10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

———————

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2009

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THE QUANTUM GROUP, INC.

(Exact name of registrant as specified in its charter)

———————

Nevada	20-0774748
(State or other jurisdiction of incorporation	(I.R.S. Employer
or organization)	Identification No.)

3420 Fairlane Farms Road, Suite C, Wellington, Florida 33414

(Address, including zip code, of principal executive offices)

(561) 798-9800

(Registrant’s telephone number, including area code)

———————

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨   Accelerated filer ¨   Non-accelerated filer ¨   Smaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

There were 11,511,021 shares of the registrant’s common stock, par value $.001 per share, outstanding on September 21, 2009.

THE QUANTUM GROUP, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED July 31, 2009

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

PART II OTHER INFORMATION

ii

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

THE QUANTUM GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JULY 31, 2009 AND OCTOBER 31, 2008

	July 31, 2009 (Unaudited)		October 31, 2008 (Audited)
Assets
Current assets
Cash and cash equivalents	$	27,260	$	1,502,860
Restricted cash		52,301		52,258
Prepaid expenses		190,687		93,352
Other current assets		81,146		752
Total current assets		351,394		1,649,222
Property and equipment, net		250,739		341,259
Goodwill		23,300		23,300
Software development and other assets		891,983		546,531
Total assets	$	1,517,416	$	2,560,312
Liabilities and shareholders’ deficit
Current liabilities
Accounts payable	$	1,439,622	$	167,831
Accrued liabilities		753,252		617,584
Accrued payroll and payroll taxes		1,138,033		566,086
Due to HMOs		4,662,665		2,828,216
Notes payable and accrued interest – shareholders		568,653		568,653
Promissory notes payable and accrued interest		2,048,285		30,226
Notes payable, current portion		13,461		—
Capital lease obligation, current portion		11,773		16,086
Other current liabilities		308,613		249,649
Total current liabilities		10,944,357		5,044,331
Long-term debt
Notes payable, net of current portion		26,920		38,412
Capital lease obligation, net of current portion		22,117		31,629
Total long-term debt		49,037		70,041
Total liabilities		10,993,394		5,114,372
Minority interest		50,572		—
Commitments and contingencies
Shareholders’ deficit
Preferred stock, $.001 par value per share, 30,000,000 shares authorized; no shares issued and outstanding		—		—
Common stock, $.001 par value per share, 170,000,000 shares authorized; 11,509,921 and 9,227,800 shares issued and outstanding		11,510		9,228
Common stock, subscribed but not issued		718,750		—
Additional paid in capital		40,053,742		35,827,081
Treasury stock, 88,552 and 0 shares		(53,290)		—
Accumulated deficit		(50,257,262)		(38,390,369)
Total shareholders’ deficit		(9,526,550)		(2,554,060)
Total liabilities and shareholders’ deficit	$	1,517,416	$	2,560,312

See accompanying notes to condensed consolidated financial statements.

1

THE QUANTUM GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended July 31,				For the Nine Months Ended July 31,
	2009		2008		2009		2008
Revenue
Provider systems	$	10,454,469	$	4,446,376	$	26,071,729	$	10,665,106
Management support services		500		12,986		800		309,019
		10,454,969		4,459,362		26,072,529		10,974,125
Direct Costs
Provider systems		10,854,374		4,491,647		27,817,188		11,912,967
Management support services		—		670		—		213,749
		10,854,374		4,492,317		27,817,188		12,130,716
Gross profit (loss)		(399,405)		(32,955)		(1,744,659)		(1,156,591)
Operating expenses
Salaries and employee costs		1,270,061		1,263,195		4,264,195		6,187,497
Occupancy		76,406		91,627		253,987		263,194
Depreciation and amortization		36,685		56,374		131,380		142,750
Other general and administrative expenses		426,123		681,405		2,150,101		2,031,079
Total operating expenses		1,809,275		2,092,601		6,799,663		8,624,520
Loss from operations		(2,208,680)		(2,125,556)		(8,544,322)		(9,781,111)
Non-operating expenses
Amortization of financing costs		1,637,740		—		3,275,207		7,688,878
Gain on disposal of assets		—		—		—		(312,465)
Interest and other expense		34,783		149,680		91,991		733,731
Total non-operating expenses		1,672,523		149,680		3,367,198		8,110,144
Loss before non-controlling interest		(3,881,203)		(2,275,236)		(11,911,520)		(17,891,255)
Add: Minority interest		19,808		—		44,628		—
Loss before income tax provision		(3,861,395)		(2,275,236)		(11,866,892)		(17,891,255)
Income tax provision		—		—		—		—
Net loss	$	(3,861,395)	$	(2,275,236)	$	(11,866,892)	$	(17,891,255)
Basic and diluted loss per common share	$	(.34)	$	(0.26)	$	(1.14)	$	(2.44)
Weighted average number of common shares outstanding		11,456,870		8,904,557		10,422,911		7,331,853

See accompanying notes to condensed consolidated financial statements.

2

THE QUANTUM GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JULY 31, 2009 AND 2008

(UNAUDITED)

	For the Nine Months Ended July 31,
	2009		2008
OPERATING ACTIVITIES
Net Loss	$	(11,866,892)	$	(17,891,255)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		143,744		142,750
Amortization of financing costs		3,275,207		7,688,878
Amortization of deferred compensation		407,072		3,030,519
Amortization of options-consulting		52,871		—
Amortization of license fee		25,000		—
Allowance for doubtful accounts		752		—
Amortization of prepaid expenses		13,853		—
Minority interest		(44,628)		—
Gain on sale of property and equipment		—		(8,803)
Issuance of equity for compensation		809,186		125,938
Issuance of stock in lieu of cash		—		147,797
Issuance of stock as payment of interest		—		150,628
Changes in operating assets and liabilities:
Decrease in accounts receivable		—		54,966
Decrease (increase) in other assets		(335,950)		(168,633)
Increase in due to HMOs		1,834,449		1,320,508
Increase (decrease) in accounts payable and accrued liabilities		1,814,961		(319,929)
Total adjustments		7,996,525		12,164,619
Net cash used in operating activities		(3,870,375)		(5,726,636)
INVESTING ACTIVITIES
Purchase of property and equipment		(27,091)		(589,123)
Sale of fixed assets		—		7,053
Purchase of software development costs		(300,000)		—
Net cash used in investing activities		(327,091)		(582,070)
FINANCING ACTIVITIES
Proceeds from secondary public offering		—		13,200,000
Proceeds from promissory notes		2,668,750		—
Proceeds from issuance of common stock		30,000
Payment of expenses – secondary public offerings		—		(1,352,632)
Repurchase of private placement warrants		—		(50,207)
Repayment on convertible debt		—		(1,535,969)
Minority interest investment in consolidated subsidiary		65,200		—
Repayments on capital lease obligations		(13,825)		(11,578)
Repayments on loans and notes payable		(28,259)		(1,074,720)
Net increase in cash provided by financing activities		2,721,865		9,174,894
Net (decrease) increase in cash and cash equivalents		(1,475,600)		2,866,188
Cash and cash equivalents at beginning of period		1,502,860		530,720
Cash and cash equivalents at end of period	$	27,260	$	3,396,908

See accompanying notes to condensed consolidated financial statements.

3

THE QUANTUM GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JULY 31, 2009 AND 2008

(UNAUDITED)

	For the Nine Months Ended July 31,
	2009		2008
	(unaudited)
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	8,910	$	572,026
Supplemental disclosures of non-cash investing and financing activities:
Shares contributed	$	15,232	$	—
Issuance of units for bridge share exchange	$	—	$	3,942,375
Issuance of shares for conversion of debt	$	547,063	$	5,193,716
Grant of options – consultants	$	84,300	$	—
Issuance of units – conversion of executive accrued compensation	$	—	$	645,767
Notes payable – fixed asset acquisition	$	—	$	49,133

See accompanying notes to condensed consolidated financial statements.

4

THE QUANTUM GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Description of Company

The Quantum Group, Inc. (the “Company”) is an innovation-driven healthcare services organization that provides technology solutions through PWeR™, a 21^st century electronic medical records, or EMR, platform; provider systems and services through Renaissance Health Systems, or RHS, a medical services organization, or MSO, with more than 2,000 affiliated providers; and business services for healthcare providers and facilities through Quantum Global Professional Services, or QGPS. Each of RHS and QGPS is a wholly owned subsidiary of the Company.

PWeR, or Personal Wellness electronic Record™, is an intelligent healthcare EMR platform that hosts medical records and permits the patient care team, including primary care physicians, specialists and hospitals, to share access to a patient’s entire medical record through a cloud computing architecture. PWeR also allows patients to review physician instructions or track their wellness progress. In critical situations or in providing treatment to PWeR patients, hospitals are given access to full patient health information, or PHI, and can then more easily make educated treatment decisions based on accurate data. The Company believes PWeR complies with federal healthcare mandates and the criteria for participation in federal stimulus programs.

PWeR is a HIPAA-compliant Software as a Service, or SaaS, platform that provides access to multiple applications used by healthcare providers or facilities. The platform is a low-cost, patient-centric solution capable of receiving patient information from multiple sources and is a simple-to-use software system written as Web-based, open architecture. The Company believes that the scalability of PWeR allows centralized patient data to be accumulated at local, state, national and global levels. Additionally, the Company has developed 19 provisional patents, which provide business process design and medical trending analysis for the purpose of reducing medical costs and increasing patient wellness. PWeR is currently being marketed to the Company’s network of healthcare providers as well as healthcare providers outside the network, hospitals and other payers (i.e., state governments).

RHS coordinates the care of patients on behalf of the payers that have contracted with the Company through the utilization of its network of affiliated physicians and other healthcare providers and its own technology systems. The Company has derived its primary stream of revenue to date from the monthly premiums received for assuming full-risk management of these patients. The Company currently has contracts with payers for two types of insurance products, Medicare and Medicaid, and is expanding services to include commercial and universal insurance products.

QGPS provides other services and products to healthcare providers in and outside of the RHS network, including purchasing, technology and insurance products.  

Note 2: Basis of Presentation and Summary of Significant Accounting Policies

General

The accompanying unaudited condensed consolidated financial statements of the Company are presented in accordance with the rules and regulations promulgated by the Securities and Exchange Commission, or SEC, for Quarterly Reports on Form 10-Q. Accordingly, they do not include all of the disclosures required by generally accepted accounting principles in the United States. In the opinion of management, all adjustments (all of which were of a normal recurring nature) considered necessary to fairly present the financial position, results of operations and cash flows of the Company on a consistent basis, have been made.

The results of operations have been determined on the basis of generally accepted accounting principles and practices applied consistently with those used in the preparation of the Company’s consolidated financial statements for the year ended October 31, 2008. Operating results for the nine months ended July 31, 2009 are not necessarily indicative of the results that may be expected for the year ending October 31, 2009.

The Company recommends that the accompanying condensed consolidated financial statements for the interim period be read in conjunction with the Company's consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2008.

5

THE QUANTUM GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 2: Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has negative cash flows from operating activities of approximately $3.8 million for the nine months ended July 31, 2009 and an accumulated deficit of more than $50.2 million at July 31, 2009, which raises substantial doubt about its ability to continue as a going concern. If the Company does not obtain additional funding within a short period of time, it may be required to substantially curtail or cease operations altogether. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

For the remainder of the year ending October 31, 2009, the Company will need additional cash infusions to meet its operating expenses. Since the Company’s common stock trades on the NYSE Amex, the Company may be in a position to raise additional funds through public equity or debt offerings. In addition, the private capital markets may also offer sources of additional capital. The Company may also secure strategic alliances or other joint ventures to defray a portion of its expenditures. No assurances can be made that the Company will be successful in raising the additional capital it requires to continue its operations. If no additional capital is available, the Company’s financial condition and results of operations will be materially adversely affected. See “Liquidity and Capital Resources” for additional information.

Cash Equivalents

The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. At July 31, 2009 and October 31, 2008, the Company had restricted cash of $52,301, which serves as collateral for a surety bond in connection with the development of the Company’s third party administrator operations.

Concentrations of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of its cash. At July 31, 2009, the Company maintained a cash balance of $26,668 in a checking account, and $592 in a money market account, respectively, at one banking institution. The bank has a strong rating issued by Standard and Poor’s. The aforementioned cash balance is not in excess of the $250,000 Federal Deposit Insurance Corporation (FDIC) insurable limit.

Property and Equipment

Furniture and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to five years.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material.

Due to HMOs and IBNR

The HMO payers pay medical claims and other costs on the Company’s behalf. Based on the terms of its contracts with the HMO payers, the Company calculates a fund surplus or deficit from the HMO payers by offsetting the revenue it earned with the medical claims expense. The Company takes into account claims paid on its behalf plus an amount reserved for claims incurred but not reported, or IBNR. The Company estimates the liability for IBNR claims based on industry and the specific HMO payer’s experience, as the Company does not yet have sufficient historical data regarding payment patterns, cost trends, utilization of healthcare services and other relevant factors included in independent actuarial calculations.

6

THE QUANTUM GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 2: Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Income Taxes

In accordance with the provisions of Statements of Financial Accounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes, the Company has not recognized any future tax benefit arising from net operating loss carry forwards in the accompanying condensed consolidated financial statements, as the realization of this deferred tax benefit is not likely. The Company has established a 100% valuation allowance to offset the entire amount of its net deferred tax asset.

The Company adopted the provisions of the Financial Accounting Standards Board, or FASB, Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement 109, which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return, including issues relating to financial statement recognition and measurement. FIN 48 provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more-likely-than-not of being sustained if the position were to be challenged by a taxing authority. FIN 48 requires the assessment of the tax position to be based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the more-likely-than-not threshold, the largest amount of tax benefit that is greater than 50% likely of being recognized upon ultimate settlement with the taxing authority is recorded.

Goodwill and Other Intangible Assets

In accordance with Statement of Financial Accounting Standards No. 142 (SFAS No. 142), Goodwill and Other Intangible Assets, the Company accounts for goodwill in a purchase business combination as the excess of the cost over the fair value of net assets acquired. Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over the estimated useful lives. SFAS No. 142 requires companies to test goodwill for impairment on an annual basis (or an interim basis if an event occurs that might reduce the fair value of a reporting unit below its carrying value) using a two-step method. The Company conducts this review during the fourth quarter of each fiscal year absent any triggering event. No impairment resulted from the annual review performed in fiscal 2008. SFAS No. 142 also requires that an identifiable intangible asset that is determined t o have an indefinite useful economic life not be amortized, but separately tested for impairment, at least annually, using a one-step approach based on fair value, or when certain indicators of impairment are present.

The Company records goodwill in connection with business combinations as the excess purchase price over the fair value of the net assets acquired. Goodwill is not amortized, but tested for recoverability annually or more frequently if indicators of possible impairment exist. The Company will recognize an impairment loss if the carrying value of the asset exceeds the fair value determination. As of July 31, 2009, there was no impairment of goodwill.

Long-Lived Assets

In accordance with Statement of Financial Accounting Standards No. 144 (SFAS No. 144), Accounting for Impairment or Disposal of Long-Lived Assets, the Company determines whether there has been an impairment of long-lived assets, excluding goodwill and identifiable intangible assets that are determined to have indefinite useful economic lives, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be compared to the asset’s carrying amount to determine if a write-down to market value is required. Future adverse changes in market conditions or poor operating results of underlying long-lived assets could result in losses or an inability to recover the carrying value of the long-lived assets that may not be reflected in the assets’ current carrying value, thereby possibly requiring an impairment charge in the future.

The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.

7

THE QUANTUM GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 2: Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Revenue Recognition

Provider Systems

The Company has entered into full risk contracts with eight payers of which five are HMO payers offering Medicare Advantage plans and providing members to a number of the Company’s community health systems, or CHSs, in the state of Florida. The Company is at full risk for the payment of medical costs for HMO payer members for four of these contracts. The revenue from the other contract is equal to the HMO payer’s payment of a capitation or fee for service due the Company’s contracted primary care physicians. One of these contracts will be at full risk when the membership under care reaches 300 members. Currently, the Company receives income from the HMO payer at a contracted fee for service for its primary care physicians plus an additional administrative fee on a per-member per-month basis. Under a full risk contract, the Company receives a monthly fee for each patient who chooses one of the physicians in the Company’s pr ovider network as his or her primary care physician. The fixed fee is based on a percentage of the premium the HMO payer receives from the Centers for Medicare and Medicaid Services, or CMS. Revenue from these agreements is generally recorded in the period that the Company assumes responsibility for providing services at the rates then in effect, with quarterly adjustments. The direct medical costs under the full risk contracts are a combination of actual medical costs paid by the HMO payer plus a reserve for future medical costs incurred but not reported.

PWeR

The Company intends to recognize revenue from PWeR upon the completion of installation and training of the PWeR system and expects that recurring revenue will be generated and recognized on the first day of each month of continuing utilization.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (SFAS No. 157), Fair Value Measurements, which defines fair value, provides a framework for measuring fair value and expands the disclosures required for fair value measurements. The Company adopted SFAS No. 157 for financial assets and liabilities during the fiscal quarter ended January 31, 2009. The Company is required to adopt SFAS No. 157 for nonfinancial assets and liabilities during the fiscal quarter ending January 31, 2010. Adoption of SFAS No. 157 for financial assets and liabilities did not have material impact on the Company’s condensed consolidated financial condition or operating results.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (SFAS No. 159), The Fair Value Option for Financial Assets and Financial Liabilities, including an Amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 is effective for financial statements issued for an entity’s first fiscal year beginning after November 15, 2007. Adoption of SFAS No. 159 did not have a material impact on the Company’s condensed consolidated financial condition or operating results.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (SFAS No. 160), Non-controlling Interests in Consolidated Financial Statements. SFAS No. 160 establishes requirements for ownership interests in subsidiaries held by parties other than the Company (sometimes called “minority interests”) that must be clearly identified, presented and disclosed in the consolidated statement of financial position within equity, but separate from the parent’s equity. All changes in the parent’s ownership interests are required to be accounted for consistently as equity transactions and any non-controlling equity investments in unconsolidated subsidiaries must be measured initially at fair value. SFAS No. 160 is effective, on a prospective basis, for fiscal years beginning after December 15, 2008.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162 (SFAS No. 162), The Hierarchy of Generally Accepted Accounting Principles, which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. The Company does not expect that SFAS No. 162 will result in a change in current practice.

