UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTIOIN 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED: July 31, 2004
COMMISSION FILE NUMBER: 000-31727
THE QUANTUM GROUP, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 20-0774748
------------------------------ -------------------
STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3460 Fairlane Farms Road, Suite 4, Wellington, Florida 33414
-------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
(561) 798-9800
----------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTIONS 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
FILINGS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 9, 2004, the number of the Company's shares of par value $.001
common stock outstanding was 17,892,899.
INDEX
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements-Unaudited
Condensed Balance Sheet 3
Condensed Statements of Operations 4
Condensed Statement of Changes in Deficiency in Assets 5
Condensed Statements of Cash Flows 6
Notes to Condensed Financial Statements 7
Item 2- Management's Discussion and Analysis of Financial Condition
And Results of Operations 14
Item 3- Controls and Procedures 16
PART II - OTHER INFORMATION 17
SIGNATURES 19
2
PART I
ITEM 1. FINANCIAL INFORMATION.
CONDENSED BALANCE SHEET
(A DEVELOPMENT STAGE ENTERPRISE)
JULY 31, 2004
(Unaudited)
ASSETS
Current assets:
Cash $ 107,005
---------
Total current assets 107,005
Property and equipment, net of accumulated depreciation of $3,592 22,165
Investment in related companies 10,000
Other assets 16,090
---------
Total assets $ 155,260
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 248,070
Accrued payroll 349,639
Notes payable and accrued interest - shareholder (note 8) 276,619
Loan Payable 30,000
---------
Total current liabilities 904,328
Commitments and contingencies
Deficiency in assets accumulated during development stage (749,068)
---------
Total liabilities and deficiency in assets $ 155,260
=========
See accompanying notes to condensed financial statements
3
THE QUANTUM GROUP, INC.
CONDENSED STATEMENT OF OPERATIONS
(A DEVELOPMENT STAGE ENTERPRISE)
FOR THE PERIODS ENDED JULY 31, 2004 AND 2003
(Unaudited)
For the period
For the three months ended For the nine months ended July 24, 2001
---------------------------- ---------------------------- (inception) to
July 31, July 31, July 31, July 31, July 31,
2004 2003 2004 2003 2004
----------- ----------- ----------- ----------- ----------
Interest Expense $ 9,975 $ 5 $ 27,525 $ 5 $ 60,964
Other Expenses 244,908 71,564 592,503 130,995 1,019,595
----------- ----------- ----------- ----------- ----------
Expenses Representing Net Loss $ 254,883 $ 71,569 $ 620,028 $ 131,000 $1,080,559
=========== =========== =========== =========== ==========
Basic and diluted loss per common share $ (0.07) $ (0.02) $ (0.18) $ (0.05)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding 3,613,922 3,063,286 3,439,759 2,834,510
=========== =========== =========== ===========
See accompanying notes to condensed financial statements
4
THE QUANTUM GROUP, INC.
STATEMENT OF CHANGES IN DEFICIENCY IN ASSETS ACCUMULATED
DURING THE DEVELOPMENT STAGE
JULY 31, 2004
(Unaudited)
Common Stock
par value
$.001 per share
170,000,000 Allocated
authorized Additional Shares
--------------------- Paid-in Deferred for Deferred Accumulated Total
# of Shares Amount Capital Compensation Compensation Deficit Equity
--------- ------- ---------- ------------ ------------ ----------- ---------
Balance 7/24/01 (inception) 2,700,000 $ 2,700 $ 17,300 $ 20,000
Net (loss) $ (127,576) (127,576)
--------- ------- -------- --------- -------- ----------- ---------
Balance at 10-31-01 2,700,000 2,700 17,300 (127,576) (107,576)
Net (loss) (86,400) (86,400)
--------- ------- -------- --------- -------- ----------- ---------
Balance at 10/31/02 2,700,000 2,700 17,300 (213,976) (193,976)
Merger with TPII 510,877 511 (121,363) (120,852)
Sale of common stock for cash 86,000 86 64,914 65,000
Deferred compensation-stock options 207,500 (207,500) -
Deferred compensation-stock grants (327,150) $ 327,150 -
Amortization of deferred comp 3,458 3,458
Net (loss) (246,555) (246,555)
--------- ------- -------- --------- -------- ----------- ---------
Balance at 10/31/03 3,296,877 3,297 168,351 (531,192) 327,150 (460,531) (492,925)
