<PAGE>
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
September 30, 2000 0-23812
THE QUANTUM GROUP, INC.
------------------------
(Exact name of registrant as specified in its charter)
NEVADA
------
(State or other jurisdiction of incorporation or organization
95-4255962
------------
(I.R.S. Employer Identification No.)
Park Irvine Business Center, 14771 Myford Road, Building B
Tustin, CA 92780
-----------------------------------------------------------
(Address of principal executive offices)
(714) 508-1470
----------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
---- ----
State the number of shares outstanding of each of the registrants classes
of common equity, as of the latest practicable date.
Common stock, par value $.001; 11,421,780 shares outstanding
as of November 13, 2000
</Page>
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(F-2)
The Quantum Group, Inc., and Subsidiaries
Balance Sheets
September 30, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
September September December
30, 2000 30, 1999 31, 1999
<S> <C> <C> <C>
Current Assets
Cash $44,251 $233,176 $242,934
Accounts Receivable 507,090 3,065,040 317,464
Inventory 163,936 107,979 139,469
Deposit 317,003 696,220 317,003
Note & Interest Receivable - Officers 69,247 74,354 69,253
Prepaid Expenses 26,944 220 26,944
----------- ----------- -----------
Total Current Assets 1,128,472 4,176,989 1,113,067
Property and Equipment
Furniture and Fixtures 46,694 - 55,547
Equipment 1,132,313 707,211 1,292,764
Vehicles 58,175 72,602 70,397
Land 157,753 179,309 157,753
Web Sites 8,204 - 9,650
----------- ----------- -----------
Total Property and Equipment 1,403,138 959,122 1,586,111
Other Assets
Cash Pledged - 5,329 -
License Rights 2,066,169 458,801 442,611
Deposits 687,487 1,807,789 687,487
Goodwill 81,200 - -
----------- ----------- -----------
Total Other Assets 2,834,856 2,271,919 1,130,098
----------- ----------- -----------
TOTAL ASSETS $5,366,466 $7,408,030 $3,829,276
=========== =========== ===========
</TABLE>
</Page>
<PAGE>
(F-3)
The Quantum Group, Inc., and Subisidiaries
Balance Sheets -Continued-
September 30, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September September December
30, 2000 30, 1999 31, 1999
<S> <C> <C> <C>
Current Liabilities
Accrued Expenses $66,506 $450,467 $84,043
Accounts Payable 501,989 676,188 653,517
Notes Payable 358,310 - 272,240
Customer Deposits 485,897 2,723,017 295,183
Franchise Tax Payable - 103,548 103,548
Payroll Taxes Payable - 7,822 -
Sales Tax Payable - - -
Current Maturities 16,925 - 16,925
----------- ----------- -----------
Total Current Liabilities 1,429,627 3,961,042 1,425,456
Long Term Liabilities
Capital Lease 81,089 75,996 67,631
Notes Payable 12,720 10,198 10,198
Less Current Maturities (16,925) - (16,925)
----------- ----------- -----------
Total Long Term Liabilities 76,884 86,194 60,904
----------- ----------- -----------
Minority Interest in Subsidiary 498,475 9,463 -
Stockholders' Equity
Common Stock 50,000,000 Shares
Authorized; Par Value of $0.001
Per Share
11,421,780; 8,556,539 and 9,033,123
Shares Issued Retoractively
Restated Respectively 11,422 8,556 9,033
Paid In Capital 9,553,931 6,336,536 6,692,776
Currency Translation Differencial - 18,199 -
Accumulated Deficit (6,203,873) (3,011,960) (4,358,893)
----------- ----------- -----------
Total Stockholders' Equity 3,361,480 3,351,331 2,342,916
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,366,466 $7,408,030 $3,829,276
=========== =========== ===========
</TABLE>
</Page>
<PAGE>
(F-4)
The Quantum Group, Inc., and Subsidiaries
Statement of Operations
For the Nine Months Ended September 30, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three Nine Nine Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
September September September September December
30, 2000 30, 1999 30, 2000 30, 1999 31, 1999
<S> <C> <C> <C> <C> <C>
Revenues
