<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
- --------------------- ----------------------
March 31, 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; 10,384,672 shares outstanding
as of April 30, 2000
</Page>
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ------- -------------------
See Page F-1 to F-12 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
developing innovative products and technologies in the environmental and
recycling industries for tire rubber recycling and aftermarket product
producing plants.
The business of the Company and its subsidiaries is focused in three
primary areas. First, the Company manufactures and sells its own equipment
and equipment manufactured by others which produces recycled rubber from
automobile and truck tires, commonly known as "crumb rubber." The Company
also manufactures and sells its own equipment and equipment of others that
makes aftermarket products from crumb rubber. Second, the Company owns and
operates tire recycling facilities, through joint venture agreements, which
manufacture crumb rubber and aftermarket products. Third, the Company
operates in the construction industry, primarily in the area of crumb
rubber modified asphalt paving, commonly known as "CRM" asphalt.
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 web site has also been established and may be viewed at
http://www.poseidon-products.com. The web site, which is in German and
English, provides a platform for showcasing the Poseidon joint venture and
promoting an awareness of the Company.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1999, the Company had cash of $136,667 on hand.
The Company does not currently have any outstanding debt and
management believes that proceeds from current equipment and aftermarket
product sales, license fees, pending sales and the current Regulation S
offering proceeds will provide sufficient capital and liquidity to meet the
Company's requirements for the next twelve months. The Company has begun
receiving proceeds from a new Regulation S offering. This offering
commenced during the first quarter of 2000.
2
</Page>
<PAGE>
The Company does not currently have any capital commitments for 2000.
However, at such time the Company initiates Phase two of the QCAL project,
it will have a capital commitment for approximately $1,500,000 for
equipment needs. The Company anticipates initiating Phase two during the
third quarter of 2000.
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 2000 through these efforts pursuant to
the Company's strategic plan.
Results Of Operations
- ---------------------
Comparison of the three months ended March 31, 2000 and the three months
ended March 31, 1999.
- -------------------------------------------------------------------------
During the three months ended March 31, 2000, the Company's net cash
used in operations was $550,442, compared to cash used in operations of
$891,915 during the comparable 1999 quarter. The year 2000 cash
utilization comes primarily from the operating loss of $662,410 and the
increase in both Accounts Receivable and Inventory of $89,863 and $36,521
respectively. The funds were provided by the sale of Common stock in the
Company's QCAL subsidiary of $428,475, an increase in Customer Deposits of
$190,714 and from Company cash on hand, which decreased by $106,267 during
the three months ended March 31, 2000. During 1999 the Company's cash
utilization was primarily from an operating loss of $303,968, an increase
in deposits on inventory of $393,199 and an increase in the costs of the
Prototype Impact 500 of $172,050.
The Company generated revenues of $101,332 from the sale of floor mats
and similar products. The Company believes that this is the beginnings of
a continuous revenue stream from its QCAL operations. The QCAL sales mark
a change in the Company's historic revenue generation model because the
QCAL sales were of products produced from crumb rubber rather than the sale
of tire recycling equipment. While the QCAL sales are significantly
smaller in dollar amount, the Company believes they will be of a frequent
and recurring basis. The Company believes that the frequency of these
sales will change the nature of the Company's revenue stream and cash flows
as they increase in volume.
3
</Page>
<PAGE>
Depreciation expense for the three months ended March 31, 2000 was
$68,830 compared to $2,503 in the 1999 quarter. This $66,327 increase is
due to the operation of the QCAL facility at the Richard J. Donovan
Correctional Facility, which was not open during the 1999 quarter.
Travel expense declined by $48,695 to $35,375 during the three months
ended March 31,2000 compared to the three months ended March 31, 1999 level
of $84,070. This reduction is due to concentration of effort on domestic
operations and timing. The Company believes that travel expenses will
continue to be less than 1999 levels but not to the extent of the first
quarter changes.
The Company incurred higher Office and Administrative Expenses in the
First Quarter 2000 compared to 1999. Office Expense of $47,602 in the
three months ended March 31, 2000 is $18,083 higher than the $29,519 in the
comparable 1999 period. Administrative expenses of $273,973 in 2000 are
$167,027 above the 1999 expense of $106,946. This increased level of
expenditure is expected to continue throughout the year. The increase is
due primarily to production and sales efforts and staffing of the QCAL
facility.
Management believes that the sales level of QCAL products will
increase significantly. The efforts in late 1999 and the current quarter
have been in preparation for the beginning of production, which commenced
at year end 1999.
Consulting fees increased during the quarter ended March 31, 2000 to
$171,777. This increase is due to the increased use of consultants to
review equipment configurations and concerns regarding prior sales of CISAP
equipment and the acquisition of Modified Asphalt Technologies, Inc.
During the three months ending March 31, 2000 the Company issued
options on 200,000 shares of the Company's stock under the 2000 Employee
Stock Option program. The Company recognized an expense of $35,000 on the
issuance of the options. The Company issued similar options and incurred
an expense of $39,067 in 1999, however the quarters of the year were
different (4th Quarter 1999, 1st Quarter 2000), thus there is no comparable
expense in the three months ended March 31, 1999.
Comparison of the three months ended March 31, 1999 and the three months
ended March 31, 1998
- -------------------------------------------------------------------------
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.
4
</Page>
<PAGE>
The Company generated $70,699 of revenue. The majority of this income
is from feasibility studies for future projects. $9787 of the other income
was Interest Income.
Travel expense in the three months ended March 31, 1999 of $84,070
exceed the prior period expense of $34,811 by 49,259 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 $106,9469 from the first quarter of 1997 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.
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 to a trend to reduce the utilization of consultants.
PART II - OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
- ------- -----------------
On or about April 23, 1999, Eurectec was named as a defendant in a
complaint filed in the Court in Pistoia, Italy by Tyre's Ecology S.r.l.,
("Tyre") formerly known as CISAP Ecology S.r.l. ("CISAP Ecology"). Tyre
succeeded to the interest of CISAP Spa ("CISAP") as a party to the
marketing agreement between Eurectec and CISAP. Under the marketing
agreement Eurectec was granted the exclusive rights to market certain tire
granulating equipment manufactured by CISAP. The agreement required a
minimum number of granulating systems to be sold by Eurectec to maintain
the exclusive rights. Due to the poor performance of CISAP and its
equipment Eurectec has not met its minimum sales quota. As part of the
lawsuit, Tyre is seeking to terminate the marketing agreement.
The Company is not concerned with the threatened loss of the marketing
rights held by Eurectec because it believes those marketing rights hold
limited value given the manufacturers' consistent failure to deliver
commercially viable equipment to purchasers. Moreover, the Company is now
doing business with other manufacturers of shredding and granulating
equipment that the Company believes is superior to the CISAP equipment.
Tyre is also seeking to recover damages in the approximate amount of
$520,000 arising from alleged misstatements by Eurectec as to the
manufacturers' represented through-put capacity of equipment and alleged
defamation by Eurectec and Marco Morbidelli, a former Tyre engineer who has
performed work for Eurectec and purchasers of CISAP and Tyre equipment in
Saudi Arabia and Mexico.
5
</Page>
<PAGE>
The Company intends to vigorously defend itself on the basis that none
of the CISAP or Tyre equipment sold to any of the purchasers introduced by
Eurectec has been capable of operating as represented. Moreover, CISAP and
Tyre have failed to deliver purchased equipment, failed to properly install
equipment as required by contract and failed to provide warranty service to
the purchasers of the equipment.
The Company 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.
