
affiliates of the Company. 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 by the Company, to be a subsidiary, 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
International. 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. The Company anticipates the sale
of a territorial license and a tire recycling and after product manufacturing
equipment in the approximate value of $1,600,000 in Florida. A portion of
anticipated sale includes equipment currently in inventory. Phase two of the
Saudi project involves an additional $2,400,000 equipment package, which the
company anticipates will be delivered in 1996. Sales discussions and or
negotiations are underway with qualified prospects in Mexico, Germany,
Hungary, Lithuania, The United Kingdom and Ireland. Although contracts with
these prospects are not finalized, management believes that one or more of
these sales will be signed and sales deposits will be received in 1996.
Although the loss for the year ended December 31, 1995 ($958,841) is
larger than the loss in the year ended December 31, 1994 ($170,419), the 1995
loss includes an Accounts Receivable write off of $992,384 which is a non
cash expense and does not effect the Company's cash for current period cash
flow reporting purposes. The write off reduces cash by the amounts the
company would have received had the receivables been collected or
collectable.
Net cash used in operations during the year ended December 31, 1995
increased to $182,156 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. The decrease in
Accounts Receivable in the year ended December 31, 1995, is the net result of
the write off $627,385 categorized as a current receivable and the addition
of $174,203 from 1995 sales transactions. In Addition to the current Asset
receivables the Company had recorded $$326,249 as a Receivable under "Other
Assets". This Receivable was also written off. 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 equaled the disbursement for cost of sales.
Because of the larger net loss, minority interest was reduced by
$172,679 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. There are no restrictive covenants associated with this loan. The
purpose of the loan was to cover shortages in working capital. It is
anticipated the loan will be paid from working capital generated from future
period sales.
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 $2,334,790. This is a
$765,830 or 48% 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. Almost all of the Company's sales were shipped and recorded during the
fourth quarter of 1995.
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 increased during 1995 by $27,871 ($69,617 vs.
$41,746) 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 of
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 (Granulator, Shredder and conveyor only) 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 about the tire 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 condominium 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 accommodate
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 received 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 4,215,636 44.6%
Nominees as a Group:
______________________________________________________________________________
</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 October 1995
______________________________________________________________________________
</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
first became involved with the Company in March 1989. 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
first became involved with the Company in August 1992. 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 first became involved with the Company in March 1989.
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 1991.
Dr. Markus J. Lenger became a Company Vice President in October 1995. Dr.
Lenger first became involved with the Company in October 1995. 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.
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>
<C> Long Term Compensation
Name and Annual Compensation Awards Payouts
Principal Restricted
Position Bonus Other Annual Stock Options/ LTIP All Other
Year Salary $ Compensation Awards SARs Payout Compensation
_____________________________________________________________________________________________________
Ehrenfried Liebich 1995 -0- -0- -0- -0- -0- -0- -0-
President/Director 1994 -0- -0- -0- -0- -0- -0- -0-
1993 -0- -0- -0- -0- -0- -0- -0-
John F. Pope 1995 -0- -0- -0- -0- -0- -0- $31,400
Secretary/Treasurer/ 1994 -0- -0- -0- -0- -0- -0- $60,000
Vice President/
Director 1993 -0- -0- -0- -0- -0- -0- -0-
Gayle Hickok 1995 -0- -0- -0- -0- -0- -0- -0-
Vice President 1994 -0- -0- -0- -0- -0- -0- $12,000
1993 -0- -0- -0- -0- -0- -0- -0-
Keith J. Fryer 1995 -0- -0- -0- -0- -0- -0- $77,950
Vice President 1994 -0- -0- -0- -0- -0- -0- -0-
1993 -0- -0- -0- -0- -0- -0- -0-
_________________________________________________________________________________________________
</TABLE>
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. See the fourth footnote to the
Summary Compensation Table for more details.
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. See
the first footnote to the Summary Compensation Table for more details.
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>
BID PRICES ASK
PRICES
<S> <C> <C> <C> <C>
1996 HIGH LOW HIGH LOW
Jan. 2 thru 7/16 1/16 7/8 3/4
Mar. 29
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.
None.
