UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934
          For the fiscal year ended       December 31, 1998
                                        ---------------------

[  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
          SECURITIES EXCHANGE ACT OF 1934
          For the transition period from ________________ to ______________

                       Commission File Number 0-23812
                                             --------

                          THE QUANTUM GROUP, INC.
               (Name of small business issuer in its chapter)

      Nevada                                               95-4255962      
-------------------------------                   -------------------------
(State or other jurisdiction of                  (I.R.S. Employer I.D. No.)
incorporation or organization)

Park Irvine Business Center 14771 Myford Road, Building B 
Tustin, California                                                  90744  
------------------------------------------------------           ----------
(Address of principal executive offices)                         (Zip Code)

     Issuer's telephone number, including area code     (714) 508-1470
                                                        ---------------    

Securities registered pursuant to section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

                   $.001 par value, common voting shares
                   -------------------------------------
                              (Title of class)

Check whether the Issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such
report(s), and (2) has been subject to such filing requirements for the
past 90 days.  (1) Yes [X]  No [   ]

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form
10-KSB or any amendment to this Form 10-KSB.  [   ]

The issuer's revenue for its most recent fiscal year was: $ 2,952,900.

The aggregate market value of the issuer's voting stock held as of March
26, 1999, by non-affiliates of the issuer was $17,851,652.

As of December 31, 1998, issuer had 8,400,075  shares of its $.001 par
value common stock outstanding.

Transitional Small Busines     Disclosure Format. Yes [  ]  No [X]

Documents incorporated by reference: none

                 Page 1 of 33 consecutively numbered pages<PAGE>
                          The Quantum Group, Inc.
     Annual Report on Form 10-KSB for the Year ended December 31, 1998
_________________________________________________________________________

TABLE OF CONTENTS
_________________________________________________________________________

PART I

ITEM 1    DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . .3

ITEM 2    DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . 16

ITEM 3    LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 16

ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. . . . . 16

PART II

ITEM 5    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . 17

ITEM 6    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. . . 18

ITEM 7    FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 24

ITEM 8    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING 
          AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . 24

PART III

ITEM 9    DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL 
          PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE 
          ACT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

ITEM 10   EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 27

ITEM 11   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 
          OWNERS AND MANAGEMENT. . . . . . . . . . . . . . . . . . . . . 29

ITEM 12   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . 30

PART IV

ITEM 13   EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 31

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

                                     2<PAGE>
_________________________________________________________________________
                                   PART I
_________________________________________________________________________

                        FORWARD LOOKING INFORMATION

_________________________________________________________________________

     This Form 10-KSB contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.  For
this purpose any statements contained in this Form 10-KSB that are not
statements of historical fact may be deemed to be forward-looking
statements.  Without limited 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,
many of which are not within the Company's control.  These factors include
but are not limited to economic conditions generally and in the industries
in which the Company and its customers participate; competition within the
Company's industry, including competition from much larger competitors;
technological advances which could render the Company's products less
competitive or obsolete; failure by the Company successfully to develop new
products or to anticipate current or prospective customers' product needs;
price increase or supply limitations for components purchased by the
Company for use in its products; and delays, reductions, or cancellations
of orders previously placed with the Company.

_________________________________________________________________________

                      ITEM 1.  DESCRIPTION OF BUSINESS
_________________________________________________________________________


     The Quantum Group, Inc., (the "Company"), is in the business of
investigating innovative products and technologies in the environmental and
recycling industries which it further develops and designs for rubber
recycling and after market products plants.  The principal offices of the
Company are located at the Park Irvine Business Center, 14771 Myford Road,
Building B, Tustin, California.  The Company was organized as a corporation
in 1968, under the laws of the state of California.  In 1988 the Company
changed its domicile from California to the State of Nevada and has
operated as a Nevada corporation since that time.

     Since the beginning of 1993, the primary sales activities of the
Company have been conducted through its subsidiary, Eurectec, Inc., a
Nevada corporation, ("Eurectec") which is engaged in the world-wide
marketing of automobile and truck tire recycling equipment, supplied by
third parties, which produces recycled rubber which is commonly known in
the recycling industry as "crumb rubber."  Eurectec also markets presses
and other equipment, also supplied by third parties, which utilize crumb
rubber to make various after-market products.  

     Areas of growth in the Company are in the technology transfer, EGS
tire recycling systems, ECO press technology and equipment marketing of
asphalt paving technology, the devulcanization of crumb rubber for use in
processes requiring vulcanization such as new tire production, and the
production of fine mesh, (to -60 mesh ASTM), crumb rubber from buffings and
larger mesh crumb rubber.

                                     3<PAGE>
     In 1998, the Company began to focus its energies on the design and
development of rubber recycling systems and subsystems which encompass
initial rubber tire recycling and after market crumb rubber products rather
than rely solely upon third paty equipment sales.  This aspect of the
Company's business is being conducted through its subsidiary, Eurectec
Industries, Inc. Eurectec Industries provides feasibility studies,
engineering, equipment, installation and training for its clients with
rubber recycling systems.  The Company is marketing its systems
individually and through joint venture arrangements.

     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 provides a
link to the Eurectec, Inc. website (http://www.eurectec.com).  The Company
is in the process of updating its website and will offer e-commerce
capabilities in the second half of 1999, allowing customers to purchase
products directly from the Company from an additional website, 
Eurectec-products.com.  An additional Website can be viewed at
www.tirerecycling.com, which will become a main portal for the Company. 
This Website, which should be operational during the second quarter of
1999, is multi-lingual in order to enhance global communication and
awareness of the Company and its subsidiaries.  It has links to The Quantum
Group, Inc. site and allows the viewer to access an overview of the
Company's activities, obtain market information for the Company's stock,
view the Company's EDGAR filings, retrieve information on the Company's
joint venture projects and link to the Company's subsidiaries websites.
   
Business Operations

     The Company's goal is to design and market the most efficient and
cost-effective rubber recycling systems, producing high-quality crumb
rubber.  In keeping with this goal, the Company designs environmentally
friendly, efficient and profitable turnkey recycling plants that satisfy
the requirements of developers, engineers and governments for a process to
turn the huge, toxic and unsightly piles of scrap tires into attractive,
high-quality consumer and industrial products.  In alliance with FDC
Engineering of Switzerland, the Company is able to provide complete
engineering design for its recycling systems and subsystems.

     Joint venture arrangements are one vehicle the Company employs to
market and showcase its turnkey recycling plants.  It is anticipated that
by participating as an equity partner in recycling joint ventures, the
Company will develop cash flow through operations conducted by such
recycling facilities.  The Company also performs direct marketing of its
equipment and technologies.

     In addition to recycling systems and subsystems, the Company is
developing markets for its crumb rubber value added after market products. 
The Company intends to establish a manufacturing facility in California and
produce sports mats for gyms and ball courts, door mats, anti-fatigue mats,
cattle mats, heated pet mats and safety flooring products such as
playground tiles for the U.S. and export markets.

                                     4<PAGE>
Company Subsidiaries

     Eurectec, Inc.  To date, the majority of the Company's business has
been transacted through Eurectec, Inc.  Eurectec, Inc. was formed by the
Company, under the laws of the State of Nevada in 1991.  The Company
negotiated its licensing agreements with CISAP and SMS through Eurectec,
Inc. and the Company uses Eurectec, Inc. to market and sell the tire
recycling equipment of third parties.  Eurectec, Inc. also markets and
sells sub-licenses for the Company. The Company expects to enter into
various other businesses most of which will be related either directly or
indirectly to the environmental technologies business.  Pursuant to that
expectation, the Company has formed various subsidiaries of Eurectec, Inc.
which will be used to transact the Company's business dealings in these
areas. 

     Eurectec Industries, Inc., is a wholly owned subsidiary of The Quantum
Group, Inc. and was established pursuant to the laws of the Province of
Alberta on February 15, 1996.  The Company formed Eurectec Industries, Inc.
to transact the business of designing, development and marketing of its
rubber recycling systems.

     Eurectec International, Ltd., is a wholly owned subsidiary of Eurectec
Inc.  Eurectec International was established pursuant to the laws of the
Province of British Columbia and was incorporated in May 1991.  The Company
formed Eurectec International to transact the international affairs of the
Company in individual recycling projects.  The organization costs of
establishing Eurectec International were funded by Mr. Liebich.  Eurectec
International is currently not engaged in any business transactions. 

     Eurectec Marketing, Inc., is a wholly owned subsidiary of Eurectec,
Inc. and was formed to market recycled rubber products, both from Company
plants and from other participating manufacturers.  Eurectec Marketing,
Inc. is not currently engaged in any business transactions.

     Pacific Rubber Recycling Ltd., ("Pacific Rubber") is a wholly owned
subsidiary of Eurectec International.  Pacific Rubber was organized
pursuant to the laws of the Province of British Columbia  and was
incorporated in May 1995.  When cash flow improves, the Company intends to
open its own tire recycling facility operated through this company.  The
Company currently is not pursuing the establishment of a recycling
facility.  Pacific Rubber is unfunded and has not transacted any business
activities.

     Quantum Environmental Solutions & Technology, Inc., ("QEST").  QEST is
a wholly owned subsidiary of the Company.  Incorporated on April 21, 1997,
and is inactive at this time.

                                     5<PAGE>

     Quantum Modified Asphalt Xcetera, ("QMAX").  The Company has
established this division to market specialized mobile equipment concerned
with the mixing of crumb rubber and asphalt.  Presently dormant, this
division will soon be incorporated and will be responsible for crumb rubber
technology transfer programs.


Eurectec Granulating System (EGS)

     Eurectec Industries, Inc., working with outside engineering firms, has
designed plans for a complete tire recycling, granulating and after-market
production system which integrates individual pieces of tire recycling
equipment made by other manufacturers.  The EGS System reduces scrap
automobile and truck tires to useful and valuable crumb rubber, reusable
steel scrap and nylon fluff.  The system as designed will follow common
processing steps accepted in the industry.  The process will begin by
sending truck tires through a de-beader, slitter and shredder and
automobile tires directly to a shredder.  In the next step, the shredded
material is then fed to a grizzly which extracts approximately 90% of the
steel from the shredded tires and further reduces the size of the material
to minus one inch.  Then the material will be processed through a magnetic
separator which removes the steel shred and a pneumatic aspiration system
which removes the nylon fibers.  The product is then processed through a
granulator which further reduces the shred to approximately 5 mesh and
removes any remaining steel and fabric. Finally, the crumb rubber is
processed through a granulator which reduces the product to particle sizes
down to a ranges of sizes from 0 to .5 mm, .5 mm to 2 mm, 2 mm to 4 mm. The
EGS System will also offer as an option, a grinder which will reduce the
crumb rubber to minus 60 mesh.

     The crumb rubber is then further processed using the Company's press
product manufacturing technology into road paving materials, tiles, roofing
products, irrigation hoses, trailer liners, door and floor mats, carpet
underlay and "Ecoplas" (a combination of recycled rubber and plastic from
which many wood replacement products are made).  Industrial products such
as speed bumps, traffic cones, curbside recycling bins, road marker posts
and sound barriers, and sports surfaces such as tennis and other ball game
courts, gymnastic and running track surfaces, and playground safety
surfaces are just a few of the more than 200 end products manufactured
utilizing crumb rubber.

     The EGS System will not require Eurectec Industries to engage in any
equipment manufacturing.  Most of the items of equipment utilized in the
system e.g., de-beaders, slitters, grizzlies, grinders and granulators are
currently manufactured by other companies.  Third party contractors will
manufacture all of the equipment and parts required to integrate the
individual pieces of equipment into unified recycling system. 

     It is estimated by the design engineers that the complete EGS System
will have an estimated  input capacity of sixteen thousand tons per annum
on two shifts.  The Company is currently offering EGS granulating systems
and specifically, an EGS system is being incorporated in the Poseidon joint
venture project in Penkun, in the state of Mecklenberg-Vorpommern, Germany.

                                     6<PAGE>
     
SuperCollider - Impact 500 Technology

     During 1997, the Company  worked on the in-house development of a
compact SuperCollider machine designed to take large mesh size crumb rubber
produced by the EGS System and buffings from tire retreading and pulverize
it into fine powder in order to open up several new markets, as a result. 
These markets include extrusion products, press products and products
combining super-fine crumb and plastic.  The Company is currently
finalizing the engineering for the SuperCollider and concluded the
development, prototype work and performance testing during 1998.  
Initially the Company will contract manufacture of the equipment and will
be supplying the first of these machines under the brand name Impact 500,
to clients in the second quarter of 1999.  The Company will explore
viability of making patent applications for the new compact Impact 500
SuperCollider.

REVULCON (R) - Revulc 300 Technology

     The Company entered an exclusive worldwide license agreement with Faru
GmbH., Dresden, Germany ("Faru").  Faru is the patent holder of the
REVULCON (R) technology.   For each REVULCON (R) 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.  The Company anticipates the sale of up to three REVULCON 
systems, under the brand name Revulc 300, during 1999 for projects in
Germany.  The manufacture of the REVULCON (R) plants will be subcontracted
out to third party manufacturers.

     The REVULCON (R) technology enables the production of high density,
smooth finish rubber moldings and extrusions, including new tires by adding
REVULCON (R) compound in the manufacture of 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.

     The REVULCON (R) prototype equipment has been manufactured and is
currently being tested.  The Company is further developing the system to
allow for feed input and output with the first three  Revulc 300 systems to
be installed at the Chemnitz project.

Rothbury Agreement

     Eurectec Industries, Inc., entered an agreement with Rothbury
Engineering Limited, Great Britain to acquire the exclusive worldwide
manufacturing and marketing rights to a technique for manufacturing rubber
products such as floor coverings from crumb rubber without revulcanizing
the rubber and a process for giving a mixture of scrap rubber granulates,
resins and other additives heat conductive characteristics for use in
products such as heatable floor coverings and underlayments.