Because of these excessive costs the Company filed a counterclaim
against Tyre in the Court in Pistoia, on January 11, 2000. The Company
seeks to recover damages in the amount of U.S.$4,366,154.
Marco Morbidelli, and the purchasers of the equipment in Saudi Arabia
and Mexico have told the Company that they will support and cooperate with
the Company in its defense against Tyre's claims and its efforts to
establish CISAP's and Tyre's breaches of various equipment purchase
agreements.
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.
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 September 31, 1999.
6
</Page>
<PAGE>
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 1,200,000
Second Quarter 1998 Common $2.00 300,000
Third Quarter 1998 Common $2.25 1,000,000
Date Title Price Per Share Amount
------------------ -------------- ---------------- -----------
Second Quarter 1999 Common $1.75 7,285
Third Quarter 1999 Common $1.75 57,003
Fourth Quarter 1999 Common $1.75 205,582
</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.
In November, 1998 an option for 66,666 shares of common stock, issued
pursuant to the Company's 1997 Stock Option Plan, was exercised at a price
of $0.062 per share.
3. Shares for Services Rendered
<TABLE>
<CAPTION>
Date Title Price Per Share Amount
------------------ -------------- ---------------- -----------
<S> <C> <C> <C>
Second Quarter 1999 Common $1.75 63,767
Second Quarter 1999 Common $1.75 102,000
Second Quarter 1999 Common $1.75 93,429
Third Quarter 1999 Common $1.75 43,714
Fourth Quarter 1999 Common $1.75 60,268
4. Acquisition of Modified Asphalt Technologies, Inc.
Date Title Price Per Share Amount
------------------ -------------- ---------------- -----------
First Quarter 2000 Common Share Exchange 51,549
</TABLE>
(b) Underwriters and other purchasers.
- --------------------------------------
1. Regulation S Offering
-------------------------
All securities sold during 1998 were sold to non U.S. persons. All
shares of common stock were sold in Germany to Beteiligungs Fonds, GBR.
7
</Page>
<PAGE>
All securities sold during 1999 were sold to non U.S. persons. All
shares of common stock were sold in Germany.
2. Option Exercise
-------------------
The June option was exercised by RMC International, a consultant to
the Company.
The July option was exercised by Johann Brendgens, a consultant to the
Company.
The November option was exercised by Keith Fryer, an officer and
director of the Company.
3. Shares for Services Rendered
---------------------------------
In the second and third quarters of 1999, the Company issued 102,000
and 43,714 common shares, respectively, as commission for the sales of
securities pursuant to the Regulation S offering made in 1998. All of
these shares were delivered to non U.S. persons.
In the second quarter 1999, the Company issued 93,469 common shares
for consulting services rendered to the Company by an outside firm.
In the second quarter 1999, the Company issued 63,767 common shares as
a finder's fee to a non U.S. person.
In the fourth quarter 1999, the Company issued 60,268 common shares as
commission for the sales of securities pursuant to the Regulation S
offering made in 1999. All of these shares were delivered to non U.S.
persons.
4. Acquisition of Modified Asphalt Technologies, Inc.
-------------------------------------------------------
On January 21, 2000, 51,549 common shares were issued to acquire 1,000
common shares of Modified Asphalt Technologies, Inc. ("MAT"), a privately
held Arizona corporation. The 1,000 shares represented all of the issued
and outstanding shares of MAT.
(c) Consideration.
- ------------------
1. Regulation S Offering
--------------------------
The aggregate offering price for sales made during 1998 was
$4,650,000. The Company paid commissions of $254,999.50 by delivering to
the broker a total of 145,714 common shares valued at $1.75 per share.
These shares were not delivered to the broker until the second and third
quarters of 1999.
The aggregate offering price for sales made during 1999 was $472,274.
The Company paid commissions of $105,469 by delivering to the broker a
total of 60,268 common shares valued at $1.75 per share. These shares were
not delivered to the broker until the fourth quarter 1999.
8
</Page>
<PAGE>
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.
The Company realized $4,167 from the exercise of the option in
November, 1998.
3. Shares for Services Rendered
---------------------------------
As discussed above, 205,982 of the 363,178 common shares issued during
1999 for services rendered were issued as commission for sales of
securities pursuant to Regulation S. The shares were valued at $1.75 per
share.
During the second quarter 1999, the Company issued 63,767 common
shares to an outside consultant as a finder's fee. The shares were valued
at $1.75 per share.
During the second quarter 1999 the Company issued 93,429 common shares
to an outside consultant for services rendered. The shares were valued at
$1.75 per share.
4. Acquisition of Modified Asphalt Technologies, Inc. ("MAT")
---------------------------------------------------------------
During the first quarter 2000, the Company exchanged 51,549 common
shares for 1,000 shares of MAT common stock, which represented all of the
issued and outstanding common shares of MAT. No cash was received by the
Company.
(d) Exemption from registration claimed.
- ----------------------------------------
1. Regulation S Offering
---------------------------
The securities were sold in 1998 and 1999 pursuant to Regulation S as
promulgated by the Securities and Exchange Commission under the Securities
Act of 1933, as amended. The Company did not offer the securities to any
person in the United States, any identifiable groups of U.S. citizens
abroad, or to any U.S. Person as that term is defined in Regulation S. At
the time the buy 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.
8
</Page>
<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.
The July option was exercised pursuant to Regulation S.
The November option was exercised pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933.
3. Shares for Services Rendered
--------------------------------
The 93,429 common shares issued during the second quarter 1999 for
services rendered, were issued pursuant to an exemption from registration
under Section 4(2) of the Securities Act of 1933.
The 63,767 common shares delivered issued during the second quarter
1999 as a finder's fee were issued 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
Company agreed to pay the finder's fee, the Company reasonably believed the
individual 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 recipient has
not nor will engage in any "Directed Selling Efforts." The Company
reasonably believed the individual received 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.
The 205,982 common shares delivered to the broker as commission during
the second, third and fourth quarters of 1999, were issued 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 shares were issued for commissions, the
Company reasonably believed the broker was outside of the United States and
was not a U.S. Person. The Company has not nor will engage in any
"Directed Selling Efforts" and reasonably believes the broker has not nor
will engage in any "Directed Selling Efforts." The Company reasonably
believed the broker 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.
4. Acquisition of Modified Asphalt Technologies, Inc.
------------------------------------------------------
The 51,549 Company common shares exchanged for all of the issued and
outstanding common shares of MAT were issued pursuant to an exemption from
registration under section 4(2) of the Securities Act of 1933. No cash was
received by the Company.
(e) Terms of conversion or exercise.
- ------------------------------------
1. Regulation S Offering
--------------------------
Not applicable.
10
</Page>
<PAGE>
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.
The November 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 33,334 shares, may be exercised over a period of five
years from October 23, 1997, the date of the grant.
3. Shares for Services Rendered
---------------------------------
Not applicable.
4. Acquisition of Modified Asphalt Technologies, Inc.
-------------------------------------------------------
Not applicable.
Item 3. Defaults upon Senior Securities
- ----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
Item 5. Other Information
- --------------------------
Acquisition of Modified Asphalt Technologies, Inc.
During the first quarter 2000 the Company finalized the acquisition of
MAT, which will operate as a subsidiary or Quantum Modified Asphalt
Xcetera, Inc., ("QMAX"). The Company also entered into an employment
agreement with Jeff Smith, the president and founder of MAT.
