<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Fourth 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<PAGE>
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. <PAGE>
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<PAGE>
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 terminate.
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 remaining 15% interest in Eurectec<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
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 Amount and
of Name of Nature of Percentage of
Class Beneficial Owner Beneficial Ownership 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(1) 0.1%
Park Irvine Business Center
14771 Myford Road, Building B
Tustin, CA 90744
Common John F. Pope 131,000(1) 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>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compenstion
Awards Payouts
Name & Annual Compensation Other Restricted
Principal Bonus Annual Stock Options/ LTIP All Ohter
Position Year Salary $ Compensation Awards SARs Payout Compensation
____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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(3)
Secretary/Treasurer/ 1994 -0- -0- -0- -0- -0- -0- $60,000(4)
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(5)
1993 -0- -0- -0- -0- -0- -0- -0-
Keith J. Fryer 1995 -0- -0- -0- -0- -0- -0- $77,950(6)
Vice President 1994 -0- -0- -0- -0- -0- -0- -0-
1993 -0- -0- -0- -0- -0- -0- -0-
_____________________________________________________________________________________
</TABLE>
(3.) Mr. Pope provided consulting services to the Company through his private
business, John F. Pope, Inc. Mr. Pope was paid this money for accounting and
financial services he provided to the Company, which corresponds to the business
areas for which he is responsible as a Company officer. Due to the uncertain
nature of the Company's cash flow, and its desire to avoid burdensome fixed
costs, the Company pays no salary to its officers, rather, each officer provides
services on an as needed basis and is compensated as an independent contractor
for those services. By structuring compensation in this manner, the Company
feels it avoids burdensome salary responsibilities when Mr. Pope's services
are not required and limits his compensation to serices rendered. The Company
beleives it to be in its best interest to remunerate Mr. Pope, and its officers,
for their services in this manner. When cash flow so justifies, the Company
anticipates that is will employ Mr. Pope, at which time he will no longer be
compensated as an independent contractor. For the time being, however, Mr. Pope
and the other Company officers will not be employed by the Company and will not
be paid salaries by the Company. The services provided by Mr. Pope to the
Company were provided on terms at least as favorable as could have been
negotiated with an independent party.
(4.) See Footnote (3.).
(5.) Mr. Hicock provided various services to the Company and this money was paid
directly to Mr. Hicock for those services. This money was paid to him as an
independent contractor and not as a salary for services rendered by Mr. Hicock
in his capacity as an officer of the Company. As stated above, due to the
uncertain nature of the Company's cash flow, and its desire to avoid burdensome
fixed costs, the Company pays no salary to its officers, rather each officer
provides services on an as needed basis and is compensated as an independent
contractor for those services. By structuring compensation in this manner, the
Company feels it avoids burdensome salary responsibilities when the services of
a particular officer are not needed and limits executive compensation to
services rendered. The Company beleived it to be in its best interest to
compensate Mr. Hickok for his services in this manner. These services were
provided to the Company on terms at least as favorable as could have been
negotiated with an independent party.
(6.) Mr. Fryer provided consulting services to the Company through his private
consulting business, Keith Fryer Associates California, Inc. Mr. Fryer was paid
this money for sales and marketing services he provided for the Company, which
corresponds to the business areas for which he is responsible as a Company
officer. Due to the uncertain nature of the Company's cash flow, and its desire
to avoid burdensome fixed costs, the Company pays no salary to its officer,
rather, each officer provides services an an as needed basis and is compensated
as an independent contractor for thoses services. By structuring compensation
in this manner, the Company ffels it avoids burdensome salary responsibilities
when Mr. Fryer's services are not required and limits his compensation to
services rendered. The Company beleives it to be in its best interest to
remunerate Mr. Fryer in this manner. When cash flow so justifies, the Company
anticiptes employing Mr. Fryer, at which time he will be paid a salary and will
no longer be compensated as an independent contractor. For the time being,
however, Mr. Fryer, and the other Company officers will not be employed by the
Company and will not be paid salaries by the Company. The services rendered by
Mr. Fryer were provided to the Company on terms at least as favorable as could
have been negotiated with an independent party.
Cash Compensation
None.
Bonuses and Deferred Compensation
None.
Compensation Pursuant to Plans
None.
Pension Table
None
Other Compensation
None.
Compensation of Directors
None.
