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
 June 30, 1998                                                    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 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; 7,440,494 shares outstanding
                              as of August 5, 1998
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

See pages F-1 to F-10 attached

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS

     This Form 10-QSB contains certain forward-looking statements.  For this
purpose any statements contained in this Form 10-QSB that are not statements of
historical fact may be deemed to be forward-looking statements.  Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or comparable terminology are intended to
identify forward-looking statements.  These statements by their nature involve
substantial risks and uncertainties, and actual results may differ materially
depending on a variety of factors.

General
-------
     The management of the Company made the decision at year end 1992 to
concentrate its resources and management efforts on the Company's tire recycling
operations.  This has been the Company's business since the beginning of 1993. 
Sales generally take six to eighteen months to complete.  Some cash flow is
generated by customer deposits and miscellaneous charges when a contract is
signed, however, the bulk (generally 80%) of the cash flow is released to the
Company when the product is shipped.  Contracts often provide for a final
payment, generally 10% of the contract amount, to be paid when installation is
completed.  The Company intends that future sales will require 15% to 20%
deposit at the time of sale and the balance due on delivery of the equipment.

     Because of the Company's experience with recycling equipment and time-
frames required to deliver, install and debug the systems, the Company is
focusing its efforts on the design and development of its own systems whereby
the Company has control rather than rely on outside technology.  To this end the
Company is also developing systems and projects through joint-ventures whereby
the Company will be able to generate regular and consistent revenue and cash
flows from the joint-venture entities and not solely rely on erratic time-frames
of outside equipment sales.  This strategy has now culminated with the Company's
EGS system incorporated in the Poseidon project in which the Company is the
majority shareholder.  Because of the Company's revised focus at vertical
integration, the Company will have a delay in recognizing revenue and operating
profits until the Poseidon project is in production which is expected second
quarter of 1999.

     The Company believes that at such time the Poseidon project is operational,
it will act as a platform for future sales of full-circle recycling plants as
well as become a significant revenue producing project for the Company on its
own.

     The Company now expects minimal growth during the second half of 1998 from
equipment sales until the problems with the CISAP equipment in Saudi Arabia and
Mexico are resolved and due to the shift of the Company's focus toward full-
circle recycling plants.  Current emphasis will be placed on PressMaster,
SuperCollider and REVULCON equipment packages, where manufacturing and
installation times are much less than with full turn key tire recycling plants
including shredding and granulating equipment which could yet positively impact
year end results.

     The Company is preparing an application for a patent on its Heated Tile
products and anticipates filing during the third quarter of 1998.   Heated Tile
is a value added after market product and the Company anticipates licensing the
Heated Tile process as a part of its full-circle recycling plant projects.
<PAGE>
     The Company plans on sending a 1997 Annual Report to all shareholders of
record during the third quarter of 1998.

Joint Venture Projects
----------------------
     SteG Germany - Poseidon Products GmbH.  The Company has finalized a joint
venture agreement with a German Government sponsored company,
Strukturentwicklungsgesellschaft Ueckermunde GmbH., located near Berlin.  As a
result of joint venture agreement, Poseidon Products GmbH. was established and
will construct and operate a tire recycling facility in the state of
Mecklenburg-Vorpommern to produce crumb rubber and to manufacture a wide range
of value added products.  The plant is designed to be a full circle tire
recycling facility whereby tires will be shredded and granulated producing the
commodity crumb rubber.  The crumb rubber is subsequently partially devulcanized
utilizing the exclusive REVULCON process to enable material to be used in a
variety of products and processes including incorporation into new tire
manufacture.  The plant will employ a number of presses to manufacture
additional value added after market products such as flooring, soaker hoses for
irrigation applications, interlocking tiles and heated tiles as well as other
products.  

     The Poseidon joint-venture funding is in the process of being completed. 
Grant funding of 50% of the total project costs (approximately $13,800,000) from
the German Government is anticipated to be complete by the end of the third
quarter 1998 as well as 30% bank financing and 20% equity raised through a
private offering in Germany.   Eurectec, Inc., is under contract to supply the
technology transfer and equipment package for the Poseidon project valued at
$7,370,000, with anticipated equipment delivery commencing the second quarter of
1999.  Engineering for the project is being coordinated by FDC Engineering of
Switzerland, an independent contractor.

     Subsequent to the date of this report, the Company has negotiated a land
purchase in Penkun, near Berlin Germany for the Poseidon project.  Ground
breaking is scheduled for third quarter 1998.

     The Company anticipates the Poseidon project to be a showcase for future
full circle plant sales.  The plant equipment and technology is the culmination
of research and development by the Company and the Company no longer relies on
outside sources for equipment design or technology.

Proposed Joint Venture Projects
-------------------------------
     Portugal / Scotland / Ireland.  The Company is entering joint venture
projects in Portugal, Scotland and Ireland similar to that of the Poseidon
project to erect full circle tire recycling plants.  It is anticipated that a
significant portion of the funding for these projects will be realized from
European Union grants.  The Company expects to have all three projects underway
by early 1999.

     California Prison Manufacturing Project.  The Company continues negotiating
with the California State Prisons - Department of Corrections, Sacramento,
California to investigate the feasibility of establishing a joint venture
between the Company and the Department of Corrections Manufacturing Department. 
During negotiations, the Company and the California State Prisons - Department
of Corrections have scaled back the original project of producing crumb rubber
to a project utilizing purchased crumb rubber.  A factor influencing the
decision to scale back the prison project is the difficulty of the logistics of
having frequent shipments in and out of a prison facility.  Another factor in
the decision to scale back the project is the ready availability of crumb
rubber.   This project will incorporate a PressMaster and REVULCON technology to
produce value added after market products.  A result of this joint venture would
be to provide the Company with a manufacturing platform for products and serve
as a showcase for marketing efforts.  Negotiations are now expected to be
concluded in 1999 following a series of meetings at a number of potential
facilities.