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 Schvaneveldt
---------------------------------
Darrell Schvanveldt
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
---------------- ---------------
Total Current Assets 1,121,502 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
- - ------------
Account Receivable -0- 326,249
Loan Receivable -0- 38,750
Investment -0- 6,250
Deposit 661 8,996
Prepaid Insurance -0- 984
Prepaid Commissions -0- 273,500
---------------- ----------------
Other Assets 661 654,729
---------------- ----------------
TOTAL ASSETS $ 1,371,690 $ 2,499,180
================ ================
The accompanying notes are an integral part of these financial statements<PAGE>
The Quantum Group Inc., and Subsidiaries
Balance Sheets -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 Payabl 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 46,919 220,433
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 (1,827,539) (864,189)
--------------- ---------------
Total Stockholders' Equity (141,319) 822,031
--------------- ---------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 1,371,690 $ 2,499,180
=============== ===============
</TABLE>
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
<TABLE>
<S> <C> <C> <C>
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 1,337,384 -0- -0-
--------------- -------------- --------------
Total Expenses 2,158,242 787,229 327,412
---------------- --------------- --------------
Net Profit or (Loss)
From Operations (1,167,399) (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)
- - -------------------------
Loss on Investment (6,250) -0- -0-
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) (4,250) -0- (44,271)
---------------- --------------- ---------------
Net Profit or (Loss) (1,171,649) (198,818) 374,029
Taxes & Minority Interest
Minority Interest 173,514 28,399 (72,852)
Provisions for Taxes 34,785 -0- (34,785)
---------------- --------------- ---------------
Total Taxes & Minority
Interest 208,299 28,399 (107,637)
---------------- --------------- ---------------
Net Profit or (Loss) $ (963,350) $ (170,419) $ 266,392
================ =============== ===============
Net Profit or (Loss)
Per Share (.10) (.02) .04
</TABLE>
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
--------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Balance,
January 1, 1993 8,506,090 $ 8,506 $ 958,637 $ (960,162)
Shares Issued
for Cash 938,606 939 227,817
Sale of Shares
by Subsidiary
(Eurectec, Inc.) 478,321
Profit for
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 (963,350)
---------------------------------------------------------
Balance,
December 31, 1995 9,456,696 $ 9,457 $ 1,676,763 $ (1,827,539)
========================================================
</TABLE>
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
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
- - ------------------------------------
Net Profit or (Loss) $ (963,350) $ (170,419) $ 266,392
Adjustments to Reconcile Net Profit
or (Loss) to Net Cash:
Write Off Investment 6,250 -0- -0-
Write Off Loan Receivable 38,750 -0- -0-
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 (173,514) (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 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 (1,99 (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-
</TABLE>
The accompanying notes are an integral part of these financial statements<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 lineof 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
______________________________________________________________________________
Computer 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 Depreciation
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
- - ---------------------------
<TABLE>
<S> <C> <C>
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-
(See Note #22)
</TABLE>
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.
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
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.
The subsidiary exchanged a license in Coloardo, 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:
<TABLE>
<S> <C> <C>
Year of Expiration
Loss Amount Date
- - -------------------------------------------------
1992 $ 670,375 2007
1993 -0- 2008
1994 198,818 2009
1995 746,864 2010
</TABLE>
The Company has adopted FASB 109 to account forincome 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.
<TABLE>
<S> <C> <C>
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-
</TABLE>
<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. (See Note #22)
NOTE #17 - ACCOUNTS RECEIVABLE WRITTEN OFF
- - ------------------------------------------
In 1995, the Company made adjustments to accounts receivable for sales made in
prior periods.
<TABLE>
<S> <C>
Canadian License Fees $ 652,498
Canadian Equipment 230,000
Canadian Equipment Sales 71,136
-----------------
Total Accounts Written Off $ 953,634
=================
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
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>
<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
6.04 Amended CISAP License Agreement Attached hereto
6.05 SMS Sondermaschinen Agreement Attached hereto
<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: February 24, 1997 By: /s/ Ehrenfried Liebich
--------------------------
Ehrenfried Liebich, President and
Director (Principal Executive
Officer)
Date: February 24, 1997 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: February 24, 1997 By: /s/Ehrenfried Liebich
-----------------------------
Ehrenfried Liebich, Director
Date: February 24, 1997 By: /s/ Keith J. Fryer
------------------------------
Keith J. Fryer, Director
<PAGE>
This Document
represent an
AGREEMENT APPENDIX
between
Cisap, S.p.A.
as
Licensor
and
EURECTEC, Inc.
a subsidiary of
The Quantum Group, Inc.
as
Licensee
Date: April 26th, 1996<PAGE>
1. THIS AGREEMENT APPENDIX MODIFY THE AGREEMENT BETWEEN CISAP SPA AND
EURECTEC INC, SIGNED ON MARCH 31ST, 1996, AS FOLLOWS:
page 4
Date: March 31st, 1996
WHEREAS, CISAP is willing to grant, and EURECTEC, INC., desires to receive, the
right TO SELL CISAP'S technologies and equipment above mentioned in all
countries of the world excluding Italy, and exclusively in North America, Canada
and Mexico ONLY, with the terms and conditions hereinafter set forth.
1.1 Add:................... and Rome Italy.
1.8 Payment shall mean a commercial Letter of Credit irrevocable and confirmed,
opened with the Order, or other mutually acceptable and agreed upon payment
method.
page 5
1.1 Territory shall mean: Exclusive: North America, Canada and Mexico, Italy
excluded; In all other Countries of the World Eurectec will have the right to
sell without exclusive.
