UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
-------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ ---------------
Commission File Number 0-23812
---------
THE QUANTUM GROUP, INC.
-------------------------
(Name of small business issuer in its chapter)
Nevada 95-4255962
-------- ------------
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
Park Irvine Business Center 14771 Myford Road, Building B
Tustin, California 90744
- ------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (714) 508-1470
----------------
Securities registered pursuant to section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
$.001 par value, common voting shares
(Title of class)
Check whether the Issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
Period that the registrant was required to file such report(s), and (2) has
been subject to such filing requirements for the past 90 days. (1) Yes [X] No
[ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenue for its most recent fiscal year was: $ 3,424,809.00.
The aggregate market value of the issuer's voting stock held as of March 27,
1998, by non-affiliates of the issuer was $6,696,688.
As of December 31, 1997, issuer had 4,853,409 shares of its $.001 par value
common stock outstanding.
Transitional Small Busines Disclosure Format. Yes [ ] No [X]
Documents incorporated by reference: none
Page 1 of 35 consecutively numbered pages
<PAGE>
The Quantum Group, Inc.
Annual Report on Form 10-KSB for the Year Ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
_________________________________________________________________________________
TABLE OF CONTENTS
_________________________________________________________________________________
PART I
ITEM 1 DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2 DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . . .18
ITEM 3 LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . .19
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. . . . . . . . .19
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS. . . . . . .19
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. . . . . . .20
ITEM 7 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . .26
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . . . . .26
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. . . . . . . . . . .26
ITEM 10 EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . .29
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . .31
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . .32
PART IV
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . .32
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
_________________________________________________________________________________
</TABLE>
2<PAGE>
_____________________________________________________________________________
PART I
_____________________________________________________________________________
ITEM 1. DESCRIPTION OF BUSINESS
_____________________________________________________________________________
The Quantum Group, Inc., (the "Company"), is in the business of
investigating innovative products in the environmental and recycling
industries and obtaining licensing and marketing rights to such products. The
principal offices of the Company are located at the Park Irvine Business
Center, 14771 Myford Road, Building B, Tustin, California. The Company was
organized as a corporation in 1968, under the laws of the state of California.
In 1988 the Company changed its domicile from California to the State of
Nevada and has operated as a Nevada corporation since that time.
Since the beginning of 1993, the primary business activities of the
Company have been conducted through its subsidiary, Eurectec, Inc., a Nevada
corporation, ("Eurectec") which is engaged in the world-wide marketing of
automobile and truck tire recycling equipment which produces recycled rubber
which is commonly known in the recycling industry as "crumb rubber." Eurectec
also markets presses and other equipment which utilize crumb rubber to make
various after-market products. Areas of growth in the Company are in the
technology transfer and equipment marketing of asphalt paving technology, the
devulcanization of crumb rubber for use in processes requiring vulcanization
such as new tire production, and the production of fine mesh, (to 100 mesh
ASTM), crumb rubber from buffings and larger mesh crumb rubber.
The Company has developed a Website which can be viewed at
http://www.thequantumgroupinc.com. The Website 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 and link to the
Eurectec, Inc. website (http://www.eurectec.com).
CISAP Agreement
- ---------------
In 1992, Eurectec, acquired an exclusive license to market and sell tire
recycling equipment in North America and non-exclusive rights to sell the
equipment outside of North America, manufactured by CISAP SpA ("CISAP"), an
Italian corporation. The agreement granting Eurectec license rights was
amended in April of 1996 and again in March of 1997. The agreement as
renegotiated extends the exclusive territory granted to Eurectec to include
South America and the term of the agreement is for an initial period of two
years commencing April 26, 1996. On April 26, 1998 the agreement will be
automatically renewed for a period of two years. The agreement shall continue
to renew every two years in perpetuity unless terminated by either party
pursuant to six months notice prior to the end of any renewal period. The
license agreement provides that CISAP will manufacture, ship and install the
CISAP equipment Eurectec sells. CISAP will also provide training in equipment
operation and maintenance to the purchaser of any CISAP equipment.
3
<PAGE>
Under its agreement with CISAP, in addition to selling tire recycling
equipment, Eurectec has the right to sub-license territorial rights to use
CISAP equipment on an exclusive basis in any portion of the exclusive
territory granted to Eurectec. Eurectec has the right to define a territory
based on geography, population or such other criteria as it deems appropriate.
To maintain the exclusive marketing rights, Eurectec must purchase a
minimum of eight CISAP granulator systems or equipment of similar value
manufactured by CISAP, during each year of the agreement. In addition to
manufacturing granulators CISAP manufactures other tire recycling equipment
including de-beaders, slitters, compact shredders, and grinders. Although
such equipment is available for sale by Eurectec, Eurectec is not obligated to
purchase such equipment from CISAP and Eurectec has supplied certain items of
such equipment from other manufacturers for use with CISAP granulators sold by
Eurectec. While the primary emphasis of Eurectec is marketing the CISAP
granulators, Eurectec also markets other CISAP tire recycling equipment with
the granulators, unless the system design of the individual client is better
served by equipment from other manufacturers. In the event Eurectec does not
maintain its exclusive rights in North America and South America, the
agreement with CISAP provides that CISAP will continue to honor the
sub-licenses negotiated by the Company.
The initial granulator system manufactured by CISAP was called the
COMPACT 3000 System. This system was followed by a system with a larger
input and output capacity called the COMPACT 6000 System. The CISAP systems
were designed to be compact enclosed granulating systems. A truck tire was
processed by first having the steel belts removed by a de-beading machine.
The smaller steel belts in automobile tires were not removed before
processing. At that point, truck tires were put through a slitter which
slices the tires radially. Then the slit truck tires and whole automobile
tires were fed through a shredder, which cut the tires into pieces of not more
than two to three inches square. These chopped pieces were then fed into the
CISAP system which separated the rubber from the steel and fabric of the tire.
The systems also separated the steel from the fabric for separate resale or
disposal. The systems then granulated the rubber and segregated it into
various sizes from minus 5 to a minus 40 mesh, as measured by the American
standard measurement system (ASTM). The CISAP systems were designed to
operate at ambient temperatures.
Eurectec initially made a purchase of a COMPACT 3000 System for use as a
sales demonstration system in Wilmington, California. The system was operated
as a demonstration system until the first larger capacity COMPACT 6000 System
was sold by Eurectec and put into commercial operation in Canada by a Canadian
company. In March 1995, the Company closed the Wilmington facility and began
to use the Canadian facility to demonstrate the tire recycling equipment.
During the past three years Eurectec has sold COMPACT 6000 Systems in
Canada, China, Saudi Arabia and Germany and has sold two COMPACT 9000 Systems,
as described below, which will be delivered to Mexico in 1997. Eurectec has
entered sales agreements for the sale of two Compact 6000 Systems as Phase 3
of the project in Saudi Arabia, and two Compact 9000 Systems as Phase 2 of the
project in Mexico. Pursuant to its agreement with CISAP, Eurectec has sold
some exclusive sub-licenses. Eurectec has entered into exclusive sub-license
agreements for the States of Utah and Florida, Province of Alberta, Canada
and Mexico.
4<PAGE>
Eurectec sold the first COMPACT 6000 System together with the exclusive
territorial rights to Canada, to market and use CISAP equipment, to Evergreen
Recycling, Ltd., ("Evergreen"). In 1995, Eurectec restructured its
relationship with Evergreen. Eurectec agreed to cancel the outstanding
Account Receivable of $556,249 owing from Evergreen on its Canadian
sub-license agreement in return for the cancellation of Evergreen's exclusive
territorial right, except in the Province of Alberta, where Evergreen
continues to maintain an exclusive sub-license to market and use CISAP
equipment. The Company also agreed to accept equity in the Canadian company in
lieu of payment of the balance of sales price of the equipment sold to the
Canadian company. This was done in part because of problems encountered in
the in the delivery and set-up of the CISAP equipment. This site was the
first commercial installation of a Compact 6000 System made by CISAP.
The second sale of a COMPACT 6000 System made by Eurectec was in China.
A dispute arose between the purchaser and Eurectec and CISAP which resulted in
Eurectec receiving an amount less than the full agreed upon sales price of the
CISAP System. Although the CISAP 6000 System operated according to
specifications, the crumb rubber output was below the production estimates
represented by CISAP engineers and used by Eurectec in selling the COMPACT
6000 System. Upon investigation CISAP learned that the tires the Chinese were
recycling contained a much higher fabric content and lower rubber content than
the European tires used by CISAP to calculate production estimates.
From 1993 through 1996 Eurectec did not meet the minimum sale of
granulators required by the original license agreement with CISAP to maintain
the exclusive rights to market and sell the CISAP granulating systems in North
America. Part of the difficulty Eurectec encountered in meeting its minimum
purchase requirements was directly related to problems CISAP had in gearing up
its production capacity to make timely delivery of systems, training personnel
for on-site installation of equipment, and the development of effective
training programs to teach purchasers in the proper operation and maintenance
of the equipment. CISAP and Eurectec realized that their experience with the
COMPACT 3000 and COMPACT 6000 Systems indicated that certain design changes
should be made to enhance the market appeal of the systems. Therefore,
Eurectec has worked closely with CISAP during the past two years to make
significant improvements to the CISAP granulating equipment.
Recently, CISAP completed a re-designed granulator, designated the
COMPACT 9000 System, which has an expected greater production capacity and
lower maintenance cost than the earlier systems. The first COMPACT 9000
System was installed in Mexico in 1997 pursuant to a sale made by Eurectec.
CISAP accomplished increased output in the COMPACT 9000 System by re-designing
the way the tires are processed prior to granulation. CISAP's earlier
granulator systems shredded the tires and then sent the entire contents of the
shredded tire, steel, fabric and rubber through the granulation process This
caused considerable wear and tear to the cutting blades and the high speed
mills in the granulating equipment, which led to slower processing, greater
maintenance and down-time. In COMPACT 9000 Systems, almost all of the steel
and fabric is removed from the rubber by passing through a grinder prior to
introduction into the granulation process. With the new equipment, the
material that enters the granulation process is 90% free of steel. This
design change is the principal reason that normal wear and tear on the
granulation equipment and the associated down-time is reduced and output
levels are increased. CISAP has also designed a grinder retrofit a COMPACT
6000 System in order to allow those Systems to benefit from the improved
process design.
5<PAGE>
The Mexico client has experienced some problems with the C9000 System due
to the high fiber content tires in Mexico and the high altitude of the project
site. While the C9000 System performs to the agreed upon specifications, the
feedstock used by the Mexico client has a fiber content much higher than the
feedstock used to determine specifications, causing a lower output than
anticipated by the Mexico client. In addition, the high altitude of the
project site has required CISAP to make certain adjustments and modifications
to operate the system at performance levels comparable to systems operating at
lower altitudes. The Company is working with CISAP and the client to resolve
the problems.
In recognition of the difficulties CISAP has encountered in introducing
new equipment to the market and difficulties Eurectec has encountered in
establishing a market for such equipment in an emerging sector of the
recycling industry, the parties renegotiated certain terms of the license
agreement originally entered in 1992. The parties have agreed to extend the
rights of exclusivity under their agreement through April 28, 1998 and have
extended the exclusive territory to include South America. Should Eurectec
fail to meet its minimum sales quota of granulating equipment by April 28,
1998, CISAP will have the right to terminate the exclusive rights of Eurectec
under the agreement. Although the Company has not met the minimum quotas set
by CISAP, the parties agreed to temporarily suspend the quota until successful
installation of the C9000 equipment in Mexico, which is anticipated to be
complete during the second quarter of 1998. All sales of CISAP equipment made
by Eurectec are applied toward the minimum sales requirement under the
agreement with CISAP regardless whether the sales are made to purchasers
within the exclusive territory.
While Eurectec desires to maintain the exclusive marketing rights,
management believes that Eurectec could continue to operate without the
exclusive marketing license. It bases this belief on the success to date
which Eurectec has had in making sales in areas outside the exclusive
territory, the close working relationship that has been developed with CISAP,
the specialized nature of the industry, the industry recognition Eurectec has
achieved through participation in trade shows and industry gatherings during
the past four years and the completion of the design for the EGS System
described below.
SMS Agreement
- -------------
In May of 1996, Eurectec entered an agreement with SMS Sondermaschinen
GmbH, a German corporation, ("SMS"). The agreement grants Eurectec 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 products using crumb
rubber. SMS has developed proprietary binding and pigment agents that enable
SMS presses, blenders and rollers to manufacture, at low temperatures, a wide
variety of commercial products using crumb rubber. The agreement grants to
Eurectec 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.
6<PAGE>
Management believes that the SMS products will enhance its ability to
compete in the tire recycling industry and increase its sales. Eurectec will
concentrate its efforts on marketing the SMS presses, binders and molds that
manufacture products from crumb rubber such as interlocking paving tiles,
playground tiles, heating tiles, door mats, livestock stable mats, industrial
fatigue mats, continuous roll material and carpet underlayment. The SMS
products allow Eurectec customers to utilize their crumb rubber production to
manufacture products with higher profitability than realized from sales of
commodity grades of crumb rubber.
The other benefit of the SMS agreement is that it diversifies Eurectec's
rubber recycling product line which in turn significantly decreases the
Company's dependence on CISAP equipment sales. At this time, Eurectec's
relationship with CISAP is positive, and it intends to continue selling the
CISAP granulating equipment as its primary line of tire recycling equipment.
The Company also intends to focus its sales efforts on SMS products,
particularly its mixers, presses and molds for producing after-market
products. The Company believes that the SMS equipment gives Eurectec a
competitive advantage by enabling Eurectec to offer a complete line of tire
recycling equipment to produce crumb rubber and a complete line of equipment
to manufacture several after-market products from the recycled rubber.
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. Eurectec may terminate the agreement at any time. If either
party wishes to terminate the agreement it must give the other party six
months notice of its intention to terminate.
In addition the SMS agreement grants Eurectec the option to acquire SMS
in the event that the principals of SMS elect to retire from operating SMS.
The option exercise price is $2,000,000 payable over a period of up to three
years. In the event Eurectec does not exercise the option, it holds a right
of first refusal to match the offer of any other prospective purchaser of SMS.
Rothbury Agreement
- ------------------
In April of 1996, Eurectec entered an agreement with Rothbury Engineering
Limited, of Isle of Man, Great Britain to acquire the exclusive worldwide
manufacturing and marketing rights to a technique for manufacturing rubber
products such as floor coverings from crumb rubber without revulcanizing the
rubber and a process for giving a mixture of scrap rubber granulates, resins
and other additives heat conductive characteristics for use in products such
as heatable floor coverings and underlayments. The purchase price of the
rights was approximately $500,000. Prior to filing this report, the Company
has satisfied this obligation in full.
7<PAGE>
In heatable tile products production, Eurectec will utilize heating
filaments currently manufactured by others. The heating filament operates on
AC or DC electricity and is imbedded in a variety of interior and exterior
tile designs, underlayments and mats. The heating tile and underlayment
products can be operated more cost effectively than interior forced air and
radiant heating systems. In exterior applications, the heated rubber tiles
provide superior heat conducting properties to other available technology such
as heating coils in concrete. The heated fatigue mats and pet mats also
provide Eurectec with new products and new markets for crumb rubber.