The Company acquired all of the issued and outstanding shares of MAT
in exchange for 51,549 shares of restricted Company common stock. MAT had
limited assets and was primarily acquired for its expertise and name
recognition within the CRM asphalt paving industry. MAT and Mr. Smith have
expertise in the areas of technology transfer, equipment manufacturing,
material specifications and supply, quality assurance, personnel training,
asphalt rubber binder production and application and implementation of
asphalt rubber usage. The Company believes this acquisition will
compliment the products and services QMAX currently offers and enables it
to expand its operations in the CRM asphalt paving industry.
11
</Page>
<PAGE>
Agreement in Principle
----------------------
The Company has reached an agreement in principle to purchase from
Fonds Concepts GmbH & Co. ("Fonds") the tire recycling facilities it owns
in Coswig, Germany and Atzendorf, Germany. The Company has a pre-existing
relationship with Fonds and is familiar with these facilities because the
Company sold the equipment being used in these facilities. It is
anticipated that the Company will take ownership of and assume
responsibility for the operations of one of the facilities sometime in late
2000, and for the other sometime in 2001.
Pursuant to the agreement in principle to purchase the Coswig plant,
the Company will pay Fonds 3,250,000 DM (German Marks) by no later than
January 31, 2001. Fonds will have discretion to decide, by no later than
January 10, 2001, whether the sum is to be paid in cash or in Company
common stock valued at $1.75 per share.
Similarly, to acquire the Atzendorf plant, the Company will pay Fonds
a total of 1,200,000 DM by no later than February 15, 2001. Fonds will
have discretion to decide, by no later than September 1, 2000, whether the
sum is to be paid in cash or in Company common stock valued at $1.75 per
share.
The Company anticipates a Definitive Agreement will be negotiated and
entered into and the transaction will be closed within 90 days of the date
of this Form 10-QSB.
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, 2000.
(B) Exhibits. The following exhibits are included as part of this
report:
<TABLE>
<CAPTION>
Exhibit SEC Exhibit
Number Ref. Number Title of Document Location
---------- ------------ ---------------------------- ---------
<S> <C> <C> <C>
10.01 10 The Quantum Group, Inc., Attached
2000 Stock Option Plan
27.01 27 Financial Data Schedule Attached
</TABLE>
12
</Page>
<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 12, 2000 /s/Ehrenfried Liebich
-------------------------
Ehrenfried Liebich
Chairman of the Board, President and
Chief Executive Officer
May 12, 2000 /s/John F. Pope
-------------------------
John F. Pope
Vice President, Finance
Chief Accounting Officer
13
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<PAGE>
F-1
The Quantum Group, Inc., and Subsidiaries
Financial Statements
March 31, 2000 (Unaudited) &
December 31, 1999
</Page>
<PAGE>
F-2
[Letterhead]
Schvaneveldt & Company
Certified Public Accountant
275 East South Temple, Suite #300
Salt Lake City, Utah 84111
(801) 521-2392
Darrell T. Schvaneveldt, C.P.A.
Board of Directors
The Quantum Group, Inc., and Subsidiaries
I have reviewed the accompanying balance sheets, of The Quantum Group,
Inc., and Subsidiaries, as of March 31, 2000, and for the three months
periods then ended. These financial statements are the responsibility of
the Company's management.
I conducted my review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, I do not express such an
opinion.
Based on my review, I am not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
/S/ Schvaneveldt & Company
Salt Lake City, Utah 84111
May 19, 2000
</Page>
<PAGE>
F-3
The Quantum Group, Inc. and Subsidiaries
Balance Sheets
March 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
March March December
31, 2000 31, 1999 31, 1999
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current Assets
- --------------
Cash $ 136,667 $ 890,029 $ 242,934
Accounts Receivable 407,327 3,065,040 317,464
Inventory 175,990 33,025 139,469
Deposit 317,003 696,220 317,003
Note & Interest Receivable - Officer 71,347 46,607 69,253
Prepaid Expenses 26,944 440 26,944
------------ ------------ ------------
Total Current Assets 1,135,278 4,731,361 1,113,067
Property & Equipment
- --------------------
Furniture and Fixtures 52,596 - 55,547
Equipment 1,231,719 29,464 1,292,764
Vehicles 66,323 39,378 70,397
Land 157,753 179,309 157,753
Web Sites 9,168 - 9,650
------------ ------------ ------------
Total Property and Equipment 1,517,559 248,151 1,586,111
Other Assets
- ------------
Cash Pledged - 5,329 -
License Rights 426,422 491,179 442,611
Deposit 687,487 1,807,789 687,487
Prototype Impact 500 - 235,253 -
Goodwill 81,200 - -
------------ ------------ ------------
Total Other Assets 1,951,109 2,539,550 1,130,098
------------ ------------ ------------
TOTAL ASSETS $ 3,847,946 $ 7,519,062 $ 3,829,276
============ ============ ============
</TABLE>
See accountant's review report and accompanying notes
</Page>
<PAGE>
F-4
The Quantum Group, Inc., and Subsidiaries
Balance Sheets -Continued-
March 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
March March December
31, 2000 31, 1999 31, 1999
------------ ------------ ------------
<S> <C> <C> <C>
LIABILITIES & STOCKHOLDER' EQUITY
Current Liabilities
- -------------------
Accrued Expenses $ 66,506 $ 447,095 $ 84,043
Accounts Payable 602,153 716,075 653,517
Notes Payable 272,240 - 272,240
Customer Deposits 485,897 2,192,962 295,183
Franchise Tax Payable 103,548 103,548 103,548
Payroll Taxes Payable 22,437 - -
Sales Tax Payable 2,375 - -
Current Maturities 16,925 - 16,925
------------ ------------ ------------
Total Current Liabilities 1,572,081 3,459,680 1,425,456
Long Term Liabilities
- ---------------------
Capital Lease 81,089 25,503 67,631
Notes Payable 12,720 - 10,198
Less Current Maturities ( 16,925) - ( 16,925)
------------ ------------ ------------
Total Long Term Liabilities 76,884 25,503 60,904
Minority Interest in Subsidiary 428,475 9,464 -
Stockholders' Equity
- --------------------
Common Stock 50,000,000 Shares
Authorized; No Par Value of $0.001
Per Share;
9,084,672; 8,400,755 & 9,033,123 Shares
Issued Retroactively Restated Respectively 9,085 8,400 9,033
Paid In Capital 6,782,724 6,018,287 6,692,776
Accumulated Deficit ( 5,021,303) ( 2,020,471) ( 4,358,893)
------------ ------------ ------------
Total Stockholders' Equity 1,770,506 4,006,216 2,342,916
------------ ------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 3,847,946 $ 7,500,863 $ 3,829,276
============ ============ ============
</TABLE>
See accountant's review report and accompanying notes
</Page>
<PAGE>
F-5
The Quantum Group, Inc., and Subsidiaries
Statement of Operations
For the Three Months Ended March 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three Twelve
Months Months Months
March March December
31, 2000 31, 1999 31, 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
- --------
Product Sales $ 101,332 $ - $ -
Other Income 6,882 70,699 17,821
------------ ------------ ------------
Total Revenues 108,214 70,699 17,821
Cost of Sales 59,091 - 348
------------ ------------ ------------
Gross Profit 49,123 70,699 17,473
------------ ------------ ------------
Expenses
- --------
Depreciation 68,830 2,503 144,222
Amortization 16,189 16,189 64,756
Travel 35,375 84,070 167,274
Professional Fees 31,860 33,671 210,483
Office 47,602 29,519 97,356
Rent & Utilities 30,927 13,893 71,242
Administrative Expenses 273,973 106,946 814,361
Consultant Fees 171,777 87,876 715,663
Interest - - 19,504
Accounts Receivable Written Off - - 347,220
