United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
March 31, 1997 0-23812
THE QUANTUM GROUP, INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization
95-4255962
(I.R.S. Employer Identification No.)
Park Irvine Center, 14771 Myford Road, Building B
Tustin, CA 92780
(Address of principal executive offices)
(714) 508-1470
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
X Yes No
---- ----
State the number of shares outstanding of each of the registrants
classes of common equity, as of the latest practicable date.
Common stock, par value $.001; 9,456,696 shares outstanding
as of May 14, 1997
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See pages F-1 to F-8 attached
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
STATEMENTS
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had cash of $7,243 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 has been the Company's business
since the beginning of 1993. Sales generally take six to eighteen
months to complete. Some cash flow is generated by customer
deposits and miscellaneous charges when a contract is signed.
however, the bulk (generally 80%) of the cash flow is released to
the Company when the product is shipped. Contracts often provide
for a final payment, generally 10% of the contract amount, to be
paid when installation is completed.
Based on the periodic nature of these payments and the ongoing
nature of administrative expenses, the Company intends to increase,
beginning in 1997, the initial payment made when sales agreements
are executed and obtain the full balance when equipment is
delivered. In addition, the Company is currently negotiating
financing arrangements whereby the letters of credit, opened by
equipment purchasers to secure payment of equipment, will be used
as collateral for short term borrowing by the Company. The Company
believes that the negotiations will be successfully concluded in
the second half of 1997 and that the financing arrangements will
eliminate many of the cash flow timing problems the Company has
experienced in the past.
The Company's unsecured loans received in 1995 and 1996 from German
lenders are current and due December 31, 1997. The balance due for
rights to technology purchased from Rothbury Engineering Limited is
current and final payment is also due December 31, 1997. The
Company anticipates the amount due the German lenders and Rothbury
will be paid from working capital generated from future period
sales.
Although the Company is investigating the possibility of making an
offering of common shares to raise capital in the event anticipated
sales revenues are not fully realized, to date no agreements or
commitments have been made to secure additional capital for the
Company.
The license and equipment sales to Atlanta Rubber Recycling, Inc.
are proceeding, however, the Company does not anticipate this
agreement will be concluded until June 1997.
The Company's project with Mexico Recycling Technology also is on
schedule. During the first quarter of 1997, the Company received
revenues and cash flow from the Mexico equipment sales agreement.
Phase 2 of the Mexico contract, worth approximately $1,900,000 is
expected to be concluded following the installation of Phase 1
during the third quarter of 1997. The Company also anticipates to
sell additional SMS product manufacturing equipment at this time
with potential contract value of approximately $1,000,000.
Negotiations for a Phase 3 contract of the Saudi project are
continuing. The Company expects to finalize these negotiations in
the second half of 1997 with delivery of equipment commencing the
first half of 1998.
The Company is proceeding with sales discussions and negotiations
with qualified international prospects in Germany, Hungary, The
United Kingdom, Ireland, Morocco, Egypt and Syria and domestically
with prospects in Nevada, Michigan, New York and Kentucky. As of
quarter end, March 31, 1997, no agreements have been finalized.
The Company intends to continue pursuing discussions and
anticipates one or more of these sales will be signed and sales
deposits received in 1997.
In January 1997, the Company entered a license agreement with
Nevada Environmental Technologies, Inc., a Nevada corporation,
("Nevada Environmental"). This agreement was finalized on February
28, 1997 and provides license agreements for both SMS and CISAP
equipment sales within the state of Nevada. Further, Eurectec also
entered an agreement with Nevada Environmental for the sales of
CISAP and SMS equipment. Nevada Environmental is licensed to
operate a recycling plant in Nevada and desires to operate its
plant with the equipment to be provided by Eurectec. The Company
accepted 250,000 shares of restricted common stock of Nevada
Environmental (valued at $150,000 at the time of the transaction)
in exchange for the license agreements. The Eurectec agreement is
for equipment configurations of $7,600,000 of which 15% or
$1,140,000 cash deposit is due within 180 days of finalizing the
licensing agreement with the Company. The balance of $6,460,000
will be paid upon shipment of the equipment, pursuant to a letter
of credit. Subsequent to finalizing the license agreement and
equipment sales agreement, Nevada Environmental was acquired as a
wholly owned subsidiary, by Keystone Energy Services, Inc., a
Delaware corporation, ("Keystone") in a share for share exchange.
