United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
March 31, 1999 0-23812
THE QUANTUM GROUP, INC.
(Exact name of registrant as specified in its charter)
NEVADA
-------
(State or other jurisdiction of incorporation or organization
95-4255962
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(I.R.S. Employer Identification No.)
Park Irvine Center, 14771 Myford Road, Building B
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Tustin, CA 92780
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(Address of principal executive offices)
(714) 508-1470
---------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
---- -----
State the number of shares outstanding of each of the registrants classes
of common equity, as of the latest practicable date.
Common stock, par value $.001; 8,574,021 shares outstanding
as of May 4, 1999,
1<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See page F-1 to F-10 attached.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
This Form 10- QSB contains certain forward-looking statements. For
this purpose any statements contained in this Form 10-QSB that are not
statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "estimate" or "continue" or comparable
terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, and
actual results may differ materially depending on a variety of factors.
General
- -------
The 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 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 areas 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<PAGE>
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 recycling systems and subsystems, the Company is
developing markets for its crumb rubber value added after market products.
The Company intends to establish a manufacturing facility in California 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.
Joint Venture Projects
- ----------------------
Poseidon Products GmbH. In a joint venture agreement with a German
Government sponsored company, 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.
The funding for the Poseidon joint venture is now expected to be
completed before the end of the second 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. However, 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 be
completed by the end of the second 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.
3<PAGE>
The Company has established a Poseidon Website which may be viewed at
www.poseidon-products.com. The Website which is in German and English,
provides a platform for showcasing the Poseidon joint venture and promoting
an awareness of the Company.
Proposed Joint Venture Projects
- -------------------------------
California Prison Manufacturing Project. The Company has met with the
Warden of the Donovan Correctional Facility at Rock Mountain, San Diego,
California and have reached an agreement in principle to establish Phase
One of the proposed joint venture project. Phase One will consist of
approximately 10,000 square feet of covered space provided by the Prison
which will contain the Company's new Eco-Press 200 and a range of various
mold sets to manufacture targeted products. The Company anticipates
producing a wide variety of products including heated mats using the
Company's Rothbury technology which will be marketed and sold by the
Company in California and throughout the United States. 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.
Scotland. 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, Caladonian Envirotech Rubber Recycling Limited, a Scottish
limited liability company, was established for the purpose of entering a
joint venture agreement in Scotland.
Ireland. 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.
Portugal. The Company is continuing negotiations with investors in
Portugal to enter a joint venture agreement to build a tire recycling
facility. It is anticipated the proposed joint venture partner will
undertake a feasibility study with assistance from the Company.
Spain. The Company is continuing negotiations with investors in Spain
to enter a joint venture agreement to build a tire recycling facility. It
is anticipated the proposed joint venture partner will undertake a
feasibility study with assistance from the Company.
France. The Company is currently negotiating with interested parties
so the Company can initiate a feasibility study for a joint venture to
build a tire recycling facility in France. The Company is also actively
promoting its after market products and user applications within France to
develop key relationships.
Brazil. The Company is currently conducting a feasibility study in
Belo Horizonte, Brazil which is scheduled for completion at the end of May,
1999. 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.
4<PAGE>
South Africa. The Company is continuing negotiations with potential
investors to develop a joint venture for a tire recycling plant.
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
- -----------------
Atzendorf, Germany. 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. The
Company anticipates equipment delivery during the second half of 1999.
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. The first Revulc 300 machine is expected to be delivered
by the end of the second quarter, 1999.
Mexico Agreement. The CISAP equipment sale to Mexico was entered in
1994. The client has experienced problems in the commissioning of the
C9000 machines supplied by CISAP. The Company sent an engineering team to
the site to correct the problems, however, the team uncovered additional
problems. CISAP has also sent engineers to the site and the Company's
engineering team is now working with the CISAP engineering team to evaluate
and solve the problems. The Company anticipates a thorough analysis of the
problems and a plan for corrective action by the end of May, 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 reached an
agreement with the Saudi client to retrofit and SMS press equipment at a
cost of approximately $30,000 to the Company. In return, the client has
agreed to purchase two Eco-Press 200 machines from the Company after proof
of prototype. This will enable the Company to recoup its SMS retrofit
expense.