Issuance of common stock - stk grants 71,260 71 64,056 64,127 (64,127) 64,127
Amortization of deferred comp. 10,375 10,375
Net (loss) (155,534) (155,534)
--------- ------- -------- --------- -------- ----------- ---------
Balance at 1/31/04 3,368,137 3,368 232,407 (456,690) 263,023 (616,065) (573,957)
Issuance of common stock - stk grants 35,195 35 31,647 31,682 (31,682) 31,682
Amortization of deferred comp. 10,375 10,375
Net (loss) (209,611) (209,611)
--------- ------- -------- --------- -------- ----------- ---------
Balance at 4/30/04 3,403,332 3,403 264,054 (414,633) 231,341 (825,676) (741,511)
Sale of common stock 741,146 741 189,528 190,269
Issuance of stock - stk grants 35,195 35 31,647 31,682 (31,682) 31,682
Amortization of deferred comp. 10,375 10,375
Stock based compensation 15,000 15 14,985 15,000
Net (loss) (254,883) (254,883)
--------- ------- -------- --------- -------- ----------- ---------
Balance at 7/31/04 4,194,673 $ 4,194 $500,214 $(372,576) $199,659 $(1,080,559) $(749,068)
========= ======= ======== ========= ======== =========== =========
See accompanying notes to condensed financial statements.
5
THE QUANTUM GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOW
FOR THE PERIODS ENDED JULY 31, 2004 AND 2003
(Unaudited)
9 Months 9 Months July 24, 2001
ended ended (Inception) to
July 31, July 31, July 31,
2004 2003 2004
--------- --------- --------------
OPERATING ACTIVITIES
Net (loss) $(620,028) $(131,000) $(1,080,559)
--------- --------- -----------
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 986 939 3,913
Amortization of deferred compensation 158,616 162,074
Issuance of stock for compensation 15,000 15,000
Changes in operating assets and liabilities:
(Increase) decrease in other assets (13,317) (702) (16,090)
Increase (decrease) in accounts payable
and accrued liabilities 342,565 97,120 535,734
--------- --------- -----------
Total adjustments 503,850 97,357 700,631
--------- --------- -----------
Net cash used in operating activities (116,178) (33,643) (379,928)
INVESTING ACTIVITIES
Purchase of property and equipment (21,458) (130) (26,078)
Investment in related companies (10,000) (10,000)
--------- --------- -----------
Net cash provided by (used in)
investing activities (21,458) (10,130) (36,078)
--------- --------- -----------
FINANCING ACTIVITIES
Proceeds from note payable 54,130 4,532 247,742
Proceeds from issuance of common stock 190,269 44,000 275,269
--------- --------- -----------
Net cash provided by financing activities 244,399 48,532 523,011
--------- --------- -----------
Net increase (decrease) in cash 106,763 4,759 107,005
Cash at beginning of period 242 -- --
--------- --------- -----------
Cash at end of period $ 107,005 $ 4,759 $ 107,005
========= ========= ===========
Supplemental disclosures of
cash flow information:
Cash paid during the period for interest $ -- $ -- $ --
Supplemental disclosures of non-cash
investing and financing activities:
Assumption of Liabilities of
Transform Pack International, Inc. $ -- $ 120,852 $ 120,852
See accompanying notes to financial statements.
6
THE QUANTUM GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (UNAUDITED)
JULY 31, 2004
NOTE 1: DESCRIPTION OF COMPANY
On May 28, 2003, Transform Pack International, Inc. (the "Company") merged with
Quantum HIPAA Consulting, Inc ("Quantum"). On January 30, 2004, the shareholders
of the Company approved the reincorporation of the Company under the name of The
Quantum Group, Inc. ("TQGI"). The shareholders approved a 1 for 10 reverse stock
split (See Note 6). The Company is a development stage company with no current
revenues. The Company's business model is to become a provider of services to
the healthcare industry in three complementary areas: outsourcing administrative
responsibilities for physicians, Managed Care Organizations, healthcare
facilities and physician associations; developing new technologies for the
healthcare delivery system; and providing healthcare services to consumers. (See
Note 4)
BASIS OF PRESENTATION
The condensed financial statements include of The Quantum Group, Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and Regulation S-B. Accordingly,
they do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements.
The accompanying condensed financial statements of the Company are unaudited.
