United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
March 31, 1998 0-23812
THE QUANTUM GROUP, INC.
(Exact name of registrant as specified in its charter)
NEVADA
_______
(State or other jurisdiction of incorporation or organization
95-4255962
__________
(I.R.S. Employer Identification No.)
Park Irvine Center, 14771 Myford Road, Building B
_________________________________________________
Tustin, CA 92780
_________________
(Address of principal executive offices)
(714) 508-1470
______________
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
_____
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
____ ____
State the number of shares outstanding of each of the registrants classes of
common equity, as of the latest practicable date.
Common stock, par value $.001; 6,453,409 shares outstanding
as of May 6, 1998
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See pages F-1 to F-8 attached
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
This Form 10-QSB contains certain forward-looking statements. For this
purpose any statements contained in this Form 10-QSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, and actual results may differ materially
depending on a variety of factors.
GENERAL
_______
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.
The present outlook suggests that the Company anticipates reasonable growth
during 1998 of between 20% and 25%. However, 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 place on
PressMaster, SuperCollider and REVULCON equipment packages, where manufacturing
and installation times are much less than with full turn key tire recycling
plants including shredding and granulating equipment.
JOINT VENTURE PROJECTS
______________________
SteG 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 produce crumb rubber and to manufacture a wide range
of value added products. The Poseidon joint-venture funding is in the process
of being completed. Grant funding of 50% of the total project costs from the
German Government is anticipated to be complete by the end of the third quarter
1998 as well as 30% bank financing and 20% equity raised through a private
offering in Germany. The Company is currently negotiating a land purchase near
Berlin for the Poseidon project. Eurectec, Inc., is under contract to supply
the technology transfer and equipment package for the Poseidon project valued
between $5 million and $8 million, with anticipated equipment delivery during
the second quarter of 1999. Engineering for the project is being coordinated by
FDC Engineering of Switzerland, an independent contractor.
<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 now expected to be concluded during the third quarter
of 1998 following a series of meetings at a number of potential facilities.
CURRENT CONTRACTS
_________________
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 the second quarter 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 third quarter of 1998. Other contracts are being
negotiated for soaker hose and REVULCON projects.
The Company anticipates concluding phase one installation by the end of the
second quarter 1998. The Company concluded negotiations for a change order from
a C6000 to a C9000 system, however, the majority of the funds from the change
order were applied to upgrading and modifying the current equipment
configuration to resolve problems encountered because of altitude and the local
tire feedstock. The upgrade and modifications are expected to be concluded by
the end of second quarter 1998. Following successful operation of the C9000
machines, the Company will deliver additional equipment before the end of 1998.
Saudi Agreement. Phase one of this project have been delivered and
equipment installation is now planned for May 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.<PAGE>
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 exclusive Nevada state
license agreement expires on December 31, 1998.
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
third 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 half of
1998 with equipment delivery during the first quarter 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
half 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 half 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.
<PAGE>
CURRENT NEGOTIATIONS
____________________
The Company is proceeding with sales discussions and negotiations with
qualified international prospects in Germany, The United Kingdom, and the
Philippines and domestically with prospects in Michigan, New York and Kentucky.
As of March 31, 1998, agreements have not been finalized. The Company continues
pursuing discussions and anticipates one or more of these sales will be signed
and sales deposits received in the second half of 1998.
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. The Company has paid the first two installments
and has two installments remaining which will be concluded during the second
quarter of 1998. 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
reactivated rubber waste can be processed without further additives to rubber
products like mats, plates, solid rubber tires, components for fall protection,
elements for sound and vibration deadening, blocking and insulating layers
against heat and moisture, etc., in mixtures with fresh rubber or plastic,
profiles and other goods can be made by extrusion or injection molding.
ECO-ETCH AGREEMENT
__________________
The Company is engaged in negotiations with IN.TEC, GmbH, a German
environmental technology firm, for the exclusive North American distribution
rights to the marketing of the "ECO-ETCH system. Ownership of IN.TEC changed
during 1997 which resulted in delays in final negotiations. ECO-ETCH is the
brand name given to a new technology for the recycling and recovery of etching
solutions used in the printed circuit board manufacturing industry. The Company
is currently in the process of finalizing the technology distribution rights for
ECO-ETCH. The Company is now in the process of completing negotiations and
anticipates a firm agreement during the third quarter of 1998. ECO-ETCH systems
will be marketed through the Company's subsidiary, Quantum Environmental
Solutions and Technologies, ("QEST").
PUBLIC RELATIONS
________________
The Company is currently negotiating a contract with a public relations
firm, the Blaine Group, Inc., who will provide contract and product PR support
services. Currently, the Blaine Group is providing PR services for the Company
on a ninety day trial basis. Should the Company find the Blaine Group efforts
successful, a firm contract will be finalized within the second quarter of 1998.
<PAGE>
WEB SITE
________
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).
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
At March 31, 1998, the Company had cash of $76,776 on hand.
In January 1998, the Company concluded an offshore 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 share
which the Company anticipates may yield up to $3,300,0000 by the end of June,
1998 which will be used for working capital for the balance of the year.
The Company does not currently have any outstanding debt and Management
believes that proceeds from current equipment sales and license fees, pending
sales and the Regulation S offering proceeds will provide sufficient capital and
liquidity to meet the Company's need for the next twelve months.
The Company is currently working with ParaDynamiX, a financial consulting
firm, to prepare a detailed funding plan reflecting the expectations and
implementation of the Company's strategic plan. Upon completion of the funding
plan, the Company anticipates proceeding with a registered offering to provide
additional capital to the Company with the funds being used to purchase
equipment for the proposed joint venture with the California State Prison
Department of Corrections. Completion of the California joint venture project
will provide Eurectec with a full operating sales platform. The remainder of
the funds will be used for domestic and international marketing, exhibition
participation and working capital.
The Company does not have any material capital commitments for 1998.
Should the Company proceed with a registered offering, the Company may enter
into capital commitments for equipment required by the California prison
project.
<PAGE>
RESULTS OF OPERATIONS
_____________________
Comparison of the three months ended March 31, 1998 and the three months
_____________________________________________________________________________
ended March 31, 1997.
_____________________
During the first quarter of 1998, the Company's net cash used in operations
was $182,040, compared to cash provided from the operations of $2,712 during the
first quarter of 1997. The 1998 cash utilization is a result of an operating
loss of $135,681 due to abnormal costs associated with the C9000 retrofit in
Mexico and the payment of $167,738 of accrued expenses, primarily accrued
interest on the Company's debt of $721,318, which was also paid off during the
quarter. The Company realized net proceeds of $937,863, after commissions,
legal and accounting fees on its Regulation S offering, concluded during the
three months ended March 31, 1998. No such activity was conducted during the
comparable quarter in 1997.
The Company invested $70,000 in a license for additional technology and
$22,500 in German Joint venture during the quarter ended March 31, 1998. No
comparable activity occurred in 1997.
The Company generated $460,000 of revenue and $400,000 of costs as a result
of contract additions on the Mexico project during the quarter ended March 31,
1998. $40,000 of additional revenue was also generated by the sale of a small
parcel of land that the Company owned in conjunction with the previously owned
residential property in Florida. This parcel was excluded from the original
sale in order to eliminate the need to take a owner financing plan of
questionable collectability. Due to the uncertainty of revenue recognition the
parcel had been held without asset value, and as such the purchase price of
$40,000 is all a gain on sale.