                                     7<PAGE>

     In heatable tile products production, Eurectec Industries will utilize
heating filaments currently manufactured by others.  The heating filament
operates on AC or DC electricity and is imbedded in a variety of interior
and exterior tile designs, underlayments and mats.  The heating tile and
underlayment products can be operated more cost effectively than interior
forced air and radiant heating systems.  In exterior applications, the
heated rubber tiles provide superior heat conducting properties to other
available technology such as heating coils in concrete. The heated fatigue
mats and pet mats also provide Eurectec Industries with new products and
new markets for crumb rubber. 

     Eurectec Industries, Inc., has filed for patent protection on the
technology  subject to the license agreement.  Eurectec Industries expects
to develop procedures and techniques utilizing the Rothbury technology with
various press equipment to produce commercially viable heatable rubber
floor tiles utilizing crumb rubber, pending the filing of any patent
applications by Eurectec Industries.

CISAP Agreement

     In 1993, Eurectec, Inc. acquired rights to license and market CISAP
tire recycling equipment.  The license agreement provides that CISAP will
manufacture, ship and install the CISAP equipment sold by Eurectec, Inc. as
well as provide training in equipment operation and maintenance to the
purchaser of any CISAP equipment.  The Company sold CISAP granulator
systems in Canada, China, Saudi Arabia, and Mexico.  The Saudi Arabia and
Mexico clients have experienced problems with the CISAP equipment which the
Company and CISAP are attempting to resolve.

     Because of the difficulties with the CISAP equipment Eurectec, Inc.
will look to other manufacturers as suppliers of compact granulating
equipment systems.

SMS Agreement

     In May of 1996, Eurectec, Inc. entered an agreement with SMS
Sondermaschinen GmbH, a German corporation, ("SMS") which provided
Eurectec, Inc. the right to sell and market SMS press equipment and
machinery.  Eurectec, Inc. sold SMS equipment to its client in Saudi Arabia
who has experienced problems with the SMS equipment.  Eurectec, Inc. is
attempting to resolve the difficulties and has other manufacturers in place
for its press equipment needs.

Research and Development

     In 1998, the Company spent approximately $76,746 for research and
development on its Impact 500 technology.  A prototype unit was completed
during the fourth quarter of 1998 which is valued at $63,203.

Tire Recycling Industry and Competition

     In the United States alone there are over 275,000,000 tires discarded
each year.  There are currently between two and three billion tires 


                                     8<PAGE>

stockpiled in the United States and an estimated 1,000,000,000 tires
discarded annually worldwide.  Although millions of tires are discarded
every year, there has been no consensus on the best way to dispose of the
tires.  Waste tires continue to accumulate in huge tire dumps throughout
the world.  One of the early governmental responses was to require the
tires to be shred into small pieces in order to reduce the size of the tire
dumps, the potential for fires, and the health hazards from the dumps which
existed because of mosquitoes and rodents which inhabit tire dumps.  The
European Union has issued a directive banning landfilling of all tires,
whether whole or shredded, by the year 2007.  Some market developed for
shredded tires as fuel in cement kilns and electric power plants, however,
most states have prohibited or strictly limited tire burning because of its
adverse environmental impact.  In addition, it has been recognized that
tire burning is an inadequate use of the valuable rubber resource contained
in the tires.

     In the effort to reclaim valuable resources from tires, attempts have
been made to recover  oil from tires through a process call pyrolysis in
which the tires are heated to very high temperatures  and  petroleum is
extracted.  To date pyrolysis systems have not reached commercial viability
because of the substantial capital investment required to construct such
systems, the high operating cost and low efficiency of such systems when
compared to the price of crude oil.

     One of the challenges facing the tire recycling industry has been the
lack of reasonably priced equipment for the production of crumb rubber,
given the production capacity of such equipment and the prevailing market
prices of crumb rubber.  Prices of crumb rubber vary according to the mesh
(size) of the rubber.  Rubber with a mesh of  minus 10 to 25 sells for $.17
- .20 per pound and is the common size used in asphalt paving.  The after-
market products manufactured from the SMS press equipment use rubber of
approximately minus 30 mesh and sells for approximately $.20 - .22 per
pound.  Very finely ground crumb rubber which is suitable for treatment
with devulcanizing chemical process is usually minus 80-100 mesh and sells
for $.40 - .45 per pound.

     A second obstacle to investing in available recycling equipment has
been the limited or uncertain demand for crumb rubber by manufacturers of
rubber products.  Without an established market for crumb rubber and
reasonably predictable prices for crumb rubber there is no way to assure a
recycler that he could recover his capital investment or make a profit on a
recycling operation.  In turn manufacturers have been reluctant to specify
the use of crumb rubber in products because of the lack of a broad and
consistent supply of high quality crumb rubber at predictable prices.

     In an effort to induce recycling of tires, many states have enacted
laws which charge purchasers a recycling fee on all new tire sales.  The
fees are deposited to state operated funds which are used for grants to
fund tire recycling technology research projects and to compensate tire
recyclers for recycling tires.  In addition, the federal and state
governments have created markets for recycled rubber by enacting statutes
which require that new road construction include a certain percentage of
recycled rubber in the roads.  A typical street one mile long and 30 feet
wide using a 1.5 inch topping will use approximately 39,000 pounds of crumb
rubber.  An interstate highway one mile long and 72 feet wide using a 3
inch topping will require 186,000 pounds of crumb rubber in the topping
mix.


                                     9<PAGE>

     The Chicago Board of Trade (CBOT) Recyclables Exchange operates an
internet based listing of recyclable materials including crumb rubber. 
Access to the CBOT Recyclables Exchange is found on the Internet at:
http://cbot-recycle.com.  The Recyclables Exchange allows participants to
use the on-line exchange to post listings to sell or enter materials wanted
for purchase.  Whenever there is a match of a sell listing with a buyer's
parameters, the system will automatically e-mail a response to the buyer
who can then communicate with the seller to transact business.  The CBOT
system  allows for detailed product descriptions of material quality and
other data important to buyers and sellers.  The Exchange users can select
predetermined commercial specifications or set customized product
specifications.  The Recyclables Exchange will contribute significantly to
the recognition and growth of an established crumb rubber market.  The
Company, acting on behalf of clients  which have purchased equipment, has
posted offers on the Recyclables Exchange. 

     The Recyclables Exchange is currently operated as a cash market
matching buyers and sellers.  It is the intent of the CBOT to monitor this
cash market to determine the viability of creating a futures  contract in
recyclable products like crumb rubber.  If a futures contract does develop
for crumb rubber it will further enhance the industry by allowing crumb
rubber manufacturers and crumb rubber  consumers to begin hedging
transactions which will give price and supply stability to the market. 
This in turn will contribute to wider use and acceptance of crumb rubber in
a variety of applications and industries.

     All of these developments over the past few years have contributed to
a growing interest in the tire recycling industry.  Although the tire
recycling industry is highly competitive, no single competitor holds a
dominant market position.  Some of the Company's competitors have longer
operating histories and are financially stronger than the Company. There
are several companies which offer different pieces of equipment to
recyclers such as shredders, slitters and granulating equipment.  However,
few companies offer complete recycling systems which include all equipment
required to process whole tires to crumb rubber. Those competitors which
offer complete systems, sell systems which are based on one of  two design
types.  The older systems use efficient shredding equipment but rely on
hammermill technology for rubber granulation.  These systems tend to be
very large, noisy and inefficient, in large part because the hammermill
technology was designed for other industrial applications and has been
adapted for use in tire recycling.

     The second type of system offered by competitors is a cryogenic
(freezing) process which freezes the tires to very cold temperatures using
liquid nitrogen, at which point the brittle rubber can be broken free of
the steel and fabric content of the tire.    Cryogenic systems are
expensive, costing  from 4 to 20 million dollars.  To date, the Company is
not aware of any facilities using a cryogenic system that is not subsidized
by government grants or private grants from producers of liquid nitrogen. 
Although this process uses much more sophisticated technology, the process
tends to be cumbersome and expensive to operate.  If the equipment is shut
down for maintenance or repairs the entire system must be taken off line
for a period of days.  The second disadvantage of such systems is that the
crumb rubber made by the cryogenic process has reduced elasticity, which
limits the usefulness of the crumb rubber for after market products. 


                                     10<PAGE>
     The advantages of the Company's EGS system over systems offered by
competitors are (i) lower initial cost of a system; (ii) higher operating
efficiencies and lower operating expense; (iii) lower maintenance down
time; and (iv) recycling at ambient temperatures resulting in high quality
crumb rubber output.

Marketing and Sales

     The Company, through Eurectec, Inc. has had most success marketing and
selling outside of the United States where there are attractive incentives
offered to investors by way of government grants, low interest loans and
tax advantaged investment programs.   

     The Company has  encountered challenges in making sales of its tire
recycling systems in the United States.  These obstacles arise from the
substantial capital expenditure required to commence a recycling facility
and the ability of interested parties to secure adequate supplies of tires
for recycling. The owners of large tire dumps have been reluctant to make
the substantial capital investment necessary to realize additional value
from the discarded tires.  Tire dump operations have been profitable simply
from the tipping charges received at the time tires are delivered to such
tire dumps.  However, tire dumps are now being recognized as nuisances and
public safety hazards.  The emerging trend is, as the viability and
profitability of tire recycling continues to develop, to require storage
operators to do more than store tires in large dumps.  As the tire
recycling industry matures, owners of tire dumps will be prohibited from
operating mere dumps and will be required  to begin  recycling activities. 
In addition, efficient and profitable recycling facilities will open the
way for other persons interested in tire recycling to negotiate contracts
for the acquisition of discarded tires necessary to supply feed stock to
such recycling facilities.  
 
     An additional challenge to the Company in marketing the recycling
systems is that there is a long sales  cycle.    Typically, it takes six to
eighteen months from the time the Company has its initial contact with a
potential customer until equipment is installed and the Company is paid in
full.

     The majority of the Company's marketing efforts are through trade
shows, technical and trade journal advertising and articles, independent
sales representatives, joint venture projects and the Company's website.

     The Company continues to rely principally on the efforts of its
officers and directors to generate sales.  The Company's principal method
of marketing is done through direct sales by officers of the Company and
approximately 12 independent commissioned sales representatives worldwide
through participation at trade shows and active membership in trade
organizations.

     The Company is a member of a number of associations related to the
tire, rubber and recycling industries including the Rubber Pavements
Association located in Mesa, Arizona, the International Tire and Retreading
Association, headquartered in Louisville, Kentucky (ITRA), ETRA (the
"European Tire Recycling Association") headquarter in Brussels, Belgium and
is a founding member of the International Recycling Federation located in
Bonn, Germany.  In addition, the Company is listed in the Scrap Tire Users
Directory, an RRI annual publication which is a business reference guide to
the tire recycling industry.


                                     11
<PAGE>
     The Company's management attended and made a presentation at the first
International Symposium on Asphalt-Rubber held in Phoenix Arizona where the
Company announced it will be initiating the formation of a European Rubber
Pavements Association to be allied with the Rubber Pavements Association in
the United States.  The Company's management also plans to attend the ETRA
European Tire Recycling Congress and Annual General Meeting to be held in
Brussels, March 17 - 19, 1999.

     Also planned for the third quarter 1999, the Company will jointly host
with the state government of Mecklenburg-Vorpommern, Germany, the first
European International Symposium on Crumb Rubber in Asphalt Paving.  The
Symposium will coincide with the opening of the Poseidon plant and serve as
a showcase for prospective customers.

     Although the environmental problem of waste tires has existed for
decades, the tire recycling industry is still in its early stages of
development worldwide.  No single response to the problem of waste tires
has  become generally accepted.  However, the momentum in the industry
favors tire recycling which reclaims the rubber resource.  No single
technology has achieved market dominance.  Under such market conditions,
potential investors are slow to make investment decisions.  Manufacturers
of recycling equipment do not carry large inventories of equipment.  The
Company has limited capital and limited full time personnel engaged in
marketing and sales activities.  These are the major reasons that the
Company has not established a consistent volume of sales.  At the same time
the Company is aware that these challenges also form significant barriers
to entry by competitors which will face many of the same challenges.

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. 
The Company has an 80% interest in the joint venture and a buy-back
agreement to purchase the remaining 20%.  As a result of joint venture
agreement, Poseidon Products GmbH. was established and will construct and
operate a tire recycling facility in Penkun, 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 tire
recycling facility whereby tires will be shredded and granulated producing
the commodity crumb rubber.  Some of the crumb rubber is subsequently
partially devulcanized utilizing the Company's exclusive REVULCON  process
to enable material to be used in a variety of products and processes
including incorporation into new tire manufacture.  The balance of the
crumb rubber will be used for in-house manufacturing.  The plant will
employ a number of presses to manufacture additional value added after
market products such as flooring, interlocking tiles and heated tiles as
well as other products.

                                     12<PAGE>

     The Poseidon joint venture funding is expected to be completed by the
end of the first quarter, 1999.  Funding consists of 50% of the total
project costs (approximately $5,900,000) from a grant from the European
Union Structure Fund for European regional development and 40% bank
financing and 10% equity raised through a private offering in Germany,
partly funded from proceeds of a Regulation S offering.   The equity
funding is currently 90% complete.  Eurectec Industries, 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.

     Ground breaking  for the Poseidon joint venture occurred  September
17, 1998 in Penkun, Germany and the construction program is presently
scheduled to begin during the second quarter of 1999.  Pending completion
of all building construction and environmental compliance permitting
funding and maintaining the current construction schedule, the Company
anticipates the Poseidon facility to be complete and operational during the
fourth quarter, 1999.  Poseidon has opened offices in Penkun and has
commenced a German wide marketing study and plan to introduce and sell its
manufactured products in Germany and Europe.

     The Company anticipates the Poseidon project to be a showcase for
future tire recycling plant sales.  The plant equipment and technology is
the culmination of research and development by the Company.

     A Poseidon web site has been established and may be viewed at
www.poseidon-products.com.  The web site which is in German and English,
provides a platform for showcasing the Poseidon joint venture and promoting
an awareness of the Company.