However, in the opinion of management, they include all adjustments necessary
for a fair presentation of financial position, results of operations and cash
flows. All adjustments made during the nine months ended July 31, 2004, were of
a normal, recurring nature. The amounts presented for the nine months ended July
31, 2004, are not necessarily indicative of the results to be expected for any
other interim period or for the entire fiscal year. Additional information is
contained in the Annual Report on Form 10-KSB of the Company for the year ended
October 31, 2003, which should be read in conjunction with this quarterly
report.
GOING CONCERN
The Company has no revenues to date. Since its inception, the Company has been
dependent upon the receipt of capital investment to fund its continuing
activities. In addition to the normal risks associated with a new business
venture, there can be no assurance that the Company's business plan will be
successfully executed. The Company's ability to execute its business model will
depend on its ability to obtain additional financing and achieve a profitable
level of operations. There can be no assurance that sufficient financing will be
obtained. Nor can any assurance be made that the Company will generate
substantial revenues or that the business operations will prove to be
profitable. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. At July 31, 2004
there were no cash equivalents.
7
THE QUANTUM GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (UNAUDITED)
JULY 31, 2004
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets, which range
from three to five years.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense when incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates and the differences could be material.
INCOME TAXES
The Company has not recognized any benefit of such net operating loss carry
forwards in the accompanying financial statements in accordance with the
provisions of SFAS No. 109, as the realization of this deferred tax benefit is
not likely. A 100% valuation allowance has been recognized to offset the entire
effect of the Company's net deferred tax asset.
STOCK COMPENSATION
The company has adopted Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS 123 encourages the
use of a fair-value-based method of accounting for stock-based awards, under
which the fair value of stock options is determined on the date of grant and
expensed over the vesting period. Under SFAS 123, companies may, however,
measure compensation costs for those plans using the method prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock
Issued to Employees." Companies that apply APB No. 25 are required to include
pro forma disclosures of net earnings and earnings per share as If the
fair-value-based method of accounting had been applied. The Company elected to
account for such plans under the provisions of APB No. 25. The Company accounts
for stock options granted to consultants under SFAS 123.
8
THE QUANTUM GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (UNAUDITED)
JULY 31, 2004
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Had the compensation expense for the stock option plan been determined based on
the fair value of the options at the grant date consistent with the methodology
prescribed under Statement of Financial Standards No. 123, "Accounting for Stock
Based Compensation," at July 31, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
2004 2003
--------- --------
Net income (loss)
As reported $(620,028) $(59,431)
--------- --------
Pro forma $(644,928) $(59,431)
--------- --------
Earnings per share
As reported $ (0.18) $ (0.02)
--------- --------
Pro forma $ (0.19) $ (0.02)
--------- --------
The fair value of each option is estimated on the date of grant using the fair
market value option-pricing model with the assumptions:
isk-free interest rate 4%
xpected life (years) 5
xpected volatility 2.31
xpected dividends None
NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts payable and accrued
liabilities approximate their fair value because of the short maturity of these
financial instruments.
NOTE 4: MERGER WITH QUANTUM HIPAA CONSULTING, INC.
Effective May 28, 2003, the Company consummated a merger pursuant to a merger
agreement with Quantum HIPAA Consulting Group, Inc. Quantum HIPAA Consulting
Group, Inc. developed a training compact disc and manuals to instruct the
healthcare industry on the implementation of the regulations created to comply
with the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
The Company completed the merger by issuing 2,700,000 million shares of Common
Stock to the sole shareholder of Quantum, in exchange for all the issued and
outstanding shares of Quantum. For accounting purposes, the acquisition was
treated as a recapitalization of the Company. The value of the net assets of the
Company after the acquisition was completed is the same as their historic book
value.
On May 30 2003, in accordance with the agreement, the Company, Transform Pack
International, Inc., sold its wholly owned subsidiary, Transform Pack, Inc.
(TPI) to certain previous shareholders and investors of the Company. Transform
Pack, Inc. and its shareholders have agreed to assume and indemnify the Company
for all operating debts of the Company.
9
THE QUANTUM GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (UNAUDITED)
JULY 31, 2004
NOTE 5: LOSS PER SHARE
Basic loss per share is computed by dividing loss available to common
shareholders by the weighted average number of common shares for the period. The
computation of diluted loss per share is similar to basic loss per share, except
that the denominator is increased to include the number of additional common
shares that would have been outstanding if the potentially dilutive common
shares, such as options, had been issued. Diluted loss per share is not
presented as the effects would be anti-dilutive.