Options Issued Expense 35,000 - 39,067
------------ ------------ ------------
Total Expenses 711,533 374,667 2,691,148
Net Income (Loss) from Operations ( 662,410) ( 303,968) ( 2,673,675)
</TABLE>
See accountant's review report and accompanying notes
</Page>
<PAGE>
F-6
The Quantum Group, Inc., and Subsidiaries
Statements of Operations
For the Three Months Ended March 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
March March December
31, 2000 31, 1999 31, 1999
------------ ------------ ------------
<S> <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 - - -
------------ ------------ ------------
Total Taxes & Minority Interest - - ( 9,463)
------------ ------------ ------------
Net Income (Loss) ( 662,410) ( 303,968) ( 2,642,390)
============ ============ ============
Net Income (Loss) Per Share ( 0.07) ( 0.04) 0.30
Weighted Average Shares Outstanding 9,061,897 8,400,075 8,670,366
Diluted Net Profit Per Share N/A N/A N/A
</TABLE>
See accountant's review report and accompanying notes
</Page>
<PAGE>
F-7
The Quantum Group, Inc., and Subsidiaries
Statement of Stockholders' Equity
From January 1, 1998 to March 31, 2000
(UNAUDITED)
<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
Net 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 Issued ( 472,062)
Options Issued 39,067
Net 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)
Options Issued 35,000
</TABLE>
See accountant's review report and accompanying notes
</Page>
<PAGE>
F-8
The Quantum Group, Inc., and Subsidiaries
Statement of Stockholders' Equity -Continued-
From January 1, 1998 to March 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Stock Amount Capital Deficit
-----------------------------------------------------
<S> <C> <C> <C> <C>
Shares Issued to Acquire
Modified Asphalt Technology,
Inc. 51,549 52 89,948
Net Loss for the Three Months
Ended March 31, 2000 ( 662,410)
-----------------------------------------------------
Balance, March 31, 2000 9,084,672 $ 9,085 $ 6,817,724 ($ 5,021,303)
=====================================================
</TABLE>
See accountant's review report and accompanying notes
</Page>
<PAGE>
F-9
The Quantum Group, Inc., and Subsidiaries
Statement of Cash Flows
For the Three Months Ended March 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
March March December
31, 2000 31, 1999 31, 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
- ------------------------------------
Net Loss ($ 662,410) ($ 303,968) ($ 2,642,390)
Adjustments to Reconcile Net Loss to
Net Cash;
Write Off Accounts Receivable - - 347,220
Options Issued - - 39,067
Amortization and Depreciation 85,019 18,692 208,978
Non Cash Expenses - - 163,500
Minority Interest - - 9,463
Changes in Operating Assets & Liabilities;
(Increase) Decrease in Accounts Receivable ( 89,863) - 2,747,576
(Increase) Decrease in Inventory ( 36,521) - ( 120,044)
(Increase) Decrease in Deposit on
Inventory - ( 13,600) ( 13,982)
(Increase) Decrease in Prototype Impact
500 - ( 393,199) 63,203
(Increase) Decrease in Notes Receivable ( 2,092) ( 172,050) ( 38,321)
(Increase) Decrease in Prepaid Expenses - ( 15,675) ( 26,504)
(Increase) Decrease in Deposits - - 755,717
Increase (Decrease) in Accrued Expenses ( 17,537) ( 2,989) ( 366,041)
Increase (Decrease) in Accounts Payable ( 51,364) ( 9,126) ( 71,684)
Increase (Decrease) in Customer Pledges 190,714 - ( 1,897,779)
Increase (Decrease) in Cash Pledged - - 5,329
Increase (Decrease) in Payroll Taxes
Payable 22,437 - -
Increase (Decrease) in Sales Taxes Payable 2,375 - -
------------ ------------ ------------
Net Cash Provided (Used) by
Operating Activities ( 559,242) ( 891,915) ( 836,692)
</TABLE>
See accountant's review report and accompanying notes
</Page>
<PAGE>
F-10
The Quantum Group, Inc., and Subsidiaries
Statement of Cash Flows -Continued-
For the Three Months Ended March 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
March March December
31, 2000 31, 1999 31, 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Investing Activities
- ------------------------------------
Purchase of Vehicles - - ( 39,401)
Purchase of Equipment ( 280) - ( 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 ( 81,480) - ( 1,499,158)
Cash Flows from Financing Activities
- ------------------------------------
Sales of Common Stock 90,000 - 472,274
Sale of Subsidiary Common Stock 428,475 - -
Increase (Decrease) in Notes Payable 15,980 - 324,566
------------ ------------ ------------
Net Cash Provided (Used) by
Financing Activities 534,455 - 796,840
------------ ------------ ------------
Increase (Decrease) In Cash ( 106,267) ( 891,915) ( 1,539,010)
Cash at Beginning of Period 242,934 1,781,944 1,781,944
------------ ------------ ------------
Cash at End of Period $ 136,667 $ 890,029 $ 242,934
============ ============ ============
Disclosures from Operating Activities
- -------------------------------------
Interest $ -0- $ -0- $ 19,504
Taxes -0- -0- -0-
Significant Non Cash Transactions
- ---------------------------------
363,178 Shares of Common Stock Issued
for Services Rendered -0- -0- 685,843
51,549 Shares Issued for the Acquisition of
Modified Asphalt Technologies, Inc. 90,000 -0- -0-
</TABLE>
See accountant's review report and accompanying notes
</Page>
<PAGE>
F-11
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, 1999.
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.
</Page>
<PAGE>
F-12
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.
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.
In February 1998, SFAS No. 132, "Employer's Disclosure about Pensions
and Other Post-Retirement Benefits" was issued for fiscal years
beginning after December 15, 1998. Adoption of SFAS 132 did not have
a material impact on the Company financial statements.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued for fiscal years beginning after June
15, 1999. It is anticipated that SFAS No. 133, will have no effect
upon the Company's financial statements.
</Page>
<PAGE>
EXHIBIT 10.01
THE QUANTUM GROUP, INC.
2000 Stock Option Plan
Section 1. Purpose; Definitions.
- ---------- ---------------------
1.1 Purpose. The purpose of The Quantum Group, Inc. (the "Company")
2000 Stock Option Plan (the "Plan") is to enable the Company to offer to
its key employees, officers, directors, consultants, advisors and sales
representatives whose past, present and/or potential contributions to the
Company and its Subsidiaries have been, are or will be important to the
success of the Company, an opportunity to acquire a proprietary interest in
the Company. The various types of long-term incentive awards which may be
provided under the Plan will enable the Company to respond to changes in
compensation practices, tax laws, accounting regulations and the size and
diversity of its business.
1.2 Definitions. For purposes of the Plan, the following terms shall
be defined as set forth below:
(a) "Agreement" means the agreement between the Company and the
Holder setting forth the terms and conditions of an award under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto and the regulations
promulgated thereunder.
(d) "Committee" means the Stock Option Committee of the Board or
any other committee of the Board, which the Board may designate to
administer the Plan or any portion thereof. If no Committee is so
designated, then all references in this Plan to "Committee" shall mean the
Board.
(e) "Common Stock" means the Common Stock of the Company, par
value $.001 per share.
(f) "Company" means The Quantum Group, Inc., a corporation
organized under the laws of the State of Nevada.
(g) "Deferred Stock" means Stock to be received, under an award
made pursuant to Section 9, below, at the end of a specified deferral
period.