Proposed Joint Venture Projects

     California Prison Manufacturing Project.  The Company is currently
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 to manufacture crumb rubber derived products
utilizing inmate and prison facilities.  The first phase of this project
will incorporate Company designed press equipment and the second phase will
incorporate both shredding and granulating processes as well as the
REVULCON (R) technology.  The Company anticipates producing a wide variety
of products including heated mats using the Company's Rothbury technology. 
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 expected to be concluded during the second
quarter of 1999 following a series of meetings at a number of potential
facilities.

     Scotland.  The Company has established a new subsidiary, Caladonian
Envirotech Rubber Recycling Limited, a Scottish  limited liability company,
("Caladonian").  Caladonian was established in anticipation of entering a
joint venture agreement with local Scottish investors to build a tire
recycling plant modeled after the Poseidon project.  The Company is
embarking on a market study to determine the feasibility of the project,
which is expected to be complete the end of first quarter 1999.



                                     13<PAGE>

     Ireland.  The Company has established a new subsidiary, Hibernian
Envirotech Rubber Recycling Limited, an Irish limited liability company,
("Hibernian").  Hibernian was established in anticipation of entering a
joint venture agreement with local Irish investors to build a tire
recycling plant modeled after the Poseidon project.  The Company is
embarking on a market study to determine the feasibility of the project,
which is expected to be complete during the second quarter of 1999. 

     Portugal.  The Company is continuing negotiations with investors in
Portugal to enter a joint venture agreement to build a tire recycling
facility.  The Company's president has been in Lisbon, Portugal meeting
with a potential joint venture partner.  It is anticipated the joint
venture partner will undertake a feasibility study with assistance from the
Company.

     Spain.  The Company is negotiating with investors in Spain to enter a
joint venture agreement to build a tire recycling facility in Barcelona. 
It is anticipated the joint venture partner will undertake a feasibility
study with assistance from the Company.

     France.  The Company is currently negotiating with interested parties
so the Company can initiate a feasibility study for a joint venture to
build a tire recycling facility in France.  Also, the Company is actively
promoting its after market products and user applications within France to
develop key relationships.

     Brazil.  The Company's vice-president has met with potential joint
venture partners in Brazil.  As a result of negotiations, the Company has
signed a memorandum of understanding  to the potential joint venture
partner whereby the Company will undertake a feasibility study to determine
the viability  of developing a tire recycling facility in Belo Horizonte,
Brazil.

     South Africa.  Through the Company's contacts in Scotland, the Company
has been introduced to potential joint venture partners in South Africa and
Zimbabwe.  The Company's president met in South Africa and Zimbabwe in
December 1998, with the potential joint venture partners to explore the
possibility of developing a tire recycling plant.

     The Company continues negotiations with various potential clients in
the United States, Europe, the Arabian Gulf, South America, Puerto Rico,
Great Britain and Asia.

Current Contracts

     Atzendorf, Germany.  The Company has a two phase order for press
equipment including flocking equipment, granulators and grizzlies for the
manufacture of continuous roll material and after market flooring products. 
The Company anticipates equipment delivery during the second half of 1999.


                                     14<PAGE>
     Chemnitz, Germany.  The Company has an order for a mini tire recycling
plant including three Revulc 300 systems and press equipment.  The Company
anticipates equipment delivery during the second half of 1999.

     Mexico Agreement. The CISAP equipment sale to Mexico was entered in
1994. The client has experienced problems in the commissioning of the C9000
machines supplied by CISAP mainly relating to 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 correct the problems
and anticipated the equipment to be fully operational by the end of April
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.  CISAP has shipped
additional equipment to the Mexico site and has sent engineers to Mexico to
resolve the problems.

     In an effort to mitigate the problems encountered by the Mexico
client, the Company is currently purchasing crumb rubber from the client
which it is further processing into finer mesh for sale.

     Saudi Agreement. The agreement for the initial phase of CISAP
equipment to be delivered to Saudi Arabia was entered in 1994 with
additional equipment purchased by the clients from CISAP in 1995 and 1997.
Initial equipment for Phase One of this project has been delivered and
partially installed at the site in Dammam.  The equipment has not been
completely installed by CISAP and the Company has elected to send its own
engineer to expedite installation and operation of the equipment.

     CISAP SpA Relationship .  CISAP, SpA underwent a bankruptcy and
reorganization as of July 2, 1997.  As a result of the reorganization,
CISAP Ecology, SRL  was established to continue the business of CISAP, SpA,
tire granulation equipment, specifically the CISAP 3000, 6000 and 9000
machines as supplied to Mexico and CISAP Projecti  was established to focus
on the sale of tire re-treading equipment.  Subsequently CISAP Ecology, SRL
has undergone a name change to Tyre's Ecology, SRL.  The Company is now
dealing with Tyre's Ecology, SRL in its attempts to resolve the Mexico and
Saudi project issues.  CISAP and it's successor are hereinafter referred to
as CISAP.

     As a result of the difficulties experienced by CISAP and its successor
in delivering equipment which functions as specified and to make delivery
in a timely manner, Eurectec, Inc. has determined that the exclusive right
to market CISAP equipment has been diminished.  Therefore, Eurectec, Inc. 
will not pursue additional sales of CISAP equipment at performance levels
required by the agreement with CISAP to maintain such exclusivity.

     The problems encountered by the Company with the CISAP equipment
failure and CISAP's unacceptable responses in both Mexico and Saudi Arabia
have seriously impacted the Company's expected revenue stream in 1998 from
the resultant delays with the second phase of the Mexico project and the
third phase of the Saudi project, both of which have been suspended pending
resolution of the problems on site.

                                     15<PAGE>

Employees 

     Currently the Company has no direct employees other than its officers
and directors.  The Company contracts with an employee service agency to
provide office staff and secretarial services.  The Company relies heavily
on the efforts of its President, Ehrenfried Liebich, it also relies upon
the services of various consulting agencies including agencies owned and
operated by Keith Fryer, a Company Vice President, Secretary and Director
and John Pope, the Company Treasurer, a Vice President and Director. 
Through its employee service agency the Company has two administrative
staff, three management staff, one sales person and one technical staff
member.  Two additional people will be hired during the second quarter of
1999 to fill the positions of financial controller and operations manager. 
The Company intends to restructure the employee status by terminating the
service agency relationship and bring all its employees into the Company as
direct hires.


_________________________________________________________________________

                      ITEM 2.  DESCRIPTION OF PROPERTY
_________________________________________________________________________

     In July, the Company renewed its lease agreement to lease an
industrial condominium in a multi-tenant building for use as its principal
executive office.  The Company pays $3,371.00 per month for 4,495 square
foot facility.  The lease has a renewal option for an additional year and
will be reviewed in July 1999.  The building is located at Park Irvine
Business Center, 14771 Myford Road, Building B, Tustin, California 92780. 
The space the Company is leasing is sufficiently large to accommodate all
of its administrative and storage needs.
     
_________________________________________________________________________

                         ITEM 3.  LEGAL PROCEEDINGS
_________________________________________________________________________
   
     None.

_________________________________________________________________________

                 ITEM 4.  SUBMISSION OF MATTERS TO A VOTE 
                           OF SECURITIES HOLDERS
_________________________________________________________________________

     No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of the fiscal year ending December 31, 1998.

                                     16
<PAGE>
_________________________________________________________________________

                                  PART II
_________________________________________________________________________

                   ITEM 5.  MARKET FOR COMMON EQUITY AND 
                        RELATED STOCKHOLDER MATTERS
_________________________________________________________________________

     The Company's common stock is listed on the NASD OTC Bulletin Board
under the symbol "QTMG."  As of December 31, 1998 the Company had 494
shareholders holding 8,400,075 common shares.  Of the issued and
outstanding common stock, 1,238,069 are free trading, the balance are
"restricted securities" shares as that term is defined in Rule 144
promulgated by the Securities and Exchange Commission .  The Company has
never declared a dividend on its common shares.

     The published bid and ask quotations for the previous two fiscal years 
are included in the chart below.  These quotations represent prices between
dealers and do not include retail markup, markdown or commissions.  In
addition, these quotations do not represent actual transactions.

<TABLE>
<CAPTION>
                                           BID PRICES         ASK PRICES 
                                        HIGH       LOW      HIGH       LOW 
<S>                                  <C>       <C>       <C>       <C>
1997
First Quarter ended March 31            .125    .03125    .46875    .40625 
Second Quarter ended June 30          .03125    .03125    .46875    .46875 
Third Quarter ended Sept. 30           .0625     .0625     -----     ----- 
Fourth Quarter ended Dec. 31             .50      .062      1.00      1.00 

1998
First Quarter ended March 31             3.00       .50    3.3125    1.1875
Second Quarter ended June 30           4.1875     2.875    4.3125      3.00
Third Quarter ended Sept. 30            3.625      2.00      3.75     2.375
Fourth Quarter ended Dec. 31            4.375     2.875    4.4375     3.125

</TABLE>

     The foregoing figures were furnished to the Company by the National
Quotation Bureau, 1 Penn Plaza, 15th Floor, New York, New York 10001.


                                     17<PAGE>

_________________________________________________________________________
                   ITEM 6.  MANAGEMENT'S DISCUSSION AND 
         ANALYSIS OF FINANCIAL STATEMENTS AND RESULTS OF OPERATIONS
_________________________________________________________________________

Liquidity and Capital Resources

     As of December 31, 1998, the Company had on hand cash of $1,781,944
and booked orders of approximately $13,588,491 for equipment.  The Company
raised $4,647,500 in Regulation S offerings during 1998.  The Company
currently has no outstanding debt.

     It is anticipated that revenues from currently booked orders will
enable the Company the continue operations throughout 1999.  The Company
also anticipates initiating a Regulation S offering during the second
quarter of 1999 for approximately $2,100,000.  Proceeds from the Regulation
S offering are anticipated to be used for the California Prison Project and
additional working capital.

     The Company does not currently have any capital commitments for 1999. 
However, at such time the Company enters a firm agreement for the
California Prison Project, it may have a capital commitment for
approximately $1,500,000.

     The Company is emphasizing product and services sales via the Internet
and trade show participation.  Additionally, the Company is vigorously
pursuing joint venture arrangements similar to that of the Poseidon
Project.  The Company anticipates it will experience modest growth during
1999 through these efforts.

Year 2000 Compliance

     Many financial information and operational systems in use today may
not be able to interpret dates after December 31, 1999 because such systems
allow only two digits to indicate the year in a date.  As a result, such
systems are unable to distinguish January 1, 2000 from January 1, 1900,
which could have adverse consequences on the operations of an entity and
the integrity of information processing.  This potential problem is
referred to as the "Year 2000" or "Y2K" issue.

     The Company has reviewed all of its current systems that could be
impacted by the Y2K issue and is currently Year 2000 compliant.  However,
vendors, banks and other suppliers and parties upon whom the Company
relies, may not be Year 2000 compliant.  The Company is currently in the
process of requesting Y2K compliance status from the parties with which it
conducts business in order to evaluate any impact to the Company.  The
Company has not been notified that any of its bendores, banks or other
suppliers or paties upon whom it relies are non-compliant with Y2K matters.

                                     18
<PAGE>
Results of Operations

     The Company generated a $100,691 loss in the year ended December 31,
1998 compared to a profit of $101,893 for the year ended December 31, 1997. 
The 1998 loss includes an Accounts Receivable write off of  $100,000, and
an investment loss of $20,000.  The 1997 profit includes sale of Licence
Rights of $350,000 and $150,000.  The $350,00 license fee is partially
offset by a reserve of $175,000. 

     Net cash used in operations during the year ended December 31, 1998
was $1,334,685 compared to $197,974 cash generated by operations in the
year ended December 31, 1997.  During 1998, Accounts Receivable increased
by $2,354,061,  Deposits increased by $1,804,508, offset by an increase in
customer deposits of $2,190,462. $179, 309 was used to purchase land.
Accrued Expenses decreased by $102,315 while Accounts Payable increased by
$585,185. The cash generated from operations in 1997 resulted primarily
from profitable operations, an increase in Accrued Expenses of $393,577, an
increase in Taxes Payable of $103,548, the Accounts Receivable write off of
$195,000 and Depreciation and Amortization of $84,745, partially offset by
the increase in Accounts Receivable of $681,457, and a decrease in Accounts
Payable of $65,316 

     Accounts Receivable  increased in the year ended December 31, 1998 by
$2,354,061 to $3,065,040. The 1998 Accounts  Receivable balance consists of
the sale of a press and contract additions on the Mexico project of
$175,000 and $335,000 respectively, the Licence Fee receivable of $350,000
(less the reserve of $275,000) and $1,316,607 and $1,105,400 for two
projects in Germany and $58,033 in Crumb Rubber sales. The December 31,
1997 Accounts Receivable balance primarily included The Mexico project
which is included above. The company has not sought collection of these
items as an accommodation to the client due to installation delays and
their problems with Cisap.  Although the Company believes that these
amounts will ultimately be collected, the 1997 reserve of $175,000 was
increased by $100,000 in 1998.
  
     Inventory at December 31, 1998 is $19,425 compared to $29,760 at
December 31, 1997. The 1996 balance was equipment held for sale that was
sold back to the vendor. The 1998 and 1997 balance consists only of raw
materials ( crumb rubber) for the manufacture of mats.

     The deposit account at December 31, 1998 is $1,807,789 in Other Assets
for equipment for the two German projects and $303,021 in Current assets
for a inventory of crumb rubber heated tiles to be sold at retail.  The
1997 balance was $421,451 of which $417,951 was a deposit with Cisap which
represented the proceeds on the sale to them of the C3000 machine
previously held in inventory. The 1997 deposit was utilized in 1998.

     Securities Accounts balance of $73,125 at December 31, 1997 is the
result of receiving 20,000 shares of Keystone Energy  common stock for a
$100,000 license fee. The securities had a market value $100,000 at the
time of the transaction, but were subsequently written down to reflect the
December 31, 1997 market price. These securities were sold in 1998. The
Company realized an additional loss of $20,000 in 1998 prior to the sale.