NOTE 6: OTHER COMMON STOCK TRANSACTIONS
DEFERRED COMPENSATION
On October 1, 2003, the Company granted 363,500 shares of common stock to
employees, directors and advisors in lieu of or as partial compensation for
services performed for the Company. These shares start vesting January 1, 2004
and are to be vested over two and three year periods. The Company recorded
$327,150 of unearned compensation and recorded the unvested shares as Deferred
Compensation - Allocated Shares in the equity section of the balance sheet. The
Company recognized $107,212 in compensation expense related to these stock
grants for the nine month period ended July 31, 2004. The value of the stock was
determined by the closing market price at the date of grant. Additionally, the
Company granted 415,000 options at $.40 per share to employees and directors to
be vested over three years. The options start vesting January 1, 2004. The
Company has recognized $207,500 in deferred compensation in relation to the
issuance of the stock options in conjunction with Statement of Financial
Accounting Standard no. 123. The values of the options were determined based
upon the market value of the common shares at the time of grant less the
exercisable price. The Company has recognized $31,125 in compensation expense
related to these stock option grants for the nine month period ended July 31,
2004.
REVERSE STOCK SPLIT
In January 2004, the shareholders of the Company approved the merger of the
Company into The Quantum Group, Inc. for the purpose of reincorporation in the
State of Nevada. In conjunction with the reincorporation, the shareholders
approved a 1 for 10 reverse stock split of its common stock. An amended and
restated Articles of Incorporation have been filed to change the name of the
Company to The Quantum Group, Inc. ("TQGI") and to set the authorized shares of
common stock to 170,000,000 at a par value of $.001 per share and authorized
preferred stock to 30,000,000 at a par value of $.001 per share. All share and
per share amounts have been retroactively restated in the accompanying financial
statements and notes for all periods presented.
NOTE 7: STOCK OPTIONS
In October 2003 the Company adopted a stock option plan. The purpose of the
stock option plan was to increase the employees and non-employee director's
proprietary interest in Quantum and to align more closely their interests with
the interests of the shareholders of Quantum, as well as to enable Quantum to
attract and retain the services of experienced and highly qualified employees
and non-employees directors.
10
THE QUANTUM GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (UNAUDITED)
JULY 31, 2004
NOTE 7: STOCK OPTIONS (CONTINUED)
Options granted under this plan may either be options qualifying as incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as
amended, or options that do not so qualify. Any incentive option must provide
for an exercise price of not less than 100% of the fair market value of the
underlying shares on the date of such grant, but the exercise price of any
incentive option granted to an eligible employee owning more than 10% of the our
common stock must be at least 110% of such fair market value as determined on
the date of the grant.
The term of each option and the manner in which it may be exercised is
determined by the board of directors, provided that no option may be exercisable
more that 10 years after the date of its grant and, in the case of an incentive
option granted to an eligible employee owning more that 10% of the our common
stock, no more than five years after the date of the grant. The board of
directors shall determine the exercise price of non-qualified options.
The Company has reserved 5,000,000 shares of common stock under the plan. The
board of directors or a committee of the board of directors will administer the
plan including, without limitation, the selection of the persons who will be
granted plan options under the plan, the type of plan options to be granted, the
number of shares subject to each plan options and the plan option price.
The per share exercise price of shares granted under the plan may be adjusted in
the event of certain changes in the total purchase price payable upon the
exercise in full of options granted under the plan. Officers, directors and key
employees of and consultants to Quantum will be eligible to receive
non-qualified options under the plan. Only officers, directors and employees of
Quantum who are employed by Quantum or by any subsidiary thereof are eligible to
receive incentive options.
The Company has elected to account for the stock options under the Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. The Company accounts for stock options granted to
consultants under Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation." The Company recognized $207,500 in
compensation expense, of which $172,916 was deferred at July 31, 2004.
The Company granted 90,000 options to an employee during the nine month period
ended July 31, 2004 at an average exercise price of $1.00 per share. No options
were granted during the nine month period ended July 31, 2003.