8

THE QUANTUM GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 2: Basis of Presentation and Summary of Significant Accounting Policies (Continued)

In May 2008, the FASB issued Statement of Financial Accounting Standards No 165 (SFAS No. 165), Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available for issuance. SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009. The Company adopted SFAS No. 165 effective May 1, 2009. The Company uses the date of the filing of its Form 10-Q with the SEC as the date through which subsequent events have been evaluated which is the same date as the date these financial statements were issued. The adoption of SFAS No. 165 did not materially affect the Company’s condensed consolidated financial statements.

Note 3: Fair Value of Financial Instruments

On November 1, 2008, the Company adopted Statement SFAS No. 157, which clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about fair value measurements. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

·

Level 1: valuations based on quoted prices for identical assets and liabilities in active markets.

·

Level 2: valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

·

Level 3: valuations based on unobservable inputs reflecting the Company’s assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

Adoption of SFAS No. 157 did not materially affect the Company’s financial condition or operating results. As of July 31, 2009, the Company had no financial assets or liabilities that were measured at fair value on a recurring or non-recurring basis.

Note 4: Property and Equipment

Property and equipment consisted of the following at July 31, 2009 and October 31, 2008:

	July 31, 2009		October 31, 2008
Computer and other equipment	$	248,475	$	225,908
Furniture and fixtures		184,587		184,587
Automobile		49,574		49,574
Leasehold improvements		125,915		125,915
Total, at cost		608,551		585,984
Less: Accumulated depreciation		(357,812)		(244,725)
Property, plant and equipment, net	$	250,739	$	341,259

Depreciation expense for the nine months ended July 31, 2009 and 2008 was $131,380 and $142,750 , respectively.

9

THE QUANTUM GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 5: Intellectual Property

At July 31, 2009 and October 31, 2008, intellectual property consisted of licensed technology and ongoing development costs relating to the Company’s healthcare clinical operating system and enhancements.

	July 31, 2009		October 31, 2008
Licensed technology	$	100,000	$	100,000
Development costs		750,000		350,000
Total, at cost		850,000		450,000
Less: Accumulated amortization		(100,000)		(75,000)
Intellectual property, net	$	750,000	$	375,000

Note 6: Debt

On September 21, 2007, the Company issued two-year promissory notes at an interest rate of 8% per annum with its three executives. As of July 31, 2009, the balance of each of the promissory notes for Mr. Noel J. Guillama, Mr. Donald B. Cohen and Ms. Susan D. Gallagher was $315,019, $102,226 and $151,408, respectively, and had accrued interest of $34,219. These notes are considered in default and classified as short term.

During the nine months ended July 31, 2009, the Company issued the following promissory notes:

·

Between January and May, 2009, a total of $1,633,094 in 15% original issue discount promissory notes with a total investment of $1,487,500, payable to several individual investors with a maturity date ranging from April 20 to September 30, 2009, which were convertible, original issue discount, bridge notes, or the 2009 Bridge Notes. The Company treated the difference between the repayment obligation and the face amount of each note as “original issue discount” and is amortizing the difference over the term of each note. The 2009 Bridge Notes are convertible into shares of the Company’s common stock at a rate of $0.50 per share. In the event of a payment default, interest accrued on the outstanding principal obligation from the maturity date through the date of payment at the rate of 15%, compounded monthly. During the nine months ended, July 31, 2009, $540,000 of these promissory notes with an accreted valu e of $635,298 was converted into 1,270,596 shares of the Company’s common stock at $.50 per share.

·

In January 2009, a total of $398,235 in 15% original issue discount promissory notes with a total investment of $340,000 payable to the Company’s executives and directors with the same terms as the 2009 Bridge Notes, or the 2009 Key Person Notes. The Company was obligated to pay the executives and directors the principal sum as payment in full. On April 3, 2009, the Company issued non-qualified warrants to purchase shares of common stock at an exercise price of $1.00 per warrant share for every $1.00 invested. In addition the Company waived the conversion feature of the 2009 Key Person Notes and extended their maturity dates to June 30, 2009. On April 27, 2009, each of the 2009 Key Person Notes was amended to increase the warrant to three shares of common stock at an exercise price of $1.00 per share with a five–year term and a cash payment in the amount of 115% of the initial investment. In the event of a payment de fault, interest accrued from the maturity date through the date of payment at the rate of 15%, compounded monthly and on the basis of a 360-day year of twelve 30-day months, in arrears, on a proportionate basis and was payable 60 days after demand for payment. The Company was required to repay any or all amounts due under the 2009 Key Person Notes at the closing of any public or private financing for which the Company received gross proceeds of at least $2,000,000. The Company treated the difference between the repayment obligation and the principal payment as “original issue discount” and amortized it over the term of the notes. As of July 31, 2009, the discount of $58,235 related to these notes was fully amortized.

10

THE QUANTUM GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 6: Debt (Continued)

·

In May 2009, 10% subordinated promissory notes pursuant to a $400,000 private placement, the terms of which included an equity consideration and entitled each note holder to receive shares of Company common stock equal to 100% of the principal of the note. The number of shares to be issued was computed based on the closing price of a share of the Company’s common stock on the NYSE Amex on  the date the shares were issued. The Company paid a 10% commission to the placement agent and allocated the proceeds received between the promissory note and the common stock on a relative fair value basis. As a result, the Company allocated the proceeds from the sale of units, $400,000, as follows: (1) $200,000 to the convertible debt and (2) $200,000 to the common stock. The related original issue discount is being amortized over the term of the notes.  

·

In June 2009, 10% subordinated secured promissory notes pursuant to an $800,000 private placement, the terms of which included an equity consideration. The notes were secured by a lien on all tangible and intangible assets of the Company, except for those of Renaissance Administrative Services, Inc., a wholly owned Company subsidiary. The note holder was to receive shares of Company common stock equal to 100% of the principal of the note if the note is paid within 30 days after the investment. The note holder was to receive an additional 3.33% of the principal of the promissory note for every day the promissory note remains unpaid, up to a maximum of 150% if the note is not repaid with 60 days, and an additional 3.33% of the principal of the promissory note for every day the promissory note remains unpaid, up to a maximum of 200%, if the note is not repaid within 90 days. The Company paid a 10% commission to placement agent. As of July  31, 2009, the Company issued $637,500 in promissory notes and allocated the proceeds received between the promissory note and the common stock on a relative fair value basis. As a result, the Company allocated the proceeds from the sale of units, or $637,500, as follows: (1) $318,750 to the promissory notes and (2) $318,750 to the common stock. The related original issue discount is being amortized over the term of the notes.  

Note 7: Commitments and Contingencies

On February 14, 2008, the Company entered into an agreement with Net.Orange, Inc., a software development company, or the Net.Orange Agreement, for the licensing of a healthcare clinical operating system and development of additional modules and enhancements. The Net.Orange Agreement provides for, among other fees, an annual license fee of $100,000 and monthly development fees of $50,000 for the production of various modules or applications, will automatically renew for successive one-year terms and may be terminated by either party with written notice at least 60 days prior to expiration of the then current term. The initial renewal date was extended to July 1, 2009. The Company is currently negotiating a further extension to this agreement.

On December 3, 2008, the Company entered into an E-business Hosting Agreement, or the Hosting Agreement, with International Business Machines, Inc., or IBM. The Hosting Agreement has a 36-month term and provides an advanced scalable platform for growth into national and international healthcare arenas. Under the terms of the Hosting Agreement, IBM will provide information management, storage, security and privacy for use in conjunction with the Company’s PWeR healthcare information platform. The Hosting Agreement requires a one-time payment of $81,217 in fiscal 2009, with recurring monthly payments of $37,000 beginning on the Service Ready Date, as defined in the Agreement. As of July 31, 2009, the Company paid $81,217 to IBM for the services under the Hosting Agreement. The Company received a notice from IBM to terminate the Hosting Agreement, which resulted in the parties commencing negotiations. As of the date of the filing of this report, the negotiations are still on-going.

Note 8: Equity

2003 Incentive Equity and Stock Option Plan

In October 2003, the Company’s Board of Directors, or Board, adopted the 2003 Incentive Equity and Stock Option Plan, or 2003 Plan. The purpose of the 2003 Plan was to increase the employees’ and non-employee directors’ stake in the Company and to align more closely their interests with the interests of the Company’s shareholders, as well as to attract and retain the services of experienced and highly qualified employees and non-employee directors.

11

THE QUANTUM GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 8: Equity (Continued)

The term of each option and manner of exercise are determined by the Board, provided that no stock option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive stock option granted to an eligible employee owning more than 10% of the Company’s common stock, no more than five years after the grant date. The Board determines the exercise price of non-qualified stock options.

The Board reserved 200,000 shares of common stock under the 2003 Plan. The Board, or a Board committee, administers the 2003 Plan, including, without limitation, the selection of the persons eligible to received grants under the 2003 Plan, the type of stock option to be granted, the number of shares for which each option is exercisable and the exercise price. The exercise price of the stock option grants and the number of shares granted under the 2003 Plan may be adjusted in the event of certain changes in the Company’s capitalization.

A summary of the grants made under the 2003 Plan at July 31, 2009 and October 31, 2008 is shown below:

	July 31, 2009			October 31, 2008
		Options			Options
	Stock Grants	Shares	Weighted Average Exercise Price	Stock Grants	Shares	Weighted Average Exercise Price
Outstanding at beginning of the period	87,030	—	—	2,400	—	—
Granted	—	—	—	84,630	—	—
Exercised	—	—	—	—	—	—
Forfeited	—	—	—	—	—	—
Outstanding at end of the period	87,030	—	—	87,030	—	—
Available for issuance at end of the period under the plan		110,570			110,570

2007 Equity Incentive Plan

On September 23, 2007, the Board adopted, subject to shareholder approval, the 2007 Equity Incentive Plan, or 2007 Plan, to align the interests of employees, consultants and non-employee Board members with the interests of the Company’s shareholders, to provide incentives for these persons to exert maximum efforts for the Company’s success and to encourage them to contribute materially to the Company’s growth. The 2007 Plan is administered by the Compensation and Options Committee of the Board, which has exclusive discretion to select eligible participants and to determine the type, size and terms of each award. The maximum aggregate number of shares that may be awarded under the 2007 Plan is 5,000,000 shares, subject to certain adjustments. On the first day of each fiscal year that the plan is in effect, the aggregate number of shares under the plan will increase automatically by adding 33 1/3% of the increase in shares o f common stock outstanding during the prior fiscal year. The first such automatic increase was effective 93 days following the date of approval of the 2007 Plan by the Company’s shareholders, subject to adjustment for stock dividends, stock splits, recapitalization or similar transactions. The Company’s shareholders approved the 2007 Plan on August 1, 2008, and it was effective as of September 24, 2007.

Executive Compensation Package

On December 10, 2008, the Board approved a senior executive compensation package that was designed to compensate senior staff for their hard work and dedication to the Company and promote Company goals, align the incentive system for the management team and reward management for meeting their individual goals. The compensation package included the following provisions:

·

Short-term incentive bonus: paid in Company common stock based on actual figures for earnings before tax (EBT) and the increases in revenue from fiscal 2007 to 2008, not to exceed 100% of base pay and payable no later than February 28, 2009. The shares of common stock vested 50% immediately, with the remaining 50% vesting on the first anniversary of the grant date.

·

One-time retention award: consists of shares of Company common stock, vested immediately, and options that with 25% vested immediately and the remainder vesting in three equal annual installments beginning on the first anniversary of the grant date with an exercise price of $0.50 per share.

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THE QUANTUM GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 8: Equity (Continued)

·

Individual management performance reward: paid 50% in shares of Company common stock at the closing price quoted on the NYSE Amex on grant date that vest over four years with 25% vested January 2, 2009, 25% vested over the following three years, and 50% paid in stock options with an exercise price equal to the 30-day volume weighted average price, or VWAP, quoted on the NYSE Amex preceding the date of award and vested over the same period as the shares.

On December 10, 2008, the Company granted 657,315 shares of Company common stock and 415,875 stock options to purchase shares of Company common stock to key executives. The shares were valued using the closing price of the Company’s common stock as quoted on the NYSE Amex on the grant date. The stock options were valued using the Black-Scholes valuation method at an aggregate value of $137,239. The variables used in the Black-Scholes valuation included a volatility rate of 109.1%, risk-free rate of 4.5% and four-year life.

Name	Number of Shares	Value		Number of Options	Value
Short-term incentive bonus	241,440	$	117,585	—	$	—
One time retention award	135,000	$	67,500	135,000	$	44,550
Individual management performance reward	280,875	$	140,438	280,875	$	92,689

A summary of shares and stock options granted at July 31, 2009 and October 31, 2008 is shown below:

	July 31, 2009				October 31, 2008
		Options				Options
	Stock Grants	Shares	Weighted Average Exercise Price		Stock Grants	Shares	Weighted Average Exercise Price
Outstanding at beginning of the period	984,594	2,580,651	$	1.26	—	5,093,767		—
Granted	489,142	1,076,930	$	0.50	984,594	2,580,651	$	1.26
Exercised	—	—		—	—	—		—
Forfeited	—	257,867		—	—	—		—
Outstanding at end of the period	1,297,264	3,399,714		—	984,594	2,580,651		—
Available for issuance at end of the period under the plan		395,788				1,528,522

On December 26, 2008, all employees, including officers, were granted one additional stock option to purchase shares of the Company’s common stock for each stock option previously granted with an exercise price between $1.50 and $3.00. Additionally, the Company granted two additional stock options to purchase shares of the Company’s common stock for each unexpired stock option previously granted to all employees, including officers, with an exercise price greater than $3.00. Stock options to purchase a total of 3,362,396 shares of the Company’s common stock were granted with a value of $941,471, of which 3,074,000 were granted under the 2007 Plan. The stock options were valued using a Black-Scholes valuation method, a 113.3% volatility rate, risk-free rate of 3.25% and five-year life. Each stock option was granted with an exercise price equal to the closing price of the Company’s common stock as quoted on the NYSE Ame x on the grant date.

13

THE QUANTUM GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 8: Equity (Continued)

On January 15, 2009, the senior executives and Board members forfeited stock options to purchase 940,720 shares of the Company’s common stock with an exercise price of $3.01 or greater as outlined in the table below.

Name	Title/Relationship	Number of Options	Exercise Price
Noel J. Guillama	Chairman, Chief Executive Officer,	632,000	$3.50-$12.00
	President
Donald B. Cohen	Executive Vice President, Chief	168,000	$3.50-$12.00
	Financial Officer
Susan D. Gallagher	Executive Vice President, Chief	112,000	$3.50-$12.00
	Administrative Officer
Jose de la Torre	Director	10,000	$5.98-$7.25
Alberto Del Valle	Director	10,000	$5.98-$7.25
Lawrence B. Fisher	Director	10,000	$5.98-$7.25
Gregg M. Steinberg	Director	10,000	$5.98-$10.00

Options and Warrants

For the periods ended July 31, 2009 and 2008, there were outstanding 11,584,039 warrants to purchase shares of the Company’s common stock, with exercise prices ranging from $.50 to $12.50 per share, and 10,360,236 warrants to purchase shares of the Company’s common stock, with exercise prices ranging from $5.00 to $12.50 per share, respectively. For the periods ended July 31, 2009 and 2008, there were outstanding 4,443,447 vested stock options with exercise prices ranging from $.50 to $37.50 per share, which were exercisable at July 31, 2009, and 3,601,249 vested stock options with exercise prices ranging from $.50 to $37.50 per share, which were exercisable at July 31, 2008, respectively. In addition, there were outstanding 120,000 underwriter purchase stock options for units to purchase shares of the Company’s common stock and at an exercise price of $13.20 per unit. Each unit consists of three (3) shares of common stock, two (2) Class A warrants with an exercise price of $7.00 and two (2) Class B warrants with an exercise price of $11.00.

Other Equity Transactions

During the nine months ended July 31, 2009, 67,165 shares of Company common stock were returned to the Company. The shares were valued at the closing price of the Company’s common stock as quoted on the NYSE Amex as of the date that the shares were returned. No shares were returned to the Company during the nine months ended July 31, 2008.

Note 9: Loss per Share

Basic loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted loss per share is similar to basic loss per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares, such as options, had been issued. Diluted loss per share does not give effect to warrants or options granted, as the effects would be anti-dilutive.

The number of weighted average shares outstanding does not include shares subscribed but not issued valued at $637,500. The actual number of shares to be issued is contingent on the price of the Company’s common stock at that time in the future. Since the number of shares cannot be calculated, the loss per share does not reflect the effect of those shares.

14

THE QUANTUM GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 10: Subsequent Events

On August 19, 2009, the Company executed a $375,000 promissory note payable to a single investor with a maturity date of October 19, 2009. No interest will accrue during the term of the note, which is payable on the maturity date. In lieu of the interest, the Company will pay the individual investor the principal sum of $441,177 as payment in full. The Company will treat the difference between the repayment obligation and the principal payment as “original issue discount” and is amortizing it over the term of the note. In the event of default, interest will accrue on the repayment obligation from the maturity date through the date of payment at the rate of 15%, compounded monthly. In addition, the Company must repay any or all amounts due under this note at the c losing of any public or private financing in which the Company receives gross proceeds of at least $3,000,000. The Company intends to issue to the investor a warrant to purchase 1,190,477 shares of Company common stock with a five-year term and an exercise price of $.63.

