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, 1998
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[ ] 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
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THE QUANTUM GROUP, INC.
(Name of small business issuer in its chapter)
Nevada 95-4255962
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(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
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (714) 508-1470
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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
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(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: $ 2,952,900.
The aggregate market value of the issuer's voting stock held as of March
26, 1999, by non-affiliates of the issuer was $17,851,652.
As of December 31, 1998, issuer had 8,400,075 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 33 consecutively numbered pages<PAGE>
The Quantum Group, Inc.
Annual Report on Form 10-KSB for the Year ended December 31, 1998
_________________________________________________________________________
TABLE OF CONTENTS
_________________________________________________________________________
PART I
ITEM 1 DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . .3
ITEM 2 DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . 16
ITEM 3 LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. . . . . 16
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . 17
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. . . 18
ITEM 7 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 24
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . 24
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ITEM 10 EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 27
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT. . . . . . . . . . . . . . . . . . . . . 29
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . 30
PART IV
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 31
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2<PAGE>
_________________________________________________________________________
PART I
_________________________________________________________________________
FORWARD LOOKING INFORMATION
_________________________________________________________________________
This Form 10-KSB contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. For
this purpose any statements contained in this Form 10-KSB that are not
statements of historical fact may be deemed to be forward-looking
statements. Without limited 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,
many of which are not within the Company's control. These factors include
but are not limited to economic conditions generally and in the industries
in which the Company and its customers participate; competition within the
Company's industry, including competition from much larger competitors;
technological advances which could render the Company's products less
competitive or obsolete; failure by the Company successfully to develop new
products or to anticipate current or prospective customers' product needs;
price increase or supply limitations for components purchased by the
Company for use in its products; and delays, reductions, or cancellations
of orders previously placed with the Company.
_________________________________________________________________________
ITEM 1. DESCRIPTION OF BUSINESS
_________________________________________________________________________
The Quantum Group, Inc., (the "Company"), is in the business of
investigating innovative products and technologies in the environmental and
recycling industries which it further develops and designs for rubber
recycling and after market products plants. 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 sales 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, supplied by
third parties, which produces recycled rubber which is commonly known in
the recycling industry as "crumb rubber." Eurectec also markets presses
and other equipment, also supplied by third parties, which utilize crumb
rubber to make various after-market products.
Areas of growth in the Company are in the technology transfer, EGS
tire recycling systems, ECO press technology 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 -60 mesh ASTM), crumb rubber from buffings and
larger mesh crumb rubber.
3<PAGE>
In 1998, the Company began to focus its energies on the design and
development of rubber recycling systems and subsystems which encompass
initial rubber tire recycling and after market crumb rubber products rather
than rely solely upon third paty equipment sales. This aspect of the
Company's business is being conducted through its subsidiary, Eurectec
Industries, Inc. Eurectec Industries provides feasibility studies,
engineering, equipment, installation and training for its clients with
rubber recycling systems. The Company is marketing its systems
individually and through joint venture arrangements.
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 provides a
link to the Eurectec, Inc. website (http://www.eurectec.com). The Company
is in the process of updating its website and will offer e-commerce
capabilities in the second half of 1999, allowing customers to purchase
products directly from the Company from an additional website,
Eurectec-products.com. An additional Website can be viewed at
www.tirerecycling.com, which will become a main portal for the Company.
This Website, which should be operational during the second quarter of
1999, is multi-lingual in order to enhance global communication and
awareness of the Company and its subsidiaries. It has links to The Quantum
Group, Inc. site and allows the viewer to access an overview of the
Company's activities, obtain market information for the Company's stock,
view the Company's EDGAR filings, retrieve information on the Company's
joint venture projects and link to the Company's subsidiaries websites.
Business Operations
The Company's goal is to design and market the most efficient and
cost-effective rubber recycling systems, producing high-quality crumb
rubber. In keeping with this goal, the Company designs environmentally
friendly, efficient and profitable turnkey recycling plants that satisfy
the requirements of developers, engineers and governments for a process to
turn the huge, toxic and unsightly piles of scrap tires into attractive,
high-quality consumer and industrial products. In alliance with FDC
Engineering of Switzerland, the Company is able to provide complete
engineering design for its recycling systems and subsystems.
Joint venture arrangements are one vehicle the Company employs to
market and showcase its turnkey recycling plants. It is anticipated that
by participating as an equity partner in recycling joint ventures, the
Company will develop cash flow through operations conducted by such
recycling facilities. The Company also performs direct marketing of its
equipment and technologies.
In addition to recycling systems and subsystems, the Company is
developing markets for its crumb rubber value added after market products.
The Company intends to establish a manufacturing facility in California and
produce sports mats for gyms and ball courts, door mats, anti-fatigue mats,
cattle mats, heated pet mats and safety flooring products such as
playground tiles for the U.S. and export markets.
4<PAGE>
Company Subsidiaries
Eurectec, Inc. To date, the majority of the Company's business has
been transacted through Eurectec, Inc. Eurectec, Inc. was formed by the
Company, under the laws of the State of Nevada in 1991. The Company
negotiated its licensing agreements with CISAP and SMS through Eurectec,
Inc. and the Company uses Eurectec, Inc. to market and sell the tire
recycling equipment of third parties. Eurectec, Inc. 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, Inc.
which will be used to transact the Company's business dealings in these
areas.
Eurectec Industries, Inc., is a wholly owned subsidiary of The Quantum
Group, Inc. and was established pursuant to the laws of the Province of
Alberta on February 15, 1996. The Company formed Eurectec Industries, Inc.
to transact the business of designing, development and marketing of its
rubber recycling systems.
Eurectec International, Ltd., is a wholly owned subsidiary of Eurectec
Inc. 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 Marketing, Inc., is a wholly owned subsidiary of Eurectec,
Inc. and was formed to market recycled rubber products, both from Company
plants and from other participating manufacturers. Eurectec Marketing,
Inc. is not currently engaged in any business transactions.
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,
and is inactive at this time.
5<PAGE>
Quantum Modified Asphalt Xcetera, ("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.
Eurectec Granulating System (EGS)
Eurectec Industries, Inc., 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. The EGS System reduces scrap
automobile and truck tires to useful and valuable crumb rubber, reusable
steel scrap and nylon fluff. The system as designed will follow common
processing steps accepted in the industry. The process will begin by
sending truck tires through a de-beader, slitter and shredder and
automobile tires directly to a 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 a ranges of sizes from 0 to .5 mm, .5 mm to 2 mm, 2 mm to 4 mm. The
EGS System will also offer as an option, a grinder which will reduce the
crumb rubber to minus 60 mesh.
The crumb rubber is then further processed using the Company's press
product manufacturing technology into road paving materials, tiles, roofing
products, irrigation hoses, trailer liners, door and floor mats, carpet
underlay and "Ecoplas" (a combination of recycled rubber and plastic from
which many wood replacement products are made). Industrial products such
as speed bumps, traffic cones, curbside recycling bins, road marker posts
and sound barriers, and sports surfaces such as tennis and other ball game
courts, gymnastic and running track surfaces, and playground safety
surfaces are just a few of the more than 200 end products manufactured
utilizing crumb rubber.
The EGS System will not require Eurectec Industries 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. Third party contractors will
manufacture all of the equipment and parts required to integrate the
individual pieces of equipment into unified recycling system.
It is estimated by the design engineers that the complete EGS System
will have an estimated input capacity of sixteen thousand tons per annum
on two shifts. The Company is currently offering EGS granulating systems
and specifically, an EGS system is being incorporated in the Poseidon joint
venture project in Penkun, in the state of Mecklenberg-Vorpommern, Germany.
6<PAGE>
SuperCollider - Impact 500 Technology
During 1997, the Company worked on the in-house development of a
compact SuperCollider machine designed to take large mesh size crumb rubber
produced by the EGS System and buffings from tire retreading 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 concluded the
development, prototype work and performance testing during 1998.
Initially the Company will contract manufacture of the equipment and will
be supplying the first of these machines under the brand name Impact 500,
to clients in the second quarter of 1999. The Company will explore
viability of making patent applications for the new compact Impact 500
SuperCollider.
REVULCON (R) - Revulc 300 Technology
The Company entered an exclusive worldwide license agreement with Faru
GmbH., Dresden, Germany ("Faru"). Faru is the patent holder of the
REVULCON (R) technology. For each REVULCON (R) 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 Company anticipates the sale of up to three REVULCON
systems, under the brand name Revulc 300, during 1999 for projects in
Germany. The manufacture of the REVULCON (R) plants will be subcontracted
out to third party manufacturers.
The REVULCON (R) technology enables the production of high density,
smooth finish rubber moldings and extrusions, including new tires by adding
REVULCON (R) compound in the manufacture of new tires , from recycled crumb
rubber. This is done by a process of devulcanizing the rubber, returning
it to a state where it can be utilized in new products and be re-vulcanized.
The reactivated rubber waste can be processed without further
additives to rubber products like mats, plates, solid rubber tires,
components for fall protection, elements for sound and vibration deadening,
blocking and insulating layers against heat and moisture, etc., in mixtures
with fresh rubber or plastic, profiles and other goods can be made by
extrusion or injection molding.
The REVULCON (R) prototype equipment has been manufactured and is
currently being tested. The Company is further developing the system to
allow for feed input and output with the first three Revulc 300 systems to
be installed at the Chemnitz project.
Rothbury Agreement
Eurectec Industries, Inc., entered an agreement with Rothbury
Engineering Limited, 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.
7<PAGE>
In heatable tile products production, Eurectec Industries 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 Industries with new products and
new markets for crumb rubber.
Eurectec Industries, Inc., has filed for patent protection on the
technology subject to the license agreement. Eurectec Industries expects
to develop procedures and techniques utilizing the Rothbury technology with
various press equipment to produce commercially viable heatable rubber
floor tiles utilizing crumb rubber, pending the filing of any patent
applications by Eurectec Industries.
CISAP Agreement
In 1993, Eurectec, Inc. acquired rights to license and market CISAP
tire recycling equipment. The license agreement provides that CISAP will
manufacture, ship and install the CISAP equipment sold by Eurectec, Inc. as
well as provide training in equipment operation and maintenance to the
purchaser of any CISAP equipment. The Company sold CISAP granulator
systems in Canada, China, Saudi Arabia, and Mexico. The Saudi Arabia and
Mexico clients have experienced problems with the CISAP equipment which the
Company and CISAP are attempting to resolve.
Because of the difficulties with the CISAP equipment Eurectec, Inc.
will look to other manufacturers as suppliers of compact granulating
equipment systems.
SMS Agreement
In May of 1996, Eurectec, Inc. entered an agreement with SMS
Sondermaschinen GmbH, a German corporation, ("SMS") which provided
Eurectec, Inc. the right to sell and market SMS press equipment and
machinery. Eurectec, Inc. sold SMS equipment to its client in Saudi Arabia
who has experienced problems with the SMS equipment. Eurectec, Inc. is
attempting to resolve the difficulties and has other manufacturers in place
for its press equipment needs.
Research and Development
In 1998, the Company spent approximately $76,746 for research and
development on its Impact 500 technology. A prototype unit was completed
during the fourth quarter of 1998 which is valued at $63,203.
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
8<PAGE>
stockpiled in the United States and an estimated 1,000,000,000 tires
discarded annually worldwide. 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. The
European Union has issued a directive banning landfilling of all tires,
whether whole or shredded, by the year 2007. 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.
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.
9<PAGE>
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. The
Company, 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 the Company'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.
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.
10<PAGE>
The advantages of the Company's EGS 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.
Marketing and Sales
The Company, through Eurectec, Inc. 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.
The Company has encountered challenges in making sales of its tire
recycling 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.
An additional challenge to the Company in marketing the recycling
systems is that there is a long sales cycle. Typically, it takes six to
eighteen months from the time the Company has its initial contact with a
potential customer until equipment is installed and the Company is paid in
full.
The majority of the Company's marketing efforts are through trade
shows, technical and trade journal advertising and articles, independent
sales representatives, joint venture projects and the Company's website.
The Company continues to rely principally on the efforts of its
officers and directors to generate sales. The Company'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.