11
THE QUANTUM GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (UNAUDITED)
JULY 31, 2004
NOTE 7: STOCK OPTIONS (CONTINUED)
A summary of options during the nine months ended July 31, 2004 and 2003 is
shown below:
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
--------- -------- --------- --------
Outstanding at beginning of the period $ 0.40 -- $--
Granted 90,000 $ 1.00 -- $--
Exercised -- $ -- -- $--
Forfeited -- $ -- -- $--
--------- ------ -------- ---
Outstanding at April 30, 90,000 $ 0.40 -- $--
Exercisable at April 30, -- --
--------- --------
Available for issuance at April 30, 4,910,000 --
--------- --------
NOTE 8: OTHER EQUITY
Following a motion approved by the Company's shareholders during a meeting
January 30, 2004, the Board of Directors agreed to issue 13,300,000 post reverse
shares to the shareholders of both Quantum Medical Technologies, Inc. (QMT) and
Renaissance Health Systems, Inc. (RHS) for the 80% of the those companies which
the Company does already not own. Control in the Company will not change, since
all the shareholders in numbers and relative beneficial ownership of both QMT
and RHS are also material and beneficial owners of the common shares of the
Company today. The final merger is not expected to be consummated until
documentation is completed and approval of the Board of Directors of all the
companies.
In June 2004, the Company entered into an agreement with two companies to raise
a minimum of $500,000 to a maximum of $1,000,000. The terms include the share
price to be a 75% discount on the closing sale price. The placement companies
will receive a combined placement fee of 13% of the gross proceeds received from
issuance of shares. Additionally, after the Company receives net proceeds of
$500,000, the placement companies will receive 100,000 warrants exercisable at
110% of the closing bid price with a floor of $0.75 per share. As of July 31,
2004, the Company received $218,000 and issued 741,146 shares.
NOTE 9: RELATED PARTY TRANSACTIONS
On November 1, 2002, the Company entered into an agreement with a shareholder to
purchase certain intellectual property integral to the Company's business. In
exchange, the company issued a three (3) year installment note for $179,080 with
an interest rate of eighteen percent (18%) per annum. The price of the sale was
equal to the cost the shareholder incurred to develop the property purchased.
The note is payable monthly starting January 2003. The Company is in technical
default as no payments have been made on the note. The Company is accruing
interest, at 18% per annum, monthly on the unpaid principal balance and has
classified the note as current as per the agreement. The interest accrued at
July 31, 2004 is $54,410.
On November 2, 2002 the Company signed a demand note, with an interest rate of
eighteen percent (18%) per annum, for the expenses a shareholder paid on behalf
of the Company subsequent to the sale of the intellectual property. The note
payable balance and accrued interest as of July 31, 2004 are $38,582 and $4,547
respectively. THE QUANTUM GROUP, INC.
12
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (UNAUDITED)
JULY 31, 2004
NOTE 9: RELATED PARTY TRANSACTIONS (CONTINUED)
In July 2003, the Company purchased a 20% interest Renaissance Health Systems,
Inc. for $5,000 from a shareholder of the Company. Renaissance Health Systems is
a development stage enterprise in the health care business. Additionally, the
Company purchased a 20% interest in Quantum Medical Technologies, Inc. for
$5,000 from a shareholder of the Company. Quantum Medical Technologies, Inc. is
a development stage enterprise in the medical technologies business. See Note
10.
NOTE 10: SUBSEQUENT EVENTS
Effective August 9, 2004 The Company completed a previously announced, and
shareholder approved consolidation of its interest by acquiring the 80% of
Quantum Medical Technologies, Inc., and Renaissance Health Systems, Inc. it did
not own. As previously disclosed, the Company issued 13,300,000 Common Shares
and in addition issued 100,000 A-1 Preferred Stock recently authorized by the
Company with preferential super voting interest, one hundred votes per share,
and convertible in 4 years to Common Stock under certain conditions.
Quantum Medical Technologies, Inc. (QMT) was incorporated in January of 2000,
and is a developmental stage company, with no significant material assets or
liabilities and no revenues, and consists primarily of intellectual and patent
pending business process to provide medical technologies, computer programs,
electronic services, predictive modeling and other services to the medical
profession. The Company has begun to develop a Cybernaptic (SM) process to
connect in an applications service provider (ASP) format most of the touch
points in the healthcare delivery system. The Company has also in development a
QuantumQuotient (SM) index that the Company believes could be used as a tool to
provide a measurable way to tack improvement in the healthcare lifestyle of its
subject. If this process can be confirmed, it could have significant value to
the Company as a tool to reduce cost, and as a intellectual property it can sell
or license to others. In addition, the Company is currently in the final stages
of purchasing an online medical office billing and collection program, which is
currently in beta testing. QMT's primary shareholder is the majority shareholder
of the Company.
