United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
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September 30, 1999 0-23812
THE QUANTUM GROUP, INC.
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(Exact name of registrant as specified in its charter)
NEVADA
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(State or other jurisdiction of incorporation or organization)
95-4255962
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(I.R.S. Employer Identification No.)
Park Irvine Center, 14771 Myford Road, Building B
Tustin, CA 92780
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(Address of principal executive offices)
(714) 508-1470
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
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State the number of shares outstanding of each of the registrants classes
of common equity, as of the latest practicable date.
Common stock, par value $.001; 8,724,923 shares outstanding
as of November 9, 1999.
PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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See page F-1 to F-10 attached.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
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This Form 10-QSB contains certain forward-looking statements. For
this purpose any statements contained in this Form 10-QSB that are not
statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "estimate" or "continue" or comparable
terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, and
actual results may differ materially depending on a variety of factors.
General
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The 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. Areas for growth in the
Company are in the technology transfer areas, including the EGS tire
recycling system, ECO press technology and equipment, marketing and
technology transfer of asphalt paving technology, the Revulcon
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 tire buffings and larger mesh crumb
rubber.
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 party equipment sales. The Company provides
feasibility studies, engineering, equipment, installation and training for
its clients with rubber recycling systems.
2
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, which was founded in 1967 and specializes in
the area of contracting project design, engineering and project management
within the environmental recycling industry, the Company is able to provide
complete engineering designs 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, technologies and products soon to be manufactured in the
California Prison project, a joint venture in the name of QCAL, situated
near San Diego.
In addition to tire recycling systems and product manufacturing
subsystems, the Company is developing markets for its crumb rubber value
added after market products. The Company intends to establish a
manufacturing facility in northern California to 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.
The Company is a majority joint venture partner in the Poseidon
Products, GmbH project in Penkun, near Berlin, Germany. It is anticipated
that by participating as an equity partner in recycling joint ventures, the
Company will develop cash flow through operations conducted by such
recycling facilities. The Poseidon project, in addition to being the
initial project to utilize the Company's EGS shredding and granulating
system, will also be licensed to utilize proprietary technologies for after
market products purchased or developed by the Company. The Company
anticipates using the Poseidon project to showcase its full array of tire
recycling technology and after market products made from crumb rubber and
industrial rubber.
QCAL (QCAL, Inc.) was established to enter a joint venture with the
State of California, Department of Corrections for construction and
operation of a mini-recycling facility at the Donovan Correctional Facility
located near San Diego. Currently under contract, the Company is providing
equipment for the facility which is scheduled to begin the initial stage of
operations in September, 1999. The QCAL project will recycle tires into
crumb rubber and then produce value-added after market products.
Joint Venture Projects
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Poseidon Products GmbH.
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In a joint venture agreement with a German Government sponsored
company, Steg, the Company established Poseidon Products GmbH which 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 will be devulcanized
with the Company's Revulc 300 machine with the material used in a variety
of products. The balance of the crumb rubber will be used for in-house
manufacturing of value added products utilizing the Eco-Press systems and
other technologies.
3
Due to additional delays, the funding for the Poseidon joint venture
is now expected to be completed during the fourth quarter, 1999. The
Company's management team has met with Deutsche Bank and German state
government officials who have agreed to proceed with the project.
Guarantees have been pledged by the State of Mecklenburg which will enable
the conclusion of funding with either Deutsche Bank or Deutsche Kredit Bank
with whom the Company is also negotiating. Due to the size and nature of
the project, concluding the necessary funding, with grant and loan
agreements has caused further unavoidable delays in completing the funding
package. Management believes all necessary agreements will finally be
completed during the fourth quarter of 1999.
Ground breaking for the Poseidon project occurred September 17, 1998
in Penkun, Germany and Poseidon has opened offices in Penkun and commenced
a German wide marketing study and plan to introduce and sell its
manufactured products in Germany and Europe. The Company has funded
further ground and foundation work during the second and third quarter of
1999. Upon completion of funding, the Company is poised to immediately
begin on-site civil engineering and construction which will be coordinated
by FDC engineering. Upon receipt of final funding, the project is expected
to take ten months to complete.
The Company has established a Poseidon Website which may be viewed at
www.poseidon-products.com. The Website which is in German and English,
provides a platform for showcasing the Poseidon joint venture and promoting
an awareness of the Company. This Website will be upgraded in keeping with
the Company's WEST and QMAX Websites.
California Prison Manufacturing Project.
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The Company established QCAL, Inc., a California corporation as a
wholly owned subsidiary for the purposes of entering a joint venture
agreement with the State of California, Department of Corrections, ("CDC"),
Richard J. Donovan Correctional facility to manufacture and assemble
products for sale utilizing and hiring the services of adult offenders.
The Company is leasing a 10,000 square foot facility from CDC for this
purpose. The operations at the QCAL facility will be the shredding and
recycling of tires into crumb rubber and the further processing of the
crumb rubber into value-added after market products for sale. QCAL will
provide all materials, machinery and equipment necessary for the
manufacture of goods. QCAL will also provide all necessary training and
operational supervision. Manufactured products will be the property of
QCAL who will retain the rights from all sales. CDC involvement is to
establish a work program with training for inmates.
The QCAL facility will be completed over two phases. Phase one
installation which consists of the installation of a compact granulator,
ECO Press 200 flat press, mixer, flocking machine and a SuperCollider is
now complete. The Company anticipates production to commence by the end of
October 1999 and will initially produce play tiles, safety mats, livestock
mats and sports and fitness mats. Additional build-out is on-going at the
facility to enhance the operations and productivity of the facility. Phase
two will include a continuous roll press to make sheeting material for
industrial applications and a Revulc 300 machine. Phase two is anticipated
to be completed by the end of the second quarter of 2000. With completion
of Phase two, the facility will produce industrial flooring underlay and
other commercial and industrial applications with the employment of the
Revulcon technology.