Product Sales $75,661 - $292,667 - -
Other Income - $5,596 12,483 $80,394 $17,821
----------- ----------- ----------- ----------- -----------
Total Revenues 75,661 5,596 305,150 80,394 17,821
Cost of Sales 30,270 - 156,452 - 348
----------- ----------- ----------- ----------- -----------
Gross Profit 45,391 5,596 148,698 80,394 17,473
Expenses
Depreciation 68,944 42,636 206,718 77,982 144,222
Amortization 59,064 16,189 91,442 48,567 64,756
Travel 17,275 26,462 71,458 155,780 167,274
Professional Fees 163,074 42,371 218,801 120,125 210,483
Office 49,938 55,111 141,604 130,158 97,356
Rent & Utilities 43,098 19,271 104,353 47,610 71,242
Administrative Expenses 202,171 111,068 736,270 265,215 814,361
Consultant Fees 210,924 183,947 491,580 397,255 715,663
Interest - - - - 19,504
Accounts Receivable
Written Off - - - - 347,220
Options Issued Expense - - 35,000 - 39,067
Joint Venture Expense - 133,159 - 133,159 -
----------- ----------- ----------- ----------- -----------
Total Expenses 814,488 630,214 2,097,226 1,375,851 2,691,148
Net Income (Loss)
From Operations (769,097) (624,618) (1,948,528) (1,295,457) (2,673,675)
</Page>
<PAGE>
(F-5)
The Quantum Group, Inc., and Subsidiaries
Statement of Operations
For the Nine Months Ended September 30, 2000 and 1999
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
Three Three Nine Nine Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
September September September September December
30, 2000 30, 1999 30, 2000 30, 1999 31, 1999
<S> <C> <C> <C> <C> <C>
Other Income (Expenses)
Interest Income - - - - 21,822
----------- ----------- ----------- ----------- -----------
Total Other Income
(Expenses) - - - - 21,822
Taxes & Minority Interest
Minority Interest - - - - (9,463)
Provisions for Taxes
- Current (103,548) - (103,548) - -
----------- ----------- ----------- ----------- -----------
Total Taxes &
Minority Interest (103,548) - (103,548) - (9,463)
Net Income (Loss) ($665,549) ($624,618) ($1,844,980)($1,295,457) ($2,642,390)
=========== =========== =========== =========== ===========
Net Income (Loss)
Per Share (0.07) (0.07) (0.19) (0.15) (0.30)
Weighted Average Shares
Outstanding 9,574,672 8,452,170 9,574,672 8,400,075 8,670,366
Diluted Net Profit
Per Share N/A N/A N/A N/A N/A
</TABLE>
</Page>
<PAGE>
<PAGE>
(F-6)
The Quantum Group, Inc., and Subsidiaries
Statement of Stockholders' Equity
From January 1, 1998 to September 30, 2000
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Stock Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance, January 1, 1998 4,853,409 4,853 1,932,968 (1,615,812)
Shares Issued Regulation
S for Cash 1,200,000 1,200 1,798,800
Shares Issued Regulation
S for Cash 300,000 300 599,700
Shares Issued Regulation
S for Cash 1,000,000 1,000 2,249,000
Cost of Shares Sold
Pursuant to Regulation S
Offering (694,964)
Shares Issued on
Exercise of Options 396,666 397 24,177
Shares Issued to Minority
Interest Shareholders to
Acquire 100% of Subsidiary
Stock 650,000 650 108,606
Loss for the Year Ended
December 31, 1998 (100,691)
------------------------------------------------------
Balance, December 31, 1998 8,400,075 8,400 6,018,287 (1,716,503)
------------------------------------------------------
Shares issued for Services
at $1.75 Per Share 363,178 363 635,480
Shares issued for Cash
at $1.75 Per Share 269,870 270 472,004
Cost of Shares Sold
Pursuant to Regulation
S Offering (472,062)
Options Issued 39,067
Loss for the Year Ended
December 31, 1999 (2,642,390)
------------------------------------------------------
Balance, December 31, 1999 9,033,123 9,033 6,692,776 (4,358,893)
</TABLE>
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<PAGE>
(F-7)
The Quantum Group, Inc., and Subsidiaries
Statement of Stockholders' Equity
From January 1, 1998 to September 30, 2000
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Stock Amount Capital Deficit
<S> <C> <C> <C> <C>
------------------------------------------------------