The Company is a member of a number of associations related to the
tire, rubber and recycling industries including the Rubber Pavements
Association located in Mesa, Arizona, the International Tire and Retreading
Association, headquartered in Louisville, Kentucky (ITRA), ETRA (the
"European Tire Recycling Association") headquarter in Brussels, Belgium and
is a founding member of the International Recycling Federation located in
Bonn, Germany. In addition, the Company is listed in the Scrap Tire Users
Directory, an RRI annual publication which is a business reference guide to
the tire recycling industry.
11
<PAGE>
The Company's management attended and made a presentation at the first
International Symposium on Asphalt-Rubber held in Phoenix Arizona where the
Company announced it will be initiating the formation of a European Rubber
Pavements Association to be allied with the Rubber Pavements Association in
the United States. The Company's management also plans to attend the ETRA
European Tire Recycling Congress and Annual General Meeting to be held in
Brussels, March 17 - 19, 1999.
Also planned for the third quarter 1999, the Company will jointly host
with the state government of Mecklenburg-Vorpommern, Germany, the first
European International Symposium on Crumb Rubber in Asphalt Paving. The
Symposium will coincide with the opening of the Poseidon plant and serve as
a showcase for prospective customers.
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 the
Company 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.
Joint Venture Projects
SteG Germany - Poseidon Products GmbH. The Company has finalized a
joint venture agreement with a German Government sponsored company,
Strukturentwicklungsgesellschaft Ueckermunde GmbH., located near Berlin.
The Company has an 80% interest in the joint venture and a buy-back
agreement to purchase the remaining 20%. As a result of joint venture
agreement, Poseidon Products GmbH. was established and will construct and
operate a tire recycling facility in Penkun, in the state of
Mecklenburg-Vorpommern to produce crumb rubber and to manufacture a wide
range of value added products. The plant is designed to be a tire
recycling facility whereby tires will be shredded and granulated producing
the commodity crumb rubber. Some of the crumb rubber is subsequently
partially devulcanized utilizing the Company's exclusive REVULCON process
to enable material to be used in a variety of products and processes
including incorporation into new tire manufacture. The balance of the
crumb rubber will be used for in-house manufacturing. The plant will
employ a number of presses to manufacture additional value added after
market products such as flooring, interlocking tiles and heated tiles as
well as other products.
12<PAGE>
The Poseidon joint venture funding is expected to be completed by the
end of the first quarter, 1999. Funding consists of 50% of the total
project costs (approximately $5,900,000) from a grant from the European
Union Structure Fund for European regional development and 40% bank
financing and 10% equity raised through a private offering in Germany,
partly funded from proceeds of a Regulation S offering. The equity
funding is currently 90% complete. Eurectec Industries, Inc., is under
contract to supply the technology transfer and equipment package for the
Poseidon project valued at $7,370,000, with anticipated equipment delivery
commencing the second quarter of 1999. Engineering for the project is
being coordinated by FDC Engineering of Switzerland.
Ground breaking for the Poseidon joint venture occurred September
17, 1998 in Penkun, Germany and the construction program is presently
scheduled to begin during the second quarter of 1999. Pending completion
of all building construction and environmental compliance permitting
funding and maintaining the current construction schedule, the Company
anticipates the Poseidon facility to be complete and operational during the
fourth quarter, 1999. Poseidon has opened offices in Penkun and has
commenced a German wide marketing study and plan to introduce and sell its
manufactured products in Germany and Europe.
The Company anticipates the Poseidon project to be a showcase for
future tire recycling plant sales. The plant equipment and technology is
the culmination of research and development by the Company.
A Poseidon web site has been established and may be viewed at
www.poseidon-products.com. The web site which is in German and English,
provides a platform for showcasing the Poseidon joint venture and promoting
an awareness of the Company.
Proposed Joint Venture Projects
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 Company designed press equipment and the second phase will
incorporate both shredding and granulating processes as well as the
REVULCON (R) technology. The Company anticipates producing a wide variety
of products including heated mats using the Company's Rothbury technology.
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 1999 following a series of meetings at a number of potential
facilities.
Scotland. The Company has established a new subsidiary, Caladonian
Envirotech Rubber Recycling Limited, a Scottish limited liability company,
("Caladonian"). Caladonian was established in anticipation of entering a
joint venture agreement with local Scottish investors to build a tire
recycling plant modeled after the Poseidon project. The Company is
embarking on a market study to determine the feasibility of the project,
which is expected to be complete the end of first quarter 1999.
13<PAGE>
Ireland. The Company has established a new subsidiary, Hibernian
Envirotech Rubber Recycling Limited, an Irish limited liability company,
("Hibernian"). Hibernian was established in anticipation of entering a
joint venture agreement with local Irish investors to build a tire
recycling plant modeled after the Poseidon project. The Company is
embarking on a market study to determine the feasibility of the project,
which is expected to be complete during the second quarter of 1999.
Portugal. The Company is continuing negotiations with investors in
Portugal to enter a joint venture agreement to build a tire recycling
facility. The Company's president has been in Lisbon, Portugal meeting
with a potential joint venture partner. It is anticipated the joint
venture partner will undertake a feasibility study with assistance from the
Company.
Spain. The Company is negotiating with investors in Spain to enter a
joint venture agreement to build a tire recycling facility in Barcelona.
It is anticipated the joint venture partner will undertake a feasibility
study with assistance from the Company.
France. The Company is currently negotiating with interested parties
so the Company can initiate a feasibility study for a joint venture to
build a tire recycling facility in France. Also, the Company is actively
promoting its after market products and user applications within France to
develop key relationships.
Brazil. The Company's vice-president has met with potential joint
venture partners in Brazil. As a result of negotiations, the Company has
signed a memorandum of understanding to the potential joint venture
partner whereby the Company will undertake a feasibility study to determine
the viability of developing a tire recycling facility in Belo Horizonte,
Brazil.
South Africa. Through the Company's contacts in Scotland, the Company
has been introduced to potential joint venture partners in South Africa and
Zimbabwe. The Company's president met in South Africa and Zimbabwe in
December 1998, with the potential joint venture partners to explore the
possibility of developing a tire recycling plant.
The Company continues negotiations with various potential clients in
the United States, Europe, the Arabian Gulf, South America, Puerto Rico,
Great Britain and Asia.
Current Contracts
Atzendorf, Germany. The Company has a two phase order for press
equipment including flocking equipment, granulators and grizzlies for the
manufacture of continuous roll material and after market flooring products.
The Company anticipates equipment delivery during the second half of 1999.
14<PAGE>
Chemnitz, Germany. The Company has an order for a mini tire recycling
plant including three Revulc 300 systems and press equipment. The Company
anticipates equipment delivery during the second half of 1999.
Mexico Agreement. The CISAP equipment sale to Mexico was entered in
1994. The client has experienced problems in the commissioning of the C9000
machines supplied by CISAP 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 anticipated the equipment to be fully operational by the end of April
1998. However, the engineering team uncovered additional problems with the
CISAP equipment which have required re-engineering of the CISAP equipment
on-site and re-engineering of the plant itself. CISAP has shipped
additional equipment to the Mexico site and has sent engineers to Mexico to
resolve the problems.
In an effort to mitigate the problems encountered by the Mexico
client, the Company is currently purchasing crumb rubber from the client
which it is further processing into finer mesh for sale.
Saudi Agreement. The agreement for the initial phase of CISAP
equipment to be delivered to Saudi Arabia was entered in 1994 with
additional equipment purchased by the clients from CISAP in 1995 and 1997.
Initial equipment for Phase One of this project has been delivered and
partially installed at the site in Dammam. The equipment has not been
completely installed by CISAP and the Company has elected to send its own
engineer to expedite installation and operation of the equipment.
CISAP SpA Relationship . CISAP, SpA underwent a bankruptcy and
reorganization as of July 2, 1997. As a result of the reorganization,
CISAP Ecology, SRL was established to continue the business of CISAP, SpA,
tire granulation equipment, specifically the CISAP 3000, 6000 and 9000
machines as supplied to Mexico and CISAP Projecti was established to focus
on the sale of tire re-treading equipment. Subsequently CISAP Ecology, SRL
has undergone a name change to Tyre's Ecology, SRL. The Company is now
dealing with Tyre's Ecology, SRL in its attempts to resolve the Mexico and
Saudi project issues. CISAP and it's successor are hereinafter referred to
as CISAP.
As a result of the difficulties experienced by CISAP and its successor
in delivering equipment which functions as specified and to make delivery
in a timely manner, Eurectec, Inc. has determined that the exclusive right
to market CISAP equipment has been diminished. Therefore, Eurectec, Inc.
will not pursue additional sales of CISAP equipment at performance levels
required by the agreement with CISAP to maintain such exclusivity.
The problems encountered by the Company with the CISAP equipment
failure and CISAP's unacceptable responses in both Mexico and Saudi Arabia
have seriously impacted the Company's expected revenue stream in 1998 from
the resultant delays with the second phase of the Mexico project and the
third phase of the Saudi project, both of which have been suspended pending
resolution of the problems on site.
15<PAGE>
Employees
Currently the Company has no direct employees other than its officers
and directors. 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.
Through its employee service agency the Company has two administrative
staff, three management staff, one sales person and one technical staff
member. Two additional people will be hired during the second quarter of
1999 to fill the positions of financial controller and operations manager.
The Company intends to restructure the employee status by terminating the
service agency relationship and bring all its employees into the Company as
direct hires.
_________________________________________________________________________
ITEM 2. DESCRIPTION OF PROPERTY
_________________________________________________________________________
In July, 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 $3,371.00 per month for 4,495 square
foot facility. The lease has a renewal option for an additional year and
will be reviewed in July 1999. 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.
_________________________________________________________________________
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, 1998.
16
<PAGE>
_________________________________________________________________________
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, 1998 the Company had 494
shareholders holding 8,400,075 common shares. Of the issued and
outstanding common stock, 1,238,069 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>
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
1998
First Quarter ended March 31 3.00 .50 3.3125 1.1875
Second Quarter ended June 30 4.1875 2.875 4.3125 3.00
Third Quarter ended Sept. 30 3.625 2.00 3.75 2.375
Fourth Quarter ended Dec. 31 4.375 2.875 4.4375 3.125
</TABLE>
The foregoing figures were furnished to the Company by the National
Quotation Bureau, 1 Penn Plaza, 15th Floor, New York, New York 10001.
17<PAGE>
_________________________________________________________________________
ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL STATEMENTS AND RESULTS OF OPERATIONS
_________________________________________________________________________
Liquidity and Capital Resources
As of December 31, 1998, the Company had on hand cash of $1,781,944
and booked orders of approximately $13,588,491 for equipment. The Company
raised $4,647,500 in Regulation S offerings during 1998. The Company
currently has no outstanding debt.
It is anticipated that revenues from currently booked orders will
enable the Company the continue operations throughout 1999. The Company
also anticipates initiating a Regulation S offering during the second
quarter of 1999 for approximately $2,100,000. Proceeds from the Regulation
S offering are anticipated to be used for the California Prison Project and
additional working capital.
The Company does not currently have any capital commitments for 1999.
However, at such time the Company enters a firm agreement for the
California Prison Project, it may have a capital commitment for
approximately $1,500,000.
The Company is emphasizing product and services sales via the Internet
and trade show participation. Additionally, the Company is vigorously
pursuing joint venture arrangements similar to that of the Poseidon
Project. The Company anticipates it will experience modest growth during
1999 through these efforts.
Year 2000 Compliance
Many financial information and operational systems in use today may
not be able to interpret dates after December 31, 1999 because such systems
allow only two digits to indicate the year in a date. As a result, such
systems are unable to distinguish January 1, 2000 from January 1, 1900,
which could have adverse consequences on the operations of an entity and
the integrity of information processing. This potential problem is
referred to as the "Year 2000" or "Y2K" issue.
The Company has reviewed all of its current systems that could be
impacted by the Y2K issue and is currently Year 2000 compliant. However,
vendors, banks and other suppliers and parties upon whom the Company
relies, may not be Year 2000 compliant. The Company is currently in the
process of requesting Y2K compliance status from the parties with which it
conducts business in order to evaluate any impact to the Company. The
Company has not been notified that any of its bendores, banks or other
suppliers or paties upon whom it relies are non-compliant with Y2K matters.