5<PAGE>
Current Orders
The Company's strategy of focusing on tire recycling plants and
after-market products has eliminated the reliance upon CISAP and other
outside vendors for equipment and installation. As a result of the revised
strategy, the Company has booked orders at the start of 1999 of
approximately $13,588,490 split between three projects in Germany. The
current orders break-out as follows:
42% ESG system
32.5% Eco-Press equipment
23% Revulcon equipment
2% Impact 500 equipment
.5% miscellaneous equipment, lab testing, license fees and
product sales
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 three Impact 500 machines which are scheduled for
delivery during the second half of 1999. Two Impact 500 machines are
slated for delivery to Germany and one is scheduled for delivery to the
Company's San Diego Prison Project.
Initially, the Company will manufacture the Impact 500 machines in-house.
The Company has leased a small facility of 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
- -----------------------------------
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.
6<PAGE>
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 first Revulc 300 system will be installed at the Coswig project
before the end of the second 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 second quarter
1999 with delivery scheduled for end of year, 1999.
CISAP Agreement
- ---------------
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 are attempting to resolve.
Because of the difficulties with the CISAP equipment, Eurectec, Inc.
will look to other manufacturers as suppliers of compact granulating
equipment systems.
SMS Agreement
- -------------
In May of 1996, Eurectec, Inc. entered an agreement with SMS
Sondermaschinen GmbH, a German corporation, ("SMS") which provided
Eurectec, Inc. the right to sell and market SMS press equipment and
machinery. Eurectec, Inc. sold SMS equipment to its client in Saudi
Arabia who has experienced problems with the SMS equipment. Eurectec, Inc.
is attempting to resolve the difficulties and has other manufacturers in
place for its press equipment needs.
New Products
- ------------
The Company continues to research and develop new 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.
Public Relations
- ----------------
The Company has re-engaged the services of The Blaine Group, Inc.,
based in Beverly Hills, California, to help with public and investor
relations.
7<PAGE>
Internet Capital Corporation is assisting the Company with its
Internet presence by updating the Company's website and creating an
e-commerce platform.
Exhibitions
- -----------
The Company will host an exhibition stand at the International Tire
and Rubber Association ("ITRA") Expo to be held in Nashville, Tennessee
from June 10 through 12, 1999. The Company will also attend a major
recycling exposition in Munich, Germany via Poseidon in conjunction with
FDC (the Company's engineering affiliate) scheduled for May, 1999.
Year 2000 Compliance
- --------------------
The Company is currently year 2000 complaint and does not anticipate
any problems with its computing or support equipment. However, vendors,
banks and other suppliers and parties upon whom the Company relies, may not
be year 2000 compliant. The Company has no control over such parties and
any impact upon the Company is uncertain. The Company is currently in the
process of requesting Y2K compliance status from the parties with which it
conducts business in order to evaluate any impact to the Company. The
Company has not been notified that any of its vendors, banks or other
suppliers or parties upon whom it relies are non-compliant with Y2K
matters.
Web Site
- --------
The Company has updated its group Website and has created links to
other allied Websites, which can be viewed at
http://www.thequantumgroupinc.com. The Website allows the view to access
an overview of the Company's activities, obtain market information for the
Company's trading stock, view the Company's EDGAR filings and provides a
link to the Eurectec, Inc. Website (http://eurectec.com". The Company is
establishing two additional Websites which will be Qest-Quantum.com and
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
www.tirerecycling.com, which will become a main portal for the Company.
This Website, which should be operational during the second quarter of
1999, is multi-lingual in order to enhance global communication and
awareness of the Company and its subsidiaries. It has links to The Quantum
Group, Inc. site and allows the view 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.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had cash of $890,029 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 finalizes a joint venture agreement for
the California Prison Project, it may have a capital commitment for
approximately $1,500,000.