Travel expense in the three months ended March 31, 1998 of $34,811 exceeded
the prior period expense of $14,069 by $20,742 because of the negotiation and
sales activities of a number of foreign transactions and a general increase in
the Company's marketing activities. Administrative expense increased from
$18,578 to $32,569 from the first quarter of 1997 to the first quarter of 1998.
This increase is due to the increases in marketing activities during the 1998
period.
Consultant fees increased by $36,111 to $94,027 in the three months ended
March 31, 1998 compared to the $57,916 incurred in the comparable three month
period in 1997. $30,093 of this increase is as a result of charging of $38,012
of expenditures incurred by or on behalf of the Company president to the due
officer account ($7,919) and recognizing the balance ($30,093) as a current
period expense. In prior periods, the payments to or on behalf of the Company
president had been accounted for as a reduction of the debt owed to the officer
by the Company. During the three months ended March 31, 1998, the value of the
Company's investment in Keystone Energy declined from 3 5/8 per share to 2 1/2
per share. The Company recognized the decline as a current quarter loss. No
comparable transaction was applicable to the same quarter of the prior year.
<PAGE>
Comparison of the three months ended March 31, 1997, and the three months
_________________________________________________________________________
ended March 31, 1996
____________________
During the first quarter of 1997, the Company's net cash generated by
operations was $2,712, compared to cash generated of $526,589 during the first
quarter of 1996. In the comparable 1996 quarter, the Company had an increase of
customer deposits of $404,446 and the utilization of deposits on inventory of
$424,820, partially off set by an increase in accounts receivable of $202,359,
and reductions in accrued expenses and accounts payable of $80,194, and $66,565
respectively. This activity resulted from the delivery of Phase one of the
Saudi project. During the first quarter of 1997, the Company received the first
revenues and cash flow from the Mexico contract, however, this was only 24% of
the prior year receipts. This large difference is solely the result of the
timing of the shipments on large projects and is not indicative of a declining
trend in revenue or in Company activity.
The Company generated a profit of $9,989 in the quarter ended March 31,
1997 compared to a profit of $84,976 in 1996. This is also because of the Saudi
project shipment last year.
Accounts receivable of $204,522 are the same as year end 1996. The Company
anticipates that the collection of the final payment of phase two of the Saudi
contract ($184,522) will be received during the second quarter of 1997.
Inventory increased during the first quarter of 1997 by $23,457. This
increase is in materials for the tile production machine. $12,000 of the
inventory increase was paid in cash, with the balance of $11,457 going to
accounts payable and accounting for almost all of the $11,639 increase in
current year accounts payable.
1996 Investing Activities consisted solely of the sale of the Company's
residential property in Miami, Florida, during the first quarter of 1996. No
comparable transaction occurred in the current year.
Financing activity in the three months ended March 31, 1997 consisted of a
decrease in advances from officers of $2,071 compared to an increase of $23,000
in 1996. In 1996 the Company paid off of the mortgage on the sale of the
residential property and paid off the vehicle note. There were no comparable
transactions in the three months ended March 31, 1997.
The Company generated revenue of $186,561 during the three months ended
March 31, 1997. Revenue of $781,549 was generated in the same period of the
prior year. As discussed earlier, the 1996 revenue reflects the shipment of
part one of the Saudi Project. The 1997 revenue is for management services on
the beginning of the Mexico contract. The differences in revenue for the two
period is the result of the timing of shipments of large contracts and is not
indicative of a downturn in revenue or Company activities.
Commission expense of $70,000 was recognized on a completed Saudi sale in
1996. Commissions of $37,000 were paid during the three months ended March 31,
1997, but treated as prepaid as they relate to the equipment portion of the
Mexico contract. These commissions will be expensed at the time the sale
revenue is recognized.
<PAGE>
Depreciation expense increased from $2,604 to $10,978 due to the purchase
in 1996 of the SMS press equipment.
Rental expense increased in the current quarter compared to the same
quarter in 1996 due to the Company's move during last year to larger quarters.
Office and Administrative expenses declined during the 1997 quarter. These
expenses had been higher in 1996 due to the Saudi project.
Interest expenses increases because of the financing of the SMS press
equipment.
Minority Interest expense of $2,423 for the three months ended March 31,
1997 is less than the $17,378 for the quarter ended March 31, 1996, because of
the lower profit.
PART II - OTHER INFORMATION
____________________________
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
(a) Securities sold.
<TABLE>
<CAPTION>
Date Title Price Per Share Amount
_______________ ______ _______________ _________
<C> <C> <C> <C>
January 5, 1998 Common $1.50 1,000,000
</TABLE>
The Company has also granted an offer to purchase the following securities
pursuant to Regulation S on or before April 30, 1998.
<TABLE>
<CAPTION>
Title Price Per Share Amount
_______ ________________ ___________
<C> <C> <C>
Common $1.50 300,000
Common $2.00 300,000
Common $2.25 1,000,000
</TABLE>
(b) Underwriters and other purchasers.
__________________________________
All securities were sold to non U.S. persons. The 1,000,000 shares of
common stock were sold in Germany to Beteiligungs Fonds, GBR.
<PAGE>
(C) Consideration.
______________
The aggregate offering price was $1,500,000 and the Company paid a 10%
commission in the amount of $150,000.
(d) Exemption from registration claimed.
____________________________________
The securities were sold pursuant to Regulation S as promulgated by the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
The Company did not offer the securities to any person in the United States, any
identifiable groups of U.S. citizens abroad, or to any U.S. Person as that term
is defined in Regulation S. At the time the buy order was originated, the
Company reasonably believed the Buyer was outside of the United States and was
not a U.S. Person. The Company reasonably believed that the transaction had not
been pre-arranged with a buyer in the United States. The Company has not nor
will engage in any "Directed Selling Efforts" and reasonably believes the Buyer
has not nor will engage in any "Directed Selling Efforts." The Company
reasonably believed the Buyer purchased the securities for its own account and
for investment purposes and not with the view towards distribution or for the
account of a U.S. Person.
(e) Terms of conversion or exercise.
________________________________
Not applicable.
(f) Use of Proceeds.
________________
The use of proceeds (other than commission paid) are estimated. No
proceeds resulted in payments either directly or indirectly to directors,
officers or persons owning 10% or more of any class of equity securities; or to
affiliates of the issuer.
<TABLE>
<S> <C>
Gross proceeds $1,500,000
Commission ( 150,000)
Net proceeds 1,350,000
Payoff existing debt $ 700,000
Pay Rothbury agreement 400,000
Working capital 250,000
___________
Total Proceeds 1,350,000
</TABLE>
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(A) Reports on Form 8-K
On February 23, 1998, the Company filed a Report on Form 8-K reporting
under Item 9. Sales of Equity Securities Pursuant to Regulation S. No other
reports on Form 8-K were filed or required to be filed during the quarter ended
March 31, 1998.