Current Contracts
-----------------
     Mexico Agreement.  The client has experienced problems in the commissioning
of the C9000 machines mainly relating to CISAP equipment and the high fiber
content tires in Mexico and the high altitude of the project site near Mexico
City.  The Company has sent an engineering team to the site to investigate the
problems and the Company originally anticipated the equipment to be fully
operational by the end of the second quarter 1998.  However, the engineering
team uncovered additional problems with the CISAP equipment which have required
re-engineering of the CISAP equipment on-site and re-engineering of the plant
itself.  Currently, CISAP is preparing a proposal for further re-engineering and
modifications of the equipment.  Included in CISAP's proposal will be a time
frame for completion of the modifications.  The client in Mexico has expressed
concerns as to the length of time it is taking to repair the equipment.  The
client has indicated that until such time as the CISAP equipment is working to
specification and all modifications and repairs completed, the client will not
consider initiating Phase 2 of the project or the purchase of additional after
market equipment.  The Company anticipates having the CISAP equipment problem
resolved, based on CISAP representations, by the end of the third quarter of
1998.

     Saudi Agreement.  Initial equipment for Phase one of this project has been
delivered and partially installed at the site in Dammam.  The anticipated
purchase of an additional two CISAP granulators has been deferred because the
Saudi client is rebuilding a salvaged granulator machine and expects the rebuilt
machine, along with the two existing CISAP granulators to meet its immediate
needs.  The client has changed its focus to value added after market products. 
CISAP has proposed a retrofit to modify the equipment already on site.  The
scope of the retrofit will include two front end mills to increase the through-
put capacity of the C6000 machines.  Other pending orders are for one additional
PressMaster 200 and other ancillary equipment.  The Company anticipates
finalizing negotiations for the front end mills and other equipment by the end
of the third quarter of 1998.

     Nevada Environmental Technologies, Inc.  The Company finalized negotiations
in 1997 to issue a license to Nevada Environmental Technologies, Inc., ("NET"). 
In addition, a preliminary equipment sales agreement had been signed.  NET has
shifted their concentration on energy marketing and the Company does not expect
NET to proceed with their previously planned tire recycling project in Reno. 
This will be reviewed on an ongoing basis as the current exclusive Nevada state
license agreement expires on December 31, 1998.

Proposals Under Negotiation
---------------------------
     Waste Resources Reclamation Agreement.  The Company  received a letter of
intent for the sale and purchase of SMS press equipment to Waste Resources
Reclamation.  The Company anticipates entering a final agreement during the
third quarter of 1998, when the client expects to conclude its funding
arrangements.

     Phoenix Environmental Group, Inc.  The Company has received a letter of
commitment from Phoenix Environmental Group, Inc., ("PEG") to employ Eurectec
technology for a tire recycling facility.  PEG has secured a large site close to
the Detroit International Airport and has prepared a detailed Project
Feasibility Study for the construction of a recycling park in Detroit, Michigan.
PEG anticipates initial development to commence the second half of 1998 with
equipment delivery during the second half of 1999, when the project funding has
been secured.
<PAGE>
Current Negotiations
--------------------
     A Director of the Company has visited and initiated  negotiations with
several companies located in the Arabia Gulf, namely; Doha, Qatar, Abu Dhabi and
Dubai, United Arab Emirates to supply pressing equipment and shredding and
granulating equipment.  The Company anticipates completing negotiations by year
end 1998.

     The Company continues to have on-going sales discussions and negotiations
with qualified international and domestic prospects.

Faru Agreement - REVULCON

     The Company has completed all payments for the REVULCON technology.  For
each REVULCON plant sold by the Company, Faru will receive a royalty payment of
$10,000 for up to fifteen (15) plants and $20,000 royalty payment for each plant
sold following the initial fifteen.  In joint negotiations with Faru and Ermafa,
located in Chemnitz near Dresden, Germany, the company has contracted Ermafa to
build the first REVULCON machine as part of the technology proof testing.  The
Company expects to have the proof testing completed during the fourth quarter of
1998.  The proof testing is in anticipation of incorporating the REVULCON
technology in the full circle recycling plants, particularly the Poseidon
project.

     The REVULCON technology enables the production of high density, smooth
finish rubber moldings and extrusions, including new tires, from recycled crumb
rubber.  This is done by a process of devulcanizing the rubber, returning it to
a state where it can be utilized in new products and be re-vulcanized.     The
reactivated rubber waste can be processed without further additives to rubber
products like mats, plates, solid rubber tires, components for fall protection,
elements for sound and vibration deadening, blocking and insulating layers
against heat and moisture, etc., in mixtures with fresh rubber or plastic,
profiles and other goods can be made by extrusion or injection molding.

Eco-Etch Agreement

     The Company is engaged in negotiations with IN.TEC, GmbH, a German
environmental technology firm, for the exclusive North American distribution
rights to the marketing of the "ECO-ETCH system.  Ownership of IN.TEC changed
during 1997 which resulted in delays in final negotiations.  ECO-ETCH is the
brand name given to a new technology for the recycling and recovery of etching
solutions used in the printed circuit board manufacturing industry.  The Company
is currently in the process of finalizing the technology distribution rights for
ECO-ETCH.  The Company is now in the process of completing negotiations and
anticipates a firm agreement during the third quarter of 1998.  ECO-ETCH systems
will be marketed through the Company's subsidiary, Quantum Environmental
Solutions and Technologies, ("QEST").