(h) "Disability" means disability as determined under procedures
established by the Committee for purposes of the Plan.
(i) "Effective Date" means the date set forth in Section 13.1,
below.
</Page>
<PAGE>
(j) "Employee" means any employee, director, general partner,
trustee (where the registrant is a business trust), officer or consultant
or advisor.
(k) "Fair Market Value", unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder,
means, as of any given date: (i) if the Common Stock is listed on a
national securities exchange or quoted on the Nasdaq National Market or
Nasdaq SmallCap Market, the last sale price of the Common Stock in the
principal trading market for the Common Stock on the last trading day
preceding the date of grant of an award hereunder, as reported by the
exchange or Nasdaq, as the case may be; (ii) if the Common Stock is not
listed on a national securities exchange or quoted on the Nasdaq National
Market or Nasdaq SmallCap Market, but is traded in the over-the-counter
market, the closing bid price for the Common Stock on the last trading day
preceding the date of grant of an award hereunder for which such quotations
are reported by the OTC Bulletin Board or the National Quotation Bureau,
Incorporated or similar publisher of such quotations; and (iii) if the fair
market value of the Common Stock cannot be determined pursuant to clause
(i) or (ii) above, such price as the Committee shall determine, in good
faith.
(l) "Holder" means a person who has received an award under the
Plan.
(m) "Incentive Stock Option" means any Stock Option intended to
be and designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(n) "Nonqualified Stock Option" means any Stock Option that is
not an Incentive Stock Option.
(o) "Normal Retirement" means retirement from active employment
with the Company or any Subsidiary on or after age 65.
(p) "Other Stock-Based Award" means an award under Section 10,
below, that is valued in whole or in part by reference to, or is otherwise
based upon, Stock.
(q) "Parent" means any present or future parent corporation of
the Company, as such term is defined in Section 424(e) of the Code.
(r) "Plan" means The Quantum Group, Inc., 2000 Stock Option
Plan, as hereinafter amended from time to time.
(s) "Restricted Stock"means Stock, received under an award made
pursuant to Section 8, below, that is subject to restrictions under said
Section 8.
(t) "SAR Value" means the excess of the Fair Market Value (on
the exercise date) of the number of shares for which the Stock Appreciation
Right is exercised over the exercise price that the participant would have
otherwise had to pay to exercise the related Stock Option and purchase the
relevant shares.
(u) "Stock" means the Common Stock of the Company, par value
$.001 per share.
</Page>
<PAGE>
(v) "Stock Appreciation Right" means the right to receive from
the Company, on surrender of all or part of the related Stock Option,
without a cash payment to the Company, a number of shares of Common Stock
equal to the SAR Value divided by the exercise price of the Stock Option.
(w) "Stock Option" or "Option" means any option to purchase
shares of Stock which is granted pursuant to the Plan.
(x) "Stock Reload Option" means any option granted under Section
6.3, below, as a result of the payment of the exercise price of a Stock
Option and/or the withholding tax related thereto in the form of Stock
owned by the Holder or the withholding of Stock by the Company.
(y) "Subsidiary" means any present or future subsidiary
corporation of the Company, as such term is defined in Section 424(f) of
the Code.
Section 2. Administration.
- ---------- ----------------
2.1 Committee Membership. The Plan shall be administered by the
Board or a Committee. Committee members shall serve for such terms as the
Board may in each case determine, and shall be subject to removal at any
time by the Board.
2.2 Powers of Committee. The Committee shall have full authority,
subject to Section 4, below, to award, pursuant to the terms of the Plan:
(i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock,
(iv) Deferred Stock, (v) Stock Reload Options and/or (vi) Other Stock-Based
Awards. For purposes of illustration and not of limitation, the Committee
shall have the authority (subject to the express provisions of this Plan):
(a) to select the officers, key employees, directors,
consultants, advisors and sales representatives of the Company or any
Subsidiary to whom Stock Options, Stock Appreciation Rights, Restricted
Stock, Deferred Stock, Reload Stock Options and/or Other Stock-Based Awards
may from time to time be awarded hereunder.
(b) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share price, any restrictions or limitations,
and any vesting, exchange, surrender, cancellation, acceleration,
termination, exercise or forfeiture provisions, as the Committee shall
determine);
(c) to determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder;
(d) to determine the terms and conditions under which awards
granted hereunder are to operate on a tandem basis and/or in conjunction
with or apart from other equity awarded under this Plan and cash awards
made by the Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the
Plan under such rules and procedures as the Committee may establish,
including the crediting of interest on deferred amounts denominated in cash
and of dividend equivalents on deferred amounts denominated in Stock;
</Page>
<PAGE>
(f) to determine the extent and circumstances under which Stock
and other amounts payable with respect to an award hereunder shall be
deferred which may be either automatic or at the election of the Holder;
and
(g) to substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms, and (ii) new
awards of any other type for previously granted awards of the same type,
which previously granted awards are upon less favorable terms.
2.3 Interpretation of Plan.
(a) Committee Authority. Subject to Section 4 and 12, below,
the Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it
shall, from time to time, deem advisable, to interpret the terms and
provisions of the Plan and any award issued under the Plan (and to
determine the form and substance of all Agreements relating thereto), to
otherwise supervise the administration of the Plan. Subject to Section 12,
below, all decisions made by the Committee pursuant to the provisions of
the Plan shall be made in the Committee's sole discretion and shall be
final and binding upon all persons, including the Company, its Subsidiaries
and Holders.
(b) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term or provision of the Plan relating to
Incentive Stock Options (including but limited to Stock Reload Options or
Stock Appreciation rights granted in conjunction with an Incentive Stock
Option) or any Agreement providing for Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be so exercised, so as to disqualify the Plan under
Section 422 of the Code, or, without the consent of the Holder(s) affected,
to disqualify any Incentive Stock Option under such Section 422.
Section 3. Stock Subject to Plan.
- ---------- ----------------------
3.1 Number of Shares. The total number of shares of Common Stock
reserved and available for distribution under the Plan shall be 200,000
shares. Shares of Stock under the Plan may consist, in whole or in part,
of authorized and unissued shares or treasury shares. If any shares of
Stock that have been granted pursuant to a Stock Option cease to be subject
to a Stock Option, or if any shares of Stock that are subject to any Stock
Appreciation Right, Restricted Stock, Deferred Stock award, Reload Stock
Option or Other Stock-Based Award granted hereunder are forfeited or any
such award otherwise terminates without a payment being made to the Holder
in the form of Stock, such shares shall again be available for distribution
in connection with future grants and awards under the Plan. Only net
shares issued upon a stock-for-stock exercise (including stock used for
withholding taxes) shall be counted against the number of shares available
under the Plan.
</Page>
<PAGE>
3.2 Adjustment Upon Changes in Capitalization, Etc. In the event of
any merger, reorganization, consolidation, recapitalization, dividend
(other than a cash dividend), stock split, reverse stock split, or other
change in corporate structure affecting the Stock, such substitution or
adjustment shall be made in the aggregate number of shares reserved for
issuance under the Plan, in the number and exercise price of shares subject
to outstanding Options, in the number of shares and Stock Appreciation
Right price relating to Stock Appreciation Rights, and in the number of
shares and Stock Appreciation Right price relating to Stock Appreciation
Rights, and in the number of shares subject to, and in the related terms
of, other outstanding awards (including but not limited to awards of
Restricted Stock, Deferred Stock, Reload Stock Options and Other Stock-
Based Awards) granted under the Plan as may be determined to be appropriate
by the Committee in order to prevent dilution or enlargement of rights,
provided that the number of shares subject to any award shall always be a
whole number.