4
Initially, the Company will hire and train approximately 10 inmates to
work at the facility building up to 40 when all phases of the project are
complete. At the present time, five employees have been trained and five
more are scheduled for training. The plant will operate one eight-hour
shift a day, then move to two eight-hours shifts with the potential to
operate at full capacity of three eight-hour shifts per day. The Company
intends to cross-train the workforce, thus mitigating any critical skills
necessary for plant operations. Depending upon the success of this pilot
project, the Company expects to expand this into a larger scale project
subject to raising the necessary capital. The Company will pay the inmates
California minimum wage of $5.75 per hour, thus increasing the potential
net revenue to the Company from products manufactured and sold at the
facility.
Throughout the start-up and operation of the QCAL facility, the
Company will be designing operation standards, technical manuals and
operating procedures which will be used for future recycling plants.
The Company is currently negotiating with the State of California to
pursue another facility in the San Francisco Bay area.
Proposed Joint Venture Projects
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United Kingdom.
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In May, management of the Company met with potential investors and
government agency representatives regarding a joint venture project. The
Company has entered an agreement to obtain a feasibility study which will
also provide information on the accessibility of Structural Fund Grants
provided by the European Union for economic development in targeted areas
similar to the arrangements for the Poseidon project. The Company is
receiving bids for the implementation of feasibility studies for full tire
recycling projects in Scotland and England.
Brazil.
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The Company has submitted a preliminary feasibility study for a plant
in Belo Horizonte, Brazil and is awaiting review and additional data from
the client. The Company anticipates final completion of the feasibility
study by the end of 1999 when the parties will make a determination as to
whether or not to proceed with a joint venture project. The client has
visited the QCAL facility in California to view the project and discuss
funding for the potential Brazil project.
South Africa.
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A Company representative met with potential investors in July 1999
regarding a joint venture project involving a 12,000 ton tire recycling
facility including after market product manufacturing capabilities.
Following a pending visit by the Client at the QCAL facility, the Company
expects to submit a detailed proposal to the client by the end of November
1999.
The Company also continues negotiations with various potential clients
in the United States, Europe, the Arabian Gulf, Puerto Rico, Chile and
Asia.
5
Current Contracts
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Atzendorf, Germany.
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The Company has a two phase order for press equipment, flocking
equipment and continuous roll manufacturing equipment for the manufacturing
of after market flooring products. The Company will also supply a grizzly
to supplement the existing granulating facility. Due to the client
reposturing its corporate position, delivery of the equipment has been
delayed and is now expected to occur in 2000.
Coswig, Germany.
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Originally scheduled for delivery in Chemnitz, Germany, the client has
requested the mini recycling plant order be rescheduled for delivery in
Coswig, Germany which is near Dresden. The Company will be delivering a
Revulc 300 system along with press equipment. Due to the client
reposturing its corporate position, delivery of the first Revulc 300
machine has been delayed and is now expected to occur in 2000.
Mexico Agreement.
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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. The Company sent an engineering team to the site to
correct the problems, however, the team uncovered additional problems. The
Company continues to explore viable solutions for the problems encountered
by the client with the CISAP equipment. To this end, the Company has had a
field engineer at the Mexico facility to evaluate and troubleshoot
problems. The Company has implemented a corrective action plan and
continues to work with the client to resolve all issues.
In an effort to mitigate the problems encountered by the Mexico
client, the Company continues to purchase crumb rubber from the client for
sale in the United States.
Saudi Agreement.
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The agreement for the initial phase of CISAP equipment to be delivered
in Saudi Arabia was entered in 1994 with additional equipment purchased by
the clients from CISAP in 1995 and 1997. The client experienced problems
with the CISAP equipment as well as problems with equipment supplied by
SMS. The Company has completed remedial work on two of the faulty CISAP
machines, which are now fully functional on two shifts per day to the
client's satisfaction. The Company sent a field engineer to the site to
assist the client with maintenance and repairs of the CISAP equipment. A
detailed proposal for retrofit of the third CISAP machine has been
submitted to the client for approval, which the Company expects to finalize
by year end. In addition, the Company has submitted a proposal for an ECO
Press 3000 system to supplement the SMS press equipment as the client is
now focusing its efforts on manufacturing value added products. The
Company anticipates a response to the proposals by year end.
Current Orders
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In conjunction with FDC engineering, the Company is negotiating an
agreement in China to deliver flat press and continuous roll equipment for
two projects. Following a visit by the Chinese clients to the QCAL
facility, the scope of the negotiations has expanded to include potential
supply of a crumb rubber plant and several SuperColliders. FDC, in
conjunction with the Company is preparing a proposal for presentation to
the client during the fourth quarter 1999.
6
The Company anticipates its orders for 1999 to increase due to
anticipated orders from China, QCAL and Saudi. Further, the Company
expects to generate a new revenue stream as a result of orders for value
added products manufactured at the QCAL facility.
SuperCollider - Impact 500
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The Company has developed a compact SuperCollider which it is marketed
under the name Impact 500. The Impact 500 is designed to take large mesh
size crumb rubber produced by the Company's EGS System and buffings from
tire retreading and pulverize it into fine powder. The finished product is
then used in extrusion products, press products and products combining
super-fine crumb and plastic. The Company currently has a letters of
intent for four Impact 500 machines which are scheduled for delivery during
early 2000. Three Impact 500 machines are slated for delivery to Germany
and one is scheduled for delivery to the QCAL facility.
The testing of the Impact 500 has been proven to meet or exceed
initial specifications. Final development on the Impact 500 is now
complete. The prototype has been moved to the QCAL project as a showcase
venue where the Company continues to modify and improve the design.
Initially, the Company will manufacture the Impact 500 machines in-
house. The Company will manufacture the Impact 500 at the QCAL facility.