(B) Exhibits. The following exhibits are included as part of this report:
<TABLE>
<CAPTION>
Exhibit SEC Exhibit Title of Document Location
Number Ref. Number
________ ___________ _________________ ________
<C> <C> <C> <C>
10.1 10 Poseidon Agreement Attached
27 27 Financial Data Schedule Attached
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this to be signed on its behalf by the undersigned
thereunto duly authorized.
The Quantum Group, Inc.
May 15, 1998 _________________________
Ehrenfried Liebich
Chairman of the Board, President, and
Chief Executive Officer
May 15, 1998 _________________________
John F. Pope
Vice President, Finance
Chief Accounting Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this to be signed on its behalf by the undersigned
thereunto duly authorized.
The Quantum Group, Inc.
May 15, 1998 /s/ Ehrenfried Liebich
______________________
Ehrenfried Liebich
Chairman of the Board, President, and
Chief Executive Officer
May 15, 1998 /s/ John F. Pope
_________________
John F. Pope
Vice President, Finance
Chief Accounting Officer
<PAGE>
THE QUANTUM GROUP, INC.
&
Subsidiaries
FINANCIAL STATEMENTS
Three Months ended March 31, 1998
Three Months ended March 31, 1997
<PAGE>
(F-2)
The Quantum Group, Inc. and Subsidiaries
Balance Sheets
March 31, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
March 31, March 31, December 31,
1998 1997 1997
<S> <C> <C> <C>
Current Assets
- --------------
Cash $76,776 $7,243 $142,690
Accounts Receivable 710,979 204,522 710,979
Inventory 29,760 514,036 29,760
Deposit 421,451 0 421,451
----------- ----------- -----------
Total Current Assets 1,238,966 725,801 1,304,880
Property and Equipment
- ----------------------
Furniture and Fixtures 1,154 8,752 3,054
Equipment 144,425 160,346 154,778
----------- ----------- -----------
Total Property and Equipment 145,579 169,098 157,832
Other Assets
- ------------
Securities 50,000 0 73,125
Investment in Joint Venture 22,500 0 0
Cash Pledged 5,225 5,122 5,225
License Rights 472,184 451,939 414,622
Deposit 3,281 3,281 3,281
Tax Benefit Deferred 0 80 0
Prepaid Commissions 0 37,008 0
----------- ----------- -----------
Total Other Assets 553,190 497,430 496,253
----------- ----------- -----------
TOTAL ASSETS $1,937,735 $1,392,329 $1,958,965
=========== =========== ===========
</TABLE>
<PAGE>
(F-3)
The Quantum Group, Inc., and Subsidiaries
Balance Sheets -Continued-
March 31, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, March 31, December 31,
1998 1997 1997
<S> <C> <C> <C>
Current Liabilities
- -------------------
Accrued Expenses $384,661 $146,849 $552,399
Accounts Payable 213,579 216,971 140,016
Due Officers 0 149,081 7,919
Customer Deposits 2,500 23,860 2,500
Franchise Tax Payable 103,548 2,423 103,548
Current Maturities 0 785,197 721,318
----------- ----------- -----------
Total Current Liabilities 704,288 1,324,381 1,527,700
Long Term Liabilities
- ---------------------
Note Payable - Machinery 0 170,519 145,631
Note Payable - Technology 0 347,547 347,547
Note Payable 0 267,131 228,140
Less Current Maturities 0 (785,197) (721,318)
----------- ----------- -----------
Total Long Term Liabilities 0 0 0
Minority interest in Subsidiary 0 87,842 109,256
Stockholders' Equity
- --------------------
Common Stock, 50,000,000 Shares
Authorized; Par Value at $0.001
Per Share
6,403,409 & 3,153,409 & 4,853,409
Shares issued Retroactively
Restated Respectively 6,403 3,153 4,853
Paid In Capital 2,978,537 1,684,668 1,932,968
Accumulated Deficit (1,751,493) (1,707,715) (1,615,812)
----------- ----------- -----------
Total Stockholders' Equity 1,233,447 (19,894) 322,009
----------- ----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $1,937,735 $1,392,329 $1,958,965
=========== =========== ===========
</TABLE>
<PAGE>
(F-4)
The Quantum Group, Inc., and Subsidiaries
Statement of Operations
For the Three Months Ended march 31, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Twelve Months
Ended Ended Ended
March 31, March 31, December 31,
1998 1997 1997
<S> <C> <C> <C>
Revenues
- --------
Equipment Sales $460,000 $186,263 $2,923,816
License Sales 0 0 500,000
Other Income 40,008 298 993
----------- ----------- -----------
Total Revenues 500,008 186,561 3,424,809
Cost of Sales 400,000 0 2,261,677
----------- ----------- -----------
Gross Profit 100,008 186,561 1,163,132
Expenses
- --------
Commission 0 0 37,008
Depreciation 12,253 10,978 47,737
Amortization 12,439 12,439 49,756
Travel 34,811 14,069 56,056
Professional Fees 1,424 0 78,596
Office 10,924 14,179 36,708
Rent & Utilities 14,117 24,648 65,634
Administrative Expenses 32,569 18,578 95,377
Consultant Fees 94,027 57,916 232,571
Interest 0 18,239 95,656
Accounts Receivable Written Off 0 0 195,000
Foreign Currency Translation 0 0 (63,880)
----------- ----------- -----------
Total Expenses 212,564 171,046 926,219
Net Income (Loss) from
Operations (112,556) 15,515 236,913
</TABLE>
<PAGE>
(F-5)
The Quantum Group, Inc., and Subsidiaries
Statement of Operations -Continued-
For the Three Months Ended March 31, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Twelve Months
Ended Ended Ended
March 31, March 31, December 31,
1998 1997 1997
<S> <C> <C> <C>
Other Income (Expenses)
- -----------------------
Interest Income 0 0 0
Gain on Sale of Residence 0 0 0
Loss on Investment 0 0 0
Investment Valuation Loss (23,125) 0 (6,875)
----------- ----------- -----------
Total Other Income (Expenses) (23,125) 0 (6,875)
Taxes & Minority Interest
- -------------------------
Minority Interest 0 3,103 24,517
Provisions for Taxes - Current 0 2,423 103,628
----------- ----------- -----------
Total Taxes & Minority Interest 0 5,526 128,145
Net Income (Loss) (135,681) 9,989 101,893
Net Income (Loss) Per Share (0) 0 0
Weighted Average Shares
Outstanding 6,403,409 3,153,409 4,853,409
Diluted Net Profit Per Share N/A 0 0
</TABLE>
<PAGE>
(F-6)
The Quantum Group, Inc., and Subsidiaries
Statement of Shareholders' Equity
From January 1, 1995 to March 31, 1998
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Stock Amount Capital Deficit
-----------------------------------------------------
<S> <C> <C> <C> <C>
Balance,
January 1, 1995
Retroactively Restated 3,153,409 3,153 $1,683,068 ($864,190)
Loss for Year Ended
December 31, 1995 (624,695)
-----------------------------------------------------
Balance,
December 31, 1995 3,153,409 3,153 1,683,068 (1,488,885)
Contributed Capital 1,600
Loss for the Year Ended
December 31, 1996 (228,820)
-----------------------------------------------------
Balance,
December 31, 1996 3,153,409 3,153 1,684,668 (1,717,705)
Shares Issued for Cash 100,000 100 149,900
Shares Issued to Officers
For Debt 1,600,000 1,600 98,400
Profit for the Year Ended
December 31, 1997 101,893
-----------------------------------------------------
Balance,