Options Issued 35,000
Shares issued to acquire
Modified Asphalt
Technology, Inc. 51,549 52 89,948
Shares issued to acquire
Advanced Recycling
Sciences, Inc. 980,000 980 1,714,020
Shares issued Regulation
S for Cash 1,357,108 1,357 1,355,751
Cost of Shares Sold
Pursuant to Regulation
S Offering (298,564)
Loss for the Six
Months Ended
September 30, 2000 (1,844,980)
------------------------------------------------------
Balance, September
30, 2000 11,421,780 11,422 9,553,931 (6,203,873)
======================================================
</TABLE>
</Page>
<PAGE>
(F-8)
The Quantum Group, Inc., and Subsidiaries
Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Nine Twelve
Months Months Months
Ended Ended Ended
September September December
30, 2000 30, 1999 31, 1999
<S> <C> <C> <C>
Cash Flows from Operations
Net Profit (Loss) (1,844,980) (1,295,457) (2,642,390)
Adjustment to Reconcile Net Profit or
(Loss) to Net Cash
Write Off Accounts Receivable - - 347,220
Options Issued - - 39,067
Amortization and Depreciation 298,160 126,549 208,978
Non Cash Expense - - 163,500
Minority Interest - - 9,463
Changes in Operating Assets & Liabilities
(Increase) Decrease in Accounts Receivable (189,626) - 2,747,576
(Increase) Decrase in Inventory (24,467) (88,554) (120,044)
(Increase) Decrease in Deposit on Inventory - (393,199) (13,982)
(Increase) Decrease in Prototype 500 - - 63,203
(Increase) Decrease in Notes Receivable
- Officer 6 (43,422) (38,321)
(Increase) Decrease in Prepaid Expense - 220 (26,504)
(Increase) Decrease in Deposits - - 755,717
Increase (Decrease) in Accrued Expenses (17,537) 383 (366,041)
Increase (Decrease) in Accounts Payable (151,528) (49,013) (71,684)
(Decrease) Increase in Customer Deposits 190,714 530,055 (1,897,779)
Increase Decrease in Cash Pledged - - 5,329
Increase (Decrease) in Payroll Taxes Payable - 7,822 -
Increase (Decrease) in Income Tax Payable (103,548) - -
----------- ----------- -----------
Net Cash Provided (Used) by
Operating Activities (1,842,806) (1,204,616) (836,692)
</TABLE>
</Page>
<PAGE>
(F-9)
The Quantum Group, Inc., and Subsidiaries
Statements of Cash Flows -Continued-
For the Nine Months Ended September 30, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Nine Twelve
Months Months Months
Ended Ended Ended
September September December
30, 2000 30, 1999 31, 1999
<S> <C> <C> <C>
Cash Flows from Investing Activities
Purchase of Vehicles - (31,220) (39,401)
Purchase of Equipment (23,746) (692,027) (1,414,664)
Purchase of Furniture - - (35,443)
Purchase of Websites - - (9,650)
(Increase) Decrease in Goodwill (81,200) - -
----------- ----------- -----------
Net Cash Provided (Used) by
Investing Activities (104,946) (723,247) (1,499,158)
Cash Flows from Financing Activities
Sale of Common Stock 1,148,544 318,405 472,274
Sale of Subsidiary Common Stock 498,475 - -
Increase (Decrease) in Notes Payable 102,050 10,198 324,566
Increase (Decrease) in Capital Lease - 50,492 -
----------- ----------- -----------
Net Cash Provided (Used) by
Financing Activities 1,749,069 379,095 796,840
----------- ----------- -----------
Increase (Decrease) in Cash (198,683) (1,548,768) (1,539,010)
Cash at Beginning of Period 242,934 1,781,944 1,781,944
----------- ----------- -----------
Cash at End of Period 44,251 233,176 242,934
=========== =========== ===========
Disclosures from Operating Activities
Interest - - 19,504
Taxes - - -
Significant Non Cash Transactions:
363,178 Shares of Common Stock
Issued for Services Rendered - - 685,843
51,549 Shares issued for the
acquisition of Modified Asphalt
Technology, Inc. 90,000 - -
980,000 Shares issued for the
acquisition of Advanced Recycling
Sciences, Inc. 1,715,000 - -
</TABLE>
</Page>
<PAGE>
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
acquiring and developing innovative technologies in the environmental and
recycling industries for tire and rubber recycling.
