United States
                       Securities and Exchange Commission
                              Washington, DC 20549

                                   FORM 10-QSB

                  Quarterly Report Under Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

For the Quarter Ended                                     Commission File Number
 September 30, 1997                                                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; 3,153,232 shares outstanding
                            as of November 11, 1997 

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

See pages F-1 to F-9 attached

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

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.


     Based on the periodic nature of these payments and the ongoing nature of
administrative expenses, the Company intends to increase, beginning in 1997, the
initial payment made when sales agreements are executed and obtain the full
balance when equipment is delivered.  In addition, the Company has negotiated
financing arrangements whereby the letters of credit, opened by equipment
purchasers to secure payment of equipment, will be used as collateral for short
term borrowing by the Company.  The Company believes that these arrangements
will eliminate many of the cash flow timing problems the Company has experienced
in the past.

     The Company's unsecured loans received in 1995 and 1996 from German lenders
are due December 31, 1997.  The balance due for rights to technology purchased
from Rothbury Engineering Limited is current and final payment is also due
December 31, 1997.  The Company anticipates the amount due the German lenders
and Rothbury will be paid from working capital generated from future period
sales.  However, the Company it is also discussing revision of terms with the
two lenders in the event the Company cannot meet its debt obligations at year
end.

Atlanta Rubber Recycling, Inc. Agreement
----------------------------------------
     Atlanta Rubber Recycling, Inc. has been unable, to date, to raise the
required funds to proceed with their purchase commitments.  The Company is
aggressively seeking alternative buyers for the equipment, held in Company
inventory, previously reserved for Atlanta Rubber Recycling, Inc.  Presently,
two companies are considering purchasing the CISAP 3000 system held in
inventory.  However, to date, the Company has not received any firm commitments
for purchase of the CISAP 3000 system.

Mexico Agreements
-----------------

     The Company's project with Mexico Recycling Technology, is on schedule.
During the first half of 1997, the Company received revenue and cash flow from
the pre equipment delivery phases of the contracts.  The initial Phase 1
equipment package was shipped in July, 1997, has been received and is being
 installed with completion scheduled for November, 1997. The Company recognized
$2,160,4975 revenue during this third quarter of 1997 from the equipment portion
of the contract.

     Negotiations for Phase 2 and Phase 3, representing approximately $1,900,000
and $700,000 respectively, are expected to be concluded during the fourth
quarter of 1997. 

     The Company anticipates finalizing an agreement with Mexico Recycling
Technology for additional Press equipment to manufacture heated tile units and
continuous roll materials under license from Eurectec.  It is expected that the
agreement will be signed in November, 1997 and is valued at approximately
$850,000. 

Saudi Agreements
----------------

     Negotiations for a Phase 3 contract of the Saudi project are continuing.
The Company expects to finalize these negotiations in the fourth quarter of
1997, with equipment delivery scheduled for the second half of 1998.  Phase 1
and Phase 2 equipment installation is scheduled to being during the first
quarter of 1998.

Nevada Environmental Technologies, Inc. Agreement
-------------------------------------------------

     Nevada Environmental Technology, Inc. is in the process of raising the $10
to $12 million dollars for the project which includes the $7,500,000 equipment
contract value.  It is anticipated that Nevada Environmental Technology, Inc.
should be able to provide a clear indication of their funding status and time
lines by year end.  The Company does not anticipate equipment delivery until
1999. 

Waste Resources Reclamation Agreement
-------------------------------------

     Negotiations have been completed with Waste Resources Reclamation and the
Company anticipates entering a final agreement by the first quarter of 1998,
following fund raising by Waste Resources Reclamation.

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.  ECO-ETCH is the brand name
given to 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. 

Phoenix Environmental Group, Inc.
---------------------------------

     Phoenix Environmental Group, Inc. anticipates building a recycling park in
Detroit, Michigan with initial park development commencing the first quarter of
1998.  Phoenix has secured a large site close to the Detroit International
Airport and has prepared a detailed Project Feasibility Study for the recycling
park.  The recycling park would include a tire recycling facility and Phoenix
Environmental Group, Inc. has delivered a letter of commitment with the Company
to employ Eurectec technology for the tire recycling facility. Phoenix is in the
process of fund raising to initiate the Detroit project.  Phoenix also
anticipates similar recycling park projects in Montana and Texas and plans to
employ Eurectec technology for tire recycling facilities.

