United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
September 30, 1998 0-23812
THE QUANTUM GROUP, INC.
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(Exact name of registrant as specified in its charter)
NEVADA
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(State or other jurisdiction of incorporation or organization)
95-4255962
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(I.R.S. Employer Identification No.)
Park Irvine Center, 14771 Myford Road, Building B
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Tustin, CA 92780
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(Address of principal executive offices)
(714) 508-1470
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
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State the number of shares outstanding of each of the registrants classes
of common equity, as of the latest practicable date.
Common stock, par value $.001; 7,788,616 shares outstanding as of November
3, 1998.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See pages F-1 to F-10 attached.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
This Form 10-QSB contains certain forward-looking statements. For
this purpose any statements contained in this Form 10-QSB that are not
statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "estimate" or "continue" or comparable
terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, and
actual results may differ materially depending on a variety of factors.
General
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The management of the Company made the decision at year end 1992 to
concentrate its resources and management efforts on the Company's tire
recycling operations. This has been the Company's business since the
beginning of 1993.
The first phase of the Companys business in the tire recycling
industry was conducted through Eurectec, Inc., a subsidiary of the Company
(Eurectec). Eurectec negotiated various agreements with manufactures of
tire recycling equipment to represent their product throughout the world.
The principle company represented by Eurectec was CISAP SpA, an Italian
corporation. Sales of CISAP equipment were made by Eurectec to customers
in Canada, China, Saudi Arabia and Mexico.
The second phase of the Companys business was to purchase
technologies and/or develop technologies for tire recycling equipment and
after market products. This aspect of the Companys business was conducted
through another subsidiary of the Company, Eurectec Industries, Inc.,
(Eurectec Industries). Eurectec Industries is currently completing
design of its EGS system which will be a complete system to process tires
to recover the rubber in the form of crumb rubber. The first installation
of the EGS system is scheduled to take place in Germany at a project
designated the Poseidon project. The project should commence operations in
the third quarter of 1999.
The Company is a partner in the Poseidon project. It is anticipated
that by participating as an equity partner in recycling joint ventures, the
Company will develop cash flow through operations conducted by such
recycling facilities. The Poseidon project, in addition to being the
initial project to utilize the EGS system, will also be licensed to utilize
proprietary technologies for after market products purchased by the Company
or developed by Eurectec Industries. It is anticipated that the Poseidon
project will allow the Company to showcase its full array of tire recycling
technology and after market products made from crumb rubber.
Annual Report
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The Company sent a 1997 Annual Report to all shareholders of record
during the third quarter of 1998.
Joint Venture Projects
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Poseidon Products GmbH. The Company has finalized a joint venture
agreement with a German Government sponsored company,
Strukturentwicklungsgesellschaft Ueckermunde GmbH., located near Berlin.
The Company has an 80% interest in the joint venture and a buy-back
agreement to purchase the remaining 20%. As a result of joint venture
agreement, Poseidon Products GmbH. was established and will construct and
operate a tire recycling facility in the state of Mecklenburg-Vorpommern to
produce crumb rubber and to manufacture a wide range of value added
products. The plant is designed to be a tire recycling facility whereby
tires will be shredded and granulated producing the commodity crumb rubber.
The crumb rubber is subsequently partially devulcanized utilizing the
Companys exclusive REVULCON process to enable material to be used in a
variety of products and processes including incorporation into new tire
manufacture. The plant will employ a number of presses to manufacture
additional value added after market products such as flooring, soaker hoses
for irrigation applications, interlocking tiles and heated tiles as well as
other products.
The Poseidon joint venture funding is expected to be completed by the
middle of the fourth quarter. Funding consists of 50% of the total project
costs (approximately $13,800,000) from a grant from the European Union
Structure Fund for European regional development and 40% bank financing and
10% equity raised through a private offering in Germany, partly funded from
proceeds of a Regulation S offering. The equity funding is currently 90%
complete. Eurectec, Inc., is under contract to supply the technology
transfer and equipment package for the Poseidon project valued at
$7,370,000, with anticipated equipment delivery commencing the second
quarter of 1999. Because of the Company's corporate restructure, the
Poseidon order will be moved to Eurectec Industries, Inc. Engineering for
the project is being coordinated by FDC Engineering of Switzerland, an
independent contractor.
Ground breaking for the Poseidon joint venture occurred September
17, 1998 in Penkun, Germany and the construction program is underway.
Pending completion of all building construction and environmental
compliance permitting funding and maintaining the current construction
schedule, the Company anticipates the Poseidon facility to be complete and
operational by end of third quarter, 1999. Poseidon has opened offices in
Penkun and has commenced a German wide marketing study and plan to
introduce and sell its manufactured products.
The Company anticipates the Poseidon project to be a showcase for
future tire recycling plant sales. The plant equipment and technology is
the culmination of research and development by the Company and the Company
no longer relies on outside sources for equipment design or technology.
A Poseidon web site has been established and may be viewed at
www.poseidon-products.com. The web site which is in German and English,
provides a platform for showcasing the Poseidon joint venture and promoting
an awareness of the Company.
Proposed Joint Venture Projects
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Scotland. The Company has established a new subsidiary, Caladonian
Envirotech Rubber Recycling Limited, a Scottish limited liability company,
("Caladonian"). Caladonian was established in anticipation of entering a
joint venture agreement with local Scottish investors to build a tire
recycling plant modeled after the Poseidon project. The Company is
embarking on a market study to determine the feasibility of the project,
which is expected to be complete the end of first quarter 1999.
Ireland. The Company has established a new subsidiary, Hibernian
Envirotech Rubber Recycling Limited, an Irish limited liability company,
("Hibernian"). Hibernian was established in anticipation of entering a
joint venture agreement with local Irish investors to build a tire
recycling plant modeled after the Poseidon project. The Company is
embarking on a market study to determine the feasibility of the project,
which is expected to be complete the end of first quarter 1999.
Portugal. The Company is continuing negotiations with investors in
Portugal to enter a joint venture agreement to build a tire recycling
facility. The Company's president has been in Lisbon, Portugal meeting
with a potential joint venture partner . It is anticipated the joint
venture partner will undertake a feasibility study with assistance from the
Company.
