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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June 30, 1999 0-23812
THE QUANTUM GROUP, INC.
----------------------
(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; 8,688,641 shares outstanding
as of August 6, 1999,
PART I - FINANCIAL INFORMATION
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(R) 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.
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.
2
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 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 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.
-----------------------
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.
The funding for the Poseidon joint venture is now expected to be
completed during the third 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. Deutsche Bank is
3
negotiating with Deutsche Ausgleichsbank to participate in the funding
program with a minority position. Due to the size and nature of the
project, concluding the necessary funding, with grant and loan
agreements has caused unavoidable delays in completing the funding
package. Management believes all necessary agreements will finally be
completed during the third 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. Upon completion of
funding, the Company is poised to immediately begin on-site civil
engineering and construction which will be coordinated by FDC
engineering. 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 soon to be
in German and English, provides a platform for showcasing the Poseidon
joint venture and promoting an awareness of the Company.
California Prison Manufacturing Project.
----------------------------------------
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,
currently underway, consists of the installation of a compact
granulator, ECO Press 200 flat press, mixer, flocking machine and a
SuperCollider. The Company anticipates completing installation of
Phase one by September, 1999 with initial operations commencing
immediately thereafter. 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 fourth quarter, 1999.
Upon completion of Phase one, the facility will begin
manufacturing door mats, sports surfaces, playground tiles,
cattle/livestock mats and truck bed liners among other products. With
completion of Phase two, the facility will produce industrial flooring
underlay and other commercial and industrial applications with the
employment of the Revulcon(R) technology.
The Company has hired Tom Driscoll, Vice President of Operations,
to head the QCAL joint venture project. Mr. Driscoll brings many
years of engineering operations and production experience to the
Company. He has extensive knowledge of full scale plant operations
and is implementing quality control systems and just in time inventory
operations into the QCAL facility. Mr. Driscoll will be responsible
for establishing the operating and training systems for the QCAL
facility and overall plant supervision.
4
</Page>
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. 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.
Proposed Joint Venture Projects
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United Kingdom.
---------------
In May, management of the Company met with potential investors
and government agency representatives regarding a joint venture
project. The Company is considering entering an agreement to perform
a feasibility study for two plants in the United Kingdom, one near
Glasgow, Scotland and another near Liverpool, England. The
feasibility study will 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
Ireland.
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The Company has continued to meet with potential investors and
governmental agencies in anticipation of forming a joint venture for a
tire recycling plant modeled after the Poseidon project. The
Company's subsidiary, Hibernian Envirotech Rubber Recycling Limited,
an Irish limited liability company, was established for the purpose of
entering a joint venture agreement in Ireland.
Brazil.
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The Company is currently conducting a feasibility study in Belo
Horizonte, Brazil which is now scheduled for completion at the end of
August, 1999. The Company has experienced some delays in completing
the feasibility study due to the complexity of analyzing and reporting
on the information received. At such time the feasibility study is
complete, the parties will then make a determination as to whether or
not to proceed with a joint venture project.
South Africa.
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A Company representative met with potential investors in July
regarding a joint venture project involving a 12,000 ton tire
recycling facility including after market product manufacturing
capabilities. The Company has tentatively scheduled a meeting with
the South African investors in late August to showcase the after
market product manufacturing process at the QCAL facility.
5
The Company also continues negotiations with various potential
clients in the United States, Europe, the Arabian Gulf, South America,
Puerto Rico, Great Britain and Asia.
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.
----------------
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 total of three Revulc 300 systems 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.
-----------------
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
anticipates a corrective action plan to be in place by the third
quarter of 1999.
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.
----------------
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. A
detailed proposal for retrofit of the third CISAP machine has been
submitted to the client for approval. 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 August, 1999.
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. It is anticipated that negotiations will
be finalized in August, 1999.
6
</Page>
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
- --------------------------
The Company has developed a compact SuperCollider which it is
marketing 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 the second half of 1999 and
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 proven to meet or exceed
initial specifications. Final development on the Impact 500 is
scheduled for completion by September, 1999. The prototype will be
moved to the QCAL project as a showcase venue.
Initially, the Company will manufacture the Impact 500 machines
in-house. The Company has leased a small facility in Long Beach,
California which will serve as the Company's manufacturing 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.
The Company has met with Ermafa in Chemnitz, Germany, the
manufacturer of the Revulc 300 machines, and has reached an agreement
whereby Ermafa will add equipment to the Revulc 300 prototype in order
to provide in-feed and material off-take equipment (silos and
bagging). This will provide the Company with a complete Revulc 300
system. The improvements are expected to be complete by August, 1999
giving the Company a full Revulc system to market.
7
The first Revulc 300 system will be 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
third quarter 1999 with delivery scheduled for the first half of 2000.
CISAP Agreement
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In 1993, Eurectec, Inc., the Company's subsidiary, 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 have resolved for the Saudi client and are
attempting to resolve for the Mexico client.
Because of the difficulties with the CISAP equipment, Eurectec,
Inc. has identified 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. has resolved the difficulties with the Saudi client's equipment
and has other manufacturers in place for its future press equipment
needs.
Sales and Marketing
- -------------------
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. 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.
8
The Company's Vice President of Sales, Mr. Gayle Hickok heads up
the Company's product manufacturing sales and marketing efforts. Mr.
Hickok has a proven success record in sales including developing sales
and marketing material ranging from brochures, mail packages,
telephone and in-person sales presentations.
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
- -----------
The Company participated at the International Tire and Rubber
Association (ITRA) Expo held in Nashville, Tennessee from June 10
through 12, 1999 where it showcased the SuperCollider which was very
well received by participants. Demonstrations of the SuperCollider
resulted in numerous inquiries. The Company also attended a major
recycling exposition in Munich, Germany via Poseidon in conjunction
with FDC (the Company's engineering affiliate) in May, 1999.
Company products have been exhibited at the California Parks &
Recreation Show in Ontario, California in March of this year, at the
Sports Industry Trade Shows in San Diego and Las Vegas and at the
California Farm Equipment Show in Tulare, California in February of
this year. The Company will also attend the National Hardware Show in
Chicago scheduled for August, 1999.
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. It is anticipated the Blaine Group will initiate
a PR campaign in September, 1999, centering on the QCAL facility and
Poseidon projects.
Internet Capital Corporation is assisting the Company with its
internet presence by updating the Company's website and creating an e-commerce
platform.
Year 2000 Compliance
- --------------------
The Company is currently year 2000 compliant and does not
anticipate any problems with its computing or support equipment.
However, vendors, banks and other suppliers and parties upon whom the
Company relies, may not be year 2000 compliant. The Company has no
control over such parties and any impact upon the Company is
uncertain. 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.
9
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 German translation. During the second quarter of 1999, the
Company had 86,202 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
26,560 hits on this Website during the second 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.
LIQUIDITY AND CAPITAL RESOURCES
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As of June 30, 1999, the Company had cash of $716,045 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 does not currently have any capital commitments for
1999. However, at such time the Company initiates Phase two of the
QCAL project, it may have a capital commitment for approximately
$1,500,000 for equipment needs.
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.
10
RESULTS OF OPERATIONS
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Comparison of the three months ended June 30, 1999 and the three
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months ended June 30, 1998.
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During the first half of 1999, the Company's net cash used in
operations was $756,944, compared to cash used in operations of
$766,112 during the first half of 1998. The 1999 cash utilization is
a result of an operating loss of $670,839 and the payment of $393,199
of Equipment Deposits, and an increase of deposits from customers of
$530,055. The Company purchase $486,189 of equipment to be used in
the California prison project.
The Company generated $4,099 of other revenue during the quarter
ended June 30, 1999. All of this is interest income. No equipment
sales were made during this quarter in 1999 or in the same 1998
quarter. The second quarter of 1998 had $9,099 of other revenue,
$1,900 of this revenue was generated from the sale of research
reports. $6,175 in interest was earned during the quarter. The crumb
rubber was sold at cost and $31,000 of additional expenses were
incurred for added equipment on the Mexico project resulting in a cost
of sales of $38,175.
Travel expense in the three months ended June 30, 1999 of $45,248
exceeded the prior period expense of $41,461 by $3,787.
Administrative expense decreased from $61,451 to $47,201 from the
second quarter of 1998 to the same quarter of 1999. This decrease is
also due to the substitution of Company employees for contract labor
and temporary employees. Because of the change the Salaries and Wages
account has $22,531 of expense which would have been in Administrative
expense. Additionally, $24,327 of salaries were paid to new employees
brought on to assist the California prison project. No Salaries and
Wages Account existed in 1998.
Consultant fees increased by $31,752 to $125,432 in the three
months ended June 30, 1999 compared to the $96,680 incurred in the
comparable three month period in 1998. $20,000 of this increase is as
a result of expenses incurred in relation to the engineering of the
Poseidon project. The balance is due to increased activity in
preparing for the sale of mat products anticipated to be produced in
the California prison project. During the three months ended June 30,
1998, the Company sold it's investment in Keystone Energy at a loss of
$13,875 from the previously reduced carrying value. No comparable
transaction was applicable to the same quarter of this year.
Comparison of the six months ended June 30, 1998 and the six
------------------------------------------------------------
months ended June 30, 1999.
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The Company had $9,088 of other revenue during the six month
period ended June 30, 1999. No equipment sales have been delivered
during this period. 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 six months ended June 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. $1,920 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 half of 1998.