Eurectec is in the process of filing for patent protection on the
technology subject to the license agreement. Eurectec expects to develop
procedures and techniques utilizing the Rothbury technology with SMS press
equipment to produce commercially viable heatable rubber floor tiles utilizing
crumb rubber during the second half of 1998, pending the filing of any patent
applications by Eurectec.
Eurectec Granulating System (EGS)
- ---------------------------------
Eurectec, working with outside engineering firms, has designed plans for
a complete tire recycling, granulating and after-market production system
which integrates individual pieces of tire recycling equipment made by other
manufacturers, SMS recycling equipment and SMS presses. The Company has spent
an estimated $45,000 and $135,000 in research and development for the design
of the EGS System during 1995 and 1996, respectively. The system as designed
will follow common processing steps accepted in the industry. The process
will begin by sending tires through a de-beader, slitter and shredder. In the
next step, the shredded material is then fed to a grizzly which extracts
approximately 90% of the steel from the shredded tires and further reduces the
size of the material to minus one inch. Then the material will be processed
through a magnetic separator which removes the steel shred and a pneumatic
aspiration system which removes the nylon fibers. The product is then
processed through a granulator which further reduces the shred to
approximately 5 mesh and removes any remaining steel and fabric. Finally, the
crumb rubber is processed through a granulator which reduces the product to
particle sizes down to minus 40 mesh. The EGS System will also include the
SMS mixers, presses and molds to make a wide variety of products from the
crumb rubber.
The EGS System will also offer as an option, a grinder which will reduce
the crumb rubber to minus 100 mesh and a proprietary process offered through
SMS to devulcanize the finely ground rubber. The devulcanized rubber restores
the crumb rubber to 50% to 85% of its original elasticity and allows the crumb
rubber to be mixed with virgin rubber and to be revulcanized.
The EGS System will not require Eurectec to engage in any equipment
manufacturing. Most of the items of equipment utilized in the system e.g.,
de-beaders, slitters, grizzlies, grinders and granulators are currently
manufactured by other companies. SMS will manufacture all of the equipment
and parts required to integrate the individual pieces of equipment into
unified recycling system.
8
<PAGE>
It is estimated by the design engineers that the complete EGS System will
have an estimated input capacity of up to five tons per hour and will have a
retail price of approximately $4,000,000. The EGS system will be more
expensive and require a larger facility than the granulating compact systems
manufactured by CISAP and it will have a production capacity of approximately
four times of the COMPACT 6000 System. The Company is currently offering EGS
granulating systems and specifically, an EGS system is being incorporated in
the Poseidon joint venture project in Mecklenberg-Vorpommern, Germany.
SuperCollider
- -------------
During 1997, the Company has worked on the in-house development of a
compact SuperCollider machine designed to take large mesh size crumb rubber
and pulverize it into fine powder in order to open up several new markets, as
a result. These markets include extrusion products, press products and
products combining super-fine crumb and plastic. The Company is currently
finalizing the engineering for the SuperCollider and anticipates concluding
the development, prototype work and performance testing during the second
quarter of 1998. Initially the Company will contract manufacture of the
equipment and will be supplying the first of these machines to a client in
Mexico during the third quarter of 1998. The Company will explore viability
of making patent applications for the new compact SuperCollider.
Eco-Etch Agreement
- ------------------
The Company is engaged in negotiations with IN.TEC, GmbH, a German
environmental technology firm, for the exclusive North American distribution
rights to the marketing of the "ECO-ETCH system. Ownership of IN.TEC changed
during 1997 which resulted in delays in final negotiations. The Company is
now in the process of completing negotiations and anticipates a firm agreement
during the second quarter of 1998.
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.
Eco-etching will remove and recuperate copper from ammoniac etching
solutions used in the manufacture of printed circuit boards. Numerous
laboratory tests have been carried out by the manufacturer to confirm that
Eco-etching through a chemical process allows for the total regeneration of
etching solutions and the total recuperation of copper. As an example, an
Eco-etching plant with a treatment capacity of 30 liters/hour of spent etching
liquid containing up to 170 g/1 of metal, recuperates 5kg/1 of copper. The
Eco-etching technology is highly modifiable and may be tailored to suit the
characteristics of the etching plant and the etched circuits. The entire
process is fully automated and computer controlled using sensors located in
various parts of the system.
9<PAGE>
ECO-ETCH systems will be marketed through the Company's subsidiary,
Quantum Environmental Solutions and Technologies, ("QEST").
Faru Agreement - REVULCON
- -------------------------
Subsequent to December 31, 1997, the Company entered an exclusive
worldwide license agreement with Faru GmbH., Dresden, Germany ("Faru"). Faru
is the patent holder of the REVULCON technology. The Company made an initial
payment of $70,000 in February 1998 with the balance payable in four monthly
installments of $20,000 each. For each REVULCON plant sold by the Company,
Faru will receive a royalty payment of $10,000 for up to fifteen (15) plants
and $20,000 royalty payment for each plant sold following the initial fifteen.
The REVULCON technology enables the production of high density, smooth
finish rubber moldings and extrusions, including 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 REVULCON technology development has the following market advantages:
- The procedure restores the vulcanizability of rubber scrap without
the necessity of chemicals or other additives. It works at ambient
temperatures and it is non-polluting.
- Unlike other procedures of rubber recycling, all kinds of rubber
crumb can be reactivated and subsequently vulcanized nearly independently from
particle size, grinding technology, source and deliverer, caoutchouc base, or
textile residues.
- The technology works with different qualities of rubber waste and
can be processed by vulcanization in broad applications and numerous products,
i.e.;
a) Rubber waste of the same kind from varying sources without and
with additives (e.g, high grades of EPDM, silicone or flouro rubber).
b) Mixtures of different tire crumb or other rubber waste
c) Mixture of tire crumb and other rubber waste
d) Grinded processing waste based on varying caoutchouc
e) Addition of reactivated material to fresh rubber formulations in
higher amounts compared with the same non-reactivated material.
10<PAGE>
- Reactivated rubber-waste material is also useable in mixtures with
various plastics or waste plastics.
- Scrap rubber obtained after reactivation are suitable for repeated
recycling by the REVULCON technology.
- Reactivation offers considerable economic advantages for products
made out of rubber crumb because costs of chemicals and fine grinding
(processing of coarser granulate) can be reduced or eliminated.
- The expense of the subsequent vulcanization process is not
influenced by reactivation.
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.
Tire Recycling Industry and Competition
- ----------------------------------------
In the United States alone there are over 275,000,000 tires discarded
each year. There are currently between two and three billion tires stockpiled
in the United States. Although millions of tires are discarded every year,
there has been no consensus on the best way to dispose of the tires. Waste
tires continue to accumulate in huge tire dumps throughout the world. One of
the early governmental responses was to require the tires to be shred into
small pieces in order to reduce the size of the tire dumps, the potential for
fires, and the health hazards from the dumps which existed because of
mosquitoes and rodents which inhabit tire dumps. Some market developed for
shredded tires as fuel in cement kilns and electric power plants, however,
most states have prohibited or strictly limited tire burning because of its
adverse environmental impact. In addition, it has been recognized that tire
burning is an inadequate use of the valuable rubber resource contained in the
tires.
In the effort to reclaim valuable resources from tires, attempts have
been made to recover oil from tires through a process call pyrolysis in which
the tires are heated to very high temperatures and petroleum is extracted.
To date pyrolysis systems have not reached commercial viability because of the
substantial capital investment required to construct such systems, the high
operating cost and low efficiency of such systems when compared to the price
of crude oil.
One of the challenges facing the tire recycling industry has been the
lack of reasonably priced equipment for the production of crumb rubber, given
the production capacity of such equipment and the prevailing market prices of
crumb rubber. Prices of crumb rubber vary according to the mesh (size) of the
rubber. Rubber with a mesh of minus 10 to 25 sells for $.17 - .20 per pound
and is the common size used in asphalt paving. The after-market products
manufactured from the SMS press equipment use rubber of approximately minus 30
mesh and sells for approximately $.20 - .22 per pound. Very finely ground
crumb rubber which is suitable for treatment with devulcanizing chemical
process is usually minus 80-100 mesh and sells for $.40 - .45 per pound.
11<PAGE>
A second obstacle to investing in available recycling equipment has been
the limited or uncertain demand for crumb rubber by manufacturers of rubber
products. Without an established market for crumb rubber and reasonably
predictable prices for crumb rubber there is no way to assure a recycler that
he could recover his capital investment or make a profit on a recycling
operation. In turn manufacturers have been reluctant to specify the use of
crumb rubber in products because of the lack of a broad and consistent supply
of high quality crumb rubber at predictable prices.
In an effort to induce recycling of tires, many states have enacted laws
which charge purchasers a recycling fee on all new tire sales. The fees are
deposited to state operated funds which are used for grants to fund tire
recycling technology research projects and to compensate tire recyclers for
recycling tires. In addition, the federal and state governments have created
markets for recycled rubber by enacting statutes which require that new road
construction include a certain percentage of recycled rubber in the roads. A
typical street one mile long and 30 feet wide using a 1.5 inch topping will
use approximately 39,000 pounds of crumb rubber. An interstate highway one
mile long and 72 feet wide using a 3 inch topping will require 186,000 pounds
of crumb rubber in the topping mix.
The Chicago Board of Trade (CBOT) Recyclables Exchange operates an
internet based listing of recyclable materials including crumb rubber. Access
to the CBOT Recyclables Exchange is found on the Internet at: http://cbot-
recycle.com. The Recyclables Exchange allows participants to use the on-line
exchange to post listings to sell or enter materials wanted for purchase.
Whenever there is a match of a sell listing with a buyer's parameters, the
system will automatically e-mail a response to the buyer who can then
communicate with the seller to transact business. The CBOT system allows for
detailed product descriptions of material quality and other data important to
buyers and sellers. The Exchange users can select predetermined commercial
specifications or set customized product specifications. The Recyclables
Exchange will contribute significantly to the recognition and growth of an
established crumb rubber market. Eurectec, acting on behalf of clients which
have purchased equipment, has posted offers on the Recyclables Exchange.
The Recyclables Exchange is currently operated as a cash market matching
buyers and sellers. It is the intent of the CBOT to monitor this cash market
to determine the viability of creating a futures contract in recyclable
products like crumb rubber. If a futures contract does develop for crumb
rubber it will further enhance the industry by allowing crumb rubber
manufacturers and crumb rubber consumers to begin hedging transactions which
will give price and supply stability to the market. This in turn will
contribute to wider use and acceptance of crumb rubber in a variety of
applications and industries.
All of these developments over the past few years have contributed to a
growing interest in the tire recycling industry. Although the tire recycling
industry is highly competitive, no single competitor holds a dominant market
position. Some of Eurectec's competitors have longer operating histories and
are financially stronger than the Company. There are several companies which
offer different pieces of equipment to recyclers such as shredders, slitters
and granulating equipment. However, few companies offer complete recycling
systems which include all equipment required to process whole tires to crumb
rubber. Those competitors which offer complete systems, sell systems which are
based on one of two design types. The older systems use efficient shredding
equipment but rely on hammermill technology for rubber granulation. These
systems tend to be very large, noisy and inefficient, in large part because
the hammermill technology was designed for other industrial applications and
has been adapted for use in tire recycling.
12<PAGE>
The second type of system offered by competitors is a cryogenic
(freezing) process which freezes the tires to very cold temperatures using
liquid nitrogen, at which point the brittle rubber can be broken free of the
steel and fabric content of the tire. Cryogenic systems are expensive,
costing from 4 to 20 million dollars. To date, the Company is not aware of
any facilities using a cryogenic system that is not subsidized by government
grants or private grants from producers of liquid nitrogen. Although this
process uses much more sophisticated technology, the process tends to be
cumbersome and expensive to operate. If the equipment is shut down for
maintenance or repairs the entire system must be taken off line for a period
of days. The second disadvantage of such systems is that the crumb rubber
made by the cryogenic process has reduced elasticity, which limits the
usefulness of the crumb rubber for after market products.
The CISAP system was designed specifically to granulate rubber from
recycled tires efficiently at ambient temperatures. The COMPACT 6000 System
was designed to input up to 2,204 pounds of tires and the COMPACT 9000 System
was designed to input 3,306 pounds of tires per hour. As of December 1997,
the estimated cost of establishing a fully operational tire recycling facility
utilizing the COMPACT 9000 System was approximately $2,000,000, plus land and
buildings. The advantages of the CISAP system over systems offered by
competitors are (i) lower initial cost of a system; (ii) higher operating
efficiencies and lower operating expense; (iii) lower maintenance down time;
and (iv) recycling at ambient temperatures resulting in high quality crumb
rubber output. Similarly, the Eurectec EGS system is designed to operate at
ambient temperatures on a larger scale than the CISAP 9000 System.
Marketing and Sales
- -------------------
Eurectec has had most success marketing and selling outside of the United
States where there are attractive incentives offered to investors by way of
government grants, low interest loans and tax advantaged investment programs.
Eurectec has encountered challenges in making sales of the CISAP systems
in the United States. These obstacles arise from the substantial capital
expenditure required to commence a recycling facility and the ability of
interested parties to secure adequate supplies of tires for recycling. The
owners of large tire dumps have been reluctant to make the substantial capital
investment necessary to realize additional value from the discarded tires.
Tire dump operations have been profitable simply from the tipping charges
received at the time tires are delivered to such tire dumps. However, tire
dumps are now being recognized as nuisances and public safety hazards. The
emerging trend is, as the viability and profitability of tire recycling
continues to develop, to require storage operators to do more than store tires
in large dumps. As the tire recycling industry matures, owners of tire dumps
will be prohibited from operating mere dumps and will be required to begin
recycling activities. In addition, efficient and profitable recycling
facilities will open the way for other persons interested in tire recycling to
negotiate contracts for the acquisition of discarded tires necessary to supply
feed stock to such recycling facilities.
13<PAGE>
An additional challenge to Eurectec in marketing the recycling systems is
that there is a long sales cycle. Typically, it takes six to eighteen
months from the time Eurectec has its initial contact with a potential
customer until equipment is installed and Eurectec is paid in full. It may
take up to six months for CISAP to construct a system. Currently, CISAP does
not manufacture the equipment until Eurectec orders it and the purchaser has a
letter of credit in place for full payment of the system. After the
equipment is finished, depending upon the location, it takes from six to eight
weeks to ship and install a system. The extended period of time it takes for
Eurectec to complete a sales transaction is not unusual in the industry.
These challenges, however, have caused the Company to experience inconsistent
cash flow which has impacted the ability of the Company to grow. The sales
cycle of SMS press equipment ranges from approximately three to six months.
Management believes that marketing and sales emphasis on SMS presses, with a
shorter sales cycle, will allow the Company to normalize cash flows and to
give stability to Company operations.
The Company continues to rely principally on the efforts of its officers
and directors to generate sales. Eurectec's principal method of marketing is
done through direct sales by officers of the Company and approximately 12
independent commissioned sales representatives worldwide through participation
at trade shows and active membership in trade organizations. Eurectec
maintains a site on the Internet at http://www.eurectec.com. Eurectec is a
member of the Rubber Pavements Association located in Mesa, Arizona and is a
founding member of the International Recycling Federation located in Bonn,
Germany.
Eurectec is a member of the International Tire and Retreading
Association, headquartered in Louisville, Kentucky (ITRA). ITRA will sponsor
the 41st World Tire Conference & Exhibition in April of 1998. Eurectec will
have a booth in the 1998 conference and will have representatives from FARU
attend as well. Eurectec has generated leads at both exhibitions at which it
has had a booth and those at which it has only had representatives attend.