France. The Company is currently negotiating with interested parties
so the Company can initiate a feasibility study for a joint venture to
build a tire recycling facility in France. Also, the Company is actively
promoting its after market products and user applications within France to
develop key relationships.
Brazil. The Company's vice-president has met with potential joint
venture partners in Brazil. As a result of negotiations, the Company has
presented a memorandum of understanding to the potential joint venture
partner whereby the Company will undertake a feasibility study to determine
the feasibility of developing a tire recycling facility in Belo Horizonte,
Brazil.
South Africa. Through the Company's contacts in Scotland, the Company
has been introduced to potential joint venture partners in South Africa and
Zimbabwe. The Company's president intends to meet in South Africa and
Zimbabwe in December 1998, with the potential joint venture partners to
explore the possibility of developing a tire recycling plant.
California Prison Manufacturing Project. The Company continues
negotiating with the California State Prisons - Department of Corrections,
Sacramento, California to investigate the feasibility of establishing a
joint venture between the Company and the Department of Corrections
Manufacturing Department. The Company has met with a number of facilities
regarding the project, however, negotiations are not expected to be
concluded until funding can be put in place which is anticipated to be in
place next year.
The Company continues negotiations with various potential clients in
the United States, Europe, the Arabian Gulf, South America, Great Britain
and Asia.
Current Contracts
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Eurectec has generated sales of CISAP SpA and its successor Tyre's
Ecology, SRL, hereinafter referred to as CISAP. The agreement for the
initial phase of equipment to be delivered to Saudi Arabia was entered in
1994 with additional equipment purchased by the clients from CISAP in 1995
and 1997. The equipment sale to Mexico was entered in 1994.
Mexico Agreement. The client has experienced problems in the
commissioning of the C9000 machines mainly relating to CISAP equipment and
the high fiber content tires in Mexico and the high altitude of the project
site near Mexico City. The Company has sent an engineering team to the
site to investigate the problems and the Company originally anticipated the
equipment to be fully operational by the end of the second quarter 1998.
However, the engineering team uncovered additional problems with the CISAP
equipment which have required re-engineering of the CISAP equipment on-site
and re-engineering of the plant itself.
CISAP has agreed to ship additional equipment to the Mexico site in
order to solve the problems encountered in Mexico. It is anticipated the
new equipment will be delivered during the fourth quarter of 1998.
The Company expects to secure the pending phase two of the project for
additional granulating and press equipment manufactured by Eurectec
Industries. Further, the Company has already contracted to deliver a
SuperCollider to the Mexico client which the Company anticipates will
assist the client in converting the larger crumb rubber currently
manufactured to a finer mesh for higher value added after market products.
In an effort to mitigate the problems encountered by the client, the
Company is currently purchasing crumb rubber from the client and is
recycling the crumb rubber into after market products.
Saudi Agreement. Initial equipment for Phase one of this project has
been delivered and partially installed at the site in Dammam. As of this
reporting period, the equipment has not been completely installed by CISAP.
CISAP has adopted the position that unless the Client invests in a new
piece of equipment, called a Grizzly, which removes 95% of the steel from
the shredded material before it enters the C6000 machine, CISAP will not
finish installation of the equipment.
The client has indicated that the CISAP position is unacceptable and
has agreed in principle to purchase this equipment at a later time,
following completion of original installation and the when original
machinery is operating to specification. Because the client and CISAP are
not able to agree, the Company has decided to send an independent
contractor to the site to complete the installation which is now
anticipated to be complete during the fourth quarter, 1998. Once
installation has been completed, the Company will negotiate directly with
the client for purchase of the Grizzly. Pending successful installation of
the C6000 machines by the Companys independent contractor, the Company
expects to negotiate with the client for the supply of additional presses
to broaden the range of manufactured products. SMS, a subcontractor of the
Company, is completing the installation of the press equipment which will
enable the client to begin limited after market product manufacture.
CISAP has stated that it will not warrant the CISAP equipment because
of the delays encountered early in the project due to the client moving the
facility site from Riyadh to Dammam. The Company and the client intend to
hold CISAP responsible should there be any liability imposed upon the
Company due to failure of the CISAP equipment.
CISAP SpA Relationship . CISAP, SpA underwent a bankruptcy and
reorganization as of July 2, 1997. As a result of the reorganization,
CISAP Ecology, SRL was established to continue the business of CISAP, SpA,
tire granulation equipment, specifically the CISAP 3000, 6000 and 9000
machines as supplied to Mexico and CISAP Projecti was established to focus
on the sale of tire re-treading equipment. Subsequently CISAP Ecology, SRL
has undergone a name change to Tyre's Ecology, SRL. The Company is now
dealing with Tyre's Ecology, SRL in its attempts to resolve the Mexico and
Saudi project issues. CISAP and its successor are hereinafter referred to
as CISAP.
As a result of the difficulties experienced by CISAP and its successor
in delivering equipment which functions as specified and to make delivery
in a timely manner, Eurectec has determined that the exclusive right to
market CISAP equipment has been diminished. Therefore, Eurectec will not
pursue additional sales of CISAP equipment at performance levels required
by the agreement with CISAP to maintain such exclusivity.
The problems encountered by the Company with the CISAP equipment
failure and CISAP's unacceptable responses in both Mexico and Saudi Arabia
have seriously impacted the Company's expected revenue stream from the
second phase of the Mexico project and the third phase of the Saudi
project, both of which have been suspended.
Current Orders
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The Company's strategy of focusing on tire recycling plants has
eliminated the reliance upon CISAP and other outside vendors for equipment
and installation. As a result of the revised strategy, the Company expects
to book orders in excess of $10,000,000 during 1998. The orders booked in
1998 will be revenue for 1999, which will translate into profit thereby
offsetting losses incurred in 1998 due to CISAP lack of performance.
Poseidon, Germany. The Company has a firm order for technology
transfer and equipment valued at $7,370,000, with deposits due by year end
and payments upon deliveries which are expected to commence during the
second quarter of 1999. As previously reported, this order will be moved
from Eurectec, Inc., to Eurectec Industries, Inc.