December 31, 1997 4,853,409 4,853 1,932,968 (1,615,812)
Shares Issued for Cash 900,000 900 936,963
Shares Issued in Exchange
For Subsidiary Shares 650,000 650 108,606
Loss for the Year Ended
March 31, 1998 (135,681)
---------------------------------------------------
Balance, March 31, 1998 $6,403,409 $6,403 $2,978,537 ($1,751,493)
===================================================
</TABLE>
<PAGE>
(F-7)
The Quantum Group Inc., and Subsidiaries
Statement of Cash Flows
For the Years Ended March 31, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three Twelve
Months Months Months
Ended Ended Ended
March March December
31, 1998 31, 1997 31, 1997
<S> <C> <C> <C>
Cash Flows from Operations
- --------------------------
Net (Profit) of Loss ($135,681) $9,989 $101,892
Adjustments to Reconcile Net profit
or (Loss) to Net Cash
Write Off Accounts Receivable 0 0 195,000
Amortization and Depreciation 24,691 24,135 84,745
Non Cash Expense 23,125 0 0
Minority Interest 0 3,103 24,517
Change in Operating Assets & Liabilities
(Increase) Decrease in Account Receivable 0 0 (681,457)
(Increase) Decrease in Inventory 0 (23,457) 38,991
(Decrease) Increase in Prepaid Commissions 0 (37,008) 0
Increase (Decrease) in Accrued Expenses (167,738) (11,973) 393,577
Increase (Decrease) in Accounts Payable 73,563 11,639 (65,316)
(Decrease) Increase in Tax Payable - Current 0 2,423 103,548
(Decrease) Increase in Customer Deposits 0 23,860 2,500
Increase in Taxes Payable - Deferred 0 0 80
Increase in Cash Pledged 0 0 (103)
---------- ---------- ----------
Net Cash Provided (Used) by
Operating Activities (182,040) 2,712 197,974
</TABLE>
<PAGE>
(F-8)
The Quantum Group Inc. and Subsidiaries
Statement of Cash Flows -Continued-
For the Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Three Three Twelve
Months Months Months
Ended Ended Ended
March March December
31, 1998 31, 1997 31, 1997
<S> <C> <C> <C>
Cash Flows from Investing Activities
- ------------------------------------
Refund of Import Duty 0 0 718
Purchase of Equipment 0 0 (25,492)
Purchase (Sale) of Securities 0 0 (80,000)
Purchase of License Rights (70,000) 0 0
Investment in Joint Venture (22,500) 0 0
----------- ----------- -----------
Net Cash Provided (Used) by
Investing Activities (92,500) 0 (104,774)
Cash Flows from Financing Activities
- ------------------------------------
Sale of Common Stock 937,863 0 150,000
Payment of Long Term Debt (721,318) 0 (63,879)
Increase (Decrease) in Amounts
Due Officer (7,919) (2,071) (43,233)
----------- ----------- -----------
Net Cash Provided (Used) by
Financing Activities 208,626 (2,071) 42,888
----------- ----------- -----------
Increase (Decrease) in Cash (65,914) 641 136,088
Cash at Beginning of Period 142,690 6,602 6,602
----------- ----------- -----------
Cash at End of Period $76,776 $7,243 $142,690
=========== =========== ===========
Disclosures from Operating Activities
Interest 95,656
Taxes 103,628
Significant Non Cash Transactions:
1,600,000 Shares Common Stock Issued to
Officer in Debt Satisfaction 100,000
650,000 Shares Common Stock Issued to
Convert Minority Interest
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000921450
<NAME> THE QUANTUM GROUP INC. AND SUSBIDIARIES
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 76,776
<SECURITIES> 50,000
<RECEIVABLES> 710,979
<ALLOWANCES> 0
<INVENTORY> 29,760
<CURRENT-ASSETS> 1,238,966
<PP&E> 145,579
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,937,735
<CURRENT-LIABILITIES> 704,288
<BONDS> 0
0
0
<COMMON> 6,403
<OTHER-SE> 1,227,044
<TOTAL-LIABILITY-AND-EQUITY> 1,937,735
<SALES> 500,008
<TOTAL-REVENUES> 0
<CGS> 400,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 212,564
<LOSS-PROVISION> 23,125
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (135,681)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (135,681)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 10.1
POSEIDON AGREEMENT
<PAGE>
1st Copy
No. 2444 of the Roll of Public Memoranda for 1996
_________________________________________________
Incorporation
of the Company "Poseidon Products Granulatverarbeitungs GmbH"
(Poseidon Products Granulate Processing Company Inc.).
Executed at Ueckermuende, this 22nd November 1996.
The following persons appeared before me the undersigned Notarial Officer, Mr.
Juergen Hamacher, having his official domicile in Ueckermuende:
1. Ms. Doris Schmidt, born on 22nd December 1952, resident at 20b Uecker
Strasse, D-17373 Ueckermuende, who has identified herself by means of German
Federal Identity Card No. 0383076627;
2. Mr. Martin Kutz, born on 4th February 1947, business address 35 Dr.-S.-
Allende Strasse, D-17379 Ferdinandshof, who has identified himself by means of
German Federal Identity Card No. 0469008845;
these persons are not acting for themselves but as authorized managers of
the Strukturentwicklungsgesellschaft Ueckermuende mbH (Ueckermuende Structure
Development Corporation Inc.) of 35 Dr.-S.-Allende Strasse, D-17379
Ferdinandshof,
3. Mr. Ehrenfried Liebich, born 12th September, 1942, resident at 204 West
Yeal Loup, Irvine, California 92714, United States of America, who has
identified himself by means of Canadian passport No. BC 048114;
this person is not acting for himself but as President of Quantum Group,
Inc., having its registered office in Park Irvine Business Center, 14771 Myford
Road, Building "B", Tustin, California 92780, United States of America.
The persons appearing have both declared, together with their application for
the attestation of a public memorandum, that:
We are hereby incorporating a company with limited liability under the business
name of ______________________________
Poseidon Products Granulatverabeitungs GmbH
(Poseidon Products Granulate Processing Company Inc.),
having its registered office in Ferdinandshof,
We are attaching the Article of Association of the Company as an Appendix to
this present Public Memorandum of Association.
<PAGE>
We hereby appoint as Manager:
Ms. Doris Schmidt, born on 22nd December 1952 resident at 20b Uecker Strasse,
D-17373 Uekermuende, profession: engineer economist.
Ms. Schmidt is alone authorized to represent the Company as long as she is the
sole Manager.
Ms. Schmidt is hereby unencumbered by the limitations under Art 181 of the "BGB"
Bundesgesetzbuch (the German Federal Law Code).
We hereby donate power of attorney to the following Notarial Clerks, both being
hereby unencumbered by the limitations under Art. 181 of the "BGB"
Bundesgesetzbuch (the German Federal Law Code):
Ms. Angela Marczak and
Ms. Andrea Kitschke
both of the business office address:
29 Belliner Strasse in D-17373 Uekermuende
each for themselves independently of the other, in order to be able to provide
all the declarations to private persons and authorities, which may still be
requisite for the registration of the Company of business names.