2.1 Use of Patents: CISAP hereby grants to Eurectec an exclusive right and
license during the terms of this agreement to practice the technology in order
to use and operate plants and/or sell equipment in the above mentioned exclusive
territory only.
page 6
III. OBLIGATIONS OF......CISAP
page 7
3.1(c) Travel costs, lodging, meals and all related expenses incurred by CISAP
in connection with sending representatives into the territory pursuant to this
paragraph 3.2(a) or (b) shall be normally paid for in full by final customer
except for particular cases previously agreed upon. In the case of subsequent
requested training by Eurectec all costs shall always be born by Eurectec.
4.1 Terms
Eurectec agrees to purchase a minimum of eight (8) COMPACT 6000 machines or
equipment of similar value during every year of validity of this license
agreement, with orders for two granulators to be placed within the first 90 days
of this agreement, for it to remain valid.
page 8
6.1 Warranties
(a) CISAP guarantees the equipment supplied for a period of 12(twelve) months,
not exceeding 18 (eighteen) months from shipment date. The guarantee does not
cover electrical equipment, for which will give the same guarantee of each
different supplier. The guarantee does not cover consumable parts as blades or
other cutting tools. Parts or components found defective during the guarantee
period will be replaced or repaired depending on the Vendor's choice. The
guarantee period will start with the installation of the equipment. Damages
caused by modifications brought by the buyer and not conforming to the
specifications contained in the owner's manual or which have not been previously
approved in writing by the Vendor, are not covered by the guarantee. Damages
caused to the equipment by using spare parts, brought by the buyer and
without the vendor's approval, or due to modifications brought in contrast with
owner's manual specifications, are not covered by this guarantee.
The guarantee does not cover damages caused by the introduction in the equipment
of dangerous materials, such as but not limited to, screws, bolts, truck tyres
steel beads or material other than that for which the equipment has been
specifically designed.
(aa) Capacity
The nominal capacity of the granulator COMPACT 6000 is 1200 Kg of introduced
scrap tyres per hour. The equipment output products is granules from 1 to 5mm.
If we consider machine still times for maintenance and other different factors,
the effective capacity of the granulator must be calculated in approx. 80% of
the nominal capacity.
Because of the variety of the existing casings. Makes and kinds, the above
tyres, from which the bead wires have been removed. The crumbling and
granometries of other types of casings, particularly if they contain textile
fibers, may bring differences in either increase or decrease of the equipment
performance capacity.
(aaa) Quality of the equipment output product
Quality of equipment product output depends on the type of scrap tyres treated
and on the dimension of granules obtained. The best quality is obtainable by
processing steel radial truck casings.
If tyre casings with a high content of textile fibers are introduced, in order
to obtain the granules free of textile it is necessary to reduce the dimensions
of the granulometries to 1-3 mm.
(b) ....remains unchanged
7.1 Terms of Agreement. Unless it is terminated earlier pursuant to the terms
of this Article 7 or becomes invalid according to the terms of Article 4.1
above, this Agreement, shall continue in full force and effect for two (2)
Years. At the end of the two Years period, the Agreement will be automatically
renewed for another two (2) Years period unless is it terminated giving six
months prior advice to the other party. <PAGE>
PAGE 10
9.3 Arbitration.............For the purposes of this arbitration, the provisions
of this Agreement and all rights and obligations thereunder, shall be governed
and construed in accordance with the laws of the Republic of ITALY, Governing
courts: Pistoia.
PAGE 11
9.16 Inquiries. CISAP agree to forward all Inquiries araised in the Exclusive
territory to Eurectec, Inc........
9.17 Equipment prices. The prices CISAP state for the equipment are to be
considered valid for a maximum period of six (6) months unless different
specific agreement. When the negotiation with a customer are longer than 6
months for reasons beyond CISAP control, prices originally quoted will be
subject to modifications. Because of oscillation of exchange rates and other
reasons, final prices will be determined at the moment of the definite
opening of the Letter of Credit Irrevocable and Confirmed, once the delivery
date can be stated.
LAST PARAGRAPH (Cisap Spa hereby agrees to pay Eurectec Inc an
amount.......................) IS TO BE CANCELED COMPLETELY.
<PAGE>
EXHIBIT A
NET PRICES currently in force are the following:
COMPACT 6000 1-8 ITL 998.000.000
COMPACT 6000 9 ITL 919.600.000 (5 per centdiscount)
Hooper plus conveyor belt
to the granulator ITL 23.900.000
DEBEADER ITL 40.800.000
SMASHER 125 ITL 176.000.000
Loading Conveyor for Smasher ITL 7.200.000
Insulating booth ITL 6.500.000
SLITTER 125 w/lifter ITL 12.800.000
COMPACT 6000 includes electronic controls and add. densimetric separators.
VALIDITY OF PRICES: up to the end of the year 1996 except in case of oscillation
of the exchange rates, see paragraph 9.17
EXHIBIT A (i)
NOT VALID
2. SHOULD AN ACCEPTABLE BUSINESS VOLUME NOT BE REACHED CISAP RESERVES THE RIGHT
TO CANCEL THE AGREEMENT AT ANY TIME WITH A PRIOR ADVISE OF 30 DAYS.