The Company is emphasizing product and services sales via the Internet
and trade show participation. Additionally, the Company is vigorously
pursuing joint venture arrangements similar to that of the Poseidon
Project. The Company anticipates it will experience continued growth
during 1999 through these efforts pursuant to the Company's strategic plan.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 1998 and the three
months ended March 31, 1999.
During the first quarter of 1999, the Company's net cash used in
operations was $891,915, compared to cash used in operations of $182,040
during the first quarter of 1998. The 1999 cash utilization is a result of
an operating loss of $303,968 and the payment of $393,199 of deposits on
inventory and $172,050 of increased investment in the Impact 500 prototype.
The Company realized net proceeds of $937,863, after commissions, legal and
accounting fees on its Regulation S offering concluded during the three
months ended March 31, 1998. No such activity was conducted during the
comparable quarter in 1999.
The Company generated $70,699 of revenue. The majority of this income
is from feasibility studies for future projects. $9,787 of the other income
was from Interest Income.
Travel expense in the three months ended March 31, 1999 of $84.070
exceeded the prior period expense of $34,811 by $48,259 because of the
installation and sales activities of a number of foreign transactions and a
general increase in the Company's marketing activities, as well as the
German joint venture project. Administrative expense increased from
$32,569 to $106,946 from the first quarter of 1998 to the first quarter of
1999. This increase is also due to the increases in advertising and public
marketing activities during the 1999 period.
Depreciation expense decreased from $12,253 in the first quarter of
1998 to $2,503 in the quarter ended March 31, 1999. This decrease is due
to the sale of the press in the last quarter of 1998. Amortization expense
increased from $12,439 in the quarter ended March 31,1998 to $16,189 in the
quarter ended March 31, 1999 due to the addition of the Faru license during
1999.
9<PAGE>
Professional fees increased to $33,671 in the quarter ended March 31,
1999 from $1,424 in the comparable 1998 quarter. This increase is
primarily due to the legal expenses of the 1999 Regulation S offering and
the issuance of the 1998 Form 10K-SB. Consultant fees decreased by $6,151
to $87,876 in the three months ended March 31, 1999 compared to the $94,027
incurred in the comparable three-month period in 1998. This decrease is
due to timing differences in the utilization of consultants and is not
indicative of a trend to reduce the utilization of consultants.
Comparison of the three months ended March 31, 1998 and the three
months ended March 31, 1997.
During the first quarter of 1997, the Company's net cash used in
operations was $182,040, compared to cash provided from operations of
$2,712 during the first quarter of 1997. The 1998 cash utilization is a
result of an operating loss of $135,681 and the payment of $167,738 of
accrued expenses, primarily accrued interest on the Company's debt of
$721,318, which was also paid off during the quarter. The Company realized
net proceeds of $937,863, after commissions, legal and accounting fees on
its Regulation S offering concluded during the three months ended March 31,
1997. No such activity was conducted during the comparable quarter in
1998.
The Company invested $70,000 in a license for additional technology
and $22,500 in the German joint venture during the quarter ended March 31,
1998. No comparable activity occurred in 1997.
The Company generated $460,000 of revenue and $400,000 of costs as a
result of contract additions on the Mexico project during the quarter ended
march 31, 1998. $40,000 of additional revenue was also generated by the
sale of a small parcel of land that the Company owned in conjunction with
the previously owned residential property in Florida. This parcel was
excluded from the original sale in order to eliminate the need to take an
owner-financing plan of questionable collectability. Due to the
uncertainty of revenue recognition, the parcel had been held without asset
value, and as such the purchase price of $40,000 is all a gain on sale.
Travel expense in the three months ended March 31, 1998 of $34,811
exceeded the prior period expense of $14,069 by $20,742 because of the
negotiation and sales activities of a number of foreign transactions and a
general increase in the Company's marketing activities. Administrative
expense increased from $18,578 to $32,569 from the first quarter of 1997 to
the first quarter of 1998. This increase is also due to the increases in
marketing activities during the 1998 period.