Atzendorf, Germany. The Company has a two phase order pending for
Revulcon technology and press equipment for the manufacture of continuous
roll material and after market flooring products valued at approximately
$1,700,000 for phase one and $2,900,000 for phase two. These orders are
anticipated to be placed through Eurectec Industries, Inc. during the
fourth quarter of 1998.
Chemnitz, Germany. The Company has an order pending for a mini tire
recycling plant including Revulcon technology and press equipment valued at
approximately $2,750,000. This order is anticipated to be placed through
Eurectec Industries, Inc. during the fourth quarter of 1998.
SuperCollider
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The Company has developed the "SuperCollider" which further refines
crumb rubber and buffings to a super fine (up to minus 80 mesh) high
quality mesh for a variety of value added applications including press
products, extruded products and asphalt paving.
The prototype has been built and the Company is currently refining the
SuperCollider and designing a container which will allow portability of the
SuperCollider. The Company anticipates completion of the SuperCollider
improvements during the first quarter of 1999.
REVULCON
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The REVULCON prototype equipment has been manufactured and is ready
for test. The Company anticipates initiating testing during the fourth
quarter of 1998. The Company is currently negotiating with Goodyear Tire
and Rubber to participate in a joint test of the REVULCON prototype using
reject tires from Goodyear in Europe.
The REVULCON technology enables the production of high density, smooth
finish rubber moldings and extrusions, including adding REVULCONs material
in the manufacture of new tires, from recycled crumb rubber. This is done
by a process of devulcanizing the rubber, returning it to a state where it
can be utilized in new products and be re-vulcanized. The reactivated
rubber waste can be processed without further additives to rubber products
like mats, plates, solid rubber tires, components for fall protection,
elements for sound and vibration deadening, blocking and insulating layers
against heat and moisture, etc., in mixtures with fresh rubber or plastic,
profiles and other goods can be made by extrusion or injection molding.
Eco-Etch Agreement
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The Company is engaged in negotiations with IN.TEC, GmbH, a German
environmental technology firm, for the exclusive North American
distribution rights to the marketing of the "ECO-ETCH system. Ownership of
IN.TEC changed during 1997 which resulted in delays in final negotiations.
ECO-ETCH is the brand name given to a new technology for the recycling and
recovery of etching solutions used in the printed circuit board
manufacturing industry. The Company is currently in the process of
finalizing the technology distribution rights for ECO-ETCH in the United
States and the Company is now in the process of completing negotiations and
anticipates a firm agreement during the fourth quarter of 1998. ECO-ETCH
systems will be marketed through the Company's subsidiary, Quantum
Environmental Solutions and Technologies, ("QEST").
New Products
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The Company continues to research and develop new products such as
animal mats, heated tile, fatigue mats, doormats, interlocking tiles,
playground tiles, soaker hoses, continuous roll sheet material, plastic and
crumb rubber mixes and industrial rubber scrap.
Subsequent to quarter end, the Company received an order for 334
animal mats at a value of $15,000. The Company anticipates sales of its
value added after market products to continue to grow and has set up,
through Eurectec, Inc. a sales division that is now actively promoting the
sale of these products on a world-wide basis. The Company will be
delivering samples for further promotion to Germany, Great Britain,
Portugal, France, Sweden and Brazil. The Company has already delivered
samples to Mexico and Saudi Arabia.
Public Relations
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The Company had negotiated a contract with a public relations firm,
the Blaine Group, Inc., based in Beverly Hills, California, who provided
contract and product PR support services. Subsequent to quarter end, the
Company informed the Blaine Group that they are suspending the contract for
a three month period while the Company determines the PR approach it would
like to take in view of the revised focus and strategy of the Company.
The Company has entered a contract with Internet Capital Corporation,
("Internet"). Internet will provide assistance in further developing the
Company's websites and provide marketing to create and enhance awareness of
the Company. The contract is for a period of six months beginning October,
1998.
The Company has also entered a contract with Stock Broker's Society.
Stock Brokers Society writes stock brokers research reports that are
distributed to approximately 104,300 subscribers. The Company's research
report is scheduled to be distributed during the fourth quarter of 1998.
The Company is in the process of developing a corporate advertisement
describing Quantum's recycling plants and value added after market
products. A full page glossy ad is scheduled for magazines and industry
journals. The target audience of the corporate ad will be industry,
governmental agencies and the general public. It is the Company's intent
to promote awareness of the Company and to attract potential recycling
project investors. The Company anticipates initial release and
publication of the corporate ad during the first quarter of 1999.
A feature article highlighting the Company and tire recycling will
appear in the publication "Rubber Technology International". The
publication is the premier European industry publication.
Exhibitions
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Rubber Pavements Association. The Company will attend the first
international symposium, 1999 Global Summary of Practices on crumb rubber
use in asphalt paving on February 3 and 4, 1999 in Tempe, Arizona.
ITRA. International Tire and Rubber Association, Inc. will host the
42nd World Tire Conference and Exhibition in Nashville, TN. The Company
will have a booth focusing on tire recycling plants including an outside
display of the SuperCollider. The Company also expects to display the
Poseidon project via interactive computer. The ITRA exhibition is the
premier tire and recycling show world-wide.
The Company intends to contract with a professional exhibition display
company to develop material and presentation for its upcoming exhibitions.
Year 2000 Compliance
The Company is currently year 2000 compliant and does not anticipate
any problems with its computing or support equipment. However, vendors,
banks and other suppliers and parties upon whom the Company relies, may not
be year 2000 compliant. The Company has no control over such parties and
any impact upon the Company is uncertain.
Web Site
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The Company has developed a new website, www.tirerecycling.com. The
new website is multi-lingual in order to enhance global communication and
awareness of the Company and its subsidiaries. The Website has links to
The Quantum Group, Inc. Site and allows the viewer to access an overview of
the Company's activities, obtain market information for the Company's
trading stock, view the Company's EDGAR filings, retrieve information on
the Companys joint venture projects and link to the Companys subsidiaries
websites.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash of $506,839 on hand.