Public Relations
----------------
     The Company has negotiated a contract with a public relations firm, the
Blaine Group, Inc., based in Beverly Hills, California, who will provide
contract and product PR support services.   Currently, the Blaine Group is
providing PR services for the Company.

Exhibitions
-----------
     The Company has attended and exhibited its products, technology and
services at the "10th Annual Money Show" which was organized by Intershow in Las
Vegas May 12 through 15.  More than 6,000 people visited the show over the three
days.  The Company will also attend the "San Francisco 20th Annual Money Show"
in August 6-9, 1998.  Attendance and exhibits at these shows promote public
awareness of the Company.
<PAGE>
Web Site
--------
     The Company has developed a Website which can be viewed at
http://www.thequantumgroupinc.com.  The Website allows the viewer to access an
overview of the Company's activities, obtain market information for the
Company's trading stock, view the Company's EDGAR filings and link to the
Eurectec, Inc. Website (http://www.eurectec.com).

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
     At June 30, 1998, the Company had cash of $640,666 on hand.

     In January 1998, the Company concluded an off-shore offering under
Regulation S of 1,000,000 shares which yielded gross proceeds of $1,500,000.
This was used to eliminate all prior debt and provide working capital. The
Company has initiating an additional Regulation S offering for 1,600,000 shares
which the Company anticipates may yield up to $3,300,000 by the end of 1998. As
of June 30, 1998 this offering continues in process and has resulted in the sale
of 717,778 shares for a gross proceeds of $1,315,000. Once this has been
achieved, the Company intends to proceed with a registered offering to raise
further capital for Company expansion.

     The Company does not currently have any outstanding debt and Management
believes that proceeds from current equipment sales and license fees, pending
sales and the Regulation S offering proceeds will provide sufficient capital and
liquidity to meet the Company's need for the next twelve months.

     The Company is currently working with ParaDynamiX, a financial consulting
firm, to revise the Company's detailed funding plan reflecting the expectations
and implementation of the Company's strategic plan which now focuses on joint
venture projects with its own full circle recycling facilities.  Upon completion
of the funding plan, the Company anticipates proceeding with a registered
offering to provide additional capital to the Company with the funds being used
to fund the joint venture projects as well as to purchase equipment for the
California project.  The remainder of the funds will be used for domestic and
international marketing, exhibition participation and working capital.

     The Company does not have any material capital commitments for 1998. 
Should the Company proceed with a registered offering, the Company may enter
into capital commitments for equipment required by the California prison
project, although not expected until next year as previously stated.

RESULTS OF OPERATIONS

     Comparison of the three months ended June 30, 1998 and the three months
ended June 30, 1997.
 
     During the first half of 1998, the Company's net cash used in operations
was $766,112, compared to cash used in operations of $5,821 during the first
half of 1997. The 1998 cash utilization is a result of an operating loss of
$452,361 and the payment of $336,556 of accrued expenses, primarily accrued
interest on the Company's debt of $721,318, which was also paid off during the
first quarter. The Company realized net proceeds of $1,108,634, after
commissions, legal and accounting fees on its regulation S offering during the
three months ended June 30, 1998. No such activity was conducted during the
comparable quarter in 1997.

     The Company invested an additional $80,000 in a license for additional
technology (Faru) and $22,222 in the German Joint Venture (Poseidon) during the
quarter ended June 30, 1998. No comparable activity occurred in 1997.
<PAGE>
     The Company generated $9,088 of other revenue and $38,175 of costs during
the quarter ended June 30, 1998. $1,900 of this revenue was  generated by the
sale crumb rubber inventory and 1,000 was generated from the sale of research
reports. $6,175 in interest was earned during the quarter. No project revenue
was recorded during the quarter. The crumb rubber was sold at cost and $31,000
of additional expenses were incurred for added equipment on the Mexico project
resulting in a cost of sales of $38,175 The Company had project Revenue of
$54,889 and a territorial license sale of $100,000 during the comparable quarter
in 1997.

     Travel expense in the three months ended March 31, 1998 of $41,461 exceeded
the prior period expense of $11,802 by $29,659 because of the negotiation and
sales activities of a number of foreign transactions and a general increase in
the Company's marketing activities. Administrative expense increased from
$20,482 to $61,451 from the second quarter of 1997 to the same quarter of 1998.
This increase is also due to the increases in marketing activities during the
1998 period.

     Consultant fees increased by $39,135 to $96,680 in the three months ended
June 30, 1998 compared to the $57,454 incurred in the comparable three month
period in 1997. $22,620 of this increase is as a result of charging expenditures
incurred by or on behalf of the Company president to consulting expenses. In
prior periods, the payments to or on behalf of the Company president had been
accounted for as a reduction of the debt owed to the officer by the Company.
During the three months ended June 30, 1998, the Company sold it's investment in
Keystone Energy at a loss of $13,875 from the previously reduced carrying value
rather than continue to incur potential additional losses. No comparable
transaction was applicable to the same quarter of the prior year. 

     Comparison of the six months ended June 30, 1998, and the six months ended
June 30, 1997.