Eurectec has become a member of ETRA (the "European Tire Recycling
Association") headquarter in Brussels, Belgium. The Company will attend the
Annual European Tire & Recycling Exposition in Brussels, Belgium, scheduled
for 26-27 March 1998. At the Exposition, the Company will be presenting a
paper entitled "The Turnkey Solution" and FARU will present a paper on behalf
of Eurectec. ITRA will also exhibit at Reifen 98 - International Trade Fair
for Tires and Retreading in May, 1998 in Essen, Germany. There will be a
special section for U.S. Group Exhibits. The Company will attend this
conference and intends to apply for booth space at the exhibition.
14<PAGE>
In addition, Eurectec is listed in the Scrap Tire Users Directory, an RRI
annual publication which is a business reference guide to the tire recycling
industry.
Although the environmental problem of waste tires has existed for
decades, the tire recycling industry is still in its early stages of
development worldwide. No single response to the problem of waste tires has
become generally accepted. However, the momentum in the industry favors tire
recycling which reclaims the rubber resource. No single technology has
achieved market dominance. Under such market conditions, potential investors
are slow to make investment decisions. Manufacturers of recycling equipment
do not carry large inventories of equipment. The Company has limited capital
and limited full time personnel engaged in marketing and sales activities.
These are the major reasons that Eurectec has not established a consistent
volume of sales. At the same time the Company is aware that these challenges
also form significant barriers to entry by competitors which will face many of
the same challenges.
Current Contracts
- -----------------
ATLANTA RUBBER RECYCLING, INC. - There has been no activity on this
contract and the Company does not believe Atlanta Rubber Recycling will be
able to proceed with its planned project.
MEXICO AGREEMENT. The client has experienced problems in the
commissioning of the C9000 machines mainly relating to 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 correct the problems
and anticipates the equipment to be fully operational by the end of April
1998. Following successful operation of the C9000 machines, the Company will
deliver additional equipment before the end of 1998. In addition, the Company
is negotiating a contract for PressMaster equipment to manufacture heated tile
units under license from Eurectec, as well as continuous roll materials. The
Company expects to conclude these negotiations and have an agreement in place
during the first quarter of 1998. Other contracts are being negotiated for
soaker hose and REVULCON projects.
The Company anticipates concluding phase one installation by April 1998
and is presently negotiating additional payment on contract change orders.
Further, the Company is negotiating a new contract for a PressMaster and
ancillary equipment, valued at approximately $750,000.
SAUDI AGREEMENT. Phase one of this project have been delivered and
equipment installation is now planned for April 1998 at the site in Dammam.
It is expected that the second and third phase of the project will be
concluded for delivery during the second half of 1998. The scope of the third
phase work will include two front end mills to increase the through-put
capacity of the C6000 machines and one additional 200 continuous roll press
and other ancillary equipment. The purchaser desires to expand its
manufacture of "value-added" products and the Company anticipates supplying
PressMaster equipment to the facility.
NEVADA ENVIRONMENTAL TECHNOLOGIES, INC. The Company finalized
negotiations in 1997 to issue a license to Nevada Environmental Technologies,
Inc., ("NET"). In addition, a preliminary equipment sales agreement had been
signed. NET has shifted their concentration on energy marketing and the
Company does not expect NET to proceed with their previously planned tire
recycling project in Reno. This will be reviewed on an ongoing basis as the
current contract expires on December 31, 1998.
15<PAGE>
Proposals Under Negotiation
- ----------------------------
WASTE RESOURCES RECLAMATION AGREEMENT. The Company received a letter of
intent for the sale and purchase of SMS press equipment to Waste Resources
Reclamation. The Company anticipates entering a final agreement during the
second quarter of 1998.
PHOENIX ENVIRONMENTAL GROUP, INC. The Company has received a letter of
commitment from Phoenix Environmental Group, Inc., ("PEG") to employ Eurectec
technology for a tire recycling facility. PEG has secured a large site close
to the Detroit International Airport and has prepared a detailed Project
Feasibility Study for the construction of a recycling park in Detroit,
Michigan. PEG anticipates initial development to commence the second quarter
of 1998 with equipment delivery during the first half of 1999.
SEAGAL VENTURES, INC. Seagal Ventures, Inc., ("Seagal") located in the
Philippines, is a tile products manufacturer. The Company has already
supplied approximately $80,000 worth of mixing equipment and binder/coloring
materials. Currently, the Company and Seagal are negotiating a regular
monthly shipment of binder/coloring and possibly adhesive for bonding tiles
commencing the second quarter of 1998.
UNITED RUBBER RECYCLING. The Company is negotiating a contract for a
PressMaster 100. United Rubber Recycling ("United") is in the pressing
products business and is already manufacturing agricultural products. United
is currently utilizing a hand pressing process and is interested in upgrading
their equipment to automatic pressing to give greater output capability. The
Company expects to conclude a sales agreement during the second quarter of
1998.
AMERICAN RUBBER GROUP, INC. American Rubber Group, Inc. is setting up a
shredding and granulating facility in Compton, California and the Company is
currently negotiating a sales agreement for a PressMaster 200 with continuous
roll production which is expected to be concluded during the second quarter of
1998.
A-TECH INNOVATION. The Company is negotiating an equipment supply
contract with A-Tech Innovation of Woodbridge, Illinois and anticipates
finalizing an agreement during the second quarter of 1998.
Joint Venture Projects
- ----------------------
SETG GERMANY - Poseidon Products GmbH. The Company has finalized a joint
venture agreement with a German Government sponsored company,
Strukturentwicklungsgesellschaft Ueckermunde mbh., located near Berlin. 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
Mecklenberg-Vorpommern to product crumb rubber and to manufacture a wide range
of value added products. Eurectec, Inc., is under contract to supply the
technology transfer and equipment package. Engineering for the project is to
be coordinated by FDC Engineering of Switzerland.
16<PAGE>
Proposed Joint Venture Project
- ------------------------------
CALIFORNIA PRISON MANUFACTURING PROJECT. The Company is currently
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 to manufacture crumb rubber derived products utilizing inmate and
prison facilities. The first phase of this project will incorporate a
PressMaster and the second phase will incorporate both shredding and
granulating processes. A result of this joint venture would be to provide the
Company with a manufacturing platform for products and serve as a showcase for
marketing efforts. Negotiations are expected to be concluded during the
second quarter of 1998 following a series of meetings at a number of potential
facilities.
Employees
- ---------
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,
Secretary and Director and John Pope, the Company Treasurer, a Vice President
and Director.
The Company plans to restructure the employee status during 1998 and will
be recruiting a Vice President of Finance and a systems engineer.
Company Subsidiaries
- --------------------
EURECTEC, INC. The Company acquired the outstanding 20% of Eurectec,
which was held by 67 non-affiliated shareholders, via a share exchange whereby
the Company exchanged shares of The Quantum Group, Inc., for the outstanding
shares of Eurectec, Inc. The Company now wholly owns Eurectec. The majority
of the Company's business is transacted through Eurectec. Eurectec was formed
by the Company, under the laws of the State of Nevada in 1991. As discussed
earlier, the Company negotiated its licensing agreements with CISAP and SMS
and Rothbury 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. The Company expects to enter into various other businesses
most of which will be related either directly or indirectly to the
environmental technologies business. 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.
17<PAGE>
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 formed
Eurectec International to transact the international affairs of the Company in
individual recycling projects. The organization costs of establishing
Eurectec International were funded by Mr. Liebich. Eurectec International is
currently not engaged in any 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 to take
advantage of government incentives offered to Canadian companies operating in
Canada. Eurectec Industries is currently unfunded and transacting no business.
EURECTEC MARKETING, INC., is a wholly owned subsidiary of Eurectec and
was formed to market recycled rubber products, both from Eurectec plants and
from other participating manufacturers.
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 intends to open its own tire
recycling facility operated through this company. The Company currently is
not pursuing the establishment of a recycling facility. Pacific Rubber is
unfunded and has not transacted any business activities.
QUANTUM ENVIRONMENTAL SOLUTIONS & TECHNOLOGY, INC., ("QEST"). QEST is a
wholly owned subsidiary of the Company. Incorporated on April 21, 1997, QEST
was established to market the ECO-ETCH system.
QUANTUM MODIFIED ASPHALT EXCETERA, ("QMAX"). The Company has established
this division to market specialized mobile equipment concerned with the mixing
of crumb rubber and asphalt. Presently dormant, this division will soon be
incorporated and will be responsible for crumb rubber technology transfer
programs.
______________________________________________________________________________
ITEM 2. DESCRIPTION OF PROPERTY
______________________________________________________________________________
In July 1997, the Company renewed its lease agreement to lease an
industrial condominium in a multi-tenant building for use as its principal
executive office. The Company pays $3,281.00 per month for 4,495 square foot
facility. The lease has a renewal option for an additional year and will be
reviewed in July 1998. The building is located at Park Irvine Business
Center, 14771 Myford Road, Building B, Tustin, California 92780. The space
the Company is leasing is sufficiently large to accommodate all of its
administrative and storage needs. In addition, the current location of the
Company houses an SMS press and accompanying equipment to demonstrate the
press and manufacture samples of products produced by the press.
18
<PAGE>
______________________________________________________________________________
ITEM 3. LEGAL PROCEEDINGS
______________________________________________________________________________
None.
______________________________________________________________________________
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITIES HOLDERS
______________________________________________________________________________
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of the fiscal year ending December 31, 1997.
______________________________________________________________________________
PART II
______________________________________________________________________________
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
______________________________________________________________________________
The Company's common stock is listed on the NASD OTC Bulletin Board under
the symbol "QTMG." As of December 31, 1997 the Company had 269 shareholders
holding 4,853,409 common shares. Of the issued and outstanding common stock,
810,865 are free trading, the balance are "restricted securities" shares as
that term is defined in Rule 144 promulgated by the Securities and Exchange
Commission . The Company has never declared a dividend on its common shares.
The published bid and ask quotations for the previous two fiscal years
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> BID PRICES ASK PRICES
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
1996
First Quarter ended March 31 .4375 .0625 .875 .625
Second Quarter ended June 30 .1875 .125 .75 .75
Third Quarter ended Sept. 30 .125 .0625 .75 .50
Fourth Quarter ended Dec. 31 .0625 .03125 .50 .25
1997
First Quarter ended March 31 .125 .03125 .46875 .40625
Second Quarter ended June 30 .03125 .03125 .46875 .46875
Third Quarter ended Sept. 30 .0625 .0625 ----- -----
Fourth Quarter ended Dec. 31 .50 .062 1.00 1.00
</TABLE>
The foregoing figures were furnished to the Company by the National
Quotation Bureau, 1 Penn Plaza, 15th Floor, New York, New York 10001.
19<PAGE>
____________________________________________________________________________
ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL STATEMENTS AND RESULTS OF OPERATIONS
_____________________________________________________________________________
Liquidity and Capital Resources
At December 31, 1997, the Company had on hand cash of $142,690.
The management of the Company made the decision at year end 1992 to
concentrate its resources and management efforts on the Company's tire
recycling operations. This has been the Company's business since the
beginning of 1993. Sales generally take six to eighteen months to complete.
Some cash flow is generated by customer deposits and miscellaneous charges
when a contract is signed, however, the bulk (generally 80%) of the cash flow
is released to the Company when the product is shipped. Contracts often
provide for a final payment, generally 10% of the contract amount, to be paid
when installation is completed. The Company intends that future sales will
require 15% to 20% deposit at the time of sale and the balance due on delivery
of the equipment.
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 is initiating an additional Regulation S offering for 1,600,000 shares
which the Company anticipates may yield up to $3,300,000 by end of April 1998.
Once this has been achieved the Company intends to proceed with a registered
offering to raise further capital for the company expansion.
The present outlook suggests that the Company will experience modest
growth in revenue of 15-20% over 1997 levels. The bulk of revenue during 1998
is expected to be realized during the second half of the year due to specific
pending project phasing and the time frame needed to conclude contracts with
existing clients where projects are being expanded. Emphasis will be placed
on both PressMaster and REVULCON equipment packages where manufacturing and
installation times are much less than with full turn key tire recycling plants
including shredding and granulation equipment.
20<PAGE>
The Company satisfied its 1997 capital commitment for the Rothbury
agreement. The Company does not have any capital commitments for 1998.
However, should the Company proceed with a registered offering, the Company
may enter into capital commitments for equipment required for the California
prison project.
Results of Operations
- ---------------------
The Company generated a $101,893 profit in the year ended December 31,
1997 compared to a loss of $228,820 for the year ended December 31, 1996. The
1996 loss includes an Accounts Receivable write off of $338,181, a Loan
Receivable write off of $38,750 and an investment loss of $6,250. The 1997
profit includes sale of License Rights of $350,000 and $150,000. The $350,000
license fee is partially offset by a reserve of $175,000.
Net cash generated from operations during the year ended December 31,
1997 was $197,974 compared to $10,964 cash used in operations in the year
ended December 31,1996. This resulted primarily from profitable operations,
an increase in Accrued Expenses of $393,577, an increase in Taxes Payable of
$103,548, the Accounts Receivable write off of $195,000 and Depreciation and
Amortization of $84,745, partially offset by the increase in Accounts
Receivable of $681,457 and a decrease in Accounts Payable of $65,316.
Accounts receivable increased in the year ended December 31, 1997 by
$681,457 to $710,979. The 1997 Accounts Receivable balance consists of the
sale of a press and contract additions on the Mexico project of $175,000 and
$335,000 respectively, the License Fee receivable of $350,000 (less the
reserve of $175,000) and Letter of Credit retention of $25,979. The December
31, 1996 Accounts Receivable balance included $184,522 contract additions on
the Saudi project, which was collected and the $20,000 balance on the Atlanta
Rubber license fee which was written off in 1997.
Inventory at December 31, 1997 is $29,760 compared to $490,579 at
December 31, 1996. The 1996 balance was equipment held for sale that was sold
back to the vendor. The 1997 balance consists only of raw materials (crumb
rubber, binder, flocking, etc.) for the manufacture of mats.
The deposit account at December 31, 1997 is $421,451. There were no
deposits at December 31, 1997. $417,951 of the 1997 balance is deposits with
CISAP which represents the proceeds on the sale to them of the C3000 machine
previously held in inventory.
Securities Accounts balance of $73,125 at December 31, 1997 is the result
of receiving 20,000 shares of Frontier Energy common stock for a $100,000
license fee. The securities had a market value of $100,000 at the time of the
transaction, but were subsequently written down to reflect the December 31,
1997 market price.
Accrued Expenses increased by $393,577 to $552,399 during the year ended
December 31, 1997 compared to $158,822 at December 31, 1996. The major
components of this increase are $300,000 accrued cost of sale for committed
costs to complete the Mexico project and $72,717 in accrued interest on the
Company's loan balances.
21<PAGE>
The Due Officer Account declined to $7,919 at December 31, 1997 from
$151,152 at December 31, 1996. This debt was paid down by the issuance of
1,600,000 shares of Quantum common stock at $0.0625 per share to Ehrenfried
Liebich, the officer of the Company to whom the Account was due, and the
payment of $43,233 to or on behalf of Mr. Liebich. The remaining balance of
the loan from the officer is non-interest bearing and is payable on demand.