Consultant fees increased by $36,111 to $94,027 in the three months
ended March 31, 1998 compared to the $57,916 incurred in the comparable
three month period in 1997. $30,093 of this increase is as a result of
charging $38,012 of expenditures incurred by or on behalf of the Company
president to the due officer account ($7,919) and recognizing the balance
($30,093) as a current period expense. In prior periods, the payments to
or on behalf of the Company president had been accounted for as a reduction
of the debt owned to the officer by the Company. During the three months
ended Mach 31, 1998, the value of the Company's investment in Keystone
Energy declined from 3 5/8 per share to 2 1/2 per share. The Company
recognized the decline as a current quarter loss. No comparable
transaction was applicable to the same quarter of the prior year.
10<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
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.
11<PAGE>
(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.
(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.
12<PAGE>
2. Option Exercise
The June option was exercised pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
The July option was exercised pursuant to Regulation S.
(e) Terms of conversion or exercise.
1. Regulation S Offering
Not applicable.
2. Option Exercise
The June option was granted pursuant to the Company's 1997 Stock
Option Plan. The exercise price per share was $.062 and the option, which
is for a total of 50,000 shares, may be exercised over a period of two
years from October 23, 1997, the date of the grant.
The July option was granted pursuant to the Company's 1997 Stock
Option Plan. The exercise price per share was $.062 and the option, which
is for a total of 200,000 shares, may be exercised over a period of two
years from October 23, 1997, the date of the grant.
(f) Use of Proceeds.
<TABLE>
<CAPTION>
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.
<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
13<PAGE>
<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 option which
funds were placed in general working capital.
The Company realized $12,400 from the exercise of the July 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
14<PAGE>
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 March 31, 1998.
(B) Exhibits. The following exhibits are included as part of this
report:
<TABLE>
<CAPTION>
Exhibit SEC Exhibit Title of Document Location
Number Ref. Number
------- ------------ ------------------ ---------
<S> <C> <C> <C>
27 27 Financial Data Schedule Attached
</TABLE>
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this to be signed on its behalf by the
undersigned thereunto duly authorized.
The Quantum Group, Inc.
May 16, 1999 /S/ Ehrenfried Liebich
- ------------ ----------------------
Ehrenfried Liebich
Chairman of the Board, President and
Chief Executive Officer
May 16, 1999 /S/ John F. Pope
- ------------ ----------------
John F. Pope
Vice President, Finance
Chief Accounting Officer
16
<PAGE>
The Quantum Group, Inc., and Subsidiaries (F-1)
Financial Statements
March 31, 1999 (Unaudited)
<PAGE>
The Quantum Group, Inc., and Subsidiaries (F-2)
Balance Sheets
March 31, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
March 31, March 31, December 31,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current Assets
- --------------
Cash $ 890,029 $ 76,776 $ 1,781,944
Accounts Receivable 3,065,040 710,979 3,065,040
Inventory 33,025 29,760 19,425
Deposit 696,220 421,451 303,021
Note & Interest Receivable - Officer 46,607 0 30,932
Prepaid Expenses 440 0 440
------------ ------------ ------------
Total Current Assets 4,731,361 1,238,966 5,200,802
Property and Equipment
- ----------------------
Furniture and Fixtures 0 1,154 0
Equipment 29,464 144,425 29,963
Vehicles 39,378 0 41,382
Land 179,309 0 179,309
------------ ------------ ------------
Total Property and Equipment 248,151 145,579 250,654
Other Assets
- ------------
Securities 0 50,000 0
Cash Pledged 5,329 5,225 5,329
License Rights 491,179 472,184 507,367
Deposit 1,807,789 3,281 1,807,789