11
The Company had a loss of $670,839 in the six months ended June
30, 1999 compared to a loss of $452,361 in 1998. This is because of
the increased level of activities resulting from preparation for the
California prison project and the Poseidon project.
Travel expenses of $129,318 in the six months ended June 30, 1999
exceeded the comparable 1998 period expense of $76,272 by $53,046,
with the majority of this difference incurred in the first quarter of
1999. Administrative expenses increased during the first quarter but
were reduced during the second quarter of 1999 as explained above.
Consulting fees have increased from $190,707 in the six months ended
June 30, 1998 to $213,308 in 1999, with all of this increased
occurring in the second quarter as explained above. Professional fees
increased to $77,754 in the six months ended June 30, 1999 from
$18,462 in the comparable 1998 period. This increase is due to the
increased legal activity related to the upcoming projects. Office
expenses increased from $24,941 in the first half of 1998 to $75,047
in 1999 because of the purchase of new computing equipment ($10,000)
and the addition of staff.
Comparison of the three months ended June 30, 1998 and the three
----------------------------------------------------------------
months ended June 30, 1997.
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The Company generated $9,088 of other revenue and $38,175 of
costs during the quarter ended June 30, 1998. $1,900 of this revenue
was generated by the sale crumb rubber inventory and 1,000 was
generated from the sale of research reports. $6,175 in interest was
earned during the quarter. No project revenue was recorded during the
quarter. The crumb rubber was sold at cost and $31,000 of additional
expenses were incurred for added equipment on the Mexico project
resulting in a cost of sales of $38,175 The Company had project
Revenue of $54,889 and a territorial license sale of $100,000 during
the comparable quarter in 1997.
Travel expense in the three months ended March 31, 1998 of
$41,461 exceeded the prior period expense of $11,802 by $29,659
because of the negotiation and sales activities of a number of foreign
transactions and a general increase in the Company's marketing
activities. Administrative expense increased from $20,482 to $61,451
from the second quarter of 1997 to the same quarter of 1998. This
increase is also due to the increases in marketing activities during
the 1998 period.
Consultant fees increased by $39,135 to $96,680 in the three
months ended June 30, 1998 compared to the $57,454 incurred in the
comparable three month period in 1997. $22,620 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.
During the three months ended June 30, 1998, the Company sold it's
investment in Keystone Energy at a loss of $13,875 from the previously
reduced carrying value rather than continue to incur potential
additional losses. No comparable transaction was applicable to the
same quarter of the prior year.
12
Comparison of the six months ended June 30, 1998, and the six
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months ended June 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 six months ended June 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 a owner financing
plan of questionable collectability. Due to the uncertainty of revenue
recognition the parcel had been held without asset value, and as such
the purchase price of $40,000 is all a gain on sale. $1,920 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 half of 1998. The Company had $241,152 of
Equipment sales and $100,000 of licence sales for the comparable 1997
period.
The Company had a loss of $452,361 in the six months ended June
30, 1998 compared to a loss of $9,096 in 1997. This is also because of
the difference in revenue mix and the increased activity and resultant
expenses in 1998.
The Company's cash position at June 30, 1998 is significantly
stronger at $640,666 compared to $8,005 at June 30, 1997. Accounts
receivable of $731,198 are an increase of $20,000 the same time in
1997. The Company has a deposit on inventory of $421,451 at June 30,
1998, no deposits were in place in 1997.
Inventory decreased during the first six months of 1998 compared
to 1997 because of the sale back of the inventory unit to Cisap during
the forth 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, the Company sold the
shares at a loss of $13,125 from book value.
The Company invested $44,722 in the German Joint Venture and
$150,000 in the Faru license in 1998. No comparable transaction took
place in 1997. In anticipation of German 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 $76,272 in the six months ended June 30, 1998
exceed the comparable 1997 period by $50,401, due to the German joint
Venture and follow up and sales activities in Mexico and Saudi Arabia.
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.
14
Item 2. Changes in Securities
- ------------------------------
Recent Sales of Unregistered Securities
- ---------------------------------------
(a) Securities sold.
- --------------------
<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
</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.
2. Option Exercise
--------------------
The June option was exercised by RMC International, a consultant
to the Company.
The July option was exercised by Johann Brendgens, a consultant
to the Company.
15
(c) Consideration.
- ------------------
1. Regulation S Offering
--------------------------
The aggregate offering price for sales made during the first
quarter 1998 was $1,500,000 and the Company paid a 10% commission in
the amount of $150,000.
The aggregate offering price for sales made during the second
quarter 1998 was $1,315,000 and the Company paid commission in the
amount of $207,144.
The aggregate offering price for sales made during the third
quarter 1998 was $506,250 and the Company paid commission in the
amount of $71,988.
2. Option Exercise
--------------------
The Company realized $3,100 from the exercise of the option in
June, 1998.
The Company realized $12,400 from the exercise of the option in
July, 1998.
(d) Exemption from registration claimed.
- ----------------------------------------
1. Regulation S Offering
--------------------------
The securities were sold in 1998 pursuant to Regulation S as
promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended. The Company did not offer the
securities to any person in the United States, any identifiable groups
of U.S. citizens abroad, or to any U.S. Person as that term is defined
in Regulation S. At the time the buy order was originated, the
Company reasonably believed the Buyer was outside of the United States
and was not a U.S. Person. The Company reasonably believed that the
transaction had not been pre-arranged with a buyer in the United
States. The Company has not nor will engage in any "Directed Selling
Efforts" and reasonably believes the Buyer has not nor will engage in
any "Directed Selling Efforts." The Company reasonably believed the
Buyer purchased the securities for its own account and for investment
purposes and not with the view towards distribution or for the account
of a U.S. Person.
2. Option Exercise
---------------------
The June option was exercised pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933, as
amended.
The July option was exercised pursuant to Regulation S.
16
(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>
<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
17
<CAPTION>
Regulation S Offering - Second Quarter 1998
----------------------------------------
Gross proceeds $ 1,315,000
Commission ( 207,144)
Net Proceeds 1,107,856
Faru technology $ 80,000
Poseidon Joint Venture 22,222
Prepaid expenses 117,155
(Related to Poseidon)
Accrued expenses 61,038
Operating expenses 263,551
Cash remaining 563,890
------------
Total Proceeds $ 1,107,856
<CAPTION>
Regulation S Offering - Third Quarter 1998
------------------------------------------
Gross proceeds $ 506,250
Commission 71,988
Net Proceeds 434,262
Poseidon Joint Venture $ 434,262
Total Proceeds $ 434,262
</TABLE>
2. Option Exercise
------------------
The Company realized $3,100 from the exercise of the June 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
18
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 June 30, 1999.
(B) Exhibits. The following exhibits are included as part of
this report:
<TABLE>
<CAPTION>
Exhibit SEC Exhibit Title of Document Location
Number Ref. Number
------- ----------- ---------------------------- -----------
<S> <C> <C> <C>
10.1 10 Employment Agreement between Attached
The Quantum Group, Inc., and
Thomas A. Driscoll
10.2 10 Joint Venture Agreement with Attached
California Department of
Corrections
27 27 Financial Data Schedule Attached
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this to be signed on its behalf
by the undersigned thereunto duly authorized.
The Quantum Group, Inc.