Franchise Taxes Payable balance at December 31, 1997 of $103,548 consists
of $70,691 Federal Taxes and $32,957 in California State taxes. Although the
Company has a Net Operating Loss Carry forward of $1,663,146 for Federal
Income Tax purposes, the law provides that the utilization of the NOL is a
preference item triggering the Alternative Minimum Tax. The State of
California does not have a NOL carry forward and as such the year's operation
are subject to California Income tax. No liability existed at December 31,
1996 as a result of the loss.
Current Maturities declined during the year ended December 31, 1997 by
$63,879 to $721,318 from $785,197. The Current Maturities are that portion of
the Company's long term debt due within the upcoming fiscal year. As all of
the long term debt is due during 1998, it is all categorized as Current
Maturities. The decline during 1997 is due to the decline in value of the
German Mark in relation to the Dollar, as two of the notes are payable in
Marks. The notes and the accrued interest on them were paid off during the
first quarter of 1998 (See subsequent event footnote to Financial Statements).
Minority Interest increased to $109,256 during the year ended December
31, 1997 due to the 20% minority interest in the Company's primary subsidiary,
Eurectec, Inc.
Comparison of the year ended December 31, 1997, and the year ended December
- ---------------------------------------------------------------------------
31, 1996.
- ---------
Revenue for the year ended December 31, 1997 was $3,424,809. This is a
$517,130 increase over the revenue of $2,907,679 generated in the year ended
December 31, 1996. The increase in 1997 is from an increase in equipment
sales of $51,137 and an increase of $465,000 in License Sales.
The majority of the Company's sales are recorded when 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 for
shipment with the carrier. To date, payment for the Company's equipment sales
have been made on the basis of 10% due at the time of sale, 80% due on
shipment of equipment and 10% due at completion of installation. This has
resulted in the Company receiving its revenue in large lump sums at irregular
intervals rather than in smaller amounts at frequent intervals. The Company
intends that future sales require 15% - 20% of the amount due at the time of
sale and the balance upon delivery, with the equipment manufacture supplying
the purchaser with performance and/or completion bonds prior to delivery.
22<PAGE>
Costs of Sales consists of wholesale costs to the Company of granulating
systems and support equipment plus freight and insurance, which are billed to
the client. Cost of Sales for the year ended December 31, 1997 was
$2,261,677, a $366,209 increase over the $1,895,468 for the year ended
December 31, 1996. Cost of Sales as a percentage of equipment sales was 77%
in 1997 compared to 66% in 1996. This increase resulted from concessions to
the buyer in relation to the granting of the territorial license for Mexico
combined with the fact that we have change orders and new business pending
with Press equipment, REVULCON and Soaker Hose technology currently in excess
of $1,000,000 (excluding the REVULCON and Soaker Hose projects realization,
the technical development for which, will be concluded and quoted to the
client in detail and added to this number during the second quarter of 1998.).
The Company believes that the decline in gross margin experienced in 1997 is
not indicative of a trend or ongoing factors and that margins should return to
1996 levels in the upcoming year.
Commission expense for the year ended December 31, 1997 of $37,008 is
less than the 1996 expense of $195,077 by $158,069. This is due to the Mexico
contract having been negotiated by Company personnel without the use of
outside sales personnel or agents.
Depreciation expense increased in 1997 to $47,737 from $22,926 due to the
purchase in 1996 of the SMS tile press and the inclusion of a full year of
depreciation in 1997.
The Company amortizes the license agreement with Rothbury Engineering
over the anticipated 10 year economic life of the technology. The year ended
December 31, 1997 includes a full years amortization while the year ended
December 31, 1996 includes the amortization from the date of acquisition,
resulting in an increase in amortization expense of $14,587.
Travel expenses decreased in the twelve months ended December 31,1997 by
$11,530 compared to 1996 ($56,056 vs. $67,586), due primarily to the closer
proximity of the 1997 projects.
Professional Fees increased to $78,596 in the year ended December 31,
1997, compared to $67,586 in the year ended December 31, 1996, due to legal
work involved with the reverse split of the Company's stock and the agreements
to exchange the shares held by the minority holders of shares in the Company's
subsidiary (Eurectec, Inc.) for Quantum shares.
Office Expenses and Administrative Expenses increased by $15,162 and
$8,094, respectively from the year ended December 31, 1996. This is due to
the addition of support personnel and the repair, maintenance and cleaning of
the Company's offices, some of which were included in the rent at the prior
facility. Rent and Utilities expense declined in the year ended December 31,
1997 by $17,469 as general office support is not provided in the current
facilities.
Consulting Fees declined to $232,571 in the twelve months ended December
31, 1997 compared to $265,375 for the year ended December 31, 1996. The
Company employed outside consultants for marketing and accounting in 1996 and
1997. Additional consulting expense was incurred in 1996 for the start up of
the technical and sales efforts associated with the SMS press equipment,
without a corresponding expense in 1997.
23<PAGE>
Interest Expense increased in 1997 compared to 1996 due to accruing a
full years interest on the Machinery and Technology Notes Payable obligations
incurred in 1996.
In 1997 the Company wrote-off the balance of the Receivable from Atlanta
Rubber. The Company does not believe that Atlanta Rubber will proceed with
its planned project. The Company reserved $175,000 (50%) of the Mexico
License Fee Receivable under the theory of conservatism. Although the signed
agreements calls for the payment of $350,000, Management believes that the
client may attempt to renegotiate the contract or seek concessions in some
manner due to the setbacks in commencing full operations at the facility. In
1996 the Company wrote off a note receivable from a client for $338,181 and a
loan to it's German subsidiary of $38,750.
Foreign Currency translation gains were $63,880 in the year ended
December 31, 1997 compared to a gain of $6,344 in the twelve months ended
December 31, 1996. This gain is due to the fact that the U.S. Dollar has
strengthened considerable in relation to the German Mark. The Company's non
U.S. lender debt is repayable in German Marks. This strengthening means that
fewer Marks would be needed to repay the debt than were needed at the previous
year end.
Comparison of the year ended December 31, 1996, and the year ended December
- ---------------------------------------------------------------------------
31, 1995.
- ---------
Revenue for the year ended December 31, 1996 was $2,907,679. This is a
$227,889 increase over the revenues of $2,679,790 generated in the year ended
1995. The increase in 1996 results from an increase in equipment sales of
$192,889 and $35,000 from a territory sublicense sold to Atlanta Rubber.
Cost of Sales consists of wholesale costs to the Company of the
granulating systems and support equipment plus freight and insurance, which
are billed to the client. The increase in equipment sales ($192,889) in the
year ending December 31, 1996, resulted in an increased cost of sales compared
to 1995. Cost of Sales was $1,895,468 for the year ended December 31, 1996, a
$206,521 increase over the $1,688,947 cost of sales in 1995. Different
support equipment such as de-beaders, slitters and shredders are acquired from
various manufacturers and may carry differing profit margins but, they do not
affect the product mix of full tire recycling systems. Cost of Sales as a
percentage of total retail equipment sales was 66% in 1996 compared to 63% in
1995. This improvement in margins is mainly due to payments received by the
Company in 1996 upon completion of Phase 1 of the Saudi project and delivery
of Phase 2 equipment to the Saudi project.
Commission expense for the year ended December 31, 1996 of $195,077 is
less than the 1995 expense of $329,960 by $134,883. This is due to the
payment of finders fees in 1995 which were not required on the 1996 orders.
24<PAGE>
Travel expenses in the year ended December 31, 1996 exceeded 1995 by
$22,118. ($67,586 in 1996 vs. $45,468 in 1995). This was due to supervising
the completion of the Saudi project and an increased international and
domestic sales efforts.
The Company moved to larger office facilities during June 1996. The new
facilities also have sufficient space for demonstration of the SMS press and
manufacture of tile samples. Because of the increased space, rental expense
increased to $83,103 in the year ended December 31, 1996 compared to $57,221
in 1995. The physical relocation was accomplished with Company personnel at
minimum incremental costs. Such costs were less than $500.
Office expense of $21,546 in the year ended December 31, 1996 is a
reduction of $2,300 from the 1995 expense of $23,846. This decrease is due to
moving from the prior offices where many services were purchased at higher
than current costs. Administrative Expenses increased by $17,982 from $69,301
in the year ended December 31, 1995 to $87,283 in 1996 in support of the floor
tile program and generally increased marketing efforts.
The use of outside consultants was increased during 1996 and the
corresponding expense increased to $265,375 in 1996 from $164,178 in 1995.
The Company employed outside consultants for marketing and accounting in 1995
and 1996. Additional consulting expense was incurred in 1996 for the start up
of the technical and sales efforts associated with the SMS press equipment.
Interest expense was increased during 1996 by $18,544 ($88,161 vs.
$69,617) due to the increase of borrowing under the 1995 loan arrangement and
a full year interest in 1996 on the 1995 borrowing.
Professional expenses increased from $46,925 in the year ended December
31, 1995 to $68,147 in 1996. This increase is due to the legal fees incurred
in the successful defense of the Kuglemeier litigation, and the defense of the
title of Eurectec to a COMPACT 3000 System.
Foreign Currency translation gains of $6,344 in the year ended December
31, 1996 compared to a cost of $532 in the prior year. This gain is due to
the fact that the U.S. Dollar has strengthened in relation to the German Mark
in both of the years. The Company's non U.S. lender debt is repayable in
German Marks. This strengthening means that fewer Marks would be needed to
repay the debt than were needed at the previous year end. The Company has
made arrangements with a California bank to hedge foreign exchange risks.
These arrangements are intended to cover existing German lender debt (German
Marks) and purchase orders (Italian Lira and/or German Marks). To date this
arrangement has not been utilized because of the strength of the U.S. Dollar.
Although the federal tax laws provide for a loss carry forward, the State
of California where the Company is located, does not. The Company's current
year profit is not subject to federal taxes because of the prior period
losses.
25<PAGE>
_____________________________________________________________________________
ITEM 7. FINANCIAL STATEMENTS
_____________________________________________________________________________
The following financial statements of the Company are filed as a part of
this report:
Report of Darrell Schvaneveldt, Certified Public Accountant;
Balance Sheets as of December 31, 1997 and December 31, 1996;
Statements of Stockholders' Equity for the years ended December 31, 1997,
1996, and 1995;
Statements of Cash Flows for the years ended December 31, 1997, 1996, and
1995;
Notes to Financial Statements.
There are no financial statement schedules included as part of this
report. The financial statements of the Company are set forth immediately
following the signature page to this Form 10-KSB.
________________________________________________________________________________
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
______________________________________________________________________________
The Company has had no disagreements with its accountants as to any
matter regarding accounting or financial disclosure.
______________________________________________________________________________
PART III
______________________________________________________________________________
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
_______________________________________________________________________________
The following table sets forth as of December 31, 1997 the name, age, and
position of each executive officer and director and the term of office of each
director of the Corporation.
<TABLE>
<CAPTION>
Name Age Position Director or Officer Since
---- --- ---------- -------------------------
<S> <C> <C> <C>
Ehrenfried Liebich 55 President March 1989
Director March 1989
26<PAGE>
Keith J. Fryer 49 Vice President March 1995
Director March 1995
Secretary July 1997
John F. Pope 55 Vice President January 1991
Treasurer January 1991
Director March 1989
Markus J. Lenger 33 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.
KEITH J. FRYER is a Vice President, Secretary 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 with a City and Guild of London Institute Diploma in
Construction and Site Surveying. He also studied at Cranfield and Dunchurch
UK Management Colleges and became a Member of the Institute of Marketing
London in 1974. Mr. Fryer became a Chartered Member of the Institute in 1989.
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
operated Keith Fryer Associates England, a business he formed in 1986, that
provided marketing consulting services in various business areas. In 1992,
Mr. Fryer established Keith Fryer Associates California, Inc., a marketing
consulting firm. Mr. Fryer became a Vice President and Director of the
Company in March 1995 and Secretary of the Company in July 1997.
JOHN F. POPE is the Treasurer, a Vice President and a Director of the
Company. Mr. Pope began his professional career in 1963 as an auditor in
public accounting and subsequently on the corporate staff of Olivetti
Underwood in New York. He joined Burger King Corporation in Miami, Florida,
in 1968 and progressed to the position of Controller, Company Stores Division.
He joined Orange Julius International, Inc., Santa Monica, California, in 1974
as Vice President, Finance and a Director for the parent company and its
national and international subsidiaries.
27<PAGE>
In 1980, Mr. Pope became President of Inflation Management, Inc., Los
Angeles, California. From February 1982 until February 1984 he was Vice
President, Finance of Aerobic Dancing, Inc. In 1984 he became Senior Vice
President of Animated Playhouses Incorporated and Subsidiaries, before moving
to become Executive Vice President Finac International, Inc., an investment
and venture capital firm in Torrance, California.
From 1986 through November 1987, Mr. Pope acted as Vice President Finance
and Administration for ASI Sign Systems of Marina Del Ray, Inc. After leaving
ASI Sign Systems in late 1987, Mr. Pope became a independent financial
consultant assisting a number of domestic and international public and private
companies in franchising, financial structure, and internal and SEC reporting.
He continues to serve on the Board of Directors of several companies he helped
to become public companies.
In 1989, Mr. Pope became a founding member of the Board of Directors of
the Quantum Group, Inc., in addition to other activities. Mr. Pope is a
Certified Management Accountant (CMA) and serves on the National Board of
Directors of The Institute of Management Accountants, where he also chairs the
National Committee of Finance. He has also been Certified in Financial
Management (CFM) by the same institute. He is a Certified Public Accountant
(CPA) and a member of the American Institute of Certified Public Accountants
(AICPA). He has been a member of the Curriculum Steering Committee, School of
Accountancy, University of Southern California, and a number of other
professional and civic organizations.
DR. MARKUS J. LENGER is a Vice President of the Company. 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 has been self-employed as a
consultant through his company, BioSurf, Inc., a California corporation he
founded in 1994. Previously, Dr. Lenger was a Vice President of Research
and Development for Green Earth Technologies. He has also been associated
with BioVersal and OekoSens. Both companies are in the environmental
remediation business. 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.
There are no family relationships between any of the Company's officers
and directors. In addition, none of the officers and directors have been
involved in certain legal proceeding which require disclosure in this annual
report of the Company.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Directors and executive officers are required to comply with Section
16(a) of the Securities Exchange Act of 1934, which requires generally that
28<PAGE>
such persons file reports regarding ownership of and transactions in
securities of the Company on Forms 3, 4, and 5. A Form 3 is an initial
statement of ownership of securities, which is to be filed by the officers and
directors owning shares in the Company within 10 days after the effective date
of the Company's filing on Form 10-SB. Form 4 is to report changes in
beneficial ownership and is due on or before the tenth day of the month
following any month in which they engage in any transaction in the Company's
common stock. Form 5 covers annual statement of changes in beneficial
ownership which is due 90 days after the fiscal year end of the Company. All
directors and executive officers complied with Section 16(a).
______________________________________________________________________________
ITEM 10. EXECUTIVE COMPENSATION
______________________________________________________________________________
The following table sets forth certain summary information concerning the
compensation paid or accrued over each of the Registrant's last three
completed fiscal years to the Company's, or its principal subsidiaries, chief
executive officers during such period (as determined at December 31, 1996 the
end of the Registrant's last completed fiscal year).