The Company anticipates it will need to hire approximately five additional
employees to work on the Impact 500 manufacture. The Company is exploring
the viability of making patent applications for the Impact 500 machines.
REVULCON(R) - Revulc 300 Technology
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The Company has an exclusive worldwide license agreement with Faru
GmbH., Dresden, Germany ("Faru") for the REVULCON(R) technology. This
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.
Improvements to the Revulc 300 machine which included in-feed and
material off-take equipment have now been completed by Ermafa and are
working to specifications. Two tons of material processed by the Revulc
300 machine have been shipped to the QCAL facility for product testing.
The improved Revulc 300 machine gives the Company a complete system to
market.
7
The first Revulc 300 system was installed at the Coswig project during
the third quarter of 1999. Two additional Revulc 300 machines are
scheduled to be ordered upon proof of operation of the prototype machine at
Coswig. The Company anticipates the order for the two additional Revulc
300 machines to be in place by the end of fourth quarter 1999 with delivery
scheduled for the first half of 2000.
Sales and Marketing
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The Company has initiated an intense marketing campaign to establish
sales channels for the products to be manufactured at the QCAL facility.
Initially, the QCAL facility will fabricate doormats, interlocking sports
mats for gyms and fitness centers, playground safety mats and specialty
mats. Because of recent changes in the laws regulating playground
surfaces, a potentially huge market is being opened up to the Company for
its playground safety mats and the Company is receiving bids for this
product. The Company is capitalizing on this potential market with intense
marketing efforts. Current focus of the marketing campaign is telephone
soliciting, personal contacts, direct mailings and e-mail advertising as
well as trade journal advertising.
The Company is also targeting existing markets for is door mats. The
existing market includes hotels/motels, real estate companies, and state
agencies such as prisons, hospitals, etc. The Company markets its sports
mats through a current distribution network as well as direct
solicitations. In addition, due to its current production capability and
its cost competitive position, the Company is pursuing the anti-fatigue mat
market.
The Company continues to research and develop new value added products
such as animal mats, heated tile, fatigue mats, doormats, interlocking
tiles, playground tiles, soaker hoses, continuous roll sheet material,
plastic and crumb rubber mixes and industrial rubber scrap.
Exhibitions
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The Company continues to showcase its products and services at trade
shows and exhibitions. Of significant importance to the Company is the
upcoming ETRA (European Tyre Recycling Association) conference on October
18 and 19, 1999 in Germany. Via its Poseidon project joint venture
partner, the Company is co-hosting the event with the Minister of the
Environment of the Landtag Mecklenburg-Vorpommern. The Company's
president, Mr. Ehrenfried Liebich will give a presentation on the Quantum
Group, Inc., the QCAL project and SuperCollider technology.
The Company will also attend several upcoming events including the FSB
exhibition in Cologne which showcases athletic and safety surfaces; Club
'99 Sports & Fitness Show in Chicago; California Parks & Recreation; Waste
Management in Miami; Nashville Tire Show; Las Vegas Floor Covering Show;
Tire Expo in Las Vegas; Farm Show and the Atlanta Sports Super Show.
8
Public Relations
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The Company has re-engaged the services of The Blaine Group, Inc.,
based in Beverly Hills, California, to help with public and investor
relations. The Blaine Group initiated a PR campaign in September, 1999,
centering on the QCAL facility and Poseidon projects which has generated
positive press reaction whereby the Company has been featured in the Los
Angeles Times, Orange County Register, Waste News and other trade and
technical publications. The campaign has also generated a number of client
inquiries.
The Company has also engaged the services of an outside consultant to
assist the Company in new web site construction, e-commerce development and
internet marketing.
Year 2000 Compliance
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The Company is currently year 2000 compliant and does not anticipate
any problems with its computing or support equipment. However, vendors,
banks and other suppliers and parties upon whom the Company relies, may not
be year 2000 compliant. The Company has no control over such parties and
any impact upon the Company is uncertain. 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 vendors, banks or other
suppliers or parties upon whom it relies are non-compliant with Y2K
matters.
Web Site
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The Company has updated its group Website and has created links to
other allied Websites, which can be viewed at
http://www.thequantumgroupinc.com., where the Company is currently adding a
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German translation. During the third quarter of 1999, the Company had
71,009 hits on its Website. 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 two additional Websites which will be www.Qest-Quantum.com and
www.Qmax-Quantum.com. Qest-Quantum.com will focus on the group's new
systems and technologies and Qmax-Quantum.com will focus on the group's
asphalt paving related business. The Company will offer e-commerce
capabilities in the second half of 1999, allowing customers to purchase
products directly from the Company. An additional Website can be viewed at
http://www.tirerecycling.com, which will become a main portal for the
- ----------------------------
Company. The Company had 25,511 hits on this Website during the third
quarter of 1999. This Website has links to The Quantum Group, Inc. site
and allows the viewer to access an overview of the Company's activities,
obtain market information for the Company's stock, view the Company's EDGAR
filings, retrieve information on the Company's joint venture projects and
link to the Company's subsidiaries websites.
9
PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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See pages F-1 to F-10 attached.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
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LIQUIDITY AND CAPITAL RESOURCES
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As of September 30, 1999, the Company had cash of $233,176 on hand.
The Company does not currently have any outstanding debt and
Management believes that proceeds from current equipment sales and license
fees, pending sales and the current Regulation S offering proceeds will
provide sufficient capital and liquidity to meet the Company's requirements
for the next twelve months. The Company has begun receiving proceeds from
a new Regulation S offing. This offering commenced during the third quarter
of 1999.
The Company does not currently have any capital commitments for 1999.
However, at such time the Company initiates Phase two of the QCAL project,
it will have a capital commitment for approximately $1,500,000 for
equipment needs. The Company anticipates initiating Phase two during the
fourth quarter of 1999.
The Company is emphasizing product and services sales via the Internet
and trade show participation as well as direct marketing efforts.