Termination of Employment and Change of Control Arrangement
There are no compensatory plans or arrangements, including payments to be
received from the Company, with respect to any person named in Cash
Compensation set out above which would in any way result in payments to any
such person because of his resignation, retirement, or other termination of
such person's employment with the company or its subsidiaries, or any change
in control of the Company, or a change in the person's responsibilities
following a changing in control of the Company.
Item 7. Certain Relationships and Related Transactions.
On December 31, 1995 the Company borrowed directly from Ehrenfried Liebich an
amount equaling $58,701. The loan is non-interest bearing and is payable on
demand. Mr. Liebich is the President, a Director and a beneficial owner of more
than 5% of the Company's outstanding Common Stock. All of these funds were
utilized to provide the Company with needed working capital. This loan was made
on terms at least as favorable as terms the Company could have negotiated with
an independent third party.
Keith Fryer provided consulting services to the Company through Keith Fryer
Associates California, Inc., his private consulting business. Mr. Fryer is a
Company Vice President and a Director. Keith Fryer Associates California was
paid $77,950 for consulting services rendered by Keith Fryer during 1995.
These services were provided on terms at least as favorable as could have
been negotiated with an independent third party. 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>
<CAPTION>
PRICES
<S> <C> <C> <C> <C>
1996 HIGH LOW HIGH LOW
- -----------------------------------------------------------------------------
Jan. 2 thru
Mar. 29 7/16 1/16 7/8 5/8
Apr. 1 thru
Mar. 29 3/16 1/8 3/4 3/4
July 1 thru
Sept. 6 1/8 1/8 3/4 3/4
1995
- -----------------------------------------------------------------------------
Jan. 3 thru
Mar. 31 1/4 1/8 7/8 1/2
Apr. 3 thru
June 30 3/16 1/16 13/16 5/8
July 3 thru
Sept. 29 3/16 1/16 13/16 9/16
Oct. 2 thru
Dec. 29 3/16 1/16 13/16 7/16
1994
- -----------------------------------------------------------------------------
Jan. 3 thru
Mar. 31 Not Trading
Apr. 1 thru
Apr. 14 Not Trading
Apr. 15
thru
June 30 1 3/8 1/2 2 1 1/4
July 1 thru
Sept 30 3/4 1/8 1 1/2 3/4
Oct. 3 thru
Dec. 30 3/8 1/16 1 3/8 1/2
- -----------------------------------------------------------------------------
</TABLE>
On March 25, 1991, the Company granted stock options to acquire
500,000 shares of its common stock at $1.00 per share to its officers and
other related parties. These options expire five years from the date of
issuance. As of December 31, 1995, none of the options had been exercised. As
of the date of this filing, all of the options expired unexercised.
Item 2. Legal Proceedings.
In previous ammendments to the Company's 10SB disclosure has been made
regarding the legal matters of Kugelmeier vs. Quantum/Eurectec. The litigation
referred to came before the United States District Court for the District of
Utah, Central Division. On October 16, 1996 after the issues were tried the
jury rendered its verdict. "It is ordered and abjudged that the jugdement be
entered in favor of the defedendant and against the plaintiff on the plaintiff's
complaint "no cause of action" and that judgement be entered in favor of
Plaintiffs against the Defendant on the Defendants' counter claim, "no cause
of action". As a result of the ruling in the litigation the Company no longer
has any connection to the mining claims, and the Kugelmeiers' have no license
for the states of Colorado, Arizona, and New Mexico.
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
02-12-93 Seemonger, N.V. 418,806 SPI Shares (7)
09-17-93 Diaji Yamada 60,000 $50,000.00 (8)
10-18-94 Mike Holt 12,000 Services (9)
</TABLE>
(7.) The Company issued these shares to acquire all of the outstanding shares
of Safety Products Innovations, Ltd. ("SPI") a British corporation which, at the
time of acquisition, was marketing a line of home, auto, and personal alarms.
Shortly after the acquisition the Company discontinued SPI's operations.
(8.) These shares were sold a price of $.833 per share. No sales commissions of
underwriting discounts were paid. These securities were sold pursuant to
Section 4(2) of the Securities Act which provides a private placement exemption
for the sales of securities to persons who are sophisticated investors or who
are sufficiently acquainted with the Company to fend for themselves. Mr. Diaji
is such a person.
(9.) The Company issued 12,000 shares to Mike Holt in lieu of payment for
services he rendered to the Company. The shares issued to him for at $1.00
per share.