                                     19<PAGE>
     Accrued Expenses decreased by $102,315 to $450,084 during the year
ended December 31, 1998 compared to $552,399 at December 31, 1997.  The
major components of this decrease was the payment of the accrued interest
on Company debt.

     Franchise Taxes Payable balance at December 31, 1998 and 1997 of
$103,548 consists of $70,691 Federal Taxes and $32,857 in California State
taxes. Although the Company has a Net Operating Loss Carry Forward of
$1,663,146 for Federal Income Tax purposes, the law provides that the
utilization of the NOL is an preference item triggering the Alternative
Minimum Tax. The State of California does not have a NOL carry forward and
as such the year's operation are subject to California Income tax.  The
Company has delayed payment of this balance pending clarification of
certain collections, but anticipates payment will be made during the second
half of 1999.

     Current Maturities were at December 31, 1997  $721,318.  The Current
Maturities are that portion of the Company's long term debt due within the
upcoming fiscal year. As all of the long term debt was due during 1998, it
is all categorized as Current Maturities. The notes and the accrued
interest on them were paid off during the first quarter of 1998. 

     Minority Interest was $109,256 at December 31, 1997 due to the 20%
percent minority interest in the Company's primary subsidiary, Eurectec,
Inc. This Minority Interest was exchanged for stock in the Company during
1998.  The $9,463 at December 31, 1998 is as a result of the establishment
of Poseidon Product GmbH, the joint venture project with the Germany
government (See Financial Statement footnote #23).

Comparison of the year ended December 31, 1998, and the year ended December
31,1997.

     Revenue for the year ended December 31, 1998 was $2,952,900. This is a
$471,909 decrease from the revenues of $3,424,809 generated in the year
ended December 31, 1997. The decrease in 1998  is from a decrease in
equipment sales of $41,809, a decrease of $500,000 in License Sales, as the
Company did not conclude any new licences in 1998. Other Income increased
by $69,900 consisting primarily of the sale of crumb rubber and mats.

     The majority of the Company's sales are recorded when equipment is
shipped and title passes to the buyer.  Typical sales are by letter of
credit, with the funds being released by the bank when the equipment is
placed for shipment with the carrier. To date, payment for the Company's
equipment sales have been made on the basis of 10% due at the time of sale,
80% due on shipment of equipment and 10% due at completion of installation.
This has resulted in the Company receiving its revenue in large lump sums
at irregular intervals rather than in smaller amounts at frequent
intervals. The Company intends that future sales require 15% - 20% of the
amount due at the time of sale and the balance upon delivery, with the
equipment manufacture supplying the purchaser with performance and
completion bonds prior to delivery.

     Cost of Sales consists of wholesale costs to the Company of
granulating systems and support equipment plus freight and insurance, which
are billed to the client. Cost of Sales for the year ended December 31,
1998 was $1,761,775, a $499,902 decrease from the $2,261,667 for the year
ended December 31, 1997. Cost of Sales as a percentage of equipment sales
was 60% in 1998 compared to 77% in 1997 and 66% in 1996. 1997 was adversely
affected by concessions to the buyer in relation to the granting of the
territorial license for Mexico. The Company believes that the gross margin
experienced  in 1998 an appropriate margin on equipment transactions but is
not indicative of a trend but rather is the function of different equipment
specifications for different projects.
                                     20<PAGE>

     Commission expense for the year ended December 31, 1998 was $0
compared to the 1997 expense of $37,008. This is due to the a continuation
of the strategy of having contracts  negotiated by Company personal with
out the use of outside sales personal or agents.    

     Depreciation expense was essentially unchanged in 1998 to $47,691
compared to $47,737 in 1997.  The majority of the depreciation expense in
both years was for the SMS press. This unit was sold in late 1998. 

     The Company amortizes the license agreement with Rothbury Engineering
over the anticipated 10 year economic life of the technology. The year
ended December 31, 1998 and 1997 include a full years amortization.. During
1998 the Company acquired a License from Faru GmbH. This license is also
being amortized over 10 years from the date of acquisition, resulting in an
increase in amortization expense of $7,500 for the year ended December 31,
1998 compared to 1997.

     Travel expenses increased in the twelve months ended December 31, 1998
by $99,386 compared to 1997 ( $155,442 vs $ 56,056 ), due primarily to the
extensive travel necessary due to the projects in Germany, the German joint
venture, the installations in Mexico and the strategy of seeking to
establish business relationships which will lead to further joint venture
agreements.

     Professional Fees decreased to $56,978 in the year ended December 31,
1998 , compared to $78,596 in the year ended December 31, 1997.  The 1997
year included legal work  involved with the reverse split of the Company's
stock and the agreements to exchange the shares held by the minority
holders of shares in the Company's subsidiary (Eurectec, Inc) for Quantum
shares. The 1998 year includes expenses relating to ongoing operations of a
more general nature.

     Office Expenses increased by $61,431 from the year ended December 31,
1997. This is due to the addition of support personal, and the repair,
maintenance and cleaning of the company's offices, for the full year. 
Administrative Expenses increased to $249,909 in the year ended December
31, 1998 from $95,377 in the year ended December 31, 1997. This is due to
the establishment of both financial and general public relation programs,
the fees for application for full NASDAQ listing and the establishment of
marketing and sales programs for both crumb rubber and after market
products such as mats. Rent and Utilities expense declined in the year
ended December 31, 1998 to $63,259 compared to $65,634 in 1997.  

     Consulting Fees increased to $449,508 in the twelve months ended
December 31, 1998 compared to $232,571 for the year ended December 31,
1997. The Company employed outside consultants for marketing and accounting
in 1998 and 1997. Additional consulting expense was incurred in 1997 for
the start up of the crumb rubber and after market sales efforts. In 1998
the Company began paying its president as a consultant.

                                     21<PAGE>

     Interest Expense declined 1998 compared to 1997 from $95,656 to $804
due to paying off the Company debt in early 1998.

     In 1997 the Company reserved $175, 000 (50%) of the Mexico License Fee
Receivable under the theory of conservativism. Although the signed
agreement calls for the payment of $350,000,  Management believes that the
client may attempt to renegotiate the contract or seek concessions in some
manner. In 1998 the Company added $100,000 to this reserve.

     The Foreign Currency translation gains of $63,880 in the year ended
December 31, 1997 are $36,116 more than the gain of $27,764 in the twelve
months ended December 31, 1998. This gain in both years is due to the fact
that the U.S. Dollar has strengthened considerable in relation to the
German Mark. The Company's non U.S. lender debt is repayable in German
Marks. This strengthening means that fewer Marks would be needed to repay
the debt than were needed at the previous year end. The debt was repaid
during early 1998 thereby reducing effect of the gain to only the period
prior to repayment.     
Comparison of the year ended December 31, 1997, and the year ended December
31,1996.

    Revenue for the year ended December 31, 1997 was $3,424,809. This is a
$517,130 increase over the revenues of $2,907,679 generated in the year
ended December 31, 1996. The increase in 1997  is from an increase in
equipment sales of $51,137 and an increase of $465,000 in License Sales.

    Cost of Sales consists of wholesale costs to the Company of
granulating systems and support equipment plus freight and insurance, which
are billed to the client. Cost of Sales for the year ended December 31,
1997 was $2,261,677, a $366,209 increase over the $1,895,468 for the year
ended December 31, 1996. Cost of Sales as a percentage of equipment sales
was 77% in 1997 compared to 66% in 1996. This increase resulted from
concessions to the buyer in relation to the granting of the territorial
license for Mexico. The Company believes that the decline in gross margin
experienced  in 1997 is not indicative of a trend or ongoing factors and
that margins should return to 1996 levels in the upcoming year. 

    Commission expense for the year ended December 31, 1997 of $37,008 is
less than the 1996 expense of $195,077 by $158,069. This is due to the
Mexico contract having been negotiated by Company personal with out the use
of outside sales personal or agents.    

    Depreciation expense increased in 1997 to $47,737 from 22,926 due to
the purchase in 1996 of the SMS tile press and the inclusion of a full year
of depreciation in 1997.

                                     22<PAGE>

    The Company amortizes the license agreement with Rothbury Engineering
over the anticipated 10 year economic life of the technology. The year
ended December 31, 1997 includes a full years amortization while the year
ended December 31, 1996 includes the amortization from the date of
acquisition, resulting in an increase in amortization expense of $14,587.

    Travel expenses decreases in the twelve months ended December 31, 1997
by $11,530 compared to 1996 ( $56,056 vs $ 67,586 ), due primarily to the
closer proximity of the 1997 project.

    Professional Fees increased to $78,596 in the year ended December 31,
1997, compared to $67,586 in the year ended December 31, 1996, do to legal
work involved with the reverse split of the Company's stock and the
agreements to exchange the shares held by the minority holders of shares in
the Company's subsidiary (Eurectec, Inc) for Quantum shares.

    Office Expenses and Administrative Expenses increase by $15,162 and
$8,094, respectively from the year ended December 31, 1996. This is due to
the addition of support personal, and the repair, maintenance and cleaning
of the company's offices, some of which were included in the rent at the
prior facility. Rent and Utilities expense declined in the year ended
December 31, 1997 by $17,469 as general office support is not provided in
the current facilities.  

    Consulting Fees declined to $232,571 in the twelve months ended
December 31, 1997 compared to $265,375 for the year ended December 31,
1996. The Company employed outside consultants for marketing and accounting
in 1996 and 1997. Additional consulting expense was incurred in 1996 for
the start up of the technical ans sales efforts associated with the SMS
press equipment, without a corresponding expense in 1997.

    Interest Expense increased in 1997 compared to 1996 due to accruing a
full years interest on the Machinery and Technology Notes Payable
obligations incurred in 1996.

    In 1997 the Company wrote off the balance of the Receivable from
Atlantic Rubber. The Company does not believe that Atlanta Rubber will
proceed with its planned project. The Company reserved $175, 000 (50%) of
the Mexico License Fee Receivable under the theory of conservativism.
Although the signed agreement calls for the payment of $350,000, 
Management believes that the client may attempt to renegotiate the contract
or seek concessions in some manner. In 1996 the Company wrote off a note
receivable from a client for $338, 181 and a loan to it's German subsidiary
of $38,750.

    Foreign Currency translation gains of $63,880 in the year ended
December 31, 1997 compared  to a gain of $6,344 in the twelve months ended
December 31, 1996.

                                     23




        <PAGE>
_________________________________________________________________________

                       ITEM 7.  FINANCIAL STATEMENTS

_________________________________________________________________________
    
     The following financial statements of the Company are filed as a part
of   this report:

          Report of Darrell Schvaneveldt, Certified Public Accountant;
          Balance Sheets as of December 31, 1998 and December 31, 1997;
          Statements of Stockholders' Equity for the years ended December
          31, 1998, 1997, and 1996;
          Statements of Cash Flows for the years ended December 31, 1998,
          1997, and 1996;
          Notes to Financial Statements.

     There are no financial statement schedules included as part of this
report. The financial statements of the Company are set forth immediately
following the signature page to this Form 10-KSB.

_________________________________________________________________________

          ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH  ACCOUNTANTS
                   ON ACCOUNTING AND FINANCIAL DISCLOSURE
_________________________________________________________________________

     The Company has had no disagreements with its accountants as to any
matter regarding accounting or financial disclosure.
_________________________________________________________________________

                                  PART III

_________________________________________________________________________

           ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, 
                    AND CONTROL PERSONS; COMPLIANCE WITH
                     SECTION 16(a) OF THE EXCHANGE ACT 
_________________________________________________________________________

     The following table sets forth as of December 31, 1998 the name, age,
and position of each executive officer and director and the term of office
of each director of the Corporation.

<TABLE>
<CAPTION>
  Name                    Age   Position        Director or Officer Since
_________________________________________________________________________
<S>                      <C>   <C>             <C>
  Ehrenfried Liebich      56    President       March 1989
                                Director        March 1989

  Keith J. Fryer          49    Vice President  March 1995
                                Director        March 1995
                                Secretary       July 1997

  John F. Pope            56    Vice President  January 1991
                                Treasurer       January 1991
                                Director        March 1989
  Markus J. Lenger        34    Vice President  October 1995
_________________________________________________________________________

</TABLE>

                                     25<PAGE>
     All officers hold their positions at the will of the Board of
Directors.  All directors hold their positions for one year or until their
successors are elected and qualified.

     Set forth below is certain biographical information regarding each of
the Company's executive officers and directors:

     Ehrenfried Liebich is the President and a Director of the Company. 
Mr. Liebich first became involved with the Company in March 1989.  Mr.
Liebich was born and educated in Germany.  After his formal secondary
education in Germany he joined the Merchant Marine, which he left as a
Ship's Officer with the Court Line, London, U.K.  Mr. Liebich immigrated to
Canada in 1965 where he started various businesses in the areas of real
estate, investment, chemical distribution and electronics.  In March of
1989 he became the President, a Director and controlling shareholder of the
Company.

     Keith J. Fryer is a Vice President, Secretary and a Director of the
Company.  Mr. Fryer first became involved with the Company in August 1992. 
Mr. Fryer was educated in England and graduated from the Cheshire College
of Further Education with a City and Guild of London Institute Diploma in
Construction and Site Surveying.  He also studied at Cranfield and
Dunchurch UK Management Colleges and became a Member of the Institute of
Marketing London in 1974.  Mr. Fryer became a Chartered Member of the
Institute in 1989.  He has been a member of the Marketing Society London
since 1989.  He is also a life member of the Wig & Pen Club, The Strand,
London.  Mr. Fryer successfully operated Keith Fryer Associates England,  a
business he formed in 1986, that provided marketing consulting services in
various business areas.  In 1992, Mr. Fryer established Keith Fryer
Associates California, Inc., a marketing consulting firm.  Mr. Fryer became
a Vice President and Director of the Company in March 1995 and Secretary of
the Company in July 1997.