Renaissance Health Systems, Inc. was incorporated in December of 2002, and is a
developmental stage company, with no significant material assets or liabilities
and no revenues, which was formed to create a community health system (CHS) that
will coordinate care to managed care patients by affiliating with providers,
physicians and hospitals. The Company has secured a letter of intent with a
Florida licensed health maintenance organization to build a CHS in three
counties in central Florida. The Company's management has extensive experience
in developing CHS and with recent additions to the staff seeks to complete the
CHS by end of 4rh quarter of 2004. QMT's primary shareholder is the majority
shareholder of the Company.
On August 26, 2004, an advance of $30,000 from an outside investor, made in June
2004, was converted into 300,000 shares of common stock at a conversion price of
$0.10 per share.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The discussion and analysis set forth below should be read in conjunction with
our Financial Statements and the related notes thereto appearing elsewhere in
this quarterly report. The information presented for the nine months ended July
31 2004 and 2003, was derived from unaudited financial statements, which, in our
opinion, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation.
FORWARD LOOKING STATEMENTS
This Report on Form 10-QSB contains certain forward-looking statements. When
used in this report, press releases and elsewhere by the management of the
Company from time to time, the words "believes", "anticipates", and "expects"
and similar expressions are intended to identify forward-looking statements that
involve certain risks and uncertainties. Additionally, certain statements
contained in this discussion may be deemed forward-looking statements that
involve a number of risks and uncertainties. Among the factors that could cause
actual results to differ materially are the following: the ability of the
Company to meet its working capital and liquidity needs, economic trends for
consumer advertisers, the availability of long-term credit, unanticipated
changes in the U.S. and international economies, business conditions and growth
in e-commerce and the timely development and acceptance of new products, the
impact of competitive products and pricing, and other risks detailed from time
to time in the Company's SEC reports. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the results of
any events or circumstances after the date hereof or to reflect the occurrence
of unanticipated events.
GOING CONCERN
The Company is a development stage company that over the last three years has
expensed material sums in creating procedures, manuals and systems to assist the
medical community in the implementation of medical regulations. Though the
Company has materially finished developing its training programs, additional
updates and deployment will be required.
As shown in the accompanying condensed financial statements, the Company has
incurred recurring losses and negative cash flows from its development and
organization activities and has negative working capital and shareholders'
deficit. Under normal conditions, these conditions raise substantial doubt about
the Company's ability to continue as a going concern.
There can be no assurance that the Company will be able to successfully
implement its plans to generate additional investor interest and raise
additional capital, or if such plans are successfully implemented, that the
Company will achieve its goals.
Furthermore, if the Company is unable to raise additional funds, it may be
required to modify its growth and developmental plans, and even be forced to
severely limit development operations completely.
The accompanying condensed financial statements have been prepared assuming that
the Company will continue as a going concern and do not include any adjustments
to reflect the possible future effects of the recoverability and classification
of assets or the amounts and classification of liabilities that might result
from the outcome of this uncertainty. See "Liquidity and Capital Resources,"
below.
14
RESULTS OF OPERATIONS
Three months ended July 31, 2004 and 2003
The expenses for the quarter ended July 31, 2004 were $254,883 compared to
$71,569 for the quarter July 31, 2003. The increase of $183,314 was primarily
due to an increase in personnel, salaries, consulting fees and related costs of
$72,845 and the amortization of deferred compensation of $46,112.
Nine months ended July 31, 2004 and 2003
The expenses for the nine months ended July 31, 2004 were $620,028 compared to
$131,000 for the nine months ended July 31, 2003. The increase of $ 489,028 was
primarily due to an increase in personnel, salaries, consulting fees and related
costs of $228,464 and the amortization of deferred compensation of $138,338.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2004, the Company had working capital deficit of $797,323 as
compared to a working capital deficit of $415,614 at July 31, 2003.
Cash inflow from financing activities was $244,399 for the nine months ended
July 31, 2004, compared $48,532 for the nine months ended July 31, 2003. The
increase was primarily due to the sale of common stock to outside investors as
detailed below. The Company will need to secure additional financing during the
next 12 months.