The Company has developed a website that can be viewed at
http://www.tqginc.com. The website allows visitors to access an overview
of the Company's activities, obtain market information for the Company's
trading stock and view the Company's EDGAR filings. The Company has a main
portal website, http://www.tirerecycling.com that provides links to all of
the Company's subsidiaries' websites: QEST http://www.qest-quantum.com;
QCAL http://www.qcal-quantum.com; and QMAX http://www.qmax-quantum.com.
A Poseidon website has also been established and may be viewed at
http://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. The Company also has established a
temporary website for its subsidiary Advanced Tire Recycling Sciences,
Inc., at http://www.tires2oil.com.
Liquidity and Capital Resources
--------------------------------
At September 30, 2000, the Company had cash of $44,251 on hand.
During the quarter ended September 30, 2000 the Company successfully
concluded a Regulation S offering, which resulted in proceeds of
$1,058,544.
The Company has withdrawn from earlier negotiations for a loan from a
European Bank becuase the Company could not negotiate what it believed to
be fair terms and conditions. As a result, the Company is negotiating for
additional equity financing from its primary European underwriter and has
commenced discussion with a U.S. underwriter for private placement funding.
Although management believes that some or all of these negotiations will be
successful, no firm commitment currently exists. Should the Company not be
successful with any of the above negotiations, the ability of the Company
to meet its financial obligations in a timely manner or to remain in
business is doubtful.
10
</Page>
<PAGE>
Results of Operations
---------------------
Comparison of the three months ended September 30, 2000 and the three
months ended September 30, 1999.
During the first nine months of 2000, the Company's net cash used in
operations was $1,842,806, compared to cash used in operations of
$1,204,616 during the first nine months of 1999. The 2000 operating
activities cash utilization increase is primarily a result of an operating
loss of $1,844,980 compared to an operating loss $1,295,457 for the nine
months ended September 30, 1999. $1,058,544 was received from a Regulation
S offering in the three months ended September 30, 2000. The Company
realized net proceeds of $318,405 after commissions and fees on its
regulation S offering during the three months ended September 30, 1999.
The Company generated $75,661 in product sales revenue during the
three month ended September 30, 2000. This revenue was generated by the use
of sub-contractors. The Company had $5,596 of interest income during the
quarter ended September 30, 1999. No equipment sales revenue was recorded
during the third quarter in either year.
The Company began an exit program from the San Diego Donovan Prison
facility during the quarter ended September 30, 2000 and expects to
conclude the exit program prior to year-end. The Company continues to
evaluate its crumb rubber product manufacturing operations. The Company
decided to move from the San Diego facility due to the lack of funding to
complete the purchase of the balance of the original equipment package and
due to the impracticality of installing the C3000 granulator in that
location.
The Company plans to relocate this operation to a location closer to
the corporate headquarters in Tustin, California.
Depreciation expense increased to $68,944 in the third quarter 2000
compared to $42,636 due to equipment purchased for the Donovan Prison
project.
Amortization expense increased to $59,064 in the three months ended
September 30, 2000 from $16,189 in the three months ended September 30,
1999. This increase is due to the amortization of the license to utilize
the patents acquired with the purchase of Advanced Recycling Sciences, Inc.
at the end of the prior quarter.
Travel expense in the three months ended September 30, 2000 of $17,275
are a reduction from the prior year three month comparable period expense
of $26,462 of $9,187. Administrative expenses increased from $111,068 to
$292,171 for the third quarter of 1999 compared to the same quarter of
2000. This increase is due to a number of one-time costs incurred due to
the decision to move from the San Diego facility.
Consultant expense increased by $26,977 during the third quarter of
2000 to $210,924 compared to $183,947 in the comparable 1999 period. This
increase is due to the use of outside consultants for some aspects
associated with preparing a long-range strategic plan and site evaluations
for new facilities.
11
</Page>
<PAGE>
Professional fees increased to $163,074 in the quarter ended September
30, 2000 from $42,626 in the quarter ended September 30, 1999. This
increase is due to the increased use of outside professionals for the
implementation of the Company's exit strategy from the San Diego facility,
including a number of settlements required as part of the exit program.
Approximately $40,000 of the increase is attributable to the late receipt
of invoices and therefore missed accrual of services from the second
quarter of 2000.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND THE NINE
MONTHS ENDED SEPTEMBER 30, 1999.