Prototype Impact 500 235,253 0 63,203
------------ ------------ ------------
Total Other Assets 2,539,550 530,690 2,383,688
------------ ------------ ------------
TOTAL ASSETS $ 7,519,062 $ 1,915,235 $ 7,835,144
============ ============ ============
</TABLE>
See Accompanying Notes
<PAGE>
The Quantum Group, Inc., and Subsidiaries (F-3)
Balance Sheets -Continued-
March 31, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, March 31, December 31,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current Liabilities
- -------------------
Accrued Expenses $ 447,095 $ 384,661 $ 450,084
Accounts Payable 716,075 213,579 725,201
Customer Deposits 2,192,962 2,500 2,192,962
Franchise Tax Payable 103,548 103,548 103,548
------------ ------------ ------------
Total Current Liabilities 3,459,680 704,288 3,471,795
Long Term Liabilities
- ---------------------
Capital Lease 25,503 0 25,503
------------ ------------ ------------
Total Long Term Liabilities 25,503 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,
4,853,409 and 8,400,755 Shares
Issued Retroactively Restated 8,400 6,403 8,400
Respectively 6,018,287 2,978,537 6,018,287
Currency Translation Differential 18,199 0 18,199
Accumulated Deficit ( 2,020,471) ( 1,751,493) ( 1,716,503)
------------ ------------ ------------
Total Stockholders' Equity 4,024,415 1,233,447 4,328,383
------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 7,519,062 $ 1,937,735 $ 7,835,144
============ ============ ============
/TABLE
<PAGE>
The Quantum Group, Inc., and Subsidiaries (F-4)
Statement of Operations
For the Three Months Ended March 31, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three Twelve
Months Months Months
Ended Ended Ended
March March December
31, 1999 31, 1998 31, 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
- --------
Equipment Sales $ 0 $ 460,000 $ 2,882,007
License Sales 0 0 0
Other Income 70,699 40,008 70,893
------------ ------------ ------------
Total Revenues 70,699 500,008 2,952,900
Cost of Sales 0 400,000 1,761,775
------------ ------------ ------------
Gross Profit 70,699 100,008 1,191,125
Expenses
- --------
Depreciation 2,503 12,253 47,691
Amortization 16,189 12,439 57,256
Travel 84,070 34,811 155,442
Professional Fees 33,671 1,424 56,978
Office 29,519 10,924 98,139
Rent & Utilities 13,893 14,117 63,259
Administrative Expenses 106,946 32,569 249,909
Consultant Fees 87,876 94,027 449,508
Interest 0 0 804
Accounts Receivable Written Off 0 0 100,000
Foreign Currency Translation 0 0 ( 27,764)
Research and Development 0 0 13,544
------------ ------------ ------------
Total Expenses 374,667 212,564 1,264,766
Net Income (Loss ) from Operations ( 303,968) ( 112,556) ( 73,641)
</TABLE>
See Accompanying Notes
<PAGE>
The Quantum Group, Inc., and Subsidiaries (F-5)
Statement of Operations -Continued-
For the Three Months Ended March 31, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three Twelve
Months Months Months
Ended Ended Ended
March March December
31, 1999 31, 1998 31, 1998
------------ ------------ ------------
<S> <C> <C> <C>
Other Income (Expenses)
- -----------------------
Interest Income 0 0 13,583
Gain on Sale of Residence 0 0 0
Loss on Investment 0 0 ( 20,000)
Investment Valuation Loss 0 ( 23,125) 0
------------ ------------ ------------
Total Other Income (Expense) 0 ( 23,125) ( 6,417)
Taxes and Minority Interest
- ---------------------------
Minority Interest 0 0 ( 2,492)
Provisions for Taxes - Current 0 0 23,125
------------ ------------ ------------
Total Taxes and Minority Interest 0 0 20,633
Net Income (Loss) ( 303,968) ( 135,681) ( 100,691)
Net Income (Loss) Per Share ($ .04) ($ .02) ($ .01)
Weighted Average Shares Outstanding 8,400,075 6,403,409 6,846,696
Diluted Net Profit Per Share N/A N/A 0
/TABLE
<PAGE>
The Quantum Group, Inc., and Subsidiaries (F-6)
Statement of Shareholders' Equity
From January 1, 1997 to March 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Stock Amount Capital Deficit
-------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 3,153,409 $ 3,153 $ 1,684,668 ($1,717,705)
Shares Issued for Cash 100,000 100 149,900
Shares Issued to Officers