/S/ Ehrenfried Liebich
August 13, 1999 -----------------------------------------
Ehrenfried Liebich
Chairman of the Board, President and
Chief Executive Officer
/S/ John F. Pope
August 13, 1999 -----------------------------------------
John F. Pope
Vice President, Finance
Chief Accounting Officer
20
(F-1)
The Quantum Group, Inc., and Subsidiaries
Financial Statements
June 30, 1999
(F-2)
The Quantum Group, Inc. and Subsidiaries
Balance Sheets
June 30, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
June 30, June 30, December 31,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current Assets
- --------------
Cash $ 716,045 $ 640,666 $ 1,781,944
Accounts Receivable 3,065,040 731,198 3,065,040
Inventory 64,210 29,760 19,425
Deposit 696,220 421,451 303,021
Note & Interest Receivable
- Officer 47,619 0 30,932
Prepaid Expenses 220 0 440
------------ ------------ ------------
Total Current Assets 4,589,354 1,823,075 5,200,802
Property and Equipment
- ----------------------
Furniture and Fixtures 0 0 0
Equipment 548,116 137,712 93,166
Vehicles 37,274 0 41,382
Land 179,309 0 179,309
------------ ------------ ------------
Total Property and Equipment 764,699 137,712 313,857
Other Assets
- ------------
Investment in Joint Venture 0 44,722 0
Cash Pledged 5,329 5,225 5,329
License Rights 474,990 539,745 507,367
Deposit 1,807,789 3,281 1,807,789
Prepaid Expenses 0 117,155 0
------------ ------------ ------------
Total Other Assets 2,288,108 710,128 2,320,485
------------ ------------ ------------
TOTAL ASSETS $ 7,642,161 $ 2,670,915 $ 7,835,144
============ ============ ============
</TABLE>
See Accompanying Notes
(F-3)
The Quantum Group, Inc. and Subsidiaries
Balance Sheets -Continued-
June 30, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, June 30, December 31,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current Liabilities
- -------------------
Accrued Expenses $ 450,467 $ 215,843 $ 450,084
Accounts Payable 675,385 323,623 725,201
Customer Deposits 2,723,017 2,500 2,192,962
Franchise Tax Payable 103,548 103,548 103,548
------------ ------------ ------------
Total Current Liabilities 3,952,417 645,514 3,471,795
Long Term Liabilities
- ---------------------
Capital Lease 22,737 0 25,503
------------ ------------ ------------
Total Long Term Liabilities 22,737 0 25,503
Minority Interest in Subsidiary 9,463 0 9,463
- ------------------------------- ------------ ------------ ------------
Stockholders' Equity
- --------------------
Common Stock 50,000,000 Shares
Authorized; Par Value of $0.001
Per Share, 8,400,075,and 7,121,187
and 8,400,755 Shares Issued
Retroactively Restated Respectively 8,400 7,121 8,400
Paid in Capital 6,018,287 4,086,453 6,018,287
Currency Translation Differential 18,199 0 18,199
Accumulated Deficit ( 2,387,342) ( 2,068,173) ( 1,716,503)
------------ ------------ ------------
Total Stockholders' Equity 3,657,544 2,025,401 4,328,383
------------ ------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 7,642,161 $ 2,670,915 $ 7,835,144
============ ============ ============
</TABLE>
See Accompanying Notes
(F-4)
The Quantum Group, Inc. and Subsidiaries
Statement of Operations
For the Three Months and Six Months Ended June 30, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Six Three Six Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
June June June June December
30, 1999 30, 1999 30, 1998 30, 1998 31, 1998
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenues
- --------
Equipment Sales 0 0 0 $ 460,000 $ 2,882,007
License Sales 0 0 0 0 0
Other Income $ 4,099 $ 74,798 $ 9,088 49,096 70,893
---------- ---------- ---------- ---------- -----------
Total Revenues 4,099 74,798 9,088 509,096 2,952,900
Cost of Sales 0 0 38,175 438,175 1,761,775
---------- ---------- ---------- ---------- -----------
Gross Profit 4,099 74,798 ( 29,087) 70,921 1,191,125
Expenses
- --------
Salaries and Wages 45,528 45,528 0 0 0
Depreciation 32,843 35,346 11,699 23,952 47,691
Amortization 16,189 32,378 12,439 24,878 57,256
Travel 45,248 129,318 41,461 76,272 155,442
Professional Fees 44,083 77,754 17,038 18,462 56,978
Office 15,528 45,047 14,017 24,941 98,139
Rent & Utilities 14,446 28,339 12,589 26,706 63,259
Administrative
Expenses 31,673 138,619 61,451 94,020 249,909
Consultant Fees 125,432 213,308 96,680 190,707 449,508
Interest 0 0 219 219 804
Accounts Receivable
Written Off 0 0 0 0 100,000
Foreign Currency
Translation 0 0 0 0 ( 27,764)
Research and
Development 0 0 0 0 13,544
---------- ---------- ---------- ---------- -----------
Total Expenses 370,970 745,637 267,593 480,157 1,264,766
Net Income (Loss)
From Operations ( 366,871) ( 670,839) ( 296,680) ( 409,236) ( 73,641)
</TABLE>
See Accompanying Notes
(F-5)
The Quantum Group, Inc. and Subsidiaries
Statement of Operations -Continued
For the Three Months and the Six Months Ended June 30, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Six Three Six Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
June June June June December
30, 1999 30, 1999 30, 1998 30, 1998 31, 1998
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Other Income (Expenses)
- -----------------------
Interest Income 0 0 0 0 13,583
Gain on Sales of
Residence 0 0 0 0 0
Loss on Investment 0 0 ( 20,000) ( 20,000) ( 20,000)
Investment Valuation
Loss 0 0 0 ( 23,125) 0
---------- ---------- ---------- ---------- -----------
Total Other
Income
(Expenses) 0 0 ( 20,000) ( 43,125) ( 6,417)
Taxes & Minority Interest
- -------------------------
Minority Interest 0 0 0 0 (2,492)
Provisions for Taxes
- Current 0 0 0 0 23,125
---------- ---------- ---------- ---------- -----------
Total Taxes &
Minority
Interest 0 0 0 0 20,633
---------- ---------- ---------- ---------- -----------
Net Income
(Loss) ( 366,871) ( 670,839) ( 316,680) ( 452,361) ( 100,691)
========== ========== ========== ========== ===========
Net Income
(Loss)
Per Share ($ 0.04) ($ 0.08) ($ 0.04) ($ 0.07) ($ 0.01)
Weighted
Average
Shares
Outstanding 8,400,075 8,400,075 7,121,187 6,403,409 6,846,696
Diluted Net
Profit
Per Share N/A N/A N/A N/A 0
</TABLE>
See Accompanying Notes
(F-6)
The Quantum Group, Inc. and Subsidiaries
Statement of Shareholder's Equity
From January 1, 1997 to June 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 1,600,000 1,600 98,400
For Debt
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 ( 100,691)
December 31, 1998
Balance, December 31, 1998 8,400,075 $ 8,400 $ 6,018,287 ($ 1,716,503)
Loss for the Six
Months Ended
June 30, 1999 ( 670,839)
--------------------------------------------------
Balance, June 30, 1999 8,400,075 $ 8,400 $ 6,018,287 ($ 2,387,342)
==================================================
</TABLE>
See Accompanying Notes
(F-7)
The Quantum Group, Inc. and Subsidiaries
Statement of Cash Flows
For the Six Months Ended June 30, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Six Six Twelve
Months Months Months
Ended Ended Ended
June June December
30, 1999 30, 1998 31, 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operations
- --------------------------
Net Profit or (Loss) ($ 670,839) ($ 452,361) ($ 100,691)
Adjustments to Reconcile Net profit
or (Loss) to Net Cash
Write Off Accounts Receivable 0 0 100,000
Amortization and Depreciation 67,724 48,830 104,947
Non Cash Expense 0 37,000 0
Minority Interest 0 ( 109,256) 12,210
Changes in Operating Assets & Liabilities
(Increase) Decrease in Accounts Receivable 0 ( 20,219) ( 2,354,061)
(Increase) Decrease in Inventory ( 44,785) 0 10,335
(Increase) Decrease in Prepaid Expenses 0 ( 117,155) 0
(Increase) Decrease in Deposit on
Inventory ( 393,199) 0 118,430
(Increase) Decrease in Prototype
Impact 500 0 0 ( 63,203)
(Increase) Decrease in Notes Receivable
-Officer ( 16,687) 0 ( 30,932)
(Increase) Decrease in Prepaid Insurance 220 0 ( 440)
(Increase) Decrease in Deposits 0 0 ( 1,804,508)
Increase (Decrease) in Accrued Expenses 383 ( 336,556) ( 102,315)
Increase (Decrease) in Accounts Payable ( 49,816) 183,607 585,185
(Decrease) Increase in Customer Deposits 530,055 0 2,190,462
Increase Decrease in Cash Pledged 0 0 ( 104)
Rounding 0 ( 2) 0
----------- ----------- -----------
Net Cash Provided (Used) by
Operating Activities ( 576,944) ( 766,112) ( 1,334,685)
</TABLE>
See Accompanying Notes
(F-8)
The Quantum Group, Inc. and Subsidiaries
Statement of Cash Flows -Continued-
For the Six Months Ended June 30, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Six Six Twelve
Months Months Months
Ended Ended Ended
June June December
30, 1999 30, 1998 31, 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Investing Activities
- ------------------------------------
Purchase of Land 0 0 ( 179,309)
Purchase of Equipment ( 486,189) ( 3,831) ( 82,389)
Purchase (Sale) of Securities 0 36,125 73,125
Purchase of License Right 0 ( 150,000) ( 150,000)
Purchase of Furniture 0 0 40,000
Sale of Press 0 0 216,635
Investment in Joint Venture 0 ( 44,722) 0
----------- ----------- -----------
Net Cash Provided (Used) by
Investing Activities ( 486,189) ( 162,428) ( 81,938)
Cash Flows from Financing Activities
- ------------------------------------
Sale of Common Stock 0 2,155,753 3,759,611
Payment of Long Term Debt 0 ( 721,318) ( 721,318)
Increase (Decrease) in Amounts
Due Officer 0 ( 7,919) ( 7,919)
Increase Capital Lease 0 0 27,655
Payment Capital Lease ( 2,766) 0 ( 2,152)
----------- ----------- -----------
Net Cash Provided (Used) by
Financing Activities ( 2,766) 1,426,516 3,055,877
----------- ----------- -----------
Increase (Decrease) in Cash ( 1,065,899) 497,976 1,639,254
Cash at Beginning of Period 1,781,944 142,690 142,690
----------- ----------- -----------
Cash at End of Period $ 716,045 $ 640,666 $1,781,944
=========== =========== ===========
Disclosures from Operating Activities
- -------------------------------------
Interest $ 0 $ 209 $ 209
Taxes 0 0 0
Significant Non Cash Transactions
- ---------------------------------
650,000 Shares of Common Stock Issued
to Acquire Minority Interest in
Subsidiary 0 0 109,256
</TABLE>
See Accompanying Notes
(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>
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<NAME> THE QUANTUM GROUP, INC., AND SUBSIDIARIES
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<PERIOD-START> APR-01-1999
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</TABLE>
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into this 4th day of
May, 1999, by and between The Quantum Group, Inc., a Nevada corporation
(the Company), and Thomas A. Driscoll an individual ("Executive").
RECITALS
A. The Company desires to be assured of the association and
services of Executive for the Company.