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 Scvanveldt
Salt Lake City, Utah
March 27, 1996<PAGE>
The Quantum Group Inc., and Subsidiaries
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
December December
31, 1995 31, 1994
-------------- --------------
<S> <C> <C>
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
============== ==============
</TABLE>
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
<TABLE>
<CAPTION>
December December
31, 1995 31, 1994
-------------- --------------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS EQUITY
Current Liabilities
- -------------------
Accrued Expenses $ 226,856 $ 90,277
Accounts Payable 476,379 25,596
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
- ----------------------
Deferred Tax Payable 943 -0-
Note Payable 266,871 -0-
Vehicle Note Payable 4,781 6,778
Mortgage Payables 165,000 165,000
Less Current Maturities (1,964) (1,964)
-------------- --------------
Total Long Term Liabilities 435,631 169,814
Minority Interest in Subsidiary 47,754 220,433
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 (1,823,030) (864,189)
-------------- --------------
Total Stockholders' Equity (136,810) 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>
<CAPTION>
December December December
31, 1995 31, 1994 31, 1993
--------------- -------------- --------------
<S> <C> <C> <C>
Revenues
- ------------
Equipment Sales $ 2,334,790 $ 1,398,960 $ -0-
License Sales -0- 120,000 745,712
Other Income -0- 50,000 -0-
--------------- -------------- --------------
Total Revenues 2,334,790 1,568,960 745,712
Cost of Sales 1,688,947 980,549 -0-
--------------- -------------- --------------
Gross Profit 645,843 588,411 745,712
--------------- -------------- --------------
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 992,384 -0- -0-
Foreign Currency
Translation (6,287) -0- -0-
--------------- -------------- --------------
Total Expenses 1,806,955 787,229 327,412
--------------- -------------- --------------
Net Profit or (Loss)
From Operations (1,161,112) (198,818) 418,300
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) (1,165,362) (198,818) 374,029
Taxes & Minority Interest
Minority Interest 172,679 28,399 (72,852)
Provisions for Taxes
- Current 34,785 -0- (34,785)
Provisions for Taxes
- Deferred (943) -0- -0-
-------------- -------------- --------------
Total Taxes & Minority
Interest 206,521 28,399 (107,637)
-------------- -------------- --------------
Net Profit or (Loss) $ (958,841) $ (170,419) $ 266,392
============== ============== ==============
Net Profit or (Loss)
Per Share (.10) (.02) .04
Weighted Average Shares
Outstanding 9,456,696 9,456,696 8,832,672
Diluted Net Profit Per
Share N/A N/A .03
Weighted Average Shares
and Options (Note #5)
Outstanding N/A N/A 9,332,672
</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
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Stock Amount Capital Deficit
-----------------------------------------------------
<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.) 621,487
Less Equity to
Minority Interest (143,166)
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 (958,841)
-----------------------------------------------------
Balance,
December 31, 1995 9,456,696 $ 9,457 $ 1,676,763 $ (1,823,030)
=====================================================
</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>
<CAPTION>
1995 1994 1993
-------------- ------------- --------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
- ------------------------------------
Net Profit or (Loss) $ (958,841) $ (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 (172,679) (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 - Current (34,785) -0- 34,785
(Decrease) Increase in Customer
Deposits (244,464) 488,938 -0-
Increase in Taxes Payable
Deferred 943 -0- -0-
-------------- ------------- --------------
Net Cash (Used) by Operating
Activities (182,156) (58,849) (672,257)
</TABLE>
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
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------- --------------
<S> <C> <C> <C>
Cash Flows from Investing Activities
- ------------------------------------
Gross Proceeds from Sale TSI Stock 12,500 -0- -0-
Purchase of Leasehold Improvements -0- -0- (15,000)
Purchase of Vehicles -0- -0- (8,994)
Additions to Residential Property -0- -0- (2,688)
Purchase of Furniture -0- (3,684) (3,017)
Increase in Loan Receivable -0- -0- (38,750)
Increase in Security -0- -0- (6,250)
-------------- ------------- --------------
Net Cash Provided (Used) by
Investing Activities 12,500 (3,684) (74,699)
Cash Flows from Financing Activities
- ------------------------------------
Payment on Long Term Debt (1,997) (1,751) -0-
Increase (Decrease) in Notes Payable 266,871 -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 194,974 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 line of nutritional supplements through franchised
distribution centers. In December 1992, all operations of the subsidiary
involved with the acupuncture devices and nutritional supplements were
suspended. Losses incurred in these operations have been treated as
operating losses in 1991 and 1992.