     The Company generated $460,000 of equipment sales revenue and $400,000 of
costs as a result of contract additions on the Mexico project during the six
months ended June 30, 1998. $40,000 of additional revenue was also generated by
the sale of a small parcel of land that the Company owned in conjunction with
the previously owned residential property in Florida. This parcel was excluded
from the original sale in order to eliminate the need to take a owner financing
plan of questionable collectability. Due to the uncertainty of revenue
recognition the parcel had been held without asset value, and as such the
purchase price of $40,000 is all a gain on sale. $1,920 in other revenue was
generated from the sale of crumb rubber and 1,000 was generated from the sale of
research materials. $6,175 in interest was also earned during the first half of
1998. The Company had $241,152 of Equipment sales and $100,000 of licence sales
for the comparable 1997 period.

     The Company had a loss of $452,361 in the six months ended June 30, 1998
compared to a loss of $9,096 in 1997. This is also because of the difference in
revenue mix and the increased activity and resultant expenses in 1998.

     The Company's cash position at June 30, 1998 is significantly stronger at
$640,666 compared to $8,005 at June 30, 1997. Accounts receivable of $731,198
are an increase of $20,000 the same time in 1997. The Company has a deposit on
inventory of $421,451 at June 30, 1998, no deposits were in place in 1997. 

     Inventory decreased during the first six months of 1998 compared to 1997
because of the sale back of the inventory unit to Cisap during the forth quarter
of 1997.  

     In 1997, the company acquired free trading fully registered shares of
Keystone Energy, Inc. in return for a license agreement. The company recognized
"Mark to Market" valuation losses in 1997 and in the first quarter of 1998. In
the second quarter, the Company sold the shares at a loss of $13,125 from book
value. 

     The Company invested $44,722 in the German Joint Venture and $150,000 in
the Faru license in 1998. No comparable transaction took place in 1997. In
anticipation of German project, the company has incurred $117,155 in prepaid
expenses. These expenses will subsequently be billed to the project. No prepaid
expenses were incurred in 1997.

     Travel expenses of $76,272 in the six months ended June 30, 1998 exceed the
comparable 1997 period by $50,401, due to the German joint Venture and follow up
and sales activities in Mexico and Saudi Arabia. Administrative expenses and
consulting fees have increased from 1997 levels for the same reasons. 

     Comparison of the six months ended June 30, 1997 and the six months ended
June 30, 1996.

     The Company had revenue of $341,450 in the Six months ended June 30, 1997. 
Revenue of $781,549 was generated in the same period of the prior year.  The
1996 revenue reflects the shipment of part one of the Saudi project.  The 1997
revenue is for management services on the beginning of the Mexico contact and
the sale of the license agreement to Nevada Recycling Technologies, Inc.  The
difference in revenue for the two periods is the result of the timing of
shipments of large contracts and is not indicative of a downturn in revenue or
Company activities.

     Commission expense of $70,000 was recognized on a completed Saudi sale in
1996.  Commissions of $37,000 were paid during the three months ended March 31,
1997, but treated as prepaid as they relate to the equipment portion of the
Mexico contract.  These commissions will be expensed at the time the sale
revenue is recognized.

     Depreciation expense increase from $5,208 to $123,231 due to the purchase
in 1996 of the SMS press equipment and the addition to it in 1997.

     Office and Administrative expenses declined during the 1997 quarter.  These
expenses had been higher in 1996 due to the Saudi project.

     Interest expenses increased because of the financing of the SMS press
equipment.

      Comparison of the three months ended June 30, 1997 and the three months
ended June 30, 1996.

     The Company generated revenue of $154,889 during the three months ended
June 30, 1997.  No revenue was generated in the same period of the prior year. 
The 1997 revenue is for management services on the beginning of the Mexico
contract and the sale of the license to Nevada Recycling Technologies, Inc.  The
differences in revenue for the two periods is the result of the project nature
of the Company's business an is not indicative of a trend in revenue or Company
activities. 

     Depreciation expense increased from $2,604 to $12,253 due to the purchase
in 1996 of the SMS press equipment and the addition to it in 1997.

     Office and Administrative expenses declined during the 1997 quarter.  These
expenses had been higher in 1996 due to the Saudi project.

     Interest expenses increased because of the financing of the SMS press
equipment.
   
     Minority Interest is a credit of $5,377 for the three months ended June 30,
1997, this credit is less than the $34,111 credit for the quarter ended June 30,
1996, because of the lower loss in the current year.

     Income tax expense is a credit of $2,423, which reverses the first quarter
expense due to the year to date loss. In 1996 the company reversed an accrual of
$8,900 for the same reason.

     
                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

          The Company is endeavoring to explore all avenues to cure the problems
it has encountered with CISAP both in Mexico and Saudi Arabia.  At the present
time, there is no formal litigation pending or threatened either against the
Company or CISAP.  However, should the Company be unable to resolve its issues
with CISAP, the Company will consider filing suit against CISAP for any damages
it may incur because of the problems with the CISAP equipment and time-delays.
<PAGE>

Item 2.   Changes in Securities

Recent Sales of Unregistered Securities

(a)  Securities sold.
---------------------
     1.   Regulation S offering
     --------------------------
<TABLE>
<CAPTION>
     Date                     Title          Price Per Share     Amount
     --------------------     ----------     ---------------     -----------
     <C>                      <C>            <C>                 <C>
      First Quarter 1998       Common         $ 1.50              1,000,000

     Date                     Title          Price Per Share     Amount
     ---------------------    ----------     ---------------     -----------
      Second Quarter 1998      Common         $ 1.50                300,000
                               Common         $ 2.00                300,000
                               Common         $ 2.25                117,777
</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.