/s/ Tosco Fantacci /s/ Ehrenfried Liebich
_________________ ______________________
for CISAP SPA for EURECTEC, Inc.
Tosco Fantacci Ehrenfried Liebich
<PAGE>
May 15, 1996
Contract:
This Agreement is made and entered into this 15 day of May, 1996 by and
between Erich Grundmann and SMS Sondermaschinen GmbH, with der principal
office at Werkstrasse 1, D 89290, Buch, Germany (hereinafter jointly and
severally referred to as "SMS") and Eurectec, Inc., a Nevada Corporation, with
its principal offices at 3901 McArthur Blvd. Suite 200 Newport Beach,
California 92660 (hereinafter referred to as the "Eurectec")
Recitals
1. Monikaa Grundmann is the owner of SMS Sondermaschinen, GmbH. SMS has
expertise in the manufacturing of machinery and equipment used in the
recycling of tires and manufacturing after market products using crumb
rubber and is the owner of all right, title, and interest in and to certain
patents and certain intellectual and industrial know how and property
rights employed in the manufacturing after market products using new and
recycled materials; and
2. Eurectec has expertise in the sale and marketing of machinery and equipment
to recycle tires and manufacture after market products from crumb rubber
and is completing the design of a tire recycling system;
3. The parties desire to enter an agreement to grant each party certain
exclusive rights regarding the marketing and sales and manufacturing of
such machinery, processes and know how on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and mutual promises,
terms, and conditions, hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties do hereby agree as follows: either manufacturing and/or sales
prices to third parties, without Eurectec's prior approval in writing.
All purchase orders and letters of credit or other financial instruments
for payment of equipment or products shall be placed directly in the names
of Eurectec and SMS and be divisible, as may be required by the parties, to
insure the prompt and proper payment to the respective parties for all
sales.
4. Equipment Manufacturing. Upon the presentation of SMS of any purchase
order, contact for the purchase of equipment or products, together with the
evidence of Payment to SMS, subject to delivery by SMS of the equipment or
products according to the terms of purchse documents, SMS shall
manufacture, factory test, disassemble and package safely for equipment,
machinery and products as described in the purchase documents. All other
costs of shipping, duties, taxes and licenses shall be borne by the
purchaser or Eurectec according to terms of the purchase documents.
5. Training & Technical Assistance. SMS agrees to provide, as part of the
equipment or products, reasonably necessary on-site installation,
training and technical operating assistance to purchasers as determined
by SMS in order allow such purchasers to operate and maintain the
equipment and systems in compliance with the manufactures specifications
and warranties.
To the extent SMS is requested to provide any additional training or
technical assistance in excess than provided above, SMS shall be paid a per
diem amount to be negotiated between the parties before such assistance and
training is provided and which shall be paid before such assistance and
training is rendered.
Travel costs, lodging, meals and all related expenses incurred by SMS in
connection with sending representatives to conduct initial training
shall be paid for in full by SMS. In the case of additional requested
training by purchaser, all costs shall be borne by purchaser.
6. Additional Services. SMS shall use its reasonable efforts to provide
Eurectec with any and all additional assistance reasonably requested by
Eurectec, including without limitation; producing technical, sales,
advertising and other reports and information for
1. Appointment of Eurectec. Eurectec, its subsidiaries, and affiliates
shall have the sole and exclusive right during the term of this
Agreement to market, and sell worldwide any machinery, equipment,
product, binder, process, application, or license using any of the
know how, trade secrets, patents, confidential information or other
technology of SMS, which is currently owned by SMS or hereafter
developed or acquired by SMS, or any other machinery, equipment, or
product built or made by SMS. Eurectec shall use its best efforts to
market, sell and exploit the machinery, equipment, and products of SMS
during the term of this Agreement and SMS shall promptly forward all
sales inquiries received by it directly to Eurectec.
2. Appointment of SMS. SMS shall have the sole and exclusive right
during the term of this Agreement to manufacture machinery and
equipment using the technology of SMS and the tire recycling system
designed by and for Eurectec, except those pieces of equipment that
are manufactured by other (OEM) and are incorporated into a recycling
system as currently designed or hereafter modified by Eurectec. SMS
shall provide a certificate of origin:"Made in Germany" for all
equipment manufactured by SMS unless otherwise agreed by the parties.
3. Pricing of Products and Equipment. The parties agree that the price
charged by SMS for all purchases from SMS shall not exceed the actual
direct cost, plus 30% of such cost, excluding OEM components, for
overhead and profit to SMS. It is understood and agreed by the
parties that all prices furnished by SMS shall be exclusive of the
fees, charges, profits, and mark-ups shall be established by
Eurectec, in its sole discretion.