In August 2009, the Company received $162,500 from several investors to complete the $800,000 private placement commenced in June 2009, the terms of which are described in detail in Note 6, Debt, above. The Company allocated the proceeds from the sale of the final units, or $162,500, as follows: (1) $81,250 to the promissory notes and (2) $81,250 to the common stock.  The original issue discount is being amortized over the term of the notes.  

Subsequent to July 31, 2009, the company received a Notice of Default from an investor who received a promissory note from the Company with a face amount of $29,412. Since the note was not paid on the original maturity date of June 30, 2009, interest is accruing through the date of payment at the rate of fifteen percent (15%) compounded monthly and shall thereafter be payable sixty (60) days after demand for payment by the note holder. Currently, the Company is in negotiations with the note holder to extend the terms.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this report. The discussion in this section regarding our business and operations includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as “may,” “expect,” “anticipate,” “estimate,” or “continue,” or the negative thereof or other variations thereof or comparable terminology. You are cautioned that all forward-looking statements are speculative and that there are certain risks and uncertainties that could cause actual events or results to differ from those refe rred to in such forward-looking statements. Actual events and actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors. We do not undertake any obligation to release any revisions to these forward-looking statements publicly to reflect events or our results after the date of this report or to reflect the occurrence of unanticipated events.

General

We are an innovation-driven healthcare services organization that provides technology solutions through Personal Wellness electronic Record™, or PWeR™, a 21^st Century electronic medical records, or EMR, platform; provider systems and services through Renaissance Health Systems, a medical services organization with more than 2,000 affiliated providers; and business services for healthcare providers and facilities through Quantum Global Professional Services.

Our model interacts with each of the three key hubs of the healthcare industry – providers (primary care physicians/specialists/ancillary facilities), hospitals and payers. The term “payers” refers to entities other than the patient that finance or reimburse the cost of health services. In most cases, this term refers to insurance carriers, other third party payers, or health plan sponsors (employers, governmental agencies or unions).

To accomplish the connectivity required for these communications, we have developed PWeR, a low-cost, multi-application, patient-centric EMR platform, which we believe complies with federal healthcare mandates and the criteria for participation in federal stimulus programs. The platform is compliant with the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and includes multiple applications used by provider offices, hospitals or other healthcare facilities. We have filed 19 provisional patents pending with the United States Patent and Trademark Office to protect proprietary technology that is intended to enhance the capabilities of PWeR. The provisional patents include patents on the improvement of prescription accuracy, real-time updates of patient records, streamlined inventory management of supplies within a healthcare provider’s facility and customized interfaces with the PWeR platform to provide a more efficien t and productive experience for the end user. PWeR is currently being marketed to our network of healthcare providers, as well as healthcare providers outside the network, hospitals and other payers, such as state governments.

PWeR – Patient-Centric Care

We believe that the technologies enabling sophisticated data mining and modeling techniques that have transformed the retail, finance and media industries can be applied to the healthcare industry to understand patterns, root causes and multi-dimensional issues, and to enhance the effectiveness of treatments and the personalization of health through patient-centric technology. By connecting physicians, hospitals, clinics and related professionals through one patient-centric database that is also accessible to the patient, we believe that PWeR provides such patient-centric technology.

We have designed PWeR to give all the healthcare providers that treat a particular patient access to the information needed to assist in their diagnosis and treatment plans, while ensuring adherence to HIPAA-compliant guidelines. Using PWeR, providers can access a patient’s entire medical record at one glance and patients can review their provider’s instructions or track their progress. In critical situations or in providing treatment to PWeR patients, hospitals can be given access to full medical histories, which we believe will result in more educated treatment decisions based on accurate data.

We anticipate that PWeR offers the healthcare industry an additional benefit as a result of its ability to aggregate and store healthcare information. With today’s governmental focus on EMR, and the monetary stimulus available to support EMR, we believe that the timing is right for the creation of healthcare knowledge databases with proper business models, governance and technology automation. We believe that PWeR facilitate the creation of

16

such knowledge databases. Our 19 provisional patent applications contain the following elements that are key to this undertaking:

·

Data capture directly from physicians and patients;

·

Synthesis of information; and

·

Analytics capability to model and predict and the electronic channel to repurpose knowledge products to industries ranging from pharmaceuticals, health departments, providers, insurers, communities, agriculture, education and governments.

We have developed PWeR based on the premise that knowledge increases the level of quality care the patient receives and creates a consumer with the primary objective of maintaining his or her own health to become an active participant in his or her treatment. Using PWeR, patients and their providers will have access to the patient’s health (clinical) information online 24 hours a day, 7 days a week, 365 days a year from anywhere in the world that they can access the Internet. Moreover, we believe that the accuracy and speed of information that PWeR generates will greatly improve the quality of a provider’s treatment decisions, and that the ability of PWeR to link diagnosis, treatment and associated billing electronically, thus streamlining practice management, will also provide greater precision in the billing process and speed of collection. As a result, we believe that giving the patient and all providers treating that patient acc ess to PWeR will have a significant impact on reducing the cost of healthcare.  

Current EMR applications capture patient data and only retain it in the computer of the recording physician or hospital. PWeR is architected as a system incorporating multiple applications that include EMR, practice management, billing, e-Labs, e-Prescriptions, disease management, medical home, messaging, kiosks and many other key functions. EMR is simply one application in this comprehensive system. PWeR follows the entire healthcare delivery process, and by centralizing the multiple sources of patient data in one location, PWeR connects an unlimited number of authorized users to the data, including the patient.

Our research has shown that to date, there has been limited innovation in healthcare analytics and limited movement in the direction of the creation of healthcare knowledge databases because:

·

90% of transactions in healthcare today are done by phone, paper or fax;

·

Less than 15% of doctors in the U.S. use EMR;

·

The large databases of health records maintained in large hospital settings (Mayo, Hopkins, Duke) store information gathered from critical cases.

·

Hospital databases do not contain the type of patient wellness information that would provide the healthcare industry a baseline to manage wellness; and

·

The information that is gathered and maintained by primary care physicians and specialists is often stored in paper or at best in a PC in a provider’s office where data integration, synthesis and analysis are not feasible.

We anticipate that the benefits to the healthcare industry from conversion to electronic records using PWeR will be significant and will include, but not be limited to:

·

Prevention of destruction of records;

·

Preservation of data;

·

Anytime/anywhere access of critical patient information;

·

Reduction of prescription and treatment errors as a result of the illegibility of handwriting; and

·

Analysis and mining of the data within those records to create knowledge.

Provider Systems Revenue – Medicare Advantage

With approximately 2,000 affiliated independent physicians and other healthcare providers, Renaissance Health Systems, or RHS, constitutes the foundation of our company and has generated the majority of our revenue to date. The RHS network of providers provides care for more than 4,400 patients on behalf of the payers that have contracted with us. Revenue is primarily derived from the monthly premiums that we receive for assuming full risk management of these patients. RHS currently has contracts with payers for two types of insurance products, Medicare and Medicaid, and we are expanding services to include commercial and universal insurance products.

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Since launching recruitment efforts in January 2005, RHS has established 29 county-based delivery systems in Florida. We expect to continue a measured roll out of additional delivery systems to eventually encompass all 67 Florida counties. Each county must meet established criteria set forth by the Centers for Medicare and Medicaid Services, or CMS, as to the number and type of healthcare providers required to meet certification as a complete delivery system. In a small county this may be as few as 31 providers, while in larger counties the minimum requirement averages more than 70 providers. Today, RHS averages 77 providers per county. To facilitate future expansion, we have designed the RHS model with the ability to be replicated in other state and national systems.

Currently, all our revenue is generated from our contracts with HMO payers. As at July 31, 2009, we had eight signed contracts with HMO payers and we were providing services to five. Four of the five signed contracts are at “full risk,” which means that under these contracts, we assume the full financial risk of medical costs associated with the healthcare costs of the HMO member and receive a percentage of the premium that the HMO payer receives from CMS. Under the fifth contract, we will not be at full risk until the HMO payer assigns us a minimum of 300 members. We receive an administrative fee for the use of the payer’s network of healthcare providers.

Under proposed initiatives, the federal government is exploring ways to reduce the overall cost of healthcare and particularly the cost Medicare and Medicaid. These initiatives could reduce the premiums that CMS pays our HMO payers and in turn may have a material adverse effect on the revenue per member per month we receive. We cannot predict with certainty whether or not any proposed changes to the Medicare and Medicaid requirements or funding will be implemented. Any implementation of the proposed changes could have a material adverse effect on our future development and the profitability of our provider systems.

Business Services

We provide other services and products to healthcare providers in and outside of our RHS network through Quantum Global Professional Services, or QGPS. These services include purchasing, technology and insurance products and are designed to reduce administrative time and expense in the physician’s practice and increase revenue collection rate. QGPS is intended to enhance the comprehensive suite of services and solutions that we offer, to provide a one-source solution for the industry and to create value for our customers.

The Future of our Business Model

In the coming quarters, we will continue to concentrate our efforts in several necessary and complimentary areas: securing adequate financing; successfully commercializing PWeR, enhancing the PWeR platform, and continuing to develop and expand our provider systems and business services.

We must secure permanent financing for our operations to achieve positive cash flow. We believe that to achieve positive cash flow, we will need to secure additional financing of $20 million over the coming 18 months. , Provided that we raise the necessary additional capital (as further discussed in “Liquidity and Capital Resources” below), we expect that one-half of that amount will be used to expand and enhance the PWeR platform and the remainder to cover our operating expenses, reduce our current debt, develop our provider systems and commercialize PWeR. If we are unable to raise the necessary additional capital, we may be required to adjust our business model and/or limit or reduce our planned expansion of PWeR or our provider networks.

We are focusing on taking our PWeR technology beyond individual and group providers to hospitals, health systems and insurance companies and other payers in public and private sectors. We are also concentrating on enhancing our current PWeR sales team with authorized resellers of PWeR, as well as by establishing strategic relationships with both domestic and foreign corporations to expand the utilization of PWeR in the healthcare industry. We expect to double our current PWeR marketing team for the state of Florida, hire a national sales manager as well as a development manager who will seek national strategic and marketing partnerships. We believe these steps will facilitate the expansion of PWeR on a national level. With additional advertizing and other direct and indirect marketing costs, we anticipate that the overall cost of marketing PWeR will be approximately $2 million over the next 12 months.

We anticipate that PWeR will continue to require upgrades, enhancements and expansion to handle higher capacity and utilization. We believe that the federal stimulus funds allotted to health information technology, estimated at over $19 billion, will motivate healthcare providers to seek EMR systems in the coming 18 months and fuel the growth of our company. Federal law promotes and subsidizes physicians, hospitals and regional health

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systems based on costs, utilization and a mix of Medicaid and/or Medicare patients seen. Provider estimates range from $30,000 to $65,000 or up to 85% of costs they incur with maximum amounts. As a company that has concentrated on a monthly subscription model, we believe that with the use of PWeR and as a result of our monthly subscription model, a provider will be able to comply with all the legal and financial requirements to obtain the available federally funded incentives with minimal start-up and monthly maintenance costs. We believe that the modest start-up costs of PWeR, projected to be less than $1,000, combined with the low monthly subscription cost for a single provider, projected to be less than $1,000 per month, is much lower than the cost of an EMR program installed at the provider’s office that includes additional costs for hardware maintenance and annual software license fees.

We intend to continue to expand the number of payers and providers in our provider systems to potentially double our current number of patient lives under management in the coming 12 months, depending on our future financial resources. This expansion will require us to hire additional staff and services within our patient care area, as well as a full-time licensed medical director and other support staff to support and sustain the growth in the projected number of patient lives under management. Once we reach 10,000 lives under management, we expect that provider system revenues will reach a statistical and actuarial equilibrium. This tipping point, combined with the enhanced pricing power we expect to have with our payers and group discounts with providers, will accomplish the economic objective of positive cash flows from our provider systems. We expect that the expansion of the number of patient lives under management will effectively doub le our revenue from our provider systems.

We further intend to work with our current 500+ primary care physicians in converting regular Medicare members to members of one of our affiliated payers. We expect to accomplish this goal in full compliance with the Medicare Advantage marketing rules.

We believe that in the coming 18 months our provider systems will be able to grow their revenue by increasing the number of patient lives as well as increasing the percentage we receive from payers for each member. Further, we believe that as we continue to grow, we will be able to negotiate better rates on discounts from both payers and providers, thus expanding our margins on services provided. We cannot provide assurance, however, that this revenue growth will occur or that our negotiations with payers will be successful.

To date, we have filed and begun to perfect over 600 claims relating to innovation, novelty, uniqueness or processes under our 19 provisional patents. We believe that there is value in these intellectual property claims and will to continue to perfect and protect them. Our patents will support and protect innovations in the PWeR platform and the integration, synthesis and analysis of electronic healthcare information gathered by PWeR. In addition, we believe the claims will also advance our development of predictive modeling. Provided that we raise adequate capital, we anticipate spending approximately $1 million over the next 6 to 12 months on enhancing PWeR to advance its predictive modeling capability, which we developed to assist several research facilities with which we are in current discussions relating to our business services.

Corporate Offices

We maintain a corporate office in Wellington, Florida and a regional business office in Miami, Florida that houses operational personnel, as well as accounting, marketing and other support staff. Occasionally, we have engaged consultants to assist on a specific project, or for a short-time period. Office space rent, supplies, other general costs and depreciation expense related to office furniture and equipment costs are also included in general and administrative costs.

Going Concern and Substantial Working Capital Deficit

The Company has incurred negative cash flows from operating activities of approximately $3.8 million for the nine month period ended July 31, 2009, working capital deficit of approximately $9.4 million and an accumulated deficit of approximately $50.3 million at July 31, 2009. The Company expects to continue to incur substantial expenditures to further develop and market its PWeR software platform and to expand its provider network. These matters raise substantial doubt about the Company’s ability to continue as a going concern without significant additional capital infusion. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.

We believe that the proceeds of our recent securities offerings along with our working capital resources are not adequate to finance our operations therefore we will need to engage in capital-raising transactions immediately and continue thereafter or we will need to substantially curtail or cease our operations altogether. The Company’s

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common stock trades on the NYSE Amex, under the continued listing exception granted by the NYSE Amex (see Item 5, Other Information, below for further information on the status of our listing on the NYSE Amex), and the Company intends to raise additional public or private equity or debt. As of the date of the filing of this Quarterly Report, we have engaged an investment banking firm to assist in obtaining additional financing, however, in the current condition of capital markets and with the Company’s history of losses, there is no assurance that we will receive any such additional funding. Our ability to complete additional offerings is dependent on the state of the debt and/or equity markets at the time of any proposed offering, and such market’s reception of the Company and the offering terms. Currently the credit and equity markets both in the United States and internationally are substantially contracted, which will make our task of raising additional debt or equity capital even more difficult. In addition, our ability to raise additional financing through the issuance of common stock or convertible securities may be adversely affected by uncertainties regarding the continued listing of our common stock on the NYSE Amex. There is no assurance that we will be able to obtain any such additional capital as we need to finance our efforts, through asset sales, equity or debt financing, or any combination thereof, on satisfactory terms or at all. Additionally, no assurance can be given that any such financing, if obtained, will be adequate to meet our ultimate capital needs and to support our operations. If adequate capital cannot be obtained on a timely basis and on satisfactory terms, our operations and the value of our common stock and common stock equivalents would be materially negatively impacted.

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments to reflect the possible future effects of the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty. See “Liquidity and Capital Resources” below.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We regularly make estimates and assumptions that affect the reported amounts of assets and liabilities.

We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

Our critical accounting policies and estimates involve the use of complicated processes, assumptions, estimates and/or judgments in the preparation of our condensed consolidated financial statements. An accounting estimate is an approximation made by management of a financial statement element, item or account in the financial statements. Accounting estimates in our historical condensed consolidated financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. The accounting estimates described below require us to make assumptions about matters that are uncertain at the time the estimate is made. Additionally, different estimates that we could have used or changes in an accounting estimate that are reasonably likely to occur could have a material impact on the presentation of our condensed consolidated financial condition or results of operations. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained, and as our operating environment changes. Our significant accounting policies are discussed in Note 2 to our condensed consolidated financial statements. We have discussed the development and selection of our critical accounting policies and related disclosures with our Audit Committee and have identified the following critical accounting policies for the current period.

Principles of Consolidation

We consolidate entities when we have the ability to control the operating and financial decisions and policies of that entity. The determination of our ability to control or exert significant influence over an entity involves the use of judgment. Therefore, we have included in our condensed consolidated financial statements the transactions of Palm Beach Medical College in which we and our subsidiary, Renaissance Health Systems, Inc. own collectively approximately 50.4% ownership.

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Goodwill and Other Intangibles

Statement of Financial Accounting Standards No. 142 (SFAS No. 142), Goodwill and Other Intangible Assets, requires that goodwill and intangible assets with indefinite useful lives be tested for impairment annually or more frequently if an event occurs or circumstances change that may reduce the fair value of our goodwill below its carrying value. We completed an impairment test as required under SFAS No. 142 in the fourth quarter of fiscal 2008 and determined that the goodwill was not impaired. Changes in estimates or application of alternative assumptions and definitions could produce significantly different results.

Allowance for Doubtful Accounts

We establish provisions for losses on accounts receivable if we determine that we will not collect all or part of the outstanding balance. We regularly review collectability and establish or adjust our allowance as necessary using the specific identification method.