(b) Underwriters and other purchasers.

     1.   Regulation S Offering

     All securities were sold during the first and second quarters of 1998 to
non U.S. persons.  All shares of common stock were sold in Germany to
Beteiligungs Fonds, GBR.

     2.   Option Exercise

     The option was exercised by RMC International, a consultant to the Company.

(c) Consideration.

     1.   Regulation S Offering

     The aggregate offering price for sales made during the first quarter 1998
was $1,500,000 and the Company paid a 10% commission in the amount of $150,000.

     The aggregate offering price for sales made during the second quarter 1998
was $1,315,000 and the Company paid commission in the amount of $207,144.

     2.   Option Exercise

     The Company realized $3,100 from the exercise of the option.

(d) Exemption from registration claimed.

     1.   Regulation S Offering

     The securities were sold in the first and second quarters of 1998 pursuant
to Regulation S as promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended.  The Company did not offer the
securities to any person in the United States, any identifiable groups of U.S.
citizens abroad, or to any U.S. Person as that term is defined in Regulation S. 
At the time the buy order was originated, the Company reasonably believed the
Buyer was outside of the United States and was not a U.S. Person.  The Company
reasonably believed that the transaction had not been pre-arranged with a buyer
in the United States.  The Company has not nor will engage in any "Directed
Selling Efforts" and reasonably believes the Buyer has not nor will engage in
any "Directed Selling Efforts."  The Company reasonably believed the Buyer
purchased the securities for its own account and for investment purposes and not
with the view towards distribution or for the account of a U.S. Person.

     2.   Option Exercise

     The option was exercised pursuant to an exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.

(e) Terms of conversion or exercise.

     1.   Regulation S Offering

     Not applicable.

     2.   Option Exercise

     The 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.

(f) Use of Proceeds.  

     1.   Regulation S Offering - First Quarter 1998

  The use of proceeds (other than commission paid) are estimated.  No
proceeds resulted in payments either directly or indirectly to directors,
officers or persons owning 10% or more of any class of equity securities; or to
affiliates of the issuer.

<TABLE>
         <C>                      <C>
          Gross proceeds           $ 1,500,000
          Commission                  (150,000)
          Net proceeds               1,350,000

          Payoff existing debt     $   700,000
          Pay Rothbury agreement       400,000
          Working capital              250,000
                                   ------------
          Total Proceeds           $ 1,350,000
<CAPTION>
Regulation S Offering - Second Quarter 1998

          Gross proceeds           $ 1,315,000
          Commission                  (207,144)
          Net Proceeds               1,107,856

          Faru technology          $    80,000
          Poseidon Joint Venture        22,222
          Prepaid expenses             117,155
            (Related to Poseidon)
          Accrued expenses              61,038
          Operating expenses           263,551
          Cash remaining               563,890
                                   ------------
          Total Proceeds           $ 1,107,856
</TABLE>

2.   Option Exercise

     The Company realized $3,100 from the exercise of the option which funds
were placed in general working capital.

Item 3.   Defaults upon Senior Securities

          None

Item 4.   Submission of Matters to a Vote of Security Holders

          None

Item 5.   Other Information

          None

Item 6.   Exhibits and Reports on Form 8-K

     (A)  Reports on Form 8-K

     No reports on Form 8-K were filed or required to be filed during the
quarter ended June 30, 1998.

     (B)  Exhibits.  The following exhibits are included as part of this report:
<TABLE>
<CAPTION>
     Exhibit        SEC Exhibit    Title of Document             Location
     Number         Ref. Number
     --------       -----------    ----------------------        ---------
     <C>            <C>            <C>                           <C>
      10.1           10             Blaine Group Contract         Attached

      27             27             Financial Data Schedule       Attached
</TABLE>
<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.

                                        _________________________
__________, 1998                        Ehrenfried Liebich      
                                        Chairman of the Board,  President, and 
                                        Chief Executive Officer 


__________, 1998                        _________________________
                                        John F. Pope
                                        Vice President, Finance 
                                        Chief Accounting Officer
<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.



August 12, 1998                         /s/ Ehrenfried Liebich
______________                          ___________________________
                                        Ehrenfried Liebich      
                                        Chairman of the Board,  President, and
                                        Chief Executive Officer 

August 12, 1998                          /s/ John F. Pope
_______________                         ___________________________
                                        John F. Pope
                                        Vice President, Finance 
                                        Chief Accounting Officer
<PAGE>
                                       
                                       
                            THE QUANTUM GROUP, INC.
                                       
                                      and
                                       
                                 SUBSIDIARIES
                                       
                             FINANCIAL STATEMENTS
                                       
                Three Months and Six Months ended June 30, 1998
                                       
                Three Months and Six Months ended June 30, 1997
<PAGE>
                                                                           (F-2)
                   The Quantum Group, Inc. and Subsidiaries
                                Balance Sheets
                 June 30, 1998 and 1997 and December 31, 1997
                                  (UNAUDITED)

<TABLE>
<CAPTION>

   ASSETS
                                              June 30,     June 30,  December 31, 
                                                  1998         1997          1997 
                                            -----------  -----------   -----------
<S>                                        <C>          <C>           <C>         
Current Assets
--------------
Cash                                          $640,666       $8,005      $142,690 
Accounts Receivable                            731,198       20,000       710,979 
Inventory                                       29,760      518,036        29,760 
Deposit                                        421,451                    421,451 
                                            -----------  -----------   -----------
  Total Current Assets                       1,823,075      546,041     1,304,880