Seagal Ventures, Inc.
---------------------
     Seagal Ventures, Inc., located in the Philippines, is a tile products
manufacturer.  The Company has already supplied approximately $80,000 worth of
mixing equipment and binder/coloring materials.  Currently, the Company and
Seagal are negotiating a regular monthly shipment of binder/coloring and
possibly adhesive for bonding tiles.  The Company anticipates finalizing this
agreement during November, 1997, which may also include the sale of a
granulator.

Current Negotiations
--------------------

     The Company is proceeding with sales discussions and negotiations with
qualified international prospects in Germany, The United Kingdom, and the
Philippines and domestically with prospects in Michigan, New York and Kentucky. 
As of September 30, 1997, agreements have not been finalized.  The Company
continues pursuing discussions and anticipates one or more of these sales will
be signed and sales deposits received in the fourth quarter of 1997 and/or early
1998.

Web Site
--------

     As part of the Company's ongoing emphasis on global communication, the Web
Site has recently been updated to reflect a number of new products.  The Web
Site also includes press releases and detailed information on the Company.  The
Company's Web Site address is http//:www.eurectec.com.

Liquidity and Capital Resources
-------------------------------

     At September 30, 1997, the Company had cash of $89,198.

     Management believes that proceeds from current equipment sales and license
fees, together with pending sales will provide sufficient capital and liquidity
to meet the company's needs for the next twelve months.

     The general business outlook continues to be favorable and ParaDynamiX, a
financial consulting firm, has been engaged by the Company to prepare a detailed
funding plan reflecting the expectations and implementation of the Company's
strategic plan.  Once the detailed funding plan is completed, it will be used to
negotiate with potential underwriters and market makers to raise funds for the
Company.  Any capital fund raising by the Company would be used for working
capital needs, overhead costs, marketing and promotion plans, new product
developments, debt reduction and increased management team.  ParaDynamiX is
scheduled to commence its task in November, 1997 and complete the detailed
funding plan by the end of 1997.

     During the first half of 1997, the Company's net cash generated by
operations was $188,041, compared to cash generated of $55,148 during the first
nine months of 1996.  In the comparable 1996 period the Company had an increase
of accounts receivable of $400,421 and a decrease in accounts payable of
$176,500 partially off set by a decrease in deposits on inventory of $424,820. 
This activity resulted from the delivery of Phase one of the Saudi Project and
revenues and cash flow from the Mexico contract.  During the nine months ended
September 30, 1997, the Company reduced accounts payable by $90,766.  The large
difference between net cash generated by operations during the first nine months
of 1997 and 1997 is solely the result of the timing of the shipments on large
projects and is not indicative of future trends or Company activity.

     During the first nine months of 1997, the Company generated $2,576,792 in
revenues, primarily from the Mexico contract. During the comparable 1996 period,
revenues were $2,443,698.  The 1996 revenues were primarily from the Saudi
project.

     The Company generated a net profit of $167,776 in the nine months ended
September 30, 1997 compared to a net profit during the same period of $232,708
in 1996.

     Accounts receivable of $220,979 are $161,343 less than the September 30,
1996 balance. The Company collected the final payment of phase two of the Saudi
contract ($184,522) during the second quarter of 1997.

     Inventory increased during the first nine months of 1997 by $27,457. This
increase is in tile production raw materials for the SMS machine. 

     Accounts payable at September 30, 1997 of $114,566 are $244,791 less than
the September 30, 1996 balance of $ 359,357  and is a reduction of $90,766 since
December 31, 1996.  Accrued Expenses increased to $178,288 at September 30, 1997
from $133,192 at September 30, 1996. The September 30, 1997 balance is an
increase of $19,466 from December 31, 1996.  This increase represents an
increase $49,717 in accrued interest, reduced by $30,251 in cash payments.