Additionally, the Company is vigorously pursuing joint venture arrangements
similar to that of the Poseidon Project. The Company anticipates it will
experience continued growth during 1999 through these efforts pursuant to
the Company's strategic plan.
RESULTS OF OPERATIONS
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Comparison of the three months ended September 30, 1999 and the three
months ended September 30, 1998.
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During the first nine months of 1999, the Company's net cash used in
operations was $1,204,616, compared to cash provided by operations of
$105,235 during the first nine months of 1998. The 1998 operating
activities cash is a result of an operating loss of $1,295,457. The Company
realized net proceeds of $318,405 after commissions; legal and accounting
fees on its regulation S offering during the three months ended September
30, 1999. $2,294,966 was received from a prior Regulation S offering in the
comparable period in 1998.
10
The Company advanced and expensed $133,159 to the German Joint Venture
(Poseidon) during the quarter ended September 30, 1999. $1,450,000 was
invested in the comparable 1998 period. During the third quarter of 1999,
the Company made a short term secured loan to an officer of the Company.
The note provides for interest in excess of the interest the Company is
currently earning on short-term investments. A similar transaction with a
different officer occurred in the comparable quarter last year.
The Company generated $5,496 in other revenue (Interest income) during
the three months ended September 30, 1999. The Company generated $14,928 of
other revenue and $14,199 of costs during the quarter ended September 30,
1998. All of this revenue was generated by the sale of crumb rubber during
the 1998 quarter. The crumb rubber was sold at close to cost. No project
revenue was recorded during the third quarter in either year.
The Company recorded $60,806 in Salaries and Wages expense during the
third quarter of 1999 and a total of $106,334 in the second and third quarter
of 1999. This expense is due to the hiring of clerical and administrative
staff and hiring personnel who had previously been independent contractors.
Depreciation expense increased to $42,636 in the third quarter 1999
compared to $10,832 due to equipment purchased for the Donovan Prison
project.
Consultant expense increased by $68,640 during the Third quarter of
1999 to $183,947 compared to $115,307 in the comparable 1998 period. This
increase is due to the use of outside consultants for some aspects of the
preparing a long range strategic plan and for ongoing feasibility studies.
Comparison of the three months ended September 30, 1998 and the three
months ended September 30, 1997.
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During the first nine months of 1998, the Company's net cash provided
by operations was $135,235, compared to cash provided by operations of
$188,041 during the first nine months of 1997. The 1998 operating activity
cash is a result of an operating loss of $728,924 primarily offset by a
$1,160,000 increase in Customer deposits. The Company realized net proceeds
of $2,494,966, after commissions, legal and accounting fees on its
regulation S offering during the six months ended September30, 1998. No
such activity was conducted during the comparable period in 1997.
The Company invested an additional $1,450,000 in the German Joint
Venture (Poseidon) during the quarter ended September 30, 1998. No
comparable activity occurred in 1997. During the third quarter of 1998, the
Company made a short term secured loan to an officer of the Company. The
note provides for interest in excess of the interest the Company is
currently earning on short-term investments. No such transaction occurred
in the comparable quarter last year.
11
The Company generated $14,928 of other revenue and $14,199 of costs
during the quarter ended September 30, 1998. All of this revenue was
generated by the sale crumb rubber during the quarter. No project revenue
was recorded during the quarter. The crumb rubber was sold at close to
cost. The Company had project Revenue of $2,335,640 during the comparable
quarter in 1997.
Professional Fees expense in the three months ended September 30, 1998
of $23,467 exceeded the prior period expense of $485 by $22,982 because of
increased legal expense relating to the joint venture and the CISAP
situation. Administrative expense increased from $23,914 to $58,702 from
the second quarter of 1997 to the same quarter of 1998. This increase is
due to the increases in marketing activities during the 1998 period.
Consultant fees increased by $53,753 to $115,307 in the three months
ended September 30, 1998 compared to the $61,554 incurred in the comparable
three month period in 1997. $30,303 of this increase is as a result of
charging expenditures incurred by or on behalf of the Company president to
consulting expenses. In prior periods, the payments to or on behalf of the
Company president had been accounted for as a reduction of the debt owed to
the officer by the Company.
Comparison of the nine months ended September 30, 1998 and the nine
months ended September 30, 1999.
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The Company had revenues of $80,394 for the nine months ended
September 30, 1999 compared to revenue of $524,024 in the nine months ended
September 30, 1998. The revenue during the 1999 period is from Interest and
miscellaneous items, no equipment sales have been shipped. The 1998 revenue
included $460,000 of equipment sales with $64,024 of interest and crumb
rubber sales. Costs of Sales of $452,374 were incurred in relation to the
1998 sales resulting in a Gross Profit of $71,650. There is no cost of
sales for the 1999 revenue resulting in a Gross Profit of $80,394.
Salaries and Wages of $103, 334 were incurred in the nine months ended
September 30, 1999 with no comparable expenses in 1998 as explained above.
Depreciation expenses of $77,982 in the nine months ended September
30, 1999 exceed the 1998 expense of $34,784 by $43,198. This increase is
due to the equipment purchased for the Donovan Prison Project.
Travel Expense for the nine months ended September 30, 1999 are
$155,780 compared to $96,154 for 1998. Office Expenses of 120,125 for 1999
compare to 1998 expenses of 41,367. This expense has increased due to the
joint venture project in Germany, the pre opening activities for the
Donovan prison the gearing up for mat product sales.
12
Comparison of the nine months ended September 30, 1998, and the nine
months ended September 30, 1997.
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The Company generated $460,000 of equipment sales revenue and $400,000
of costs as a result of contract additions on the Mexico project during the
nine months ended September 30, 1998. $40,000 of additional revenue was
also generated by the sale of a small parcel of land that the Company owned
in conjunction with the previously owned residential property in Florida.