The Company's Nevada Environmental restricted common stock will be
exchanged for an equal amount of Keystone restricted common stock.
Keystone is currently traded publicly on under the symbol KESE on
the NQB Pink Sheets and has made application for trading on the OTC
BB.
Subsequent to quarter end, March 31, 1997, the Company entered a
Letter of Intent on May 8, 1997, with Waste Resources Reclamation,
a Kentucky Limited Liability Company, for the sale and purchase of
SMS press equipment with an approximate value of $700,000. The
Company anticipates implementation of this project in the third
quarter of 1997.
Management believes that proceeds from current equipment sales and
licenses fees, together with pending equipment sales and license
fees will provide adequate capital and liquidity to meet the
Company's needs for 1997.
RESULTS OF OPERATIONS
During the first quarter of 1997, the Company's net cash generated
by operations was $2,712, compared to cash generated of $526,589
during the first quarter of 1996. In the comparable 1996 quarter,
the Company had an increase of customer deposits of $404,446 and
the utilization of deposits on inventory of $424,820, partially off
set by an increase in accounts receivable of $202,359, and
reductions in accrued expenses and accounts payable of $80,194, and
$66,565 respectively. This activity resulted from the delivery of
Phase one of the Saudi Project. During the first quarter of 1997,
the Company received the first revenues and cash flow from the
Mexico contract, however this was only 24% of the prior year
receipts. This large difference is solely the result of the timing
of the shipments (and therefore receipt of revenue) on large
projects and is not indicative of a declining trend in revenue or
in Company activity.
The Company generated a profit of $9,989 in the quarter ended March
31, 1997 compared to a profit of $84,976 in 1996. This is also
because of the Saudi project shipment (and subsequent income
receipt) last year.
Accounts receivable of $204,522 are the same as year end 1996. The
Company anticipates that the collection of the final payment of
phase two of the Saudi contract ($184,522) will be received during
the second quarter of 1997.
Inventory increased during the first quarter of 1997 by $23,457.
This increase is in materials for the tile production machine.
$12,000 of the inventory increase was paid in cash, with the
balance of $11,457 going to accounts payable and accounting for
almost all of the $11,639 increase in current year accounts
payable.
1996 Investing Activities consisted solely of the sale of the
Company's residential property in Miami, Florida, during the first
quarter of 1996. No comparable transaction occurred in the current
year.
Financing activity in the three months ended March 31, 1997
consisted of a decrease in advances from officers of $2,071
compared to an increase of $23,000 in 1996, In 1996 the Company
paid off the mortgage on the sale of the residential property and
paid off the vehicle note. There were no comparable transactions in
the three months ended March 31, 1997.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997, AND THE THREE
MONTHS ENDED MARCH 31, 1996.
The Company generated revenue of $186,561 during the three months
ended March 31, 1997. Revenue of $781,549 was generated in the
same period of the prior year. As discussed earlier, the 1996
revenue reflects the shipment of part one of the Saudi Project. The
1997 revenue is for management services on the beginning of the
Mexico contract. The differences in revenue for the two periods is
the result of the timing of shipments of large contracts and is not
indicative of a downturn in revenue or Company activities.
Commission expense of $70,000 was recognized on a completed Saudi
sale in 1996. Commissions of $37,000 were paid during the three
months ended March 31, 1997, but treated as prepaid as they relate
to the equipment portion of the Mexico contract. These commissions
will be expensed at the time the sale revenue is recognized. The
Company anticipates delivery of the above equipment and recognition
of the revenue during the third quarter of 1997.
Depreciation expense increase from $2,604 to $10,978 due to the
purchase in 1996 of the SMS press equipment.