18
<PAGE>
Results of Operations
The Company generated a $100,691 loss in the year ended December 31,
1998 compared to a profit of $101,893 for the year ended December 31, 1997.
The 1998 loss includes an Accounts Receivable write off of $100,000, and
an investment loss of $20,000. The 1997 profit includes sale of Licence
Rights of $350,000 and $150,000. The $350,00 license fee is partially
offset by a reserve of $175,000.
Net cash used in operations during the year ended December 31, 1998
was $1,334,685 compared to $197,974 cash generated by operations in the
year ended December 31, 1997. During 1998, Accounts Receivable increased
by $2,354,061, Deposits increased by $1,804,508, offset by an increase in
customer deposits of $2,190,462. $179, 309 was used to purchase land.
Accrued Expenses decreased by $102,315 while Accounts Payable increased by
$585,185. The cash generated from operations in 1997 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, 1998 by
$2,354,061 to $3,065,040. The 1998 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 Licence Fee receivable of $350,000
(less the reserve of $275,000) and $1,316,607 and $1,105,400 for two
projects in Germany and $58,033 in Crumb Rubber sales. The December 31,
1997 Accounts Receivable balance primarily included The Mexico project
which is included above. The company has not sought collection of these
items as an accommodation to the client due to installation delays and
their problems with Cisap. Although the Company believes that these
amounts will ultimately be collected, the 1997 reserve of $175,000 was
increased by $100,000 in 1998.
Inventory at December 31, 1998 is $19,425 compared to $29,760 at
December 31, 1997. The 1996 balance was equipment held for sale that was
sold back to the vendor. The 1998 and 1997 balance consists only of raw
materials ( crumb rubber) for the manufacture of mats.
The deposit account at December 31, 1998 is $1,807,789 in Other Assets
for equipment for the two German projects and $303,021 in Current assets
for a inventory of crumb rubber heated tiles to be sold at retail. The
1997 balance was $421,451 of which $417,951 was a deposit with Cisap which
represented the proceeds on the sale to them of the C3000 machine
previously held in inventory. The 1997 deposit was utilized in 1998.
Securities Accounts balance of $73,125 at December 31, 1997 is the
result of receiving 20,000 shares of Keystone Energy common stock for a
$100,000 license fee. The securities had a market value $100,000 at the
time of the transaction, but were subsequently written down to reflect the
December 31, 1997 market price. These securities were sold in 1998. The
Company realized an additional loss of $20,000 in 1998 prior to the sale.
19<PAGE>
Accrued Expenses decreased by $102,315 to $450,084 during the year
ended December 31, 1998 compared to $552,399 at December 31, 1997. The
major components of this decrease was the payment of the accrued interest
on Company debt.
Franchise Taxes Payable balance at December 31, 1998 and 1997 of
$103,548 consists of $70,691 Federal Taxes and $32,857 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 an 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. The
Company has delayed payment of this balance pending clarification of
certain collections, but anticipates payment will be made during the second
half of 1999.
Current Maturities were at December 31, 1997 $721,318. 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 was due during 1998, it
is all categorized as Current Maturities. The notes and the accrued
interest on them were paid off during the first quarter of 1998.
Minority Interest was $109,256 at December 31, 1997 due to the 20%
percent minority interest in the Company's primary subsidiary, Eurectec,
Inc. This Minority Interest was exchanged for stock in the Company during
1998. The $9,463 at December 31, 1998 is as a result of the establishment
of Poseidon Product GmbH, the joint venture project with the Germany
government (See Financial Statement footnote #23).
Comparison of the year ended December 31, 1998, and the year ended December
31,1997.
Revenue for the year ended December 31, 1998 was $2,952,900. This is a
$471,909 decrease from the revenues of $3,424,809 generated in the year
ended December 31, 1997. The decrease in 1998 is from a decrease in
equipment sales of $41,809, a decrease of $500,000 in License Sales, as the
Company did not conclude any new licences in 1998. Other Income increased
by $69,900 consisting primarily of the sale of crumb rubber and mats.
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
completion bonds prior to delivery.
Cost 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,
1998 was $1,761,775, a $499,902 decrease from the $2,261,667 for the year
ended December 31, 1997. Cost of Sales as a percentage of equipment sales
was 60% in 1998 compared to 77% in 1997 and 66% in 1996. 1997 was adversely
affected by concessions to the buyer in relation to the granting of the
territorial license for Mexico. The Company believes that the gross margin
experienced in 1998 an appropriate margin on equipment transactions but is
not indicative of a trend but rather is the function of different equipment
specifications for different projects.
20<PAGE>
Commission expense for the year ended December 31, 1998 was $0
compared to the 1997 expense of $37,008. This is due to the a continuation
of the strategy of having contracts negotiated by Company personal with
out the use of outside sales personal or agents.
Depreciation expense was essentially unchanged in 1998 to $47,691
compared to $47,737 in 1997. The majority of the depreciation expense in
both years was for the SMS press. This unit was sold in late 1998.
The Company amortizes the license agreement with Rothbury Engineering
over the anticipated 10 year economic life of the technology. The year
ended December 31, 1998 and 1997 include a full years amortization.. During
1998 the Company acquired a License from Faru GmbH. This license is also
being amortized over 10 years from the date of acquisition, resulting in an
increase in amortization expense of $7,500 for the year ended December 31,
1998 compared to 1997.
Travel expenses increased in the twelve months ended December 31, 1998
by $99,386 compared to 1997 ( $155,442 vs $ 56,056 ), due primarily to the
extensive travel necessary due to the projects in Germany, the German joint
venture, the installations in Mexico and the strategy of seeking to
establish business relationships which will lead to further joint venture
agreements.
Professional Fees decreased to $56,978 in the year ended December 31,
1998 , compared to $78,596 in the year ended December 31, 1997. The 1997
year included 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. The 1998 year includes expenses relating to ongoing operations of a
more general nature.
Office Expenses increased by $61,431 from the year ended December 31,
1997. This is due to the addition of support personal, and the repair,
maintenance and cleaning of the company's offices, for the full year.
Administrative Expenses increased to $249,909 in the year ended December
31, 1998 from $95,377 in the year ended December 31, 1997. This is due to
the establishment of both financial and general public relation programs,
the fees for application for full NASDAQ listing and the establishment of
marketing and sales programs for both crumb rubber and after market
products such as mats. Rent and Utilities expense declined in the year
ended December 31, 1998 to $63,259 compared to $65,634 in 1997.
Consulting Fees increased to $449,508 in the twelve months ended
December 31, 1998 compared to $232,571 for the year ended December 31,
1997. The Company employed outside consultants for marketing and accounting
in 1998 and 1997. Additional consulting expense was incurred in 1997 for
the start up of the crumb rubber and after market sales efforts. In 1998
the Company began paying its president as a consultant.
21<PAGE>
Interest Expense declined 1998 compared to 1997 from $95,656 to $804
due to paying off the Company debt in early 1998.
In 1997 the Company reserved $175, 000 (50%) of the Mexico License Fee
Receivable under the theory of conservativism. Although the signed
agreement calls for the payment of $350,000, Management believes that the
client may attempt to renegotiate the contract or seek concessions in some
manner. In 1998 the Company added $100,000 to this reserve.
The Foreign Currency translation gains of $63,880 in the year ended
December 31, 1997 are $36,116 more than the gain of $27,764 in the twelve
months ended December 31, 1998. This gain in both years 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. The debt was repaid
during early 1998 thereby reducing effect of the gain to only the period
prior to repayment.
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 revenues 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.
Cost 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. 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 personal with out the use
of outside sales personal 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.
22<PAGE>
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 decreases 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 project.
Professional Fees increased to $78,596 in the year ended December 31,
1997, compared to $67,586 in the year ended December 31, 1996, do 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 increase by $15,162 and
$8,094, respectively from the year ended December 31, 1996. This is due to
the addition of support personal, 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 ans sales efforts associated with the SMS
press equipment, without a corresponding expense in 1997.
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
Atlantic 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 conservativism.
Although the signed agreement calls for the payment of $350,000,
Management believes that the client may attempt to renegotiate the contract
or seek concessions in some manner. 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 of $63,880 in the year ended
December 31, 1997 compared to a gain of $6,344 in the twelve months ended
December 31, 1996.
23
<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, 1998 and December 31, 1997;
Statements of Stockholders' Equity for the years ended December
31, 1998, 1997, and 1996;
Statements of Cash Flows for the years ended December 31, 1998,
1997, and 1996;
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, 1998 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 56 President March 1989
Director March 1989
Keith J. Fryer 49 Vice President March 1995
Director March 1995
Secretary July 1997
John F. Pope 56 Vice President January 1991
Treasurer January 1991
Director March 1989
Markus J. Lenger 34 Vice President October 1995
_________________________________________________________________________
</TABLE>
25<PAGE>
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.
25<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.
26<PAGE>
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
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,
1998 the end of the Registrant's last completed fiscal year).
<TABLE>
<CAPTION>
_____________________________________________________________________________________
Summary Compensation Table
--------------------------
Long Term Compensation
-------------------------
Awards Payouts
-------- --------
Other Rest-
Name & Annual Compensation Annual ricted All
Principal --------------------- Compen- Stock Options Other
Position Year Salary Bonus sation Awards /SARs# LTIP Payouts
- ------------------- ----- ------ ------ ------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ehrenfried Liebich 1998 72,806 -0- -0- -0- -0- -0- -0-
President/Director 1997 -0- -0- -0- -0- -0- -0- -0-
1996 -0- -0- -0- -0- -0- -0- -0-
Keith Fryer(1) 1998 105,000 -0- -0- -0- -0- -0- -0-
Vice President/ 1997 68,559 -0- -0- 20,000 333,334 -0- 36,008
Director/Secretary 1996 65,321 -0- -0- -0- -0- -0- 65,415
John F. Pope (2) 1998 30,000 -0- -0- -0- -0- -0- -0-
Vice President/ 1997 28,850 -0- -0- -0- -0- -0- -0-
Treasurer/Director 1996 45,500 -0- -0- -0- -0- -0- -0-
Markus J. Lenger (3) 1998 25,084 -0- -0- -0- -0- -0- -0-
Vice President 1997 9,859 -0- -0- -0- -0- -0- -0-
1996 23,944 -0- -0- -0- -0- -0- -0-
_____________________________________________________________________________________
</TABLE>
27<PAGE>
(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. Included in the salary figure is $20,000 paid
for office staff salaries. 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.
(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 1997,
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 $0.0625 per share. The options are exercisable at a rate of
66,666 shares per year for a period of five years commencing immediately
upon the date of grant. To date, 66,666 options have been exercised.
28<PAGE>
Option / SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
Name Number of % of Total Exercise Expiration Grant
Securities Options/SARs or Base Date Date
Options/SARs Granted to Price Present
Granted Employees ($/share) Value ($)
Fiscal Year
<S> <C> <C> <C> <C> <C>
_____________________________________________________________________________________
Keith Fryer 333,334 100% $.0625 2002 $20,000
_____________________________________________________________________________________
</TABLE>
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, 1998 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
8,400,075 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>
Amount and
Name of Nature of
Title of Class Beneficial Owner Beneficial Owner Percentag of Class
- --------------------- ---------------------- ----------------- -------------------
<S> <C> <C> <C>
Common Ehrenfried Liebich 2,887,593 34.37%
14771 Myford Road
Building B
Tustin, California 90744
29<PAGE>
Common Keith J. Fryer (1) 351,666 4.18%
14771 Myford Road
Building B
Tustin, California 90744
Common John F. Pope (2) 33,668 0.400%
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) 3,272,927 38.96%
______________________________________________________________________________________
</TABLE>
(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) All of Mr. Popes shares are held of record by John F. Pope, Inc.,
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
_________________________________________________________________________
In August 1998, the Company loaned $30,000 to John Pope, a director
and officer of the Company. The note was at an interest rate of 9% per
annum and was due and payable on December 28, 1998 unless extended by the
Company. The promissory note has been extended by the Company and is now
due December 31, 1999. John Pope is also the owner of John F. Pope, Inc.,
a consultant to the Company. Compensation paid to John F. Pope, Inc. is
identified under the compensation table.