B. Executive is willing and desires to be employed by the Company,
and the Company is willing to employ Executive, upon the terms,
covenants and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as
follows:
1. Employment. The Company hereby employs Executive as Vice
President of operations, subject to the supervision and direction of the
President and the Company's Board of Directors.
2. Term. The term of this Agreement shall be deemed to be (at
will) as determined solely in the discretion of the Board of Directors
provided, however, that Executive's obligations in Section 7 below shall
continue in effect after such termination.
3. Compensation; Reimbursement.
3.1 Base Salary. For all services rendered by Executive under
this Agreement, the Company shall pay Executive a base salary of Eight
Thousand Dollars ($8,000) per month through July, 1999 and Ten Thousand
Dollars ($10,000) per month beginning August 1, 1999, payable in
arrears(the Base Salary). The amount of the Base Salary way be increased
at any time and from time to time by the Board of Directors of the
Company. No such change shall in any way abrogate, alter, terminate or
otherwise affect the other terms of this Agreement.
3.2 Incentive Bonus. In addition to the Base Salary, Executive
shall be eligible for an incentive bonus (Incentive Bonus) for equipment
sales originated and completed by the Executive in amount of equal to
two percent (20/o)of the equipment sales price but, not including costs
of training, travel, shipping, insurance and taxes. The Incentive Bonus
shall be paid, if earned, within three (3) days after receipt by the
Company of sales proceeds, as such proceeds are received by the Company
during the course of commencing and completing the sales agreement. It
is agreed that the Executive will be required, without additional
compensation of any kind, to show potential clients of the Company the
equipment in operation at prison and other projects as directed by the
President of the Company.
1
3.3 Reimbursement. Executive shall be reimbursed for all
reasonable "out-of-pocket" business expenses for business travel and
business entertainment incurred in connection with the performance of
his duties under this Agreement (1) so long as such expenses constitute
business deductions from taxable income for the Company and are
excludable from taxable income to the Executive under the governing laws
and regulations of the Internal Revenue Code (provided, however, that
Executive shall be entitled to full reimbursement in any case where the
Internal Revenue Service may, under Section 274(n) of the Internal
Revenue Code, disallow to the Company 20% of meals and entertainment
expenses); and (2) to the extent such expenses do not exceed the amounts
allocable for such expenses in budgets that are approved from time to
time by the Company. The reimbursement of Executive's business expenses
shall be upon monthly presentation to and approval by the Company of
valid receipts and other appropriate documentation for such expenses.
4. Scope of Duties.
4.1 Assignment of Duties. Executive shall have such duties as
may be assigned to him from time to time by the Company's Chief
Executive Officer or the Company's Board of Directors commensurate with
his experience and responses in the position for which he is employed
pursuant to Section I above. Such duties shall be exercised subject to
the control and supervision of the Chief Executive Officer and the Board
of Directors of the Company.
4.2 General Specification of Duties. Executive's duties shall
include, but not be limited to, the, duties and performance goals as
follows:
(1) act as head of marketing, sales and operations of the Company's
prison project and perform all duties, functions and responsibilities
generally associated with the head of an operating division or
subsidiary;
(2) execute on behalf of the Company, in his capacity as Vice
President of operations of the prison project division or subsidiary,
all documents as requested by the Company;
(3) employ, pay, supervise and discharge all employees of the
prison project division or subsidiary, and determine all matters with
regard to such personnel, including, without limitation, compensation,
bonuses and fringe benefits, all in accordance with the Annual Plan (as
defined in
Section 4.3);
(4) establish procedures for implementing the policies established
by the Company;
(5) insure cooperation by the prison project division or subsidiary
with other divisions or subsidiaries of the Company;
(6) cause the prison project division or subsidiary to be operated
in compliance with all legal requirements;
(7) operate the prison project division or subsidiary in
conformance with the Annual Plan approved by the Company, as such may be
amended from time to time with the concurrence of the Company.
The foregoing specifications are not intended as a complete itemization
of the duties which Executive shall perform and undertake on behalf of
the Company in satisfaction of his employment obligations under this
agreement.
2
4.3 Annual Plan
(1) Executive shall submit to the Company for its approval, not
later than 60 days before the beginning of each calendar year, an annual
business plan for the prison project division or subsidiary or such
other division or subsidiary assigned to the Executive by the Board of
Directors (the "Annual Plan"). The Annual Plan shall be revised by
Executive and submitted to the Company for its review (and approval in
the case of material changes from the approved Annual Plan) from time to
time during each year to reflect changes in the Annual Plan because of
operations or otherwise. Each Annual Plan shall include the following
information.
(a) an annual forecast of income and expenses for the
operation of the division or subsidiary;
(b) a cash flow budget, estimate of profit, and source and use
of cash statements for the operation of the division or subsidiary;
(c) a payroll and staffing plan and budget for the operation
of the division or subsidiary; and
(2) During each year, Executive in the performance of his duties
under this Agreement shall comply or cause compliance with the
applicable Annual Plan and shall not (except for emergency expenditures
or special circumstances requiring an unanticipated expenditure) deviate
materially form any budget category set forth in the Annual Plan, incur
any material additional expense or change materially the manner of
operation of the division or subsidiary, without the approval of the
Company.
4.4 Executive's Devotion of Time. Executive hereby agrees to
devote his full time, abilities and energy to the faithful performance
of the duties assigned to him and to the promotion and forwarding of the
business affairs of the Company, and not to divert any business
opportunities from the Company to himself or to any other person or
business entity.
4.5 Conflicting Activities.
(1) Executive shall not, during the term of this Agreement, be
engaged in any other business activity without the prior consent of the
Board of Directors of the Company; provided, however, that this
restriction shall not be construed as preventing Executive from
investing his personal assets in passive investments in business
entities which are not in competition with the Company or its
affiliates, or from pursuing business opportunities as permitted by
paragraph 4.5(b).
(2) Executive hereby agrees to promote and develop all business
opportunities that come to his attention relating to current or
anticipated future business of the Company, in a manner consistent with
the best interest of the Company and with his duties under this
Agreement. Should Executive discover a business opportunity that does
not relate to the current or anticipated future business of the Company,
he shall first offer such opportunity to the Company. Should the Board
of Directors of the Company not exercise its right to pursue this
business opportunity within a reasonable period of time, not to exceed
sixty (60) days, then Executive may develop the business opportunity for
himself, provided, however, that such development may in no way conflict
or interfere with the duties owed by Executive to the Company under this
Agreement. Further, Executive may develop such business opportunities
3
only on his own time, and may not use any service, personnel,
equipment, supplies, facility, or trade secrets of the Company in their
development. As used herein, the term "business opportunity" shall not
include business opportunities involving investment in publicly traded
stocks, bonds or other securities, or other investments of a personal
nature.
5. Stock of Company. The Company will issue stock options, as of
the date of this Agreement, to the Executive to permit the Executive to
purchase shares in the Company. The exercise price of the options shall
be at ten percent (10%) above the market price of the shares and on such
terms as set forth in the Incentive Stock Option Plan of the Company.
The option shall grant the Executive the right to purchase of the number
of shares determined by dividing $30,000 by the strike price of the
option. So long as this Agreement is in effect, Executive shall be
entitled to participate in the Incentive Stock Option Plans adopted by
the Company from time to time on such terms and conditions as determined
by the Company's Board of Directors or Compensation Committee. The
manner of acquisition of stock shall be structured so as to minimize
adverse tax consequences to Executive.
6. Severance. So long as this Agreement is in effect, Executive
shall at all times be entitled to severance payment in the amount of his
monthly base salary, in the amount of one month per completed year of
employment with the Company up to a maximum of five months total
severance.
7. Confidentiality of Trade Secrets and Other Materials.
7.1 Trade Secrets. Other than in the performance of his duties
hereunder, Executive agrees not to disclose, either during the term of
his employment by the Company or at any time thereafter, to any person,
firm or corporation any information concerning the business affairs, the
trade secrets or the customer list or similar information of the
Company. Any technique, method, process or technology used by the
Company shall be considered a "trade secret" for the purposes of this
Agreement.
7.2 Ownership of Trade Secrets; Assignment of Rights. Executive
hereby agrees that all know-how, documents, reports plans, proposals,
marketing and sales plans, client lists, client files
and materials made by him or by the Company are the property of the
Company and shall not be used by him in any way adverse to the Company's
interests. Executive shall not deliver, reproduce or in any way allow
such documents or things to be delivered or used by any third party
without direction or consent of the Board of Directors of the Company.
Executive hereby assigns to the Company any rights which he may have in
any such trade secret or proprietary information; provided, however,
that such assignment does not apply to any right which qualifies fully
under e.g., Cal Labor Code Sec. 2870.
8. Injunctive Relief. The Company and Executive hereby acknowledge
and agree that any default under Section 7 above will cause damage to
the Company in an amount difficult to ascertain. Accordingly, in
addition to any other relief to which the Company may be entitled, the
Company shall be entitled to such injunctive relief as may be ordered by
any court of competent jurisdiction including, but not limited to, an
injunction restraining any violation of Section 7 above without the
proof of actual damages.
4
9. Miscellaneous
9.1 Transfer and Assignment. This Agreement is personal as to
Executive and shall not be assigned or transferred by Executive without
the prior written consent of the Company. This Agreement shall be
binding upon and inure to the benefit of all of the parties hereto and
their respective permitted heirs, personal representatives, successors
and assigns.