Accrued Liabilities

Accrued liabilities include amounts owed for known obligations of the company. Additionally, the company owes $154,305 for payroll taxes, and has included an estimate for payroll tax penalties and interest of $21,402.

Medicare Considerations

Substantially all of our provider systems revenue from continuing operations is based upon Medicare funded programs. The federal government from time to time explores ways to reduce medical care costs through Medicare reform and through healthcare reform generally. Any changes that would limit, reduce, or delay receipt of Medicare funding or any developments that would disqualify us from receiving Medicare funding could have a material adverse effect on our business, results of operations, prospects, financial results, financial condition or cash flows. Due to the diverse range of proposals put forth and the uncertainty of any proposal’s adoption, we cannot predict what impact any Medicare reform proposal ultimately adopted may have on our business, financial position or results of operations.

Revenue Recognition

Under our full risk contracts with payers, we receive a percentage of premium or other capitated fee for each patient who chooses one of our network physicians as his or her primary care physician. Revenue under these agreements is generally recorded in the period we are responsible to provide services at the rates then in effect as determined by the respective contract. As part of the Medicare Advantage program, CMS periodically re-computes the premiums to be paid to the payers based on the updated health status of participants and demographic factors. We record any adjustments to these revenues at the time that the information necessary to make the determination of the adjustment is received from the payer.

Under our full risk agreements, we assume responsibility for the cost of substantially all medical services provided to the patient (including prescription drugs), even those services we do not provide directly, in exchange for a percentage of premium or other capitated fee. To the extent that patients require more frequent or expensive care, our revenue under a contract may be insufficient to cover the costs of care provided. We are covered by stop loss insurance.

Medical Claims Expense Recognition

The cost of healthcare services provided or contracted for is accrued in the period in which the services are provided. This cost includes our estimate of the related liability for medical claims incurred but not reported, or IBNR, in the period. IBNR represents a material portion of our medical claims liability presented on the balance sheet. As of July 31, 2009, the balance of IBNR allowance is $6,899,301. Changes in this estimate can materially affect, either favorably or unfavorably, our results from operations and overall financial position.

Normally, IBNR claims are estimated using historical claims patterns, current enrollment trends, member utilization patterns, timeliness of claims submissions, estimates provided by payers and other factors. However, we have a limited amount of history on which to base our estimated IBNR allowance. Therefore, we are currently using an approximation based on industry experience primarily based on historical claims incurred per member per month. We adjust our estimate if we have unusually high or low utilization or if benefit changes provided under the payer

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plans are expected to significantly increase or reduce our claims exposure. We also adjust our estimate for differences between the estimated claims expense that are recorded in prior months and the actual claims expense as claims are paid by the payer and reported to us.

Until we have accumulated adequate history to further refine our calculation of IBNR, we have determined that the current method allows for the calculation of a reasonable estimate of IBNR. There can, however, be no assurance that the ultimate liability will not exceed estimates. Adjustments to the estimated IBNR claims are recorded in results of our operations in the periods when such amounts are determined. Per guidance under Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, we accrue for IBNR claims when it is probable that expected future healthcare costs and maintenance costs under an existing contract have been incurred and the amount can be reasonably estimable. We record a charge related to these IBNR claims as medical claims expense.

Income Taxes

Income taxes are accounted for in accordance with the provisions of Statement of Financial Accounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes. SFAS No. 109 requires the use of an asset and liability approach for financial accounting and reporting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis. We record current income taxes based on our current taxable income, and we provide for deferred income taxes to reflect estimated future tax payments and receipts. Deferred tax assets are reduced by a valuation allowance when, based on our estimates, it is more likely than not that a portion of those assets will not be realized in a future period. The estimates utilized in recognition of deferred tax assets are subject to revision, either up or down, in future periods based on new facts or circumstances. During the three and nine months ended July 31, 2009, we determined that it is more likely than not that the deferred tax assets will not be realized, resulting in a full valuation allowance at July 31, 2009. We adopted the provisions of FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement 109, which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return, including issues relating to financial statement recognition and measurement. FIN 48 provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more-likely-than-not of being sustained if the position were to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the more-likely-than-not threshold, the largest amount of tax benefit that is greater than 50% likely of being recognized upon ultimate settlement with the taxing authority is recorded.

Share-Based Payment

The provisions of Statement of Financial Accounting Standards No. 123R (SFAS No. 123(R)), Share-Based Payment, establishes accounting for stock-based awards exchanged for employee and non-employee services. Accordingly, equity classified stock-based compensation cost is measured at grant date, based on the fair value of the award and is recognized as expense over the requisite service period. Liability classified stock-based compensation cost is re-measured at each reporting date and is recognized over the requisite service period. We have elected to calculate the fair value of our employee stock options using the Black-Scholes option pricing model and the expense for option awards with graded vesting provisions is recognized on a straight-line basis over the requisite service period of each separately vesting portion of the award.

Liquidity and Capital Resources

Since our inception, we have funded our business primarily through sales of our equity and debt securities. For the nine months ended July 31, 2009, we have incurred a net loss from operations of more than $8.5 million and an accumulated deficit at July 31, 2009 of more than $50.3 million.

We had a working capital deficit at July 31, 2009 of $10,592,963 as compared to working capital of $503,275 at July 31, 2008, which represents a decrease of $10,089,688. The increase in the working capital deficit is due to an increase in debt and due to HMOs. Due to HMOs is the net of premiums received from the HMO payers less medical costs paid by the HMO payers less any cash paid to the Company by HMO payer. The amount due HMO increase primarily because the medical expenses paid by the HMO exceeded the premiums earned.

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We have been dependent upon private capital to meet our short and long-term cash needs. Depending on a number of variables including the number of healthcare providers electing to use our PWeR system and growth in patients under management we could continue to experience negative cash flow from operating activities through at least the next 12 months as we continue to build our CHS networks (provider systems) and develop a suite of management support services. If we continue to incur negative cash flow from sources of operating activities for longer than expected, our ability to continue as a going concern could be in substantial doubt. We will require additional funds through debt facilities, and/or public or private equity or debt financings to continue operations. During the third quarter of fiscal 2009, we raised $1,202,500 by issuing promissory notes to our officers, directors, shareholders and investors to meet immediate operational needs o f our Company. Terms of these notes are described in detail under Note 6 to the condensed consolidated financial statements. An additional $537,500 was raised during August 2009 by issuing additional promissory notes to meet immediate operational needs of our Company. We believe that these proceeds along with our working capital resources are not adequate to finance our operations through the end of September 2009. We will need to engage in capital-raising transactions in September 2009 and immediately thereafter; otherwise, we will need to significantly curtail or cease our operations altogether. Any future additional capital will likely result in dilution to our current shareholders, which may be substantial. We cannot provide any assurance that we will be able to obtain the capital we require on a timely basis or on terms acceptable to us. See Item 5, “Other Information,” for information regarding the status of the Notice of Continued Listing Deficiency we received from NYSE Amex.

Our development plan includes the identification of and acquisition or joint venturing of businesses and services that will allow us to provide comprehensive healthcare management support services. We expect to secure financing for any such acquisition by obtaining additional financing from outside lenders.

Under the terms of certain lockup agreements between the Company and certain of its convertible debt holders from private placements of the Company’s securities in August 2006 through March 2007, we were required to pay a recurring fee to such debt holders who converted their convertible debt into units of unregistered securities of the Company sold in the December 2007 secondary public offering. The conversion fee was to be paid by the Company quarterly at a rate of 1% per month of the principal amount of the convertible debt plus accrued interest. To date, the Company has paid the first two quarterly payments for March and June 2008 with the remaining $308,613 unpaid and outstanding to date.

In February 2008, Quantum Medical Technologies, Inc., entered into an agreement with Net.Orange, Inc., a software development company. Net.Orange has developed a clinical operating system, which incorporates multiple applications such as electronic medical records, practice management, billing and collection, archiving and storage, and configurable Web portals. With this healthcare technology, we believe we will be able to offer a patient-centric, Web-based information system to include our network of over 2,000 healthcare providers as well as the entire healthcare community at large. The advantages of this healthcare operating system will include the addition of patient care management and disease management software which we believe will assist us in reducing our healthcare costs for our patients under RHS. The agreement with Net.Orange includes an annual fee of $100,000 plus additional user fees. We have also contracted with Net. Orange for the development of additional software capabilities to incorporate enhancements to its healthcare software system for a monthly fee of $50,000. Net.Orange has completed the Disease Management Module and is now developing specific disease models, completing enhancements to the EMR system, and is continuing to develop additional functionalities within the PWeR environment. In July 2008, PWeR was launched as a beta test at the Caridad Center, the largest free clinic in Palm Beach County, Florida. By implementing PWeR at the Caridad Center, we have provided exposure and interaction of PWeR to over 140 healthcare providers who volunteer their services at the Clinic. We are expanding the deployment of PWeR to our network of healthcare providers and expanding the platform to the national market. Quantum has secured exclusive worldwide distribution for the PWeR system.

Financing Activities

Net cash of $2,721,865 was provided by financing activities for the nine months ended July 31, 2009, compared to $9,174,894 for the nine months ended July 31, 2008. We received $2,668,750 in proceeds from the issuance of promissory notes in the nine months ended July 31, 2009. During the nine months ended July 31, 2008, we received $11,847,368 in net proceeds, after deducting underwriter commissions, underwriter unaccountable expenses and other offering expenses from the secondary public offering. We repaid approximately $2,610,689 in existing debt and repurchased 50,207 private placement warrants for $1.00 per warrant.

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Operating Activities

Net cash of $3,840,372 was used in operating activities for the nine months ended July 31, 2009, compared to $5,726,636 for the nine months ended July 31, 2008. The decrease of $1,886,264 was primarily due to a reduction in net loss.

Investing Activities

Net cash of $327,091 was used for investing activities for the nine months ended July 31, 2009, compared to $582,070 for the nine months ended July 31, 2008. Net cash for investing activities primarily relates to the purchase of software for development purchases related to PWeR.

Inflation

We believe that the relatively moderate rates of inflation in recent years have not had a significant impact on our operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material.

Results of Operations

Three and Nine Months Ended July 31, 2009, as Compared to the Three and Nine Months Ended July 31, 2008 (restated)

The following table presents the revenue and direct costs for the three and nine months ended July 31, 2009 and 2008. These items are discussed in detail following the table.

	For the Three Months Ended July 31,				For the Nine Months Ended July 31,
	2009		2008		2009		2008
Revenue
Provider systems	$	10,454,469	$	4,446,376	$	26,071,729	$	10,665,106
Management support services		500		12,986		800		309,019
Total Revenues		10,454,969		4,459,362		26,072,529		10,974,125
Direct Costs
Provider systems		10,854,374		4,491,647		27,817,188		11,916,967
Management support services				670				213,749
Total direct costs		10,854,374		4,492,317		27,817,188		12,130,716
Gross Profit	$	(399,405)	$	(32,955)	$	(1,744,659)	$	(1,1,56,591)

Revenue

Total revenue for the three and nine months ended July 31, 2009 increased by $5,995,607 and $15,097,404 as compared to the three and nine months ended July 31, 2008, respectively, or 134% and 138%. The increase in revenue for the three and nine months ended July 31, 2009 is a direct result of active contracts with five HMO payers. Provider systems revenue of $10,454,469 and $26,071,729 accounted for 99.9% of our total revenue for the three and nine months ended July 31, 2009. Management support services revenue for the three and nine months ended July 31, 2009 represented .0001%, of our total revenue, which decreased by $12,486 and $308,219 from the three and nine months ended July 31, 2008 to the three and nine months ended July 31, 2009 due to the termination of the medical billing and collection services company contracts as of December 31, 2007.

Provider systems revenue growth is dependent on the number of new members/patients that enroll in the payer plans and are assigned to our healthcare providers. Although we experienced an increase in revenue, additional growth has been limited by the fact that members cannot change payer networks freely due to the statutory restrictions governing the Medicare Advantage plans. We expect that the growth in the management support services revenue will initially be derived from acquisitions, entering into additional management agreements for existing management support services businesses, and joint ventures. Then, as we develop our sales and

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marketing capabilities, we expect that growth in management support services revenue will be derived from internal growth as we have the resources to market these services to the healthcare providers in our network.

Direct Costs

Direct costs for the three and nine months ended July 31, 2009 increased $6,362,057 and $15,686,472 compared to the three and nine months ended July 31, 2008, respectively. Provider system costs increased $6,362,727 and $15,900,221 from the three and nine months ended July 31, 2008, respectively. Provider systems direct costs increased because we were responsible for approximately 2,106 additional patient months under our HMO payer contracts as of the nine months ended July 31, 2009 as compared to the same period in 2008. Additionally, one HMO forgave medical expenses in the amount of $943,803 during the three month period ended April 30, 2009, which reduced the direct costs reflected for the three and nine month periods ended July 31, 2009 from 11,798,177 and 28,760,991 to 10,854,374 and 27,817,188, respectively. Management support services costs decreased by $670 and $213,749 from the three and nine months ende d July 31, 2008, respectively. This decrease was due to the termination of the medical billing and collection services company contracts as of December 31, 2007.

The direct costs amount for the three and nine months ended July 31, 2009, includes $10,326,711 and $27,372,528, respectively, of claims paid and reserved. During the three and nine months ended July 31, 2009, an additional $527,663 and $1,388,463, respectively, was paid for reinsurance to cover excessive medical costs (stop loss insurance). We anticipate that the medical costs per member will decrease as we expand the number of members under care and with the implementation of our technology solutions, which will eventually reverse our negative gross profit. The majority of the management support services direct costs are composed of the condensed consolidated transactions of the billing and collection services companies that were under management contracts and which were incurred through December 2007.

Operating and Non-Operating Expenses

The following table presents the operating and non-operating expenses incurred for the three and nine months ended July 31, 2009 and 2008. These items are discussed in detail following the table.

	For the Three Months Ended July 31,				For the Nine Months Ended July 31,
	2009		2008		2009		2008
Operating expenses
Salaries and employee costs	$	1,136,760	$	860,400	$	3,495,517	$	3,432,288
Stock-based compensation		133,301		402,795		768,678		2,755,209
Occupancy		76,406		91,627		253,987		263,194
Depreciation and amortization		36,685		56,374		131,380		142,750
Other general and administrative expenses		426,123		681,405		2,150,101		2,031,079
Total operating expenses	$	1,809,275	$	2,092,601	$	6,799,663	$	8,624,520
Non-operating expenses
Amortization of financing costs	$	1,637,740	$	—	$	3,275,207	$	3,687,229
Gain on disposal of assets		—		—		—		(312,465)
Interest and other expense		34,783		149,680		91,991		733,731
Total non-operating expenses	$	1,672,523	$	149,680	$	3,367,198	$	8,110,144

Operating expenses for the three and nine months ended July 31, 2009 decreased $283,326 and $1,824,857, respectively from the three and nine months ended July 31, 2008. Salaries and employee costs increased $276,360 and $63,229, respectively for the three and nine months ended July31, 2009 as compared to July 31, 2008. Stock-based compensation decreased by $269,494 and $1,986,531, respectively, primarily due to the granting of options related to the Amendment to Noel J. Guillama’s Executive Employment Agreement. During this period, we hired additional employees to service the expansion of provider systems and added corporate staff to support our expanded operations. Other general and administrative expenses decreased by $255,282 and increased by $119,022, respectively for the three and nine months ended July 31, 2009.

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Non-operating expenses increased by $1,522,843 during the three months ended July 31, 2009 compared to the three months ended July 31, 2008. This increase was due to the amortization of financing costs, which includes amortization of debt discount, financing costs and beneficial conversion feature in the amount of $1,637,740 for the three months ended July 31, 2009. Non-operating expenses decreased by $4,742,946during the nine months ended July 31, 2009 compared to the nine months ended July 31, 2008 which is due to the reduction of the amortization of financing costs and debt discount during the nine months ended July 31, 2008.

Net Loss

Net loss for the three months ended July 31, 2009 and 2008 was $3,861,395 and $2,275,236, respectively, representing an increased loss of $1,586,159 from the three months ended July 31, 2008. Net loss for the nine months ended July 31, 2009 and 2008 was $11,866,892 and $17,891,255, respectively, representing a decreased loss of $6,024,361 from the nine months ended July 31, 2008. The majority of the decrease was attributed to costs related to the debt financing of $4,413,671 for the nine months ended July 31, 2008. Net loss per share was $(.34) and $(.26) for the three months ended July 31, 2009 and 2008 and $(1.14) and $(2.44) for the nine months ended July 31, 2009 and 2008.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined in Item 10 of Regulation S-K and thus are not required to report the quantitative and qualitative measures of market risk specified in Item 305 of Regulation S-K.

Item 4T.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer, or the Certifying Officers, conducted evaluations of our disclosure controls and procedures. As defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communi cated to management, including the Certifying Officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers concluded that our disclosure controls and procedures were not effective at July 31, 2009. 

A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness; yet important enough to merit attention by those responsible for oversight of the company’s financial reporting. The Certifying Officers determined that certain significant deficiencies involving our internal control over financial reporting rose to the level of a material weakness at July 31, 2009; namely, the lack of formal control design structure and formal p rocesses for closing our financial statements in preparing for the annual audit or quarterly reviews. This material weakness in our internal control over financial reporting did not result in the need to restate any previously reported financial statements or any other related financial disclosure.

Our management and the Audit Committee considered what changes, if any, were necessary to our disclosure controls and procedures to ensure that the material weakness described above would not recur in the future reporting periods. In its review, management and the Audit Committee noted that the deficiencies described above related principally to our shortage of qualified accounting and finance personnel and the stress on such personnel currently in place at the Company. Management and the Audit Committee further noted that the deficiencies described above did not have any effect on the accuracy of our financial statements at July 31, 2009.