Keith Fryer, an officer and director of the Company, is the owner of
Keith Fryer Associates California, Inc., ("KFA") a consultant to the
Company. Compensation paid to KFA is identified under the compensation
table.
There were no other related party transactions during 1998.
30<PAGE>
_________________________________________________________________________
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:
<TABLE>
<CAPTION>
Exhibit
Reference SEC Exhibit
Number Number Title of Document Location
- --------- ----------- ---------------------------- ---------------
<S> <C> <C> <C>
3.01 3 Articles of Amendment to the Incorporated
Articles of Incorporation by reference*
3.02 3 Articles of Incorporation Incorporated
by reference*
3.03 3 Bylaws Incorporated
by reference*
10.01 10 Poseidon Products GmbH. Incorporated
Agreement by reference**
10.02 10 Atzendorf Agreement Attached
10.03 10 Chemnitz Agreement Attached
23.01 23 Consent of Accountant Attached
27.01 27 Financial Data Schedule Attached
</TABLE>
*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, 1997, filed with the commission, SEC file no. 0-23812
31<PAGE>
_________________________________________________________________________
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.
Dated: March 30, 1998 The Quantum Group, Inc.
a Nevada corporation
By: /s/ Ehrenfried Liebich
-----------------------------
Ehrenfried Liebich, President
DATE NAME AND TITLE SIGNATURE
- ---- -------------- ---------
March 30, 1998 Ehrenfried Liebich By: /s/ Ehrenfried Liebich
President/Director -----------------------------
Ehrenfried Liebich, President
March 30, 1998 Keith J. Fryer By: /s/ Keith J. Fryer
----------------------
Vice President/
Director/Secretary Keith J. Fryer
March 30, 1998 John F. Pope By: /s/ John F. Pope
Vice President, --------------------
Treasurer/Director John F. Pope
32<PAGE>
_________________________________________________________________________
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.
Dated: March 30, 1998 The Quantum Group, Inc.
a Nevada corporation
By:
-----------------------------
Ehrenfried Liebich, President
DATE NAME AND TITLE SIGNATURE
March 30, 1998 Ehrenfried Liebich By:
President/Director -----------------------------
Ehrenfried Liebich, President
March 30, 1998 Keith J. Fryer By:
Vice President/ -----------------------------
Director/Secretary Keith J. Fryer
March 30, 1998 John F. Pope By:
Vice President/ -----------------------------
Treasurer/Director John F. Pope
32<PAGE>
Exhibit Index
SEC Exhibit
Exhibit Reference
Number Number Title of Document
Location
10.02 10 Atzendorf Agreement E-
10.03 10 Chemnitz Agreement E-
23.01 23 Consent of Accountant E-
27.01 27 Financial Data Schedule E-
33<PAGE>
THE QUANTUM GROUP, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1998
&
DECEMBER 31, 1997
F-1
<PAGE>
/Letterhead/
Schvaneveldt & Company
Certified Public Accountant
275 East South Temple, #300
Salt Lake City, Utah 84111
(801) 521-2392 Phone
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, 1998 and 1997, and the related
statements of operations, stockholders' equity, and cash flows for the
years ended December 31, 1998, 1997, and 1996. 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, 1998 and 1997, and the results of its
operations and its cash flows for the years ended December 31, 1998, 1997,
and 1996, in conformity with generally accepted accounting principles.
/S/ Schvaneveldt & Company
Salt Lake City, Utah
March 17, 1999
F-2<PAGE>
The Quantum Group Inc., and Subsidiaries
Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
December December
31, 1998 31, 1997
------------ ------------
<S> <C> <C>
Assets
Current Assets
- --------------
Cash $ 1,781,944 $ 142,690
Accounts Receivable 3,065,040 710,979
Inventory 19,425 29,760
Deposit 303,021 421,451
Note & Interest Received - Officer 30,932 -0-
Prepaid Expenses 440 -0-
------------ ------------
Total Current Assets 5,200,802 1,304,880
Property & Equipment
- --------------------
Furniture & Fixtures -0- 3,054
Equipment 29,963 154,778
Vehicles 41,382 -0-
Land 179,309 -0-
------------ ------------
Total Property & Equipment 250,654 157,832
Other Assets
- ------------
Securities -0- 73,125
Cash Pledged 5,329 5,225
License Rights 507,367 414,622
Deposit 1,807,789 3,281
Prototype Impact 500 63,203 -0-
------------ ------------
Other Assets 2,383,688 496,253
------------ ------------
Total Assets $ 7,835,144 $ 1,958,965
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3<PAGE>
The Quantum Group Inc., and Subsidiaries
Balance Sheets -Continued-
December 31, 1998 and 1997
<TABLE>
<CAPTION>
December December
31, 1998 31, 1997
------------ ------------
<S> <C> <C>
Liabilities & Stockholders' Equity
Current Liabilities
- -------------------
Accrued Expenses $ 450,084 $ 552,399
Accounts Payable 725,201 140,016
Due Officers -0- 7,919
Customer Deposits 2,192,962 2,500
Franchise Taxes Payable 103,548 103,548
Current Maturities -0- 721,318
------------ ------------
Total Current Liabilities 3,471,795 1,527,700
Long Term Liabilities
- ---------------------
Capital Lease 25,503 -0-
Note Payable - Machinery -0- 145,631
Note Payable - Technology -0- 347,547
Note Payable -0- 228,140
Less Current Maturities -0- ( 721,318)
------------ ------------
Total Long Term Liabilities 25,503 -0-
Minority Interest in Subsidiary 9,463 109,256
Stockholders' Equity
- --------------------
Common Stock 50,000,000 Shares Authorized;
Par Value of $0.001 Per Share,
8,400,075 & 4,853,409 Shares Issued
Retroactively Restated Respectively 8,400 4,853
Paid In Capital 6,018,287 1,932,968
Accumulated Deficit ( 1,698,304) ( 1,615,812)
------------ ------------
Total Stockholders' Equity 4,328,383 322,009
------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 7,835,144 $ 1,958,965
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4<PAGE>
The Quantum Group Inc., and Subsidiaries
Statements of Operations
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
December December December
31, 1998 31, 1997 31, 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
- --------
Equipment Sales $ 2,882,007 $ 2,923,816 $ 2,872,679
License Sales -0- 500,000 35,000
Other Income 70,893 993 -0-
------------ ------------ ------------
Total Revenues 2,952,900 3,424,809 2,907,679
Cost of Sales 1,761,775 2,261,677 1,895,468
------------ ------------ ------------
Gross Profit 1,191,125 1,163,132 1,012,211
Expenses
- --------
Commission -0- 37,008 195,077
Depreciation 47,691 47,737 22,926
Amortization 57,256 49,756 33,169
Travel 155,442 56,056 67,586
Professional Fees 56,978 78,596 68,147
Office 98,139 36,708 21,546
Rent & Utilities 63,259 65,634 83,103
Administrative Expenses 249,909 95,377 87,283
Consultant Fees 449,508 232,571 265,375
Interest 804 95,656 88,161
Accounts Receivable Written Off 100,000 195,000 376,931
Foreign Currency Translation ( 27,764) ( 63,880) ( 6,344)
Research & Development 13,544 -0- -0-
------------ ------------ ------------
Total Expenses 1,264,766 926,219 1,302,960
------------ ------------ ------------
Net Income (Loss) From Operations ( 73,641) 236,913 ( 290,749)
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5<PAGE>
The Quantum Group Inc., and Subsidiaries
Statements of Operations -Continued-
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
December December December
31, 1998 31, 1997 31, 1996
------------ ------------ ------------
<S> <C> <C> <C>
Other Income (Expenses)
- -----------------------
Interest Income $ 13,583 $ -0- $ 122
Gain on Sale of Residence -0- -0- 38,327
Loss on Investment ( 20,000) -0- ( 6,250)
Investment Evaluation Loss -0- ( 6,875) -0-
------------ ------------ ------------
Total Other Income (Expense) ( 6,417) ( 6,875) 32,199
------------ ------------ ------------
Net Income (Loss) Before
Extraordinary Items ( 80,058) 230,038 ( 258,550)
Extraordinary Items
- -------------------
Income Capital Lease -0- -0- 16,741
------------ ------------ ------------
Net (Loss) After
Extraordinary Items ( 80,058) 230,038 ( 241,809)
Taxes & Minority Interest
Minority Interest ( 2,492) 24,517 12,989
Provisions for Taxes - Current 23,125 103,628 -0-
------------ ------------ ------------
Total Taxes & Minority Interest 20,633 128,145 12,989
------------ ------------ ------------
Net Income (Loss) ($ 100,691) $ 101,893 ($ 228,820)
============ ============ ============
Net (Loss) Per Share Before
Extraordinary Items ($ .01) $ .02 ($ .05)
Net (Loss) Per Share After
Extraordinary Items ( .01) .02 ( .04)
Weighted Average Shares Outstanding 6,846,696 4,728,348 4,728,348
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6<PAGE>
The Quantum Group, Inc., and Subsidiaries
Statements of Stockholders' Equity
From January 1, 1997 to December 31, 1998
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Stock Amount Capital Deficit
-----------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 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)
Shares Issued Regulation S
for Cash at $1.50 Per Share 1,200,000 1,200 1,798,800
Shares Issued Regulation S
for Cash at $2.00 Per Share 300,000 300 599,700
Shares Issued Regulation S
for Cash at $2.25 Per Share 1,000,000 1,000 2,249,000
Cost of Shares Sold Pursuant
to Regulation S Offering ( 694,964)
Shares Issued or
Exercise of Options 396,666 397 24,177
Shares Issued to Minority
Interest Shareholders to
Acquire 100% of Subsidiary
Stock 650,000 650 108,606
Loss for Year Ended
December 31, 1998 ( 100,691)
-----------------------------------------------------
Balance, December 31, 1998 8,400,075 $ 8,400 $6,018,287 ($ 1,716,503)
=====================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7<PAGE>
The Quantum Group, Inc., and Subsidiaries
Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
- ------------------------------------
Net Profit or (Loss) ($ 100,691) $ 101,892 ($ 228,820)
Adjustments to Reconcile Net Profit
or (Loss) to Net Cash:
Write Off Accounts Receivable 100,000 195,000 -0-
Write Off Investment -0- -0- 6,250
Write Off Loan Receivable -0- -0- 38,750
Write Off Long Term Receivable -0- -0- 338,181
Amortization & Depreciation 104,947 84,745 56,095
Non Cash Income -0- -0- ( 16,741)
Minority Interest 12,210 24,517 ( 12,989)
Changes in Operating Assets &
Liabilities:
(Increase) Decrease in Accounts
Receivable (2,354,061) ( 681,457) ( 24,559)
(Increase) Decrease in Inventory 10,335 38,991 -0-
(Increase) Decrease in Deposit on
Inventory 118,430 -0- 424,820
(Increase) Decrease in Prototype
Impact 500 ( 63,203) -0- -0-
(Increase) Decrease in Notes
Receivable - Officer ( 30,932) -0- -0-
(Increase) Decrease in Prepaid
Insurance ( 440) -0- -0-
(Increase) Decrease in Deposits (1,804,508) -0- ( 3,281)
Increase (Decrease) in Accrued Expenses ( 102,315) 393,577 ( 68,034)
Increase (Decrease) in Accounts Payable 585,185 ( 65,316) ( 271,047)
Increase (Decrease) in Tax Payable
- Current -0- 103,548 -0-
Increase (Decrease) in Customer Deposits 2,190,462 2,500 ( 244,464)
Increase (Decrease) in Taxes Payable
Deferred -0- 80 -0-
(Increase) Decrease in Cash Pledged ( 104) ( 103) ( 5,122)
Rounding -0- -0- ( 3)
------------ ------------ ------------
Net Cash (Used) by Operating
Activities (1,334,685) 197,974 ( 10,964)
</TABLE>
The accompanying notes are an integral part of these financial statements
F-8
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Statements of Cash Flows -Continued-
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Investing Activities
- ------------------------------------
Purchase of Property - Lot -0- -0- ( 45,000)
Addition to Miami Residential Property -0- -0- ( 8,903)
Purchase of Land ( 179,309) -0- -0-
Refund of Import Duty -0- 718 -0-
Purchase of Equipment ( 82,389) ( 25,492) ( 182,295)
Purchase of License Rights ( 150,000) -0- ( 497,547)
Sale of Residential Property -0- -0- 306,435
Purchase of Furniture 40,000 -0- ( 11,086)
Purchase of Securities 73,125 ( 80,000) -0-
Sale of Press 216,635 -0- -0-
------------ ------------ ------------
Net Cash Provided (Used) by
Investing Activities ( 81,938) ( 104,774) ( 438,396)
Cash Flows from Financing Activities
- ------------------------------------
Sale of Common Stock 3,759,611 150,000 -0-
Payment on Long Term Debt ( 721,318) ( 63,879) ( 169,781)
Increase (Decrease) in Notes Payable -0- -0- 505,552
Increase (Decrease) in Amounts Due
Officers ( 7,919) ( 43,233) 92,451
Contributed Capital -0- -0- 1,600
Increase Capital Lease 27,655 -0- -0-
Payment Capital Lease ( 2,152) -0- -0-
------------ ------------ ------------
Net Cash Provided by
Financing Activities 3,055,877 42,888 429,822
------------ ------------ ------------
Increase (Decrease) in Cash 1,639,254 136,088 ( 19,538)
Cash at Beginning of Period 142,690 6,602 26,140
------------ ------------ ------------
Cash at End of Period $ 1,781,944 $ 142,690 $ 6,602
============ ============ ============
Disclosures from Operating Activities:
Interest $ 804 $ 95,656 $ 88,161
Taxes -0- 103,628 8,675
Significant Non Cash Transactions:
1,600,000 Shares Common Stock Issued to
Officer Debt Satisfaction $ -0- $ 100,000 $ -0-
650,000 Shares of Common Stock Issued to
Acquire Minority Interest in Subsidiary 109,256 -0- -0-
</TABLE>
The accompanying notes are an integral part of these financial statements
F-9
<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: Assets and
liabilities that occur in foreign countries are 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.