     John F. Pope is the Treasurer, a Vice President and a Director of the
Company.  Mr. Pope began his professional career in 1963 as an auditor in
public accounting and subsequently on the corporate staff of Olivetti
Underwood in New York.  He joined Burger King Corporation in Miami,
Florida, in 1968 and progressed to the position of Controller, Company
Stores Division.  He joined Orange Julius International, Inc., Santa
Monica, California, in 1974 as Vice President, Finance and a Director for
the parent company and its national and international subsidiaries.


                                     25<PAGE>
     In 1980, Mr. Pope became President of Inflation Management, Inc., Los
Angeles, California.  From February 1982 until February 1984 he was Vice
President, Finance of Aerobic Dancing, Inc.  In 1984 he became Senior Vice
President of Animated Playhouses Incorporated and Subsidiaries, before
moving to become Executive Vice President Finac International, Inc., an
investment and venture capital firm in Torrance, California.

     From 1986 through November 1987, Mr. Pope acted as Vice President
Finance and Administration for ASI Sign Systems of Marina Del Ray, Inc. 
After leaving ASI Sign Systems in late 1987, Mr. Pope became a independent
financial consultant assisting a number of domestic and international
public and private companies in franchising, financial structure, and
internal and SEC reporting.  He continues to serve on the Board of
Directors of several companies he helped to become public companies.

     In 1989, Mr. Pope became a founding member of the Board of Directors
of the Quantum Group, Inc., in addition to other activities.  Mr. Pope is a
Certified Management Accountant (CMA) and serves on the National Board of
Directors of The Institute of Management Accountants, where he also chairs
the National Committee of Finance.  He has also been Certified in Financial
Management (CFM) by the same institute.  He is a Certified Public
Accountant (CPA) and a member of the American Institute of Certified Public
Accountants (AICPA).  He has been a member of the Curriculum Steering
Committee, School of Accountancy, University of Southern California, and a
number of other professional and civic organizations. 

     Dr. Markus J. Lenger is a Vice President of the Company.  Dr. Lenger
first became involved with the Company in October 1995.  Dr. Lenger
received a B.S. in electronic engineering from The University in St.
Gallen, Switzerland.  He also has a Doctorate degree in high energy physics
from the Max Plank Institute in Munich, Germany.  Dr. Lenger has been self-
employed as a consultant through his company, BioSurf, Inc., a California
corporation he founded in 1994.   Previously, Dr. Lenger was a Vice
President  of Research and Development for Green Earth Technologies.  He
has also been associated with BioVersal and OekoSens.  Both companies are
in the environmental remediation business.  Dr. Lenger has eight years
experience in developing bioremediation technologies.  His technologies
have been used in Europe to successfully decontaminate more than 600,000
tons of highly contaminated soil.  Dr. Lenger also spent eight months in
Valdez, Alaska during the Exxon Valdez oil spill where he developed systems
for waste water processing, soil remediation and biological mixed
surfactant systems.   

     There are no family relationships between any of the Company's
officers and directors.  In addition, none of the officers and directors
have been involved in certain legal proceeding which require disclosure in
this annual report of the Company.

                                     26<PAGE>
Compliance with Section 16(a) of the Exchange Act

     Directors and executive officers are required to comply with Section
16(a) of the Securities Exchange Act of 1934, which requires generally that
such persons file reports regarding ownership of and transactions in
securities of the Company on Forms 3, 4, and 5.  A Form 3 is an initial
statement of ownership of securities, which is to be filed by the officers
and directors owning shares in the Company within 10 days after the
effective date of the Company's filing on Form 10-SB.    Form 4 is to
report changes in beneficial ownership and is due on or before the tenth
day of the month following any month in which they engage in any
transaction in the Company's common stock.  Form  5 covers annual statement
of changes in beneficial ownership which is due 90 days after the fiscal
year end of the Company.  All directors and executive officers complied
with Section 16(a).

_________________________________________________________________________

                      ITEM 10.  EXECUTIVE COMPENSATION
_________________________________________________________________________

     The following table sets forth certain summary information concerning
the compensation paid or accrued over each of the Registrant's last three
completed fiscal years to the Company's, or its principal subsidiaries,
chief executive officers during such period (as determined at December 31,
1998 the end of the Registrant's last completed fiscal year).

<TABLE>
<CAPTION>
_____________________________________________________________________________________
                              Summary Compensation Table
                              --------------------------

                                                                     Long Term Compensation 
                                                                     -------------------------
                                                      Awards                 Payouts 
                                                     --------                --------
                                               Other   Rest- 
Name &                               Annual Compensation      Annual ricted                All 
Principal                            ---------------------   Compen-  Stock   Options     Other 
Position               Year   Salary  Bonus   sation  Awards   /SARs#   LTIP Payouts 
-------------------    -----   ------ ------  -------  ------ ------- ------ --------
<S>                  <C>     <C>     <C>     <C>      <C>    <C>     <C>    <C>      
Ehrenfried Liebich     1998   72,806    -0-      -0-     -0-     -0-    -0-      -0- 
President/Director     1997      -0-    -0-      -0-     -0-     -0-    -0-      -0- 
                       1996      -0-    -0-      -0-     -0-     -0-    -0-      -0- 

Keith Fryer(1)         1998  105,000    -0-      -0-     -0-     -0-    -0-      -0- 
Vice President/        1997   68,559    -0-      -0-  20,000 333,334    -0-   36,008 
Director/Secretary     1996   65,321    -0-      -0-     -0-     -0-    -0-   65,415 

John F. Pope (2)       1998   30,000    -0-      -0-     -0-     -0-    -0-      -0- 
Vice President/        1997   28,850    -0-      -0-     -0-     -0-    -0-      -0- 
Treasurer/Director     1996   45,500    -0-      -0-     -0-     -0-    -0-      -0- 

Markus J. Lenger (3)   1998   25,084    -0-      -0-     -0-     -0-    -0-      -0- 
Vice President         1997    9,859    -0-      -0-     -0-     -0-    -0-      -0- 
                       1996   23,944    -0-      -0-     -0-     -0-    -0-      -0- 
_____________________________________________________________________________________

</TABLE>
                                     27<PAGE>
     (1)  Keith Fryer provided consulting services to the Company through
Keith Fryer Associates California, Inc., his private consulting business. 
The salary figures represent amounts paid by the Company to Keith Fryer
Associates California, Inc.  Included in the salary figure is $20,000 paid
for office staff salaries.  These services were provided on terms at least
as favorable as could have been negotiated with an independent third party. 
The "other compensation" paid to Keith Fryer was in the form of commissions
for license and equipment sales.  The options were granted to Mr. Fryer
pursuant to the Company's 1997 Stock Option Plan.

     (2)  John Pope provided consulting services to the Company through his
private consulting business, John F. Pope, Inc.  The salary figures
represent amounts paid by the Company to John F. Pope, Inc. For Mr. Pope's
services to the Company as an officer and director overseeing the financial
affairs of the Company.  These services were provided on terms at least as
favorable as could have been negotiated with an independent third party.

     (3) Markus Lenger provided consulting services to the Company.  The
salary figure represents amounts paid by the Company to Dr. Lenger for
services to the Company as an officer and as a consultant overseeing the
Company's website development.

Bonuses and Deferred Compensation

     The Company does not have any bonus, deferred compensation, employee
benefit, or retirement plan.  Such plans may be adopted by the Company at
such time as deemed reasonable by the board of directors.  The Company does
not have a compensation committee, all decisions regarding compensation are
determined by the board of directors.

Stock Option and Stock Appreciation Rights Plans

     Effective June 27, 1997, the Company implemented the Quantum Group,
Inc., 1997 Stock Option Plan and allocated 1,000,000 shares of common stock
of the Company to be available for grant under the plan. In October 1997,
the Company granted an option, pursuant to the 1997 Stock Option Plan, to
Keith Fryer, an officer and director of the Company for 333,334 shares,
exercisable at $0.0625 per share.  The options are exercisable at a rate of
66,666 shares per year for a period of five years commencing immediately
upon the date of grant.  To date, 66,666 options have been exercised.

                                     28<PAGE>
Option / SAR Grants in Last Fiscal Year

     Individual Grants
<TABLE>
<CAPTION>
Name                   Number of     % of Total    Exercise   Expiration     Grant 
                      Securities    Options/SARs    or Base         Date      Date 
                    Options/SARs     Granted to       Price                Present 
                         Granted      Employees    ($/share)              Value ($)
                                    Fiscal Year 
<S>                <C>             <C>            <C>        <C>         <C>       
_____________________________________________________________________________________

Keith Fryer              333,334           100%      $.0625         2002   $20,000 
_____________________________________________________________________________________

</TABLE>

Termination of Employment and Change of Control Arrangement

     There are no compensatory plans or arrangements, including payments to
be received from the Company, with respect to any person named in cash
compensation set out above which would in any way result in payments to any
such person because of his resignation, retirement, or other termination of
such person's employment with the company or its subsidiaries, or any
change in control of the Company, or a change in the person's
responsibilities following a changing in control of the Company.

_________________________________________________________________________

                  ITEM 11.  SECURITY OWNERSHIP OF CERTAIN 
                      BENEFICIAL OWNERS AND MANAGEMENT
_________________________________________________________________________

     The following table sets forth as of December 31, 1998 the name and
the number of shares of the Registrant's Common Stock, par value $0.001 per
share, held of record or beneficially by each person who held of record, or
was known by the Registrant to own beneficially, more than 5% of the
8,400,075 issued and outstanding shares of the Registrant's Common Stock,
and the name and shareholdings of each director and of all officers and
directors as a group.

<TABLE>
<CAPTION>
                                                    Amount and 
                                     Name of         Nature of                     
Title of Class              Beneficial Owner  Beneficial Owner  Percentag of Class 
---------------------  ---------------------- ----------------- -------------------
<S>                   <C>                    <C>               <C>                 
Common                    Ehrenfried Liebich         2,887,593              34.37% 
                           14771 Myford Road 
                                  Building B 
                    Tustin, California 90744 

                                          29<PAGE>
Common                     Keith J. Fryer (1)          351,666               4.18% 
                           14771 Myford Road 
                                  Building B 
                    Tustin, California 90744 

Common                      John F. Pope (2)            33,668              0.400% 
                           14771 Myford Road 
                                  Building B 
                    Tustin, California 90744 


Common                  Dr. Markus J. Lenger                 0                  0% 
                           14771 Myford Road 
                                  Building B 
                    Tustin, California 90744 

_____________________________________________________________________________________


Common    All Officers, Directors as a Group:                  
                                  (4 persons)         3,272,927              38.96%
______________________________________________________________________________________

</TABLE>


(1)  These shares are owned by Keith Fryer Associates California, Inc.  Mr.
Fryer is the owner operator of that business and is deemed to be the
beneficial owner of these shares because he holds the sole voting and
investment power regarding such shares.

(2)  All of Mr. Popes shares are held of record by John F. Pope, Inc.,
which he may be deemed to be a beneficial owner of the shares because he
has shared investment power of the shares.

_________________________________________________________________________

                    ITEM 12.  CERTAIN RELATIONSHIPS AND 
                            RELATED TRANSACTIONS
_________________________________________________________________________

     In August 1998, the Company loaned $30,000 to John Pope, a director
and officer of the Company.  The note was at an interest rate of 9% per
annum and was due and payable on December 28, 1998 unless extended by the
Company.  The promissory note has been extended by the Company and is now
due December 31, 1999.  John Pope is also the owner of John F. Pope, Inc.,
a consultant to the Company.  Compensation paid to John F. Pope, Inc. is
identified under the compensation table.

     Keith Fryer, an officer and director of the Company, is the owner of
Keith Fryer Associates California, Inc., ("KFA") a consultant to the
Company.  Compensation paid to KFA is identified under the compensation
table.

     There were no other related party transactions during 1998.

                                     30<PAGE>
_________________________________________________________________________

                                  PART IV
_________________________________________________________________________

                 ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
_________________________________________________________________________

(a)  Reports on Form 8-K. 

     None.

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

<TABLE>
<CAPTION>
Exhibit
Reference      SEC Exhibit
Number         Number         Title of Document             Location
---------      -----------    ----------------------------  ---------------
<S>            <C>            <C>                           <C>
3.01           3              Articles of Amendment to the  Incorporated
                              Articles of Incorporation     by reference*

3.02           3              Articles of Incorporation     Incorporated
                                                            by reference*

3.03           3              Bylaws                        Incorporated
                                                            by reference*

10.01          10             Poseidon Products GmbH.       Incorporated
                              Agreement                     by reference**

10.02          10             Atzendorf Agreement           Attached

10.03          10             Chemnitz Agreement            Attached

23.01          23             Consent of Accountant         Attached

27.01          27             Financial Data Schedule       Attached

</TABLE>


*Incorporated by reference from the Registrant's registration statement on
form 10-SB, as amended, filed with the Commission, SEC file no. 0-23812.

**Incorporated by reference from the Registrant's Form 10-KSB for the year
ended December 31, 1997, filed with the commission, SEC file no. 0-23812

                                     31<PAGE>
_________________________________________________________________________

                                 SIGNATURES
_________________________________________________________________________

     In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.

Dated:  March 30, 1998                       The Quantum Group, Inc.
                                             a Nevada corporation


                                             By: /s/ Ehrenfried Liebich
                                             -----------------------------
                                             Ehrenfried Liebich, President


DATE                     NAME AND TITLE      SIGNATURE
----                     --------------      ---------
March 30, 1998           Ehrenfried Liebich  By: /s/ Ehrenfried Liebich
                         President/Director  -----------------------------
                                             Ehrenfried Liebich, President

March 30, 1998           Keith J. Fryer      By: /s/ Keith J. Fryer
                                             ----------------------
                         Vice President/
                         Director/Secretary  Keith J. Fryer

March 30, 1998           John F. Pope        By: /s/ John F. Pope
                         Vice President,     --------------------
                         Treasurer/Director  John F. Pope

                                     32<PAGE>
_________________________________________________________________________

                                 SIGNATURES

_________________________________________________________________________

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf of the undersigned, thereunto
duly authorized.