As a result of these findings, management determined that in order to remedy the material weakness in our internal control over financial reporting, we needed to hire additional accounting and finance personnel having adequate experience in the preparation of financial statements and data of a public reporting company, in the

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application of generally accepted accounting principles in the United States and in public company reporting matters. No additional changes to our disclosure controls and procedures were needed in response to the material weakness in our internal control over financial reporting. We have commenced our remediation efforts, are in the process of interviewing suitable candidates for the open positions in our accounting and finance department and expect to have completed these efforts by December 31, 2009.

We believe that the remediation of the material weakness in internal control over financial reporting will allow our management to conclude that our disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations there under.

Our Chief Financial Officer is and will continue to oversee accounting and financial reporting personnel and is consulting regularly with our auditors and the Audit Committee on all such matters.

Changes in Internal Controls over Financial Reporting

Except as set forth above, there were no changes in our internal control over financial reporting during the period ended July 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

The Company may, from time to time, be involved in various legal matters arising out of its operations in the normal cause of business, none of which are expected, individually or in the aggregate, to have a material effect on the Company.

Item 1A.

Risk Factors

We are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K and thus are not required to report the risk factors specified in Item 503(c) of Regulation S-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

The securities in each one of the below-referenced transactions were (i) made without registration and (ii) were subject to restrictions under the Securities Act and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(2), 4(6) and/or 3(b) of the Securities Act and in reliance on similar exemptions under applicable state laws as a transaction not involving a public offering. Appropriate legends were affixed to the certificates representing the securities issued. During the third quarter, we issued:

·

19,231 shares of common stock to our employees as compensation for their services;

·

5,117 shares of common stock to consultants as compensation for their services; and

·

35,296 shares of common stock to the board of directors as compensation for their services.

·

176,472 shares of common stock as conversion of debt.

From January to July 2009, we executed several promissory notes with certain of our executive officers and directors for the purposes of obtaining working capital to continue our operations. The following table lists certain pertinent information relating to such promissory notes:

Name of the Person/Entity	Title/Relationship	Note Amount (2)			Repayment Amount (2)			Converted Shares
Noel J. Guillama	Chairman, Chief Executive Officer, President	$	100,000		$	119,118
Donald B. Cohen	Executive Vice President, Chief Financial Officer	$	70,000	(1)	$	83,383	(1)
Susan Darby Gallagher	Executive Vice President, Chief Administrative Officer	$	20,000		$	23,824
Paulson Investment Company, Inc.	Shareholder	$	441,250		$	945,072
Charlemagne Holdings, Inc.	Shareholder (3)	$	100,000		$	129,348
Jose de la Torre	Director	$	40,000		$	47,646
Other Investors	Investors	$	947,500		$	1,003,329		2,351,720

———————

(1)

Represents (i) February 2, 2009 promissory note in the principal amount of $50,000, and (ii) February 4, 2009 promissory note in the principal amount of $20,000. The repayment amount on the notes are $59,559 and $23,824, respectively.

(2)

The difference between the obligation and the principal payment will be treated as an original issue discount and be reported as interest expense. The principal payment will be due and payable on various dates through June 30, 2009. Since the obligation has not been paid in full by March 31, 2009, the obligation, plus interest accruing from the maturity date through the date of payment at the rate of 15%, compounded monthly and on the basis of a 360-day year of 12 30-day months, in arrears, on a proportionate basis, is thereafter payable 60 days after demand for payment by each note holder. We will repay any or all amounts due under this note at the closing of any public or private financing for which the Company receives gross proceeds of at least $2,000,000.

(3)

Charlemagne Holdings, Inc. is solely owned by Gregg M. Steinberg, our director.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

28

Item 5.

Other Information

On March 17, 2009, we received notice from the NYSE Amex LLC (formerly American Stock Exchange (the “Exchange”)) notifying us that we are not in compliance with Section 1003(a)(iv) of the Company Guide. Specifically, the Exchange staff noted that we sustained losses that are so substantial in relation to our overall operations or our existing financial sources that it appeared questionable, in the opinion of the Exchange, as to whether we would be able to continue operations and/or meet our obligations as they mature.

We submitted a plan of compliance on April 16, 2009 outlining our compliance strategy with the continued listing deficiency by September 17, 2009. Our plan was accepted by the Exchange, and we were able to continue our listing during this exception period, during which time we were subject to periodic review to determine our progress consistent with the plan. Under the terms of the notice, if we did not meet the requirements of the plan by the deadline, we were subject to delisting procedures as set forth in the Company Guide. As of the date of filing of this report, we have received no further communication from the Exchange relating to the status of our compliance efforts and that of our securities as listed on the Exchange. Under Company Guide rules, we have the right to appeal a determination by the Exchange staff to initiate delisting proceedings, should the Exchange make such a determination.

There is no assurance that we will remain listed on the Exchange following the compliance date deadline. Further, there is no assurance that we will be successful in our appeal of the Exchange staff’s delisting determination if one is rendered by the staff. If our securities are delisted from the Exchange, we may seek to cause our securities to be quoted on the Over-the-Counter Bulletin Board, but there is no assurance we would be able to complete the transition process in a timely manner.

Item 6.

Exhibits

Copies of the following documents are included or furnished as exhibits to this report pursuant to Item 601 of Regulation S-K.

Exhibit No.	Title of Document
10.1	Form of Subscription and Registration Rights Agreement dated May 19, 2009
10.2	Form of 10% Subordinated Promissory Note dated May 19, 2009
10.3	Addendum – Subsequent Events dated June 2, 2009
10.4	Form of Subscription and Registration Rights Agreement dated June 30, 2009
10.5	Form of 10% Subordinated Secured Promissory Note dated June 30, 2009
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURE

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, duly authorized.

Date: September 21, 2009

THE QUANTUM GROUP, INC.
By:	/s/ DONALD B. COHEN
	Donald B. Cohen, Executive Vice President, Chief Financial Officer (Principal Financial Officer and Authorized Officer of the Registrant)

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EXHIBIT INDEX

Exhibit No.	Title of Document
10.1	Form of Subscription and Registration Rights Agreement dated May 19, 2009
10.2	Form of 10% Subordinated Promissory Note dated May 19, 2009
10.3	Addendum – Subsequent Events dated June 2, 2009
10.4	Form of Subscription and Registration Rights Agreement dated June 30, 2009
10.5	Form of 10% Subordinated Secured Promissory Note dated June 30, 2009
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-10.1

EXHIBIT 10.1

FOR ACCREDITED INVESTORS ONLY

THE SECURITIES ARE BEING OFFERED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION AFFORDED BY SECTION 4(2) OF THE SECURITIES ACT AND REGULATION D PROMULGATED THEREUNDER. INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED.  THE SECURITIES OFFERED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PROSPECTIVE INVESTORS MUST ACQUIRE THE SECURITIES FOR INVESTMENT, SOLELY FOR THEIR OWN ACCOUNT, AND WITHOUT ANY VIEW TOWARD RESALE OR DISTRIBUTION. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

SUBSCRIPTION AND REGISTRATION RIGHTS AGREEMENT

Name of Subscriber ________________________

The Quantum Group, Inc.

3420 Fairlane Farms Road, Suite C

Wellington, Florida 33414

1.

Purchase.  

The undersigned (the “Holder” or the “Investor”) hereby agrees to purchase certain 10% Subordinated Promissory Notes (the “Notes”) set forth on the Signature Page attached hereto of The Quantum Group, Inc., a Nevada corporation (the “Company”), on the terms set forth herein (together with Exhibit A –Confidential Investor Questionnaire, Exhibit B – Form of 10% Subordinated Promissory Note, Exhibit C – Form of Equity Consideration Certificate, Exhibit D – Risk Factors, and Appendix A – the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2009, the “Transaction Documents”) describing the offering of a minimum of $50,000 and a maximum of up to $550,000 in the principal amount of the Notes of the Company (the “Offering”).

The Offering shall terminate on July 31, 2009 unless extended by mutual agreement of the Company and the Placement Agent (as defined below), for a period of up to additional 60 days without notice to the Investor. Subscriptions are subject to the right of the Company to accept or reject a subscription in whole or in part, to prior sale, and to termination of the Offering at any time.  Minimum investment amount is $25,000, subject to the Company’s right to accept lesser amounts in

1

its sole discretion. The Company intends to use the net proceeds of this Offering for working capital and general corporate purposes.

The Company has retained Paulson Investment Company, Inc. (the “Placement Agent”) to act as its exclusive placement agent (with right to retain subagents) in connection with the Offering.  The Placement Agent shall be entitled to a commission of 10% of the gross proceeds paid to the Company for purchase of the Notes, payable in cash on the Closing Date(s).

In consideration of the undersigned’s purchasing the Notes on the terms set forth in the Transaction Documents, the Company shall issue to such Investor an Equity Consideration Certificate (the “Equity Certificate”) representing the right to be issued a certain number of the Company’s common stock, which number shall be determined as set forth below (“Primary Equity Consideration” or “Alternate Equity Consideration,” as the terms are defined forth below).

The term “Primary Equity Consideration” shall refer to and consist of shares of the Company’s common stock that the Company will issue to the Holder in the event the Company consummates a Qualified Offering (as defined below). The exact number of shares shall be calculated based on 100% of the original principal amount of the Note purchased in this Offering by the Holder (the “Original Investment”), divided by the closing price of the Company’s common stock on the date of the first closing of this Offering. The Primary Equity Consideration shall be delivered to the Investors as soon as practical following the Qualified Offering closing, but in no event later than five business days after the closing of the Qualified Offering.

The term “Qualified Offering” shall refer to a underwritten public offering or a private placement of the Company’s securities subsequent to the Offering resulting in gross proceeds to the Company of at least $3,000,000.

In the event the Company does not consummate a Qualified Offering by November 30, 2009, the Company shall issue to the Holder shares of common stock as “Alternative Equity Consideration.” The exact number of shares of common stock to be issued as Alternative Equity Consideration shall be calculated based on 200% of the Original Investment divided by the closing price of the Company’s common stock on the date of the first closing of this Offering. The Alternate Equity Consideration shall be issued to the Investors no later than November 30, 2009, if a Qualified Offering shall not have occurred by such date.

For purposes of calculating the number of shares of common stock to be issued as Primary Equity Consideration or Alternative Equity Consideration, the “closing price” shall mean either (i) the last sale price for the Company’s common stock on the date of the first closing of this Offering; or (ii) the closing bid price of the Company’s common stock on such date, if there is no last sale price on that date.

The “Notes” and the shares of the Company’s common stock representing the Primary Equity Consideration and the Alternate Equity Consideration shall be referred hereinafter as the “Securities.” All capitalized terms used in this Note that are not defined herein shall have the respective meanings given such terms in the Transaction Documents.  

2

2.

Payment.  

The undersigned is tendering to the Company cash or a check made payable to the order of Continental Stock Transfer and Trust Company as escrow agent for the Company (the “Escrow Agent”) in the amount indicated on the Signature Page and below, or alternatively, the undersigned has wired funds to the Escrow Agent in such amount, as set forth in the Subscription Procedures.

THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES SUBSCRIBED FOR HEREUNDER IS $___________.

3.

Representations and Warranties.  By executing this Subscription Agreement, the undersigned:

(a)

Acknowledges that the undersigned has received and carefully read the Transaction Documents, is familiar with and understands the Transaction Documents, has relied on the information contained in the Transaction Documents, and has not relied upon any other offering literature or prospectus;

(b)

Represents and warrants that the undersigned is acquiring the Securities for his or her own account as principal for investment and not with a view to resale or distribution, and that the undersigned will not sell or otherwise transfer the Securities except in accordance with restrictions on transfer under the applicable federal and state securities laws;

(c)

Represents and warrants that the undersigned has such knowledge and experience in financial and business matters as will enable him or her to evaluate the merits and risks of the prospective investment;

(d)

Represents and warrants that the undersigned is able to bear the economic risk of losing his or her entire investment in the Securities;

(e)

Represents and warrants that the undersigned’s overall commitment to investments which are not readily marketable is not disproportionate to the net worth of the undersigned, and his or her investment in the Securities will not cause such overall commitment to become excessive;

(f)

Represents and warrants that (i) the undersigned is at least 21 years of age, (ii) he or she has adequate means of providing for his or her current needs and personal contingencies, (iii) he or she has no need for liquidity in the proposed investment in the Securities, (iv) he or she maintains a domicile and is not a transient or temporary resident at the address shown in the Confidential Purchaser Questionnaire, and (v) all of his or her investments in and commitments to non-liquid investments are, and after his or her purchase of the Securities will be, reasonable in relation to the undersigned's net worth and current needs;

(g)

Understands that the Company shall have the right, in its sole and absolute discretion, to accept or reject this tendered subscription in whole or in part, at any time prior to closing, or to allocate to him or her fewer than the number of Securities than the undersigned has subscribed for;

3

(h)

Understands that the Company will notify the undersigned whether this subscription is accepted or rejected, and that in the event such subscription is rejected, the tendered payment will be returned in full, and all of the obligations of the undersigned hereunder shall terminate;

(i)

Understands that the Securities have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), or the securities laws of any state and, as a result thereof, are subject to substantial restrictions on transfer, which restrictions are described in the Transaction Documents;

(j)

Agrees and understands that he or she will not sell or otherwise transfer any Securities unless the Securities are registered under the 1933 Act and any other applicable federal or state securities laws, or the undersigned obtains an opinion of counsel which is satisfactory to the Company (both as to the issuer of the opinion and the form and substance thereof) that the Securities may be transferred in reliance on an applicable exemption from the registration requirements of such laws;

(k)

Understands that (i) except as otherwise set forth in this Subscription Agreement, the Company has no obligation or intention to register the Securities for resale under any federal or state securities laws or to take any action (including the filing of reports or the publication of information required by Rule 144 under the 1933 Act) which would make available any exemption from the registration requirements of such laws, and (ii) the undersigned therefore may be precluded from selling or otherwise transferring or disposing of any Securities or any portion thereof for an indefinite period of time or at any particular time, and may therefore have to bear the economic risk of investment in the Securities for an indefinite period of time;

(l)

Understands that an investment in the Company involves certain risks, and has taken full cognizance of and understands all of the risk factors relating to the purchase of Securities;

(m)

Understands that no federal or state agency has approved or disapproved the Securities, passed upon or endorsed the merits of the offering thereof, or made any finding or determination as to the fairness of the Securities for investment;

(n)

Acknowledges that all material documents, records, and books pertaining to this investment have on request been made available to the undersigned and to his or her advisors;

(o)

Acknowledges that the Company has made available to the undersigned the opportunity to ask questions of, and receive answers from, the Company concerning the terms and conditions of the offering, and to obtain any additional information to the extent that the Company possess such information or can acquire it without unreasonable effort or expense, necessary to verify the accuracy of the information given to the undersigned; and

(p)

The undersigned is an "accredited investor" as such term is defined in Section 2(15) of the 1933 Act and Rule 501 of Regulation D promulgated by the Securities and Exchange Commission under the 1933 Act.  Specifically, the undersigned is (check all appropriate items):

4

¨

(i)

A bank as defined in Section 3(a)(2) of the 1933 Act, or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the 1933 Act, whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; an insurance company as defined in Section 2(13) of the 1933 Act; an investment company registered under the Investment Company Act of 1940 (the "Investment Company Act") or a business development company as defined in Section 2(a)(48) of the Investment Company Act; a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions or any agency or instrumentality of a state or its political subdivisions for the benefit o f its employees, if such plan has total assets greater than $5,000,000; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA"), if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of ERISA, which is either a bank, savings and loan association, insurance company, or a registered investment advisor, or if the employee benefit plan has total assets greater than $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

¨

(ii)

A private business development company as defined in Section 202(a)(22) of the Investment Advisors Act of 1940;

¨

(iii)

An organization described in Section 501(c)(3) of the Internal Revenue Code of 1986 as amended, a corporation, a Massachusetts or similar business trust, or a partnership, not formed for the specific purpose of acquiring the securities offered, with total assets greater than $5,000,000;

¨

(iv)

A director or executive officer of the Company;

¨

(v)

A natural person whose individual net worth or joint net worth with that person's spouse, at the time of his or her purchase exceeds $1,000,000. (California and Massachusetts residents:  If the undersigned is a California resident, his or her investment in the Company will not exceed 10% of his or her net worth (or joint net worth with his or her spouse).  If the undersigned is a Massachusetts resident, his or her investment in the Company will not exceed 25% of his or her joint net worth with his or her spouse (exclusive of principal residence and its furnishings);

¨

(vi)

A natural person who had an individual income greater than $200,000 in each of the two most recent years or joint income with that person's spouse greater than $300,000 in each of those years, and in either such case, has a reasonable expectation of reaching the same income level in the current year. (California and Massachusetts residents: please see Paragraph 3(v)(v) above for additional requirements.)

¨

(vii)

A trust with total assets greater than $5,000,000 not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) (i.e., a person who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the prospective investment.); or

5

¨

(viii)

An entity in which all of the equity owners are accredited investors. (If this alternative is checked, the undersigned must identify each equity owner and provide statements signed by each demonstrating how each is qualified as an accredited investor.)

4.

Indemnification.  The undersigned acknowledges that he or she understands the meaning of the representations made by him or her in this Subscription Agreement, and hereby agrees to indemnify and hold harmless the Company, and all persons deemed to be in control of the Company from and against any and all loss, costs, expenses, damages and liabilities (including, without limitation, court costs and attorneys' fees) arising out of or due to a breach by the undersigned of any such representations.

All such representations shall survive the delivery of this Subscription Agreement and the purchase by the undersigned of any Securities.

5.

No Third Party Beneficiaries.  Notwithstanding anything to the contrary contained herein, no provision of this Subscription Agreement is intended to benefit any party other than the parties hereto and their permitted successors and assigns, and shall not be enforceable by any other party.