F-10
<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 1997, the Company returned inventory purchased from an Italian
manufacturer to the manufacturer for a credit of $421,451. During 1998,
the credit was applied to purchase equipment sold to customers in Germany.
In 1998, the Company deposited $303,021 with the purchaser of three Revulc
300 Systems and press equipment for tiles to be produced in the last
quarter of 1999.
NOTE #4 - Noncash Investing and Financing Activities
- ----------------------------------------------------
In 1998, the Company issued 650,000 shares of its common stock to acquire
the minority interest of its subsidiary, Eurectec, Inc. The minority
interest had a net book value of $109,256.
F-11<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #5 - Notes Payable
- -----------------------
<TABLE>
<CAPTION>
The Company has the following notes payable obligations.
1998 1997
------------ ------------
<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 $ -0- $ 228,140
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 -0- 145,631
Note Payable on Purchase of Rubber Product Technology
Due December 31, 1997, No Interest, Purchased and
Payable in U.S. Dollars -0- 347,547
------------ ------------
Total Notes Payable $ -0- $ 721,318
Less Current Obligation -0- 721,318
------------ ------------
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.
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.
F-12
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #7 - Depreciation -Continued-
- ----------------------------------
Scheduled below are the assets, costs and accumulated depreciations at
December 31, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
December 31, Depreciation Accumulated
1998 1997 Expenses Depreciation
Assets Cost Cost 1998 1997 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Furniture & Fixtures $ 41,668 $37,986 $ 3,054 $ 7,597 $37,986 $34,932
Capital Lease Assets 27,655 -0- 1,375 -0- 1,375 -0-
Equipment 216,636 207,068 42,561 40,140 94,852 52,290
Vehicle 42,084 -0- 701 -0- 701 -0-
Vehicle 8,994 8,994 -0- -0- 8,994 8,994
Equipment Sold ( 216,636) -0- -0- -0- (94,852) -0-
------------------------------------------------------------
Balance 120,401 254,048 47,691 47,737 49,056 96,216
============================================================
</TABLE>
NOTE #8 - Compensation Agreement
- --------------------------------
The Company has no contracts with its officers and directors to pay any
compensation, except for an oral agreement to 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 sub-license the technology.
CISAP, SpA underwent a bankruptcy and reorganization as of July 2, 1997.
As a result of the reorganization, CISAP Ecology, SRL, was established to
continue the business of CISAP SpA, tire granulation equipment,
specifically the CISAP 3000, 6000 and 9000 machines as supplied to Mexico
and CISAP Projects was established to focus on the sale of tire re-treading
equipment. Subsequently CISAP Ecology, SRL has undergone a name change to
Tyre's Ecology, SRL. The Company is now dealing with Tyre's Ecology, SRL,
in its attempts to resolve the Mexico and Saudi project issues. CISAP and
it's successor are hereinafter referred to as CISAP.
As a result of the difficulties experienced by CISAP and its successor in
delivering equipment which functions as specified and to make delivery in a
timely manner, Eurectec has determined that the exclusive right to market
CISAP equipment has been diminished. Therefore, Eurectec will not pursue
additional sales of CISAP equipment at performance levels required by the
agreement with CISAP to maintain such exclusivity.
F-13<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #9 - License Agreement -Continued-
- ---------------------------------------
The problems encountered by the Company with the CISAP equipment failure
and CISAP's unacceptable responses in both Mexico and Saudi Arabia have
seriously impacted the Company's expected revenue stream from the second
phase of the Mexico project and the third phase of the Saudi project, both
of which have been suspended.
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>
Consulting
Commissions Fees
------------ -----------
<S> <C> <C>
1998
Keith Fryer $ -0- $ 105,000
John Pope -0- 30,000
Ehrenfried Liebich -0- 72,807
Marcus J. Lenger -0- 25,084
1997
Keith Fryer $ 36,008 $ 68,599
John Pope -0- 28,850
Marcus J. Lenger -0- 9,859
1996
Keith Fryer $ 65,415 $ 65,321
John Pope -0- 45,500
Marcus J. Lenger -0- 23,944
In August 1998, the Company loaned to an officer $30,000 at 9% per annum.
The due date of the note has been extended to December 28, 1999.
An Officer of the Company has loaned the Company $7,919 at December 31,
1997 to fund its operations. The loan is non interest bearing and is due
on demand.
F-14<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
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>
<TABLE>
<CAPTION>
Year of Expiration
Loss Amount Date
-------- ---------- -----------
<S> <C> <C>
1992 $ 440,338 2007
1993 -0- 2008
1994 198,818 2009
1995 782,181 2010
1996 241,809 2011
1997 -0- 2012
1998 80,058 2013
</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.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current Tax Asset Value of Net Operating
Loss Carryforwards at Current Prevailing
Federal Tax Rate $ 525,092 $ 497,872 $ 576,085
Evaluation Allowance ( 525,092) ( 497,872) ( 576,085)
---------- ---------- ----------
Net Tax Asset $ -0- $ -0- $ -0-
========== ========== ==========
Current Income Tax Expense $ -0- $ 103,628 $ -0-
Deferred Income Tax Benefit -0- -0- 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.
In 1998, the Company issued 650,000 shares of its common stock to the
minority interest of Eurectec, Inc., to acquire the shares held by the
German shareholders.
F-15<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
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.
In 1998, the Company increased its reserve for bad debts against accounts
receivable from the Mexico contract by $100,000.
NOTE #14 - Litigation Matters
- -----------------------------
The Company has no litigation pending at December 31, 1998.
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 1998 Sales 1997 Sales 1996 Sales
- ------------- ------------- ------------- -------------
<S> <C> <C> <C>
Mexico $ 460,000 $ 3,202,891 $ -0-
Saudi Arabia -0- -0- 2,711,489
Germany 2,422,007 -0- 161,190
Phillippines -0- 79,000 -0-
Total $ 2,882,007 $ 3,281,891 $ 2,907,679
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Sales by quarter of 1998, 1997 and 1996 are scheduled below.
<S> <C> <C> <C>
1998 1997 1996
------------- ------------- -------------
First Quarter $ 460,000 $ 186,561 $ 1,001,071
Second Quarter -0- 154,889 -0-
Third Quarter -0- 2,336,232 1,662,149
Fourth Quarter 2,422,007 747,127 244,459
------------- ------------- -------------
Totals $ 2,882,007 $ 3,424,809 $ 2,872,679
============= ============= =============
</TABLE>
NOTE #16 - Subsequent Events
- ----------------------------
Proposed Joint Venture Projects
On January 8, 1999, the Company transferred $1,531,369 from its
operating account to the bank account of its joint venture project in
Germany.
F-16<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #16 - Subsequent Events -Continued-
- ----------------------------------------
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 Company designed
press equipment and the second phase will incorporate both shredding
and granulating processes as well as the REVULCON (R) technology. The
Company anticipates producing a wide variety of products including
heated mats using the Company's Rothbury technology. 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
1999 following a series of meetings at a number of potential
facilities.
Scotland.
The Company has established a new subsidiary, Caladonian Envirotech
Rubber Recycling Limited, a Scottish limited liability company,
("Caladonian"). Caladonian was established in anticipation of
entering into a joint venture agreement with the local Scottish
investors to build a tire recycling plant modeled after the Poseidon
project. The Company is embarking on a market study to determine the
feasibility of the project, which is expected to be complete the end
of first quarter of 1999.
Ireland
The Company has established a new subsidiary, Hibernian Envirotech
Rubber Recycling Limited, an Irish Limited Liability Company,
("Hibernian"). Hibernian was established in anticipation of entering
a joint venture agreement with local Irish investors to build a tire
recycling plant modeled after the Poseidon project. The Company is
embarking on a market study to determine the feasibility of the
project, which is expected to be complete at the end of the first
quarter of 1999.
Portugal
The Company is continuing negotiations in Portugal to enter a joint
venture agreement to build a tire recycling facility. The Company's
President has been in Lisbon, Portugal meeting with a potential joint
venture partner. It is anticipated the joint venture partner will
undertake a feasibility study with assistance from the Company.
France
The Company is currently negotiating with interested parties so the
Company can initiate a feasibility study for a joint venture to build
a tire recycling facility in France. Also, the Company is actively
promoting its after market products and user applications within
France to develop key relationships.
F-17<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #16 - Subsequent Events -Continued-
- ----------------------------------------
Brazil
The Company's Vice President, has met with potential joint venture
partners in Brazil. As a result of negotiations, the Company has
signed a memorandum of understanding to the potential joint venture
partner whereby the Company will undertake a feasibility study to
determine the feasibility of developing a tire recycling facility in
Belo Horizonte, Brazil.
South Africa
Through the Company's contacts in Scotland, the Company has been
introduced to potential joint venture partners in South Africa and
Zimbabwe. The Company's President met in South Africa and Zimbabwe in
December 1998, with the potential joint venture partners to explore
the possibility of developing a tire recycling plant.
The Company continues negotiations with various potential clients in
the United States, Europe, the Arabian Gulf, South America, Puerto
Rico, Great Britain and Asia.
Current Contracts
Atzendorf, Germany
The Company has a two phase order for press equipment including
flocking equipment, granulators and grizzlies for the manufacture of
continuous roll material and after market flooring products. The
Company anticipates equipment delivery during the second half of 1999.
Chemnitz, Germany
The Company has an order for a mini tire recycling plant including
three Revulc 300 systems and press equipment. The Company anticipates
equipment delivery during the second half of 1999.
Mexico Agreement
The CISAP equipment sale to Mexico was entered in 1994. The client
has experienced problems in the commissioning of the C9000 machines
supplied by CISAP 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 anticipated the equipment to be fully operational by the
end of April 1998. However, the engineering team uncovered additional
problems with the CISAP equipment which have required re-engineering
of the CISAP equipment on-site and re-engineering of the plant itself.
CISAP has shipped additional equipment to the Mexico site and has sent
engineers to Mexico to resolve the problems.