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Other Awards Payouts
Name & Annual Compensation Annual Restricted All
Principal Compen Stock Options/ LTIP Other
Position Year Salary Bonus -sation Awards SARs Payout
__________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ehrenfried Liebich 1997 -0- -0- -0- -0- -0- -0- -0-
President/Director 1996 -0- -0- -0- -0- -0- -0- -0-
1995 -0- -0- -0- -0- -0- -0- -0-
Keith Fryer (1) 1997 68,559 -0- -0- 20,000 333,334 -0- 36,008
Vice President/ 1996 65,321 -0- -0- -0- -0- -0- 65,415
Director/Secretary 1995 77,950 -0- -0- -0- -0- -0- -0-
John F. Pope (2) 1997 28,850 -0- -0- -0- -0- -0- -0-
Vice President/ 1996 45,500 -0- -0- -0- -0- -0- -0-
Treasurer/Director 1995 46,850 -0- -0- -0- -0- -0- -0-
Markus J. Lenger (3) 1997 9,859 -0- -0- -0- -0- -0- -0-
Vice President 1996 23,944 -0- -0- -0- -0- -0- -0-
1995 -0- -0- -0- -0- -0- -0- -0-
____________________________________________________________________________________
</TABLE>
(1) Keith Fryer provided consulting services to the Company through
Keith Fryer Associates California, Inc., his private consulting business. The
salary figures represent amounts paid by the Company to Keith Fryer Associates
California, Inc. These services were provided on terms at least as favorable
as could have been negotiated with an independent third party. The "other
compensation" paid to Keith Fryer was in the form of commissions for license
and equipment sales. The options were granted to Mr. Fryer pursuant to the
Company's 1997 Stock Option Plan.
29<PAGE>
(2) John Pope provided consulting services to the Company through his
private consulting business, John F. Pope, Inc. The salary figures represent
amounts paid by the Company to John F. Pope, Inc. For Mr. Pope's services to
the Company as an officer and director overseeing the financial affairs of the
Company. These services were provided on terms at least as favorable as could
have been negotiated with an independent third party.
(3) Markus Lenger provided consulting services to the Company. The
salary figure represents amounts paid by the Company to Dr. Lenger for
services to the Company as an officer and as a consultant overseeing the
Company's website development.
Bonuses and Deferred Compensation
- ---------------------------------
The Company does not have any bonus, deferred compensation, employee
benefit, or retirement plan. Such plans may be adopted by the Company at such
time as deemed reasonable by the board of directors. The Company does not
have a compensation committee, all decisions regarding compensation are
determined by the board of directors.
Stock Option and Stock Appreciation Rights Plans
- ------------------------------------------------
Effective June 27, 1997, the Company implemented the Quantum Group, Inc.,
1997 Stock Option Plan and allocated 1,000,000 shares of common stock of the
Company to be available for grant under the plan. In October, the Company
granted an option, pursuant to the 1997 Stock Option Plan, to Keith Fryer, an
officer and director of the Company for 333,334 shares, exercisable at $0.0625
per share. The options are exercisable at a rate of 66,666 shares per year
for a period of five years commencing immediately upon the date of grant. To
date, none of these options have been exercised.
Option / SAR Grants in Last Fiscal Year
- ---------------------------------------
<TABLE>
<CAPTION>
Individual Grants
- -----------------
Name Number of % of Total Exercise Expiration Grant
Securities Options/SARs or Base Date Date
Options/SARs Granted to Price Present
Granted Employees ($/share) Value ($)
Fiscal Year
_________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Keith Fryer 333,334 100% $.06 2002 $20,000
_____________________________________________________________________________________
</TABLE>
30<PAGE>
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 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
_____________________________________________________________________________
The following table sets forth as of December 31, 1997 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 4,853,409 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>
<CAPTION>
Title of Amount and Nature of Percentage
- -------- -------------------- -----------
Class Name of Beneficial Owner Beneficial Ownership of Class
- -------- ------------------------ -------------------- -----------
<S> <C> <C> <C>
Common Ehrenfried Liebich 2,887,593 59.49%
14771 Myford Road
Building B
Tustin, California 90744
Common Keith J. Fryer 301,522 6.21%
14771 Myford Road
Building B
Tustin, California 90744
Common John F. Pope 42,001 0.86%
14771 Myford Road
Building B
Tustin, California 90744
Common Dr. Markus J. Lenger 0 0%
14771 Myford Road
Building B
Tustin, California 90744
________________________________________________________________________________
Common All Officers, Directors
as a Group:
(4 persons) 3,231,116 66.65%
________________________________________________________________________________
</TABLE>
31<PAGE>
(1) These shares are owned by Keith Fryer Associates California, Inc. Mr.
Fryer is the owner operator of that business and is deemed to be the
beneficial owner of these shares because he holds the sole voting and
investment power regarding such shares.
(2) Mr. Pope's total shares includes 33,667 shares held of record by Parallax
Capital Corporation which he may be deemed to be a beneficial owner of the
shares because he has shared investment power of the shares.
______________________________________________________________________________
ITEM 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
______________________________________________________________________________
As of December 31, 1996 the Company had borrowed directly from Mr.
Ehrenfried Liebich the total amount of $151,152. The loans are non-interest
bearing and are payable on demand. Mr. Liebich is the President, a Director
and a beneficial owner of more than 10% 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. In 1997,
the Company exchanged 1,600,000 shares of common stock of the Company in
return for the retirement of $100,000 of the total debt owed Mr. Liebich.
______________________________________________________________________________
PART IV
______________________________________________________________________________
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
______________________________________________________________________________
(a) Reports on Form 8-K.
None.
(b) Exhibits. The following exhibits are included as part of this report:
32
<PAGE>
<TABLE>
<CAPTION>
SEC Exhibit
Exhibit Reference
Number Number Title of Document Location
- ------- ----------- ------------------------------------- ---------------------
<C> <C> <C> <C>
3.01 3 Articles of Amendment to the Articles Incorporated
of Incorporation by reference*
3.02 3 Articles of Incorporation Incorporated
by reference*
3.03 3 Bylaws Incorporated
by reference*
10.01 10 CISAP License Agreement Incorporated
by reference*
10.02 10 Canadian License Agreement Incorporated
by reference*
10.03 10 Mexico License Agreement Incorporated by reference*
10.04 10 Amendment to CISAP License Incorporated
Agreement, dated April 26, 1996 by reference*
10.05 10 SMS Sondermaschinen License Incorporated
Agreement, dated May 15, 1996 by reference*
10.06 10 Amendment to CISAP License Incorporated
Agreement, dated March 14, 1997 by reference**
10.07 10 Florida License Agreement Incorporated
by reference **
10.08 10 Rothbury License Agreement Incorporated
by reference**
10.09 10 Faru Agreement Attached
23.01 23 Consent of Accountant Attached
27.01 27 Financial Data Schedule Attached
________________________________________________________________________________
/TABLE
<PAGE>
*Incorporated by reference from the Registrant's registration statement on
form 10-SB, as amended, filed with the Commission, SEC file no. 0-23812.
**Incorporated by reference from the Registrant's Form 10-KSB for the year
ended December 31, 1996, filed with the commission, SEC file no. 0-23812
___________________________________________________________________________
SIGNATURES
___________________________________________________________________________
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf of the undersigned,
thereunto duly authorized.
<TABLE>
<C> <C> <C>
Dated: March 31, 1998 The Quantum Group, Inc.
a Nevada corporation
By: /s/ Ehrenfried Liebich
------------------------
Ehrenfried Liebich, President
DATE NAME AND TITLE SIGNATURE
- -------------- ------------------- -----------------------------
March 31, 1998 Ehrenfried Liebich By: /s/ Ehrenfried Liebich
President/Director -----------------------------
Ehrenfried Liebich, President
March 31, 1998 Keith J. Fryer By: /s/ Keith J. Fryer
Vice President/Director/ -----------------------------
Secretary Keith J. Fryer
March 31, 1998 John F. Pope By: /s/ John F. Pope
Vice President -----------------------------
Treasurer/Director John F. Pope
</TABLE>
34<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
SEC Exhibit
Exhibit Reference
Number Number Title of Document Location
- --------- ------------- ---------------------- -----------
<C> <C> <C> <C>
10.09 10 Faru Agreement Page E-1
23.01 23 Consent of Accountant Page E-22
27.01 27 Financial Data Schedule Page E-23
35
<PAGE>
THE QUANTUM GROUP, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1997
&
DECEMBER 31, 1996
<PAGE>
/Letterhead/ Schvaneveldt & Company
Certified Public Accountant
275 East South Temple Suite 300
Salt Lake City, Utah 84111
801-521-2932
Darrell T Schvaneveldt, C.P.A.
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, 1997 and 1996, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1997, 1996, and 1995. 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, 1997 and 1996, and the results of its
operations and its cash flows for the years ended December 31, 1997, 1996, and
1995, in conformity with generally accepted accounting principles.
/S/Darrell T Schvaneveldt
Salt Lake City, Utah
March 21, 1998
<PAGE>
The Quantum Group Inc., and Subsidiaries
Balance Sheets
December 31, 1997 and 1996
</TABLE>
<TABLE>
<CAPTION>
December December
31, 1997 31, 1996
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
- --------------
Cash $ 142,690 $ 6,602
Accounts Receivable 710,979 204,522
Inventory 29,760 490,579
Deposit 421,451 -0-
------------- -------------
Total Current Assets 1,304,880 701,703
Property & Equipment
- --------------------
Furniture & Fixtures 3,054 10,651
Equipment 154,778 170,144
------------- -------------
Total Property & Equipment 157,832 180,795
Other Assets
- ------------
Securities 73,125 -0-
Cash Pledged 5,225 5,122
License Rights 414,622 464,377
Deposit 3,281 3,281
Tax Benefit Deferred -0- 80
------------- -------------
Other Assets 496,253 472,860
------------- -------------
TOTAL ASSETS $ 1,958,965 $ 1,355,358
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
The Quantum Group Inc., and Subsidiaries
Balance Sheets -Continued-
December 31, 1997 and 1996
<TABLE>
<CAPTION>
December December
31, 1997 31, 1996
------------- -------------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Accrued Expenses $ 552,399 $ 158,822
Accounts Payable 140,016 205,332
Due Officers 7,919 151,152
Customer Deposits 2,500 -0-
Franchise Taxes Payable 103,548 -0-
Current Maturities 721,318 785,197
------------- -------------
Total Current Liabilities 1,527,700 1,300,503
Long Term Liabilities
- ---------------------
Note Payable - Machinery 145,631 170,519
Note Payable - Technology 347,547 347,547
Note Payable 228,140 267,131
Less Current Maturities ( 721,318) ( 785,197)
------------- -------------
Total Long Term Liabilities -0- -0-
Minority Interest in Subsidiary 109,256 84,739
Stockholders' Equity
- --------------------
Common Stock 50,000,000 Shares
Authorized; Par Value of $0.001
Per Share,
4,853,409 & 3,153,409 Shares Issued
Retroactively Restated Respectively 4,853 3,153
Paid In Capital 1,932,968 1,684,668
Accumulated Deficit ( 1,615,812) ( 1,717,705)
------------- -------------
Total Stockholders' Equity 322,009 ( 29,884)
------------- -------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 1,958,965 $ 1,355,358
============= =============
</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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
December December December
31, 1997 31, 1996 31, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
- --------
Equipment Sales $ 2,923,816 $ 2,872,679 $ 2,679,790
License Sales 500,000 35,000 -0-
Other Income 993 -0- -0-
------------- ------------- -------------
Total Revenues 3,424,809 2,907,679 2,679,790
Cost of Sales 2,261,677 1,895,468 1,688,947
------------- ------------- -------------
Gross Profit 1,163,132 1,012,211 990,843
Expenses
- --------
Commission 37,008 195,077 329,960
Depreciation 47,737 22,926 14,342
Amortization 49,756 33,169 -0-
Travel 56,056 67,586 45,468
Professional Fees 78,596 68,147 46,925
Office 36,708 21,546 23,846
Rent & Utilities 65,634 83,103 57,221
Administrative Expenses 95,377 87,283 69,301
Consultant Fees 232,571 265,375 164,178
Interest 95,656 88,161 69,617
Accounts Receivable Written Off 195000 376,931 953,634
Foreign Currency Translation ( 63,880) ( 6,344) 532
------------- ------------- -------------
Total Expenses 926,219 1,302,960 1,775,024
------------- ------------- -------------
Net Income (Loss)
From Operations 236,913 ( 290,749) ( 784,181)
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
The Quantum Group Inc., and Subsidiaries
Statements of Operations -Continued-
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
December December December
31, 1997 31, 1996 31, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Other Income (Expenses)
- -----------------------
Interest Income $ -0- $ 122 $ -0-
Gain on Sale of Residence -0- 38,327 -0-
Loss on Investment -0- ( 6,250) -0-
Sale of Securities
Previously Written Off -0- -0- 12,500
Investment Evaluation Loss ( 6,875) -0- -0-
Asset Abandonment -0- -0- (10,500)
------------- ------------- -------------
Total Other Income (Expense) ( 6,875) 32,199 2,000
------------- ------------- -------------
Net Income (Loss) Before
Extraordinary Items 230,038 ( 258,550) ( 782,181)
Extraordinary Items
- -------------------
Income Capital Lease -0- 16,741 -0-
------------- ------------- -------------
Net (Loss) After
Extraordinary Items 230,038 ( 241,809) ( 782,181)
Taxes & Minority Interest
Minority Interest 24,517 12,989 122,621
Provisions for Taxes - Current 103,628 -0- 34,785
Provisions for Taxes - Deferred -0- -0- 80
------------- ------------- -------------
Total Taxes & Minority Interest 128,145 12,989 157,486
------------- ------------- -------------
Net Income (Loss) $ 101,893 ($ 228,820) ($ 624,695)
============= ============= =============
Net (Loss) Per Share Before
Extraordinary Items .01 ( .03) ( .07)
Net (Loss) Per Share After
Extraordinary Items .01 ( .02) ( .07)
Weighted Average Shares Outstanding 9,456,696 9,456,696 9,456,696
Diluted Net Profit Per Share .01 N/A N/A
Weighted Average Shares and Options
Outstanding 9,790,030 N/A N/A
</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, 1995 to December 31, 1997
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Shares 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 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 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 Year Ended
December 31, 1997 101,893
----------------------------------------------------
Balance, December 31, 1997 4,853,409 $ 4,853 $1,932,968 ($ 1,615,812)
====================================================
</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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities
- ------------------------------------
Net Profit or (Loss) $ 101,892 ($228,820) ($624,695)
Adjustments to Reconcile Net Profit
or (Loss) to Net Cash:
Write Off Accounts Receivable 195,000 -0- 953,634
Write Off Investment -0- 6,250 -0-
Write Off Loan Receivable -0- 38,750 -0-
Write Off Long Term Receivable -0- 338,181 -0-
Amortization & Depreciation 84,745 56,095 14,342
Non Cash Income -0- ( 16,741) -0-
Gain on Sale TSI Stock -0- -0- ( 12,500)
Loss on Abandonment of Asset -0- -0- 10,500
Minority Interest 24,517 ( 12,989) ( 122,621)
Changes in Operating Assets & Liabilities:
(Increase) Decrease in Accounts
Receivable ( 681,457) ( 24,559) ( 174,203)
(Increase) Decrease in Inventory 38,991 -0- 12,900
(Increase) Decrease in Deposit on
Inventory -0- 424,820 -0-
Decrease (Increase) in Long-Term
Accounts Receivable -0- -0- ( 338,181)
Decrease (Increase) in Employee Receivable -0- -0- 7,816
(Increase) Decrease in Prepaid Insurance -0- -0- 984
Decrease (Increase) in Prepaid Commissions -0- -0- 273,500
(Increase) Decrease in Deposits -0- ( 3,281) 8,335
Increase (Decrease) in Accrued Expenses 393,577 ( 68,034) 136,579
Increase (Decrease) in Accounts Payable ( 65,316) ( 271,047) ( 49,217)
(Decrease) Increase in Tax Payable -
Current 103,548 -0- ( 34,785)
(Decrease) Increase in Customer Deposits 2,500 ( 244,464) ( 244,464)
Increase in Taxes Payable Deferred 80 -0- ( 80)
Increase in Cash Pledged ( 103) ( 5,122) -0-
Rounding -0- ( 3) -0-
---------- ---------- ----------
Net Cash (Used) by Operating
Activities 197,974 ( 10,964) ( 182,156)
</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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Investing Activities
- ------------------------------------
Purchase of Property - Lot -0- ( 45,000) -0-
Addition to Miami Residential Property -0- ( 8,903) -0-
Gross Proceeds from Sale TSI Stock -0- -0- 12,500
Refund of Import Duty 718 -0- -0-
Purchase of Equipment ( 25,492) ( 182,295) -0-
Purchase of License Rights -0- ( 497,547) -0-
Sale of Residential Property -0- 306,435 -0-
Purchase of Furniture -0- ( 11,086) -0-
Purchase of Securities ( 80,000) -0- -0-
---------- ---------- ----------
Net Cash Provided (Used) by
Investing Activities ( 104,774) ( 438,396) 12,500
Cash Flows from Financing Activities
- ------------------------------------
Sale of Common Stock 150,000 -0- -0-
Payment on Long Term Debt ( 63,879) ( 169,781) ( 1,997)
Increase (Decrease) in Notes Payable -0- 505,552 266,871
Increase (Decrease) in Amounts Due Officers ( 43,233) 92,451 ( 69,900)
Contributed Capital -0- 1,600 -0-
---------- ---------- ----------
Net Cash Provided by Financing Activities 42,888 429,822 194,974
---------- ---------- ----------
Increase (Decrease) in Cash 136,088 ( 19,538) 25,318
Cash at Beginning of Period 6,602 26,140 822
---------- ---------- ----------
Cash at End of Period $ 142,690 $ 6,602 $ 26,140
========== ========== ==========
Disclosures from Operating Activities:
Interest $ 95,656 $ 88,161 $ 69,617
Taxes 103,628 8,675 -0-
Significant Non Cash Transactions:
1,600,000 Shares Common Stock Issued to
Officer Debt Satisfaction $ 100,000 $ -0- $ -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 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 Company's 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 Subsidiary's Stock: The Company has elected to accounts for
shares issued by its subsidiary as an equity transactions.