Section 4. Eligibility.
- ---------- -------------
Awards may be made or granted to key employees, officers, directors,
consultants, advisors and sales representatives who are deemed to have
rendered or to be able to render significant services to the Company or its
Subsidiaries and who are deemed to have contributed or to have the
potential to contribute to the success of the Company. No Incentive Stock
Option shall be granted to any person who is not an employee of the Company
or a Subsidiary at the time of grant.
Section 5. Required Six-Month Holding Period.
- ---------- -----------------------------------
Any equity security issued under this Plan may not be sold prior to
six months from the date of the grant of the related award without the
approval of the Company.
Section 6. Stock Options.
- ---------- --------------
6.1 Grant and Exercise. Stock Options granted under the Plan may be
of two types: (i) Incentive Stock Options and (ii) Nonqualified Stock
Options. Any Stock Option granted under the Plan shall contain such terms,
not inconsistent with this Plan, or with respect to Incentive Stock
Options, not inconsistent with the Code, as the Committee may from time to
time approve. The Committee shall have the authority to grant Incentive
Stock Options, Non-Qualified Stock Options, or both types of Stock Options
and which may be granted alone or in addition to other awards granted under
the Plan. To the extent that any Stock Option intended to qualify as an
Incentive Stock Option does not so qualify, it shall constitute a separate
Nonqualified Stock Option. An Incentive Stock Option may be granted only
within the ten-year period commencing from the Effective Date and may only
be exercised within ten years of the date of grant or five years in the
case of an Incentive Stock Option granted to an optionee ("10%
Stockholder") who, at the time of grant, owns Stock possessing more than
10% of the total combined voting power of all classes of stock of the
Company.
6.2 Terms and Conditions. Stock Options granted under the Plan shall
be subject to the following terms and conditions:
</Page>
<PAGE>
(a) Exercise Price. The exercise price per share of Stock
purchasable under an Incentive Stock Option shall be determined by the
Committee at the time of grant and may not be less than 100% of the Fair
Market Value of the Stock as defined above; provided, however, that the
exercise price of an Incentive Stock Option granted to a 10% Stockholder
shall not be less than 110% of the Fair Market Value of the Stock. The
exercise price per share of Stock purchasable under any options granted
that are not Incentive Stock Option, shall be determined by the Committee
at the time of grant.
(b) Option Term. Subject to the limitations in Section 6.1,
above, the term of each Stock Option shall be fixed by the Committee.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Committee and as set forth in Section 11, below. If the
Committee provides, in its discretion, that any Stock Option is exercisable
only in installments, i.e., that it vests over time, the Committee may
waive such installment exercise provisions at any time at or after the time
of grant in whole or in part, based upon such factors as the Committee
shall determine.
(d) Method of Exercise. Subject to whatever installment,
exercise and waiting period provisions are applicable in a particular case,
Stock Options may be exercised in whole or in part at any time during the
term of the Option, by giving written notice of exercise to the Company
specifying the number of shares of Stock to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, which shall
be in cash or, unless otherwise provided in the Agreement, in shares of
Stock (including Restricted Stock and other contingent awards under this
Plan) or, partly in cash and partly in such Stock, or such other means
which the Committee determines are consistent with the Plan's purpose and
applicable law. Cash payments shall be made by wire transfer, certified or
bank check or personal check, in each case payable to the order of the
Company; provided, however, that the Company shall not be required to
deliver certificates for shares of Stock with respect to which an Option is
exercised until the Company has confirmed the receipt of good and available
funds in payment of the purchase price thereof. Payments in the form of
Stock shall be valued at the Fair Market Value of a share of Stock on the
day prior to the date of exercise. Such payments shall be made by delivery
of stock certificates in negotiable form which are effective to transfer
good and valid title thereto to the Company, free of any liens or
encumbrances. Subject to the terms of the Agreement, the Committee may, in
its sole discretion, at the request of the Holder, deliver upon the
exercise of a Nonqualified Stock Option a combination of shares of Deferred
Stock and Common Stock; provided that, notwithstanding the provision of
Section 9 of the Plan, such Deferred Stock shall be fully vested and not
subject to forfeiture. A Holder shall have none of the rights of a
stockholder with respect to the shares subject to the Option until such
shares shall be transferred to the Holder upon the exercise of the Option.
(e) Transferability. Unless otherwise determined by the
Committee, no Stock Option shall be transferable by the Holder other than
by will or by the laws of descent and distribution, and all Stock Options
shall be exercisable, during the Holder's lifetime, only by the Holder.
</Page>
<PAGE>
(f) Termination by Reason of Death. If a Holders' employment by
the Company or a Subsidiary terminates by reason of death, any Stock Option
held by such Holder, unless otherwise determined by the Committee at the
time of grant and set forth in the Agreement, shall be fully vested and may
thereafter be exercised by the legal representative of the estate or by
the legatee of the Holder under the will of the Holder, for a period of one
year (or such other greater or lesser period as the Committee may specify
at grant) from the date of such death or until the expiration of the stated
term of such Stock Option, which ever period is the shorter.
(g) Termination by Reason of Disability. If a Holder's
employment by the Company or any Subsidiary terminates by reason of
Disability, any Stock Option held by such Holder, unless otherwise
determined by the Committee at the time of grant and set forth in the
Agreement, shall be fully vested and may thereafter be exercised by the
Holder for a period of one year (or such other greater or lesser period as
the Committee may specify at the time of grant) from the date of such
termination of employment or until the expiration of the stated term of
such Stock Option, whichever period is the shorter.
(h) Other Termination. Subject to the provisions of Section
14.3, below, and unless otherwise determined by the Committee at the time
of grant and set forth in the Agreement, if a Holder is an employee of the
Company or a Subsidiary at the time of grant and if such Holder's
employment by the Company or any Subsidiary terminates for any reason other
than death or Disability, the Stock Option shall thereupon automatically
terminate, except that if the Holder's employment is terminated by the
Company or a Subsidiary without cause or due to Normal Retirement, then the
portion of such Stock Option which has vested on the date of termination of
employment may be exercised for the lesser of three months after
termination of employment or the balance of such Stock Option's term.
(i) Additional Incentive Stock Option Limitation. In the case
of an Incentive Stock Option, the aggregate Fair Market Value of Stock
(determined at the time of grant of the Option) with respect to which
Incentive Stock Options become exercisable by a Holder during any calendar
year (under all such plans of the Company and its Parent and Subsidiary)
shall not exceed $100,000.
(j) Buyout and Settlement Provisions. The Committee may at any
time, in its sole discretion, offer to buy out a Stock Option previously
granted, based upon such terms and conditions as the Committee shall
establish and communicate to the Holder at the time that such offer is
made.
(k) Stock Option Agreement. Each grant of a Stock Option shall
be confirmed by and shall be subject to the terms of, the Agreement
executed by the Company and the Holder.
6.3 Stock Reload Option. The Committee may also grant to the Holder
(concurrently with the grant of an Incentive Stock Option and at or after
the time of grant in the case of a Nonqualified Stock Option) a Stock
Reload Option up to the amount of shares of Stock held by the Holder for at
least six months and used to pay all or part of the exercise price of an
Option and, if any, withheld by the Company as payment for withholding
taxes. Such Stock Reload Option shall have an exercise price equal to the
Fair Market Value as of the date of the Stock Reload Option grant. Unless
the Committee determines otherwise, a Stock Reload Option may be exercised
commencing one year after it is granted and shall expire on the date of
expiration of the Option to which the Reload Option is related.