F-18
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #16 - Subsequent Events -Continued-
- ----------------------------------------
Saudi Agreement
The agreement for the initial phase of CISAP equipment to be delivered
to Saudi Arabia was entered in 1994 with additional equipment
purchased by the clients from CISAP in 1995 and 1997. Initial
equipment for Phase One of this project has been delivered and
partially installed at the site in Dammam. The equipment has not been
completely installed by CISAP and the Company has elected to send its
own engineer to expedite installation and operation of the equipment.
NOTE #17 - 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.
The Company issued 650,000 shares of its common stock to acquire 100% of
the shares held by the minority interest of Eurectec, Inc.
The Company completed the 1998 Regulation S offering by issuing 2,599,999
shares sold at prices from $1.50 per share to $2.25 per share.
NOTE #18 - 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 100% owned at December 31, 1997.
In 1998, the Company began to focus its energies on the design and
development rubber recycling systems and subsystems which encompass initial
rubber tire recycling and after market crumb rubber products rather than
rely solely upon equipment and technology sales. This aspect of the
Company's business is being conducted through its subsidiary, Eurectec,
Inc. Eurectec, Inc., provides feasibility studies, engineering, equipment,
installation and training for its rubber recycling systems. The Company is
marketing its systems individually and through joint venture arrangements.
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.
F-19<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #18 - Principles of Consolidation -Continued-
- --------------------------------------------------
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 #19 - 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
the grant. In 1998, 66,666 shares were exercised under this option, at
$0.0062 per share. Additionally 330,000 shares were granted and exercised
by others pursuant to the 1997 stock option plan at $0.062 per share.
NOTE #20 - Prototype Impact 500
- -------------------------------
Eurectec, working with outside engineering firms, has designed plans for a
complete tire recycling, granulating and after-market production system,
known as the Eurectec Granulating Systems, (EGS), which integrates
individual pieces of tire recycling equipment made by other manufacturers.
The EGS System reduces scrap automobile and truck tires to useful and
valuable crumb rubber, reusable steel scrap and nylon fluff. The system as
designed will follow common processing steps accepted in the industry.
In 1998, the Company internally developed a machine known as the "Impact
500", which is designed to take large mesh size crumb rubber produced by
the EGS System and pulverize it into fine powder. The Company expended
$13,544 to build a prototype machine and conduct sufficient tests to assure
that technological feasibility had been attained. The Company built one
Impact 500 machine at a cost of $63,203. This machine is portable and
completely self contained so that it can be shipped to trade shows or for
on site demonstration and quickly made operational.
NOTE #21 - License Right
- ------------------------
In April of 1996, Eurectec, entered into an agreement with Rothbury
Engineering Limited, 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 granulates, resins
and other additives heat conductive characteristics for use in products
such as heatable floor coverings and underlayments.
F-20<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #21 - License Right -Continued-
- ------------------------------------
The Company entered into an exclusive worldwide license agreement with Faru
GmbH, Dresden, Germany ("Faru"). Faru is the patent holder of the REVULCON
(R) technology. For each REVULCON (R) 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 Company anticipates the sale of up to three REVULCON (R) systems, under
the brand name Revulc 300, during 1999 for projects in Germany. The
manufacture of the REVULCON (R) plants will be subcontracted out to third
party manufacturers.
The REVULCON (R) 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
revulcanized. 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 plastics, profiles and other goods can be made by
extrusion or injection moldings.
<TABLE>
<CAPTION>
License Amortization Accumulated
Licensor Cost Expense 1998 Amortization
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Rothbury $ 497,547 $ 49,756 $ 132,677
Faru GmbH 150,000 7,500 7,500
------------------------------------------
Total $ 647,547 $ 57,256 $ 140,177
==========================================
</TABLE>
NOTE #22 - Joint Venture
- ------------------------
SteG Germany - Poseidon Products GmbH.
The Company has finalized a joint venture agreement with a German Government
sponsored company, Strukturentwicklungsgesellschaft Ueckermunde GmbH, located
near Berlin. The Company has an 80% interest in the joint venture and a
buy-back agreement to purchase the remaining 20%. As a result of the joint
venture agreement, Poseidon Products GmbH, was established and will construct
and operate a tire recycling facility in the state of Mecklenburg-Vorpommern
to produce crumb rubber and to manufacture a wide range of value added
products. The plant is designed to be a tire recycling facility whereby
tires will be shredded and granulated producing the commodity crumb rubber.
Some of the crumb rubber is subsequently partially devulcanized utilizing the
Company's exclusive REVULCON (R) process to enable material to be used in a
variety of products and processes including incorporation into new tire
manufacture. The balance of the crumb rubber will be used for in-house
manufacturing. The plant will employ a number of presses to manufacture
additional value added after market products such as flooring, soaker hoses
for irrigation applications, interlocking tiles and heated tiles as well as
other products.
F-21
<PAGE>
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements -Continued-
NOTE #22 - Joint Venture -Continued-
- ------------------------------------
The Poseidon joint venture funding is expected to be completed by the end
of the first quarter, 1999. Funding consists of 50% of the total project costs
(approximately $13,800,000) from a grant from the European Union Structure
Fund for European regional development and 40% bank financing and 10% equity
raised through a private offering in Germany, partly funded from proceeds of
a Regulation S offering. The equity funding is currently 90% complete.
Eurectec Industries, Inc., is under contract to supply the technology
transfer and equipment package for the Poseidon project valued at $7,370,000,
with anticipated equipment delivery commencing the second quarter of 1999.
Engineering for the project is being coordinated by FDC Engineering of
Switzerland.
Ground breaking for the Poseidon joint venture occurred September 17,
1998 in Penkun, Germany and the construction program is scheduled for the
first half of 1999. Pending completion of all building construction and
environmental compliance permitting funding and maintaining the current
construction schedule, the Company anticipates the Poseidon facility to be
complete and operational during the fourth quarter, 1999. Poseidon has
opened offices in Penkun and has commenced a German wide marketing study and
plan to introduce and sell its manufactured products.
The Company has consolidated the joint venture into its financial
statements and reflects a minority interest position of the initial
investment made by outsiders of $12,210 less 20% of the joint venture
loss of $2,747 for a net minority position of $9,463.
NOTE #23 - Employees
- --------------------
Currently the Company has no direct employees other than its officers and
directors. The Company contracts with an employee service agency to provide
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. Through its employee
service agency the Company has two administrative staff, three management
staff, one sales person and one technical staff member. Two additional
people will be hired during the second quarter of 1999 to fill the
positions of financial controller and operations manager. The Company
intends to restructure the employee status by terminating the service agency
relationship and bring all its employees into the Company as direct hires.
F-22
<PAGE>
Exhibit 10.02
SALES AGREEMENT
by and between
The Quantum Group, Inc.
Tustin, California
and
Fonds Concept GmbH. + Co. Recycling KG
Germany
for
Supply and Installation of Tire Recycling
and Product Manufacturing Equipment
in
Atzendorf, Germany
December 11, 1998<PAGE>
Sales Agreement
The Quantum Group, Inc.
This Agreement is made and entered into this day of December 11, 1998
by and between The Quantum Group, Inc., a Nevada corporation ("Seller") and
FONDS CONCEPT GMBH. + CO. RECYCLING KG ("Buyer"). Seller has agreed to
sell, and Buyer has agreed to purchase, PressMaster 200 press machine and
other equipment, as per EXHIBIT A under the terms and conditions set forth
below. Accordingly the parties, intending to be legally bound thereby,
agree as follows:
1. IDENTIFICATION OF PRESSMASTER. The equipment to which this
Agreement relates is a Eurectec PressMaster Press, Model No.200, for
product manufacture together with additional equipment: AS PER ATTACHED
LIST EXHIBIT A. (collectively the "PressMaster and other equipment to
schedule"). Unless otherwise specified herein, Seller will have
manufactured the PressMaster/ancillary equipment for the express purpose of
fulfilling this Agreement.
2. AGREEMENT TO PURCHASE. a) Buyer agrees to purchase form Seller
PHASE ONE equipment package, and Seller agrees to sell to Buyer, the
PressMaster 200 including additional equipment for the total Purchase Price
of DM 6,132, 094 PER EXHIBIT A.
b) PAYMENTS. Payment of 30% is due and payable at time of
signing this agreement with the balance due at time of shipment of the
equipment with presentation of clean "on-board" bills of lading at sight
duly legalized (partial payments allowed) and is to be wire transferred to
the following account details: Beneficiary: The Quantum Group, Inc.
Account # 023 758 644 ABA Route # 1220 16066 City National Bank, 4685
MacArthur Court, Newport Beach, CA 92660, USA.
The prices do not include any taxes applicable in the United States.
Total purchase price quoted INCLUDES: freight and insurance of a common
carrier chosen by Seller, and equipment installation, but excludes
extraordinary shipping services that may be required by Buyer and cost of
installation.
Taxes which the Seller must pay or collect with respect to the sale of the
PressMaster equipment (other than income taxes) shall be added to the total
purchase price and shall be payable by Buyer upon delivery of the
PressMaster and other equipment.
Buyer bears the risk of loss for the PressMaster and other equipment after
delivery, in accordance with Buyer's instructions.
3. DELIVERY DATE.
C3000: C3000 granulator to be delivered and installed by 12/21/1998.
E-1
<PAGE>
Sales Agreement
The Quantum Group, Inc.
MICROMAT GRIZZLY : The Micromat Grizzly equipment package, 1 # Pressmaster
and 1 # Flockmaster, can be delivered and installed in April 1999.
PRESS & FLOCMASTER : 3 # Pressmaster and 2 # Flockmaster machines can be
delivered and installed October 1999.
In the event of loss during shipment, actual delivery shall be delayed a
reasonable time to allow Seller to collect insurance and effect repairs or
replacement.
4. OBLIGATIONS OF SELLER.
Seller agrees to make available to Buyer via telephone, or in person at
Buyer's premises (at Buyer Option), such of Seller's personnel as Buyer
reasonably deems necessary for the purpose of instructing and training
Buyer's employees in the operation and maintenance of the PressMaster in
connection with the uses proposed to be made by Buyer of the PressMaster,
provide that such instruction and training is performed during initial
installation of the PressMaster.
Unless otherwise agreed in writing, Seller shall pay transportation and
lodging costs for Seller's personnel required to travel to Buyer's location
and Seller shall bear all other costs of providing such services.
5. BUYERS' INSTALLATION OBLIGATIONS. Buyer shall be responsible to
obtain all necessary inspections, licenses and permits for this
installation and operation of the PressMaster presses. Buyer acknowledges
that the total purchase price for the PressMaster 200 and other equipment
does not include any power hook-ups pads or floor reinforcements required
in Buyer's facility prior to installation.
Buyer shall reimburse Seller for any additional costs of Seller's training
and installation personnel occasioned by Buyer's failure to properly
prepare the installation site.
WARRANTY. Seller makes on warranty. Seller hereby passes to Buyer the
manufactures warranty. Manufacturer to guarantee the equipment supplied
for a period of twelve (12) months, not exceeding 18 months from shipment
date. The guarantee does not cover electrical equipment for which the
manufacturer will pass on the appropriate guarantee from each sub-vendor
supplier. The guarantee does not cover consumable parts. Parts or
components found defective during the guarantee period will be replaced or
repaired depending on the vendors choice. The guarantee period will
commence with the installation of the equipment. Damages caused by the
modifications brought about by the buyer and not conforming to the
specifications, or which have been previously approved in writing by the
Vendor, are not covered by the guarantee. Damages caused to the equipment
by using spare parts purchased by the Buyer and without the vendor's
approval, or due to modifications purchase in contrast with specifications,
are not covered by this guarantee. The guarantee does not cover damages
caused by the introduction of dangerous materials, such as but not limited
to, screws bolts, or material other than that designed for which the
equipment has been specifically designed.
E-2
<PAGE>
Sales Agreement
The Quantum Group, Inc.
Any use of the PressMaster equipment other than as stated in Seller's
maintenance manuals supplied with the Press shall constitute abuse. The
nominal cycle time of the PressMaster is between 5 and 15 minutes depending
upon the thickness and density of the products being manufactured. If we
consider the machine is idle for maintenance and other different factors,
the effective capacity of the PressMaster must be calculated at APPROX. 80%
of the nominal capacity.