<PAGE>
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 Company's
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 Company's financial statements.
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 1997, the Company returned its inventory as described above to the Italian
Manufacturer. The Company received $421,451 in credits against future
deposits. The Company anticipates to use all of the credit in 1998.
NOTE #4 - Noncash Investing and Financing Activities
- ----------------------------------------------------
On February 16, 1996, the Company concluded provisions of the escrow agreement
entered into in 1995, and the sale of the residential property in Florida was
concluded. As a term of the sale the Company purchased the adjoining lot for
$45,000, and paid $8,903 in capital fees and costs associated with the
mortgage on the residence. The Company had office equipment with a net book
value of $9,799 at the residence that was not recovered by the Company before
the purchaser took possession of the property. Scheduled below are the cash
flows and the net profit from the sale of the property.
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #4 - Noncash Investing and Financing Activities -Continued-
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
Cash Net
Flows Profit
---------- ----------
<S> <C> <C>
Sales Price $ 382,500 $ 382,500
Less:
Costs of Sale 43,885 43,885
Capital Fees & Costs Associated with Mortgage 8,903 8,903
Dade County Taxes Paid to Assessor 23,277
----------
Cash Realized $ 306,435
==========
Adjusted Basis of Residence 236,586
Cost of Lot 45,000
Basis of Personal Property,
Not Recovered from Residence 9,799
----------
Gain from Sale of Residence $ 38,327
==========
</TABLE>
NOTE #5 - Notes Payable
- -----------------------
The Company has the following notes payable obligations.
<TABLE>
1997 1996
--------- ---------
<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%
Original Note $273,158 - Remeasurement for Foreign
Currency Translation at Exchange Rates on December 31 $228,140 $267,131
Note Payable on Press Master Machine, Interest at 16.67%,
Due December 31, 1997, Original Note $171,029
Remeasurement for Foreign Currency Translation
at Exchange Rates on December 31 145,631 170,519
Note Payable on Purchase of Rubber Product Technology
Due December 31, 1997, No Interest, Purchased and
Payable in U.S. Dollars 347,547 347,547
--------- ---------
Total Notes Payable $721,318 $785,197
Less Current Obligation 721,318 785,197
--------- ---------
Net Long Term $ -0- $ -0-
========= =========
</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, 1996, the exchange rate was
US $1.54 for DM $1.00. The Company revalued the note at its current US $
equivalent and realized in the statement of operations a translation gain of
$6,344. At December 31, 1997, the exchange rate was US $1.54 for DM $1.00.
The Company revalued its foreign notes with German lenders and realized
$63,880 as a foreign currency translation agreement. These notes were paid in
full in 1998. (See Note #17).
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #6 - Lease Commitments
- ----------------------------
On July 15, 1996, the Company leased an office in Tustin, California. The
lease requires a security deposit of $3,281, monthly payments of $4,101 and
expires on July 14, 1998.
NOTE #7 - 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, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
December 31, Depreciation Accumulated
1997 1996 Expense Depreciation
Assets Cost Cost Life 1997 1996 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Furniture
& Fixture $ 37,986 $ 37,986 5 $ 7,597 $ 8,527 $ 34,932 $ 27,335
Vehicles 8,994 8,994 3 -0- 2,248 8,994 8,994
Equipment 207,068 182,295 5 40,140 12,151 52,290 12,151
-----------------------------------------------------------------
Totals $254,048 $229,275 $ 47,737 $ 22,926 $ 96,216 $ 48,480
=================================================================
</TABLE>
NOTE #8 - 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 #9 - 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 sublicensee in Utah.
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #10 - 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>
Accrued Accounting &
Consulting Reimbursed Consulting Financial
Commissions & Expenses Expenses Fees Services
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Keith Fryer $ 36,008 $ -0- $ -0- $ 68,599 $ -0-
John Pope -0- -0- -0- 28,850 -0-
Marcus J. Lenger -0- -0- -0- 9,859 -0-
1996
Keith Fryer $ 65,415 $ -0- $ -0- $ 65,321 $ -0-
John Pope -0- -0- -0- 45,500 -0-
Marcus J. Lenger -0- -0- -0- 23,944 -0-
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-
</TABLE>
An Officer of the Company has loaned the Company $7,919 and $151,152 at
December 31, 1997 and 1996 respectively to fund its operations. The loan is
non interest bearing and is due on demand.
NOTE #11 - 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>
<CAPTION>
Year of Expiration
Loss Amount Date
------------------------------------------------
<C> <C> <C>
1992 $ 440,338 2007
1993 -0- 2008
1994 198,818 2009
1995 782,181 2010
1996 241,809 2011
</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 may generate.
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #11 - Net Operating Loss Carryforward for Income Tax Purposes -Continued-
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current Tax Asset Value of Net Operating
Loss Carryforwards at Current Prevailing
Federal Tax Rate $ 497,872 $ 576,085 $ 561,467
Evaluation Allowance ( 497,872) ( 576,085) ( 561,467)
Net Tax Asset $ -0- $ -0- $ -0-
---------- ---------- ----------
Current Income Tax Expense $ 103,628 $ -0- $ -0-
Deferred Income Tax Benefit -0- 80 80
</TABLE>
NOTE #12 - 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
- -----------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1996 2,166,667 20.00 2,167 210,566 (127,994) 84,739
1997 2,166,667 20.00 2,167 210,566 (103,477) 109,256
</TABLE>
The minority investment in the subsidiary is 6,500,000 shares purchased for
$414,578 in 1992, $619,487 in 1993, and $1,600 in 1996. Minority interest
holds 20.00% of issued shares of the subsidiary and the minority interest
incurred a dilution of $868,170 upon investment, and $103,477 in accumulated
losses for 1997.
NOTE #13 - Accounts Receivable Written Off
- ------------------------------------------
In 1996, the Company wrote off sales it made in 1995 to a German buyer of
$345,000. After a remeasurement allowance in 1995 of $6,819 the 1996 write
off was $338,181. The Company wrote off $38,750 loaned to Eurectec GmbH, and
an investment of $6,250. The Company owned 10% of Eurectec GmbH. Eurectec
GmbH has no operations and no plans for future operations.
In 1997, the Company wrote off an account receivable of $20,000 and created a
reserve for bad debt of $175,000 against current accounts receivable resulting
from the Mexico contract.
NOTE #14 - Litigation Matters
- -----------------------------
In 1997, the Company had litigation matters of two matters referred to in the
prior year report, one was dismissed for "no cause of action by the court" and
the Company fully resolved the dispute by making a payment in the amount of
$23,908 to the Plaintiff for full satisfaction of the action.
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #15 - 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>
<CAPTION>
Country 1997 Sales 1996 Sales 1995 Sales
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Mexico $ 3,202,891 $ -0- $ -0-
Saudi Arabia 2,711,489 2,024,290
Germany 161,190 310,500
Phillippines 79,000 -0- -0-
-------------------------------------
Total $ 3,281,891 $ 2,907,679 $ 2,334,790
=====================================
<CAPTION>
Sales by quarter of 1997, 1996 and 1995 are scheduled below.
First Quarter $ 186,561 $ 1,001,071 $ -0-
Second Quarter 154,889 -0- -0-
Third Quarter 2,336,232 1,662,149 -0-
Fourth Quarter 747,127 244,459 2,679,790
-------------------------------------
Totals $ 3,424,809 $ 2,872,679 $ 2,679,790
=====================================
</TABLE>
NOTE #16 - Stock Issuance by Subsidiary
- ---------------------------------------
In 1996, Eurectec, Inc., issued 1,688,000 shares to its minority shareholders
to increase their ownership position in Eurectec, Inc., to 6,500,000 shares or
20.0%. Eurectec, Inc., contributed $1,600 as contributed capital to the
parent Corporation.
NOTE #17 - Subsequent Events
- ----------------------------
Subsequent to the date of this report, the Company concluded a Regulation S
Offering of 1,000,000 shares which yielded $1,500,000. The Company is
initiating an additional Regulation S Offering for 1,600,000 which if
successful will yield $3,300,000 by the end of April 1998.
From the proceeds of the Regulation S Offering the Company retired all of the
debt scheduled in Note #5.
The Company consummated a stock exchange with the minority interest
stockholders' of its 80% owned subsidiary Eurectec, Inc. After the stock
exchange Eurectec, Inc., is a wholly owned subsidiary.
NOTE #18 - Stockholders' Equity
- -------------------------------
During the year ending December 31, 1997, the Company effected a one for three
stock split of its outstanding common shares. The financial statements have
been retroactively restated to reflect the stock split.
In December the Company sold 100,000 shares for $150,000 cash.
The Company issued 1,600,000 shares to its President in satisfaction of
$100,000 of amounts due Officers.
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #19 - Principles of Consolidation
- --------------------------------------
The consolidated financial statements of The Quantum Group, Inc., and its
subsidiaries include the amounts of all majority owned subsidiaries.
Eurectec, Inc., is the only subsidiary with assets, liabilities and operations
and is 80% owned at December 31, 1997 (see note #17 for subsequent events).
Eurectec, Inc., has the following wholly owned subsidiaries; Eurectec
International, Ltd., a province of British Columbia corporation, Eurectec
Industries, Inc., a province of Alberta Canada corporation, Pacific Rubber
Recycling Ltd., a province of British Columbia corporation, and Eurectec
Marketing, Inc., a US domestic corporation. None of the above subsidiaries of
Eurectec have assets or operations.
The Company has two US domestic subsidiaries, Quantum Environmental Solution
and Technology, Inc., and Quantum Modified Asphalt Xcetra, Inc. Both of these
subsidiaries also have no assets or operations.
NOTE #20 - Stock Options and Stock Appreciation Rights Plans
- ------------------------------------------------------------
Effective June 27, 1997, the Company implemented The Quantum Group, Inc., 1997
Stock Option Plan and allocated 1,000,000 shares of common stock of the
Company to be available for grant under the plan. In October, the Company
granted an option, pursuant to the 1997 Stock Option Plan, to an officer and
director of the Company for 333,334 shares, exercisable at $0.062 per share.
The options are exercisable at a rate of 66,666 shares per year for a period
of five years commencing immediately upon the date of grant. To date, none of
these options have been exercised.
This Document
represents a
LICENSE AGREEMENT
between
FARU GmbH. Dresden, Germany
Patent Holder
and
The Quantum Group, Inc.