Rental expense increased in the current quarter compared to the
same quarter in 1996 due to the Company's move during last year to
larger quarters. Office and Administrative expenses declined during
the 1997 quarter. These expenses had been higher in 1996 due to the
Saudi project.
Interest expenses increased because of the financing of the SMS
press equipment.
Minority Interest expense of $2,423 for the three months ended
March 31, 1997 is less than the $17,378 for the quarter ended
March 31, 1996, because of the lower profit .<PAGE>
THE QUANTUM GROUP, INC.
&
SUBSIDIARIES
FINANCIAL STATEMENTS
Three Months Ended March 31, 1997
Three Months Ended March 31, 1996
<PAGE>
THE QUANTUM GROUP, INC. (F-1)
BALANCE SHEETS
(UNAUDITED)
MARCH MARCH DECEMBER
31, 1997 31, 1996 31, 1996
----------- ----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 7,243 $ 644,134 $ 6,602
Accounts Receivable 204,522 382,322 204,522
Inventory 514,036 490,579 490,579
Loan Receivable 0 38,750 0
Note Receivable 0 34,500 0
----------- ----------- -----------
Total Current Assets 725,801 1,590,285 701,703
PROPERTY & EQUIPMENT
Furniture & Fixtures 8,751 8,840 10,651
Residential Property 0 0 0
Vehicles 0 1,499 0
Equipment 160,346 0 170,144
----------- ----------- -----------
Total Property & Equipment 169,097 10,339 180,795
OTHER ASSETS
Cash Pledged 5,122 0 5,122
Note Receivable 0 310,500 0
Securities 0 6,250 0
License Rights 451,939 0 464,377
Deposit 3,281 661 3,281
Tax Benefit Deferred 80 0 80
Prepaid Commission 37,008 67,415 0
----------- ----------- -----------
Total Other Assets 497,430 384,826 472,860
----------- ----------- -----------
TOTAL ASSETS $1,392,328 $1,985,450 $1,355,358
=========== =========== ===========
<PAGE>
THE QUANTUM GROUP, INC. (F-2)
BALANCE SHEETS -Continued-
(UNAUDITED)
MARCH MARCH DECEMBER
31, 1997 31, 1996 31, 1996
----------- ----------- -----------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued Expenses $ 146,849 $ 146,662 $ 158,822
Accounts Payable 216,971 409,814 205,332
Due Officers 149,081 81,701 151,152
Customer Deposits 23,860 648,920 0
Franchise Tax Payable 2,423 8,900 0
Capitalized Leases 0 16,741 0
Current Maturities 785,197 0 785,197
----------- ----------- -----------
Total Current Liabilities 1,324,381 1,312,738 1,300,503
LONG TERM LIABILITIES
Note Payable - Machinery 170,519 0 170,519
Note Payable - Technology 347,547 0 347,547
Note Payable 267,131 273,158 267,131
Less Current Maturities (785,197) 0 (785,197)
----------- ----------- -----------
Total Long Term Liabilities 0 273,158 0
Minority Interest in Subsidiary 87,842 125,215 84,739
STOCKHOLDERS' EQUITY
Common Stock 50,000,000 Shares
Authorized 9,456,696 Shares
Outstanding 9,457 9,457 9,457
Paid In Capital 1,678,363 1,678,363 1,678,363
Accumulated Deficit (1,707,715) (1,413,481) (1,717,704)
----------- ----------- -----------
Total Stockholders' Equity (19,895) 274,339 (29,884)
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $1,392,328 $1,985,450 $1,355,358
=========== =========== ===========<PAGE>
THE QUANTUM GROUP, INC. (F-3)
STATEMENT OF OPERATIONS
(UNAUDITED)
THREE THREE TWELVE
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
MARCH MARCH DECEMBER
31, 1997 31, 1996 31, 1996
----------- ----------- -----------
REVENUE
Equipment Sales $ 186,263 $ 781,549 $2,872,679
License Sales 0 0 35,000
Other 298 0 0
----------- ----------- -----------
Total Revenues $ 186,561 $ 781,549 $2,907,679
COST OF SALES 0 457,813 1,895,468
----------- ----------- -----------
Gross Profit 186,561 323,736 1,012,211
EXPENSES