In the event of any defects covered by this warranty, Seller will
remedy such defects by repairing or replacing any parts found to be
defective.
This warranty is limited to parts and labor only and does not include
any labor other than the removal and replacement of any defective parts.
This shall be the exclusive remedy for all claims whether based on
contracts, negligence, or strict liability, Seller or vendor shall not, in
any event, be liable for any loss of the use of any equipment or incidental
or consequential damages or commercial loss.
The Warranties set forth in this Agreement are exclusive and in lieu
of all other warranties expressed or implied including without limitation
any warranty of merchantability or fitness for a particular purpose.
Seller shall not be liable to Buyer for any delay or failure in
performance caused by acts beyond Seller's control, including without
limitation, acts of God, war, vandalism, sabotage, accidents, fires,
floods, strikes, labor disputes, mechanical breakdown, shortages or delays
in obtaining suitable parts or equipment, material, labor, or
transportation, acts of subcontractors, interruption of utility services,
acts of any unit of government or governmental agency, or any similar or
dissimilar cause.
The maximum liability, if any, of the Seller for all direct damages,
including without limitation contract damages and damages for injuries to
persons or property, whether arising form Seller's breach of this
Agreement, breach of Warranty, negligence, strict liability, or other tor
with respect to the goods, or any services in connection with the goods, is
limited to an amount not to exceed the price of the particular goods. In
no event shall Seller be liable to Buyer for any incidental, consequential,
or special damages, including without limitation lost revenues and profits,
even if it has been advised of the possibility of such damages. The right
to recover damages within the limitations specified is the Buyer's
exclusive alternative remedy in the event that any other contractual remedy
fails of it's essential purpose.
7. SPECIFICATIONS -- ENGINEERING CHANGES. Specifications contained
in Seller's quotations or brochures and illustrations were in effect at the
time of the quotation or of printing of brochures and illustrations.
Seller reserves the right to make design or specification changes without
notice; provided that any such change shall not materially reduce the
production capacity of the PressMaster. Unless incorporated herein by
specific reference, such specifications do not form a part of this
Agreement.
E-4
<PAGE>
Sales Agreement
The Quantum Group, Inc.
8. DEFAULT -- REMEDIES. In the event of the failure by Seller to
fulfill any material term or condition of this Agreement prior to the
Seller's notice of its readiness to make delivery of the PressMaster, which
failure remains uncured ten (10) days after receipt by Seller of written
notice thereof, Buyer shall be entitled to withhold all unpaid amounts and
to seek the return of any amounts previously paid to Seller, and Buyer
shall be under no further obligation to Seller hereunder. In the event of
failure by Buyer to purchase the equipment in accordance with Section 2
hereof, other than as a result of Seller's default after receipt by Buyer
of written notice thereof, Seller shall be entitled, at its option, to
terminate this Agreement.
However, under these circumstances, all amounts previously paid by Buyer
hereunder to the seller, will be used by the seller as liquidated damages
to cover all costs associated with the establishment of the Buyers purchase
order.
9. MUTUAL REPRESENTATIONS. The individuals executing this Agreement
on behalf of each of the parties hereto represents and warrants to the
other party that he or she has full power and authority to act for and bind
the party for whom he or she purports to act, and that this agreement has
been authorized by all necessary corporate action, if applicable.
10. MISCELLANEOUS. (a) This Agreement represents the entire
agreement of the parties with respect to the subject matter hereof, and
supersedes any prior written or oral expressions of parties with respect to
such subject matter. This Agreement may be amended or modified only in
writing signed by each of the parties hereto.
(b) The goods herein described are to be manufactured in Canada and
Europe and delivered to Europe. However, the parties agree that a contract
resulting herefrom in the United States, shall be deemed a US contract and
shall be construed in accordance with the Laws of Orange County,
California, United States, other than principles of conflicts of Law.
Buyer hereby:
(i) agrees that the courts of the Orange County, California,
United States who shall have the exclusive jurisdiction to adjudicate any
matter arising out of or as a result of this Agreement,
(ii) consents to the jurisdiction of each such court,
(iii) waives any objection it may have to the laying of venue of
any such suit in such courts, and
(iv) irrevocably designates the Director of the Orange County
Department of Commerce as its agent in California, United States to receive
service of any process in any such suit in the United States.
E-5
<PAGE>
Sales Agreement
The Quantum Group, Inc.
(c) The addresses of each of the parties for the purpose of any notice
required or permitted to be given hereunder shall be as indicated following
such parties signature, and Notice addresses may be changed by giving
notice to the other party. Notices shall be effective upon delivery to the
notice address by personal delivery, overnight express service, mail or
facsimile transmission (with hard copy to follow by first class mail).
IN WITNESS WHEREOF, the parties have caused this agreement to be
executed by their duly authorized officers on the date and year first above
written.
Seller > > > > > > The Quantum Group, Inc.
WITNESS:
/s/ Keith J. Fryer BY /s/ Ehrenfried Liebich
------------------
Keith J. Fryer Ehrenfried Liebich
President & CEO
Notice address:
14771 Myford Road
Bldg., B,
Tustin, CA 92780, USA
Tel: (714) 508-1470
Fax: (714) 508-1475
Buyer > > > > > > Fonds Concept GmbH + Co.
Recycling KG
WITNESS: BY /s/ Johann Brendgens
Name: -------------------------
Johann Brendgens
Principal
Notice Address:
Hagschestr.30,47533 Kleve,
Germany
Tel: 49 2821 77510
Date: December 11th 1998 Fax: 49 2821 775111
E-6
<PAGE>
Sales Agreement
The Quantum Group, Inc.
EQUIPMENT COSTS SUMMARY -- EXHIBIT "A"
--------------------------------------
Part A -- PressMaster 200 : Price DM:
- --------------------------- -----------
sub section 1/. Price DM :
---------------
1/. PressMaster 200 press
one hydraulic twin-press
(size of press plate 1400 x 3000 mm)
one control panel & one hydraulic unit
two press plates top/bottom
two roll cases to feed the press 288,840
2/. Blendmaster 100 complete with
one hopper unit, one fill auger with
variable speed drive and auto on/off
one "big bag" support rack, one hopper
system on mixer for EPDM and/or pigment,
one mixing chamber tube/auger, one
variable speed pump for polyurethane and
one for water, one control panel computerized,
for automatic/manual op's. 150,288
3/. Sets of molds :
-----------------------
a/ Pet Bed Mats (2 press sides) each
made of 6 plates each 68.5 x 90 cm )
b/ Anti-Fatigue mat (2 press sides) each made
of 6 plates each 68.5 x 90 cm ) 074,580
c/ Playground tile mats (2 press sides) (1) 071,250
each made of 6 plates 68.5 x 90 cm (2) 070,050
three sets (3) 3.8, 5.7, 8.2 cm thick (3) 068,850
d/ Livestock mats (2 press sides) each
made of 3 plates 4' x 6' 066,900
subtotal : DM 790,758
- ----------- -- --------<PAGE>
Sales Agreement
The Qauntum Group, Inc.
Bought in item : Price DM :
- ---------------- ----------
sub total carried page 1/. 0,790,758
- --------------------------- ----------
4/ Cleaning Tank : 0,039,708
sub section 2/.
---------------
5/ FlockMaster machine :
(1000 mm wide) 0,200,535
6/ ScreenMaster (glue) machine : 0,055,500
7/ CureMaster : 0,044,355
subtotal : 1,130,856
x 4 sets (with one set excluding FlockMaster)
less (1) flockmaster set @ DM 200,535
Total Part A : DM 4,322,889
- -------------- --- ---------
Part B -- C3000 granulator
- --------------------------
C3000 granulator complete with
feed hopper and weigh scale as well as
retrofit parts
DM 750,00 net
Total Part B : DM 0,750,000
-------------- --- ---------
E-7
<PAGE>
Sales Agreement
The Quantum Group, Inc.
Bought in item : Price DM
---------------- ---------
Part C -- Micromat Grizzly machine :
- ------------------------------------
1/ Micromat MS 1500 0,944,824
2/ Spare parts : 0,030,687
a/ With permanent magnet -0-
b/ Suitable for belt convey
width 400 mm -0-
3/ Set screen Hardox 14 mm 0,019,528
4/ Set of knives (104 pieces) 0,022,133
5/ Set of Counterknives (6 pieces) 0,014,135
6/ Belt Conveyor :
Length approx. 4500 mm
Width 400 mm
kW 2.2 with antimagnetic part 0,027,898
Total Part C : DM 1,059,205
- -------------- --- ---------
E-8
<PAGE>
Sales Agreement
The Quantum Group, Inc.
SUMMARY :
----------
Item : Sell DM:
------ --------
Part A -- PressMaster 200 package : 4,322,889
Part B -- C3000 granulator etc. 0,750,000
Part C -- Micromat Grizzly Machine 1,059,205
Totals : DM 6,132,094
- -------- --- ----------
Notes :
- -------
1/ 4 # PressMaster sets include 3 # Flock Master machines
2/ All supplied equipment is net of local taxes
4/ Payment per agreed payment plan .10
5/ Delivery and installation as follows :
--------------------------------------
i/ C3000 granulator to be delivered and installed December 21st, 1998
ii/ Micromat grizzly machine, 1 # PressMaster and 1# FlockMaster to be
delivered and installed in April 1999
iii/ 3 # PressMaster and 2 # FlockMaster to be delivered and installed
October 1999
E-9
<PAGE>
<PAGE>
Exhibit 10.03
SALES AGREEMENT
by and between
The Quantum Group, Inc.
Tustin, California
and
Fonds Concept GmbH. + Co. Recycling Dresden KG
Germany
for
Supply and Installation of PressMaster
Product Manufacturing Equipment
& REVULCON processing equipment
in
Chemnitz, Germany
December 11, 1998
E-10
<PAGE>
SALES AGREEMENT
THE QUANTUM GROUP, INC.
This Agreement is made and entered into this day of December 11, 1998
by and between the Quantum Group, Inc., a Nevada corporation ("Seller") and
FOND'S CONCEPT GMBH + CO. RECYCLING DRESDEN KG ("Buyer"). Seller has
agreed to sell, and Buyer has agreed to purchase, PressMaster 100 press
machine and other REVULCON equipment, as per EXHIBIT A under the terms and
conditions set forth below. Accordingly the parties, intending to be
legally bound thereby, agree as follows:
1. IDENTIFICATION OF PRESSMASTER. The equipment to which this
Agreement relates is a Eurectec PressMaster Press, Model No. 100, for
product manufacture together with additional REVULCON EQUIPMENT: AS PER
ATTACHED LIST EXHIBIT A. (collectively the "PressMaster and other REVULCON
equipment to schedule"). Unless otherwise specified herein, Seller will
have manufactured the PressMaster/ancillary equipment for the express
purpose of fulfilling this Agreement.
2. AGREEMENT TO PURCHASE. a) Buyer agrees to purchase from Seller
equipment package, and Seller agrees to sell to Buyer, the PressMaster 100
including additional REVULCON equipment for the total Purchase Price of
DM 5,870,052.00 PER EXHIBIT A.
b) PAYMENTS. Payment of 30% is due and payable at the time
of signing this agreement with the balance due at the time of shipment of
the equipment with the presentation of clean "on-board" bills of lading in
sight duly legalized (partial payments allowed) and is to be wire
transferred to the following account details: Beneficiary: The Quantum
Group, Inc. Account # 023 758 644 ABA Route # 1220 16066 City National
Bank, 4685 MacArthur Court, Newport Beach, CA 92660 USA.
The prices quoted do not include any taxes applicable in the United States.
Total purchase price quoted INCLUDES : freight and insurance of a common
carrier chosen by Seller, and equipment installation, but excludes
extraordinary shipping services that may be required by Buyer and cost of
installation.
The REVULCON machines are supplied from Germany and the local
Mahrwertsteuer taxes at the rate of 16% will be added.
Taxes which the Seller must pay or collect with respect to the sale of the
PressMaster equipment (other than income taxes) shall be added to the total
purchase price and shall be payable by Buyer upon delivery of the
PressMaster and other equipment.