This parcel was excluded from the original sale in order to eliminate the
need to take an owner financing plan of questionable collectability. Due
to the uncertainty of revenue recognition, the parcel had been held without
asset value, and as such the purchase price of $40,000 is all a gain on
sale. $16,848 in other revenue was generated from the sale of crumb rubber
and $1,000 was generated from the sale of research materials. $6,175 in
interest was also earned during the first nine months of 1998. The Company
had $2,576,792 of equipment sales and $100,000 of license sales for the
comparable 1997 period.
The Company had a loss of $728,924 in the nine months ended September
30, 1998 compared to a profit of $167,776 in 1997. This is because of the
third quarter revenue and profit from the equipment sales in 1997 without a
similar sale in 1998. This is primarily due to the emphasis on joint
ventures in 1998 and the losses incurred due to the CISAP problems.
The Company's cash position at September 30, 1998 is significantly
stronger at $506,839 compared to $89,198 at September 30, 1997. Accounts
Receivable of $740,071 are an increase of $519,092 over the same period in
1997. The Company has a deposit on inventory of $421,451 at September 30,
1998, no deposits were in place in 1997.
Inventory decreased during the first nine months of 1998 compared to
1997 because of the sale back of the inventory unit to CISAP during the
fourth quarter of 1997.
In 1997, the Company acquired free trading fully registered shares of
Keystone Energy, Inc. in return for a license agreement. The Company
recognized "Mark to Market" valuation losses in 1997 and in the first
quarter of 1998. In the second quarter of 1998, the Company sold the
shares at a loss of $13,125 from book value.
The Company invested $1,494,722 in the Poseidon project and $150,000
in the Faru license agreement in 1998. No comparable transactions took
place in 1997. In anticipation of the Poseidon project, the Company has
incurred $117,155 in prepaid expenses. These expenses will subsequently be
billed to the project. No prepaid expenses were incurred in 1997.
Travel expenses of $96,154 in the nine months ended September 30, 1998
exceed the comparable 1997 period by $57,900, due to the Poseidon project
and follow up and sales activities in Mexico, Saudi Arabia, Brazil,
Scotland, Ireland and the Gulf States. Administrative expenses and
consulting fees have increased from 1997 levels for the same reasons.
13
PART II - OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
- ---------------------------
The Company's subsidiary, Eurectec, Inc. has been named as the
defendant in a complaint filed in Pistoia, Italy by Tyre's Ecology S.r.l.,
formerly known as Cisap Ecology S.r.l. Tyre's Ecology S.r.l.. succeeded to
the interest of Cisap Spa as a party to a marketing agreement between
Eurectec, Inc. and Cisap Spa. Under the marketing agreement Eurectec, Inc.
was granted the exclusive rights to market certain tire granulating
equipment manufactured by Cisap Spa and Tyre's Ecology. The agreement
required a minimum number of granulating systems to be sold by Eurectec,
Inc. to maintain the exclusive rights. Eurectec, Inc. has not met its
minimum sales quota. The Complaint seeks among other things to terminate
the marketing agreement and to recover damages in the approximate amount of
$520,000 arising from alleged misstatements by Eurectec, Inc. as to the
manufacturers' represented through put capacity of equipment and alleged
defamation by Eurectec and a former engineer of Tyre's Ecology S.r.l., that
has performed work for Eurectec, Inc. and purchasers of Cisap Spa and
Tyre's Ecology S.r.l. equipment in Saudi Arabia and Mexico. Eurectec, Inc.
will be required to respond to the complaint in November, 1999.
The Company intends to vigorously defend the claim for damages on the
basis that none of the Cisap Spa or Tyre's Ecology S.r.l. equipment sold to
any of the purchasers introduced by Eurectec, Inc. has been able to operate
as represented by the manufacturers and the manufacturers have failed to
deliver equipment purchased, failed to properly install equipment as
required by contract and failed to provide warranty service to the
purchasers of the equipment. Eurectec, Inc. has been informed by the
purchasers of the equipment in Saudi Arabia and Mexico that they will
support and cooperate with Eurectec, Inc. to establish the breach of the
various equipment purchase agreements.
As a result of the plaintiffs non-performance, Eurectec, Inc. has
incurred substantial costs attempting to obtain performance for its clients
and has suffered substantial damages to its business as a result of the
plaintiff's unwillingness and inability to perform under its sales
agreements. Eurectec, Inc. intends to seek recovery of damages from the
plaintiffs. As to the issue of having its marketing rights terminated
under the marketing agreement, Eurectec, Inc. does not believe that such
marketing rights hold any value to it because the manufacturers have
consistently failed to deliver commercially viable equipment to purchasers.
Item 2. Changes in Securities
- ------------------------------
Recent Sales of Unregistered Securities
- ---------------------------------------
(a) Securities sold.
--------------------
<PAGE>
<TABLE>
<CAPTION>
1. Regulation S offering
--------------------------
Date Title Price Per Share Amount
--------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter 1998 Common $1.50 1,000,000
Date Title Price Per Share Amount
--------------------------------------------------------------------
Second Quarter 1998 Common $1.50 300,000
Common $2.00 300,000
Common $2.25 117,777
Date Title Price Per Share Amount
--------------------------------------------------------------------
Third Quarter 1998 Common $2.25 225,000
Date Title Price Per Share Amount
--------------------------------------------------------------------
Third Quarter 1999 Common $2.55 156,284
</TABLE>
2. Option Exercise
--------------------
In June, 1998, an option for 50,000 shares of common stock, issued
pursuant to the Company's 1997 Stock Option Plan, was exercised at a price
of $0.062 per share.
In July, 1998, an option for 200,000 shares of common stock, issued
pursuant to the Company's 1997 Stock Option Plan, was exercised at a price
of $0.062 per share.
(b) Underwriters and other purchasers.