In January 1998, the Company concluded an off-shore offering under
Regulation S of 1,000,000 shares which yielded gross proceeds of
$1,500,000. This was used to eliminate all prior debt and provide working
capital. The Company has initiated an additional Regulation S offering for
1,600,000 shares which the Company anticipates may yield up to $3,300,000
by the end of 1998. As of September 30, 1998, this offering continues in
process and has resulted in the sale of 942,778 shares for a gross proceeds
of $1,821,250.
During the first nine months of 1998, the Companys net cash provided
by operations was $135,235, compared to cash provided by operations of
$188,041 during the first nine months of 1997. The 1998 operating
activities cash is a result of an operating loss of $728,924 primarily
offset by a $1,160,000 increase in Customer deposits. The Company realized
net proceeds of $2,494,966, after commission, legal and accounting fees on
its Regulation S offering during the second and third quarters of 1998. No
such activity was conducted during the comparable period in 1997.
The Company invested an additional $1,450,000 in the Poseidon project
during the quarter ended September 30, 1998. No comparable activity
occurred in 1997. During the third quarter of 1998, the Company made a
short term secured loan to an officer of the Company. The note provides
for interest in excess of the interest the Company is currently earning on
short term investments. No such transaction occurred in the comparable
quarter last year.
The Company does not currently have any outstanding debt and
Management believes that proceeds from current equipment sales and license
fees, pending sales and the Regulation S offering proceeds will provide
sufficient capital and liquidity to meet the Company's need for the next
twelve months.
The Company is continuing to work with ParaDynamiX, a financial
consulting firm, to revise the Companys detailed funding plan reflecting
the expectations and implementation of the Companys strategic plan which
now focuses on joint venture projects with its own tire recycling
facilities.
The Company has a material capital commitment in 1998 $2,004,519 which
is the balance of the purchase price for the REVULCON Callander Machine.
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 1998 and the three
months ended September 30, 1997.
The Company generated $14,928 of other revenue and $14,199 of costs
during the quarter ended September 30, 1998. All of this revenue was
generated by the sale of crumb rubber during the quarter. No equipment
sales were recorded during the quarter. The crumb rubber was sold at close
to cost. The Company had revenue of $2,335,640 during the comparable
quarter in 1997.
Professional fees expense in the three months ended September 30, 1998
of $23,467 exceeded the prior period expense of $485 by $22,982 because of
increased legal expense relating to the Poseidon project and the CISAP
situation. Administrative expense increased from $23,914 in the third
quarter of 1997 to $58,702 in the third quarter of 1998.
Consultant fees increased by $53,753 to $115,307 in the three months
ended September 30, 1998 compared to the $61,554 incurred in the comparable
three month period in 1997. $30,303 of this increase is a result of
charging expenditures incurred by or on behalf of the Company president to
consulting expenses. In prior periods, the payments to or on behalf of the
Company president had been accounted for as a reduction of the debt owed to
the officer by the Company.
Comparison of the nine months ended September 30, 1998, and the nine
months ended September 30, 1997.
The Company generated $460,000 of equipment sales revenue and $400,000
of costs as a result of contract additions on the Mexico project during the
nine months ended September 30, 1998. $40,000 of additional revenue was
also generated by the sale of a small parcel of land that the Company owned
in conjunction with the previously owned residential property in Florida.
This parcel was excluded from the original sale in order to eliminate the
need to take an owner financing plan of questionable collectability. Due
to the uncertainty of revenue recognition, the parcel had been held without
asset value, and as such the purchase price of $40,000 is all a gain on
sale. $16,848 in other revenue was generated from the sale of crumb rubber
and $1,000 was generated from the sale of research materials. $6,175 in
interest was also earned during the first nine months of 1998. The Company
had $2,576,792 of equipment sales and $100,000 of license sales for the
comparable 1997 period.
The Company had a loss of $728,924 in the nine months ended September
30, 1998 compared to a profit of $167,776 in 1997. This is because of the
third quarter revenue and profit from the equipment sales in 1997 without a
similar sale in 1998. This is primarily due to the emphasis on joint
ventures in 1998 and the losses incurred due to the CISAP problems.
The Companys cash position at September 30, 1998 is significantly
stronger at $506,839 compared to $89,198 at September 30, 1997. Accounts
Receivable of $740,071 are an increase of $519,092 over the same period in
1997. The Company has a deposit on inventory of $421,451 at September 30,
1998, no deposits were in place in 1997.
Inventory decreased during the first nine months of 1998 compared to
1997 because of the sale back of the inventory unit to CISAP during the
fourth quarter of 1997.
In 1997, the Company acquired free trading fully registered shares of
Keystone Energy, Inc. in return for a license agreement. The Company
recognized Mark to Market valuation losses in 1997 and in the first
quarter of 1998. In the second quarter of 1998, the Company sold the
shares at a loss of $13,125 from book value.
The Company invested $1,494,722 in the Poseidon project and $150,000
in the Faru license agreement in 1998. No comparable transactions took
place in 1997. In anticipation of the Poseidon project, the Company has
incurred $117,155 in prepaid expenses. These expenses will subsequently be
billed to the project. No prepaid expenses were incurred in 1997.
Travel expenses of $96,154 in the nine months ended September 30, 1998
exceed the comparable 1997 period by $57,900, due to the Poseidon project
and follow up and sales activities in Mexico, Saudi Arabia, Brazil,
Scotland, Ireland and the Gulf States. Administrative expenses and
consulting fees have increased from 1997 levels for the same reasons.
Comparison of the three months ended September 30, 1997 and the three
months ended September 30, 1996.
The Company generated revenue of $2,335,640 during the three months
ended September 30, 1997. $1,662,149 of revenue was generated in the same
period of the prior year. The 1997 revenue is for the equipment for phase
one the Mexico contract. The differences in revenue for the two periods is
the result of the project nature of the Company's business an is not
indicative of a trend in revenue or Company activities.
Depreciation expense increased from $3,159 to $12,253 due to the
purchase in 1996 of the SMS press equipment and the addition of molds to it
in 1997.