9.2 Severability. Nothing contained herein shall be construed to
require the commission of any act contrary to law. Should there be any
conflict between any provisions hereof and any present or future
statute, law, ordinance, regulation, or other pronouncement having the
force of law, the latter shall prevail, but the provision of this
Agreement affected thereby shall be curtailed and limited only to the
extent necessary to bring it within the requirements of the law, and the
remaining provisions of this Agreement shall remain in full force and
effect.
9.3 Governing Law. This Agreement is made under and shall be
construed pursuant to the laws of the State of California.
9.4 Counterparts. This Agreement may be executed in several
counter parts and all documents so executed shall constitute one
agreement, binding on all of the parties hereto, notwithstanding that
all of the parties did not sign the original or the same counterparts.
9.5 Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties with respect to the subject
matter hereof and supersedes all prior oral or written agreements,
arrangements, and understandings with respect thereto. No
representation, promise, inducement, statement or intention has been
made by any party hereto that is not embodied herein, and no party shall
be bound by or liable for any alleged representation, promise,
inducement, or statement not so set forth herein.
9.6 Modification. This Agreement may be modified, amended,
superseded, or canceled, and any of the terms, covenants,
representations, warranties or conditions hereof may be waived, only by
a written instrument executed by the party or parties to be bound by any
such modification, amendment, supersession, cancellation or waiver.
9.7 Attorneys' Fees and Costs. In the event of any dispute arising
out of the subject matter of this Agreement, the prevailing party shall
recover, in addition to any other damages assessed, its attorneys' fees
and court costs incurred in litigating or otherwise settling or
resolving such dispute whether or not an action is brought or
prosecuted to judgment. In construing this Agreement, none of the
parties hereto shall have any term or provision construed against such
party solely by reason of such party having drafted the same.
9.8 Waiver. The waiver by either of the parties, express or implied
of any right under this Agreement or any failure to perform under this
Agreement by the other party, shall not constitute or be deemed as a
waiver of any other right under this Agreement or of any other failure
to perform under this Agreement by the other party, whether of a similar
or dissimilar nature.
5
9.9 Cumulative Remedies. Each and all of the several rights and
remedies provided in this Agreement, or by law or in equity, shall be
cumulative, and no one of them shall be exclusive of any other right or
remedy, and the exercise of any one of such rights or remedies shall not
be deemed a waiver of, or an election to exercise, any other such right
or remedy.
9.10 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not in any way
affect the meaning and interpretation of this Agreement.
9.11 Notices. Any notice under this Agreement must be in writing,
may be telecopied, sent by express 24-hour guaranteed courier, or hand-delivered
, or may be served by depositing the same in the United
States mail, addressed to the party to be notified, postage-prepaid and
registered or certified with a return receipt requested. The addresses
of the parties for the receipt of notice shall be as follows:
If to the Company: The Quantum Group, Inc.
14771 Myford Road, Building B
Tustin, Califoria 92780
If to Executive: Mr. Thomas A. Driscoll
4365 Sunnyhill Drive
Carlsbad, California 92008
Each notice given by registered or certified mail shall be deemed
delivered and effective on the date of delivery as shown on the return
receipt, and each notice delivered in any other manner shall be deemed
to be effective as of the time of actual delivery thereof. Each party
may change its address for notice by giving notice thereof in the manner
provided above.
9.12 Survival. Any provision of this Agreement which imposes an
obligation after termination or expiration of this Agreement shall
survive the termination or expiration of this Agreement and be binding
on Executive and the Company.
9.13 Right of Set-Off. Upon termination or expiration of this
Agreement, the Company shall have the right to set-off against the
amounts due Executive hereunder the amount of any outstanding loan or
advance from the Company to Executive.
9.14 Effective Date. This Agreement shall become effective as of
the date set forth on page 1 when signed by Executive and the Company.
6
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forty above.
(Executive)
By: /s/ Thomas A. Driscoll
- -----------------------------------
Thomas A. Driscoll
(Company)
The Quantum Group, Inc.
By: /s/ Ehrenfried Liebich
- --------------------------------
Ehrenfried Liebich, President
7
/State of California Form/
CONTRACTOR NUMBER AM NO.
RJD-99-701 (blank)
TAXPAYER FEDERAL IDENTIFICATION NUMBER
95-4255962
STATE OF CALIFORNIA, CALIFORNIA
STANDARD AGREEMENT - APPROVED BY THE ATTORNEY GENERAL
STD. 2 (REV. 5-91)CDC ELECTRONIC (1/94)
THIS AGREEMENT, made and entered into this 1st day of July 1999, in the State
of California, by and between State of California, through its duly elected or
appointed, qualified and acting
TITLE OF OFFICER FOR STATE AGENCY
WARDEN RICHARD J. DONOVAN CORRECTIONAL FACILTY
hereafter called the state and
CONTRACTORS NAME
QUANTUM ENVIRONMENTAL SOLUTIONS & TECHNOLOGY, INC., (QCAL, INC)
hereafter called the Contractor
WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed
does hereby agree to furnish to the State services and materials as follows:
(Set forth service to be rendered by Contractor, amount to be paid Contractor,
time for performance or completion, and attach plans and specifications, if
any.)
The California Department of Corrections (CDC), Joint Venture Program (JVP),
seeks to contract with privately owned businesses to produce goods or
services; and
The "Prison Inmate Labor Initiative of 1990", Proposition 139, authorizes
Adult Offenders (Adult Offenders [AOs] as used in this contract means anyone
under the care, custody and control of CDC.) to manufacture, repair and
assemble products for sale, or provide services pursuant to the contract with
the public; and
The State's primary purpose of the JVP is to further the State's AO
rehabilitation, provide vocational training under real work settings, develop
job skills and qualify AOs for employment upon release from the institution;
and
The Contractor wishes to participate in a contract with the State and is
willing to provide personnel to train AOs and assist the State in establishing
operations program at the institution indicated which can meet the objectives
for AOs of the State.
The term of this contract is July 1, 1999 through June 30, 2002.
CONTINUED ON 32 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER
===========================================================================
The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, This agreement has been executed by the parties hereto,
upon the date first above written.
<TABLE>
<CAPTION>
State of California Contractor
- --------------------------------------------------------------------------------
<C> <C>
Agency CONTRACTOR (if other than an
Richard J. Donovan Correctional Facility individual, state whether a
corporation, parthership, etc.,)
QUANTUM ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
By (Authorized Signature) By (Authorized Signature)
/S/ John Ratelle /S/ Ehrenfried Liebich
- --------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING PRINTED NAME OF PERSON SIGNING
JOHN RATELLE EHRENFRIED LIEBICH, PRESIDENT
- --------------------------------------------------------------------------------
TITLE ADDRESS
WARDEN 14771 Myford Road, Building B
Tustin, CA 92780 (714) 508-1478
- --------------------------------------------------------------------------------
</TABLE>
STATE OF CALIFORNIA AND
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
Contractor agrees to enter into a cooperative venture with CDC, Richard
J. Donovan Correctional Facility, to manufacture, repair and assemble
products for sale at the institution utilizing and hiring the services
of AOs of CDC in accordance with the Scope of Services and the General
Terms and Conditions stated in this contract.
The following are attached hereto and incorporated by reference into this
contract:
Attachment A - Scope of Services
Attachment B - General Terms and Conditions
Exhibit I - Inmate-Employee Work Agreement
Exhibit 2 - Specifications of Inmate Appeal Procedures
Exhibit 3 - Disputes (Departmental Operations Manual - Contracts 22040)
The existing warehouse, approximately 10,000 square feet, is leased to the
Contractor pursuant to Lease #L-1775 at the institution for the purpose of
implementing this program, is hereafter called Premises.
2
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
SCOPE OF SERVICES
1. GENERAL
A Term and Renewal
The term of this contract shall commence on July 1, 1999 and terminate no
later than June 30, 2002. This contract may be renewed in writing by mutual
consent of both parties, and approved by the Department of General Services.
B. Training of Contractor Employees (non-AOs)
Selected Contractor employees shall receive a minimum of five (5) days
training at and by the institution training staff. Training shall consist of
those items necessary for employees to operate the industry within the
institution in a consistent, secure and effective manner. Instructions shall
include the policies and procedures of the institution. Ongoing training shall
be provided and shall be scheduled as directed by the Warden.
C. Voluntary Work Agreement
This is a voluntary activity by AOs. If they choose to participate they will
be required to sign an Inmate-Employee Work Agreement (Exhibit 1), authorizing
the disbursement of their wages, i.e., room and board, restitution, savings
account, and family support.
D. Hours of employment
Inmates will be paid only for actual hours worked or in training (hours to be
negotiated). Inmates will work or be in training at least seven hours per day.
AOs need not be paid for training if their work does not contribute directly
to the production of goods or services for sale.
3
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
V. Custody Costs
During normal working hours, custody costs are the responsibility of the
institution. Under normal situations, if custody is available or budgeted for
the area that the joint Venture is located, no cost will be billed to the
Contractor. This includes overtime, weekend and holidays worked by AOs,
provided the area is normally staffed.
If the Contractor requires custody staff during nine periods not normally
covered by institutional custody staff, the Contractor may be charged for this
custody cost at the discretion of the Warden.
VI. Work Schedule
Normal working hours of the AOs of the Contractor will be Monday through
Friday, two shifts from 6:00 a.m. to 2:00 p.m. and 2:00 p.m. to 10:00 p.m.
Any changes to these working hours must be approved by the Warden.