</Page>
<PAGE>
Section 7. Stock Appreciation Rights.
- ---------- --------------------------
7.1 Grant and Exercise. The Committee may grant Stock Appreciation
Rights to participants who have been, or are being granted, Options under
the Plan as a means of allowing such participants to exercise their Options
without the need to pay the exercise price in cash. In the case of a
Nonqualified Stock Option, a Stock Appreciation Right may be granted either
at or after the time of the grant of such Nonqualified Stock Option. In
the case of an Incentive Stock Option, a Stock Appreciation Right may be
granted only at the time of the grant of such Incentive Stock Option.
7.2 Terms and Conditions. Stock Appreciation Rights shall be subject
to the following terms and conditions:
(a) Exercisability. Stock Appreciation Rights shall be
exercisable as determined by the Committee and set forth in the Agreement,
subject to the limitations, if any, imposed by the Code, with respect to
related Incentive Stock Options.
(b) Termination. A Stock Appreciation Right shall terminate and
shall no longer be exercisable upon the termination or exercise of the
related Stock Option.
(c) Method of Exercise. Stock Appreciation Rights shall be
exercisable upon such terms and conditions as shall be determined by the
Committee and set forth in the Agreement and by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
Holder shall be entitled to receive a number of Option Shares equal to the
SAR Value divided by the exercise price of the Option.
(d) Shares Affected Upon Plan. The granting of a Stock
Appreciation Rights shall not affect the number of shares of Stock
available under for awards under the Plan. The number of shares available
for awards under the Plan will, however, be reduced by the number of shares
of Stock acquirable upon exercise of the Stock Option to which such Stock
Appreciation right relates.
Section 8. Restricted Stock.
- ---------- -----------------
8.1 Grant. Shares of Restricted Stock may be awarded either alone or
in addition to other awards granted under the Plan. The Committee shall
determine the eligible persons to whom, and the time or times at which,
grants of Restricted Stock will be awarded, the number of shares to be
awarded, the price (if any) to be paid by the Holder, the time or times
within which such awards may be subject to forfeiture (the "Restriction
Period"), the vesting schedule and rights to acceleration thereof, and all
other terms and conditions of the awards.
8.2 Terms and Conditions. Each Restricted Stock award shall be
subject to the following terms and conditions:
</Page>
<PAGE>
(a) Certificates. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name
of the Holder to whom such Restricted Stock shall have been awarded.
During the Restriction Period, certificates representing the Restricted
Stock and any securities constituting Retained Distributions (as defined
below) shall bear a legend to the effect that ownership of the Restricted
Stock (and such Retained Distributions), and the enjoyment of all rights
appurtenant thereto, are subject to the restrictions, terms and conditions
provided in the Plan and the Agreement. Such certificates shall be
deposited by the Holder with the Company, together with stock powers or
other instruments of assignment, each endorsed in blank, which will permit
transfer to the Company of all or any portion of the Restricted Stock and
any securities constituting Retained Distributions that shall be forfeited
or that shall not become vested in accordance with the Plan and the
Agreement.
(b) Rights of Holder. Restricted Stock shall constitute issued
and outstanding shares of Common Stock for all corporate purposes. The
Holder will have the right to vote such Restricted Stock, to receive and
retain all regular cash dividends and other cash equivalent distributions
as the Board may in its sole discretion designate, pay or distribute on
such Restricted Stock and to exercise all other rights, powers and
privileges of a holder of Common Stock with respect to such Restricted
Stock, with the exceptions that (i) the Holder will not be entitled to
delivery of the stock certificate or certificates representing such
Restricted Stock until the Restriction Period shall have expired and unless
all other vest requirements with respect thereto shall have been fulfilled;
(ii) the Company will retain custody of the stock certificate or
certificates representing the Restricted Stock during the Restriction
Period; (iii) other than regular cash dividends and other cash equivalent
distributions as the Board may in its sole discretion designate, pay or
distribute, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Stock (and
such Retained Distributions will be subject to the same restrictions, terms
and conditions as are applicable to the restricted Stock) until such time,
if ever, as the Restricted Stock with respect to which such Retained
Distributions shall have been made, paid or declared shall have become
vested and with respect to which the Restriction Period shall have expired;
(iv) a breach of any of the restrictions, terms or conditions contained in
this Plan or the Agreement or otherwise established by the Committee with
respect to any Restricted Stock or Retained Distributions will cause a
forfeiture of such Restricted Stock and any Retained Distributions with
respect thereto.
(c) Vesting; Forfeiture. Upon the expiration of the Restriction
Period with respect to each award of Restricted Stock and the satisfaction
of any other applicable restrictions, terms and conditions (i) all or part
of such Restricted Stock shall become vested in accordance with the terms
of the Agreement, subject to Section 11, below, and (ii) any Retained
Distributions with respect to such Restricted Stock shall become vested to
the extent that the Restricted Stock related thereto shall have become
vested, subject to Section 11, below. Any such Restricted Stock and
Retained Distributions that do not vest shall be forfeited to the Company
and the Holder shall not thereafter have any rights with respect to such
Restricted Stock and Retained Distributions that shall have been so
forfeited.
9
</Page>
<PAGE>
Section 9. Deferred Stock.
- ---------- ---------------
9.1 Grant. Shares of Deferred Stock may be awarded either alone or
in addition to other awards granted under the Plan. The Committee shall
determine the eligible persons to whom and the time or times at which
grants of Deferred Stock shall be awarded, the number of shares of Deferred
Stock to be awarded to any person, the duration of the period (the
"Deferral Period") during which, and the conditions under which, receipt of
the shares will be deferred, and all the other terms and conditions of the
awards.
9.2 Terms and Conditions. Each Deferred Stock award shall be subject
to the following terms and conditions:
(a) Certificates. At the expiration of the Deferral Period (or
the Additional Deferral Period referred to in Section 9.2 (d) below, where
applicable), shares certificates shall be issued and delivered to the
Holder, or his legal representative, representing the number equal to the
shares covered by the Deferred Stock award.
(b) Rights of Holder. A person entitled to receive Deferred
Stock shall not have any rights of a stockholder by virtue of such award
until the expiration of the applicable Deferral Period and the issuance and
delivery of the certificates representing such Stock. The shares of Stock
issuable upon expiration of the Deferral Period shall not be deemed
outstanding by the Company until the expiration of such Deferral Period and
the issuance and delivery of such Stock to the Holder.
(c) Vesting; Forfeiture. Upon the expiration of the Deferral
Period with respect to each award of Deferred Stock and the satisfaction of
any other applicable restrictions, terms and conditions all or part of such
Deferred Stock shall become vested in accordance with the terms of the
Agreement, subject to Section 11, below. Any such Deferred Stock that does
not vest shall be forfeited to the Company and the Holder shall not
thereafter have any rights with respect to such Deferred Stock.
(d) Additional Deferral Period. A Holder may request to, and
the Committee may at any time, defer the receipt of an award (or an
installment of an award) for an additional specified period or until a
specified event (the "Additional Deferral Period"). Subject to any
exceptions adopted by the Committee, such request must generally be made at
least one year prior to expiration of the Deferral Period for such Deferred
Stock awards (or such installment).
Section 10. Other Stock-Based Awards.