- --------------------------------------
1. Regulation S Offering
--------------------------
All securities were sold during 1998 to non U.S. persons. All shares
of common stock were sold in Germany to Beteiligungs Fonds, GBR.
All securities were sold during third quarter 1999 to non U.S.
persons. All shares of common stock were sold in Germany.
2. Option Exercise
---------------------
The June option was exercised by RMC International, a consultant to
the Company.
15
The July option was exercised by Johann Brendgens, a consultant to the
Company.
(c) Consideration.
- -------------------
1. Regulation S Offering
--------------------------
The aggregate offering price for sales made during the first quarter
1998 was $1,500,000 and the Company paid a 10% commission in the amount of
$150,000.
The aggregate offering price for sales made during the second quarter
1998 was $1,315,000 and the Company paid commission in the amount of
$207,144.
The aggregate offering price for sales made during the third quarter
1998 was $506,250 and the Company paid commission in the amount of $71,988.
The aggregate offering price for sales made during the fourth quarter
1999 was $398,525 and Company paid commission in the amount of $80,120.
2. Option Exercise
---------------------
The Company realized $3,100 from the exercise of the option in June,
1998.
The Company realized $12,400 from the exercise of the option in July,
1998.
(d) Exemption from registration claimed.
- ----------------------------------------
1. Regulation S Offering
--------------------------
The securities were sold in 1998 and third quarter 1999 pursuant to
Regulation S as promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended. The Company did not offer the
securities to any person in the United States, any identifiable groups of
U.S. citizens abroad, or to any U.S. Person as that term is defined in
Regulation S. At the time the buy order was originated, the Company
reasonably believed the Buyer was outside of the United States and was not
a U.S. Person. The Company reasonably believed that the transaction had
not been pre-arranged with a buyer in the United States. The Company has
not nor will engage in any "Directed Selling Efforts" and reasonably
believes the Buyer has not nor will engage in any "Directed Selling
Efforts." The Company reasonably believed the Buyer purchased the
securities for its own account and for investment purposes and not with the
view towards distribution or for the account of a U.S. Person.
16
2. Option Exercise
---------------------
The June option was exercised pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
The July option was exercised pursuant to Regulation S.
(e) Terms of conversion or exercise.
- ------------------------------------
1. Regulation S Offering
--------------------------
Not applicable.
2. Option Exercise
---------------------
The June option was granted pursuant to the Company's 1997 Stock
Option Plan. The exercise price per share was $.062 and the option, which
is for a total of 50,000 shares, may be exercised over a period of two
years from October 23, 1997, the date of the grant.
The July option was granted pursuant to the Company's 1997 Stock
Option Plan. The exercise price per share was $.062 and the option, which
is for a total of 200,000 shares, may be exercised over a period of two
years from October 23, 1997, the date of the grant.
(f) Use of Proceeds.
- ---------------------
1. Regulation S Offering - First Quarter 1998
-----------------------------------------------
The use of proceeds (other than commission paid) are estimated. No
proceeds resulted in payments either directly or indirectly to directors,
officers or persons owning 10% or more of any class of equity securities;
or to affiliates of the issuer.
<TABLE>
<CAPTION>
<S> <C>
Gross proceeds $ 1,500,000
Commission ( 150,000)
Net proceeds 1,350,000
Payoff existing debt $ 700,000
Pay Rothbury agreement 400,000
Working capital 250,000
Total Proceeds $ 1,350,000
</TABLE>
17
<TABLE>
<CAPTION>
Regulation S Offering - Second Quarter 1998
-------------------------------------------
<S> <C>
Gross proceeds $ 1,315,000
Commission ( 207,144)
Net Proceeds 1,107,856
Faru technology $ 80,000
Poseidon Joint Venture 22,222
Prepaid expenses 117,155
(Related to Poseidon)
Accrued expenses 61,038
Operating expenses 263,551
Cash remaining 563,890
Total Proceeds $ 1,107,856
Regulation S Offering - Third Quarter 1998
------------------------------------------
Gross proceeds $ 506,250
Commission 71,988
Net Proceeds 434,262
Poseidon Joint Venture $ 434,262
Total Proceeds $ 434,262
Regulation S Offering - Fourth Quarter 1999
-------------------------------------------
Gross proceeds $ 398,525
Commission 80,120
Net Proceeds 318,405
Working Capital $ 318,405
</TABLE>
18
2. Option Exercise
---------------------
The Company realized $3,100 from the exercise of the June 1998 option
which funds were placed in general working capital.
The Company realized $12,400 from the exercise of the July 1998 option
which funds were placed in general working capital.
Item 3. Defaults upon Senior Securities
- -----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
Item 5. Other Information
- ---------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(A) Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed during the
quarter ended September 30, 1999.
(B) Exhibits. The following exhibits are included as part of this
report:
<TABLE>
<CAPTION>
Exhibit SEC Exhibit
Number Ref. Number Title of Document Location
------- ----------- ------------------------------- -------------
<S> <C> <C> <C>
27 27 Financial Data Schedule Attached
</TABLE>
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this to be signed on its behalf by the
undersigned thereunto duly authorized.
The Quantum Group, Inc.