During the term of the Agreement, SMS shall deliver promptly to Eurectec
upon request, any price information and manufacturing schedules. It is
further agreed by the parties that any price quotation furnished by SMS
for a proposed purchase order for equipment, machinery or products shall
be deemed to be a firm price quotation for 21 days after delivery to
Eurectec.
SMS shall regard all pricing information as confidential information and
will not disclose any such information regarding Eurectec believes might
be useful in promoting, plans, specifications, and other data which are
not proprietary and which SMS has the right to use, in order to enable
Eurectec to respond to requests of any potential customer; assisting
Eurectec in responding to technical inquires from potential customers; and
assisting Eurectec in the testing of equipment and products.
7. Indemnity. The SMS hereby indemnifies and holds Eurectec, its
subsidiaries, and affiliates harmless against any and all actions, suits,
claims, or demands whatsoever, including the costs and reasonable
attorney's fees connected therewith, which any of them may incur or become
liable to pay be reason of any claim, suit, or demand arising from breach
of any manufacturer's warranty, product liability or infringement of patent
because of the manufacture, use, or sale of the equipment or products.
8. Registering Patents on Inventions. If SMS, makes or conceives a patentable
invention to improve upon its process or equipment technology, SMS shall
apply, at its own expense, for appropriate patent and the registration of
SMS. SMS agrees not to license, sell or otherwise transfer any of its
right, title or interests in an currently existing or hereafter developed
technology without the prior written consent of Eurectec.
9. Warranties and Insurance. SMS agrees that all systems, components and
equipment manufactured by it shall be free of defects and shall carry a
warranty of merchantability and fitness for the particular purpose for
which it is sold except as may be limited by the warranty of SMS as set
forth in Exhibit 9 attached hereto. The parties agree that the original
manufacturer's warranty shall be applied to Eurectec in addition to the
original purchaser's. SMS further agrees to carry product liability
insurance on all equipment manufactured by it in an amount of not less than
DM 5.000.000 and shall cause Eurectec to be named as an additional insured
person under such policy of insurance.
10. Option To Purchase And Right Of First Refusal. In the event that Erich
Grundmann desires to retire from ownership and operation of SMS, Eurectec
shall have an option to acquire all of the ownership, interest of SMS, for
a purchase price of $2.000.000 payable on such terms as parties shall agree
in writing but, not to exceed a period of three years. In the event that
the option to purchase is not exercised by Eurectec, then Eurectec shall
have a right of first refusal to acquire the ownership of SMS on the same
purchase terms a ready, willing and able third party buyer is wiling to
acquire such ownership interest of SMS. Such right of first refusal shall
exist for a period of thirty days after written notice and delivery of a
copy of the purchased offer is received by Eurectec from Grundmann. Any
failed sale, or change in the terms of sale shall be deemed to create a
new right of first refusal in favor of Eurectec, which shall exist for a
period of thirty days before any sale may be made to a third party.
11. Term of Agreement. Unless it is terminated earlier pursuant to the terms
of this Article 12, this Agreement shall continue in full fore and effect
in perpetuity.
12. Termination. Upon the occurrence of any of the following events, this
Agreement may be terminated by the non-breaching party by giving written
notice of termination to the breaching party such termination to be
immediately effective upon the giving of such notice of termination:
(a) The occurrence of a material breach or default as to any obligation
hereunder by either party and the failure such breaching party and the
failure of such breaching party to promptly pursue (within 60 days after
receiving written notice thereof from the non-breaching party) a reasonable
remedy designed to cure (in the reasonable judgement of the non-breaching
party) such material breach or default; or
(b) The filing of a petition in bankruptcy, insolvency or reorganization
against or by either party, or either party becoming subject to a
composition for creditors, whether by laws or agreement, or either party
going into receivership or otherwise becoming insolvent (for the purpose of
this Paragraph 12, such party shall be considered to be a breaching party).
(c) Eurectec shall have the right to cancel this Agreement at any time upon six
months notice to the SMS.
The parties hereto agree that if either party rightfully terminates the
other party pursuant to this Article 12, then the terminating party shall
not be liable for damages or injuries suffered by the other party as a
result of such termination.
13. No Conflicting Agreements. SMS hereby represents, warrants and covenants
that it has not and will not enter into any agreement with or become
subject to any obligation in favor of any third party which might conflict
with its obligations hereunder. And, SMS further agrees to operate in the
normal course of business and in a manner which will not materially or
adversely change the business or financial condition of SMS.
14. Assignments. This Agreement and any and all of the rights and obligations
of either party hereunder shall not be assigned, delegated, sold,
transferred or otherwise disposed of, by operation or law of otherwise,
without the prior written consent of the other party except that Eurectec
shall have the right to assign this Agreement, in whole or in party, at any
time to any of its subsidiaries or affiliates. This Agreement shall be
binding upon, and inure to the benefit of, SMS and Eurectec and their
respective successors and assigns, to the extent such assignments are in
accordance with this paragraph 14.
15. Governing Law. This Agreement shall be governed, interpreted and construed
in accordance with the laws of the state of Nevada, USA.