The State agrees to allow Contractor to work any weekend or holiday necessary
with 72 hours prior notice given by the Contractor.
Regular State Holidays: January - 1st, and third Monday
February - 12th and third Monday
May - the last Monday
July - 4th
September - the first Monday
October - the second Monday
November - 11th, fourth Thursday and Friday
December - 25th
When a holiday falls on a Sunday, the following Monday is observed as a
holiday
Contractor will pick up and deliver AOs to and from work.
4
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
VII. Shipment Verification
Upon request, Contractor shall provide shipping document(s) to the State. Such
documents shall indicate the description and quantity of items being shipped
from the institution. Contractor shall abide by reasonable shipping provisions
as mutually agreed to by the Warden and the Contractor. Institution will
provide officer supervision for loading to process shipment in the most
expeditious manner.
II CONTRACTOR RESPONSIBILITIES
A. Program Operation
Contractor agrees to establish and operate an industry of crumb rubber and
rubber products manufacturing.
B. Employer
Contractor shall be considered the employer of all AOs employed in the program
at the Premises, for all purposes under the laws of the State of California.
C. Contractor's Policies
Contractor shall provide the institution with a copy of all policies and
procedures that relate to qualified and employed AOs.
D. Bond
Contractor will provide CDC with a guarantee of payment of all obligations to
CDC, including projected AO wages and any payments due for rent and utilities
in the amount of $10,000. Such guarantee will take the form of a certificate
of deposit, issued by a federally insured bank or savings and loan authorized
to do business in the State of California, payable to CDC for the appropriate
amount. Such certificate must state that it is automatically renewable.
5
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
V. Materials, Supplies, and Equipment
Contractor shall provide all raw materials, machinery aid equipment necessary
in the manufacturing of goods. Supplies and equipment provided by the
Contractor shall remain and be at all times the property of the Contractor.
Contractor shall be responsible for its own equipment and raw material
inventory.
VI. Time Keeping
Contractor will provide a time clock. Contractor shall complete and safeguard
AO Work Incentive time keeping documentation according to CDC requirements.
VII. Wages of AOs
Contractor will pay AOs wages in accordance with Employment Development
Department (EDD) guidelines as developed for this contract.
Contractor shall be responsible for all payroll functions and all tax and
other legal deductions. Wage payments shall be made not less often than
semimonthly in the name of California Department of Corrections for (inmate
name and CDC Number), and delivered according to instructions provided
by CDC. CDC will cause the appropriate portions of the wages of each AO to
be distributed according to the requirements of JVP law and regulation.
VIII. Employee Benefits
Contractor shall be responsible for making employer contributions to Social
Security, California State Unemployment, and appropriate State and Federal
taxes. Disability Insurance (DI) is not deducted from AOs pay checks. The
Contractor is not required to pay Federal Unemployment Tax Act (FUTA) tax.
6
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
IX. Work Force
Contractor shall provide a non-inmate supervisor for the first 20 or fewer AOs
employed. If the number of AOs exceeds 20, Contractor will provide additional
non-inmate supervisors at a ratio of not less than one supervisor to 20 AOs.
Contractor shall employ a minimum of seven (7) full-time AO employees who have
successfully completed training. Failure to comply with this section may
result in the termination of this contract. This number may increase as
business marketing dictates. Contractor plans to expand up to 40 full-time
AOs, which shall be provided by State.
II Displacement
The Contractor agrees not to displace its non-inmate employees with inmate
employees and that the Contractor's business will not result in the
displacement of non-inmate workers performing the same work.
II Security Procedures
Contractor shall abide by all necessary security procedures as determined by
the Warden of the institution. When the Warden deems it necessary for
security of the institution and the safety of the AOs and staff, he/she may
order a complete lock down of the institution which may cause the industry to
cease operations. The Warden shall determine whether all or some AOs can
continue to remain on the job for an extended amount of time during such a
lock down and to facilitate return to work as soon as possible after the lock
down ends.
Contractor shall be allowed with the consent of the Warden to have company
employees (non-AOs) on the Premises during the lock down.
Contractor understands that institution security procedures are a matter of
public and institution safety and take precedence over contractor's business
operations. Institution security procedures may change frequently. The
State shall not be liable to contractor for any increased costs or damages or
business disruption costs caused by any such security procedures.
7
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
II Safety Rules
State and Contractor shall ensure compliance with all federal, state and local
health and safety laws and regulations. Periodic inspection by governmental
agencies shall be conducted. Contractor will institute and adhere to all
safety programs as required by the State.
III. STATE RESPONSIBILITIES
A. Coordinator
The Warden or his/her designee is appointed as Program Coordinator during the
term of this contract.
B. Evaluation
An evaluation of the Contractor's performance will be prepared by the Program
Coordinator in accordance with Federal certification guidelines within 30 days
after completion of the contract.
C. Maintenance
State shall maintain Premises in reasonable functional condition during the
term of this Contract. Janitorial services will be provided by the Contractor.
D. Utilities
State shall provide the use of gas, electricity and water for the Contractor
per Lease Agreement #L-1775. Contractor shall reimburse CDC the rate which
will be equal to that paid by the State as provided in Lease #L-1775.
E. Providing Names of Eligible Adult Offenders
State shall provide the Contractor with a list of AOs who have met the pre-
determined minimum qualifications as defined by the Contractor and the State.
8
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
IV MUTUAL RESPONSIBILITIES
A. Selection of AOs
Selection of AOs for this program shall be a joint responsibility of the State
and Contractor. Final decision on employment of AOs shall remain with the
Contractor. It is understood that selection of AOs into the program is a
privilege, not a right.
B. Discipline
Discipline of the AOs is the responsibility of State. Contractor personnel
shall report through established channels all acts of AOs contrary to law,
regulations or Contractor rules, and assist State staff in determining
disciplinary action. Furthermore, Contractor personnel shall cooperate with
State personnel in control of AOs in emergency situations only when under the
direct supervision and guidance of custody staff.
C. Job Description
Contractor with the Program Coordinator and the Institutional Classification
Committee shall draft minimum job requirements, minimum selection criteria,
and job descriptions.
D. Hiring Process
The Program Coordinator or designee shall review all applications.
The Program Coordinator or designee shall forward a list of approved AO
applicants to the Contractor who shall conduct interviews with those AOs
applying for the positions.
An ongoing eligibility list shall be updated routinely and shall be provided
by the Inmate Assignment Lieutenant.
8
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
E. Adult Offender Performance
All AOs assigned and employed by the Contractor are expected to produce a
normal day's work. In the event an AO malingers, refuses to work, loiters on
the job or fails to accomplish a satisfactory daily output of work, or other
unacceptable conduct, and continues to do so after a reasonable and realistic
cooperative effort by both contracting parties to salvage the AO for this
program through counseling or minor disciplinary procedures to produce proper
work habits, the AO shall be dismissed from employment by Contractor and/or
State.
If an AO's behavior becomes disruptive to daily operation, AO will no longer
be eligible to participate in this program. This decision can be made by
Contractor.
11
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
GENERAL TERMS AND CONDITIONS
1. Approval
This contract is of no effect unless and until approved by the State of
California, Department of General Services, or under its authority by the
Department of Corrections.
2. Conflict of Interest
An organization will not be awarded a contract if financial interests are held
by a current officer or employee of the State. Additionally, a contract will
not be awarded to an officer or employee of the State as an independent
contractor to provide goods and services. Likewise, the contracting agency
officials and employees shall also avoid actions resulting in or creating an
appearance of:
A. Using an official position for private gain;
B. Giving preferential treatment to any particular person;
C. Losing independence or impartiality;
D. Making a decision outside official channels; and
E. Affecting adversely the confidence of the public or local officials
in the integrity of the program.
Former State employees will not be awarded a contract for two years from the
date of separation if that employee had any part of the decision making
process relevant to the contract, or for one year from the date of separation
if that employee was in a policy-making position in the same general subject
area as the proposed contract within the 12-month period prior to his/her
separation from State service.
11
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
3 . National Labor Relations Board Certification
Contractor by signing this contract does swear under penalty of perjury that
no more than one final unappealable finding of contempt of court by a federal
court has been issued against Contractor within the immediately preceding 2-
year period because of Contractor's failure to comply with an order of a
federal court which ordered the Contractor to comply with an order of the
National Labor Relations Board (Public Contract Code Section 10296).
4. Amendments
Any modification to this Agreement must be in writing, signed by both parties,
and approved in accordance with the laws of the State of California. An
amendment shall not be effective until approved by the Department of General
Services.
5. Governing Laws
This contract shall be governed by and executed in accordance with the laws of
the State of California.
6. Subrogation Waived
To the extent authorized by any fire and extended coverage insurance policy
issued to Contractor for the Premises, Contractor hereby waives the
subrogation rights of the insurer and releases the State from liability for
any loss or damage covered by insurance.
7. Statement of Compliance
Contractor by signing this contract does swear under penalty of perjury under
the laws of the State of California that the Contractor has, unless exempted,
complied with the nondiscrimination program requirements of Government Code
Section 12990 (a-f) and Title 2, California Code of Regulations, Section 8103
12
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
8. Hold Harmless
This provision supersedes Paragraph I on the back of the Standard Agreement
(Std. 2).