For Debt 1,600,000 1,600 98,400
Profit for the Year Ended
December 31, 1997 101,893
-------------------------------------------------
Balance, December 31, 1997 4,853,409 4,853 1,932,968 ( 1,615,812)
Shares Issued Regulation S
for Cash 2,500,000 2,500 3,952,536
Shares Issued on
Exercise of Options 396,666 397 24,177
Shares Issued to Minority
Interest Shareholders to
Acquire 100% of
Subsidiary Stock 650,000 650 108,606
Loss for the Year Ended
December 31, 1998 ( 100,691)
-------------------------------------------------
Balance,
December 31, 1998 8,400,075 8,400 6,018,287 ( 1,716,503)
Loss for the Three Months
Ended March 31, 1999 ( 303,968)
-------------------------------------------------
Balance, March 31, 1999 8,400,075 $ 8,400 $ 6,018,287 ($2,020,471)
=================================================
</TABLE>
See Accompanying Notes<PAGE>
The Quantum Group, Inc., and Subsidiaries (F-7)
Statement of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three Twelve
Months Months Months
Ended Ended Ended
March March December
31, 1999 31, 1998 31, 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operations
- --------------------------
Net Profit (Loss) ($ 303,968) ($ 135,681) ($ 100,691)
Adjustments to Reconcile Net Profit
or (Loss) to Net Cash;
Write Off Accounts Receivable 0 0 100,000
Amortization and Depreciation 18,692 24,691 104,947
Non Cash Expense 0 23,125 0
Minority Interest 0 0 12,210
Changes in Operating Assets & Liabilities;
(Increase) Decrease in Accounts Receivable 0 0 (2,354,061)
(Increase) Decrease in Inventory ( 13,600) 0 10,335
(Increase) Decrease in Deposit on Inventory ( 393,199) 0 118,430
(Increase) Decrease in Prototype Impact 500 ( 172,050) 0 ( 63,203)
(Increase) Decrease in Notes
Receivable-Officer ( 15,675) 0 ( 30,932)
(Increase) Decrease in Prepaid Insurance 0 0 ( 440)
(Increase) Decrease in Deposits 0 0 (1,804,508)
Increase (Decrease) in Accrued Expenses ( 2,989) ( 167,738) ( 102,315)
Increase (Decrease) in Accounts Payable ( 9,126) 73,563 585,185
(Decrease) Increase in Customer Deposits 0 0 2,190,462
Increase Decrease in Cash Pledged 0 0 ( 104)
----------- ----------- -----------
Net Cash Provided (Used) by
Operating Activities ( 891,915) ( 182,040) (1,334,685)
</TABLE>
See Accompanying Note
<PAGE>
The Quantum Group, Inc., and Subsidiaries (F-8)
Statement of Cash Flows -Continued-
For the Three Months Ended March 31, 1999 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three Twelve
Months Months Months
Ended Ended Ended
March March December
31, 1999 31, 1998 31, 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Investing Activities
- ------------------------------------
Purchase of Land 0 0 ( 179,309)
Purchase of Equipment 0 0 ( 82,389)
Purchase (Sale) of Securities 0 0 73,125
Purchase of License Right 0 ( 70,000) ( 150,000)
Purchase of Furniture 0 ( 22,500) 40,000
Sale of Press 0 0 216,635
----------- ----------- -----------
Net Cash Provided (Used) by
Investing Activities 0 ( 92,500) ( 81,938)
Cash Flows from Financing Activities
- ------------------------------------
Sale of Common Stock 0 937,863 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 0 0 ( 2,152)
----------- ----------- -----------
Net Cash Provided (Used) by
Financing Activities 0 208,626 3,055,877
----------- ----------- -----------
Increase (Decrease) in Cash ( 891,915) ( 65,914) 1,639,254
Cash at Beginning of Period 1,781,944 142,690 142,690
----------- ----------- -----------
Cash at End of Period $ 890,029 $ 76,776 $1,781,944
=========== =========== ===========
Disclosures from Operating Activities:
Interest 0 0 804
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
<PAGE>
The Quantum Group, Inc., and Subsidiaries (F-9)
Notes to Financial Statements
NOTE #1 - Corporate History
- ----------------------------
The Company was organized on December 2, 1968, under the laws of the state
of California as Acquatic Systems, Inc. On June 27, 1989, the Company
merged with Country Maid, Inc., a Nevada Corporation, the Corporate
domicile was changed to the state of Nevada. On September 18, 1992, the
name of the Company was changed to The Quantum Group, Inc.