This present power of attorney shall also include voting rights in any general
meetings of capital stock holders to be held, in which the alterations in the
Articles of Association may be necessary on the grounds of directives issued by
the local chamber of commerce and industry or of the district court competent
for the registry of business names. This present power of attorney also
authorizes the attorneys to apply to the registry of business names for the
registration of the Company but it is to terminate as soon as the Company has
been registered in such register of business names.
The Notarial Officer drew the attention of the persons appearing to the
following:
- - that the proprietary capital stock holders and those persons, who have
taken over proprietary capital stock holdings for the account of such
proprietors, are liable to the Company as debtors, should they have given false
information for the purpose of promoting the Company, or the Company shall have
suffered premeditated or grossly negligent detriment by reason of the capital
stock holding payments made or incorporation outlay expended;
- - that the capital holders, who have given false information for the purpose
of promoting the Company, can be sentenced to terms of imprisonment of up to
three years, or be subject to a pecuniary fine;
<PAGE>
- - that each capital holder in addition is liable to pay up the capital stock
holdings taken over by other capital stock holders, but which may still remain
not yet paid up;
- - that the acquisition of capital stock holdings in the Company is subject to
corporation tax.
An application has been made for copies of the execution of this present Public
Memorandum of Association to be issued to:
- - those persons presently appearing;
- - the Company;
- - the competent District Court (Registry of Business Names),
and a sole copy issued in addition for the Pasewalk Office of the Inland
Revenue, Pasewalk, (for the capital gains tax department).
This text was read by the Notarial Officer to the Parties appearing before him.
It was approved by them and signed by them together with the Notarial Officer in
their own hand as follows.
Signature: Mr. Liebich,
Signature: Ms. Schmidt,
Signature: Mr. Kutz,
Signature: Mr. Hamacher, Notarial Officer.
This present copy corresponds with the original public memorandum document of
association and is issued to the Struckturentwicklungsgesellschaft Ueckermuende
mbH (Ueckermuende Structure Development Corporation Inc.), Ferdinandshof.
Dated at Ueckermuende, this 28th November 1996.
Signature
Notarial Officer
<PAGE>
I, the undersigned, do hereby certify the above to be a true and correct
translation of the German original presented to me
Neubrandenburg, this 21st April 1998
Die Richtigkeit und Vollstandigkeit
der Ubensetzung wird Bestatigt.
Neubrandenburg, den 21 April 1998<PAGE>
1st Copy
Number 34 of the Roll of Public Memoranda for the Year 1998
___________________________________________________________
executed in Ueckermuende, on 9th April 1998
The following persons today appeared before me, the undersigned, Notarial
Officer, Mr. Bernhard Radomski, Ueckermuende, _________
_______________________________
the Notary Officer's Clerk, Ms. Andrea Kitschke, born 29th April 1973, whose
notarial business address is given as 29 Belliner Strasse in D-17373
Ueckermuende, personally known to this Notarial Officer-
not acting personally for herself, but on the basis of the present power of
attorney deriving form the Memorandum of Association dated 22nd November 1996,
Public Memorandum No. 2444/1996 of the Notarial Officer, Mr. Juergen Hamacher,
which was today filed without any revocation whatsoever, on behalf of the
Promoters of the Company known as Poseidon Products Granulatverarbeitungs GmbH
(Poseidon Products Granulate Processing Company Inc.), having its registered
office in Ferdinandshof, the Promoters being
1. the Strukturentwicklungsgesellschaft Ueckermuende mbH (The Ueckermuende
Structures Development Corporation Inc.), having its registered office in
Ferdinandshof, and
2. The Quantum Group Inc., having its registered office in the United States
of America
and they declared that:
the Company, Poseidon Products Granulatverarbeitungs GmbH, Ferdinandshof, cannot
yet be registered in the register of business names as Art. 6 of the Articles of
Association contradicts Art. 264 of the "HGB" Handelsgesetzbuch ( the Federal
German Commercial Law Code). In the name of the donor of the present power of
attorney to myself, I thereby resolve- in waiver of all legal forms and time
period requirements under statute and corporate law- that Art. 6 Para. 1 of the
Articles of Association of the Company be and is altered to read as follows
(1) The final annual accounts are to be prepared and signed by the management
within three months, when such corresponds with regular business activity, but
within six months at the latest after the end of the financial year. The final
accounts are then to be immediately laid before the capital stock holders
together with a proposal for the distribution of profits-for the purpose of
ascertaining the annual results.
The provisions of Art 264 of the "HBG" Handelsgesetzbuch (the Federal
German Commercial Law Code) are not thereby infringed.
The general meeting of the capital stock holders is thereby closed.
This text was read by the Notarial Officer to the Party appearing before him.
It was approved by them and signed by them together with the Notarial Officer in
their own hand as follows.<PAGE>
Signature: Ms. Kitschke
Signature: Mr. Radomski, Notarial Officer
This present copy corresponds with the original document of the public
memorandum and is issued to Poseidon Products Granulatverarbeitungs GmbH
(Poseidon Products Granulate Processing Company Inc.), Ferdinandshof.
Dated at: Ueckermuende, this 9th April 1998.
Signature
Notarial Officer
I, the undersigned, do hereby certify the above and foregoing to be a true and
correct translation of the German original presented to me
Neubrandenburg, this 21st April 1998
Die Richtigkeit und Vollstandigkeit
der Ubersetzund wird bestatigt.
Neubrandenburg, den 21 April 1998<PAGE>
Appendix to the Public Memorandum of Association No. 2444 of the Notarial
Officer, Mr. Juergen Hamacher dated this 22nd November 1996.
Articles of Association
_______________________
Art. 1 Corporate name and registered office
___________________________________________
(1) The Company is a corporation with limited liability with the corporate
business name of Poseidon Products Granulatverarbeitungs GmbH (Poseidon Products
Granulate Processing Company Inc.).
(2) The Company has its registered office at 35 Dr.-S.-Allende-Str. D-17379
Ferdinandshof.
Art. 2 Objects
______________
(1) The objects of the Company are
1 the granulation and manufacture of products from rubber and other
recyclable materials as well as their sale and market introduction;
2 the research and development of new techniques;
3 the carrying on of market research and studies concerning currently
recyclable materials, as well as
4 all other business necessary for such purposes.
(2) The Company shall also be entitled, to promote, acquire or participate
financially in or in the management of other enterprises of the same or similar
nature, in so far as such shall correspond with the interests of the Company.
(3) The Company shall be entitled to manage all other enterprises, which are
suitable for furthering the objects of the Company indirectly or directly.
Art. 3 Organizational bodies
____________________________
The organizational bodies of the Company are to be:
1 the general meeting of the capital stock holders,
2 the management of the Company
3 as well as the board of directors, if such is elected.
<PAGE>
Art. 4 Authorized capital and authorized capital stock holdings
_______________________________________________________________
(1) The authorized capital of the Company is to be DEM 50,000.00
(2) of such the following capital stock holdings are to be taken over by
a) The Quantum Group, Inc., as to DEM 40,000.00
b) The Struckturentwicklungsgesellschaft Ueckermuende mbH as to DEM
10,000.00 (Ueckermuende Structure Development Corporation Inc.)