Commission 0 70,000 195,077
Depreciation 10,978 2,604 22,926
Amortization 12,439 0 33,169
Travel 14,069 5,598 67,586
Professional Fees 0 0 68,147
Office 14,179 20,434 21,546
Rent & Utilities 24,648 14,227 83,103
Administration Expenses 18,578 37,579 87,283
Consulting Fees 57,916 75,607 265,375
Interest 18,239 11,282 88,161
Accounts Receivable Written Off 0 0 376,931
Foreign Currency Translation 0 0 (6,344)
----------- ----------- -----------
Total Expenses 171,046 237,331 1,302,960
----------- ----------- -----------
Net Profit or (Loss)
from Operations 15,515 86,405 (290,749)
<PAGE>
THE QUANTUM GROUP, INC. (F-4)
STATEMENT OF OPERATIONS -Continued-
(UNAUDITED)
THREE THREE TWELVE
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
MARCH MARCH DECEMBER
31, 1997 31, 1996 31, 1996
----------- ----------- -----------
OTHER INCOME & (EXPENSES)
Interest Income 0 0 122
Gain of Sale of Residence 0 0 38,327
Loss on Investment 0 0 (6,250)
Income - Capital Lease 0 24,850 16,741
----------- ----------- -----------
Total Other Income & (Expenses) 0 24,850 48,940
Profit or (Loss) 15,515 111,255 (241,809)
TAXES & MINORITY INTEREST
Minority Interest (3,103) (8,900) 12,989
Provision for Taxes & (2,423) (17,379) 0
----------- ----------- -----------
Minority Interest (5,526) (26,279) 12,989
----------- ----------- -----------
Net Profit or (Loss) After
Tax & Minority Interest $ 9,989 $ 84,976 $ (228,820)
=========== =========== ===========
Net Profit or (Loss) Per Share $ 0.00 $ 0.01 $ (.02)
Weighted Average Shares
Outstanding 9,456,696 9,456,696 9,456,696
<PAGE>
THE QUANTUM GROUP, INC. (F-5)
STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
From January 1, 1994 to March 31, 1997
COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
---------------------------------------------------
Balance,
December 31, 1993 9,444,696 $ 9,445 $1,664,775 $(693,770)
Shares Issued for
Commission in Lieu
of Cash 12,000 12 11,988
Loss for the
Year Ended
December 31, 1994 (170,419)
---------------------------------------------------
Balance,
December 31, 1994 9,456,696 9,457 1,676,763 (864,189)
---------------------------------------------------
Loss for the
Year Ended
December 31, 1995 (624,695)
---------------------------------------------------
Balance,
December 31, 1995 9,456,696 9,457 1,676,763 (1,488,884)
Contributed Capital 1,600
Loss for the
Year Ended
December 31, 1996 (228,820)
---------------------------------------------------
Balance,
December 31, 1996 9,456,696 9,457 1,678,363 (1,717,704)
Profit for the
Quarter Ended
March 31, 1997 9,989
---------------------------------------------------
Balance,
March 31, 1997 9,456,696 $ 9,457 $1,678,363 $(1,707,715)
===================================================
<PAGE>
THE QUANTUM GROUP, INC. (F-6)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE THREE TWELVE
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
MARCH MARCH DECEMBER
31, 1997 31, 1996 31, 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit (Loss) $ 9,989 $ 84,976 $ (228,820)
Adjustments to Reconcile Net
Profit Or (Loss) to Net Cash
Write off Investment 0 0 6,250
Write Off Loan Receivable 0 0 38,750
Write Off Long Term Receivable 0 0 338,181
Amortization & Depreciation 24,135 2,602 56,095
Foreign Currency Remeasurement 0 0 (6,344)
Non Cash Income 0 0 (16,741)
Minority Interest 3,103 17,378 (12,989)
Changes in Operating Assets &
Liabilities
(Increase) Decrease in Accounts
Receivable 0 (202,359) (24,559)
(Increase) Decrease in Inventory (23,457) 0 0
(Increase) in Deposit on Inventory 0 424,820 424,820