Travel Expenses of $12,353 in the third quarter 1997 are $13,769 less
than the $26,689 incurred for travel during the same quarter of 1996.
Office expenses declined during the third quarter of 1997 compared to the
third quarter in 1996 from $19,312 to $9,303 These expenses had been
higher in 1996 due to the administration of the Saudi project.
Interest expenses increased because of the financing of the SMS press
equipment. $10,205 of interest expense was incurred in the third quarter of
1996. The third quarter 1997 interest expense is $18,239.
Minority Interest is $47,865 for the three months ended September 30,
1997. The minority interest was $52,993 for the quarter ended September
30, 1996. During the first nine months of 1996, the minority interest in
Eurectec, Inc., the Company's subsidiary was 12.5%.The minority interest
was increased in late 1996 to 20%, and this rate was applied throughout the
first nine months of 1997.
Income tax expense of $15,317 represents California income tax accrued
for the nine months ended September 30, 1997. The Company has the benefit
of a tax loss carry forward for Federal Income taxes, but no such provision
is in the California law. The 1996 tax expense for the nine months ended
September 30, 1996 of $23,345 is based on a higher pre-tax profit, and is
also only a provision for state income taxes.
Comparison of the nine months ended September 30, 1997 and the nine months
ended September 30, 1996.
The Company had revenue of $2,576,791 in the nine months ended
September 30, 1997. Revenue of $2,443,698 was generated in the same period
of the prior year. The 1996 revenue reflects the shipment of part one of
the Saudi project. The 1997 revenue is for the Mexico contact and the sale
of the license agreement to Nevada Recycling Technologies, Inc. The
difference in revenue for the two periods is the result of the timing of
shipments of large contracts and is not indicative of a trend in revenue or
Company activities.
Commission expense of $70,000 was recognized on the completion of
phase one of the Saudi sale in the three months ended September 30, 1996.
Commissions of $37,000 were paid during the three months ended March 31,
1997, but treated as prepaid as they relate to the equipment portion of the
Mexico contract. These commissions were expensed in the third quarter of
1997 as the sale revenue was recognized.
Depreciation expense increase from $8,367 to $35,484 due to the
purchase in 1996 of the SMS press equipment and the addition of molds to it
in 1997.
Office and Administrative expenses declined during the 1997 period.
These expenses had been higher in 1996 due to the implementation and
project management costs associated with the Saudi project.
Interest expenses increased because of the financing of the SMS press
equipment.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is endeavoring to explore all avenues to cure the
problems it has encountered with CISAP both in Mexico and Saudi Arabia. At
the present time, there is no formal litigation pending or threatened
against the Company. However, should the Company and its clients be unable
to resolve its issues with CISAP, the Company and its clients might
commence legal proceedings against CISAP and its successor for any damages
arising from the problems with the CISAP equipment and performance
time-delays.
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
(a) Securities sold.
1. Regulation S offering
<TABLE>
<CAPTION>
Date Title Price Per Share Amount
------------------ ------- --------------- ---------
<S> <C> <C> <C>
First Quarter 1998 Common $1.50 1,000,000
Date Title Price Per Share Amount
------------------ ------- --------------- ---------
Second Quarter 1998 Common $1.50 300,000
Common $2.00 300,000
Common $2.25 117,777
Date Title Price Per Share Amount
------------------ ------- --------------- ---------
Third Quarter 1998 Common $2.25 225,000
</TABLE>
2. Option Exercise
In June, 1998, an option for 50,000 shares of common stock, issued
pursuant to the Companys 1997 Stock Option Plan, was exercised at a price
of $0.062 per share.
In July, 1998, an option for 200,000 shares of common stock, issued
pursuant to the Companys 1997 Stock Option Plan, was exercised at a price
of $0.062 per share.
(b) Underwriters and other purchasers.
1. Regulation S Offering
All securities were sold during the first and second quarters of 1998
to non U.S. persons. All shares of common stock were sold in Germany to
Beteiligungs Fonds, GBR.
2. Option Exercise
The June option was exercised by RMC International, a consultant to
the Company.
The July option was exercised by Johann Brendgens, a consultant to the
Company.
(c) Consideration.
1. Regulation S Offering
The aggregate offering price for sales made during the first quarter
1998 was $1,500,000 and the Company paid a 10% commission in the amount of
$150,000.
The aggregate offering price for sales made during the second quarter
1998 was $1,315,000 and the Company paid commission in the amount of
$207,144.
The aggregate offering price for sales made during the third quarter
1998 was $506,250 and the Company paid commission in the amount of $71,988.
2. Option Exercise
The Company realized $3,100 from the exercise of the option in June,
1998.
The Company realized $12,400 from the exercise of the option in July,
1998.
(d) Exemption from registration claimed.
1. Regulation S Offering
The securities were sold in the first and second quarters of 1998
pursuant to Regulation S as promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended. The Company did
not offer the securities to any person in the United States, any
identifiable groups of U.S. citizens abroad, or to any U.S. Person as that
term is defined in Regulation S. At the time the buy order was originated,
the Company reasonably believed the Buyer was outside of the United States
and was not a U.S. Person. The Company reasonably believed that the
transaction had not been pre-arranged with a buyer in the United States.
The Company has not nor will engage in any "Directed Selling Efforts" and
reasonably believes the Buyer has not nor will engage in any "Directed
Selling Efforts." The Company reasonably believed the Buyer purchased the
securities for its own account and for investment purposes and not with the
view towards distribution or for the account of a U.S. Person.
2. Option Exercise
The June option was exercised pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
The July option was exercised pursuant to Regulation S.
(e) Terms of conversion or exercise.
1. Regulation S Offering
Not applicable.
2. Option Exercise
The June option was granted pursuant to the Companys 1997 Stock
Option Plan. The exercise price per share was $.062 and the option, which
is for a total of 50,000 shares, may be exercised over a period of two
years from October 23, 1997, the date of the grant.
The July option was granted pursuant to the Companys 1997 Stock
Option Plan. The exercise price per share was $.062 and the option, which
is for a total of 200,000 shares, may be exercised over a period of two
years from October 23, 1997, the date of the grant.