Property and Equipment
----------------------
Furniture and Fixtures                                        6,852         3,054 
Equipment                                      137,712      175,485       154,778 
                                            -----------  -----------   -----------
  Total Property and Equipment                 137,712      182,337       157,832 

Other Assets
------------
Securities                                                  100,000        73,125 
Investment in Joint Venture                     44,722 
Cash Pledged                                     5,225        5,122         5,225 
Licence Rights                                 539,745      439,500       414,622 
Deposit                                          3,281        3,281         3,281 
Tax Benefit Deferred                                             80 
Prepaid  Commissions                                         37,008 
Prepaid Expenses                               117,155                        
                                            -----------  -----------   -----------
  Total Other Assets                           710,128      584,991       496,253 
                                            -----------  -----------   -----------
  TOTAL ASSETS                              $2,670,915   $1,313,369    $1,958,965 
                                            ===========  ===========   ===========
</TABLE>

<PAGE>
                                                                           (F-3)
                   The Quantum Group, Inc. and Subsidiaries
                          Balance Sheets -Continued-
                            June 30, 1998 and 1997
                                  (UNAUDITED)

<TABLE>
<CAPTION>

   LIABILITIES AND STOCKHOLDERS' EQUITY

                                              June 30,     June 30,  December 31, 
                                                  1998         1997          1997 
                                            -----------  -----------   -----------
<S>                                        <C>          <C>           <C>         
Current Liabilities
-------------------
Accrued Expenses                              $215,843     $165,049      $552,399 
Accounts Payable                               323,623      112,630       140,016 
Due Officers                                                133,149         7,919 
Customer Deposits                                2,500       23,860         2,500 
Franchise Tax Payable                          103,548                    103,548 
Current Maturities                                          785,197       721,318 
Note Payable                                                 50,000               
                                            -----------  -----------   -----------
  Total Current Liabilities                    645,514    1,269,885     1,527,700 

Long Term Liabilities
---------------------
Note Payable - Machinery                                    170,519       145,631 
Note Payable - Technology                                   347,547       347,547 
Note Payable                                                267,131       228,140 
Less Current Maturities                                    (785,197)     (721,318)
                                            -----------  -----------   -----------
 Total Long Term Liabilities                                      0             0 

 Minority Interest in Subsidiary                             82,464       109,256 

Stockholders' Equity
--------------------
Common Stock 50,000,000 Shares
 Authorized; Par Value of $0.001
 Per Share,
 7,121,187 & 3,153,409 & 4,853,409
 Shares issued Retroactively
 Restated Respectively                           7,121        3,152         4,853 
Paid in Capital                              4,086,453    1,684,668     1,932,968 
Accumulated Deficit                         (2,068,173)  (1,726,800)   (1,615,812)
                                            -----------  -----------   -----------
  Total Stockholders' Equity                 2,025,401      (38,980)      322,009 
                                            -----------  -----------   -----------
  TOTAL LIABILITIES &
  STOCKHOLDERS' EQUITY                      $2,670,915   $1,313,369    $1,958,965 
                                            ===========  ===========   ===========
</TABLE>
<PAGE>

                                                                      (F-4)
                 The Quantum Group, Inc. and Subsidiaries
                          Statement of Operations
         For the Three and Six Months Ended June 30, 1998 and 1997
                                (UNAUDITED)

<TABLE>
<CAPTION>
                     Three Months  Six Months Three Months   Six Months Twelve Months
                            Ended       Ended        Ended        Ended         Ended
                         June 30,    June 30,     June 30,     June 30,  December 31,
                             1998        1998         1997         1997          1997
                      ----------- -----------  -----------  -----------   -----------
<S>                 <C>          <C>          <C>          <C>           <C>         
Revenues
--------

Equipment Sales                      $460,000     $54,889     $241,152    $2,923,816 
License Sales                                     100,000      100,000       500,000 
Other Income              $9,088       49,096                      298           993 
                      -----------  ----------- -----------  -----------   -----------
   Total Revenues          9,088      509,096     154,889      341,450     3,424,809 

   Cost of Sales          38,175      438,175                              2,261,677 
                      -----------  ----------- -----------  -----------   -----------
   Gross Profit          (29,087)      70,921     154,889      341,450     1,163,132 

Expenses
--------
Commission                                                                    37,008 
Depreciation              11,699       23,952      12,253       23,231        47,737 
Amortization              12,439       24,878      12,439       24,878        49,756 
Travel                    41,461       76,272      11,802       25,871        56,056 
Professional Fees         17,038       18,462       1,156        1,156        78,596 
Office                    14,017       24,941      11,693       25,872        36,708 
Rent & Utilities          12,589       26,706      13,465       38,113        65,634 
Administrative Expenses   61,451       94,020      20,482       39,060        95,377 
Consultant Fees           96,680      190,707      57,545      115,461       232,571 
Interest                     219          219      40,939       59,178        95,656 
Accounts Receivable
 Written Off                                                                 195,000 
Foreign Currency
 Translation                                                                 (63,880)
                      -----------  ----------- -----------  -----------   -----------
   Total Expenses        267,593      480,157     181,774      352,820       926,219 

   Net Income (Loss)
   From Operations      (296,680)    (409,236)    (26,885)    (11,370)       236,913 

</TABLE>
<PAGE>
                                                                           (F-5)
                   The Quantum Group, Inc. and Subsidiaries
                      Statement of Operations -Continued-
           For the Three and Six Months Ended June 30, 1998 and 1997
                                  (UNAUDITED)
<TABLE>
<CAPTION>