     1996 Investing Activities consisted of the sale of the Company's
residential property in Miami, Florida, and the purchase of the Rothbury license
agreement during the half of 1996.  The company added $24,773 capital
improvements to the SMS Machine during in the current year. Additionally, the
shares issued to the Company as part of the Nevada Environmental Technologies
Inc, agreement are shown as an investment during the nine months ended September
 30, 1997.

     Financing activity in the nine months ended September 30, 1997 consisted 
of a decrease in advances from officers of $30,676 compared to an increase of
$31,163 in 1996.  In 1996 the company paid off of the mortgage on the sale of
the residential property and the paid off the vehicle note.  There were no
comparable transaction in the nine months ended September 30, 1997.  In 1996 the
Company borrowed the funds to purchase the SMS machine. 


RESULTS OF OPERATIONS
---------------------

Comparison of the three months ended September 30, 1997 and the three months
----------------------------------------------------------------------------
ended September 30, 1996.
-------------------------
     The Company generated revenue of $2,335,640 during the three months ended
September 30, 1997.  $1,662,149 of revenue was generated in the same period of
the prior year.  The 1997 revenue is for the equipment for phase one the Mexico
contract.  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 $3,159 to $12,253 due to the purchase
in 1996 of the SMS press equipment and the addition of molds to it in 1997.

     Travel Expenses of $12,353 in the third quarter 1997 are $13,769 less than
the $26,689 incurred for travel during the same quarter of 1996.  Office
expenses declined during the third quarter of 1997 compared to the third quarter
in 1996 from $19,312 to $9,303  These expenses had been higher in 1996 due to
the administration of the Saudi project.

     Interest expenses increased because of the financing of the SMS press
equipment. $10,205 of interest expense was incurred in the third quarter of
1996. The third quarter 1997 interest expense is $18,239.

     Minority Interest is $47,865 for the three months ended September 30, 1997.
The minority interest was $52,993 for the quarter ended September 30, 1996.
During the first nine months of 1996, the minority interest in Eurectec, Inc.,
the Company's subsidiary was 12.5%.The minority interest was increased in late
1996 to 20%, and this rate was applied throughout the first nine months of 1997.

     Income tax expense of $15,317 represents California income tax accrued for
the nine months ended September 30, 1997. The Company has the benefit of a tax
loss carry forward for Federal Income taxes, but no such provision is in the
California law. The 1996 tax expense for the nine months ended September 30,
1996 of $23,345 is based on a higher pre-tax profit, and is also only a
provision for state income taxes.

Comparison of the nine months ended September 30, 1997 and the nine months ended
--------------------------------------------------------------------------------
September 30, 1996.
-------------------

     The Company had revenue of $2,576,791 in the nine months ended September
30, 1997.  Revenue of $2,443,698 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 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 trend in revenue or Company activities.

     Commission expense of $70,000 was recognized on the completion of phase one
of the Saudi sale in the three months ended September 30, 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 were expensed in the third quarter of 1997 as the sale revenue was
recognized.

     Depreciation expense increase from $8,367 to $35,484 due to the purchase in
1996 of the SMS press equipment and the addition of molds to it in 1997.

     Office and Administrative expenses declined during the 1997 period.  These
expenses had been higher in 1996 due to the implementation and project
management costs associated with the Saudi project.

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


PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

          None

Item 2.   Changes in Securities

          The Company's issued and outstanding common shares were reverse split
1 for 3, effective July, 1997.

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

     On July 14, the Company filed a Report on Form 8-K reporting under Item 5.
     Other Events, the one for three reverse split of the Company's issued and
     outstanding common shares.  No other reports on Form 8-K were filed, or
     required to be filed, during the quarter ended September 30, 1997.

     (B)  Exhibits.  The following exhibits are included as part of this report:

     Exhibit   SEC Exhibit    Title of Document                  Location
     Number    Ref. Number
     -------   -----------    -------------------------------    ----------
     10.1      10             Phoenix Environmental Group, Inc.  Attached
                              Commitment Letter

     27        27             Financial Data Schedule            Attached<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.



        November 11, 1997
      _________________________
                                                        Ehrenfried Liebich      
                                    Chairman of the Board,  President, and      
                                                   Chief Executive Officer      




     November 11, 1997
     _________________________
                                                              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.