(f) Use of Proceeds.
1. Regulation S Offering - First Quarter 1998
The use of proceeds (other than commission paid) are estimated. No
proceeds resulted in payments either directly or indirectly to directors,
officers or persons owning 10% or more of any class of equity securities;
or to affiliates of the issuer.
<TABLE>
<S> <C>
Gross proceeds $ 1,500,000
Commission ( 150,000)
Net proceeds 1,350,000
Payoff existing debt $ 700,000
Pay Rothbury agreement 400,000
Working capital 250,000
-------------
Total Proceeds 1,350,000
Regulation S Offering - Second Quarter 1998
Gross proceeds $ 1,315,000
Commission ( 207,144)
Net Proceeds 1,107,856
Faru technology $ 80,000
Poseidon Joint Venture 22,222
Prepaid expenses 117,155
(Related to Poseidon)
Accrued expenses 61,038
Operating expenses 263,551
Cash remaining 563,890
-------------
Total Proceeds $ 1,107,856
Regulation S Offering - Third Quarter 1998
Gross proceeds $ 506,250
Commission 71,988
Net Proceeds 434,262
Poseidon Joint Venture $ 434,262
Total Proceeds $ 434,262
</TABLE>
2. Option Exercise
The Company realized $3,100 from the exercise of the June option which
funds were placed in general working capital.
The Company realized $12,400 from the exercise of the July option
which funds were placed in general working capital.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(A) Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed during the
quarter ended September 30, 1998.
(B) Exhibits. The following exhibits are included as part of this
report:
<TABLE>
<CAPTION>
Exhibit SEC Exhibit Title of Document Location
Number Ref. Number
-------- ----------- ----------------------- ---------
<C> <C> <C> <C>
27 27 Financial Data Schedule Attached
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this to be signed on its behalf by the
undersigned thereunto duly authorized.
The Quantum Group, Inc.
_____________, 1998 _________________________
Ehrenfried Liebich
Chairman of the Board, President, and
Chief Executive Officer
_____________, 1998 _________________________
John F. Pope
Vice President, Finance
Chief Accounting
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this to be signed on its behalf by the
undersigned thereunto duly authorized.
The Quantum Group, Inc.
November 13, 1998 /s/ Ehrenfried Liebich
----------------- ----------------------
Ehrenfried Liebich
Chairman of the Board, President, and
Chief Executive Officer
November 13, 1998 /s/ John F. Pope
----------------- ----------------------
John F. Pope
Vice President, Finance
Chief Accounting Officer
THE QUANTUM GROUP, INC.
and
SUBSIDIARIES
FINANCIAL STATEMENTS
Three Months and Nine Months ended September 30, 1998
Three Months and Nine Months ended September 30, 1997
(F-2)
The Quantum Group, Inc. and Subsidiaries
Balance Sheets
September 30, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
September 30, September 30, December 31,
1998 1997 1997
<S> <C> <C> <C>
Current Assets
- --------------
Cash $ 506,839 $ 89,198 $ 142,690
Accounts Receivable 740,071 220,979 710,979
Inventory 29,760 518,036 29,760
Deposit 421,451 0 421,451
Note Receivable - Officer 30,000 0 0
------------ ------------ ------------
Total Current Assets 1,728,121 828,213 1,304,880
Property and Equipment
- ----------------------
Furniture and Fixtures 0 4,953 3,054
Equipment 132,615 165,131 154,778
------------ ------------ ------------
Total Property and Equipment 132,615 170,084 157,832
Other Assets
- ------------
Securities 0 100,000 73,125
Investment in Joint Venture 1,494,722 0 0
Cash Pledged 5,225 5,122 5,225
Licence Rights 523,556 427,061 414,622
Deposit 3,281 3,281 3,281
Tax Benefit Deferred 0 80 0
Prepaid Commissions 0 0 0
Prepaid Expenses 117,155 0 0
------------ ------------ ------------
Total Other Assets 2,143,939 535,544 496,253
------------ ------------ ------------
TOTAL ASSETS $ 4,004,675 $ 1,533,841 $ 1,958,965
============ ============ ============
</TABLE>
(F-3)
The Quantum Group, Inc. and Subsidiaries
Balance Sheets -Continued-
September 30, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, September 30, December 31,
1998 1997 1997
<S> <C> <C> <C>
Current Liabilities
- -------------------
Accrued Expenses $ 215,604 $ 178,288 $ 552,399
Accounts Payable 323,623 114,566 140,016
Due Officers 0 120,480 7,919
Customer Deposits 1,162,500 2,500 2,500
Franchise Tax Payable 103,548 14,589 103,548
Current Maturities 0 785,197 721,318
Note Payable 0 50,000 0
------------ ------------ ------------
Total Current Liabilities 1,805,275 1,265,620 1,527,700
Long Term Liabilities
- ---------------------
Note Payable - Machinery 0 170,519 145,631
Note Payable - Technology 0 347,547 347,547
Note Payable 0 267,131 228,140
Less Current Maturities 0 ( 785,197) ( 721,318)
------------ ------------ ------------
Total Long Term Liabilities 0 0 0
Minority Interest in Subsidiary 0 130,329 109,256
Stockholders' Equity
- --------------------
Common Stock 50,000,000 Shares
Authorized; Par Value of $0.001
Per Share,
7,596,187 & 3,152,232 & 4,853,409
Shares Issued Retroactively
Restated Respectively 7,596 3,152 4,853
Paid in Capital 4,536,540 1,684,668 1,932,968
Accumulated Deficit ( 2,344,736) ( 1,549,928) ( 1,615,812)
------------ ------------ ------------
Total Stockholders' Equity 2,199,400 137,892 322,009
------------ ------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 4,004,675 $ 1,533,841 $ 1,958,965
============ ============ ============
</TABLE>
(F-4)
The Quantum Group, Inc. and Subsidiaries
Statement of Operations
For the Three and Nine Months Ended September 30, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Nine Three Nine Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
September September September September December
30, 1998 30, 1998 30, 1997 30, 1997 31, 1997
<S> <C> <C> <C> <C> <C>
Revenues
- --------
Equipment Sales $ 0 $ 460,000 $ 2,335,640 $ 2,576,792 $ 2,923,816