In 1992, the Company acquired rights to import and market equipment used in the
tire recycling industry. The tire recycling operation is the thrust of the
Company's operations at December 31, 1995. (See Note #11)
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. (See Note #18) (See
Note #21)
NOTE #2 - Significant Accounting Policies
- ----------------------------------------------------
(A) The Company uses the accrual method of accounting.
(B) Revenues and directly related expenses are recognized in the period when
the goods are shipped to the customer.
(C) The Company considers all short term, highly liquid investments that are
readily convertible, within three months, to known amounts as cash
equivalents. The Company currently has no cash equivalents.
(D) Primary Earnings Per Share amounts are based on the weighted average
number of shares outstanding at the dates of the financial statements.
Fully Diluted Earnings Per Shares shall be shown on stock options and
other convertible issues that may be exercised within ten years of the
financial statement dates.
(E) 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<PAGE>
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.
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 #17 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.
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>
<CAPTION>
Lease Interest Total
Term Cost Factor Obligation
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computer 48 $ 10,450 $ 5,419 $ 15,869
Copiers 36 8,250 3,559 11,809
- --------------------------------------------------------------------
Total $ 18,700 $ 8,978 $ 26,678
==================================
</TABLE>
Lease obligations on these leases were as follows:
<TABLE>
<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.
NOTE #7 - Notes Payable
- ------------------------
The Company has the following notes payable obligations.
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
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>
The Company borrowed funds from a non US entity. It received in quarterly
installments Deutsche Marks of DM 411,381 these were translated to US $273,158
at the quarterly exchange rate. At December 31, 1995, the exchange rate was US
$1.5415 for DM 1.00. The Company valued the note at its current US $ equivalent
and realized in the statement of operations a translation gain of $6,287. The
Company has recorded deferred taxes of $943 applicable to the translation gain.
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.
Scheduled below are the assets, costs, lives, and accumulated depreciations at
December 31, 1995 and December 31, 1994.
<TABLE>
<CAPTION>
December 31, Depreciation Accumulated
1995 1994 Expense Depreciation
Assets Cost Cost Life 1995 1994 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 - Compensation Agreement
- ---------------------------------
The Company has no agreements with its officers and directors to pay any
compensation, except for reimbursement for out of pocket expenditures for
activities on the Company's behalf.
The Company has no accrued vacation or other employee benefits that should be
recognized as part of these statements.
NOTE #11 - 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 #18).
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 a 20% 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 #12 - 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>
<CAPTION>
Commissions Expenses Expenses Fees Services
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Keith Fryer $ -0- $ -0- $ 8,501 $ 77,950 $ -0-
John Pope -0- 15,450 -0- -0- 31,400
Gayle Hickok -0- -0- 2,600 -0- -0-
1994
Keith Fryer 75,000 13,000 17,325 128,420 -0-
John Pope -0- 34,450 1,100 -0- 60,000
Gayle Hickok -0- -0- -0- 12,000 -0-
1993
John Pope -0- 15,450 1,048 -0- 8,833
Keith Fryer -0- -0- 4,994 -0- 16,433
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 #13 - 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>
<TABLE>
<CAPTION>
Year of Expiration
Loss Amount Date
---------------------------------------------------------
<S> <C> <C>
1992 $ 670,375 2007
1993 -0- 2008
1994 198,818 2009
1995 746,864 2010
</TABLE>
The Company has adopted FASB 109 to account for income taxes. The Company
currently has no issues that create timing differences that would mandate
deferred tax expense.
Net operating losses would create possible tax assets in future years. Due to
the uncertainty as to the utilization of net operating loss carryforwards an
evaluation allowance has been made to the extent of any tax benefit that net
operating losses<PAGE>
may generate.