The Company had $292,667 in product sales for the nine months ended
September 30, 2000, no such sales were recorded during the comparable 1999
nine months. The Company earned $2,483 in other income, consisting
primarily of interest in the first nine months of 2000. The first nine
months of 1999 the Company reported $80,394 in other income consisting of
the sale of crumb rubber, sale of research materials and interest. There
were no equipment sales in either year.
Travel expenses of $71,458 in the nine months ended September, 2000
are less than the comparable 1999 period of $155,780 by $84,322 due to less
overseas travel. Administrative expenses increased during the first nine
months of 2000 to $736,270 compared to $265,215, due to the inclusion of
the operating expenses for QCAL and the increased office support.
Consulting fees have increased from $397,255 in the first nine months of
1999 to $491,580 in the nine months ended September 30, 2000. This is
primarily due to the increased use of consultants to assist in the
evaluation and analysis of the San Diego operations. Professional fees for
the nine months ended September 30, 2000 of $218,801 are more than the 1999
comparable period of $120,125 primarily due to the San Diego operation and
a number of settlements that were required as part of the exit strategy.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND THE THREE
MONTHS ENDED SEPTEMBER 30, 1998.
During the first nine months of 1999, the Company's net cash used in
operations was $1,204,616, compared to cash provided by operations of
$105,235 during the first nine months of 1998. The 1998 operating
activities cash is a result of an operating loss of $1,295,457. The Company
realized net proceeds of $318,405 after commissions; legal and accounting
fees on its regulation S offering during the three months ended September
30, 1999. $2,294,966 was received from a prior Regulation S offering in the
comparable period in 1998.
The Company advanced and expensed $133,159 to the German Joint Venture
(Poseidon) during the quarter ended September 30, 1999. $1,450,000 was
invested in the comparable 1998 period. During the third quarter of 1999,
the Company made a short term secured loan to an officer of the Company.
The note provides for interest in excess of the interest the Company is
currently earning on short-term investments. A similar transaction with a
different officer occurred in the comparable quarter last year.
The Company generated $5,496 in other revenue (Interest income) during
the three month ended September 30, 1999. The Company generated $14,928 of
other revenue and $14,199 of costs during the quarter ended September 30,
1998. All of this revenue was generated by the sale of crumb rubber during
the 1998 quarter. The crumb rubber was sold at close to cost. No project
revenue was recorded during the third quarter in either year.
12
</Page>
<PAGE>
The Company recorded $60,806 in Salaries and Wages expense during the
third quarter of 1999 and a total of $106,334 in the second and third
quarter of 1999. This expense is due to the hiring of clerical and
administrative staff and hiring personnel who had previously been
independent contractors.
Depreciation expense increased to $42,636 in the third quarter 1999
compared to $10,832 due to equipment purchased for the Donovan Prison
project.
Consultant expense increased by $68,640 during the Third quarter of
1999 to $183,947 compared to $115,307 in the comparable 1998 period. This
increase is due to the use of outside consultants for some aspects of the
preparing a long-range strategic plan and for ongoing feasibility studies.
Administrative expenses increased to $111,068 in the third quarter of
1999 compared to $58,708 in the third quarter of 1998 due to increased
marketing activities in anticipation of the mat product production from the
Donavan prison project and the pre-production activity at the plant.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND THE NINE
MONTHS ENDED SEPTEMBER 30, 1998.
The Company had revenues of $80,394 for the nine months ended
September 30, 1999 compared to revenue of $524,024 in the nine months ended
September 30, 1998. The revenue during the 1999 period is from Interest and
miscellaneous items, no equipment sales have been shipped. The 1998 revenue
included $460,000 of equipment sales with $64,024 of interest and crumb
rubber sales. Costs of Sales of $452,374 were incurred in relation to the
1998 sales resulting in a Gross Profit of $71,650. There is no cost of
sales for the 1999 revenue resulting in a Gross Profit of $80,394.
Salaries and Wages of $103, 334 were incurred in the nine months ended
September 30, 1999 with no comparable expenses in 1998 as explained above.
Depreciation expenses of $77,982 in the nine months ended September
30, 1999 exceed the 1998 expense of $34,784 by $43,198. This increase is
due to the equipment purchased for the Donovan Prison Project.