16. Arbitration. Any dispute, controversy or claim arising out of or relating
to this Agreement or to a breach thereof, including its interpretation,
performance or termination, shall be submitted to and finally resolved by
arbitration under the rules of arbitration of the American Arbitration
Association.
For the purpose of this arbitration, the provisions of the Agreement and
all rights and obligations thereunder shall be governed and construed in
accordance with the laws of the State of Nevada, United States of America, as
such laws are applied to agreements entered into and to be preformed
entirely within its borders between its residents. The decision of the
arbitrator(s) shall be executory, final and binding upon the parties hereto,
and the expense of the arbitration (including without limitation the award of
attorney's fees to the prevailing party) shall be paid as the arbitrators
determine.
17. Waiver and Amendment, A waiver of any breach of any provision of this
Agreement shall not be constructed as a continuing waiver of any other
breach of the same or other provisions of this Agreement. Any amendment
or modification of any provision of this Agreement must be in writing and
singed by the party to be bound by such amendment.
18. No Other Relationship. Nothing herein contained shall be deemed to create
a joint venture, agency or partnership relationship between the parties
hereto. Neither party shall have any power to enter into any contracts or
commitments in the name of, or on behalf of, the other party, or bind the
other party in any respect whatsoever.
19. Notices. Each notice required or permitted to be sent under this Agreement
shall be given by Fax transmission or by registered or recorded delivery
letter to SMS and to Eurectec at the addresses and Fax numbers supplied.
Either party may change its addresses and number for purposes of this
Agreement by giving its address and/or Fax number for purposes of this
Agreement by giving the other party written notice of its new address and/
or Fax number. Any such notice if given or made by registered or recorded
delivery letter shall be deemed to have been received on the earlier of the
date actually received and the date (10) business days after the same was
posted (and in providing such it shall be sufficient to prove that the
envelope containing the same was properly addressed and posted as
aforesaid) and if given or made by telecopy transmission shall be deemed to
have been received at the time of dispatch,unless such date of deemed
receipt is not a business day, in which case the date of deemed receipt
shall be the next succeeding business day.
20. Entire Understanding. This Agreement embodies the entire understanding
between the parties relating to the subject matter hereof, whether
written or oral, and there are no prior representations, warranties or
agreements between the parties not containing in this Agreement. Any
headings contained herein are for convenience only and shall not constitute
a part of this Agreement or be employed in the interpreting this Agreement.
The recitals to this Agreement shall be deemed to be representations and
covenants of the respective parties hereto. This Agreement may be executed
in any number of counterparts and each such counterpart shall be deemed to
be an original for all purposes.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement.
Signed by :/s/ Erich Grundmannn Signed by: /s/ Keith Fryer
---------------------- --------------------
Erich Grundmannn Keith Fryer
President Director
Witnessed by: /s/ Monikaa Grundmannn Witnessed by: /s/ Markus Lenger
----------------------- -------------------
Monikaa Grundmannn Markus Lenger
<PAGE>
<CORRESP>
February 25, 1997
Mr. H. Roger Schwall
Securities and Exchange Commission
450 Fifth Street N.W.
Washington D.C. 20549
Attention: Mail Stop 3-7
RE: The Quantum Group, Inc.
Amendment No. 3 to Form 10-SB filed
February 25, 1997
File No. 0-23812
Dear Mr. Schwall:
I am writing this letter in response to your comment letter dated
October 25, 1996, regarding Amendment No. 2 to the Form 10-SB, filed
on September 20, 1996 and Form 10-QSB for the quarter ended June 30,
1996, filed by the Quantum Group, Inc. (the "Company") File No. 0-23812.
The responses in this letter are numbered to correspond to the question
raised in the comment letter.
Description of Business
- - ----------------------------
1. This information has been included in the first paragraph under the
heading "Company Subsidiaries" in Item 1. Description of Business.
2. This information has been included in Item 5. Directors, Executive
Officers, Promoters and Control Persons.
3. SPI was purchased in December 1992. This information had been
included in third paragraph of Item 1. The Company discontinued the
operations of SPI on December 31, 1992. SPI was never sold by the
Company, rather, the Company simply discontinued SPI's operations.
4. A discussion of the nature of the problems suffered by CISAP and
its efforts to remedy those problems has been included in the fifth and
sixth paragraphs of Item 1.
Mr. H. Roger Schwall
February 25, 1997
Page 2
5. The statement with regard to the companies recognizing their
"mutual fault" has been rewritten. See the eighth paragraph of Item 1.
6. This information has been included in Item 1 and the MD&A as requested.
7. The CISAP Agreement was revised on April 26, 1996. A revised copy of
the agreement has been filed with Amendment No. 3 to the 10-SB.
8. The statement that the Company has "been recognized as more than a fly
by night operation" has been deleted.
For information regarding the nature and extent of the "indications of
interest" from other manufacturers, see the twentieth, twenty-first
and twenty-second paragraphs of Item 1.