The Contractor agrees to indemnify, defend and hold harmless the State, its
officers, agents and employees from any and all claims and losses occurring or
resulting to any other persons, firm or corporation furnishing or supplying
work, services, materials or supplies in connection with the performance to
this contract, and from any and all claims and losses occurring or resulting
to any person, firm or corporation who may be injured or damaged by the
Contractor in the performance of this contract, unless such liability arises
out of the sole negligence, recklessness, intentional or willful acts or
misconduct of the State, its officials, employees, or agents.
9. Liability and Claims for Damages
This contract is made upon the express condition that the State is to be free
from liability and claims for damages by reason of any injury to any person or
persons or property of any kind whatsoever while in, upon, or in any way
connected with the Premises during the term of this contract and occupancy
hereunder, unless such liability arises out of the sole negligence,
recklessness, intentional or willful acts or misconduct of the State, its
officials, employees, or agents. Contractor agrees to defend, indemnify, and
save harmless the State from all liability, loss, cost or obligation on
account of or arising out of any such injury or loss.
10. Licenses and Permits
The Contractor must be an individual or firm licensed to do business in
California and shall obtain at his/her expense all license(s) and permit(s)
required by law for accomplishing any work required in connection with this
contract. Contractor must submit a valid business license with the signed
contract.
13
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
In the event any license(s) and/or permit(s) expire at any time during the
term of this contract, Contractor agrees to provide CDC a copy of the renewed
license(s) and/or permit(s) within 30 days following the expiration date. In
the event Contractor fails to keep in effect at all times all required
license(s) and permit(s), the State may, in addition to any other remedies it
may have, terminate this contract upon occurrence of such event.
11. Insurance
Contractor shall provide to the State a Certificate of Insurance (COI) for
commercial general liability.
The COI must state that there is commercial general liability insurance
presently in effect for the Contractor of not less than $1,000,000 per
occurrence for bodily injury and property damage liability combined and Fire
Legal Liability of at least $500,000.
The certificate of insurance must include the following provisions stating
that:
a. The insurer will not cancel the insured's coverage without 30 days prior
written notice to the State; and
b. The State of California, its officers, agents, and employees are included
as additional insureds, but only insofar as the operations under this contract
are concerned.
Contractor agrees that the insurance herein provided for shall be in effect at
all times during the term of this contract. In the event said insurance
coverage expires at any time or times during the time of this contract,
Contractor agrees to provide at least 30 days prior to said expiration date, a
new certificate of insurance evidencing insurance coverage as provided for
herein for not less than the remainder of the term of the contract, or for a
period of not less than one year. New certificates of insurance are subject to
the approval of the Department of General Services and Contractor agrees that
no work or services shall be performed prior to such approval. In the event
the Contractor fails to keep in effect at all times insurance coverage as
herein provided, State may, in addition to any other remedies terminate this
contract.
14
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
12. Workers' Compensation
CDC will provide workers' compensation coverage for inmates employed in the
JVP. Inmate-employees shall be covered under existing State of California
Labor Code provisions in accordance with the CDC's Inmate Workers Compensation
Program. In return, the Contractor agrees to pay a fee equal to 75 percent of
the published rate for the classification of similar private employers as
outlined in the California Workers Compensation Insurance Manual. The
published rate for class code #4410 is $9.19. Therefore, the Contractor shall
be responsible to pay $6.89. Fees shall be paid directly to CDC on a quarterly
basis in arrears for coverage under these terms.
This workers' compensation coverage extends only to CDC's inmates employed by
Contractor. The State is to be free from liability for injuries to inmates
that arise out of or are in any way connected with negligence, recklessness,
or intentional or willful acts or misconduct of the Contractor, its officials,
employees, agents, or servants.
By signing this contract, the Contractor hereby warrants that it carries
Workers' Compensation Insurance for all of its employees who will be engaged
in the performance of this contract.
Notwithstanding paragraph 4 of Attachment B of this contract, the CDC may
revoke or revise this section in whole or in part upon 90 days written notice
to the Contractor.
13. Nondiscrimination Clause (Std. 17A)
During the performance of this contract, Contractor and its subcontractors
shall not unlawfully discriminate, harass or allow harassment, against any
employee or applicant for employment because of sex, race, color, ancestry,
religious creed, national origin, physical disability (including HIV and
AIDS), mental disability, medical condition (cancer), age (over 40), marital
status, and denial of family care leave. Contractors and subcontractors shall
insure that the evaluation and treatment of their employees and applicants for
employment are free of such discrimination and harassment. Contractors and
subcontractors shall comply with the provisions of the Fair Employment and
Housing Act (Government Code, Section 12900, et seq.) and the applicable
15
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
regulations promulgated thereunder (California Code of Regulations, Title 2,
Section 7285.0, et. seq.). The applicable regulations of the Fair Employment
and Housing Commission implementing Government Code Section 12990 (a-f), set
forth in Chapter 5 of Division 4 of Title 2 of the California Code of
Regulations are incorporated into this contract by reference and made a part
hereof as if set forth in full, Contractor and its subcontractors shall give
written notice of their obligations under this clause to labor organizations
with which they have a collective bargaining or other agreement.
This Contract shall include the nondiscrimination and compliance provisions of
this clause in all subcontracts to perform work under the contact.
14. Right of Entry
During the term of this contract, there shall be and is hereby expressly
reserved to State and to any of its agencies, contractors, agents, employees,
representatives or licensees, the rights at any and all times to temporarily
enter upon the Premises for survey or other lawful State purposes. The state
requires a three-day notice, whenever possible, to secure gate clearances for
Contractor's vendors.
One set of keys to the work area will be five to the Warden or his designee.
The keys will only be used with the approval of the Warden or his designee.
15. Right to Terminate
Each party reserves the right to terminate this contract subject to 30 days
written notice of termination.
If a new institution is constructed during this contract, requiring the use of
the Premises, this Standard Agreement will terminate by giving the Contractor
written notice 90 days prior to termination.
However, the contract can be immediately terminated for cause by the State.
The term (for cause) shall mean that the Contractor fails to meet the terms,
conditions and/or responsibilities of the contract. In this instance, the
contract termination shall be effective as of the date indicated on the
State's notification to the Contractor.
16
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
If the contract is terminated for cause, CDC reserves the right to conduct a
responsibility hearing to determine if the Contractor is a responsible
Contractor before an award on future contracts can be made.
This contract may be suspended or canceled, without notice at the option of
the Contractor, if the Contractor or State's premises or equipment are
destroyed by fire or other catastrophe, or so substantially damaged that it is
impractical to continue service, or in the event the Contractor is unable to
render service as a result of any action by any governmental authority, which
includes lock downs.
16. Inmate Appeal
Contractor agrees to carry out the principles of CDC's approved Inmate Appeal
Procedures (See Exhibit 2) as required by law pursuant to Title 15, California
Code of Regulations, Section 3084.1(a), wherein an AO may appeal the substance
or application of any written or unwritten policy of CDC or of the Contractor
to which the AO is assigned, or appeal any behavior or action directed toward
the AO by the staff of either the State, Contractor or another AO.
17. Loss of Property
All personal property, inventory, equipment, improvements and/or fixtures or
other property of any kind or description whatsoever, installed or brought
into the area by the Contractor or the Contractor's employees or agents, shall
be at the Contractor's or the Contractor's employees' or agents' sole risk and
neither the State nor any employees nor agents thereof shall be liable for any
damage done to or loss of such personal property or for damage or loss
suffered by an individual, the business or occupation of the Contractor
arising from any acts or occurrence whatsoever including, but not limited to,
fire, malicious mischief, theft, and water damage, except where the damage or
loss due to the sole negligence of the State or an employee or agent thereof.
If the State is held liable, loss or damage shall be limited to the
replacement costs, or the repair cost of damaged or destroyed property,
whichever is less. Consequential or punitive damages shall not be recoverable.
17
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
18. Resolution of Disputes
The parties hereto mutually agree that the resolution of any claims or
disputes arising under this contract shall be resolved pursuant to the
provisions of the Department of Corrections' Operations Manual (DOM) Section
22040.16 (Exhibit 3).
19. Drug-Free Workplace Certification
By signing this contract, the Contractor hereby certifies under penalty of
perjury under the laws of the State of California that the Contractor will
comply with the requirements of the Drug-Free Workplace Act of 1990
(Government Code Section 8350, et seq.) and will provide a drug-free workplace
by taking the following actions:
a. Publish a statement notifying employees that unlawful manufacture,
distribution, dispensation, possession, or use of a controlled substance is
prohibited and specifying actions to be taken against employees for
violations.
B. Establish a Drug-Free Awareness Program to inform employees about:
1. The dangers of drug abuse in the workplace;
2. The person's or organization's policy of maintaining a drug-free
workplace;
3. Any available counseling, rehabilitation and employee assistance
programs; and
4. Penalties that may be imposed upon employees for drug abuse
violations.
B. Every employee who works on the proposed contract will:
1. Receive a copy of the company's drug-free policy statement; and
18
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
2. Agree to abide by the terms of the company's statement as a
condition of employment on the contract.
3. Failure to comply with these requirements may result in suspension
of payments under the contract or termination of the contract or both and the
Contractor may be ineligible for award of any future State contracts if the
Department determines that any of the following has occurred: (1) the
Contractor has made false certification, or (2) violates the certification by
failing to carry out the requirements as noted above.
20. Background Checks
The State reserves the right to conduct a background check on the
Contractor and/or the Contractor's personnel as the State deems necessary
prior to award or during the term of the contract. The State further reserves
the right to take all appropriate measures to preserve institutional security
including but not limited to exclusion of personnel or termination of the
contract.