On June 9, 2004, the Company executed a letter of intent with an investment
group to raise up to $1,000,000 from foreign investors. These shares, if any are
sold and accepted by the Company, will be restricted from sale in the United
States for a minimum of one year. The Company will use any proceeds to further
develop its business plan.. The Company has no assurance that this effort will
be successful, or that it may not need to change the terms of the offering. The
Company expects to pay commission and expenses of 13%, plus legal and support
cost relating to this private overseas offering. The Company realized net
proceeds from the sale of common stock of $213,759 through August 31, 2004.
On June 11, 2004, the Company received a loan for $30,000 from an accredited
investor. On August 26, 2004, the Company issued 300,000 restricted common
shares exempt from registration, under Rule 144, to satisfy this obligation. The
proceeds of this loan will be used to satisfy obligations, expenses and debts of
the Company.
The Company's development plan is to identify, negotiate with and acquire
business and services that will allow the Company to provide comprehensive
consulting services, technological, strategic intelligence and systems that will
allow the small to medium size medical organization to provide better care,
better medical outcomes and earn more profit. The Company expect to acquire the
candidate businesses after extensive due diligence, and then to acquire the
business enterprise including cash flow by issuing stock, notes and cash. The
Company expects to secure financing for the acquisition by selling common and/or
preferred shares, issuing debt or notes and by leveraging the potential
acquisition. There is no assurance that the Company will be able to execute on
its plans and clearly, additional financing will be needed to develop and
implement its business plan.
15
ITEM 3. CONTROLS AND PROCEDURES
Our Management and resources are limited, as of July 31, 2004 we had only five
full time employees, of which, three were also officers and directors of the
Company. These positions are President/CEO, CFO and Vice President of
Administration, collectively these officers have conducted an evaluation of the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of
1934, as amended) as of the end of the fiscal quarter covered by this report.
Based upon that evaluation and both our limited developmental history as well as
the size of our organization, our management has concluded that we have adequate
disclosure controls. However we must improve procedures for effective and timely
gathering, analyzing and disclosing the information we are required to disclose
in our reports filed under the Securities Exchange Act of 1934, as amended.
Management expects to add additional controls and personnel in the near future
as capital becomes available. There have been no significant changes made in our
internal controls or in other factors that could significantly affect our
internal controls during the fiscal quarter covered by this report.
16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any litigation.
ITEM 2. CHANGES IN SECURITIES
In June 2004, the Company entered into an agreement with two companies to raise
a minimum of $500,000 to a maximum of $1,000,000. The terms include the share
price to be a 75% discount off the closing sale price. The placement companies
will receive a placement fee of 13% of the gross proceeds received from issuance
of shares. Additionally, after the Company receives net proceeds of $500,000,
the placement companies will receive 100,000 warrants exercisable at 110% of the
closing bid price with a floor of $0.75 per share. As of July 31, 2004, the
Company received $218,000 and issued 741,146 shares.
Following a motion approved by the Company shareholders during a meeting January
30, 2004, the Board of Directors agreed to issue 13,300,000 post reverse common
shares and 100,000 of a new class of Preferred Stock, convertible into 30 common
shares after four years and is entitled to vote 100 common shares per Preferred
Stock, to the shareholders of both Quantum Medical Technologies, Inc. (QMT) and
Renaissance Health Systems, Inc. (RHS) for the 80% of the those companies which
the Company does already not own. Control in the Company will not change, since
all the shareholders in numbers and relative beneficial ownership of both QMT
and RHS are also material and beneficial owners of the common shares of the
Company today. The final merger was approved by the Board of Directors on August
16, 2004.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of June 30, 2003, the Company is in default of a $ 179,080, plus accrued
interest of $54,410, obligation to the Company's President and largest
shareholder. He has not declared the note in default as of this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None
17
Exhibits: Copies of the following documents are included or furnished as
exhibits to this report pursuant to Item 601 of Regulation S-B.
Exhibit SEC Ref. Title of Document
No. No.
------- ------- -----------------
31.1 31 Certification of the Chief Executive Officer and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 31 Certification of the Chief Executive Officer and Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 32 Certifications of the Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 32 Certifications of the Chief Executive Officer and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
18
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
duly authorized.
THE QUANTUM GROUP, INC.
Date:
BY: /s/ Noel J. Guillama
-------------------------------
Noel J. Guillama, President
19