9. This information has been included in the sixth paragraph of Item 1.
10. The CISAP equipment does not require the tire to undergo the freezing
process which impairs the elasticity of the rubber, making it less
useable in aftermarket products. Also, the cryogenic process is
cumbersome and expensive. This information has been included in the
fourteenth paragraph of Item 1.
11. Where applicable, the exclusive nature of each sub-license has been
indicated. See Item 1.
12. Reference to Note 12 of the Financial Statements has been included in
the fifteenth paragraph of Item 1. Evergreen does not hold a non-exclusive
license to market CISAP products in Canada. It does, however, have an
exclusive license in Alberta.
This information has also been included in the fifteenth paragraph of
Item 1.
Management's Discussion and Analysis of Financial Statements
- - --------------------------------------------------------------------------
Liquidity and Capital Resources
- - --------------------------------------------------------------------------
<PAGE>
Mr. H. Roger Schwall
February 25, 1997
Page 3
13. Third Paragraph has been revised as requested. Additional deposits as
well as an profit upon completion are anticipated for the second phase of
the Saudi project.
14. Clarified as requested. Original reference related only to the fact
that the recognition of the expense of the Accounts Receivable write off
did not at the time of recognition utilize cash and effect liquidity.
15. The reference to the $453,182 related only to the portion of the
receivable classified as a current asset. The explanation has been
expanded.
16. No restrictive covenants were associated with the loan. Loan proceeds
are to be used for working capital and repaid from future earnings.
Results of Operations
-------------------------
17. Paragraph has been expanded to reflect that the majority of the sales
occurred in the fourth quarter. This is not an adjustment. It is when
the actual shipments took place.
APB 28, Paragraph 31, requires the Registrant to disclose "disposal of
segments of a business and extraordinary, unusual or infrequent occurring
item recognized in the fourth quarter, as well as the aggregate effect of
year end adjustments which are material to the results of that quarter".
Since none of the requirements for disclosure listed by APB
28, Paragraph 31, occurred and whereas the Company's policy on recognition of
revenues as stated in Note 2(B) was followed it is therefore the Registrant's
position that APB 28, Paragraph 31, does not apply to the Financial Statements.
However as a courtesy to the staff we have added to Note #19 the following:
"Sales in the amount of $2,736,991 were made and recorded upon shipment to
customers in the fourth quarter of 1995."
18. Sentence revised as requested.
<PAGE>
Mr. H. Roger Schwall
February 25, 1997
Page 4
19. Cost of sales changes do not reflect any trend or pattern, either
positive or negative. It reflects the difference of pieces of equipment
from one shipment to another. Explanation has been changed to clarify
this.
20. Increase in interest expense has been Quantifies as requested.
21. Agreed as requested.
22. Explained as requested.
23. The client anticipated that they would get the same results from low
grade, high cloth content, low rubber content Chinese tires as was
specified for American or European tires.
Directors, Executive Officers, Promoters and Control Persons
- - -------------------------------------------------------------------------
24. None of the directors or executive officers has ever fallen into any
of the enumerated situations, therefore, the phrase "except as indicated
below" has been deleted.
Executive Compensation
- - -------------------------------
25. Pursuant to Item 402(a)(4) this information does not need to be included
in the Executive Compensation discussion if it is included in the Item
404 discussion of Certain Relationships and Related Transactions.
As per the instructions of Ms. Stephanie Marks, prior to filing Amendment
No. 2, this information was included in footnotes. As per my discussion
with Sean J. Klein on February 20, 1997, the footnotes to the Summary
Compensation Table have been expanded to more clearly disclose that the
officers receive no salaries from the Company. The only remuneration the
officers receive from the Company for services rendered to the Company,in
connection with their duties as officers, is paid to each officers
independent consulting firm and is paid to them as independent
contractors and not employees of the Company. The Company does not
believe it is in its best interest to structure compensation in this
manner because it allows the Company to avoid burdensome salary expenses,
while only having to pay the officers for services on an as needed basis.
See the footnotes to the Summary Compensation Table in Item 6. Executive
Compensation
Mr. H. Roger Schwall
February 25, 1997
Page 5
Financial Statements
- - ------------------------------------------------------------------------------
Balance Sheets
- - ------------------------------------------------------------------------------
26. The Company anticipated the inventory to be sold within the fiscal year
following December 31, 1995. See attached sales document dated May 25,
1996, committing the Company to sell the inventory. Banking procedures
have not been completed so that the sale could be recorded in 1996 in
accordance with accounting procedures outlined in Note 2(B).
Because of the nature of the unforseen delays the Company feels the
presentation as a current asset is correct.
27. At December 31, 1994, the Company had prepaid commissions on projects in
process as follows:
<TABLE>
<S> <C>
Saudi Arabia
Keith Fryer $ 75,000
Alid Kahlid 159,900
China
Erick Holder 38,600
-----------
Total $ 273,500
===========
In 1995, when the equipment for the China project and the Saudi Arabia
project was shipped the prepaid commissions were expensed to match the expenses
to the revenues from the projects.