                     Three Months   Six MonthsThree Months   Six Months Twelve Months
                            Ended        Ended       Ended        Ended         Ended
                         June 30,     June 30,    June 30,     June 30,  December 31,
                             1998         1998        1997         1997          1997
                      -----------  ----------- -----------  -----------   -----------
<S>                  <C>          <C>         <C>          <C>           <C>         
Other Income (Expenses)
-----------------------
Loss on Investment       (20,000)     (20,000)
Investment Valuation
 Loss                                 (23,125)                                (6,875)
                      -----------  ----------- -----------  -----------   -----------
  Total Other Income
  (Expenses)             (20,000)     (43,125)                                (6,875)

Taxes & Minority 
Interest
----------------
Minority Interest                                   5,377        2,274        24,517 
Provisions for Taxes
 - Current                                          2,423                    103,628 
                      -----------  ----------- -----------  -----------   -----------
   Total Taxes &
   Minority Interest                                7,800        2,274       128,145 

   Net Income (Loss)   ($316,680)   ($452,361)   ($19,085)     ($9,096)     $101,893 

   Net Income (Loss)
   Per Share               (0.04)       (0.07)      (0.01)       (0.00)         0.02 

   Weighted Average
   Shares
   Outstanding         7,121,187    6,403,409   3,153,409    3,153,409     4,853,409 

   Diluted Net 
   Profit Per Share          N/A          N/A         N/A          N/A             0 

</TABLE>
<PAGE>
                                                                           (F-6)
                   The Quantum Group, Inc. and Subsidiaries
                       Statement of Shareholder's Equity
                     From January 1, 1995 to June 30, 1998
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                        Common Stock          Paid In Accumulated 
                                     Stock       Amount       Capital     Deficit 
                                --------------------------------------------------
<S>                            <C>          <C>           <C>          <C>          
Balance,
January 1, 1995
Retroactively Restated           3,153,409       $3,153    $1,683,068   ($864,190)

Loss for the Year Ended
December 31, 1995                                                        (624,695)
                                --------------------------------------------------
Balance,
December 31, 1995                3,153,409        3,153     1,683,068  (1,488,885)

Contributed Capital                                             1,600 

Loss for the Year Ended
December 31, 1996                                                        (228,820)
                                --------------------------------------------------
Balance,
December 31, 1996                3,153,409        3,153     1,684,668  (1,717,705)

Shares Issued for Cash             100,000          100       149,900 

Shares Issued to Officers        1,600,000        1,600        98,400 
For Debt

Profit for the Year Ended                                                 101,893 
December 31, 1997              --------------------------------------------------

Balance,
December 31, 1997                4,853,409        4,853     1,932,968  (1,615,812)

Shares Issued for Cash           1,617,778        1,618     2,044,879 

Shares Issued In Exchange
For Subsidiary Shares              650,000          650       108,606 

Loss for the Six Months 
Ended June 30, 1998                                                      (452,361)
                                --------------------------------------------------
Balance,
June 30, 1998                    7,121,187       $7,121    $4,086,453 ($2,068,173)
                                ==================================================
</TABLE>
<PAGE>

                                                                           (F-7)
                   The Quantum Group, Inc. and Subsidiaries
                            Statement of Cash Flows
                For the Six Months Ended June 30, 1998 and 1997
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                Six Months   Six Months Twelve Months
                                                     Ended        Ended         Ended
                                                  June 30,     June 30,  December 31,
                                                      1998         1997          1997
                                                ----------   ----------    ----------
<S>                                           <C>          <C>           <C>         
Cash Flows from Operations
--------------------------

Net Profit or (Loss)                            ($452,361)    ($89,096)     $101,892 
Adjustments to Reconcile Net profit
  or (Loss) to Net Cash
 Write Off Accounts Receivable                                               195,000 
 Amortization and Depreciation                     48,830       48,108        84,745 
 Non Cash Expense                                  37,000 
 Minority Interest                               (109,256)     (22,275)       24,517 

Changes in Operating Assets & Liabilities
 (Increase) Decrease in Accounts Receivable       (20,219)     184,522      (681,457)
 (Increase) Decrease in Inventory                              (27,457)       38,991 
 (Decrease) Increase in Prepaid Commissions                    (37,008)
 (Decrease) Increase in Prepaid Expenses         (117,155)
 Increase (Decrease) in Accrued Expenses         (336,556)       6,227       393,577 
 Increase (Decrease)in Accounts Payable           183,607      (92,702)      (65,316)
 (Decrease) Increase in Tax Payable - Current                                103,548 
 (Decrease) Increase in Customer Deposits                       23,860         2,500 
 Increase in Taxes Payable - Deferred                                             80 
 Increase in Cash Pledged                                                       (103)
 Rounding                                              (2)             
                                                ----------   ----------    ----------
   Net Cash Provided (Used) by
   Operating Activities                          (766,112)      (5,821)      197,974 

</TABLE>

<PAGE>
                                                                          (F-8)
                   The Quantum Group, Inc. and Subsidiaries
                      Statement of Cash Flows -Continued-
                For the Six Months Ended June 30, 1998 and 1997
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                Six Months   Six Months Twelve Months
                                                     Ended        Ended         Ended
                                                  June 30,     June 30,  December 31,
                                                      1998         1997          1997
                                                ----------   ----------    ----------
<S>                                           <C>          <C>           <C>         
Cash Flows from Investing Activities
------------------------------------
Refund of Import Duty                                                            718 
Purchase of Equipment                              (3,831)     (24,773)      (25,492)
Purchase (Sale) of Securities                      36,125                    (80,000)
Purchase of License Right                        (150,000)
Investment in Joint Venture                       (44,722)
                                                ----------   ----------    ----------
   Net Cash Provided (Used) by
   Investing Activities                          (162,428)     (24,773)     (104,774)