November 11, 1997                                     /s/ Ehrenfried Liebich    
                                                          __________________    
                                                          Ehrenfried Liebich    
                                      Chairman of the Board,  President, and    
                                                     Chief Executive Officer    




November 11, 1997                                           /s/ John F. Pope    
                                                               _____________    
                                                                John F. Pope    
                                                     Vice President, Finance    
                                                    Chief Accounting Officer
<PAGE>
                             THE QUANTUM GROUP, INC.
                                        &
                                  Subsidiaries


                              FINANCIAL STATEMENTS

              Three Months and Nine Months Ended September 30, 1997
              Three Months and Nine Months Ended September 30, 1996
<PAGE>
                             THE QUANTUM GROUP, INC.                       (F-1)
                                 BALANCE SHEETS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                  September 30,     September 30,     December 31, 
                                           1997              1996             1996 
                                  --------------    --------------   --------------
<S>                              <C>               <C>              <C>            

     ASSETS

CURRENT ASSETS
  Cash                            $      89,198     $     210,192    $       6,602 
  Accounts Receivable                   220,979           382,322          204,522      Inventory   518,036   490,579   490,579 
  Loan Receivable                             0                 0                0 
  Note Receivable                             0            83,960                0 
                                  --------------    --------------   --------------
     Total Current Assets               828,213         1,167,053          701,703 


PROPERTY & EQUIPMENT
  Furniture and Fixtures                  4,953             6,986           10,651 
  Residential Property                        0                 0                0 
  Vehicles                                    0               749                0 
  Equipment                             165,131                 0          170,144 
                                  --------------    --------------   --------------
     Total Property &                   170,084             7,735          180,795 
     Equipment

OTHER ASSETS
  Cash Pledged                            5,122                 0            5,122 
  Accounts Receivable                         0           254,221                0 
  Loan Receivable                             0            38,750                0 
  Securities                            100,000             6,250                0 
  License Rights                        427,061           489,255          464,377 
  Deposit                                 3,281               661            3,281 
  Tax Benefit Deferred                       80                 0               80 
  Prepaid Commissions                         0            67,415                0 
                                  --------------    --------------   --------------
     Total Other Assets                 535,544           856,552          472,860 
                                  --------------    --------------   --------------
     Total Assets                 $   1,533,841     $   2,031,340    $   1,355,358 
                                  ==============    ==============   ==============

</TABLE>
<PAGE>
                             THE QUANTUM GROUP, INC.                       (F-2)
                                 BALANCE SHEETS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                  September 30,     September 30,     December 31,
                                           1997              1996             1996 
                                  --------------    --------------   --------------
<S>                              <C>               <C>              <C>            
     LIABILITIES & SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Accrued Expenses                $     178,288     $     133,192    $     158,822 
  Accounts Payable                      114,566           359,357          205,332 
  Due Officers                          120,480            81,701          151,152 
  Customer Deposits                       2,500           648,920                0 
  Franchise Tax Payable                  14,589                 0                0 
  Capitalized Leases                          0            16,741                0 
  Current Maturities                    785,197           266,871          785,197 
  Note Payable                           50,000                 0                0 
                                  --------------    --------------   --------------
     Total Current Liabilities        1,265,620         1,506,782        1,300,503 

LONG TERM LIABILITIES
  Note Payable - Machinery              170,519                 0          170,519 
  Note Payable - Technology             347,547                 0          347,547 
  Note Payable                          267,131           620,418          267,131 
  Less Current Maturities              (785,197)         (266,871)        (785,197)
                                  --------------    --------------   --------------
     Total Long Term                          0           353,547                0 
     Liabilities

Minority Interest
 in Subsidiary                          130,329            81,049           84,739 

STOCKHOLDER'S EQUITY
  Common stock, 50,000,000
   shares authorized
   3,152,232 shares
   outstanding                            3,152             3,152            3,152 
  Paid in Capital                     1,684,668         1,684,668        1,684,668 
  Accumulated Deficit                (1,549,928)       (1,597,778)      (1,717,704)
                                  --------------    --------------   --------------

     Total Stockholders'                137,892            90,042          (29,884)
      Equity