(3) The stock holdings in the authorized capital are to be paid in cash,
immediately after application and otherwise immediately upon the first demand of
the management.
Art. 5 Expenditure on promotion and incorporation
_________________________________________________
The Company is to bear the costs of promotion and incorporation together with
the associated cost of registration and of the issuing the public memorandum of
association up to an amount of DEM 10,000.00.
Art. 6 Final annual accounts
____________________________
(1) The final annual accounts are to be prepared and signed by the management
within three months, when such corresponds with regular business activity, but
within six months at the latest, after the end of the financial year. The final
annual accounts are then to be immediately laid before the capital stock holders
together with a proposal for the distribution of profits for the purpose of
ascertaining the annual result.
The provisions of Art 264 of the "HGB" Handelsgesetzbuch (the Federal
German Commercial Law Code) are not infringed thereby.
(2) Provided that an audit of the final annual accounts by an auditor, as
provided under Arts. 316 et seq. of the "HGB" Handelsgesetzbuch (the Federal
German Commercial Law Code) is not bindingly stipulated, the general meeting of
the capital stock holders of the Company may pass a resolution by a simple
majority of votes to have the final annual accounts audited by an auditor for
the account of the Company and appointed by a majority of votes cast by the
capital stock holders in a general meeting.
(3) Each of the proprietary capital stock holders is to participate in the
profits of the Company in accordance with the relationship, which various
capital stock holdings bear to one another.
(4) The general meeting of the Company is to approve the final annual accounts
within eight months of the end of the previous financial year and to pass a
resolution on the application of the annual net profits, in particular on an
appropriation of amounts to reserves, or on a carrying-forward of profits to the
next annual accounts, or an a distribution of profits to the capital stock
holders. Should no majority resolution concerning the application of the
profits be obtained, the net profits are to be distributed to the capital stock
holders.
<PAGE>
(5) Should, from whatever reason so ever, concealed distributions of profits be
discovered by the fiscal authorities, the capital stock holders thus benefited
shall be under a duty hereunder to render the corporation tax due on the
concealed distribution of profits to the Company. The proportional corporation
tax is calculated from the difference between the agreed and an appropriate
remuneration by the virtue of the amount excessively granted tax arising
therefrom. The tax claim against the capital stock holder thus benefited will
obtain legal effect upon the issuing of relative corporation tax assessment and
interest will be charged after the expiry of one month from the date of such
assessment at a rate of two percent above the bank rate of the German Bundesbank
prevailing for the time being, on all amounts in arrears.
(6) Otherwise Art. 29 of the "GmbHG" Gesellschaft mit beschrankter Haftung-
Gesetz (the German Federal Statute Law governing private limited liability
companies whose capital is either undivided or divided up into capital stock
holdings), shall be valid hereunder.
Art. 7 The commencement of the incorporation of the Company and the annual
__________________________________________________________________________
financial year
______________
(1) The incorporation of the Company is to commence with its registration in
the register of corporate business names.
(2) The annual financial year is to be the calender year and the year of
incorporation will be a shortened financial year.
(3) The duration of the Company is to be unlimited.
Art. 8 The general meeting of capital stock holders
___________________________________________________
(1) The capital stock holders are to exercise their rights initially in the
general meeting of the capital stock holders.
(2) Notice to call a general meeting of the stock holders is to be given to the
stock holders by the management by recorded delivery mail at least one month
before the holding of such general meeting. The regular annual meeting of the
capital stock holders is to be called on every occasion within the first half
year of the end of the previous financial year. A resolution is to be passed to
approve the final annual accounts of the previous financial year and to
distribute the net profits.
(3) Otherwise, a general meeting of the capital stock holders is to be called,
should the situation of the Company so require such action.
(4) A general meeting of the capital stock holders is to be called by the
management when the capital stock holders of 10% of the authorized capital of
the Company so require.
<PAGE>
(5) Should the management fail to comply with such requirement within four
weeks, then the capital stock holders concerned shall be entitled to give notice
to call a general meeting of the capital stock holders themselves in accordance
with all the foregoing regulations.
(6) All notices to call general meetings of the capital stock holders are to
include the venue, time and agenda of business to be transacted. The
documentation is also to be sent to the capital stock holders in this respect,
which shall be necessary for purposes of deliberation and the passing of
resolutions. Before the preparation of the notice to call a general meeting of
the capital stock holders, or immediately after its receipt, but at the latest
within three days, each of the capital stock holders shall be entitled to
require, that (additional) items of business be placed upon the agenda of the
meeting. Any proposals, which, after receipt of the notice for the meeting, are
received by the management within the foregoing period of time, are immediately
to be made known to the other capital stock holders.
(7) The capital stock holders are to be entitled to have themselves represented
by a proxy in the general meeting of the capital stock holders, who may be a
fellow capital stock holder or a third party.
(8) The proxy-in so far as he, she, it is not a fellow capital stock holder of
the Company-will only be admitted to the general meeting of the capital stock
holders by rendering a notarially attested power of attorney to the Company for
the files. In the case of a fellow capital stock holder, a notice of proxy
shall be required in order that the proxy may participate in the passing of
resolutions to the extent of the capital stock represented.
(9) The chairmanship of the general meeting of the capital stock holders shall
be adopted by the eldest natural person present. Such person is to be under a
duty to have minutes kept of the resolutions passed and the basic contents of
the deliberations carried on. The minutes recorded in writing are to be signed
by the chairman and another capital stock holder together. Such recorded
minutes are to be kept at the domicile (registered office) of the Company
together with the approved final annual accounts.
Art. 9 The duties of the general meeting of the stock holders
_____________________________________________________________
Apart from the duties laid down in Art. 46 of the "GmbHG" Gesellschaft mit
beschrankter Haftung-Gesetz (the German Federal Statute Law governing private
limited liability companies whose capital is either undivided or divided up into
capital stock holdings), the general meeting of the stock holders is to pass
upon the following businesses:
1. The establishment of branches.
2. The incorporation of other enterprises.
3. The entertaining of holdings in other enterprises.
<PAGE>
4. The appointment and dismissal of leading employees and other
responsible officials, who shall at least be members of the lower level of
management.
5. The entertaining of liabilities exceeding DEM 25,000.00 in connection
with bills of exchange and the provision of sureties.
6. The raising of loans exceeding DEM 50,000.00.
7. The granting of loans exceeding DEM 50,000.00.
8. The donation of legal powers of legal powers of attorneys for
disputes, whose value shall exceed DEM 50,000.00, and
9. the making of alterations in the articles of association.
Art. 10 The passing of resolutions
__________________________________
(1) The passing of resolutions within the Company is to require a simple
majority for its validity, provided that a larger majority shall not be required
under legislation or the stipulations of these present articles of association.
(2) A holding of DEM 500.00 in the capital stock of the Company shall grant
entitlement to one voting right. An equality of the votes cast in respect of
any resolution shall be deemed a rejection of the relative motion.
(3) Resolutions taken by the circular method (by word of mouth via
telecommunications or in writing via the mail), shall only be permissible on the
occasion of important or urgent grounds and only on the approval of all the
capital stock holders. Minutes of any resolution adopted by means of such a
process are to be recorded and immediately signed by the capital stock holders.