Dated: March 30, 1998                        The Quantum Group, Inc.
                                             a Nevada corporation


                                             By:
                                             -----------------------------
                                             Ehrenfried Liebich, President


DATE                     NAME AND TITLE      SIGNATURE

March 30, 1998           Ehrenfried Liebich  By:
                         President/Director  -----------------------------
                                             Ehrenfried Liebich, President

March 30, 1998           Keith J. Fryer      By:
                         Vice President/     -----------------------------
                         Director/Secretary  Keith J. Fryer

March 30, 1998           John F. Pope        By:
                         Vice President/     -----------------------------
                         Treasurer/Director  John F. Pope

                                     32<PAGE>
Exhibit Index

            SEC Exhibit
Exhibit     Reference
Number      Number       Title of Document
                                                       Location

10.02       10           Atzendorf Agreement           E-

10.03       10           Chemnitz Agreement            E-

23.01       23           Consent of Accountant         E-

27.01       27           Financial Data Schedule       E-



                                     33<PAGE>







                          THE QUANTUM GROUP, INC.
                              AND SUBSIDIARIES


                            FINANCIAL STATEMENTS

                             DECEMBER 31, 1998
                                     &
                             DECEMBER 31, 1997






                                    F-1
<PAGE>
/Letterhead/
                           Schvaneveldt & Company
                        Certified Public Accountant
                        275 East South Temple, #300
                         Salt Lake City, Utah 84111
                            (801) 521-2392 Phone

Darrell T. Schvaneveldt, C.P.A.


                        Independent Auditors Report
                        ---------------------------

Board of Directors
The Quantum Group, Inc., and Subsidiaries 

I have audited the accompanying balance sheets of The Quantum Group, Inc.,
and Subsidiaries, as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity, and cash flows for the
years ended December 31, 1998, 1997, and 1996.  These financial statements
are the responsibility of the Company's management.  My responsibility is
to express an opinion on these financial statements based on my audit. 

I conducted my audit in accordance with generally accepted auditing
standards.  Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the  financial statements are
free of material misstatements.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and the significant estimates made by management, as well as
evaluating the overall financial statements presentation.  I believe that
my audit provides a reasonable basis for my opinion. 

In my opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of The Quantum Group, Inc.,
and Subsidiaries, as of  December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years ended December 31, 1998, 1997,
and 1996, in conformity with generally accepted accounting principles.



/S/ Schvaneveldt & Company
Salt Lake City, Utah 
March 17, 1999




                                    F-2<PAGE>
                  The Quantum Group Inc., and Subsidiaries
                               Balance Sheets
                        December 31, 1998 and 1997 
<TABLE>
<CAPTION>

                                                           December       December 
                                                           31, 1998       31, 1997 
                                                        ------------   ------------
<S>                                                    <C>            <C>
      Assets
Current Assets
--------------
  Cash                                                  $ 1,781,944    $   142,690 
  Accounts Receivable                                     3,065,040        710,979 
  Inventory                                                  19,425         29,760 
  Deposit                                                   303,021        421,451 
  Note & Interest Received - Officer                         30,932            -0- 
  Prepaid Expenses                                              440            -0- 
                                                        ------------   ------------
      Total Current Assets                                5,200,802      1,304,880 

Property & Equipment
--------------------
  Furniture & Fixtures                                          -0-          3,054 
  Equipment                                                  29,963        154,778 
  Vehicles                                                   41,382            -0- 
  Land                                                      179,309            -0- 
                                                        ------------   ------------
      Total Property & Equipment                            250,654        157,832 

Other Assets
------------
  Securities                                                    -0-         73,125 
  Cash Pledged                                                5,329          5,225 
  License Rights                                            507,367        414,622 
  Deposit                                                 1,807,789          3,281 
  Prototype Impact 500                                       63,203            -0- 
                                                        ------------   ------------
      Other Assets                                        2,383,688        496,253 
                                                        ------------   ------------

      Total Assets                                      $ 7,835,144    $ 1,958,965 
                                                        ============   ============

</TABLE>

 The accompanying notes are an integral part of these financial statements

                                    F-3<PAGE>
                  The Quantum Group Inc., and Subsidiaries
                         Balance Sheets -Continued-
                         December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                           December       December 
                                                           31, 1998       31, 1997 
                                                        ------------   ------------
<S>                                                    <C>            <C>
      Liabilities & Stockholders' Equity
Current Liabilities
-------------------
  Accrued Expenses                                      $   450,084    $   552,399 
  Accounts Payable                                          725,201        140,016 
  Due Officers                                                  -0-          7,919 
  Customer Deposits                                       2,192,962          2,500 
  Franchise Taxes Payable                                   103,548        103,548 
  Current Maturities                                            -0-        721,318 
                                                        ------------   ------------
      Total Current Liabilities                           3,471,795      1,527,700 

Long Term Liabilities
---------------------
  Capital Lease                                              25,503            -0- 
  Note Payable - Machinery                                      -0-        145,631 
  Note Payable - Technology                                     -0-        347,547 
  Note Payable                                                  -0-        228,140 
  Less Current Maturities                                       -0-    (   721,318)
                                                        ------------   ------------

      Total Long Term Liabilities                            25,503            -0- 

Minority Interest in Subsidiary                               9,463        109,256 

Stockholders' Equity
--------------------
  Common Stock 50,000,000 Shares Authorized; 
   Par Value of $0.001 Per Share,
  8,400,075 & 4,853,409 Shares Issued
   Retroactively Restated Respectively                        8,400          4,853 
  Paid In Capital                                         6,018,287      1,932,968 
  Accumulated Deficit                                   ( 1,698,304)   ( 1,615,812)
                                                        ------------   ------------
      Total Stockholders' Equity                          4,328,383        322,009 
                                                        ------------   ------------
      TOTAL LIABILITIES & 
      STOCKHOLDERS' EQUITY                              $ 7,835,144    $ 1,958,965 
                                                        ============   ============

</TABLE>

 The accompanying notes are an integral part of these financial statements
                                    F-4<PAGE>
                  The Quantum Group Inc., and Subsidiaries
                          Statements of Operations
            For the Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                            December       December       December 
                                            31, 1998       31, 1997       31, 1996 
                                         ------------   ------------   ------------
<S>                                     <C>            <C>            <C>
Revenues
--------
  Equipment Sales                        $ 2,882,007    $ 2,923,816    $ 2,872,679 
  License Sales                                  -0-        500,000         35,000 
  Other Income                                70,893            993            -0- 
                                         ------------   ------------   ------------
      Total Revenues                       2,952,900      3,424,809      2,907,679 

      Cost of Sales                        1,761,775      2,261,677      1,895,468 
                                         ------------   ------------   ------------     
      Gross Profit                         1,191,125      1,163,132      1,012,211 

Expenses
--------
  Commission                                     -0-         37,008        195,077 
  Depreciation                                47,691         47,737         22,926 
  Amortization                                57,256         49,756         33,169 
  Travel                                     155,442         56,056         67,586 
  Professional Fees                           56,978         78,596         68,147 
  Office                                      98,139         36,708         21,546 
  Rent & Utilities                            63,259         65,634         83,103 
  Administrative Expenses                    249,909         95,377         87,283 
  Consultant Fees                            449,508        232,571        265,375 
  Interest                                       804         95,656         88,161 
  Accounts Receivable Written Off            100,000        195,000        376,931 
  Foreign Currency Translation           (    27,764)   (    63,880)   (     6,344)
  Research & Development                      13,544            -0-            -0- 
                                         ------------   ------------   ------------
      Total Expenses                       1,264,766        926,219      1,302,960 
                                         ------------   ------------   ------------
      Net Income (Loss) From Operations  (    73,641)       236,913    (   290,749)

</TABLE>

 The accompanying notes are an integral part of these financial statements

                                    F-5<PAGE>
                  The Quantum Group Inc., and Subsidiaries
                    Statements of Operations -Continued-
           For the Years Ended December 31, 1998, 1997 and 1996 

<TABLE>
<CAPTION>
                                            December       December       December 
                                            31, 1998       31, 1997       31, 1996 
                                         ------------   ------------   ------------
<S>                                     <C>            <C>            <C>
Other Income (Expenses)
-----------------------
  Interest Income                        $    13,583    $       -0-    $       122 
  Gain on Sale of Residence                      -0-            -0-         38,327 
  Loss on Investment                     (    20,000)           -0-    (     6,250)
  Investment Evaluation Loss                     -0-    (     6,875)           -0- 
                                         ------------   ------------   ------------
      Total Other Income (Expense)       (     6,417)   (     6,875)        32,199 
                                         ------------   ------------   ------------
      Net Income (Loss) Before
      Extraordinary Items                (    80,058)       230,038    (   258,550)

Extraordinary Items
-------------------
  Income Capital Lease                           -0-            -0-         16,741 
                                         ------------   ------------   ------------
      Net (Loss) After 
      Extraordinary Items                (    80,058)       230,038    (   241,809)

  Taxes & Minority Interest
   Minority Interest                     (     2,492)        24,517         12,989 
   Provisions for Taxes - Current             23,125        103,628            -0- 
                                         ------------   ------------   ------------
      Total Taxes & Minority Interest         20,633        128,145         12,989 
                                         ------------   ------------   ------------
      Net Income (Loss)                  ($  100,691)   $   101,893    ($  228,820)
                                         ============   ============   ============
      Net (Loss) Per Share Before
      Extraordinary Items                ($      .01)   $       .02    ($      .05)

      Net (Loss) Per Share After 
      Extraordinary Items                (       .01)           .02    (       .04)

  Weighted Average Shares Outstanding      6,846,696      4,728,348      4,728,348 

</TABLE>

 The accompanying notes are an integral part of these financial statements

                                    F-6<PAGE>
                 The Quantum Group, Inc., and Subsidiaries
                     Statements of Stockholders' Equity
                 From January 1, 1997 to December 31, 1998

<TABLE>
<CAPTION>

                                              Common Stock                 Paid In         Accumulated 
                                       Stock     Amount     Capital        Deficit 
                              -----------------------------------------------------
<S>                            <C>            <C>        <C>          <C>          
Balance, January 1, 1997           3,153,409      3,153   1,684,668   (  1,717,705)

Shares Issued for Cash               100,000        100     149,900 

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

Profit for Year Ended
December 31, 1997                                                          101,893 
                              -----------------------------------------------------
Balance, December 31, 1997         4,853,409      4,853   1,932,968   (  1,615,812)

Shares Issued Regulation S 
for Cash at $1.50 Per Share        1,200,000      1,200   1,798,800 

Shares Issued Regulation S 
for Cash at $2.00 Per Share          300,000        300     599,700 

Shares Issued Regulation S 
for Cash at $2.25 Per Share        1,000,000      1,000   2,249,000 

Cost of Shares Sold Pursuant
to Regulation S Offering                                 (  694,964)

Shares Issued or
Exercise of Options                  396,666        397      24,177 

Shares Issued to Minority 
Interest Shareholders to 
Acquire 100% of Subsidiary 
Stock                                650,000        650     108,606 

Loss for Year Ended
December 31, 1998                                                     (    100,691)
                              -----------------------------------------------------
Balance, December 31, 1998         8,400,075  $   8,400  $6,018,287   ($ 1,716,503)
                              =====================================================

</TABLE>

 The accompanying notes are an integral part of these financial statements

                                    F-7<PAGE>
                 The Quantum Group, Inc., and Subsidiaries
                          Statements of Cash Flows
            For the Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                   1998          1997         1996 
                                            ------------  ------------ ------------
<S>                                        <C>           <C>           <C>
Cash Flows from Operating Activities
------------------------------------
 Net Profit or (Loss)                        ($ 100,691)  $   101,892   ($ 228,820)
 Adjustments to Reconcile Net Profit
  or (Loss) to Net Cash:
   Write Off Accounts Receivable                100,000       195,000          -0- 
   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                  104,947        84,745       56,095 
   Non Cash Income                                  -0-           -0-   (   16,741)
   Minority Interest                             12,210        24,517   (   12,989)
 Changes in Operating Assets & 
 Liabilities:
  (Increase) Decrease in Accounts
   Receivable                                (2,354,061)  (   681,457)  (   24,559)
  (Increase) Decrease in Inventory               10,335        38,991          -0- 
  (Increase) Decrease in Deposit on
   Inventory                                    118,430           -0-      424,820 
  (Increase) Decrease in Prototype
   Impact 500                                (   63,203)          -0-          -0- 
  (Increase) Decrease in Notes
   Receivable - Officer                      (   30,932)          -0-          -0- 
  (Increase) Decrease in Prepaid
   Insurance                                 (      440)          -0-          -0- 
  (Increase) Decrease in Deposits            (1,804,508)          -0-   (    3,281)
  Increase (Decrease) in Accrued Expenses    (  102,315)      393,577   (   68,034)
  Increase (Decrease) in Accounts Payable       585,185   (    65,316)  (  271,047)
  Increase (Decrease) in Tax Payable
   - Current                                        -0-       103,548          -0- 
  Increase (Decrease) in Customer Deposits    2,190,462         2,500   (  244,464)
  Increase (Decrease) in Taxes Payable
   Deferred                                         -0-            80          -0- 
  (Increase) Decrease in Cash Pledged        (     104)   (       103)  (    5,122)
  Rounding                                          -0-           -0-   (        3)
                                            ------------  ------------ ------------
     Net Cash (Used) by Operating 
     Activities                              (1,334,685)      197,974   (   10,964)