Buyer bears the risk of loss for the PressMaster and other equipment after
delivery, in accordance with Buyer's instructions.
E-11
<PAGE>
SALES AGREEMENT
THE QUANTUM GROUP, INC.
3. DELIVERY DATE.
1 # Revulcon machine can be delivered and installed by December 21, 1998.
The balance of the equipment will be delivered and installed during the
first half of 1999 per an agreed program to be confirmed.
In the event of loss during shipment, actual delivery shall be delayed a
reasonable time to allow Seller to collect insurance and effect repairs or
replacement.
4. OBLIGATIONS OF SELLER.
Seller agrees to make available to Buyer via telephone, or in person at
Buyer's premises (at Buyer option), such of Seller's personnel as Buyer
reasonably deems necessary for the purpose of instructing and training
Buyer's employees in the operation and maintenance of the Press Master in
connection with the uses proposed to be made by Buyer of the PressMaster,
provided such instruction and training is performed during initial
installation of the PressMaster.
Unless otherwise agreed in writing, Seller shall pay transportation and
lodging costs for Seller's personnel required to travel to Buyer's location
and Seller shall bear all other costs of providing such services.
5. BUYER'S INSTALLATION OBLIGATIONS. Buyer shall be responsible to
obtain all necessary inspections, licenses and permits for the installation
and operation of the PressMaster presses. Buyer acknowledges that the
total purchase price for the PressMaster 100 and other equipment does not
include any power hook-ups pads or floor reinforcement required in Buyer's
facility prior to installation.
Buyer shall reimburse Seller for any additional costs of Seller's training
and installation personnel occasioned by Buyer's failure to properly
prepare the installation site.
WARRANTY Seller makes no warranty. Seller hereby passes to Buyer the
manufactures warranty. Manufacturer to guarantee the equipment supplied
for a period of twelve (12) months, not exceeding 18 months from shipment
date. The guarantee does not cover electrical equipment for which
manufacturer will pass on the appropriate guarantee from each sub-vendor
supplier. The guarantee does not cover consumable parts. Parts or
components found defective during the guarantee period will be replaced or
repaired depending on the vendors choice. The guarantee period will
commence with the installation of the equipment. Damages caused by the
modifications brought about by the buyer and not conforming to the
specifications, or which have been previously approved in writing by the
Vendor, are not covered by the guarantee. Damages to the equipment caused
by using spare parts purchased by buyer and without vendor's approval, or
due to modifications purchased in contrast with specifications, are not
covered by this guarantee. The guarantee does not cover damages caused by
the introduction on the equipment of dangerous materials, such as but not
limited to, screws, bolts, or material other than that for which the
equipment has been specifically designed.
E-12
<PAGE>
SALES AGREEMENT
THE QUANTUM GROUP, INC.
Any use of the PressMaster equipment other than as stated in the
Seller's maintenance manuals supplied with the Press shall constitute
abuse. The nominal cycle time of the PressMaster is between 5 and 15
minutes depending upon the thickness and density of the products being
manufactured. If we consider the machine is idle for maintenance and other
different factors, the effective capacity of the PressMaster must be
calculated at APPROX. 80% of the nominal capacity.
In the event of any defects covered by this warranty, Seller will
remedy such defects by repairing or replacing any parts found to be
defective.
This warranty is limited to parts and labor only and does not include
any labor other than the removal and replacement of any defective parts.
This shall be the exclusive remedy for all claims whether based on
contracts, negligence, or strict liability, Seller or vendor shall not, in
any event, be liable for any loss of the use of any equipment or incidental
or consequential damages or commercial loss.
The Warranties set forth in this Agreement are exclusive and in lieu
of all other warranties expressed or implied including without limitation
any warranty of merchantability or fitness for a particular purpose.
Seller shall not be liable to Buyer for any delay or failure in
performance caused by acts beyond Seller's reasonable control, including
without limitation, acts of God, war, vandalism, sabotage, accidents,
fires, floods, strikes, labor disputes, mechanical breakdown, shortages or
delays in obtaining suitable parts or equipment, material, labor or
transportation, acts of subcontractors, interruption of utility services,
acts of any unit of government or governmental agency, or any similar or
dissimilar cause.
The maximum liability, if any, of the Seller for all direct damages,
including without limitation contract damages and damages for injuries to
persons or property, whether arising from Seller's breach of this
Agreement, breach of Warranty, negligence, strict liability, or other tort
with respect to the goods, or any services in connection with the goods, is
limited to an amount not to exceed the price of the particular goods. In
no event shall Seller be liable to Buyer for any incidental, consequential,
or special damages. The right to recover damages within the limitations
specified is Buyer's exclusive alternative remedy in the event that any
other contractual remedy fails of it's essential purpose.
7. SPECIFICATION -- ENGINEERING CHANGES. Specifications contained
in Seller's quotation or brochures and illustrations were in effect at the
time of the quotation or of printing of brochures and illustrations.
Seller reserves the right to make design or specification changes without
notice; provided that any such change shall not materially reduce the
production capacity of the PressMaster. Unless incorporated herein by
specific reference, such specifications do not form a part of this
Agreement.
<PAGE>
8. DEFAULT - REMEDIES. In the event of the failure by Seller to
fulfill any material term or condition of this Agreement prior to the
Seller's notice of its readiness to make delivery of the PressMaster, which
failure remains uncured ten (10) days after receipt by Seller of written
notice thereof, Buyer shall be entitled to withhold all unpaid amounts and
to seek the return of any amounts previously paid to Seller, and Buyer
shall be under no further obligation to Seller hereunder. In the event of
failure by Buyer to purchase the equipment in accordance with Section 2
hereof, other than as a result of Seller's default hereunder, and if such
failure remains uncured ten (10) days after receipt by Buyer of written
notice thereof, Seller shall be entitled, at its own option to terminate
this Agreement.
However, under these circumstances, all amounts previously paid by Buyer
hereunder to the seller, will by used by the seller as liquidated damages
to cover all costs associated with the establishment of the Buyer's
purchase order.
9. MUTUAL REPRESENTATION. The individuals executing this Agreement
on behalf of each of the parties hereto represents and warrants to the
other party that he or she has full power and authority to act for and bind
the party for whom he or she purports to act, and this Agreement has been
authorized by all necessary corporate action, if applicable.
10. MISCELLANEOUS. (a) This Agreement represents to entire agreement
of the parties with respect to the subject matter hereof, and supersedes
any prior written or oral expressions of the parties with respect to such
subject matter. This agreement may be amended or modified only in writing
by each of the parties hereto.
(b) The goods herein described are to be manufactured in Canada and
Europe and delivered to Europe. However, the parties agree that a contract
resulting herefrom in the United States, shall be deemed a US contract and
shall be construed in accordance with the Laws of Orange County,
California, United States, other than principles of conflicts of Law.
Buyer hereby: (i) agrees that the courts of the Orange County,
California United States who shall the exclusive jurisdiction to adjudicate
any matter arising out of or as a result of this Agreement,
(ii) consents to the jurisdiction of each such court,
(iii) waives any objection it may have to the laying of
venue of any such suit in court, and
E-13
<PAGE>
SALES AGREEMENT
THE QUANTUM GROUP, INC.
(iv) irrevocably designates the Director of the Orange
County Department of Commerce as its agent in California , United States to
receive service of any process in any such suit in the United States.
(c) The addresses of each of the parties for the purpose of any notice
required or permitted to be given hereunder shall be as indicated following
such parties signature, and Notice addresses may be changed by giving
notice to the other party. Notices shall be effective upon delivery to the
notice address by personal delivery, overnight express service, mail or
facsimile transmission (with hard copy to follow by first class mail).
IN WITNESS WHEREOF, the parties have caused this agreement to be
executed by their duly authorized officers on the date and year first above
written.
Seller > > > > > > The Quantum Group, Inc.
WITNESS:
/s/ Keith J. Fryer BY: /s/ Ehrenfried Liebich
Keith J. Fryer -------------------
Ehrenfried Liebich
President & CEO
Notice address:
14771 Myford Road,
Bldg., B
Tustin, CA 92780, USA
Tel : (714) 508-1470
Fax : (714) 508-1476
Buyer > > > > > > Fonds Concept GmbH + Co.
Recycling Dresden KG
WITNESS:
__________________ BY: /s/ Johann Bredgens
Name: ---------------
Johann Brendgens
Principal
Notice address :
Hagschestr. 30,47533 Kleve,
Germany
Tel : 49 2821 77510
Date : December 11th, 1998 Fax : 49 2821 775111
E-14
<PAGE>
SALES AGREEMENT
THE QUANTUM GROUP, INC.
EQUIPMENT COSTS SUMMARY -EXHIBIT "A"
------------------------------------
Crumb rubber product manufacturing Equipment:
Price DM
Part A - PressMaster 100 :
(sub section One)
1/. PressMaster 100 press with 2 sets
of top plates: 1/ with flat base plus 6 plates
attached for pressing mats 2/ with flat base
plus 2 plates for pressing wave or dog bone
pattern in each of three sizes :0.75", 1.5" and 2"
all complete with PressMaster feed hopper )
2/. Blend master )
3/. Sets of molds :
-------------
a/ dog bone pattern for 1 press side
made of 2 plates each 23.5" x 34.5" )
b/ wave pattern for 1 press side made
of 2 plates each 23.5" x 34.5" )
c/ door mats (2 press sides) with 6 mats
per side (12 total) with each mat being
24" x 16" in five (5) designs )
4/ FlockMaster & Glue Master
(610 mm wide) )
subtotal: (inclusive items 1-4 )
--------- ---------------------- DM 0,708,037
-- ---------
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<PAGE>
SALES AGREEMENT
THE QUANTUM GROUP, INC.
Price DM
--------
sub total carried:
- ------------------ 0,708,037
---------
5/ Flocking material (2 mm)
16 boxes @ 25 pounds
400 pounds @ $6.75 = $2,700 0,008,100
6/ Flocking glue :
4 # buckets @ 25 kg. = 100 Kg. @ $6.75
= $675 0,002,025
7/ Polyurethane :
4 # drums @ 470 pounds x $0.78/pound
say $500 0,001,500
sub total : -----------
0,719,622
---------
(sub section 2)
8/ FlockMaster machine :
(1000 mm wide) 0,260,535
9/ ScreenMaster (glue) machine : 0,075,500
10/ CureMaster : 0,064,355
Total Part A : DM 1,120,052
- -------------- -- ---------
E-16
<PAGE>
SALES AGREEMENT
THE QUANTUM GROUP, INC.
Part B - Revulcon machinery :
- -----------------------------
(sub section 1) Price DM
--------------- --------
1/ REVULCON Callander press with
accessories Each DM 1, 150,000^
_______________________________
sub total: DM 1,150,000 1,150,000
(sub section 2)
-------------
1/ REVULCON Callander Press
with accessories Each DM 1,200,000 x 3 # = 3,600,000
Total Part D : DM 4,750,000
- -------------- -- ---------
SUMMARY :
- ---------
Item : Price DM
------- ---------
Part A - PressMaster 100 package 1,120,052
Part B- REVULCON package 4,750,000
Total : DM 5,870,052
------- -- ---------
Notes :
^ This machine can be delivered and installed 12/21/98
1/ PressMaster 100 package shipped form California and is net of any
local taxes which may become payable upon arrival in Germany
2/. Revulcon machines are supplied from Germany and the local
Mehrwertsteuer taxes at the rate of 16% will be added
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<PAGE>
/Letterhead/ Schvaneveldt & Company
Certified Public Acccountant
275 East South Temple, #300
Salt Lake City, Utah 84111
(801) 521-2392
Exhibit 23.01
Darrell T. Schvaneveldt, C.P.A.
Consent of Darrell T. Schvaneveldt
Independent Auditor
I consent to the use, of our report dated March 17, 1999, of the Financial
Statements for The Quantum Group, Inc., and Subsidiaries, dated December
31, 1998, included herein and to the reference made to me.
/S/ Schvaneveldt & Company
Salt Lake City, Utah
March 31, 1999
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<NAME> THE QUANTUM GROUP, INC., AND SUBSIDIARIES
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<PERIOD-END> DEC-31-1998
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