License Sales 0 0 0 100,000 500,000
Other Income 14,928 64,024 592 890 993
----------- ----------- ----------- ----------- -----------
Total Revenues 14,928 524,024 2,336,232 2,677,682 3,424,809
Cost of Sales 14,199 452,374 1,896,137 1,896,137 2,261,677
----------- ----------- ----------- ----------- -----------
Gross Profit 729 71,650 440,095 781,545 1,163,132
Expenses
- --------
Commission 0 0 37,008 37,008 37,008
Depreciation 10,832 34,784 12,253 35,484 47,737
Amortization 16,189 41,067 12,439 37,317 49,756
Travel 19,882 96,154 12,353 38,224 56,056
Professional Fees 23,467 41,929 485 1,641 78,596
Office 16,426 41,367 9,303 35,175 36,708
Rent & Utilities 16,485 43,191 13,221 51,334 65,634
Administrative
Expenses 58,704 152,724 23,914 62,974 95,377
Consultant Fees 115,307 306,014 61,554 177,015 232,571
Interest 0 219 18,239 77,417 95,656
Accounts Receivable
Written Off 0 0 0 0 195,000
Foreign Currency
Translation 0 0 0 0 ( 63,880)
----------- ----------- ----------- ---------- -----------
Total Expenses 277,292 757,449 200,769 553,589 926,219
Net Income (Loss)
From Operations ( 276,563) ( 685,799) 239,326 227,956 236,913
</TABLE>
(F-5)
The Quantum Group, Inc. and Subsidiaries
Statement of Operations -Continued-
For the Three and Nine Months Ended September 30, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Nine Three Nine Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
September September September September December
30, 1998 30, 1998 30, 1997 30, 1997 31, 1997
<S> <C> <C> <C> <C> <C>
Other Income (Expenses)
- -----------------------
Interest Income 0 0 0 0 0
Gain on Sales of Residence 0 0 0 0 0
Loss on Investment 0 20,000 0 0 0
Investment Valuation Loss 0 23,125 0 0 ( 6,875)
----------- ----------- ----------- ----------- -----------
Total Other
Income (Expenses) 0 ( 43,125) 0 0 ( 6,875)
Taxes & Minority
Interest
- --------------------
Minority Interest 0 0 ( 47,865) ( 45,591) 24,517
Provisions for Taxes
- Current 0 0 ( 15,317) ( 14,589) 103,628
----------- ----------- ----------- ----------- -----------
Total Taxes &
Minority Interest 0 0 ( 63,182) ( 60,180) 128,145
Net Income (Loss) ($ 276,563) ($ 728,924) $ 176,144 $ 167,776 $ 101,893
Net Income (Loss)
Per Share ( 0.04) ( 0.11) 0.06 0.05 0.02
Weighted Average
Shares Outstanding 7,596,187 6,493,548 3,152,232 3,152,232 4,853,409
Diluted Net Profit
Per Share N/A N/A N/A N/A 0
</TABLE>
(F-6)
The Quantum Group, Inc. and Subsidiaries
Statement of Shareholder's Equity
From January 1, 1995 to September 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Stock Amount Capital Deficit
------------------------------------------------
<S> <C> <C> <C> <C>
Balance,
January 1, 1995
Retroactively Restated 3,153,409 $ 3,153 $ 1,683,068 ($ 864,190)
Loss for the Year Ended
December 31, 1995 ( 624,695)
------------------------------------------------
Balance,
December 31, 1995 3,153,409 3,153 1,683,068 ( 1,488,885)
Contributed Capital 1,600
Loss for the Year Ended
December 31, 1996 ( 228,820)
-------------------------------------------------
Balance,
December 31, 1996 3,153,409 3,153 1,684,668 ( 1,717,705)
Shares Issued for Cash 100,000 100 149,900
Shares Issued to
Officers For Debt 1,600,000 1,600 98,400
Profit for the Year Ended
December 31, 1997 101,893
------------------------------------------------
Balance,
December 31, 1997 4,853,409 4,853 1,932,968 ( 1,615,812)
Shares Issued for Cash 2,092,778 2,093 2,494,966
Shares Issued In Exchange
For Subsidiary Shares 650,000 650 108,606
Loss for the
Nine Months Ended
September 30, 1998 ( 728,924)
-----------------------------------------------
Balance,
September 30, 1998 7,596,187 $7,596 $ 4,536,540 ($ 2,344,736)
================================================
</TABLE>
(F-7)
The Quantum Group, Inc. and Subsidiaries
Statement of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Nine Twelve
Months Months Months
Ended Ended Ended
September September December
30, 1998 30, 1997 31, 1997
<S> <C> <C> <C>
Cash Flows from Operations
- --------------------------
Net Profit or (Loss) ($ 728,924) $ 167,776 $ 101,892
Adjustments to Reconcile Net Profit
or (Loss) to Net Cash
Write Off Accounts Receivable 0 0 195,000
Amortization and Depreciation 75,851 72,800 84,745
Non Cash Expense 37,000 0 0
Minority Interest ( 109,256) 45,591 24,517
Changes in Operating Assets & Liabilities
(Increase) Decrease in Accounts Receivable ( 29,092) ( 16,457) ( 681,457)
(Increase) Decrease in Inventory 0 ( 27,457) 38,991
(Decrease) Increase in Prepaid Commissions 0 0 0
(Decrease) Increase in Prepaid Expenses ( 117,155) 0 0
Increase (Decrease) in Accrued Expenses ( 336,795) 19,466 393,577
Increase (Decrease)in Accounts Payable 183,607 ( 90,766) ( 65,316)
(Decrease) Increase in Tax Payable-Current 0 14,589 103,548
(Decrease) Increase in Customer Deposits 1,160,000 2,500 2,500
Increase in Taxes Payable - Deferred 0 0 80
Increase in Cash Pledged 0 0 ( 103)
Rounding ( 1) ( 1) 0
----------- ----------- -----------
Net Cash Provided (Used) by
Operating Activities 135,235 188,041 197,974
</TABLE>
(F-8)
The Quantum Group, Inc. and Subsidiaries
Statement of Cash Flows -Continued-
For the Nine Months Ended September 30, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Nine Twelve
Months Months Months
Ended Ended Ended
September September December
30, 1998 30, 1997 31, 1997
<S> <C> <C> <C>
Cash Flows from Investing Activities
- ------------------------------------
Refund of Import Duty 0 0 718
Purchase of Equipment ( 9,567) ( 24,773) ( 25,492)
(Purchase) Sale of Securities 36,125 ( 100,000) ( 80,000)
Purchase of License Right ( 150,000) 0 0
Investment in Joint Venture (1,494,722) 0 0
----------- ----------- -----------
Net Cash Provided (Used) by
Investing Activities (1,618,164) (124,773) ( 104,774)
Cash Flows from Financing Activities
- ------------------------------------
Sale of Common Stock 2,606,315 0 150,000