Decrease (Increase) in Long Term
Accounts Receivable 0 0 0
(Increase) Decrease in Loan
Receivable 0 0 0
(Increase) in Prepaid Commissions (37,008) (67,415) 0
(Increase) Decrease in Deposits 0 0 (3,281)
(Increase) Decrease in Notes
Receivable 0 0 0
Increase (Decrease) in Accrued
Expenses (11,973) (80,194) (68,034)
Increase (Decrease in Accounts
Payable 11,639 (66,565) (271,047)
Increase (Decrease in Tax Payable 2,423 8,900 0
Increase (Decrease) in Customer
Deposit 23,860 404,446 (244,464)
Increase in Cash Pledged 0 0 (5,122)
Rounding 1 0 (3)
----------- ----------- -----------
Net Cash Generated (Used) by
Operating Activities 2,712 526,589 (17,308)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment 0 0 (182,295)
Purchase of License Rights 0 0 (497,547)
Sale of Residential Property 0 236,586 252,532
Purchase of Furniture 0 0 (11,086)
----------- ----------- -----------
Net Cash Provided (Used) by
Investing Activities 0 236,586 (438,396)
<PAGE>
THE QUANTUM GROUP, INC. (F-7)
STATEMENTS OF CASH FLOWS -Continued-
(UNAUDITED)
THREE THREE TWELVE
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
MARCH MARCH DECEMBER
31, 1997 31, 1996 31, 1996
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of Long Term Debt 0 (165,000) (169,781)
Increase (Decrease) in Notes Payable 0 (4,781) 511,896
Increase (Decrease) in Amounts Due
Officers (2,071) 23,000 92,451
Contributed Capital 0 1,600 1,600
----------- ----------- -----------
Net Cash Provided by Financing
Activities (2,071) (145,181) 436,166
Increase (Decrease) in Cash 641 617,994 (19,538)
Cash at Beginning of Period 6,602 26,140 26,140
----------- ----------- -----------
Cash at End of Period $ 7,243 $ 644,134 $ 6,602
=========== =========== ===========
<PAGE>
THE QUANTUM GROUP, INC. (F-8)
Notes to Financial Statements
NOTE #1 - STATEMENT PREPARATION
The Company has prepared the accompanying financial statements with
interim financial reporting requirement promulgated by the Securities and
Exchange Commission. The information furnished reflects all adjustments
which are, in the opinion of management, necessary for a fair presentation of
financial position and results of operations.
The consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's December 31, 1996 10-K report.<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
27 Financial Data Schedule
(B) Reports on Form 8-K
No reports on Form 8-K were filed, or required to be
filed, during the quarter ended March 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this to be signed on its behalf by the undersigned
thereunto duly authorized.
The Quantum Group, Inc.
May 15, 1997 /S/ Ehrenfried Liebich
-------------------------
Ehrenfried Liebich
Chairman of the Board,
President, and
Chief Executive Officer
May 15, 1997 /S/ John F. Pope
---------------------------
John F. Pope
Vice President, Finance
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 7,243
<SECURITIES> 0
<RECEIVABLES> 204,522
<ALLOWANCES> 0
<INVENTORY> 514,036
<CURRENT-ASSETS> 725,801
<PP&E> 169,097
<DEPRECIATION> 12,439
<TOTAL-ASSETS> 1,372,328
<CURRENT-LIABILITIES> 1,324,381
<BONDS> 0
<COMMON> 9,457
0
0
<OTHER-SE> (29,352)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 186,263
<TOTAL-REVENUES> 298
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 152,807
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,239
<INCOME-PRETAX> 15,515
<INCOME-TAX> 2,423
<INCOME-CONTINUING> 13,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,989
<EPS-PRIMARY> .00
<EPS-DILUTED> 0
</TABLE>