Travel Expense for the nine months ended September 30, 1999 are
$155,780 compared to $96,154 for 1998. Office Expenses of 120,125 for 1999
compare to 1998 expenses of 41,367. This expense has increased due to the
joint venture project in Germany, the pre opening activities for the
Donovan prison the gearing up for mat product sales.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no significant changes in the Company's litigation with
Tyre's Ecology S.r.l., during the quarter ended September 30, 2000. The
trial in this matter is scheduled for February 2001.
There were no significant changes in the Company's litigation with
Veplas Manufacturing LTD., during the quarter ended September 30, 2000.
ITEM 2. CHANGES IN SECURITIES
No instruments defining the rights of the holders of any class of
registered securities have been materially modified, limited or qualified.
13
</Page>
<PAGE>
The following securities, which are not registered under the
Securities Act of 1933, were issued since the Company's last quarterly
report for the quarter ended March 31, 2000.
RECENT SALES OF SECURITIES
During the quarter ended September 30, 2000, the Company sold
1,357,108 shares of its common stock to non United States citizens in
Germany. The shares were valued at $1.00 per share. The Company paid
commissions of $298,564. These shares were sold pursuant to Regulation S
promulgated by the Securities and Exchange Commission under the Securities
Act of 1933. 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
orders were originated, the Company reasonably believed the Buyers were
outside of the United States and were not U.S. Persons. 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 Buyers have not nor
will engage in any "Directed Selling Efforts." The Company reasonably
believed the Buyers purchased the securities for their own accounts and for
investment purposes and not with the view towards distribution or for the
account of a U.S. Person.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On September 22, 2000, the board of directors of the Company appointed
Keith J. Fryer as President and Chief Operating Officer of the Company.
Mr. Fryer previously served as a Vice President of the Company. Mr.
Liebich, the former President will continue to serve as the Chairman of the
Board and the Chief Executive Officer.
DONOVAN CORRRECTIONAL FACILITY. The Company has rescinded its joint
venture agreement with the State of California Department of Corrections
("CDC") and has closed down its tire crumbing facility at the Richard J.
Donovan Correctional Facility at Rock Mountain in San Diego County,
California ("Donovan Correctional Facility"). The Company made the
decision to close down the San Diego plant due to insufficient funds to
purchase all of the equipment necessary to manufacture crumb rubber
products. Also, the installation of the appropriately sized granulator for
shredding and granulating tires proved to be impractical at the prison
facility.
The Company will move the equipment and intends to consolidate the
operations of this recycling facility to a location nearer the Company's
headquarters in Tustin, California. This will allow the Company more
control over the costs and day-to-day affairs of the facility. The Company
hopes to have this new recycling facility operational and generating
revenue by year end.
14
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POSEIDON PRODUCTS, GMBH. To date Poseidon has been unable to secure
adequate funding to finish construction of the Poseidon facility. Poseidon
continues to seek a suitable partner in Germany while it still has both
state government sponsored EU and low interest loans and grants in place.
Poseidon is currently negotiating with several interested parties and hopes
to have an agreement finalized by year end.
Poseidon had previously reached an agreement in principle with HIM
Hessiche Industriemull GmbH, to oversee the construction and commissioning
of equipment at the Poseidon plant in Penkun, Germany. HIM was also going
to assume responsibility to oversee all necessary services associated with
running the plant. Due to difficulties in negotiating contractual terms,
the agreement in principle has been rescinded. Poseidon will seek to
retain a new project management group.
Poseidon is also attempting to resolve a fee dispute with FDC
Engineering of Switzerland regarding certain consulting services provided
by FDC on the Poseidon facility.
ADVANCED RECYCLING SCIENCES. The Company has retained an independent
consultant to prepare a detailed study of the feasibility of building and
operating a full scale pilot plant utilizing the tires2oil technology. The
Company is currently negotiating potential financing of a full scale pilot
plant with a German investment banking concern. The Company hopes to have
financing in place and the pilot plant constructed and operational during
the second quarter of 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed during the
quarter ended September 30, 2000.
(B) Exhibits. The following exhibits are included as part of this
report:
Exhibit SEC Exhibit
Number Ref. Number Title of Document Location
------- ------------- --------------------------------- ---------
27.01 27 Financial Data Schedule Attached
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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.
November 13, 2000 /s/ Keith J. Fryer
------------------
Keith J. Fryer
President and Chief Operating Officer
November 13, 2000 /s/ John F. Pope
----------------
John F. Pope
Vice President, Finance
Chief Accounting Officer
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