Payment of Long Term Debt ( 721,318) 50,000 ( 63,879)
Increase (Decrease) in Amounts Due Officer ( 7,919) ( 30,672) ( 43,233)
Increase in Note Receivable - Officer ( 30,000) 0 0
----------- ----------- -----------
Net Cash Provided (Used) by
Financing Activities 1,847,078 19,328 42,888
----------- ----------- -----------
Increase (Decrease) in Cash 364,149 82,596 136,088
Cash at Beginning of Period 142,690 6,602 6,602
----------- ----------- -----------
Cash at End of Period $ 506,839 $ 89,198 $ 142,690
=========== =========== ===========
Disclosures from Operating Activities
- -------------------------------------
Interest 219 77,417 95,656
Taxes 0 14,589 103,628
Significant Non Cash Transactions
- ---------------------------------
1,600,000 Shares Common Stock Issued to
Officer in Debt Satisfaction 0 0 100,000
650,000 Shares Common Stock Issued to
Convert Minority Interest 109,256 0 0
</TABLE>
(F-9)
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 Acquatic Systems, Inc. On June 27, 1989, the Company merged
with Country Maid, Inc., a Nevada Corporation, the Corporate domicile was
changed to the state of Nevada. On September 18, 1992, the name of the
Company was changed to The Quantum Group, Inc.
In 1992, the Company acquired rights to import and market equipment used in
the tire recycling industry. The tire recycling operation is the thrust of
the Companys operations at December 31, 1997.
NOTE #2 - Significant Accounting Policies
- -----------------------------------------
A. The Company uses the accrual method of accounting.
B. Revenues and directly related expenses are recognized in the period when
the goods are shipped to the customer.
C. The Company considers all short term, highly liquid investments that are
readily convertible, within three months, to known amounts as cash
equivalents. The Company currently has no cash equivalents.
D. Primary Earnings Per Share amounts are based on the weighted average
number of shares outstanding at the dates of the financial statements. Fully
Diluted Earnings Per Shares shall be shown on stock options and other
convertible issues that may be exercised within ten years of the financial
statement dates.
E. The inventory is stated at the lower of cost or market. The inventory
is a single recycling system that the Company intends to sell as a system.
The Company is currently pursuing several prospects to sell the system.
F. Consolidation Policies: The accompanying consolidated financial
statements include the accounts of the company and its majority - owned
subsidiary. Intercompany transactions and balances have been eliminated in
consolidation.
G. Foreign Currency Translation / Remeasurement Policy: The company has
no on site operations in foreign countries. All purchases and sales in
foreign countries are concluded in American dollars. If at future dates
assets and liabilities occur in foreign countries they will be recorded at
historical cost and translated at exchange rates in effect at the end of the
year. Income Statement accounts are translated at the average exchange rates
for the year. Translation gains and losses shall be recorded as a separate
line item in the equity section of the financial statements.
H. Depreciation: The cost of property and equipment is depreciated over
the estimated useful lives of the related assets. The cost of leasehold
improvements is depreciated (amortized) over the lesser of the length of the
related assets or the estimated lives of the assets. Depreciation is
computed on the straight line method for reporting purposes and for tax
purposes.
I. Issuance of Subsidiarys Stock: The Company has elected to accounts for
shares issued by its subsidiary as an equity transactions.
(F-10)
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #2 - Significant Accounting Policies -Continued-
- -----------------------------------------------------
J. Use of Estimates; The preparation of financial statements in conformity
with generally accepted accounting principals requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
K. New Technical Pronouncements:
In 1997, SFAS No. 129, Disclosure of Information about Capital
Structure was issued effective for periods ending after December 15, 1997.
The Company has adopted the disclosure provisions of SFAS No. 129 effective
with the fiscal year ended December 31, 1998.
In June 1997, SFAS No. 130, Reporting Comprehensive Income was issued
effective for fiscal years beginning after December 31, 1997, with earlier
application permitted. The Company has elected to adopt SFAS No. 130
effective with the fiscal year ended December 31, 1998. Adoption of SFAS No.
130 is not expected to have a material impact on the Companys financial
statements.
In June 1997, SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information was issued for fiscal year beginning after December
31, 1997, with earlier application permitted. The Company has elected to
adopt SFAS No. 131, effective with the fiscal years ended December 31, 1998.
Adoption of SFAS No. 131 is not expected to have a material impact on the
Companys financial statements.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000921450
<NAME> QUANTUM GROUP, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 506,839
<SECURITIES> 0
<RECEIVABLES> 740,071
<ALLOWANCES> 0
<INVENTORY> 29,760
<CURRENT-ASSETS> 1,728,121
<PP&E> 132,615
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,004,675
<CURRENT-LIABILITIES> 1,805,275
<BONDS> 0
0
0
<COMMON> 7,598
<OTHER-SE> 2,191,902
<TOTAL-LIABILITY-AND-EQUITY> 4,004,675
<SALES> 524,024
<TOTAL-REVENUES> 524,024
<CGS> 452,374
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 757,449
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (276,799)
<INCOME-TAX> 0
<INCOME-CONTINUING> (276,799)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (276,799)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