A Joint Venture for
the Marketing & Distribution of
"REVULCON" Rubber Vulcanization Technology
Date : February 25, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<C> <C> <C>
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.1 Business Day. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.2 Confidential Information. . . . . . . . . . . . . . . . . . . . . . . . 4
1.3 Dollars (CAN) or "$CAN" . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Dollars (US) or "$US" . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.6 Licensed Technology . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Net Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.8 Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.9 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.10 Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.11 Technical Information . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.12 Territory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.13 Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
II. GRANT OF RIGHTS AND LICENSES. . . . . . . . . . . . . . . . . . . . . . 5
2.1 Use of Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Construction of Plants. . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Use of Technical Information. . . . . . . . . . . . . . . . . . . . . . 5
2.4 Right to Use Trademarks . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Quality Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Right to Sublicense . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.7 No Rights by Implication. . . . . . . . . . . . . . . . . . . . . . . . 6
2.8 Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
III. OBLIGATIONS OF FARU . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Training and Technical Assistance . . . . . . . . . . . . . . . . . . . 6
3.2 Additional Services . . . . . . . . . . . . . . . . . . . . . . . . . . 7
IV COMPENSATION PAYABLE TO FARU. . . . . . . . . . . . . . . . . . . . . . 7
4.1 Licensing Fee and Royalty . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Contents of Quantum's Reports . . . . . . . . . . . . . . . . . . . . . 8
4.3 Payments Accompany Quantum's Reports. . . . . . . . . . . . . . . . . . 8
4.4 Minimum Royalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.5 Payments of Royalties and Other Amounts . . . . . . . . . . . . . . . . 8
4.6 Quantum's Books and Records . . . . . . . . . . . . . . . . . . . . . . 9
4.7 Faru's's Right to Audit . . . . . . . . . . . . . . . . . . . . . . . . 9
4.8 Audit Information Confidential. . . . . . . . . . . . . . . . . . . . . 9
4.9 Quantum's Reports Conclusively Correct. . . . . . . . . . . . . . . . . 9
<PAGE>
V INVENTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.1 Disclosure Inventions . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Right to Use Inventions . . . . . . . . . . . . . . . . . . . . . . . . 9
5.3 Registering Patents on Inventions . . . . . . . . . . . . . . . . . . . 9
5.4 Registering Patents in the Territory. . . . . . . . . . . . . . . . . . 9
VI CONFIDENTIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 9
6.1 Confidentiality Maintained. . . . . . . . . . . . . . . . . . . . . . . 9
6.2 Information in Connection with Sale . . . . . . . . . . . . . . . . . .10
6.3 Liability for Disclosure. . . . . . . . . . . . . . . . . . . . . . . .10
VII WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
7.1 Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
VIII TERMINATION
8.1 Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .10
8.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
8.3 After Termination . . . . . . . . . . . . . . . . . . . . . . . . . . .11
8.4 Payment Obligations Continue. . . . . . . . . . . . . . . . . . . . . .11
8.5 No Damages for Termination. . . . . . . . . . . . . . . . . . . . . . .11
8.6 Sub-Licenses not to be Terminated . . . . . . . . . . . . . . . . . . .11
8.7 Sub-Quantums Rights if Quantum Terminated . . . . . . . . . . . . . . .11
IX REPRESENTATIONS, WARRANTIES & COVENANTS OF FARU . . . . . . . . . . . .11
9.1 Ownership of Licensed Technology. . . . . . . . . . . . . . . . . . . .11
9.2 No Conflicting Agreements . . . . . . . . . . . . . . . . . . . . . . .11
X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
10.1 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
10.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
10.3 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
10.4 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
10.5 Non Circumvention . . . . . . . . . . . . . . . . . . . . . . . . . . .12
10.6 No Other Relationship . . . . . . . . . . . . . . . . . . . . . . . . .12
10.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
<PAGE>
10.8 Entire Understanding. . . . . . . . . . . . . . . . . . . . . . . . . .13
10.9 Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
10.10 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
10.11 Fees Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
10.12 Responsibility for Taxes. . . . . . . . . . . . . . . . . . . . . . . .13
10.13 Survival of Contents. . . . . . . . . . . . . . . . . . . . . . . . . .14
10.14 Table of Contents and Headings. . . . . . . . . . . . . . . . . . . . .14
10.15 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
10.16 Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
</TABLE>
LICENSE AGREEMENT
This License Agreement is made and entered into on this day :
____________________ by and between The Quantum Group, Inc./Eurectec, Inc.,
(Quantum) 14771 Myford Road, Bldg. B, Tustin, California 92780, ("Quantum")
and :
FARU Forschungsstelle f''r Analytik, Radiometrie & Umweltechnologie GmbH.,
Leipziger Strasse 117, 01127 Dresden, Germany, ("FARU")
WHEREAS, FARU possesses certain intellectual and industrial property rights
with respect to tire rubber de-vulcanization and/or reactivation processes;
and
WHEREAS, FARU under the terms of this agreement, is willing to grant, and
QUANTUM desires to receive, the exclusive worldwide right to use such rights
for :
FARU "REVULCON" De-Vulcanization Technology
for Tire Crumb Rubber and Tire Rubber Buffings ("the Technology")
WHEREAS, FARU and Quantum desire to jointly exploit the technology;
in accordance with 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 :
I. DEFINITIONS
As used herein, the following terms shall have the following definitions.
1.1 Business Day. "Business Day" shall mean a day on which banks are open for
business in Los Angeles, California, U.S.A.
<PAGE>
1.2 Confidential Information. "Confidential Information" shall mean that part
of the Technical Information which is not publicly known.
1.3 Dollars (US) or "$US". "Dollars (US)" or "$US" shall mean the lawful money
of the United States of America in immediately available funds.
1.4 Effective Date. "Effective Date" shall mean the later of (a) the date on
which FARU executes this Agreement, (b) the date on which QUANTUM executes
this Agreement and pays the Licensing Fee [4.1 (a)(i)].
1.5 Licensed Technology. "Licensed Technology" shall mean the Patents ,
Trademarks and Technical Information now in existence, developed hereafter for
the tire rubber de-vulcanization and/or reactivation process.
1.6 Gross Income. "Gross Income" shall mean (a) any and all amounts received
by QUANTUM in connection with the services rendered and/or products sold from
or by Plants which operate in the Territory.
1.7 Patents. "Patents" shall mean all patents and patent applications listed
in Exhibit A to this Agreement, or which may be applied for by either of the
paties relating to the Technology.
1.8 Payment. "Payment" shall mean a cash, check, wire transfer or other
mutually acceptable and agreed upon payment method.
1.9 Plant. "Plant" shall mean an extrusion or other processing unit for rubber
de-vulcanization and/or reactivation operated pursuant to the rights granted
to Quantum hereunder.
1.10 Technical Information. "Technical Information" shall mean all currently
existing trade secrets , know-how, computer programs (including copyrights in
said programs), knowledge, technology, means, methods, processes, practices,
formulas, techniques, procedures, technical, assistance, designs, drawings,
apparatus, written and oral rectification's of data, specifications, assembly
procedures, schematics and other valuable information of whatever nature,
whether confidential or not, and whether proprietary or not, which are
necessary to allow someone reasonably skilled in the industry to construct,
use, service and test a Plant.
1.11 Territory."Territory" shall mean : The World
1.12 Trademarks. "Trademarks" shall mean any and all trademarks, trade names,
service marks and other commercial symbols either listed in Exhibit C to this
Agreement or else which FARU may from time to time designate to be included
within this definition by written notice to Quantum. Once included in this
definition, such trademarks, trade names, service marks and other commercial
symbols shall not be removed from this definition without the mutual agreement
of the parties hereto.
II. GRANT OF RIGHTS AND LICENSES
<PAGE>
Subject to all of the terms and conditions set forth in this Agreement :
2.1 Use of Patents. FARU hereby grants to QUANTUM an exclusive right and
license during the term of this Agreement to practice the Technology in order
to use and operate or sell equipment utilizing the licensed Technology in the
Territory. FARU shall not sell the licensed Technology or sell equipment
utilizing the licensed Technology inside the Territory.
2.2 Construction of Plant (s)
Pursuant to completed sub-license agreements and/or otherwise completed
contracts for the construction and operation of plants by Quantum, Quantum
will test successfully and disassemble and package safely for shipment,
complete equipment and machinery as described in the said agreements or
contracts. (EXHIBIT B) All other costs of shipping, duties, taxes and licences
shall be borne by the sub-licensee or by QUANTUM according to the agreement
between QUANTUM and the sub-licensee.
FARU will supply QUANTUM within 14 days of signing this agreement a list
of existing companies in Europe with whom FARU has had previous contact. In
order to facilitate a smooth transition QUANTUM appoints FARU to continue to
service those customers with technical information. Any sales that result
through those efforts shall be concluded through QUANTUM.
2.3 Use of Technical Information.
(a) FARU grants to QUANTUM an exclusive right and license during the term
of this Agreement to use the Technical Information in the Territory.
(b) As soon as practicable after the Effective Date, but in no event
later than (30) days after the Effective Date, FARU shall provide to Quantum,
at no additional costs to Quantum, all of the Technical Information and other
documentation and materials necessary for Quantum to market and distribute the
technology.
(c) Quantum acknowledges that FARU makes no promises, claims or
projections concerning the feasibility, number or viability of tire rubber
de-vulcanization and/or reactivation processes plant(s) in the Territory, nor of
the availability of raw materials or markets, and that it is the
responsibility of Quantum to establish to his own satisfaction that such a
plant or plants utilizing the licensed Technology are feasible.
2.4 Right to Use Trademarks.
Quantum shall use each of the Trademarks on an exclusive basis in connection
with the use, operation and promotion of Plants utilizing the licensed
Technology hereunder. Quantum may also use other trademarks, trade names,
service marks and commercial symbols of its own choosing in connection with
the use, operation and promotion of Plants hereunder.
2.5 Quality Control.
<PAGE>
(i) Quantum shall use the Trademarks prominently on the Plant(s)
utilizing the licensed Technology and documentation relating to the Plant(s)
utilizing the licensed Technology, and in compliance with all relevant laws
and regulations;
(ii) Quantum shall accord FARU the right to inspect each Plant utilizing
the licensed Technology during normal business hours, without prior advance
notice, to confirm that QUANTUM's use of such Trademarks is in compliance with
this provision.
2.6 Right to Sub license.
QUANTUM shall have the right to sub license any of the rights and licenses
granted hereunder without the prior consent of FARU, so long as : (a) each sub
licensee agrees in writing to be bound by all of the terms and conditions
contained in this Agreement; and (b) FARU is provided with a copy of each such
agreement within ten (10) days after it is executed.
2.7 Non-Competition.
During the term of this Agreement , FARU shall not engage in any negotiations
with third parties with a view towards or engage in the manufacture of any
device which may be employed to utilise the Revulcon Technology for crumb
rubber or buffing processing if such device could reasonably be considered to
be in competition with the rights granted to Quantum described in this
Agreement; neither shall FARU shall negotiate or conclude any agreement with
any other party to construct or operate a Plant or Plants utilzing the
licensed Technology within the Territory while this Agreement is in effect.
III. OBLIGATIONS OF FARU
3.1 Training & Technical Assistance.
(a) To assist Quantum in exercising its rights hereunder, FARU agrees to
provide up to five man-days of training and technical assistance for each
plant to Quantum and its employees anywhere in the Territory, so that Quantum
will be able to use the Licensed Technology to its full potential. Such
training and assistance shall be rendered by FARU at no additional charge to
Quantum, except for expenses to be reimbursed to FARU as provided in Paragraph
3.1(c) below.
(b) To the extent Quantum requests such training and technical assistance
in excess of the man-days provided in Paragraph 3.1 (a) above, FARU 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; provided that FARU's representatives are
then able to provide such training and technical assistance.
(c) Travel costs, lodging, meals and all related expenses incurred by
FARU in connection with sending representatives into the Territory pursuant to
this Paragraph 3.1 (a) or (b) shall be paid for in full by the Quantum.
<PAGE>
3.2 Additional Services.
(a) FARU shall use its reasonable efforts to provide Quantum with any and
all additional assistance reasonably requested by Quantum, including without
limitation; producing technical, sales, advertising and other reports and
information for Quantum which Quantum believes might be useful in promoting
the Plants; assisting Quantum in attempting to obtain from third parties
technical information, drawings, plans, specifications and other data which
are not proprietary to FARU and which FARU does not otherwise have the right
to use, in order to enable Quantum to respond to requests of any potential
customer, assisting Quantum in responding to technical inquiries from
potential customers of the Plants; and assisting Quantum in the testing of
Plants and in the further development of test equipment
(b) FARU shall bill Quantum for any such additional services at prices to
be agreed in advance by the parties hereto. FARU shall not commence
performance of any part of any services hereunder until such prices are
established in writing by the parties hereto.
(c) Such services shall be invoiced in Dollars (US) monthly by FARU.
Payment shall be due within thirty (30) days after FARU's receipt of each of
FARU's invoices therefor, and shall otherwise be paid in accordance with
Paragraph 4.5 hereof.
IV. COMPENSATION PAYABLE TO FARU
4.0 Minimum Technology Purchase -
QUANTUM agrees to purchase the Technology for utilization in plants, within
one year (1 year) of delivery by FARU to Quantum all Technology Transfer,
pricing of equipment, necessary documentation and technical specifications of
equipment, and payment by Quantum of the Licensing Feeas described in Exhibit
A.
4.1 Licensing Fee & Royalty
(a) QUANTUM agrees to pay FARU, for the rights granted to QUANTUM this
Agreement and for the services to be rendered by FARU under this Agreement;
and in addition, upon completion of each sub-licensing agreement secured and
negotiated by QUANTUM :
(i) A Fee equal to the total amount of licensed Technology for
utilization in plants ;
Exhibit A - Price List of all Fees, Disbursements and Miscellaneous
Costs;
The items supplied to be mutually agreed upon by FARU and the QUANTUM except
for those items in Exhibit A which are indicated as non-negotiable and which
must, in any case, be included. Payment in full of the Fee indicated in
Exhibit A as "Licensing Fee" shall, subject to the signing of this Agreement
by both parties, initiate this Agreement. Signed copies of Exhibit A shall
constitute part of this Agreement, however, the signing of this Exhibit may,
by mutual agreement, be made subsequent to the signing of this main part and
shall not delay the Effective date of this Agreement as per para. 1.5.<PAGE>
4.2 Contents of QUANTUM's Reports.
QUANTUM shall deliver to FARU within ninety (90) days after the end of each
Payment Period, starting on the Effective Date and every 90 days year
thereafter, a written report describing, for the applicable Payment Period;
(a) the number of Plants operated by QUANTUM and its sub licenseesdduring such
Payment Period;
4.3 Payments Accompany QUANTUM's Reports.
Each report for a payment Period required in Paragraph 4.2 hereof shall be
accompanied by a full payment to FARU of the amounts due according to this
agreement.
4.4 Royalty.
(a) QUANTUM shall not pay a continuing royalty to FARU over and above
the one time royalty specified in Attachment A pertaining to each plant
purchase.
(b) QUANTUM may, at its own discretion, charge a continuing per-pound
royalty to his sub-licensees. In order to keep the overall processing cost of
this technology within reasonable bounds and competitive, QUANTUM agrees to
limit such per-pound royalties to no more than five US cents per pound (US$
0.05/lb.). This Section 4.4(b) is subject to review and renegotiation on an
annual basis following one year from the date of this Agreement.
4.5 Payments of Royalties and Other Amounts.
(a) All payments under Paragraphs 3.2, 4.3 hereof shall be made in
Dollars (US) by wire transfer or other mutually agreed upon method, to such
bank or account as FARU may from time to time designate in writing.
(b) Whenever any payment hereunder shall be stated to be due on a day
which is not a Business Day, such payment shall be made on the immediately
succeeding Business day.
(c) Payments hereunder shall be considered to be made as of the day on
which they are received in FARU's designated bank or account.
(d) Quantum is required to make the initial licensed Technology purchase
according to the terms and conditions described in Exhibit "A" within one year
(1 year) of the signing of this agreement and the payment of the license fee
as described in Exhibit A.
4.6 QUANTUM's Books and Records.
Quantum agrees to make and keep full and accurate books and records in
sufficient detail to enable the licence fee payable hereunder to be
determined.<PAGE>
4.7 FARU Right to Audit.
On seven (7) day's prior written notice to Quantum, FARU and its certified
public accountants and other auditors shall have full access to the books and
records of QUANTUM and/or any or all of its sub licensees pertaining to
activities under this Agreement and shall have the right to make copies
therefrom at FARU's expense. FARU, its certified public accountants and other
auditors shall have such access at all reasonable times and from time to time
during normal business hours. Prompt adjustment shall be made by the proper
party to compensate for any errors or omissions disclosed by such audit.
4.8 Audit Information Confidential.
FARU agrees to hold confidential all information learned in the course of any
examination of books and records pursuant to Paragraph 4.8 above, except when
it is necessary for FARU to reveal such information in order to enforce its
rights under this Agreement in court, or similar dispute resolution or
enforcement proceeding or action, or except when compelled by law.
4.9 QUANTUM's Reports Conclusively Correct.
All quarterly reports and payments not disputed as to correctness by FARU
within one (1) year after receipt thereof shall thereafter conclusively be
deemed correct for all purposes.