In 1992, the Company acquired rights to import and market equipment used in
the tire recycling industry. The tire recycling operation is the thrust of
the Company's operations at December 31, 1997.
NOTE #2 - Significant Accounting Policies
- -----------------------------------------
A. The Company uses the accrual method of accounting.
B. Revenues and directly related expenses are recognized in the period
when the goods are shipped to the customer.
C. The Company considers all short term, highly liquid investments that
are readily convertible, within three months, to known amounts as cash
equivalents. The Company currently has no cash equivalents.
D. Primary Earnings Per Share amounts are based on the weighted average
number of shares outstanding at the dates of the financial statements.
Fully Diluted Earnings Per Shares shall be shown on stock options and
other convertible issues that may be exercised within ten years of the
financial statement dates.
E. The inventory is stated at the lower of cost or market. The inventory
is a single recycling system that the Company intends to sell as a
system. The Company is currently pursuing several prospects to sell
the system.
F. Consolidation Policies: The accompanying consolidated financial
statements include the accounts of the company and its majority -
owned subsidiary. Intercompany transactions and balances have been
eliminated in consolidation.
G. Foreign Currency Translation / Remeasurement Policy: The company has
no on site operations in foreign countries. All purchases and sales in
foreign countries are concluded in American dollars. If at future
dates assets and liabilities occur in foreign countries they will be
recorded at historical cost and translated at exchange rates in effect
at the end of the year. Income Statement accounts are translated at
the average exchange rates for the year. Translation gains and losses
shall be recorded as a separate line item in the equity section of the
financial statements.
H. Depreciation: The cost of property and equipment is depreciated over
the estimated useful lives of the related assets. The cost of
leasehold improvements is depreciated (amortized) over the lesser of
the length of the related assets or the estimated lives of the assets.
Depreciation is computed on the straight line method for reporting
purposes and for tax purposes.
Issuance of Subsidiary's Stock: The Company has elected to accounts
for shares issued by its subsidiary as an equity transactions.
<PAGE>
The Quantum Group, Inc., and Subsidiaries (F-10)
Notes to Financial Statements -Continued-
NOTE #2 - Significant Accounting Policies -Continued-
- -----------------------------------------------------
I. 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.
J. 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.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000921450
<NAME> THE QUANTUM GROUP, INC., AND SUBSIDIARIES
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 890,029
<SECURITIES> 0
<RECEIVABLES> 3,065,040
<ALLOWANCES> 0
<INVENTORY> 33,025
<CURRENT-ASSETS> 4,731,361
<PP&E> 248,151
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,519,062
<CURRENT-LIABILITIES> 3,459,680
<BONDS> 0
0
0
<COMMON> 8,400
<OTHER-SE> 4,016,015
<TOTAL-LIABILITY-AND-EQUITY> 7,519,062
<SALES> 0
<TOTAL-REVENUES> 70,699
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 374,667
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (303,968)
<INCOME-TAX> 0
<INCOME-CONTINUING> (303,968)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (303,968)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