(4) Should any encroachment occur to threaten the existential interests of the
Company or of any single capital stock holder thereof, the passing of a
resolution by the circular method shall be permissible as an exception by a
majority of the stock holders controlling sixty percent of the subscribed
authorized capital of the Company.
(5) Alterations in the article of association shall require a majority of
capital stock holders controlling eighty one percent of the capital stock in the
authorized capital represented by the capital stock holders in the general
meeting.
(6) The raising of a challenge petition against resolutions shall only be
possible for a capital stock holder within two months after reception of the
resolution adopted.
(7) The general meeting of the capital stock holders shall form a quorum, when
a majority of the capital stock holders of the authorized capital with the
voting rights shall be present. Should the capital stock holders fail to from a
quorum, then a general meeting of the capital stock holders is again called
within the time period required therefor. The second meeting called shall then
form a quorum independent of the percentage of the authorized capital
represented.
<PAGE>
Art. 11 Disposition over capital stock holdings
_______________________________________________
(1) The disposition over capital stock holdings--even if only partial--and in
particular the assignment or mortgaging thereof-- shall only be permissible with
the approval of the general meeting of the capital stock holders. The capital
stock holder involved shall have no voting right upon the taking of a resolution
on such business. Approval therefor is to be given in writing.
(2) Approval shall be indispensable in the cases of disposition of the benefit
of the spouse or a relative in direct line of a capital stock or a co-capital
stock holder.
Art. 12 Pre-emptive rights
__________________________
(1) In the case of a realization or capital stock holding--even if only
partially-- by a capital stock holder, the remaining stock holders shall become
entitled to exercise pre-emptive rights to purchase such.
(2) The pre-emptive rights shall be calculated in the proportion to which the
nominal value of the capital stock holdings of the capital stock holders shall
bear to each other. Should an entitled capital stock holder not effectively
exercise such pre-emptive right, then the entitlement shall devolve upon the
others entitled to pre-emptive right in the aforementioned proportions.
(3) The capital stock holder is to inform all the other capital stock holders
in writing of the terms of any contract for the realization of capital stock
holdings in its entirety and with immediate effect. The pre-emptive rights are
only exercisable within one month after reception of such information by advice
to seller in writing.
(4) Each capital stock holder entitled to pre-emptive rights can exercise and
assert such alone. Should any indivisible excess amount of any capital stock
holding remain after the exercise of pre-emptive rights, then such are to be
made available to the entitled capital stock holders in the chronological order
of the exercise of their pre-emptive rights.
(5) In cases of an effective exercise of pre-emptive rights, the remaining
capital stock holders shall be bound to give the requisite approval therefor.
Art. 13 The withdrawal of capital stock holdings
________________________________________________
(1) Should bankruptcy proceedings be opened on the assets of a capital stock
holder or judicial or non judicial composition proceedings be opened or
execution or distraint prosecuted against the capital stock holder, then the
Company shall be entitled to withdraw such capital stock holding.
<PAGE>
(2) The withdraw of capital stock holding is only to be permissible, when
important grounds exist to provide an occasion for the exclusion of an affected
capital stock holder or when other grounds may exist on the basis of these
present articles of association. Important grounds would in particular obtain
when the capital stock holder involved might grossly infringe duties bound or
fail to comply with such four weeks after having been twice reminded thereof.
(3) In lieu of withdrawal, the Company shall be able to require that the
capital stock holding be assigned to the Company or to a person nominated by the
Company.
(4) Any withdrawal is to be made know by the management. Such shall require a
resolution passed by the general meeting of the capital stock holders for
validity without the participation of the capital stock holder involved, whereby
such a resolution may be passed by a simple majority of the votes cast.
Art. 14 Withdrawal from the Company
___________________________________
(1) Any capital stock holder can declare his withdrawal from the Company.
Notice of an intention to withdraw is to be given for the end of the financial
year within six months of the end of any one financial year by means of recorded
delivery mail. The date of the postmark is to be decisive for the validity of
conforming with the time period for giving such notice. The intention to
withdraw is to be given to the Company also to the capital stock holders.
(2) Should a capital stock holder withdraw from the Company, then such shall
not be grounds for winding up and liquidating the Company.
(3) The Company shall be entitled in this respect, to withdraw the capital
stock holding of the capital stock holder withdrawing from the Company or to
demand assignment thereof to a legal or natural third party person nominated by
the Company Art. 13 hereof shall correspondingly apply in this respect.
Art. 15 Apportionment--paying off
_________________________________
(1) In case of the withdrawal of a capital stock holder, no matter for what
reason so ever, the value of the proprietary capital stock holding is to be
ascertained according to the fortune tax legislation guidelines prevailing for
the time being (the so called Stuttgart Procedure).
(2) No compensation is to be made at the point in time of withdrawal from the
Company with regard to any hidden reserves or to any other intangible assets
going beyond the valuation of the Company. Any items of business uncompleted at
the time of the valuation of the apportionment of the assets are not to be taken
into consideration.
<PAGE>
(3) During the first five years after registration in the register of corporate
business names, the value of the Company is to be at the nominal balance sheet
value at the most, whereby the proportion of profits and losses shown in the
final annual accounts of the previous financial year are to be added to or
subtracted therefrom. The last valuation for fiscal purposes ascertained by the
Inland Revenue is to be definitive in this respect. Should such fiscal
assessment not have been ascertained, then such is to be calculated on the basis
of the previous final annual accounts approved by the general meeting of the
capital stock holders.
(4) The balance sheet at the point in time of withdrawal from the Company is to
be definitive for the valuation, when the withdrawal is to occur at the end of
the financial year. Should the capital stock holder, however not withdraw from
the Company at the end of the financial year, then the balance sheet at the end
of the previous financial year is to be taken as a basis for valuation. Any
alterations in the balance sheet, which might be made as the result of a fiscal
audit of the Company after the withdrawal of the capital stock holder concerned,
shall have no influence on the amount of the balance due to the withdrawing
capital stock holder in settlement of claims.
(5) The withdrawing capital stock holder shall only participate in profits and
losses up to the point in time of his withdrawal from the Company. Should the
capital stock holder not withdraw as of the end of a financial year, then the
final annual results are to be apportioned in relationship to the relative time
period before his withdrawal from the Company.
(6) The balance due to the withdrawing stock holder in settlement of claims is
to be paid out in three equal annual instalments, commencing six months after
the establishment of the balance sheet for the financial year in which the
withdrawal occurs. Any balance remaining in each case is to attract interest as
a loan at the annual rate of two percent above the bank rate of the German
Bundesbank. Interest is to be paid out together with the various annual
instalments.
Art. 16 Release form the prohibition of competition
___________________________________________________
(1) A resolution of the capital stock holders in general meeting can release
various or all of the capital stock holders, employed managers or managing
capital stock holders from a prohibition of competition, either in whole or to a
limited extent in respect of certain cases or activities.
(2) In such a case, the foregoing persons are then entitled to compete with the
Company, indirectly or directly, in their own name or for the name of third
parties, for their own account or for the account of third parties and they may
be active for competitor enterprises or participate in such whether direct or
through a third party.