Cash Flows from Financing Activities
------------------------------------
Sale of Common Stock                            2,155,753                    150,000 
Payment of Long Term Debt                        (721,318)      50,000       (63,879)
Increase (Decrease) in Amounts Due Officer         (7,919)     (18,003)      (43,233)
                                                ----------   ----------   -----------
   Net Cash Provided (Used) by
   Financing Activities                         1,426,516       31,997        42,888 
                                                ----------   ----------    ----------
   Increase (Decrease) in Cash                    497,976        1,403       136,088 

   Cash at Beginning of Period                    142,690        6,602         6,602 
                                                ----------   ----------    ----------
   Cash at End of Period                         $640,666       $8,005      $142,690 
                                                ==========   ==========    ==========
Disclosures from Operating Activities
 Interest                                             219       59,178        95,656 
 Taxes                                                                       103,628 

Significant Non Cash Transactions:
 1,600,000 Shares Common Stock Issued to
  Officer in Debt Satisfaction                                               100,000 
 650,000 Shares Common Stock Issued to
  Convert Minority Interest                       109,256 

</TABLE>
<PAGE>
                                                                          (F-9)
                   The Quantum Group, Inc., and Subsidiaries
                         Notes to Financial Statements

NOTE #1 - Corporate History
----------------------------

The Company was organized on December 2, 1968, under the laws of the state of
California as Acquatic Systems, Inc.  On June 27, 1989, the Company merged with
Country Maid, Inc., a Nevada Corporation, the Corporate domicile was changed to
the state of Nevada.  On September 18, 1992, the name of the Company was
changed to The Quantum Group, Inc.

In 1992, the Company acquired rights to import and market equipment used in the
tire recycling industry.  The tire recycling operation is the thrust of the
Company's operations at December 31, 1997.

NOTE #2 - Significant Accounting Policies
-----------------------------------------

A. The Company uses the accrual method of accounting.
B. Revenues and directly related expenses are recognized in the period when
   the goods are shipped to the customer. 
C. The Company considers all short term, highly liquid investments that are
   readily convertible, within three months, to known amounts as cash 
   equivalents.  The Company currently has no cash equivalents. 
D. Primary Earnings Per Share amounts are based on the weighted average number
   of shares outstanding at the dates of the financial statements.  Fully 
   Diluted Earnings Per Shares shall be shown on stock options and other 
   convertible issues that may be exercised within ten years of the financial
   statement dates.
E. The inventory is stated at the lower of cost or market.  The inventory is a
   single recycling system that the Company intends to sell as a system.  The
   Company is currently pursuing several prospects to sell the system. 
F. Consolidation Policies:    The accompanying consolidated financial
   statements include the accounts of the company and its majority - owned
   subsidiary. Intercompany transactions and balances have been eliminated in
   consolidation.
G. Foreign Currency Translation / Remeasurement Policy:   The company has no
   on site operations in foreign countries. All purchases and sales in foreign
   countries are concluded in American dollars. If at future dates  assets and
   liabilities occur in foreign countries they will be recorded at historical 
   cost and translated at exchange rates in effect at the end of the year.  
   Income Statement accounts are translated at the average exchange rates for
   the year.  Translation gains and losses shall be recorded as a separate line
   item in the equity section of the financial statements. 
H. Depreciation:   The cost of property and equipment is depreciated over the
   estimated useful lives of the related assets. The cost of leasehold
   improvements is depreciated (amortized) over the lesser of the length of the
   related assets or the estimated lives of the assets.   Depreciation is 
   computed on the straight line method for reporting purposes and for tax 
   purposes.
I. Issuance of Subsidiary's Stock: The Company has elected to accounts for
   shares issued by its subsidiary as an equity transactions. 
<PAGE>
                                                                         (F-10)
                   The Quantum Group, Inc., and Subsidiaries
                   Notes to Financial Statements -Continued-

NOTE #2 - Significant Accounting Policies -Continued-
-----------------------------------------------------
J. Use of Estimates; The preparation of financial statements in conformity
   with generally accepted accounting principals requires management to make
   estimates and assumptions that affect the reported amounts of assets and
   liabilities and disclosure of contingent assets and liabilities at the date
   of the financial statements and reported amounts of revenues and expenses 
   during the reporting period.  Actual results could differ from those 
   estimates.
K. New Technical Pronouncements:
   In 1997, SFAS No. 129, "Disclosure of Information about Capital Structure"
   was issued effective for periods ending after December 15, 1997.  The Company
   has adopted the disclosure provisions of SFAS No. 129 effective with the 
   fiscal year ended December 31, 1998.

   In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued
   effective for fiscal years beginning after December 31, 1997, with earlier
   application permitted.  The Company has elected to adopt SFAS No. 130 
   effective with the fiscal year ended December 31, 1998.  Adoption of SFAS 
   No. 130 is not expected to have a material impact on the Company's financial
   statements.

   In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
   Related Information" was issued for fiscal year beginning after December 31,
   1997, with earlier application permitted.  The Company has elected to adopt
   SFAS No. 131, effective with the fiscal years ended December 31, 1998. 
   Adoption of SFAS No. 131 is not expected to have a material impact on the
   Company's financial statements.