6.

Registration Rights.   The Company shall use its reasonable best efforts to cause a registration statement on Form S-1, S-3 or other applicable form (the “Resale Registration Statement”), relating to the resale by the Holders of all of the shares of the Company’s common stock representing the Equity Consideration (the “Registrable Securities”) to be declared effective by the Securities and Exchange Commission (the “SEC”) by no later than December 11, 2009, subject to customary lock-up and any other restrictions required by a national securities exchange as a condition to listing such securities for trading on such exchange. In the event all of the Registrable Securities cannot be included in such registration statement, the Company shall use its reasonable best efforts to file a second resale registration statement for the Registrable Secur ities following the effective date of such Resale Registration Statement (the “Second Resale Registration Statement”), and shall thereafter use its reasonable best efforts to cause the Second Resale Registration Statement to be declared effective within 30 days of such filing, if the SEC elects not to review the filing or within 60 days after such filing if the filing is reviewed by the SEC staff.

Notwithstanding the foregoing, the Company shall have the right to restrict the use of the Resale Registration Statement or the Second Resale Registration Statement, as the case may be, for up to 60 days upon the occurrence of certain events with respect to the Company that, in the judgment of the Board of Directors of the Company, make such restriction advisable

The Holder further understands and agrees that the registration rights set forth in this Section shall terminate as to any Holder when the Registrable Securities held by such Holder (together with any affiliate of such Holder with whom such Holder must aggregate its sales under SEC Rule 144) could be sold without restriction under Rule 144 promulgated under the 1933 Act.

6

The Company will, until such time as the Registrable Securities may be sold under Rule 144 without volume limitation:

(A)

prepare and file with the SEC such amendments to such registration statement and supplements to the prospectus contained therein as may be necessary to keep such registration statement effective;

(B)

furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities;

(C)

use its best efforts to register or qualify the securities covered by such registration statement under such state securities or blue sky laws of such jurisdictions as the Holders may reasonably request in writing within twenty (20) days following the original filing of such registration statement, except that the Company shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or subject itself to taxation in any such jurisdiction;

(D)

notify the Holders, promptly after it shall receive notice thereof, of the time when such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed;

(E)

notify the Holders promptly of any request by the SEC for the amending or supplementing of such registration statement or prospectus or for additional information;

(F)

prepare and file with the SEC, promptly upon the request of any Holders, any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for such Holders (and concurred in by counsel for the Company), is required under the Act or the rules and regulations thereunder;

(G)

prepare and promptly file with the SEC and promptly notify such Holders of the filing of such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such securities is required to be delivered under the Act, any event shall have occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; and

(H)

advise the Holders, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued.

The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding the distribution of such Registrable Securities as the Company may from time to time reasonably request in writing.

7

All fees, costs and expenses of and incidental to such registration, inclusion and public offering in connection therewith shall be borne by the Company, provided, however, that the Holders shall bear their pro rata share of the underwriting discount and commissions and transfer taxes. The fees, costs and expenses of registration to be borne by the Company as provided above shall include, without limitation, all registration, filing, and FINRA fees, printing expenses, fees and disbursements of counsel and accountants for the Company, and all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered and qualified (except as provided above). Fees and disbursements of counsel and accountants for the Holders and any other expenses incurred by the holders not expressly included above shall be borne by the Holders.

Each Holder of Registrable Securities included in a registration pursuant to the provisions of this Section hereof will indemnify and hold harmless the Company, its directors and officers, any controlling person and any underwriter from and against, and will reimburse the Company, its directors and officers, any controlling person and any underwriter with respect to, any and all loss, damage, liability, cost or expense to which the Company or any controlling person and/or any underwriter may become subject under the Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in strict conformity with written information furnished by or on behalf of such Holder specifically for use in the preparation thereof.

Promptly after receipt by an indemnified party pursuant to the provisions of this Section of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of this Section, promptly notify the indemnifying party of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than hereunder. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfact ory to such indemnified party, provided, however, if counsel for the indemnifying party concludes that a single counsel cannot under applicable legal and ethical considerations, represent both the indemnifying party and the indemnified party, the indemnified party or parties have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of this Section for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless (i) the indemnified party shall have employed counsel in accordance with the provisions of the preceding sentence, (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the notice of the commencement of the action or (iii) the

8

indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party.

7.

Binding Effect.  The obligations of this Subscription Agreement shall be binding upon the heirs, personal representatives, and permitted successors and assigns of the undersigned.

8.

Severability. In the event any parts of this Subscription Agreement are found to be void, the remaining provisions of this Subscription Agreement shall nevertheless be binding with the same effect as though the void parts were deleted.

9.

Choice of Law and Jurisdiction. This Subscription Agreement shall be governed by the laws of the State of Nevada as applied to contracts entered into and to be performed entirely within the State of Nevada.

10.

Counterparts. This Subscription Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. The execution of this Subscription Agreement may be by actual or facsimile signature.

11.

Entire Agreement. This Subscription Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof. This Subscription Agreement may not be changed, waived, discharged, or terminated orally but, rather, only by a statement in writing signed by the party or parties against which enforcement or the change, waiver, discharge or termination is sought.

12.

Section Headings. Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part, any of the terms or provisions of this Subscription Agreement.

13.

Survival of Representations, Warranties and Agreements. The representations, warranties and agreements contained herein shall survive the delivery of, and the payment for, the Securities.

14.

Acceptance of Subscription. The Company may accept this Subscription Agreement at any time for all or any portion of the Securities subscribed for by executing a copy hereof as provided and notifying the Holder within a reasonable time thereafter.

*******

NASAA UNIFORM LEGEND. IN MAKING AN INVESTMENT DECISION OFFEREES MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THE TRANSACTION DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL

9

OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. OFFEREES SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

FOR RESIDENTS OF ALL STATES. THE PRESENCE OF A LEGEND FOR ANY GIVEN STATE REFLECTS ONLY THAT A LEGEND MAY BE REQUIRED BY THAT STATE AND SHOULD NOT BE CONSTRUED TO MEAN AN OFFER OR SALE MAY BE MADE IN ANY PARTICULAR STATE. THE TRANSACTION DOCUMENTS MAY BE SUPPLEMENTED BY ADDITIONAL STATE LEGENDS. IF YOU ARE UNCERTAIN AS TO WHETHER OR NOT OFFERS OR SALES MAY BE LAWFULLY MADE IN ANY GIVEN STATE, YOU ARE ADVISED TO CONTACT THE COMPANY FOR A CURRENT LIST OF STATES IN WHICH OFFERS OR SALES MAY BE LAWFULLY MADE. AN INVESTMENT IN THIS OFFERING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF FINANCIAL RISK. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER ALL OF THE RISK FACTORS DESCRIBED HEREIN.

FOR FLORIDA INVESTORS. PURSUANT TO THE LAWS OF THE STATE OF FLORIDA, IF SALES ARE MADE TO FIVE (5) OR MORE INVESTORS IN FLORIDA, ANY FLORIDA INVESTOR MAY, AT ITS OPTION, WITHDRAW, UPON WRITTEN (OR TELEGRAPHIC) NOTICE, ANY PURCHASE HEREUNDER WITHIN A PERIOD OF THREE (3) DAYS AFTER (A) THE INVESTOR FIRST TENDERS OR PAYS TO THE COMPANY, AN AGENT OF THE COMPANY OR AN ESCROW AGENT THE CONSIDERATION REQUIRED HEREUNDER, (B) THE INVESTOR DELIVERS ITS EXECUTED SUBSCRIPTION AGREEMENT, OR (C) THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH INVESTOR, WHICHEVER OCCURS LATER. THE UNDERSIGNED ACKNOWLEDGES THAT THE SECURITIES WILL NOT BE REGISTERED UNDER THE SECURITIES ACT NOR UNDER THE SECURITIES LAWS OF ANY STATE, THAT ABSENT AN EXEMPTION FROM REGISTRATION CONTAINED IN THOSE LAWS, THE ISSUANCE AND SALE OF THE SECURITIES WOULD REQUIRE REGISTRATION, AND THAT THE RELIANCE OF THE COMPANY UPON SUCH EXEMPTION IS BASED UPON THE UNDERSIGNED ’S REPRESENTATIONS.

10

SIGNATURE PAGE AND POWER OF ATTORNEY

The Quantum Group, Inc.

The undersigned hereby executes, adopts and agrees to all terms, conditions and representations of the foregoing Subscription and Registration Rights Agreement dated _, 2009.

Number of Securities to be purchased
Amount of check enclosed or wire transfer	$_____________________________________
__________________________(SEAL)	________________________________(SEAL)
Purchaser's Signature	Purchaser's Signature
Purchaser's Name	Purchaser's Name
(Please Print)	(Please Print)
Date	Social Security or
	Taxpayer Identification Number

ACCEPTANCE OF SUBSCRIPTION

The subscription set forth herein is accepted by The Quantum Group, Inc., to the extent of US $_________ in consideration for _________ 10% Subordinated Promissory Notes as of this ______ day of _________________, 2009.

	THE QUANTUM GROUP, INC.
	By:
	Name:
Title:

11

[Individual Acknowledgment]

STATE OF __________

:

:

COUNTY OF__________

:

On this, the ____ day of __________________, 200_, before me, the undersigned officer, personally appeared _______________________________________________________________ __________________________________________________________________ known to me (or satisfactorily proven) to be the person(s) whose name(s) is/are subscribed to the foregoing instrument and acknowledged that he/she/they executed the same for the purposes therein contained and received a true and correct copy of this instrument and of all other documents referred to therein.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

Notary Public

My Commission Expires:

State of California Certificate of Acknowledgment

STATE OF CALIFORNIA

)

)ss

COUNTY OF ________________

)

On ____________________, 2009 before me, ________________________________, personally appeared __________________________________________________________who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Notary Public

My Commission Expires: _______

12

[Corporate Acknowledgement]

STATE OF _____________

:

:

COUNTY OF _______________

:

On this, the ____ day of ____________________, 200_, before me, the undersigned officer, personally appeared __________ __________________________ who acknowledged himself/herself to be the ______ of ______________________________________, a corporation, and that he/she as such ________________ being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself/herself as _________ and that he/she received a true and correct copy of such instrument and of all other documents referred to therein.

IN WITNESS WHEREOF, I hereunder set my hand and official seal.

Notary Public

My Commission Expires:

13

[General Partnership Acknowledgement]

STATE OF _____________

:

:

COUNTY OF ____________

:

On this, the ____ day of ____________________, 200_, before me, the undersigned officer, personally appeared __________ ________________________________________________ who acknowledged himself/herself to be a Partner of _______________________________ a general partnership and that he/she as such Partner executed the foregoing instrument for the purposes therein contained by signing the name of the partnership by himself/herself as Partner and received a true and correct copy of this instrument and of all other documents referred to therein.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

Notary Public

My Commission Expires:

14

[Limited Liability Company Acknowledgement]

STATE OF ____________

:

:

COUNTY OF _____________

:

On this, the ____ day of ______________, 200_, before me, the undersigned officer, personally appeared _______________ who acknowledged himself to be the _________ of ___________ ________________________, a limited liability company, and that he as such _________ executed the foregoing instrument for the purposes therein contained by signing the name of the _________ of such company by himself as _________ and received a true and correct copy of this instrument and of all other documents referred to therein.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

Notary Public

My Commission Expires:

15

Exhibit A

CONFIDENTIAL INVESTOR QUESTIONNAIRE

The information contained herein is being furnished to The Quantum Group, Inc. (the “Company”) to determine whether the undersigned’s subscription for the Notes and the shares of common stock underlying Equity Consideration (the “Securities”) of the Company may be accepted by the Company in compliance with the requirements of Sections 3(b), 4(2) and 4(6) of the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D promulgated thereunder (“Regulation D”).  The undersigned acknowledges and understands that (i) the Company will rely on the information provided by the undersigned contained herein for purposes of determining compliance with, and the availability of, exemptions from the registration requirements of the Securities Act provided under Regulation D and (ii) the issuance of the Securities will not be registered under the Securities Act in reliance upon such exemptions.

All information provided by the undersigned is furnished for the sole use of the Company for the purposes described above and will be held in confidence by the Company, except that this Confidential Investor Questionnaire or the information provided herein, or both, may be furnished to such other parties as the Company, or each of their respective counsel or other authorized representatives, deem necessary or desirable to establish compliance with federal or state securities laws.  For further information, or if you have questions concerning the Company or the sale of the Company’s securities, please contact:  Donald Cohen, CFO, at The Quantum Group, Inc., 3420 Fairlane Farms Road, Suite C, Wellington, Florida 33414.

In accordance with the foregoing, the undersigned makes the following representations and warranties:

INVESTMENT EXPERIENCE AND PURPOSE
TO BE COMPLETED BY EVERY PROSPECTIVE INVESTOR

Investment Experience.  This item is presented in alternative form.  Please initial, in the space provided below, the alternative that applies to you.

_____

ALTERNATIVE ONE:  The undersigned has such knowledge and experience in financial and business matters so as to be capable of evaluating the relative merits and risks of an investment in the Securities; the undersigned is not using a Purchaser Representative (as defined below) in connection with such evaluation.  The undersigned offers as evidence of knowledge and experience in these matters the information requested in this Confidential Investor Questionnaire.

_____

ALTERNATIVE TWO*:  The undersigned will use a purchaser representative who satisfies all of the affiliation, financial experience, acknowledgment and disclosure conditions set forth under Rule 501(h) of Regulation D promulgated under the Securities Act of 1933, as amended (“Purchaser Representative”) acceptable to the Company in connection with evaluating a potential investment in the Securities.  The undersigned acknowledges that the following person will be acting as Purchaser Representative in connection with evaluating the merits and risks of an investment in the Securities.

16

Name of Purchaser Representative:  ___________________________

The undersigned represents and warrants that the above-named Purchaser Representative has furnished the undersigned with a Purchaser Representative questionnaire and that the undersigned and the above-named Purchaser Representative together have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of an investment in the Securities.

(*IF YOU HAVE INITIALED ALTERNATIVE TWO, THIS CONFIDENTIAL INVESTOR QUESTIONNAIRE MUST BE ACCOMPANIED BY A COMPLETED AND SIGNED PURCHASER REPRESENTATIVE QUESTIONNAIRE.)

Purpose of Investment.  Except as indicated below, any purchase of the Securities will be solely for the account of the undersigned, and not for the account of any other person or with a view to any resale, division or distribution thereof.

EXCEPTIONS (If exceptions provide details and attach additional pages if necessary)

PART TWO
GENERAL INFORMATION
TO BE COMPLETED BY EVERY PROSPECTIVE INVESTOR

3.

Name:

(exact name as it should appear in the records of the Company and any registration statement in which you are a named “selling stockholder”)

4.

If the prospective investor is a natural Person, identify the nature of ownership of the proposed investment:

[   ]  Single Ownership

[   ]  Tenancy by the entirety (Spouses only)

[   ]  Community property

[   ]  Joint tenancy with right of survivorship

5.

Marital status (if applicable): __________________________________________

6.

Address of record: __________________________________________________

_______________________________________________

_______________________________________________

_______________________________________________

17

7.

Telephone number:

    Fax:

8.

E-mail:  _____________________________

9.

Social Security or Taxpayer ID number: _________________________________

____________

10.

Describe any preexisting business or personal relationship between the prospective investor and any director or officer of the Company:

__________________________________________________________________

__________________________________________________________________

PART THREE
INDIVIDUAL INVESTOR
TO BE COMPLETED ONLY BY PROSPECTIVE INVESTORS WHO ARE
INDIVIDUALS

Select the representation provided below that applies:

My individual net worth, or joint net worth with my spouse, exceeds $1,000,000.

My individual income (without my spouse) was in excess of $200,000 in each of the two most recent years or joint income with my spouse was in excess of $300,000 in each

of those years, and I reasonably expect an income reaching the same income level in the current year. For purposes of this Confidential Investor Questionnaire, individual income means adjusted gross income, as reported for federal income tax purposes, less any income attributable to a spouse or to property owned by a spouse, increased by the following amounts (but not including any amounts attributable to a spouse or to property owned by a spouse):  (i) the amount of any tax exempt interest income received, (ii) the amount of losses claimed as a limited partner in a limited partnership, (iii) any deduction claimed for depletion, (iv) deductions for alimony paid, (v) amounts contributed to an IRA or Keogh retirement plan, and (vi) any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income pursuant to the provisions of Section 1202 of the Internal Revenue Code.

Educational background of prospective investor:

_____________________________________________________________________

Professional licenses or registrations, including bar admissions, accounting certification, real estate brokerage licenses, and SEC or state broker-dealer registrations:

18

_____________________________________________________________________

The prospective investor has previously purchased securities sold in reliance on the exemption from registration under the Securities Act provided by Regulation D:

Yes No

Investor’s investment objectives:

Income	Other, please state:
Appreciation

Prior private placement investments made by prospective investor which evidence prospective investor’s investing experience in transactions similar to this offering:

Yes No

PART FOUR
CORPORATE INVESTOR TO BE COMPLETED BY PROSPECTIVE INVESTORS WHO ARE CORPORATIONS (AND OTHER ENTITIES)

Type of organization (partnership, corporation, etc.):

Date and State of organization:

Select the representation provided below that applies:

(_____) a bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act acting in either an individual or fiduciary capacity;

(_____) a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”);

(_____) a Small Business Investment Company licensed by the U. S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958, as amended;

(_____) an investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; or

(_____) an insurance company as defined in Section 2(13) of the Securities Act;

(_____) a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940, as amended;

19

(_____) a corporation, partnership, limited liability company, Massachusetts or similar business trust, or a charitable organization described in Section 501(c)(3) of the Internal Revenue Code, not formed for the specific purpose of acquiring the securities offered with total assets in excess of $5,000,000;

(_____) any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a “sophisticated person” as such term is described in Rule 506(b)(2)(ii) of Regulation D;

(_____) an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 with investment decisions made by a plan fiduciary, as defined in Section 3(21) of such act, which is a bank, an insurance company, a savings and loan association, or a registered investment advisor;

(_____) an employee benefit plan with total assets in excess of $5,000,000; or

(_____) an employee benefit plan that is a self-directed plan (such as a self-directed individual retirement account, Keogh or SEP plan) with investment decisions made solely by persons that are “accredited investors” as such term is defined in Rule 501(a) of Regulation D; or

(_____) an entity in which all of the equity owners are “accredited investors” as such term is defined in Rule 501(a) of Regulation D.  Note:  prospective investor must submit an individual Confidential Investor Questionnaire for each equity owner.