     TOTAL LIABILITIES &          --------------    --------------   --------------
      STOCKHOLDERS' EQUITY        $   1,533,841     $   2,031,420    $   1,355,358 
                                  ==============    ==============   ==============
</TABLE>
<PAGE>
                             THE QUANTUM GROUP, INC.                       (F-3)
                             STATEMENT OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                             Three        Nine        Three        Nine       Twelve 
                            Months      Months       Months      Months       Months 
                             Ended       Ended        Ended       Ended        Ended 
                         September   September    September   September     December 
                          30, 1997    30, 1997     30, 1996    30, 1996     31, 1996 
                        ----------- -----------  ----------- -----------  -----------
<S>                    <C>         <C>          <C>         <C>          <C>         
REVENUE

 Equipment Sales        $2,335,640  $2,576,792   $1,662,149  $2,443,698   $2,872,679 
 License Sales                   0     100,000       35,000      35,000       35,000 
 Other                         592         890            0           0            0 
                        ----------- -----------  ----------- -----------  -----------
   Total Revenues        2,336,232   2,677,682    1,697,149   2,478,698    2,907,679 

COST OF SALES            1,896,137   1,896,137    1,046,223   1,504,036    1,895,468 
                        ----------- -----------  ----------- -----------  -----------
   Gross Profit            440,095     781,545      650,926     974,662    1,012,211 

EXPENSES
 Commission                 37,008      37,008       47,936     117,936      195,077 
 Depreciation               12,253      35,484        3,159       8,367       22,926 
 Amortization               12,439      37,317       12,439      20,731       33,169 
 Travel                     12,353      38,224       26,122      66,778       67,586 
 Professional Fees             485       1,641            0      10,000       68,147 
 Office                      9,303      35,175       19,312      56,095       21,546 
 Rent & Utilities           13,221      51,334       28,689      59,144       83,103 
 Administration
  Expenses                  23,914      62,974       23,247     112,258       87,283 
 Consulting Fees            61,554     177,015       62,377     224,698      265,375 
 Interest                   18,239      77,417       10,205      31,692       88,161 
 Accounts Receivable 
   Written Off                   0           0            0           0      376,931 
 Foreign Currency
   Translation                   0           0            0           0       (6,344)
                        ----------- -----------  ----------- -----------  -----------
   Total Expenses          200,769     553,589      233,486     707,699    1,302,960 
                        ----------- -----------  ----------- -----------  -----------

   Net Profit or
    (Loss)from
    Operations             239,326     227,956      417,440     266,963     (290,749)

</TABLE>
<PAGE>
                             THE QUANTUM GROUP, INC.                       (F-4)
                             STATEMENT OF OPERATIONS
                                   (UNAUDITED)
                                   -Continued-

<TABLE>
<CAPTION>

                             Three        Nine        Three        Nine       Twelve 
                            Months      Months       Months      Months       Months 
                             Ended       Ended        Ended       Ended        Ended 
                         September   September    September   September     December 
                          30, 1997    30, 1997     30, 1996    30, 1996     31, 1996 
                        ----------- -----------  ----------- -----------  -----------
<S>                    <C>         <C>          <C>         <C>          <C>
Other Income &
(Expenses)
 Interest Income                 0           0            0           0          122 
 Gain of Sale
  of Residence                   0           0            0      24,850       38,327 
 Loss on Investment              0           0            0           0       (6,250)
 Income
  - Capital Lease                0           0            0           0       16,741 
                        ----------- -----------  ----------- -----------  -----------
   Total Other 
    Income &
   (Expenses)                    0           0            0      24,850       48,940 
                                                                        
   Profit or (Loss)        239,326     227,956      417,440     291,813     (241,809)
                                                                        
Taxes & Minority
 Interest                                                                            
 Minority Interest         (47,865)    (45,591)     (52,493)    (35,760)      12,989 
 Provision for Taxes       (15,317)    (14,589)     (23,345)    (23,345)           0 
 Provision for Taxes    ----------- -----------  ----------- -----------  -----------
   & Minority 
   Interest                (63,182)    (60,180)     (75,838)    (59,105)      12,989 
                        ----------- -----------  ----------- -----------  -----------
   Net Profit or
    (Loss) After                                                                     
    Tax & Minority
    Interest            $  176,144  $  167,776   $  341,602  $  232,708   $ (228,820)
                        =========== ===========  =========== ===========  ===========
   Net Profit or
   (Loss) Per Share     $     0.06  $     0.05   $     0.11  $     0.07   $    (0.07)
                                                                        