/S/ Ehrenfried Liebich
-----------------------------
November 12, 1999 Ehrenfried Liebich
Chairman of the Board, President and
Chief Executive Officer
/S/ John F. Pope
---------------------
November 12, 1999 John F. Pope
Vice President, Finance
Chief Accounting Officer
20
(F-1)
The Quantum Group, Inc., and Subsidiaries
Financial Statements
September 30, 1999 (Unaudited)
(F-2)
The Quantum Group, Inc., and Subsidiaries
Balance Sheets
September 30, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
September September December
30, 1999 30, 1998 31, 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current Assets
- --------------
Cash $ 233,176 $ 506,839 $ 1,781,944
Accounts Receivable 3,065,040 740,071 3,065,040
Inventory 107,979 29,760 19,425
Deposit 696,220 421,451 303,021
Note & Interest Receivable - Officer 74,354 30,000 30,932
Prepaid Expenses 220 - 440
------------ ------------ ------------
Total Current Assets 4,176,989 1,728,121 5,200,802
Property & Equipment
- --------------------
Equipment 707,211 132,615 93,166
Vehicles 72,602 - 41,382
Land 179,309 - 179,309
------------ ------------ ------------
Total Property & Equipment 959,122 132,615 313,857
Other Assets
- ------------
Investment in Joint Venture - 1,494,722 -
Cash Pledged 5,329 5,225 5,329
License Rights 458,801 523,556 507,367
Deposit 1,807,789 3,281 1,807,789
Prepaid Expenses - 117,155 -
------------ ------------ ------------
Total Other Assets 2,271,919 2,143,939 2,320,485
------------ ------------ ------------
TOTAL ASSETS $ 7,408,030 $ 4,004,675 $ 7,835,144
============ ============ ============
</TABLE>
(F-3)
The Quantum Group, Inc., and Subsidiaries
Balance Sheets -Continued-
September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September September December
30, 1999 30, 1998 31, 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current Liabilities
- -------------------
Accrued Expenses $ 450,467 $ 215,604 $ 450,084
Accounts Payable 676,188 323,623 725,201
Customer Deposits 2,723,017 1,162,500 2,192,962
Payroll Taxes Payable 7,822 - -
Franchise Tax Payable 103,548 103,548 103,548
------------ ------------ ------------
Total Current Liabilities 3,961,042 1,805,275 3,471,795
Long Term Liabilities
- ---------------------
Capital Lease 75,996 - 25,503
Notes Payable 10,198 - -
------------ ------------ ------------
Total Long Term Liabilities 86,194 - 25,503
Minority Interest in Subsidiary 9,463 - 9,463
- -------------------------------
Stockholders' Equity
- --------------------
Common Stock 50,000,000 Shares
Authorized; Par Value of $0.001
Per Share;
8,556,539, & 7,596,187 & 8,400,075
Shares Issued Retroactively Restated
Respectively 8,556 7,596 8,400
Paid In Capital 6,336,536 4,536,540 6,018,287
Currency Translation Differential 18,199 - 18,199
Accumulated Deficit ( 3,011,960) ( 2,344,736) ( 1,716,503)
------------ ------------ ------------
Total Stockholders' Equity 3,351,331 2,199,400 4,328,383
------------ ------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 7,408,030 $ 4,004,675 $ 7,835,144
=========== ============ ============
</TABLE>
(F-4)
The Quantum Group, Inc., and Subsidiaries
Statement of Operations
For the Three Months and Nine Months Ended September 30, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Nine Three Nine Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
September September September September December
30, 1999 30, 1999 30, 1998 30, 1998 31, 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues
- --------
Equipment Sales $ - $ - $ - $ 460,000 $2,882,007
Other Income 5,596 80,394 14,928 64,024 70,893
---------- ---------- ---------- ---------- ----------
Total Revenues 5,596 80,394 14,928 524,024 2,952,900
Cost of Sales - - 14,199 452,374 1,761,775
---------- ---------- ---------- ---------- ----------
Gross Profit 5,596 80,394 729 71,650 1,191,125
Expenses
- --------
Salaries and Wages 60,806 106,334 - - -
Depreciation 42,636 77,982 10,832 34,784 47,691
Amortization 16,189 48,567 16,189 41,068 57,256
Travel 26,462 155,780 19,882 96,154 155,442
Professional Fees 42,371 120,125 23,467 41,929 56,978
Office 55,111 130,158 16,426 41,367 98,139
Rent & Utilities 19,271 47,610 16,485 43,191 63,259
Administrative Expenses 50,262 158,881 58,704 152,724 249,909
Consultant Fees 183,947 397,255 115,307 306,014 449,508
Interest - - - 219 804
Joint Venture Expenditures 133,159 133,159 - - -
Accounts Receivable Written
Off - - - - 100,000
Foreign Currency
Translation - - - - ( 27,764)
Research and Development - - - - 13,544
---------- ---------- ---------- ---------- ----------
Total Expenses 630,214 1,375,851 277,292 757,450 1,264,766
Net Income (Loss)
From Operations ( 624,618) (1,295,457) ( 276,563) ( 685,800) ( 73,641)
</TABLE>
(F-5)
The Quantum Group, Inc., and Subsidiaries
Statements of Operations -Continued-
For the Three Months and Nine Months Ended September 30, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Nine Three Nine Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
September September September September December
30, 1999 30, 1999 30, 1998 30, 1998 31, 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Other Income (Expenses)
- -----------------------
Interest Income - - - - 13,583
Gain on Sales of Residence - - - - -
Loss on Investment - - - ( 20,000) ( 20,000)
Investment Valuation Loss - - - ( 23,125) -
---------- ---------- ---------- ---------- ----------
Total Other Income
(Expenses) - - - ( 43,125) ( 6,417)
Taxes & Minority Interest
- -------------------------
Minority Interest - - - - 2,492
Provisions for Taxes
- Current - - - - ( 23,125)
---------- ---------- ---------- ---------- ----------
Total Taxes &
Minority Interest - - - - ( 20,633)
Net Income (Loss) ($624,618) ($1,295,457) ($ 276,563) ($728,925) ($100,691)
Net Income (Loss)
Per Share ($ 0.07) ($ 0.15) ($ 0.04) ($ 0.11) ($ 0.01)
Weighted Average Shares
Outstanding 8,452,170 8,556,539 7,596,187 6,493,548 8,400,075
Diluted Net Profit Per