21. Fingerprinting
The Contractor and any employees of the Contractor may be subject to
fingerprinting and clearance by the State through the Department of Justice,
Bureau of Criminal Identification and information.
22. Digest of Laws
For information and guidance of persons visiting or working with or
around prison inmates of the Department of Corrections, the following is a
digest of laws and rules related to association with inmates.
a. A warning sign is posted at the entrance to all public and business
roadways onto the grounds of institutions, camps and other department
facilities where inmates or parolees are housed indicating that by entering
these grounds you consent to the search of your person, property, or vehicle.
Reference: California Code of Regulations (CCR) Title 15
Division (Div.) 3 Sections 3173 and 3288.
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
b. It is a crime to enter institution property for unauthorized
purposes. It is also a crime to refuse to leave when requested to do
so by an official.
Reference: Penal Code (PC) Section 602; CCR Title 15 Div. 3
Section 3 289.
c. Abetting or assisting inmates to escape is a crime. It is also a
crime to bring firearms, deadly weapons, explosives, or tear gas on
facility grounds. It is a crime to give inmates firearms, weapons,
explosives, alcoholic beverages, narcotics, including cocaine or
marijuana, or any other drug.
Reference: PC Sections 2772, 2790, 4533, 4535, 4550, 4573,
4573.5, 4573.6, and 4574.
d. It is a crime to give or take letters from inmates without the
authorization of the Warden.
Reference: PC Section 4570; CCR Title 15 Div. 3 Section 3 401.
e. Giving gifts or presents to inmates is not permitted.
Reference: PC Section 2541; CCR Title 15 Div. 3 Sections 3010
and 3 399.
f. Receiving gifts from inmates is not permitted.
Reference: PC Sections 2540 and 2541; CCR Title 15 Div. 3
Sections 3010, 3399 and 3424.
g. It is a crime to falsify one's identity to gain admission to a
facility. It is a crime for a person previously convicted of a
felony in this state to enter the grounds of a facility without
permission of the official in charge.
Reference: PC Sections 4570.5 and 4571; CCR Title 15 Div. 3
Section 3 173.
20
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
h. Refusal of visitors to submit to search and inspection of their
person and property, and/or vehicles brought onto institution
grounds may be cause for denial of visit.
Reference: PC Sections 2601, 5054, and 5058; CCR Title 15 Div. 3
Sections 3173 and 3177.
i. Persons normally permitted to enter a departmental facility or
institution may be barred for cause by the Director, Warden, Superintendent,
or Regional Administrator.
Reference: PC Sections 5054 and 5058; CCR Title 15 Div. 3
SectionN3176.
j. Persons who are not departmental employees but are assigned to or
engaged in work in any departmental facility shall observe all rules,
regulations, and laws governing the conduct of employees. Failure to comply
may lead to expulsion.
Reference: PC Sections 5054 and 5058; CCR Title 15 Div. 3 Sections
3285 and 3415.
k. In the event of an emergency situation that affects a significant
portion of the inmate population at an institution, the visiting program and
other program activities may be suspended during the period of emergency.
Reference: PC Section 2 60 1; CCR Title 1 5 Div. 3 Section 3 3 8
3.
l. Employees shall not permit the taking of hostages by inmates or
others in an attempt to escape, or otherwise interfere with orderly
institution operations. Hostages will not be recognized for bargaining
purposes. All inmates, visitors, and staff will be informed of this
regulation.
Reference: PC Sections 5054 and 5058; CCR Title 15 Div. 3 Section
3 3 04.
21
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
m. It is a crime for a person to make verbal or written statements
concerning a discharged inmate to procure or deprive the inmate of employment
or for the purpose of extortion.
Reference: PC Section 2947.
23. Corporate Status Verification
Contractor, if a corporation, does certify under penalty of perjury that
tile corporation is currently in good standing with the Office of the
Secretary of State and is qualified to do business in the State of California.
The Contractor will maintain both requirements throughout the contract period
and failure to do so constitutes a breach.
24. Disclosure and No Liability
Neither the State nor any State employee will be liable to the Contractor
or its staff for injuries inflicted by inmates of the State. The State will
agree to disclose to the Contractor non-confidential statements known to State
staff made by any inmate which indicate violence may result in any specific
situation, and the same responsibility will be shared by the Contractor in
disclosing such statements to the State staff.
25. Independent Contractor
All services provided by the Contractor under this contract shall be
performed as an independent contractor. The Contractor shall be responsible
for withholding all applicable employee taxes.
26. Tuberculosis Testing
Prior to performance of contracted duties, Contractor and their employees
who are assigned to work with inmates on a regular basis shall be required to
be examined or tested or medically evaluated for tuberculosis (TB) in an
infectious or contagious stage, and at least once a year thereafter or more
often as directed by CDC. Regular basis is defined as having contact with
inmates in confined quarters more than once a week.
22
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
Contractors and their employees shall be required to furnish to the
institution, at no cost to CDC, a CDC 7336 Employee Initial/Annual
Tuberculosis (TB) Skin Test and CDC 7354 Infectious Free Certification prior
to assuming their contracted duties and annually thereafter, showing that the
Contractor and their employees have been found free of TB in an infectious
stage. If an employee does not complete the test or is not found free from TB
in an infectious stage, Contractor will immediately notify the Warden and that
employee may be excluded from the institution. The CDC 7336 and CDC 7354 will
be provided by the institution upon Contractor's request.
27. Audits
The State or any of its duty authorized representatives will perform
periodic financial and operational reviews to determine compliance with
contract provisions and shall have access and right to examine, audit,
excerpt, or transcribe any books, documents, papers and records of the
Contractor which in the opinion of the State are related or pertinent to this
contract.
The contracting parties shall be subject to the examination and audit of
the State Auditor for a period of three years after completion of the contract
(Government Code Section 8546.7). The examination and audit shall be confined
to those matters connected within the performance of the contract, including,
but not limited to, the costs of administering the contract.
28. Minimum Wage
Contractor agrees to pay its employee's wages not less than current
California minimum wage.
29. Contract Violations
The Contractor acknowledges that any violation of Chapter 2, or any other
chaptered provision of the Public Contract Code (PCC) is subject to the
remedies and penalties contained in PCC Sections 10420 through 10425.
23
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
30. Disability Placement
By signing this contract, Contractor represents and warrants the State that it
complies and will maintain compliance with the Americans with Disabilities Act
(ADA) of 1990, (42 U.S.C. 12101 et seq.), which prohibits discrimination on
the basis of disability, as well as applicable regulations and guidelines
issued pursuant to the ADA.
31. Confidentiality of Data
All financial, statistical, personal, technical and other data and information
relating to State's operation, which are designated confidential by the State
and made available to carry out this contract, or which become available to
the Contractor in order to carry out this contract, shall be protected by the
Contractor from unauthorized use and disclosure.
If the methods and Procedures employed by the Contractor for the protection of
the Contractor's data and information are deemed by the State to be adequate
for the protection of the State's confidential information, such method and
procedures may be used with the written consent of the State. The Contractor
shall not be required under the provisions of this paragraph to keep
confidential any data already rightfully in the Contractor's possession that
is independently developed by the Contractor outside the scope of the contract
or is rightfully obtained from third parties.
No reports, information, inventions, improvements, discoveries, or data
obtained, repaired, assembled, or developed by the Contractor pursuant to this
contract shall be released, published, or made available to any person (except
to the State) without prior written approval from the State.
Contractor by acceptance of this contract is subject to all of the
requirements of California Civil Code Sections 1798, et seq., regarding the
collections, maintenance, and disclosure of personal and confidential
information about individuals.
24
<PAGE>
STATE OF CALIFORNIA AND Attachment A
Quantum Environmental Solutions Contract Number RJD 99-701
and Technology, Inc. (QCal, Inc.)
32. Reportable Payment Identification and Classification Requirements
Contractor shall comply with State and Federal Reportable Payment
Identification and Classification Requirements by fully completing the "Vendor
Data Record".
33. Notification of Personnel Changes
Contractor must notify the State, in writing, of any changes of those
personnel allowed access to State premises for the purpose of providing
services outlined here.
34. Year 2000 Compliance
The Contractor warrants and represents that the goods or services sold,
leased, or licensed to the State of California, its agencies, or its political
subdivisions, pursuant to this contract are "Year 2000 compliant." For
purposes of this contract a good or service is Year 2000 compliant if it will
continue to fully function before, at, and after the Year 2000 without
interruption and, if applicable, with full ability to calculate, manipulate,
and otherwise utilize date information. This warranty and representation
supersedes all warranty disclaimers and limitations and all limitations on
liability provided by or through the Contractor.
35. Bloodborne Pathogens
Provider shall adhere to CAL-OSHA's regulations and guidelines pertaining to
bloodborne pathogens.
36. Child Support Compliance Act
The contractor acknowledges in accordance with Public Contract Code Section
7110, that: (a) the contractor recognizes the importance of child and family
support obligations and shall fully comply with all applicable state and
federal laws relating to child and family support enforcement, including, but
not limited to disclosure of information and compliance with earnings
assignment orders, as provided in Chapter 8 (commencing with Section 5200 of
Part 5 of Division 9 of the Family Code); and (b) the contractor, to the best
of its knowledge is fully complying with the earnings assignment orders of all
employees and is providing the names of all new employees to the New Hire
Registry maintained by the California Employment Development Department.
25