- ----------- -------------------------
10.1 Grant and Exercise. Other Stock-Based Awards may be awarded,
subject to limitations under applicable law, that are denominated or
payable, in value in whole or in part by reference to, or otherwise based
on, or related to, shares of Common Stock, as deemed by the Committee to be
consistent with the purposes of the Plan, including, without limitation,
purchase rights, shares of Common Stock awarded which are not subject to
any restrictions or conditions, convertible or exchangeable debentures, or
other rights convertible into shares of Common Stock and awards valued by
reference to the value of securities of or the performance of specified
subsidiaries. Other Stock-Based Awards may be awarded either alone or in
addition to or in tandem with any other awards under this Plan or any other
plan of the Company.
</Page>
<PAGE>
10.2 Eligibility for Other Stock-Based Awards. The Committee shall
determine the eligible persons to whom and the time or times at which
grants of such other stock-based awards shall be made, the number of shares
of Common Stock to be awarded pursuant to such awards, and all other terms
and conditions of the awards.
10.3 Terms and Conditions. Each Other Stock-Based Award shall be
subject to such terms and conditions as may be determined by the Committee
and to Section 11, below.
Section 11. Accelerated Vesting and Exercisability.
- ----------- ---------------------------------------
If (i) any person or entity other than the Company and/or any
stockholders of the Company as of the Effective Date acquire securities of
the Company (in one or more transactions) having 25% or more of the total
voting power of all the Company's securities then outstanding and (ii) the
Board of Directors of the Company does not authorize or otherwise approve
such acquisition, then, the vesting periods of any and all Options and
other awards granted and outstanding under the Plan shall be accelerated
and all such Options and awards will immediately and entirely vest, and the
respective holders thereof will have the immediate right to purchase and/or
receive any and all Stock subject to such Options and awards on the terms
set forth in this Plan and the respective agreements respecting such
Options and awards.
Section 12. Amendment and Termination.
- ----------- --------------------------
Subject to Section 4 hereof, the Board may at any time, and from time
to time, amend, alter, suspend or discontinue any of the provisions of the
Plan, but no amendment, alteration, suspension or discontinuance shall be
made which would impair the rights of a Holder under any Agreement
theretofore entered into hereunder, without the Holder's consent.
Section 13. Term of Plan.
- ----------- -------------
13.1 Effective Date. The Plan shall be effective as of March 31,
2000. ("Effective Date").
13.2 Termination Date. Unless terminated by the Board, this Plan
shall continue to remain effective until such time no further awards may be
granted and all awards granted under the Plan are no longer outstanding.
Notwithstanding the foregoing, grants of Incentive Stock Options may only
be made during the ten-year period following the Effective Date.
Section 14. General Provisions.
- ----------- -------------------
14.1 Written Agreements. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms of the Agreement executed
by the Company and the Holder. The Committee may terminate any award made
under the Plan if the Agreement relating thereto is not executed and
returned to the Company within 10 days after the Agreement has been
delivered to the Holder for his or her execution.
14.2 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to
any payments not yet made to a Holder by the Company, nothing contained
herein shall give any such Holder any rights that are greater than those of
a general creditor of the Company.
</Page>
<PAGE>
14.3 Employees.
(a) Engaging in Competition With the Company. In the event a
Holder's employment with the Company or a Subsidiary is terminated for any
reason whatsoever, and within one year after the date thereof such Holder
accepts employment with any competitor of, or otherwise engages in
competition with, the Company, the Committee, in its sole discretion, may
require such Holder to return to the Company the economic value of any
award which was realized or obtained by such Holder at any time during the
period beginning on that date which is six months prior to the date of such
Holder's termination of employment with the Company.
(b) Termination for Cause. The Committee may, in the event a
Holder's employment with the company or a Subsidiary is terminated for
cause, annul any award granted under this Plan to return to the Company
the economic value of any award which was realized or obtained by such
Holder at any time during the period beginning on that date which is six
months prior to the date of such Holder's termination of employment with
the Company.
(c) No Right of Employment. Nothing contained in the Plan or in
any award hereunder shall be deemed to confer upon any Holder who is an
employee of the Company or any Subsidiary any right to continued employment
with the Company or any Subsidiary, nor shall it interfere in any way with
the right of the Company or any Subsidiary to terminate the employment of
any Holder who is an employee at any time.
14.4 Investment Representations. The Committee may require each
person acquiring shares of Stock pursuant to a Stock Option or other award
under the Plan to represent to and agree with the Company in writing that
the Holder is acquiring the shares for investment without a view to
distribution thereof.
14.5 Additional Incentive Arrangements. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of Stock Options and the awarding of stock and cash otherwise than
under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
14.6 Withholding Taxes. Not later than the date as of which an amount
must first be included in the gross income of the Holder for Federal income
tax purposes with respect to any option or other award under the Plan, the
Holder shall pay to the Company, or made arrangements satisfactory to the
Committee regarding the payment of, any Federal, state and local taxes of
any kind required by law to be withheld or paid with respect to such
amount. If permitted by the Committee, tax withholding or payment
obligations may be settled with Common Stock, including Common Stock that
is part of the award that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditioned upon such
payment or arrangements and the Company or the Holder's employer (if not
the Company) shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment of any kind otherwise due to the
Holder from the Company or any Subsidiary.
</Page>
<PAGE>
14.7 Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of Nevada (without regard to choice of law provisions).
14.8 Other Benefit Plans. Any award granted under the Plan shall not
be deemed compensation for purposes of computing benefits under any
retirement plan of the Company or any Subsidiary and shall not affect any
benefits under any other benefit plan now or subsequently in effect under
which the availability or amount of benefits is related to the level of
compensation (unless required by specific reference in any such other plan
to awards under this Plan).
14.9 Non-Transferability. Except as otherwise expressly provided in
the Plan, no right or benefit under the Plan may be alienated, sold,
assigned, hypothecated, pledged, exchanged, transferred, encumbranced or
charged, and any attempt to alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void.
14.10 Applicable Laws. The obligations of the Company with
respect to all Stock Options and awards under the Plan shall be subject to
(i) all applicable laws, rules and regulations and such approvals by any
governmental agencies as may be required, including, without limitation,
the Securities Act of 1933, as amended, and (ii) the rules and regulations
of any securities exchange on which the Stock may be listed.
14.11 Conflicts. If any of the terms or provisions of the Plan or
an Agreement (with respect to Incentive Stock Options) conflict with the
requirements of Section 422 of the Code, then such terms or provisions
shall be deemed inoperative to the extent they so conflict with the
requirements of said Section 422 of the Code. Additionally, if this Plan
or any Agreement does not contain any provision required to be included
herein under Section 422 of the Code, such provision shall be deemed to be
incorporated herein and therein with the same force and effect as if such
provision had been set out at length herein and therein. If any of the
terms or provision of any Agreement conflict with any terms or provision of
the Plan, then such terms or provision shall be deemed inoperative to the
extent they so conflict with the requirements of the Plan. Additionally,
if any Agreement does not contain any provision required to be included
therein under the Plan, such provision shall be deemed to be incorporated
therein with the same force and effect as if such provision had been set
out at length therein.
14.12 Non-Registered Stock. The shares of Stock to be distributed
under this Plan have not been, as of the Effective Date, registered under
the Securities Act of 1933, as amended, or any applicable state or foreign
securities laws and the Company has no obligation to any Holder to register
the Stock or to assist the Holder in obtaining an exemption from the
various registration requirements, or to list the Stock on a national
securities exchange.
</Page>
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<CIK> 0000921450
<NAME> THE QUANTUM GROUP, INC., AND SUBSIDIARIES
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
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