Share N/A N/A N/A N/A -
</TABLE>
(F-6)
The Quantum Group, Inc., and Subsidiaries
Statement of Shareholders' Equity
From January 1, 1997 to September 30, 1999
(UNAUDITED)
<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 the Year Ended
December 31, 1997 101,893
--------------------------------------------------
Balance, December 31, 1997 4,853,409 4,853 1,932,968 ( 1,615,812)
Shares Issued Regulation
S for Cash 2,500,000 2,500 3,952,536
Shares Issued on 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 the Year Ended
December 31, 1998 ( 100,691)
--------------------------------------------------
Balance, December 31, 1998 8,400,075 8,400 6,018,287 ( 1,716,503)
Shares Issued Regulation S
For Cash 156,284 156 318,249
Loss for the Nine Months
Ended September 30, 1999 ( 1,295,457)
--------------------------------------------------
Balance, September 30, 1999 8,556,539 $ 8,556 $6,336,536 ($ 3,011,960)
==================================================
</TABLE>
(F-7)
The Quantum Group, Inc., and Subsidiaries
Statement Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Nine Twelve
Months Months Months
Ended Ended Ended
September September December
30, 1999 30, 1998 31, 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operations
- --------------------------
Net Profit (Loss) ($1,295,457) ($ 728,924) ($ 100,691)
Adjustments to Reconcile Net Profit
or (Loss) to Net Cash
Write Off Accounts Receivable - - 100,000
Amortization and Depreciation 126,549 75,851 104,947
Non Cash Expense - 37,000 -
Minority Interest - ( 109,256) 12,210
Changes in Operating Assets & Liabilities
(Increase) Decrease in Accounts
Receivable - ( 29,092) ( 2,354,061)
(Increase) Decrease in Inventory ( 88,554) - 10,335
(Increase) Decrease in Prepaid Expenses - ( 117,155) -
(Increase) Decrease in Deposit on
Inventory ( 393,199) - 118,430
(Increase) Decrease in Prototype Impact
500 - - ( 63,203)
(Increase) Decrease in Notes Receivable
- Officer ( 43,422) ( 30,000) ( 30,932)
(Increase) Decrease in Prepaid Insurance 220 - ( 440)
(Increase) Decrease in Deposits - - ( 1,804,508)
Increase (Decrease) in Accrued Expenses 383 ( 336,795) ( 102,315)
Increase (Decrease) in Accounts Payable (49,013) 183,607 585,185
(Increase) Decrease in Customer Deposits 530,055 1,160,000 2,190,462
Increase (Decrease) in Cash Pledged - - ( 104)
Increase (Decrease) in Payroll Taxes 7,822 - -
Rounding - ( 1) -
------------ ------------ ------------
Net Cash Provided (Used) by
Operating Activities ( 1,204,616) 105,235 ( 1,334,685)
</TABLE>
(F-8)
The Quantum Group, Inc., and Subsidiaries
Statement Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Nine Twelve
Months Months Months
Ended Ended Ended
September September December
30, 1999 30, 1998 31, 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Investing Activities
- ------------------------------------
Purchase of Land - - ( 179,309)
Purchase of Equipment ( 692,027) ( 9,567) ( 82,389)
Purchase (Sale) of Securities - 36,125 73,125
Purchase of License Right - ( 150,000) ( 150,000)
Purchase of Furniture - - 40,000
Purchase of Vehicle ( 31,220) - -
Sale of Press - - 216,635
Investment in Joint Venture - ( 1,494,722) -
------------ ------------ ------------
Net Cash Provided (Used)
by Investing Activities ( 723,247) ( 1,618,164) ( 81,938)
Cash Flows from Financing Activities
- ------------------------------------
Sale of Common Stock 318,405 2,606,315 3,759,611
Payment of Long Term Debt - ( 721,318) ( 721,318)
Increase (Decrease) in Amounts
Due Officers - ( 7,919) ( 7,919)
Increase in Notes Payable 10,198 - -
Increase Capital Lease 53,258 - 27,655
Payment Capital Lease ( 2,766) - ( 2,152)
------------ ------------ ------------
Net Cash Provided (Used)
by Financing Activities 379,095 1,877,078 3,055,877
------------ ------------ ------------
Increase (Decrease) in Cash ( 1,548,768) 364,149 1,639,254
Cash at Beginning of Period 1,781,944 142,690 142,690
------------ ------------ ------------
Cash at End of Period $ 233,176 $ 506,839 $ 1,781,944
============ ============ ============
Disclosures from Operating Activities
- -------------------------------------
Interest $ - $ 219 $ 804
Taxes - - -
Significant Non Cash Transactions
- ---------------------------------
650,000 Shares of Common Stock Issued to
Acquire Minority Interest in Subsidiary - 109,256 109,256
</TABLE>
(F-9)
The Quantum Group, Inc., and Subsidiaries
Notes to Financial Statements
NOTE #1 - Corporate History
- ---------------------------
The Company was organized on December 2, 1968, under the laws of the state
of California as Acquatic Systems, Inc. On June 27, 1989, the Company
merged with Country Maid, Inc., a Nevada Corporation, the Corporate
domicile was changed to the state of Nevada. On September 18, 1992, the
name of the Company was changed to The Quantum Group, Inc.
In 1992, the Company acquired rights to import and market equipment used in
the tire recycling industry. The tire recycling operation is the thrust of
the 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)
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 - Statement Preparation
- -------------------------------
The Company has prepared the accompanying financial statements with interim
financial reporting requirements promulgated by the Securities & Exchange
Commission. The information furnished reflects all adjustments which are,
in the opinion of management, necessary for a fair presentation of
financial position and results of operations.
The financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 1998 10-K report.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000921450
<NAME> THE QUANTUM GROUP, INC., AND SUBSIDIARES
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 233,176
<SECURITIES> 0
<RECEIVABLES> 3,065,040
<ALLOWANCES> 0
<INVENTORY> 107,979
<CURRENT-ASSETS> 4,176,989
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0
0
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</TABLE>