</TABLE>

 The accompanying notes are an integral part of these financial statements

                                    F-8

<PAGE>
                 The Quantum Group, Inc., and Subsidiaries
                    Statements of Cash Flows -Continued-
            For the Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                   1998          1997         1996 
                                            ------------  ------------ ------------
<S>                                        <C>           <C>           <C>
Cash Flows from Investing Activities
------------------------------------
 Purchase of Property - Lot                         -0-           -0-  (    45,000)
 Addition to Miami Residential Property             -0-           -0-  (     8,903)
 Purchase of Land                          (    179,309)          -0-          -0- 
 Refund of Import Duty                              -0-           718          -0- 
 Purchase of Equipment                     (     82,389) (     25,492) (   182,295)
 Purchase of License Rights                (    150,000)          -0-  (   497,547)
 Sale of Residential Property                       -0-           -0-      306,435 
 Purchase of Furniture                           40,000           -0-  (    11,086)
 Purchase of Securities                          73,125  (     80,000)         -0- 
 Sale of Press                                  216,635           -0-          -0- 
                                            ------------  ------------ ------------
     Net Cash Provided (Used) by 
     Investing Activities                  (     81,938) (    104,774) (   438,396)

Cash Flows from Financing Activities
------------------------------------
 Sale of Common Stock                         3,759,611       150,000          -0- 
 Payment on Long Term Debt                 (    721,318) (     63,879) (   169,781)
 Increase (Decrease) in Notes Payable               -0-           -0-      505,552 
 Increase (Decrease) in Amounts Due
  Officers                                 (      7,919) (     43,233)      92,451 
 Contributed Capital                                -0-           -0-        1,600 
 Increase Capital Lease                          27,655           -0-          -0- 
 Payment Capital Lease                     (      2,152)          -0-          -0- 
                                            ------------  ------------ ------------
  Net Cash Provided by 
  Financing Activities                        3,055,877        42,888      429,822 
                                            ------------  ------------ ------------
     Increase (Decrease) in Cash              1,639,254       136,088  (    19,538)

     Cash at Beginning of Period                142,690         6,602       26,140 
                                            ------------  ------------ ------------     
     Cash at End of Period                 $  1,781,944  $    142,690  $     6,602 
                                            ============  ============ ============
Disclosures from Operating Activities:
 Interest                                  $        804  $     95,656  $    88,161 
 Taxes                                              -0-       103,628        8,675 

Significant Non Cash Transactions:
 1,600,000 Shares Common Stock Issued to 
  Officer Debt Satisfaction                $        -0-  $    100,000  $       -0- 
 650,000 Shares of Common Stock Issued to
  Acquire Minority Interest in Subsidiary       109,256           -0-          -0- 

</TABLE>

 The accompanying notes are an integral part of these financial statements

                                    F-9
<PAGE>
                 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:   Assets and
     liabilities that occur in foreign countries are recorded at historical
     cost and translated at exchange rates in effect at the end of the
     year.  Income Statement accounts are translated at the average
     exchange rates for the year. Translation gains and losses shall be
     recorded as a separate line item in the equity section of the
     financial statements. 
H.   Depreciation:   The cost of property and equipment is depreciated over
     the estimated useful lives of the related assets. The cost of
     leasehold improvements is depreciated (amortized) over the lesser of
     the length of the related assets or the estimated lives of the assets. 
     Depreciation is computed on the straight line method for reporting
     purposes and for tax purposes.
I.   Issuance of Subsidiary's Stock: The Company has elected to accounts
     for shares issued by its subsidiary as an equity transactions. 


                                    F-10

<PAGE>
                 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. 

NOTE #3 - Inventory and Deposits
--------------------------------

In 1997, the Company returned inventory purchased from an Italian
manufacturer to the manufacturer for a credit of $421,451.  During 1998,
the credit was applied to purchase equipment sold to customers in Germany.

In 1998, the Company deposited $303,021 with the purchaser of three Revulc
300 Systems and press equipment for tiles to be produced in the last
quarter of 1999.

NOTE #4 - Noncash Investing and Financing Activities
----------------------------------------------------

In 1998, the Company issued 650,000 shares of its common stock to acquire
the minority interest of its subsidiary, Eurectec, Inc.  The minority
interest had a net book value of $109,256.


                                    F-11<PAGE>
                 The Quantum Group, Inc., and Subsidiaries
                 Notes to Financial Statements -Continued-

NOTE #5 - Notes Payable
-----------------------
<TABLE>
<CAPTION>

The Company has the following notes payable obligations.

                                                                 1998         1997 
                                                          ------------ ------------
<S>                                                      <C>           <C>

Notes Payable to a Non U.S. Entity, Stated in US Dollars:
No Collateral: Due December 31, 1997, Interest at 16.67%
Original Note $273,158 - Remeasurement for Foreign 
Currency Translation at Exchange Rates on December 31     $       -0-   $  228,140 

Note Payable on Press Master Machine, Interest at 16.67%, 
Due December 31, 1997, Original Note $171,029 
Remeasurement for Foreign Currency Translation
at Exchange Rates on December 31                                  -0-      145,631 

Note Payable on Purchase of Rubber Product Technology 
Due December 31, 1997, No Interest, Purchased and 
Payable in U.S. Dollars                                           -0-      347,547 
                                                          ------------  ------------
     Total Notes Payable                                  $       -0-   $  721,318 
     Less Current Obligation                                      -0-      721,318 
                                                          ------------  ------------
     Net Long Term                                        $       -0-   $      -0- 
                                                          ============  ============
</TABLE>

The Company borrowed funds from a non US entity.  It received in quarterly
installments Deutsche Marks of DM 411,381 these were translated to US
$273,158 at the quarterly exchange rate.  At December 31, 1996, the
exchange rate was US $1.54 for DM $1.00.  The Company revalued the note at
its current US $ equivalent and realized in the statement of operations a
translation gain of $6,344.  At December 31, 1997, the exchange rate was US
$1.54 for DM $1.00.  The Company revalued its foreign notes with German
lenders and realized $63,880 as a foreign currency translation agreement. 
These notes were paid in full in 1998.

NOTE #6 -  Lease Commitments
----------------------------

On July 15, 1996, the Company leased an office in Tustin, California.  The
lease requires a security deposit of $3,281, monthly payments of $4,101 and
expires on July 14, 1998.

NOTE #7 - Depreciation
----------------------

The Company capitalizes the purchase of equipment and fixtures for major
purchases in excess of $1,000 per item.  Capitalized amounts are
depreciated over the useful life of the assets using the straight-line
method of depreciation. 


                                    F-12
<PAGE>
                 The Quantum Group, Inc., and Subsidiaries
                 Notes to Financial Statements -Continued-

NOTE #7 - Depreciation -Continued-
----------------------------------

Scheduled below are the assets, costs and accumulated depreciations at
December 31, 1998 and December 31, 1997.

<TABLE>
<CAPTION>
                                   December 31,                Depreciation                     Accumulated 
                            1998      1997             Expenses                    Depreciation 
Assets                      Cost      Cost      1998      1997      1998      1997 
------------------------------------------------------------------------------------
<S>                   <C>         <C>       <C>       <C>       <C>       <C>
Furniture & Fixtures   $  41,668   $37,986   $ 3,054   $ 7,597   $37,986   $34,932 
Capital Lease Assets      27,655       -0-     1,375       -0-     1,375       -0- 
Equipment                216,636   207,068    42,561    40,140    94,852    52,290 
Vehicle                   42,084       -0-       701       -0-       701       -0- 
Vehicle                    8,994     8,994       -0-       -0-     8,994     8,994 
Equipment Sold         ( 216,636)      -0-       -0-       -0-   (94,852)      -0- 
                       ------------------------------------------------------------
  Balance                120,401   254,048    47,691    47,737    49,056    96,216 
                       ============================================================
</TABLE>

NOTE #8 - Compensation Agreement
--------------------------------

The Company has no contracts with its officers and directors to pay any
compensation, except for an oral agreement to reimbursement for out of
pocket expenditures for activities on the Company's behalf.

The Company has no accrued vacation or other employee benefits that should
be recognized as part of these statements.

NOTE #9 - License Agreement
---------------------------

Eurectec, Inc., (a subsidiary) holds a license granted by CISAP, SpA (an
Italian Corporation), which grants exclusive rights and license to
technology and plant operations for tire recycling and recovery facilities
in North and Central America.  The Company's subsidiary Eurectec, Inc., has
the right to sub-license the technology.

CISAP, SpA underwent a bankruptcy and reorganization as of July 2, 1997. 
As a result of the reorganization, CISAP Ecology, SRL, was established to
continue the business of CISAP SpA, tire granulation equipment,
specifically the CISAP 3000, 6000 and 9000 machines as supplied to Mexico
and CISAP Projects was established to focus on the sale of tire re-treading
equipment.  Subsequently CISAP Ecology, SRL has undergone a name change to
Tyre's Ecology, SRL.  The Company is now dealing with Tyre's Ecology, SRL,
in its attempts to resolve the Mexico and Saudi project issues.  CISAP and
it's successor are hereinafter referred to as CISAP.

As a result of the difficulties experienced by CISAP and its successor in
delivering equipment which functions as specified and to make delivery in a
timely manner, Eurectec has determined that the exclusive right to market
CISAP equipment has been diminished.  Therefore, Eurectec will not pursue
additional sales of CISAP equipment at performance levels required by the
agreement with CISAP to maintain such exclusivity.

                                    F-13<PAGE>
                 The Quantum Group, Inc., and Subsidiaries
                 Notes to Financial Statements -Continued-

NOTE #9 - License Agreement -Continued-
---------------------------------------

The problems encountered by the Company with the CISAP equipment failure
and CISAP's unacceptable responses in both Mexico and Saudi Arabia have
seriously impacted the Company's expected revenue stream from the second
phase of the Mexico project and the third phase of the Saudi project, both
of which have been suspended.

NOTE #10 - Related Party Transactions
-------------------------------------

The Company has reimbursed two of its officers for travel and entertainment
funds for services related to the Company's business. Scheduled below are
payments for reimbursed expenses, consulting, accounting and financial
services by related parties

<TABLE>
<CAPTION>
                                                              Consulting 
                                                Commissions         Fees 
                                                ------------  -----------
     <S>                                        <C>           <C>
     1998
       Keith Fryer                              $       -0-   $  105,000 
       John Pope                                        -0-       30,000 
       Ehrenfried Liebich                               -0-       72,807 
       Marcus J. Lenger                                 -0-       25,084 
     1997
       Keith Fryer                              $    36,008   $   68,599 
       John Pope                                        -0-       28,850 
       Marcus J. Lenger                                 -0-        9,859 
     1996
       Keith Fryer                              $    65,415   $   65,321 
       John Pope                                        -0-       45,500 
       Marcus J. Lenger                                 -0-       23,944 

In August 1998, the Company loaned to an officer $30,000 at 9% per annum. 
The due date of the note has been extended to December 28, 1999.

An Officer of the Company has loaned the Company $7,919 at December 31,
1997 to fund its operations.  The loan is non interest bearing and is due
on demand. 




                                    F-14<PAGE>
                 The Quantum Group, Inc., and Subsidiaries
                 Notes to Financial Statements -Continued-

NOTE #11 - Net Operating Loss Carryforward for Income Tax Purposes
------------------------------------------------------------------

The Company has incurred losses that can be carried forward to offset
future earnings if conditions of the Internal Revenue Codes are met.  These
losses are as follows:


</TABLE>
<TABLE>
<CAPTION>
                  Year of                             Expiration 
                    Loss              Amount                Date 
                 --------          ----------         -----------
                <S>               <C>                <C>         
                    1992           $ 440,338                2007 
                    1993                 -0-                2008 
                    1994             198,818                2009 
                    1995             782,181                2010 
                    1996             241,809                2011 
                    1997                 -0-                2012 
                    1998              80,058                2013 
</TABLE>

The Company has adopted FASB 109 to account for income taxes.  The Company
currently has no issues that create timing differences that would mandate
deferred tax expense.  Net operating losses would create possible tax
assets in future years.  Due to the uncertainty as to the utilization of
net operating loss carryforwards an evaluation allowance has been made to
the extent of any tax benefit that net operating losses may generate. 

<TABLE>
<CAPTION>
                                                        1998       1997       1996 
                                                   ---------- ---------- ----------
<S>                                               <C>        <C>        <C>        
Current Tax Asset Value of Net Operating           
Loss Carryforwards at Current Prevailing 
Federal Tax Rate                                   $ 525,092  $ 497,872  $ 576,085 
Evaluation Allowance                               ( 525,092) ( 497,872) ( 576,085)
                                                   ---------- ---------- ----------
     Net Tax Asset                                 $     -0-  $     -0-  $     -0- 
                                                   ========== ========== ==========
     Current Income Tax Expense                    $     -0-  $ 103,628  $     -0- 
     Deferred Income Tax Benefit                         -0-        -0-         80 

</TABLE>

NOTE #12 - Minority Interest
----------------------------

The Company's subsidiary Eurectec, Inc., has issued 4,812,000 shares of its
common stock to minority interest since its inception in 1992.  All of
these shares have been sold to non U.S. persons pursuant to regulations in
Germany. 

In 1998, the Company issued 650,000 shares of its common stock to the
minority interest of Eurectec, Inc., to acquire the shares held by the
German shareholders.


                                    F-15<PAGE>
                 The Quantum Group, Inc., and Subsidiaries
                 Notes to Financial Statements -Continued-


NOTE #13 - Accounts Receivable Written Off
------------------------------------------

In 1996, the Company wrote off sales it made in 1995 to a German buyer of
$345,000.  After a remeasurement allowance in 1995 of $6,819 the 1996 write
off was $338,181.  The Company wrote off $38,750 loaned to Eurectec GmbH,
and an investment of $6,250.  The Company owned 10% of Eurectec GmbH. 
Eurectec GmbH has no operations and no plans for future operations. 

In 1997, the Company wrote off an account receivable of $20,000 and created
a reserve for bad debt of $175,000 against current accounts receivable
resulting from the Mexico contract.

In 1998, the Company increased its reserve for bad debts against accounts
receivable from the Mexico contract by $100,000.

NOTE #14 - Litigation Matters
-----------------------------
The Company has no litigation pending at December 31, 1998.