(3) The resolution of Points (2) and (3) of this present article shall not
automatically be valid for future capital stock holders of managing capital
stock holders, but is to be regulated in each case by a resolution of the
capital stock holders in general meeting.
<PAGE>
Art. 17 The management of the Company
_____________________________________
(1) The Company is to have one or more managers. The appointment of managers
is to be made by the general meeting of the stock holders.
(2) Should only one manager be appointed, the such shall represent the Company
towards third parties and bind the Company alone. In the case of several
appointed managers, the Company is to be represented towards third parties and
bound by a manager jointly with a proxy empowerment with "per pro" (per
procurationem) authorized signatory rights. The capital stock holders in
general meeting can grant all, several or one manager single representative
authority (sole representative authority).
(3) The capital stock holders in a general meeting can keep all, several or one
manager alone unencumbered from the limitations under Art. 181 of the "BGB"
Bundesgesetzbuch (the German Federal Law Code).
(4) Management activities are to extend to include all activities and legal
business, which may arise under usual business conditions and which shall be
deemed requisite for fulfilling the objects of the Company. The approval of the
capital stock holders in general meeting is however to be necessary for the
carrying on of activities and legal business, which, as to significance or
extent, are of particular importance, or which go beyond the usual business
activity of the Company. The capital stock holders in general meeting can issue
business regulations, which are to regulate the type and extent of approval
requirements.
(5) The sole manager or the managers can be dismissed at any time. The capital
stock holders in general meeting shall have the exclusive competence for the
dismissal of a manager. In the case of a managing capital stock holder, the
capital stock holders in general meeting shall pass a resolution to dismiss such
with a majority of eighty one percent of the capital voting rights. A managing
capital stock holder is only to be dismissed on important grounds. In the cases
of other persons, the requirement and sufficiency for the passing of a
resolution of the capital stock holders in a general meeting shall be a simple
majority. A managing capital stock holder is only to be authorized to conduct
overall managing activities after having been informed of a resolution passed
for his dismissal.
(6) Should a capital stock holder withdraw from the Company, then his position
as manager of the Company is to terminate on the date of the effectiveness of
his withdrawal from the Company, without any especial revocation of the position
becoming necessary, in so far as the capital stock holders in general meeting
have not otherwise resolved.
(7) The sole manager or the managers are to be appointed under a contract of
service. When a capital stock holder is to be appointed as manager under a
contract of employment, then it should be ensured, that such a contract is drawn
up in all its terms and conditions, as if the relationship were to exist between
the Company and an outside, non participating third party.
<PAGE>
Art. 18 Board of directors
__________________________
(1) The general meeting of the capital stock holders shall be able to elect a
board of directors to deliberate the activities of the management of the
Company, which should comprise at least three and at the most six board members.
(2) The management shall be under a duty hereby to introduce the directives of
the board of directors concerning its activities or procedures or those
initiated by third parties (e.g. the Inland Revenue), under which fundamental
interests of the Company are affected. Apart from such business, the management
is to inform the board of directors once in each quarter year of all important
activities of the Company.
(3) The board of directors is to elect a chairman from among its members, who
is to call meetings and preside over such.
(4) The board of directors is to pass its resolutions by a simple majority of
the votes cast.
(5) The board of directors is subject to rules of procedure, under which the
activities assigned and their exclusion are to be regulated. Such rules are to
be set up by the general meeting of the stock holders.
(6) The board of directors is elected to serve for the duration of three years.
A re-election of its members shall be permissible.
(7) Directors' fees for the services of the members of the board of directors
are to be determined by the capital stock holders in a general meeting upon the
election of the members. During the course of the time period of election, the
board of directors shall be able to make a recommendation to the general meeting
of the stock holders for an adjustment in directors' fees.
Art. 19 The requirement for employing the written form
______________________________________________________
(1) All agreements relating to Company relationships between the capital stock
holders among themselves or between them and the Company shall be required in
writing for their validity, in so far as additional requirements shall not
already exist.
(2) The foregoing regulations shall also apply to waivers of the requirement to
employ the written form.
Art. 20 Publications
____________________
The publications for the Company are to appear in the "Bundesanzeiger" (the
German Federal Gazette) for the Federal Republic of Germany.
<PAGE>
Art. 21 The winding-up and liquidation of the Company
_____________________________________________________
(1) A resolution of the capital stock holders in general meeting shall be
required to wind-up and liquidate the Company.
(2) One hundred percent of the holders of the authorized capital stock shall be
required to approve the winding-up and liquidation of the Company.
(3) Winding-up and liquidation is to be conducted by the management, in so far
as the general meeting of the capital stock holders shall not have otherwise
determined.
Art. 22 Safeguarding clause
___________________________
(1) Should one or more of the stipulations of these present articles of
association become ineffective or void, the validity of the remaining terms and
conditions shall not thereby be affected.
(2) Another effective regulation appropriate to the sense and purpose shall
then replace such void or ineffective stipulation of these present articles of
association.
Art. 23 Concluding stipulations
_______________________________
(1) The court of law, within whose jurisdiction the domicile (registered
office) of the Company is situated, shall be competent for the litigation of
disputes.
(2) Otherwise, the requirements of the "GmbHG" Gesellschaft mit beschrankter
Haftung-Gesetz (the German Federal Statute Law governing private limited
liability companies whose capital is either undivided or divided up into capital
stock holdings) shall be valid hereunder.
Ueckermuende, Germany this 22nd November 1996
(Signature) (Signature)
I hereby attest, that the altered stipulations of these present article of
association conform with the resolution passed concerning the alteration in the
articles of association dated 9th April 1998 and, that the unaltered
stipulations conform with the complete wording of the previous version of the
articles of association of the Company deposited with the registry of corporate
business names.
Ueckermuende, this 9th April 1998
Signature
The Notarial Officer.
<PAGE>
I, the undersigned, do hereby certify the above and foregoing to be a true and
correct translation of the German original presented to me.
Neubrandenburg, this 21st April 1998
Die Richtikeit und Vollstandigkeit
der Ubersetzung wird bestatigt.
Neubrandenburg, den 21 April 1998
<PAGE>
Circulation resolution of the partners of POSEIDON Products
___________________________________________________________
Granulatverarbeitungs GmbH
___________________________
We, the undersigned partners
1. Quantum, The Quantum Group, Inc., represented by the president, Mr.
Ehrenfried Liebich
2. Strukturentwicklungsgesellschaft Ueckermunde mbH, represented by the
manageress Ms. Doris Schmidt
of POSEIDON Products Granulatverarbeitungs GmbH, situated in Ferdinandschof,
herewith hold under waiver of all legal and corporation contracting forms and
time limits the calling and announcement an extraordinary board of directors
meeting of the POSEIDON Products Granulatverarbeitungs GmbH and decide in
respect to the basis of 10 of the companionship contract unanimous:
The Quantum Group, Inc. as shareholder of POSEIDON Products
Granulatverarbeitungs GmbH with a share of DM 40.000 is at any time entitled to
buy the shares form the Strukturentwicklungsgesellschaft Ueckermunde mbH once
the production has started for the following amounts :
1st year DM 100.000
2nd year DM 200.000
3rd year DM 250.000
The supplementation to the company contract will occur at the earliest
convenience.
Ferdinandshof, 29 April 1998
<PAGE>