List all equity owners of the entity:

PART FIVE
REGISTRATION STATEMENT INFORMATION
TO BE COMPLETED BY EVERY PROSPECTIVE INVESTOR

Are you, or is your organization, a broker-dealer registered under Section 15 of the Exchange Act?  

YES NO

Are you, or is your organization, an affiliate of a broker-dealer?  

	YES	NO
If the answer is yes, please explain the nature of any such relationship:

20

Have you had any position, office or other material relationship, or has your organization had any material relationship, within the past three years with the Company or any of its affiliates?  

	YES	NO
If the answer is yes, please explain the nature of any such relationship:

Please describe all other securities of the Company that you beneficially own or that your organization beneficially owns.

Have you made or are you aware of any arrangements relating to the distribution of any shares of the Company’s common stock under any registration statement?  

	YES	NO
If the answer is yes, please describe the nature and amount of such arrangements:

If investing as an entity, please list all natural persons with the power to vote or dispose of the Securities being purchased:

21

PART SIX
REPRESENTATIONS AND WARRANTIES
TO BE COMPLETED BY EVERY PROSPECTIVE INVESTOR

The undersigned understands and acknowledges that the Company will be relying on the accuracy and completeness of the information provided by the prospective investor in this Confidential Investor Questionnaire and the undersigned represents and warrants to the Company as follows:

The information is complete and correct and may be relied upon by the Company in determining whether the offer and sale of Securities in this offering in which the undersigned proposes to participate is exempt from the registration requirements of the Securities Act;

The undersigned will notify the Company immediately of any material change in any information provided by the prospective investor in this Confidential Investor Questionnaire occurring prior to the completion of the offering of the Securities; and

The undersigned has adequate means of providing for the undersigned’s current needs and personal contingencies, has no need for liquidity in its investment in the Securities, and is able to bear the economic risk of an investment in the Securities of the size contemplated by the prospective investor.  In making this statement, the undersigned represents that at the present time the undersigned has sufficient means to provide for its needs in the event of a complete loss of such investment.

IN WITNESS WHEREOF, the undersigned prospective investor has executed this Confidential Investor Questionnaire this __ day of _________, 2009.

INDIVIDUALS:	ENTITIES:
Print Name	Print Name of Entity
Signature	Print Name of Authorized Signatory
Print Name of joint investor or other person whose signature is required	Signature of Authorized Signatory
_________________________ Signature (if Joint Tenants or Tenants in Common)	_________________________ Capacity in which Authorized Signatory has Signed on Behalf of Entity

22

EX-10.2

EXHIBIT 10.2

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER THIS NOTE NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH NOTE, WHICH COUNSEL AND OPINION ARE SATISFACTORY TO THE COMPANY, THAT SUCH NOTE MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.

10% SUBORDINATED PROMISSORY NOTE

$______________________	Wellington, Florida
	___________________, 200_

The Quantum Group, Inc., a Nevada corporation (the “Company”), the principal office of which is located at 3420 Fairlane Farms Road, Suite C, Wellington, Florida 33414, for value received hereby promises to pay to __________________________________, or its registered assigns (the “Holder”), the sum of $__________________, or such other amount as shall then equal the outstanding principal amount hereof and all accrued and unpaid interest, as set forth below, on the earliest to occur of (i) November _, 2009, (ii) closing of a firmly underwritten public offering or a private placement of the Company’s securities subsequent to this offering of the Notes (including, without limitation, a private offering of the Company’s securities to be managed by J.P. Turner & Company, L.L.C.), resulting in gross proceeds to the Company of at least $3.0 million (a “ Qualified Offering”), or (iii) when declared due and payable upon the occurrence of an Event of Default (as defined below) (the “Maturity Date”).  Payment for all amounts due hereunder shall be made by wire transfer of immediately available funds, in lawful tender of the United States, to an account designated in writing by the Holder. This Note is issued pursuant to that certain Subscription and Registration Rights Agreement by and among the Company and the Investors described therein, dated as of the date hereof, as the same may from time to time be amended, modified or supplemented (the “Subscription Agreement”). Capitalized terms used in this Note that are not defined herein shall have the respective meanings given such terms in the Subscription Agreement.  The Holder of this Note is subject to certain restrictions set forth in the Subscription Agreement and shall be entitled to certain rights and privileges set forth in the Subscription Agreement.  This Note is one of the 10% Subordinated Promissory Notes referred to as the “Notes” in the Subscription Agreement.  In addition to the Note, the Holder shall also be entitled to receive certain Equity Consideration, as set forth under the terms of the Subscription Agreement.

The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees:

1.

Definitions. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings:

(i)

“Company” includes any corporation that, to the extent permitted by this Note or the Subscription Agreement, shall succeed to or assume the obligations of the Company under this Note.

(ii)

“Holder,” when the context refers to a holder of this Note, shall mean any person who shall at the time be the registered holder of this Note.

2.

Interest. Until all outstanding principal and all accrued and unpaid interest on this Note shall have been paid in full, interest on the unpaid principal balance of this Note shall accrue from the date hereof at the rate of ten percent (10%) per annum (the “Initial Interest Rate”). In the event that the principal amount of this Note and all accrued and unpaid interest is not paid in full when such amount becomes due and payable, the Initial Interest Rate shall increase to twelve percent (12%) per annum and shall continue to accrue on the outstanding balance until such outstanding balance is paid.

3.

Events of Default. If any of the events specified in this Section 3 shall occur (herein individually referred to as an “Event of Default”), the Company agrees to give the Holder prompt written notice of such event. The Holder may, so long as such condition exists or has not  been cured during the applicable cure period (whether or not the Holder has received notice of such event), declare the entire principal and unpaid accrued interest hereon immediately due and payable, by notice in writing to the Company:

(i)

Failure by the Company to make any payment hereunder when due, which failure has not been cured within thirty (30) days following such due date; or

(ii)

Any breach by the Company of any material representation, warranty or covenant in this Note or the Subscription Agreement which results in a Material Adverse Effect on the Company business, operations or financial condition; provided, that, in the event of any such breach, such breach shall not have been cured by the Company within 30 days after the earlier to occur of (a) written notice to the Company of such breach, and (b) the knowledge by the Company of such breach; or

(iii)

The institution by the Company of proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to institution of bankruptcy or insolvency proceedings against it or the filing by it of a petition or answer or consent seeking reorganization or release under the federal Bankruptcy Act, or any other applicable federal or state law, or the consent by it to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of the Company, or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the taking of corporate action by the Company in furtherance of any such action; or

2

(iv)

If, within sixty (60) days after the commencement of an action against the Company seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such action shall not have been resolved in favor of the Company or all orders or proceedings thereunder affecting the operations or the business of the Company stayed, or if the stay of any such order or proceeding shall thereafter be set aside, or if, within sixty (60) days after the appointment without the consent or acquiescence of the Company of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment shall not have been vacated.

4.

Prepayment. The principal amount of this Note together with accrued interest thereon is subject to prepayment, in whole or part, at any time at the option of the Company.  In the case of any prepayment of less than the total principal amount outstanding on the Note, the prepayment shall be applied first to the interest owed and then to installments of principal in the inverse order of their maturity.

5.

Subordination. The indebtedness represented by this Note shall be subordinate to all other existing and future indebtedness of the Company.

6.

Covenants.

6.1

Affirmative Covenants of the Company. The Company covenants and agrees that, between the date hereof and the date of repayment of all principal and interest on this Note, the Company shall:

6.1.1

Ordinary Course Operations.  Operate the Company business only in the ordinary course.

6.1.2

Corporate Existence. At all times cause to be done all things reasonably necessary to maintain, preserve and renew its corporate existence and all material licenses, authorizations and permits necessary to the conduct of its businesses.

6.1.3

Properties. Maintain and keep its properties in good repair, working order and condition, normal wear and tear expected.

6.1.4

Compliance with Laws. Comply with all applicable laws, rules and regulations of all governmental authorities, the violation of which could reasonably be expected to have a material adverse effect.

6.1.5

Books and Records. Maintain proper books of record and account which present fairly in all material respects its financial condition and results of operations and make provisions on its financial statements for all such proper reserves as in each case are required in accordance with generally accepted accounting principles (“GAAP”), consistently applied.

6.1.6

Taxes and Other Liabilities. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, except as may be properly extended or those subject to good faith contest or as to which a bona fide dispute may exist that is being diligently pursued.

3

6.2

Negative Covenants of the Company. The Company covenants and agrees that, between the date hereof and the repayment of all principal and interest on this Note, the Company shall not:

6.2.1 Ability to Perform Obligations. Become subject to (including, without limitation, by way of amendment to or modification of), any agreement or instrument which by its terms would (under any circumstances) restrict the right of the Company to perform the provisions of this Note.

6.2.2 Amend the Certificate of Incorporation or Bylaws. Amend its Certificate of Incorporation or Bylaws in any manner that adversely affects the rights associated with this Note without the prior consent of a majority in interest of the outstanding Notes.

6.2.3 Dividends. Make a distribution upon its capital stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend, or Subscription, redeem or otherwise acquire or retire for value any of its capital stock or any warrants, rights or options to Subscription or acquire any shares of its capital stock, without the prior consent of a majority in interest of the outstanding Notes.

6.2.4 Affiliates. Effect an extraordinary transaction not contemplated pursuant to the Subscription Agreement with any “affiliate” (as such term is defined in Rule 405 of the Securities Act) of the Company, without prior notice to the Holder.

6.2.5 Mergers, Etc. Without prior notice to the Holder, (i) merge or consolidate with or into, or permit any of its subsidiaries to merge or consolidate with or into, any corporation, or (ii) sell, lease, transfer or otherwise dispose of all or any substantial part of its assets (except in the ordinary course of business), whether now owned or hereafter acquired, unless the Company or one of its subsidiaries would be the acquiring or surviving party in such transaction and no Event of Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom.

7.

Assignment. Subject to the restrictions on transfer described in this Note, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors and assigns of the parties.  This Note may not be assigned or transferred by the parties except in accordance with the terms hereof.

8.

Waiver and Amendment. Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the Holder pursuant to the Subscription Agreement.

9.

Transfer of this Note. With respect to any offer, sale or other disposition of this Note, the Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder’s counsel, which counsel must be acceptable to the Company, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect). Promptly upon receiving such written notice and opinion, the Company, as promptly as practicable, shall notify such Holder that such Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company.  Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to

4

ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

10.

Treatment of Note. To the extent permitted by U.S. GAAP, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities.

11.

Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if faxed with confirmation of receipt by telephone or if mailed by registered or certified mail, postage prepaid, at the respective addresses of the parties as set forth in the Subscription Agreement. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when personally delivered, faxed, or when deposited in the mail in the manner set forth above and shall be deemed to have been received when delivered.

12.

No Stockholder Rights.  Nothing contained in this Note shall be construed as conferring upon the Holder or any other person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company.

13.

Usury. This Note is hereby expressly limited so that in no event whatsoever, whether by reason of acceleration of maturity of the loan evidenced hereby or otherwise, shall the amount paid or agreed to be paid to the Holder hereunder for the loan, use, forbearance or detention of money exceed that permissible under applicable law. If at any time the performance of any provision of this Note or of any other agreement or instrument entered into in connection with this Note involves a payment exceeding the limit of the interest that may be validly charged for the loan, use, forbearance or detention of money under applicable law, then automatically and retroactively, ipso facto, the obligation to be performed shall be reduced to such limit, it being the specific intent of the Company and the Holder that all payments under this Note are to be credited first to interest as permitted by l aw, but not in excess of (i) the agreed rate of interest set forth herein or therein or (ii) that permitted by law, whichever is the lesser, and the balance toward the reduction of principal. The provisions of this Section 13 shall never be superseded or waived and shall control every other provision of this Note and all other agreements and instruments between the Company and the Holder entered into in connection with this Note.

14.

Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Nevada, excluding that body of law relating to conflict of laws.

15.

Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except where otherwise indicated, all references herein to Sections refer to Sections hereof.

16.

Waiver. The Company hereby waives demand, notice, presentment, protest and notice of dishonor.

* * * * *

5

IN WITNESS WHEREOF, the Company has caused this Note to be issued this ___ day of ________________ 2009.

	The Quantum Group, Inc.
	By:
	Name:
	Title:
Name of Holder:
Address:

Wiring Instructions to the Escrow Agent:

Please See Attached Wire Instructions.

6

EX-10.3

EXHIBIT 10.3

The Quantum Group, Inc.

Addendum – Subsequent Events

June 2, 2009

This Addendum to the offering documents of The Quantum Group, Inc. (the “Company”), amends and supplements certain information contained in such offering documents of the Company, including without limitation, the terms and provisions of the Subscription and Registration Rights Agreement (the “SRRA”), and should be read in conjunction therewith. Capitalized terms used herein have the same meaning assigned to them in the offering documents.  Except as otherwise specifically set forth herein, the terms of the Offering, the risks in connection therewith and all other information not amended or modified by this Addendum, remain unchanged. This Addendum is confidential and subject to the confidentiality requirements set forth in the offering documents. Any decision to purchase the Company’s securities in the offering must be based on the information contained herein and the offering documents, and on your own evaluation of the Company and the terms of the offering, including the merits and risks of the investment.

The Company will issue securities representing the Primary Equity Consideration upon the earlier to occur of: (i) 120 days after the final closing of this offering, or (ii) receipt of approval of the Company’s shareholders in compliance with the NYSE Amex (the “Exchange”) Company Guide requirements. If Primary Equity Consideration has not been issued by November 30, 2009, the Company will issue securities representing the Alternate Equity Consideration.

As an Exchange-listed company, the Company is required to maintain compliance with all of the continued listing and governance criteria of the Exchange. On May 28, 2009, the Exchange approved the Company’s plan of compliance with certain continued listing deficiencies, the nature of which deficiencies was previously disclosed in the Company’s public filings and press releases.  As a condition of the approval, the Exchange required, among other things, that any issuances of additional securities of the Company during the compliance plan period be in compliance with the Exchange Company Guide (including, among other things, its requirements to seek shareholder approval for issuances of securities in excess of 20% of the Company’s outstanding securities at the time of such issuances) and receive approval of a management committee of the Exchange.  Any issuances of the Company’s securities not compliance with said rules and requirements may result in, among other things, withdrawal of the Exchange’s approval of the Company’s plan of compliance and commencement of delisting proceedings against the Company.  

Therefore, any issuances of the Company’s securities that are subject to the Exchange Company Guide, including the issuance of the Primary Equity Consideration and the Alternate Equity Consideration (together, the “Equity Issuances”), must be made in compliance with the Exchange Company Guide.  In light of the foregoing, the Company intends to seek approval of its shareholders to effect the Equity Issuances in compliance with the Exchange Company Guide.  In the event the shareholders of the Company do not approve such Equity Issuances, the Company intends to comply with its obligations to issue the Primary Equity Consideration and the Alternative Equity Consideration.

*************************

ACKNOWLEDGMENT OF SUBSCRIBER

I further agree, certify, covenant, confirm, represent and warrant to the Company and the other subscribers and any person deemed to “control” any of the foregoing (within the meaning of Section 15 of the Securities Act) that I have received and carefully reviewed this Addendum and have fully and completely examined and understand all of the same and hereby agree and acknowledge that I am prepared to proceed with the offering on the terms and provisions set forth in the offering documents and this Addendum. I understand and acknowledge that, if I have already provided the Company with a fully-executed SRRA and any supporting documentation that may be affected by the above-referenced changes, I am hereby re-affirming my investment, such SRRA and all supporting documentation. I hereby understand and acknowledge that the Company cannot accept my subscription without my reaffirmation and that my signature hereto required in order to remain eligible to participate in this offering.

______________________________

(Signature of Subscriber)

______________________________

(Type or Print Name of Subscriber)

Joint Ownership (If Applicable)** _______________________________

(Signature of Co-Subscriber, if Any)

____________________________________

(Specify either Tenants in Common, (Type or Print Name of Co-Subscriber, Joint Tenants or Community Property) if any)

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EX-10.4

EXHIBIT 10.4

THE SECURITIES SUBSCRIBED FOR UNDER THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER THIS AGREEMENT NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH AGREEMENT, WHICH COUNSEL AND OPINION ARE SATISFACTORY TO THE COMPANY, THAT SUCH AGREEMENT MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.

SUBSCRIPTION AND REGISTRATION RIGHTS AGREEMENT

Name of Subscriber ______________________

The Quantum Group, Inc.

3420 Fairlane Farms Road, Suite C

Wellington, Florida 33414

1.