NOTE #15 - Export Sales
-----------------------
The Company's sales have occurred in foreign countries and the aggregate
sales to unaffiliated customers in foreign countries exceeds 10% of the
total revenues. 
<TABLE>
<CAPTION>

Country                                    1998 Sales    1997 Sales     1996 Sales 
-------------                           -------------  -------------  -------------
<S>                                     <C>            <C>            <C>
Mexico                                   $   460,000    $ 3,202,891    $       -0- 
Saudi Arabia                                     -0-            -0-      2,711,489 
Germany                                    2,422,007            -0-        161,190 
Phillippines                                     -0-         79,000            -0- 
     Total                               $ 2,882,007    $ 3,281,891    $ 2,907,679 
                                        =============  =============  =============
</TABLE>

<TABLE>
<CAPTION>
Sales by quarter of 1998, 1997 and 1996 are scheduled below.
<S>                                     <C>            <C>            <C>
                                                1998           1997           1996 
                                        -------------  -------------  -------------
First Quarter                           $    460,000   $    186,561   $  1,001,071 
Second Quarter                                   -0-        154,889            -0- 
Third Quarter                                    -0-      2,336,232      1,662,149 
Fourth Quarter                             2,422,007        747,127        244,459 
                                        -------------  -------------  -------------
     Totals                             $  2,882,007   $  3,424,809   $  2,872,679 
                                        =============  =============  =============
</TABLE>
NOTE #16 - Subsequent Events
----------------------------

Proposed Joint Venture Projects
     On January 8, 1999, the Company transferred $1,531,369 from its
     operating account to the bank account of its joint venture project in
     Germany.
                                    F-16<PAGE>

                 The Quantum Group, Inc., and Subsidiaries
                 Notes to Financial Statements -Continued-

NOTE #16 - Subsequent Events -Continued-
----------------------------------------

California Prison Manufacturing Project
     The Company is currently 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 to manufacture
     crumb rubber derived products utilizing inmate and prison facilities. 
     The first phase of this project will incorporate Company designed
     press equipment and the second phase will incorporate both shredding
     and granulating processes as well as the REVULCON (R) technology.  The
     Company anticipates producing a wide variety of products including
     heated mats using the Company's Rothbury technology.  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 expected to be concluded during the second quarter of
     1999 following a series of meetings at a number of potential
     facilities.

Scotland.
     The Company has established a new subsidiary, Caladonian Envirotech
     Rubber Recycling Limited, a Scottish limited liability company,
     ("Caladonian").  Caladonian was established in  anticipation of
     entering into a joint venture agreement with the local Scottish
     investors to build a tire recycling plant modeled after the Poseidon 
     project.  The Company is embarking on a market study to determine the 
     feasibility of the project, which is expected to be complete the end 
     of first quarter of 1999.

Ireland
     The Company has established a new subsidiary, Hibernian Envirotech
     Rubber Recycling Limited, an Irish Limited Liability Company,
     ("Hibernian").  Hibernian was established in anticipation of entering
     a joint venture agreement with local Irish investors to build a tire
     recycling plant modeled after the Poseidon project.  The Company is
     embarking on a market study to determine the feasibility of the
     project, which is expected to be complete at the end of the first
     quarter of 1999.

Portugal
     The Company is continuing negotiations in Portugal to enter a joint
     venture agreement to build a tire recycling facility.  The Company's
     President has been in Lisbon, Portugal meeting with a potential joint
     venture partner.  It is anticipated the joint venture partner will
     undertake a feasibility study with assistance from the Company.
     France

     The Company is currently negotiating with interested parties so the
     Company can initiate a feasibility study for a joint venture to build
     a tire recycling facility in France.  Also, the Company is actively
     promoting its after market products and user applications within
     France to develop key relationships.


                                    F-17<PAGE>
                 The Quantum Group, Inc., and Subsidiaries
                 Notes to Financial Statements -Continued-

NOTE #16 - Subsequent Events -Continued-
----------------------------------------

Brazil
     The Company's Vice President, has met with potential joint venture
     partners in Brazil.  As a result of negotiations, the Company has
     signed a memorandum of understanding to the potential joint venture
     partner whereby the Company will undertake a feasibility study to
     determine the feasibility of developing a tire recycling facility in
     Belo Horizonte, Brazil.

South Africa
     Through the Company's contacts in Scotland, the Company has been
     introduced to potential joint venture partners in South Africa and
     Zimbabwe.  The Company's President met in South Africa and Zimbabwe in
     December 1998, with the potential joint venture partners to explore
     the possibility of developing a tire recycling plant.

     The Company continues negotiations with various potential clients in
     the United States, Europe, the Arabian Gulf, South America, Puerto
     Rico, Great Britain and Asia.

Current Contracts

Atzendorf, Germany
     The Company has a two phase order for press equipment including
     flocking equipment, granulators and grizzlies for the manufacture of
     continuous roll material and after market flooring products.  The
     Company anticipates equipment delivery during the second half of 1999.


Chemnitz, Germany
     The Company has an order for a mini tire recycling plant including
     three Revulc 300 systems and press equipment.  The Company anticipates
     equipment delivery during the second half of 1999.

Mexico Agreement
     The CISAP equipment sale to Mexico was entered in 1994.  The client
     has experienced problems in the commissioning of the C9000 machines
     supplied by CISAP mainly relating to 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 correct the
     problems and anticipated the equipment to be fully operational by the
     end of April 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. 
     CISAP has shipped additional equipment to the Mexico site and has sent
     engineers to Mexico to resolve the problems.

                                    F-18

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

NOTE #16 - Subsequent Events -Continued-
----------------------------------------
Saudi Agreement
     The agreement for the initial phase of CISAP equipment to be delivered
     to Saudi Arabia was entered in 1994 with additional equipment
     purchased by the clients from CISAP in 1995 and 1997.  Initial
     equipment for Phase One of this project has been delivered and
     partially installed at the site in Dammam.  The equipment has not been
     completely installed by CISAP and the Company has elected to send its
     own engineer to expedite installation and operation of the equipment.


NOTE #17 - Stockholders' Equity
-------------------------------

During the year ending December 31, 1997, the Company effected a one for
three stock split of its outstanding common shares.  The financial
statements have been retroactively restated to reflect the stock split. 

In December the Company sold 100,000 shares for $150,000 cash.

The Company issued 1,600,000 shares to its President in satisfaction of
$100,000 of amounts due Officers.

The Company issued 650,000 shares of its common stock to acquire 100% of
the shares held by the minority interest of Eurectec, Inc.

The Company completed the 1998 Regulation S offering by issuing 2,599,999
shares sold at prices from $1.50 per share to $2.25 per share.

NOTE #18 - Principles of Consolidation
--------------------------------------

The consolidated financial statements of The Quantum Group, Inc., and its
subsidiaries include the amounts of all majority owned subsidiaries. 
Eurectec, Inc., is the only subsidiary with assets, liabilities and
operations and is 100% owned at December 31, 1997.

In 1998, the Company began to focus its energies on the design and
development rubber recycling systems and subsystems which encompass initial
rubber tire recycling and after market crumb rubber products rather than
rely solely upon equipment and technology sales.  This aspect of the
Company's business is being conducted through its subsidiary, Eurectec,
Inc.  Eurectec, Inc., provides feasibility studies, engineering, equipment,
installation and training for its rubber recycling systems.  The Company is
marketing its systems individually and through joint venture arrangements.

Eurectec, Inc., has the following wholly owned subsidiaries; Eurectec
International, Ltd., a Province of British Columbia Corporation, Eurectec
Industries, Inc., a Province of Alberta Canada Corporation, Pacific Rubber
Recycling Ltd., a Province of British Columbia Corporation, and Eurectec
Marketing, Inc., a US Domestic Corporation.  None of the above subsidiaries
of Eurectec have assets or operations.

                                    F-19<PAGE>
                 The Quantum Group, Inc., and Subsidiaries
                 Notes to Financial Statements -Continued-

NOTE #18 - Principles of Consolidation -Continued-
--------------------------------------------------

The Company has two US domestic subsidiaries, Quantum Environmental
Solution and Technology, Inc., and Quantum Modified Asphalt Xcetra, Inc. 
Both of these subsidiaries also have no assets or operations. 

NOTE #19 - Stock Options and Stock Appreciation Rights Plans
------------------------------------------------------------

Effective June 27, 1997, the Company implemented The Quantum Group, Inc.,
1997 Stock Option Plan and allocated 1,000,000 shares of common stock of
the Company to be available for grant under the plan.  In October, the
Company granted an option, pursuant to the 1997 Stock Option Plan, to an
officer and director of the Company for 333,334 shares, exercisable at
$0.062 per share.  The options are exercisable at a rate of 66,666 shares
per year for a period of five years commencing immediately upon the date of
the grant.  In 1998, 66,666 shares were exercised under this option, at
$0.0062 per share. Additionally 330,000 shares were granted and exercised
by others pursuant to the 1997 stock option plan at $0.062 per share.

NOTE #20 - Prototype Impact 500
-------------------------------

Eurectec, working with outside engineering firms, has designed plans for a
complete tire recycling, granulating and after-market production system,
known as the Eurectec Granulating Systems, (EGS), which integrates
individual pieces of tire recycling equipment made by other manufacturers. 
The EGS System reduces scrap automobile and truck tires to useful and
valuable crumb rubber, reusable steel scrap and nylon fluff.  The system as
designed will follow common processing steps accepted in the industry.

In 1998, the Company internally developed a machine known as the "Impact
500", which is designed to take large mesh size crumb rubber produced by
the EGS System and pulverize it into fine powder.  The Company expended
$13,544 to build a prototype machine and conduct sufficient tests to assure
that technological feasibility had been attained.  The Company built one
Impact 500 machine at a  cost of $63,203.  This machine is portable and
completely self contained so that it can be shipped to trade shows or for
on site demonstration and quickly made operational.

NOTE #21 - License Right
------------------------

In April of 1996, Eurectec, entered into an agreement with Rothbury
Engineering  Limited, Great Britain to acquire the exclusive worldwide
manufacturing and marketing rights to a technique for manufacturing rubber
products such as floor coverings from crumb rubber without revulcanizing
the rubber and a process for giving a mixture of scrap granulates, resins
and other additives heat conductive characteristics for use in products
such as heatable floor coverings and underlayments.


                                    F-20<PAGE>
                 The Quantum Group, Inc., and Subsidiaries
                 Notes to Financial Statements -Continued-

NOTE #21 - License Right -Continued-
------------------------------------

The Company entered into an exclusive worldwide license agreement with Faru
GmbH, Dresden, Germany ("Faru").  Faru is the patent holder of the REVULCON
(R) technology.  For each REVULCON (R) 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. 
The Company anticipates the sale of up to three REVULCON (R) systems, under
the brand name Revulc 300, during 1999 for projects in Germany.  The
manufacture of the REVULCON (R) plants will be subcontracted out to third
party manufacturers.

The REVULCON (R) 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
revulcanized.  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 plastics, profiles and other goods can be made by
extrusion or injection moldings.

<TABLE>
<CAPTION>
                                License   Amortization    Accumulated 
Licensor                           Cost   Expense 1998   Amortization 
----------------------------------------------------------------------
<S>                         <C>           <C>           <C>
Rothbury                      $ 497,547    $    49,756   $    132,677 
Faru GmbH                       150,000          7,500          7,500 
                            ------------------------------------------
  Total                       $ 647,547    $    57,256   $    140,177 
                            ==========================================
</TABLE>

NOTE #22 - Joint Venture
------------------------

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.  The Company has an 80% interest in the joint venture and a 
buy-back agreement to purchase the remaining 20%.  As a result of the 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 tire recycling facility whereby 
tires will be shredded and granulated producing the commodity crumb rubber.  
Some of the crumb rubber is subsequently partially devulcanized utilizing the
Company's exclusive REVULCON (R) process to enable material to be used in a 
variety of products and processes including incorporation into new tire 
manufacture.  The balance of the crumb rubber will be used for in-house
manufacturing.  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. 
                                         F-21

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

NOTE #22 - Joint Venture -Continued-
------------------------------------

     The Poseidon joint venture funding is expected to be completed by the end 
of the first quarter, 1999.  Funding consists of 50% of the total project costs
(approximately $13,800,000) from a grant from the European Union Structure 
Fund for European regional development and 40% bank financing and 10% equity 
raised through a private offering in Germany, partly funded from proceeds of 
a Regulation S offering.  The equity funding is currently 90% complete.  
Eurectec Industries, 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.

     Ground breaking for the Poseidon joint venture occurred September 17, 
1998 in Penkun, Germany and the construction program is scheduled for the 
first half of 1999.  Pending completion of all building construction and 
environmental compliance permitting funding and maintaining the current 
construction schedule, the Company anticipates the Poseidon facility to be 
complete and operational during the fourth quarter, 1999.  Poseidon has 
opened offices in Penkun and has commenced a German wide marketing study and 
plan to introduce and sell its manufactured products.

     The Company has consolidated the joint venture into its financial 
statements and reflects a minority interest position of the initial 
investment made by outsiders of $12,210 less 20% of the joint venture 
loss of $2,747 for a net minority position of $9,463.

NOTE #23 - Employees
--------------------

Currently the Company has no direct employees other than its officers and 
directors.  The Company contracts with an employee service agency to provide 
staff and secretarial services.  The Company relies heavily on the efforts of
its President, Ehrenfried Liebich, it also relies upon the services of 
various consulting agencies including agencies owned and operated by Keith 
Fryer, a Company Vice President, Secretary and Director and John Pope, the 
Company Treasurer, a Vice President and Director.  Through its employee 
 service agency the Company has two administrative staff, three management 
staff, one sales person and one technical staff member.  Two additional 
people will be hired during the second quarter of 1999 to fill the 
positions of financial controller and operations manager.  The Company 
intends to restructure the employee status by terminating the service agency 
relationship and bring all its employees into the Company as direct hires.


                                         F-22