<TABLE>
<CAPTION> 1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Current Tax Asset Value of Net
Operating Loss Carryforwards at
Current Prevailing
Federal Tax Rate $ 549,500 $ 295,525 $ 125,106
Evaluation Allowance (549,500) (295,525) (125,106)
------------------------------------
Net Tax Asset $ -0- $ -0- $ -0-
====================================
Current Income Tax Expense $ -0- $ -0- $ -0-
Deferred Income Tax Expense 943 -0- -0-
</TABLE>
NOTE #14 - 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>
<CAPTION>
Minority Interest
- ------------------------------------------------------------------------------
Total
Shares Percentage Par Paid in Retained Minority
Issued Owned Value Capital Earnings Interest
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------
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 #15 - 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 #21)
NOTE #16 - Accounts Receivable Written Off
- ------------------------------------------
The Company has written off accounts receivable from sales in 1994, sales in
1995 and a loan make in 1993 as follows:
</TABLE>
<TABLE>
<CAPTION>
1994 Sales Current Long Term
- -----------------------------------------------------------------
<S> <C> <C>
Canadian License Fee $ 326,249 $ 326,249
Canadian Equipment Sale 230,000
Chinese Equipment Sale 71,136
-----------------------
Subtotal $ 627,385 $ 326,249
1995 Sales Current Long Term
- -----------------------------------------------------------------
1993 Loan
Loan Receivable GmbH -0- 38,750
-----------------------
Total Write Off $ -0- $ 364,999
=======================
The Canadian license encountered operational difficulties because of their
refusal to comply with CISAP's instruction to operate the equipment. These
delays caused a cash<PAGE>
flows problem which ultimately resulted in the need to
restructure the Canadian Company. As a result of the restructuring process
the Company agreed to write off its current assets receivable of $556,249 and
is non current accounts receivable of $326,249.
The $71,136 due from the Chinese sale was the retention on the sale. At
December 31, 1994, the Company held a letter of credit upon which it could
have collected the receivable if all conditions of the sale were met. In
1995, problems developed with the operation of the system because the feed
stock (Chinese tires) had much higher fabric content than Western tires for
which the machinery was tested. Because of the delays caused to adjust the
equipment to handle Chinese tires and the fact that it took longer to process
the high fabric tires the Chinese refused to pay the accounts receivable, and
the letter of credit expired. In an attempt to maintain a good relationship
with the Chinese Company and the difficulty and expense of litigating a
collection action in China the Company wrote the accounts receivable off.
NOTE #17 - 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 #18 - 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.
(See Note #21).
NOTE #19 - 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>
<CAPTION>
Country 1995 Sales 1994 Sales 1993 Sales
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Canada $ 630,000 $ 745,713
China 888,960
Mexico 50,000
Saudi Arabia $ 2,024,290
Germany 310,500
----------------------------------------------
Total $ 2,334,790 $ 1,568,960 $ 745,713
==============================================
</TABLE>
Sales in the amount of $2,736,991 were made and recorded upon shipment to
customers in the fourth quarter of 1995.
NOTE #20 - 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.
NOTE #21 - Events Dated December 31, 1996
- -----------------------------------------
In its efforts to collect the quarterly installment on the Note Receivable
described in Note #10, it was discovered in December 1996, that the
installment on the note<PAGE>
receivable was not collectible and that the entire note
would not be paid as per the note. Because of these circumstances the financial
statements have been changed retroactively to present the assets at no value at
December 31, 1995.
In December 1996, Eurectec Deutschland GmbH discontinued operations and had no
funds to repay the loan receivable. The Company has chosen to restate the
financial statements at December 31, 1995 to reflect the loss of its
investments and the write off of the loan receivable.
The litigation referred to in Note #17 came before the United States District
Court for the District of Utah, Central Division. On October 16, 1996 after
the issue were tried the jury rendered its verdict. "It is ordered and
abjudged that the judgement be entered in favor of the defendant and against
the plaintiff on the plaintiff's complaint "no cause of action" and that
judgement be entered in favor of Plaintiffs against the Defendant on the
Defendants' counter claim, "no cause of action." As a result of the ruling
in the litigation the Company no longer has any connection to the mining
claims, and the Kugelmeiers have no license for the states of Colorado,
Arizona, and New Mexico.
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
represents 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<PAGE>
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:
<TABLE>
<S> <C>
COMPACT 6000 1-8 ITL 998.000.000
COMPACT 6000 9 ITL 919.600.000 (5% discount)
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
</TABLE>
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,<PAGE>
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<PAGE>
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.
<PAGE>
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. 4 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.
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. 4 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>
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>
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.
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
===============
</TABLE>
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>
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 at 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,<PAGE>
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>
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>
Very truly yours
/s/ Richard T. Ludlow
------------------------------
Richard T. Ludlow
</CORRESP>