28. Note #12 has been expanded to include amounts prepaid and accrued at each
period presented date.
Statement of Cash Flows
- - ------------------------------
29. I have shown in the Statement of Stockholders' Equity funds raised by the
subsidiary as the gross amount raised and the amount allocable to minority
interest as an offset.<PAGE>
Mr. H. Roger Schwall
February 25, 1997
Page 6
Note 1. Corporate History
- - --------------------------------
30. The fourth paragraph of Note #1 has (see note #11) added.
Note 2(D). Earnings per share
- - -------------------------------------
31. Earnings per share presented for 1993 on the Statements of Operations have
been expanded to reflect diluted earnings for 1993.
Note 2(G). Foreign Currency
Translation/Remeasurement Policy
- - ----------------------------------------
32. The sales contract to A. Geist of Germany has been revised to an amount
equal to the cash received and no receivable is recorded.
The inventory referred to in Note #3 was purchased is in Deutch Marks
and was stated on the books in U.S. dollar equivalents when it arrived in
Wilmington, California. Since it is now in the U.S. and stated at
historical cost in US $ the Company feels it has properly presented it in
US $ and the inventory has no need to be subject to remeasurement
policies.
Disclosure as to currency translation and remeasurement have been added
to Note #7.
Note 6. Capitalized Lease Payables
- - ------------------------------------------
33. The Company feels the default of the capital lease obligation has no
material effect upon future financial conditions and results of
operations.
Note 12. License Agreement
- - -----------------------------------
34. The staff has improperly assumed a relationship exists between TSI and
the Canadian licensee. There is no relationship between these two
entities.
The equity interest received from the Canadian licensee is immaterial
because the equity of the Company appears to be $.00 a the date of the
transaction. This is based upon representation made to management by
the new management of the Canadian licensee at the time the license was
returned to the Company. It is of uncertain value because the Canadian
operations is not currently operational and it is unknown if or when
operations will begin. The Company received a 20% ownership position in
the Canadian operation. Note #12 has been rewritten to reflect the
ownership position.
Note 14. Net Operating Loss Carryforward for Income Tax Purposes
- - ----------------------------------------------------------------------------
35. There is confusion as to what is presented in 1993 and 1995 on the
Statement of Operations. In 1993, the Registrant made provision for
California Franchise Taxes because California does not allow carryforward
or carryback of tax losses.
However, when tax return were finalized in 1995 the Company qualified for
tax credits equal to or greater than the accrued tax in California,
because the facilities in Wilmington, California were in an "Enterprise
Zone, Economic Development Area". Accordingly in 1995 the Registrant
reversed the 1993 tax accrual.
Note 16. Securities & Loan Receivables
- - ------------------------------------------------
36. As per Note #22 these amounts have been determined to be uncollectible
in 1996 and retro actively written off at 12/31/95.
Note 17. Accounts Receivable Written Off
- - ---------------------------------------------------
37. The Company paid commission on the China sale of $68,000. Inasmuch as
only the retention amount of that sale was written off no recovery was made
of commission paid. No commissions were paid for the Canadian sale.
Narrative has been added to Note #17 as per your request
<PAGE>
Mr. H. Roger Schwall
February 25, 1997
Page 8
June 30, 1996 Form 10-QSB
- - ----------------------------------
38. Requires no response.
Financial Statements
- - ------------------------
39. Hold back provisions of letter of credit explained as requested.
40. Tax provisions is the reversal of the prior period provision due to
a loss second quarter that creates a year to date loss.
41. Term of license explained as requested.
42. Only cash portion recorded in statement of cash flows as requested.
43. House sale cash flows are recorded net. The $65,000 for the acquired
lot was simultaneously sold was accomplished through an escrow that netted
the transaction.
44. The Company received cash for the sale of the securities of the
subsidiary. The Company believes the transaction is properly recorded.
Management's Discussion and Analysis
- - ------------------------------------------------
45. Discussion expanded as requested.
46. 1995 vs. 1994 comparisons deleted.
As has been discussed in the past, and approved by Ms, Stephanie Marks
in August 1996, the Company is submitting only the amendment to its Form 10-SB
for review at this time. Ms.Marks and the Company agreed that it would be
better for all parties involved if the Company Amend its Form 10-SB and
receive approval from the SEC. After the Form 10-SB becomes effective, the
Company will amend its 1995 Form 10-KSB and its 1994-1996 Form 10-QSBs to
conform to the approved and effective Form 10-SB. If you have any question
please contact Ronald L. Poulton of Poulton & Yordan at (801) 355-1341.
<PAGE>
Mr. H. Roger Schwall
February 25, 1997
Page 9
Very truly yours
/s/ Richard T.Ludlow
------------------------------
Richard T.Ludlow
</CORRESP>
</TABLE>