   Weighted Average                                                                  
    Shares
    Outstanding          3,152,232   3,152,232    3,152,232   3,152,232    3,152,232 
                                                                        
   Diluted Net
    Profit or (Loss)
    Per Share                  N/A         N/A          N/A         N/A          N/A 
                                                                        
   Weighted Average
    Shares Outstanding         N/A         N/A          N/A         N/A          N/A 

</TABLE>

<PAGE>
                             THE QUANTUM GROUP, INC.                      (F-5) 
                        STATEMENT OF SHAREHOLDERS' EQUITY
                                   (UNAUDITED)
                      From January 1, 1994 to June 30, 1997
<TABLE>
<CAPTION>
                                                       COMMON STOCK          PAID IN    ACCUMULATED 
                                   SHARES        AMOUNT       CAPITAL        DEFICIT 
                              ------------   -----------  ------------  -------------
<S>                          <C>            <C>          <C>           <C>
Balance,
December 31, 1993               3,148,232    $    3,148   $ 1,671,072   $   (693,770)

Shares issued for
Commission in Lieu
of Cash                             4,000             4        11,996 

Loss for the year ended
December 31, 1994                                                           (170,419)
                              ------------   -----------  ------------  -------------
Balance,
December 31, 1994               3,152,232         3,152     1,683,068       (864,189)
                              ------------   -----------  ------------  -------------
Loss for the year ended
December 31, 1995                                                           (624,695)

Balance,
December 31, 1995               3,152,232         3,152     1,683,068     (1,488,884)
                              ------------   -----------  ------------  -------------

Contributed Capital                                             1,600 

Loss for the year ended
December 31, 1996                                                           (228,820)
                              ------------   -----------  ------------  -------------
Balance,
December 31, 1996               3,152,232    $    3,152   $ 1,684,668     (1,717,704)
                              ------------   -----------  ------------  -------------

Profit for the 
Nine Months ended
September 30, 1997                                                           167,776 
                              ------------   -----------  ------------  -------------

Balance,
Sepember 30, 1997               3,152,232    $    3,152   $ 1,684,668   $ (1,549,928)
                              ============   ===========  ============  =============
</TABLE>
<PAGE>
                             THE QUANTUM GROUP, INC.                      (F-6) 
                             STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                  Nine           Nine         Twelve 
                                                Months         Months         Months 
                                                 Ended          Ended          Ended 
                                             September      September       December 
                                              30, 1997       30, 1996       31, 1996 
                                          -------------  -------------  -------------
<S>                                      <C>            <C>            <C>
Cash Flows From
Operating Activities

Net Profit (Loss)                         $    167,776   $    232,708   $   (228,820)
Adjustments to reconcile
 net profit or (loss)
 to net cash:
   Write Off Investment                              0              0          6,250 
   Write Off Loan Receivable                         0              0         38,750 
   Write Off Long Term Receivable                    0              0        338,181 
   Amortization & Depreciation                  72,800         29,098         56,095 
   Foreign Currency Remeasurement                    0              0         (6,344)
   Non Cash Income                                   0              0        (16,741)
   Minority Interest                            45,591         35,760        (12,989)
Changes in Operating
 Assets and Liabilities
  (Increase) Decrease in
   Accounts Receivable                         (16,457)      (400,421)       (24,559)
  (Increase) Decrease in
   Inventory                                   (27,457)             0              0 
  (Increase) in Deposit on
   Inventory                                         0        424,820        424,820 
  Decrease (Increase) in Long Term
   Accounts Receivable
  (Increase) Decrease in
   Loan Receivable
  (Increase) in Prepaid
   Commissions                                       0        (67,415)             0 
  (Increase) Decrease in
   Deposits                                          0              0         (3,281)
  Increase (Decrease) in
   Notes Receivable
  Increase (Decrease) in
   Accrued Expenses                             19,466        (45,759)       (68,034)
  Increase (Decrease) in
   Accounts Payable                            (90,766)      (176,500)      (271,047)
  Increase (Decrease) in
   Tax Payable                                  14,589         23,345              0 
  Increase in Customer
   Deposits                                      2,500           (488)      (244,464)
  Increase in Cash Pledged                                                    (5,122)
  Rounding                                          (1)             0             (3)
                                          -------------  -------------  -------------
     Net Cash Generated (Used) by
     Operating Activities                      188,041         55,148        (17,308)
                                          -------------  -------------  -------------
</TABLE>
<PAGE>