V. INVENTIONS.
5.1 Registering Patents on Inventions.
If QUANTUM formulates, makes or conceives a patentable Invention, QUANTUM may
apply, at its own expense, for appropriate patent and other registrations of
such Invention in any and all jurisdictions in the Territory.
5.4 Registering Patents in the Territory.
QUANTUM may register any such patents for use in the Territory at his own
expense.
5.5 Quantum has the right to file for the existing patent within any country
not currently covered by the said patent.
VI. CONFIDENTIAL INFORMATION
6.1 Confidentiality Maintained.
Each party agrees that the other party hereto has a proprietary interest in
its Confidential Information. All disclosures to the receiving party, its
agency and employees shall be held in strict confidence by such receiving
party, its agents and employees, and such receiving party shall disclose the
Confidential information only to those of its agents and employees to whom it
is necessary in order to carry out their duties as limited by the terms and
conditions hereof. The receiving party shall not use the other party's
Confidential Information except for the purposes of exercising its rights and
carrying out its duties hereunder.
<PAGE>
The provisions of this paragraph 6.1 shall also apply to any consultants or
subcontractors that the receiving party may engage in connection with its
obligations under this Agreement.
6.2 Information in Connection with Sale.
FARU hereby grants QUANTUM the right during the term of this Agreement to
distribute to QUANTUM's sub licensees in connection with the operation of
Plants utilizing the licensed Technology, that part of the Technical
Information necessary for such sub licensee to use and operate such Plant,
even if such information includes some of FARU's Confidential Information, to
the extent that FARU and the QUANTUM agree that such technical Information is
helpful to such sub licensee in order to operate the Plant.
6.3 Liability for Disclosure.
Notwithstanding anything contained in this Agreement to the contrary, neither
party shall be liable for a disclosure of the other party's Confidential
Information if the information is so disclosed ;
(a) was in the public domain at the time it was disclosed by the
disclosing party to the receiving party; or
(b) was independently developed by the receiving party and is so
demonstrated promptly upon receipt of the documentation and technology by the
receiving party; or
(c) becomes known to receiving party from a source other than the
disclosing party without breach of this Agreement by the receiving party and
can be so demonstrated.
VII. TERMINATION.
Unless it is terminated earlier pursuant to the terms of this Article 8, this
Agreement shall continue in full force and effect in perpetuity.
7.1 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. Unless for reasons of force majeure,
outside the control of Faru, Quantum or sub-Licensee.
(a) the occurrence of a material breach or default as to any obligation
hereunder by either party and the failure of such breaching party to promptly
pursue (within thirty (30) days after receiving written notice thereof from
the non breaching party) a reasonable remedy designed to cure (in the
reasonable judgment of the non-breaching party) such material breach or
default ; or
<PAGE>
(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 law or agreement, or either party going into
receivership or otherwise becoming insolvent (for the purposes of this
Paragraph 7.1., such party shall be considered to be a breaching party).
7.2 After Termination.
If QUANTUM is the breaching party, all rights to the Territory provided in
the Agreement shall revert immediately to FARU. However, Quantum will retain
all rights with regard to any existing sub-license holder pursuant to the
terms of this Agreement.
7.3 Payment Obligations Continue.
Upon termination of this Agreement due to breach by Quantum, nothing shall be
construed to release QUANTUM from its obligations to pay FARU any and all
royalties or other amounts accrued but unpaid hereunder prior to the date of
such termination.
7.4 No Damages for Termination.
The parties hereto agree that if either party terminates the other party
pursuant to this Article 8, then the termination party shall not be liable
form damages or injuries suffered by the other party as a result of that
termination.
7.5 Sub-Licensees not to be Terminated.
Should this Agreement between QUANTUM and FARU be terminated for any reason,
the Agreements with sub-Licensees, which have been negotiated and completed by
QUANTUM, shall continue in effect as between Quantum and the sub-licensee and
without penalties or requirement of remedies unless such Agreements with
sub-Licensees are also in default, in which case each sub- Licensees agreement
shall be treated and considered separately and distinctly by FARU.
7.6 Sub- Licensees Rights of QUANTUM Terminated.
Provided the Sub- Licensees are not in breach of this Agreement, they shall
retain all rights to operate according to the provisions of this Agreement.
VIII. PRESENTATIONS. WARRANTIES AND COVENANTS OF FARU.
8.1 Ownership of Licensed Technology.
FARU hereby represents and warrants to QUANTUM that, to the best of its
information and belief, FARU is the lawful owner of the Licensed Technology,
free and clear of all security interests, encumbrances, liens, mortgages,
licenses or rights of third parties which would impair the licenses and rights
granted to QUANTUM hereunder.
<PAGE>
8.2 No Conflicting Agreements.
FARU 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.
IX MISCELLANEOUS
9.1 Assignments. Except as provided in Paragraph 2.6 hereof, 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 of law or otherwise, without the prior written consent of the other
party. This Agreement shall be binding upon, and inure to the benefit of, FARU
and QUANTUM and their respective successors and assigns, to the extent such
assignments are in accordance with this paragraph 9.1.
9.2 Governing Law.
This Agreement shall be governed, interpreted and construed in accordance with
the laws of the State of Nevada, United States of America, as such laws are
implied to agreements entered into and to be performed entirely within its
borders between its residents. In the unlikely event of either party bringing
a law suit against the other, each party has the right to litigate against the
other under the Laws of the United States .
9.3 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. The
arbitration shall be conducted in accordance with the commercial rules of the
United Nations Conference on International Trade Law ("UNCITRAL") which shall
be administered in London, England (including the rendering of the award) by
the London Court of International Arbitration. The arbitration, shall be the
exclusive forum for resolving such dispute, controversy or claim. 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 State of California, United States of America, as such laws
are applied to agreements entered into and to be performed entirely within its
borders between its residents. The decision of the arbitrators 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.
9.4 Waiver.
A waiver of any breach of any provision of this Agreement shall not be
construed as a continuing waiver of other breaches of the same or other
provisions of this Agreement.
<PAGE>
9.5 Non-Circumvention.
In the event that QUANTUM or any of its designated agents shall introduce any
other person or persons, company or corporation to the FARU Patents, systems
or plant, and should such introduction, discussion, negotiation, conversation
or written communication result in said person, persons, company or
corporation entering into an Agreement with FARU for the licensing of said
patents, processes or the construction of a plant, whether within or without
the Territory covered by this Agreement, said person, persons, company or
corporation shall be deemed to be a sub- Licensee of QUANTUM under this
Agreement and shall be governed by all the conditions contained in this
Agreement.
9.6 No Other Relationship.
Nothing herein contained shall be deemed to create a joint venture, agency or
partnership relationship between the parties hereto. Neither party shall have
any power to enter into any contracts or commitments in the name of, or on
behalf of, the other party, or bind the other party in any respect whatsoever.
9.7 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 FARU
and to QUANTUM at the addresses and FAX numbers supplied. Either party may
change 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 ten (10) Business Days after the same was posted (and in proving 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 despatch,
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.
9.8 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 contained in
this Agreement.
9.9 Invalidity.
If any provision of this Agreement is declared invalid or unenforceable by a
court having competent jurisdiction, it is mutually agreed that this Agreement
shall endure except for the part declared invalid or unenforceable by order of
such court. The parties shall consult and use their best efforts to agree upon
a valid and enforceable provision which shall be a reasonable substitute for
such invalid or unenforceable provision in light of the intent of this
Agreement.
<PAGE>
9.10 Amendments.
Any amendment or modification of any provision of this Agreement must be in
writing, dated and signed by both parties hereto.
9.11 Fees Payable.
"Licensing Fee" and other fees are payable as described in Exhibit A and in
para 4.3 of this Agreement subsequent to the signing of this Agreement by the
QUANTUM.
9.12 Responsibility for Taxes.
(a) Taxes in the territory now or hereafter imposed with respect to the
transactions contemplated hereunder (with the exception of income taxes or
other taxes imposed upon FARU and measured by the gross or net income of FARU)
shall be the responsibility of QUANTUM, and if paid or required to be paid by
FARU, the amount thereof shall be added to and become a part of the amounts
payable by QUANTUM hereunder.
(b) All taxes that become due and payable in the territory, from royalty
payments earned by FARU from Quantum and payable to FARU by the Quantum, under
the terms of this Agreement, shall be paid by Quantum on behalf of FARU and
the net proceeds will be passed to FARU under the terms of this Agreement
accordingly.
9.13 Survival of Contents.
Notwithstanding anything else in this Agreement to the contrary, the parties
agree that Paragraphs 2.7, 3.1(a), (b) and (c), 3.2 (a), (b) and (c), 5.2,
8.4, 8.5, 10.1, 10.2, 10.3, 10.5, 10.6, 10.7, 10.8, 10.9, 10.10, 10.12, and
10.13 and Articles IV, VI & VII shall survive the termination or expiration of
this Agreement, as the case may be, to the extent required thereby for the
full observation and performance by any or all the parties hereto.
9.14 Table of Contents and Headings.
Any table of contents accompanying this Agreement and any headings contained
herein are for directory purposes only, do not constitute a part of this
Agreement, and shall not be employed in interpreting this Agreement.
9.15 Counterparts.
This Agreement may be executed in any number of counterparts and each such
counterpart shall be deemed to be an original.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement.
Signed this date : February 19th, 1998
by
FARU GmbH. The Quantum Group, Inc.
Patent Holder. Eurectec, Inc.
Signed : ___________________ Signed : _____________________
Name : Dr. Armin Dittmar Name: Ehrenfried Liebich
Title : Geschaftsfuhrer Title : President & CEO
Witness :___________________ Witness :_____________________
Signed : ___________________ Signed : _____________________
EXHIBIT "A"
Appendix to the License Agreement between
FARU GmbH.
and
The Quantum Group, Inc.
for
<PAGE>
"REVULCON" Vulcanization Technology
Price List of Fees, Disbursements and Miscellaneous Costs
The following Costs and other considerations constitute part of the above
described License Agreement and shall be binding upon the parties to the
Agreement.
Item One: Licensing Fee: One hundred fifty thousand Dollars (US$150,000) ,
payable seventy thousand dollars, ($70,000) by wire transfer or certified
funds immediately subsequent to the signing of this agreement and receipt by
QUANTUM of the Technology Transfer package, and four monthly installments of
twenty thousand dollars ($20,000) commencing thirty days after the signing of
the agreement, in consideration of which, FARU grants the exclusive right to
build, construct, operate and/or sub-license the construction, building or
operation of such REVULCON Plants as are the subject of this Agreement, within
the boundaries of the Territory stated in the Agreement. The $150,000
Licensing Fee is to be applied to the Royalty payments listed below in
ItemTwo.
Item Two: Royalty: Ten thousand Dollars (US$10,000) for each and every
REVULCON Plant QUANTUM builds, constructs, operates and/or sub-licenses the
construction, building or operation of such REVULCON Plant and employs the
licensed Technology, as are the subject of this Agreement, up to a total of
fifteen, (15) such plants, with Royalty payment due in one lump sum upon
successful startup of each and every REVULCON Plant utilizing the licensed
Technology and;
Twenty thousand Dollars (US$20,000) for each and every
REVULCON Plant QUANTUM builds, constructs, operates and/or sub-licenses the
construction, building or operation of such REVULCON Plant and employs the
licensed Tehcnology, as are the subject of this Agreement, for all such
plants in excess of the initial fifteen, (15). The Royalty shall be due in
one lump sum upon successful startup of each and every REVULCON Plant
utilizing the licensed Technology.
Item Three: FARU agrees to limit the commission and other fees charged to
QUANTUM other than as mentioned in Item Two above, to a maximum of 5% of the
best negotiated price for the equipment as purchased from the manufacturer for
utilizaitno of the licensed Technology, except on the first plant where this
will be waived.
Item Four: Subsequent to the signing of this agreement and payment by
QUANTUM of the License fee as described in Item One, and upon receipt of the
Technology Transfer materials from FARU, including technical specifications,
price lists and other documentation required for the marketing and
distribution of the technology, QUANTUM agrees to purchase at least five
plants in the following twelve month period, provided equipment manufacturers
and other necessary suppliers are willing, ready and able to support Quantum
or its sub-licensees. Upon successful completion of this Item Four, the
agreement will be automatically extended for a period of five years during
which Quantum agrees to purchase the licensed Technology for an addiitional
twenty-five (25) plants.<PAGE>
Signed : _____________________________ (FARU GmbH.)
Signed : _____________________________ (Quantum).
Date of Agreement : ___________________________
<PAGE>
EXHIBIT "B"
Appendix to License Agreement between
FARU GmbH., and The Quantum Group, Inc.
Recommended Equipment Package as Outlined in the Technology Transfer Package
and Price List
Details of this to be supplied by FARU within 30 days of signing this
agreement as outlined in the FARU know-how package.
<PAGE>
EXHIBIT "C"
Appendix to the License Agreement between FARU GmbH.
and
The Quantum Group, Inc.
for
"REVULCON" Vulcanization Technology
LIST & SAMPLES OF TRADEMARKS & LOGOS
The following items constitute part of the above described License Agreement
and shall be binding upon the parties to the Agreement.
FARU agrees to have QUANTUM create a LOGO and register this within the
territory for the REVULCON trade name.
Further, QUANTUM has the right to register the patent in the territory where
the patent has not been previously registered.
SEE ATTACHED EXAMPLES
<PAGE>
Signed : ________________________ (FARU GmbH.)
Signed : ________________________ (Quantum)
Date of Agreement : _____________________
EXHIBIT "D"
Appendix to the License Agreement between FARU GmbH.
and
The Quantum Group, Inc.
for
"REVULCON" Vulcanization Technology
LIST OF WARRANTIES attached.
The following Warranties constitute part of the above described License
Agreement and shall be binding upon the parties to the Agreement.
Signed : _____________________________ (FARU GmbH.)
Signed : _____________________________ (Quantum)
Date of Agreement : _________________________
Exhibit 23.01
/Letterhead/ Schvaneveldt & Company
Certified Public Accountant
275 East South Temple, Suite 300
Salt Lake City, Utah 84111
801-521-2392
Darrell Schvaneveldt, CPA
Consent of Darrell T. Schvaneveldt
Independent Auditor
I consent to the use, of our report dated March 21, 1998, on the Financial
Statements of The Quantum Group, Inc., and Subsidiaries, dated December 31,
1997, included herein and to the reference made to me.
/S/ Darrell T. Schvaneveldt
Salt Lake City, Utah
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000921450
<NAME> THE QUANTUM GROUP, INC., AND SUBSIDIARIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 142,690
<SECURITIES> 0
<RECEIVABLES> 710,979
<ALLOWANCES> 0
<INVENTORY> 29,760
<CURRENT-ASSETS> 421,451
<PP&E> 254,048
<DEPRECIATION> 96,216
<TOTAL-ASSETS> 1,958,965
<CURRENT-LIABILITIES> 1,527,700
<BONDS> 0
0
0
<COMMON> 4,853
<OTHER-SE> 317,156
<TOTAL-LIABILITY-AND-EQUITY> 1,958,965
<SALES> 3,424,809
<TOTAL-REVENUES> 3,424,809
<CGS> 2,261,677
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 830,563
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,656
<INCOME-PRETAX> 230,038
<INCOME-TAX> 0
<INCOME-CONTINUING> 103,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 24,517
<NET-INCOME> 101,893
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