                             THE QUANTUM GROUP, INC.                      (F-7) 
                             STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                                    Continued

<TABLE>
<CAPTION>

                                                  Nine           Nine         Twelve 
                                                Months         Months         Months 
                                                 Ended          Ended          Ended 
                                             September      September       December 
                                              30, 1997       30, 1997       31, 1996 
                                          -------------  -------------  -------------
<S>                                      <C>            <C>            <C>
Cash Flows From
Investing Activities
  Purchase of Equipment                        (24,773)             0       (182,295)
  Purchase of License Rights                         0       (497,547)      (497,547)
  Sale of Residential Property                       0        236,586        252,532 
  Purchase of Furniture                                       (11,089)       (11,086)
  Purchase of Securities                      (100,000)             0              0           
                                          -------------  -------------  -------------
      Net Cash Provided (Used)
      by Investing Activities                 (124,773)      (272,050)      (438,396)

Cash Flows From
Financing Activities
  Payment of Long Term Debt                                  (165,000)      (169,781)
  Increase (Decrease) in Notes
   Payable                                      50,000        353,547        511,896 
  Increase (Decrease) in Vehicle
   Note Payable                                      0         (4,781)             0 
  Increase (Decrease) in
   Amounts Due Officers                        (30,672)        31,163         92,451 
  Contributed Capital                                0          1,600          1,600 
                                          -------------  -------------  -------------
      Net Cash Provided by                                            
      Financing Activities                      19,328        216,529        436,166 
                                          -------------  -------------  -------------

      Increase (Decrease)
      In Cash                                   82,596           (373)       (19,538)

      Cash at Beginning
      of Period                                  6,602         26,140         26,140 
                                          -------------  -------------  -------------
      
      Cash at End of Period               $     89,198   $     25,767   $      6,602 
                                          =============  =============  =============
</TABLE>


Significant Non-Cash Transactions:
On June 3, 1997, The Company issued a license agreement to Nevada 
Environmental Technology, Inc. The licence agreement fee was $100,000
which was paid by $100,000 of common shares of the licensee's parent
Keystone Energy Service, Inc. (KESE)
<PAGE>
                    The Quantum Group, Inc., and Subsidiaries              (F-8)
                          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 Acqualytic Systems, Inc.  The Company was suspended on June 1, 
1971 for failure to comply with statutory laws of California.  On June 15, 1989,
the Company was reinstated after paying the applicable taxes and fees to the 
state of California.  During the period of its suspension the Company transacted
no business with the exception of its President, Mr. Frank Scoville, 
transferring stock previously issued to him to a number of other individuals.
The Company acted as its own transfer agent. 

Pursuant to an agreement of merger filed on June 27, 1989, in the state of 
Nevada, Acqualytic Systems, Inc., a California Corporation, merged with Country
Maid, Inc., a Nevada Corporation.  The Nevada Corporation was incorporated in 
the state of Nevada on June 13, 1988 and on June 30, 1989 Country Maid, Inc., 
filed applicable documents with the state of Nevada and received a Certificate
of Reinstatement.  Country Maid, Inc., was the survivor Corporation pursuant to
the merger agreement.   The surviving Corporation changed its name to 
Transcontinental Video Robotics, Inc., on June 27, 1989.  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.

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

NOTE #2 - Significant Accounting Policies -Continued-

(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 us eful 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.  
(J)  Estimates:   The preparation of the financial statements in conformity with
     generally accepted accounting principles requires management to make 
     estimates and assumptions that affect the amounts reported in the financial
     statements and accompanying notes.  Actual results could differ from those 
     estimates