Subscription.  The undersigned (the “Holder,” the “Investor,” “me,” or “I”) hereby agrees to purchase certain 10% Subordinated Promissory Notes (the “Notes”) set forth on the Signature Page attached hereto of The Quantum Group, Inc., a Nevada corporation (the “Company”), on the terms set forth herein (together with Exhibit A –Confidential Investor Questionnaire (if necessary), Exhibit B – Form of 10% Subordinated Secured Promissory Note, Exhibit C – Term Sheet describing the offering of no minimum and a maximum of up to $600,000 in the principal amount of the Notes of the Company (the “Offering”), provided that the Company has the option to increase the offering by up to an additional $200,000, Exhibit D – Form of Equity Consideration Certificate, Exhibit E – Risk Factors, and Appendix A – the Company Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2009, (the “Transaction Documents”).

The Offering shall terminate on July 31, 2009 unless extended by the Company, for a period of up to an additional 30 days without notice to the Investor. Subscriptions are subject to the right of the Company to accept or reject a subscription in whole or in part, to prior sale, and to termination of the Offering at any time.  Minimum investment amount is $25,000, subject to the right of the Company to accept lesser amounts in its sole discretion. The Company intends to use the net proceeds of this Offering for working capital and general corporate purposes.

In consideration of the undersigned’s purchasing the Notes on the terms set forth in the Transaction Documents, the Company shall issue to such Investor an Equity Consideration Certificate (the “Equity Certificate”) representing a certain number of the Company common stock which number shall be determined as set forth below.

The Notes and the shares of the Company common stock representing the Equity Consideration shall be referred hereinafter as the “Securities.” All capitalized terms used in this Note that are not defined herein shall have the respective meanings given such terms in the Transaction Documents.

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2.

Payment.  Payment of the subscription price by Offerees is to be made by wire transfer at the time of Offeree’s delivery of its executed signature pages of the subscription materials to The Quantum Group, Inc.  All subscriptions for the Note shall be payable to “The Quantum Group”.

THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES

SUBSCRIBED FOR HEREUNDER IS $___________.

3.

Representations and Warranties.  By executing this Subscription and Registration Rights Agreement, the undersigned:

(a)

Acknowledges that the undersigned has received and carefully read the Transaction Documents, is familiar with and understands the Transaction Documents, has relied on the information contained in the Transaction Documents, and has not relied upon any other offering literature or prospectus;

(b)

Represents and warrants that the undersigned is acquiring the Securities for his or her own account as principal for investment and not with a view to resale or distribution, and that the undersigned will not sell or otherwise transfer the Securities except in accordance with restrictions on transfer under the applicable federal and state securities laws;

(c)

Represents and warrants that the undersigned has such knowledge and experience in financial and business matters as will enable him or her to evaluate the merits and risks of the prospective investment;

(d)

Represents and warrants that the undersigned is able to bear the economic risk of losing his or her entire investment in the Securities;

(e)

Represents and warrants that the undersigned’s overall commitment to investments which are not readily marketable is not disproportionate to the net worth of the undersigned, and his or her investment in the Securities will not cause such overall commitment to become excessive;

(f)

Represents and warrants that (i) the undersigned is at least 21 years of age, (ii) he or she has adequate means of providing for his or her current needs and personal contingencies, (iii) he or she has no need for liquidity in the proposed investment in the Securities, (iv) he or she maintains a domicile and is not a transient or temporary resident at the address shown in the Confidential Purchaser Questionnaire, and (v) all of his or her investments in and commitments to non-liquid investments are, and after his or her purchase of the Securities will be, reasonable in relation to the undersigned's net worth and current needs;

(g)

Understands that the Company shall have the right, in its sole and absolute discretion, to accept or reject this tendered subscription in whole or in part, at any time prior to closing, or to allocate to him or her fewer than the number of Securities than the undersigned has subscribed for;

(h)

Understands that the Company will notify the undersigned whether this subscription is accepted or rejected, and that in the event such subscription is rejected, the tendered payment will be returned in full, and all of the obligations of the undersigned hereunder shall terminate;

(i)

Understands that the Securities have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), or the securities laws of any state and, as a result thereof, are subject to substantial restrictions on transfer, which restrictions are described in the Transaction Documents;

(j)

Agrees and understands that he or she will not sell or otherwise transfer any Securities unless the Securities are registered under the 1933 Act and any other applicable federal or state

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securities laws, or the undersigned obtains an opinion of counsel which is satisfactory to the Company (both as to the issuer of the opinion and the form and substance thereof) that the Securities may be transferred in reliance on an applicable exemption from the registration requirements of such laws;

(k)

Understands that (i) except as otherwise set forth in this Subscription and Registration Rights Agreement, the Company has no obligation or intention to register the Securities for resale under any federal or state securities laws or to take any action (including the filing of reports or the publication of information required by Rule 144 under the 1933 Act) which would make available any exemption from the registration requirements of such laws, and (ii) the undersigned therefore may be precluded from selling or otherwise transferring or disposing of any Securities or any portion thereof for an indefinite period of time or at any particular time, and may therefore have to bear the economic risk of investment in the Securities for an indefinite period of time;

(l)

Understands that an investment in the Company involves certain risks, and has taken full cognizance of and understands all of the risk factors relating to the purchase of Securities;

(m)

Understands that no federal or state agency has approved or disapproved the Securities, passed upon or endorsed the merits of the offering thereof, or made any finding or determination as to the fairness of the Securities for investment;

(n)

Acknowledges that all material documents, records, and books pertaining to this investment have on request been made available to the undersigned and to his or her advisors;

(o)

Acknowledges that the Company has made available to the undersigned the opportunity to ask questions of, and receive answers from, the Company concerning the terms and conditions of the offering, and to obtain any additional information to the extent that the Company possess such information or can acquire it without unreasonable effort or expense, necessary to verify the accuracy of the information given to the undersigned; and

(p)

The undersigned is an "accredited investor" as such term is defined in Section 2(15) of the 1933 Act and Rule 501 of Regulation D promulgated by the Securities and Exchange Commission under the 1933 Act.  Specifically, the undersigned is (check all appropriate items):

¨

(i)

A bank as defined in Section 3(a)(2) of the 1933 Act, or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the 1933 Act, whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; an insurance company as defined in Section 2(13) of the 1933 Act; an investment company registered under the Investment Company Act of 1940 (the "Investment Company Act") or a business development company as defined in Section 2(a)(48) of the Investment Company Act; a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions or any agency or instrumentality of a state or its political subdivisions for the benef it of its employees, if such plan has total assets greater than $5,000,000; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA"), if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of ERISA, which is either a bank, savings and loan association, insurance company, or a registered investment advisor, or if the employee benefit plan has total assets greater than $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

¨

(ii)

A private business development company as defined in Section 202(a)(22) of the Investment Advisors Act of 1940;

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¨

(iii)

An organization described in Section 501(c)(3) of the Internal Revenue Code of 1986 as amended, a corporation, a Massachusetts or similar business trust, or a partnership, not formed for the specific purpose of acquiring the securities offered, with total assets greater than $5,000,000;

¨

(iv)

A director or executive officer of the Company;

¨

(v)

A natural person whose individual net worth or joint net worth with that person's spouse, at the time of his or her purchase exceeds $1,000,000. (California and Massachusetts residents:  If the undersigned is a California resident, his or her investment in the Company will not exceed 10% of his or her net worth (or joint net worth with his or her spouse).  If the undersigned is a Massachusetts resident, his or her investment in the Company will not exceed 25% of his or her joint net worth with his or her spouse (exclusive of principal residence and its furnishings);

¨

(vi)

A natural person who had an individual income greater than $200,000 in each of the two most recent years or joint income with that person's spouse greater than $300,000 in each of those years, and in either such case, has a reasonable expectation of reaching the same income level in the current year. (California and Massachusetts residents: please see Paragraph 3(v)(v) above for additional requirements.)

¨

(vii)

A trust with total assets greater than $5,000,000 not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) (i.e., a person who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the prospective investment.); or

¨

(viii)

An entity in which all of the equity owners are accredited investors. (If this alternative is checked, the undersigned must identify each equity owner and provide statements signed by each demonstrating how each is qualified as an accredited investor.)

4.

Indemnification.  The undersigned acknowledges that he or she understands the meaning of the representations made by him or her in this Subscription and Registration Rights Agreement, and hereby agrees to indemnify and hold harmless the Company, and all persons deemed to be in control of the Company from and against any and all loss, costs, expenses, damages and liabilities (including, without limitation, court costs and attorneys' fees) arising out of or due to a breach by the undersigned of any such representations.

All such representations shall survive the delivery of this Subscription and Registration Rights Agreement and the purchase by the undersigned of any Securities.

5.

No Third Party Beneficiaries.  Notwithstanding anything to the contrary contained herein, no provision of this Subscription and Registration Rights Agreement is intended to benefit any party other than the parties hereto and their permitted successors and assigns, and shall not be enforceable by any other party.

6.

Description of Promissory Note.  Each Promissory Note bears interest at the rate of 10% per annum payable at maturity [need to mention increased default interest?] and matures 90 days from the acceptance of subscription by the Company.

7.

Purchase; Registration Rights.

(a)

I hereby tender to the Company cash or a check or wire transfer (information to be provided to me on my request) made payable to the order of The Quantum Group, Inc. in the amount

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indicated above, an executed copy of this Subscription and Registration Rights Agreement and an executed copy of my Investor Questionnaire.

(b)

This offering will continue until the earlier of (i) the sale of $600,000 in face amount of Promissory Notes or (ii) July 31, 2009, unless extended by the Company for up to an additional 30 days without notice to the Investor (the “Termination Date”).  Upon the earlier of a closing for my subscription or completion of the offering, I will be notified promptly by the Company as to whether my subscription has been accepted by the Company.

(c)

If at any time prior to two (2) years from the date hereof, whenever the Company proposes to register any of its equity securities under the Securities Act and files a registration statement under the 1933 Act with the Securities and Exchange Commission (other than a registration statement on Form S-4, S-8 or other limited purpose form), the Company shall send to each holder of the shared issued under the Equity Certificate (collectively, the "Holders"), a written notice of such determination, which notice shall offer the Holders the opportunity to include in such registration statement the number of securities issued or issuable in connection with such equity certificate (collectively, the “Registrable Securities”), and, if within ten (10) days after the date of such notice, each Holder shall so request in writing, the Company shall include in such registration statement t he Registrable Securities such Holder requests to be registered, subject to customary underwriter cutbacks and lock-ups, as may be applicable. The Holder further understands and agrees that the Company shall use its reasonable best efforts to include the Registrable Securities in such registration statement and that it undertakes no obligation to maintain the effectiveness of such registration statement with a current prospectus available after such time as all of the Registrable Securities have been sold. The Holder further understand and agrees that the registration rights shall terminate as to any Holder when the Registrable Securities held by such Holder (together with any affiliate of such Holder with whom such Holder must aggregate its sales under SEC Rule 144) could be sold without restriction under SEC Rule 144. The registration expenses, exclusive of stock transfer taxes, underwriting discounts and commissions, will be borne by the Company. The Company will, until such time as the shares may be sold under Rule 144 without volume limitation:

(i)

prepare and file with the SEC such amendments to such registration statement and supplements to the prospectus contained therein as may be necessary to keep such registration statement effective;

(ii)

furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities;

(iii)

use its best efforts to register or qualify the securities covered by such registration statement under such state securities or blue sky laws of such jurisdictions as the Holders may reasonably request in writing within twenty (20) days following the original filing of such registration statement, except that the Company shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or subject itself to taxation in any such jurisdiction;

(iv)

notify the Holders, promptly after it shall receive notice thereof, of the time when such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed;

(v)

notify the Holders promptly of any request by the SEC for the amending or supplementing of such registration statement or prospectus or for additional information;

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(vi)

prepare and file with the SEC, promptly upon the request of any Holders, any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for such Holders (and concurred in by counsel for the Company), is required under the Act or the rules and regulations thereunder;

(vii)

prepare and promptly file with the SEC and promptly notify such Holders of the filing of such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such securities is required to be delivered under the Act, any event shall have occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; and

(viii)

advise the Holders, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued.

The Company may require each Holder of the Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding the distribution of such shares as the Company may from time to time reasonably request in writing.  All fees, costs and expenses of and incidental to such registration, inclusion and public offering in connection therewith shall be borne by the Company; provided, however, that the Holders shall bear their pro rata share of the underwriting discount and commissions and transfer taxes. The fees, costs and expenses of registration to be borne by the Company as provided above shall include, without limitation, all registration, filing, FINRA fees, printing expenses, fees and disbursements of counsel and accountants for the Company, and all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered and qualified. The Company further agrees to pay for the reasonable fees of counsel for the Holders with respect to any such registration. Fees and disbursements of counsel and accountants for the Holders and any other expenses incurred by the Holders not expressly included above shall be borne by the Holders.

Each Holder of the Registrable Securities included in a registration pursuant to the provisions of this Section will indemnify and hold harmless the Company, its directors and officers, any controlling person and any underwriter from and against, and will reimburse the Company, its directors and officers, any controlling person and any underwriter with respect to, any and all loss, damage, liability, cost or expense to which the Company or any controlling person and/or any underwriter may become subject under the Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact require d to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in strict conformity with written information furnished by or on behalf of such Holder specifically for use in the preparation thereof.

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8.

Acceptance or Rejection of Subscription.

(a)

I understand and agree that the Company reserves the right to reject this subscription for the Notes, in whole or in part, for any reason and at any time prior to the Closing, notwithstanding prior receipt by me of notice of acceptance of my subscription.

(b)

In the event of the rejection of this subscription, my subscription payment will be promptly returned to me without interest or deduction and this Subscription and Registration Rights Agreement shall have no force or effect.  In the event my subscription is accepted and the offering is completed, the funds specified above shall be released to the Company.

9.

Closing.  The closing (“Closing”) of this offering may occur any time and from time to time before the Termination Date.  There is no Minimum Offering.  The Notes subscribed for herein shall not be deemed issued to or owned by me until one copy of this Subscription and Registration Rights Agreement has been executed by me and countersigned by the Company and the Closing with respect to such Notes has occurred.

10.

Disclosure.  Because this offering is limited to accredited investors as defined in Section 2(15) of the Act, and Rule 501 promulgated thereunder, in reliance upon the exemption contained in Section 4(2) of the Act and applicable state securities laws, the Notes are being sold without registration under the Act. I acknowledge receipt of the Offering Documents and all related documents and represent that I have carefully reviewed and understand the Offering Documents and its exhibits. I have received all information and materials regarding the Company that I have requested. I fully understand that the Company has a limited financial and operating history and that the Notes are speculative investments, which involve a high degree of risk of the loss of my entire investment. I fully understand the nature of the risks involved in purchasing the Notes and I am qualified by my know ledge and experience to evaluate investments of this type. I have carefully considered the potential risks relating to the Company and purchase of its Notes and have, in particular, reviewed each of the risks set forth in the Offering Documents. Both my advisors and I have had the opportunity to ask questions of and receive answers from representatives of the Company or persons acting on its behalf concerning the Company and the terms and conditions of a proposed investment in the Company and my advisors and I have also had the opportunity to obtain additional information necessary to verify the accuracy of information furnished about the Company. Accordingly, I have independently evaluated the risks of purchasing the Notes.

11.

Investor Representations and Warranties.  I acknowledge, represent and warrant to, and agree with, the Company as follows:

(a)

I am aware that my investment involves a high degree of risk as disclosed in the Offering Documents and have read carefully the Offering Documents and I understand that by signing this Subscription and Registration Rights Agreement I am agreeing to be bound by all of the terms and conditions of the Financing Agreement, Bridge Note and Security Agreement, which are included in the Offering Documents, and my signature on this Subscription and Registration Rights Agreement is deemed to be a signature on the Financing Agreement.

(b)

I acknowledge and am aware that there is no assurance as to the future performance of the Company.

(c)

I acknowledge that there may be certain adverse tax consequences to me in connection with my purchase of Notes, and the Company has advised me to seek the advice of experts in such areas prior to making this investment.

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(d)

I am purchasing the Notes for my own account for investment purposes and not with a view to or for sale in connection with the distribution of the Notes, or the shares of common stock issuable upon repayment of the Notes, nor with any present intention of selling or otherwise disposing of all or any part of the foregoing securities.  I agree that I must bear the entire economic risk of my investment for an indefinite period of time because, among other reasons, the Notes have not been registered under the Securities Act or under the securities laws of any state and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under applicable securities laws of certain states or an exemption from such registration is available.  Furthermore, I hereby acknowledge and agree that I will not sell, transfer, p ledge, encumber, give or otherwise dispose of, either publicly or privately, the Notes or the shares of common stock issuable upon repayment of the Notes.  I hereby authorize the Company to place a legend denoting the restrictions on the Notes that may be issued to me, as well as the shares of common stock issuable upon repayment of the Notes.

(e)

Except as described in my Investor Questionnaire, I am not a member of the National Association of Securities Dealers, Inc. (“NASD”); I am not and have not, for a period of 12 months prior to the date of this Subscription and Registration Rights Agreement, been affiliated or associated with any company, firm, or other entity which is a member of the NASD; and I do not own any stock or other interest in any member of the NASD (other than interests acquired in open market purchases).

(f)

I recognize that the Notes, as an investment, involve a high degree of risk including, but not limited to, the risk of economic losses from operations of the Company and the total loss of my investment.  I believe that the investment in the Notes is suitable for me based upon my investment objectives and financial needs, and I have adequate means for providing for my current financial needs and contingencies and have no need for liquidity with respect to my investment in the Company.

(g)

I have been given access to full and complete information regarding the Company and have utilized such access to my satisfaction for the purpose of obtaining information in addition to, or verifying information included in, the Offering Documents and related documents, and I have either met with or been given reasonable opportunity to meet with officers of the Company for the purpose of asking questions of, and receiving answers from, such officers concerning the terms and conditions of the offering of the Notes and the business and operations of the Company and to obtain any additional information, to the extent reasonably available.

(h)

I have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Notes and have obtained, in my judgment, sufficient information from the Company to evaluate the merits and risks of an investment in the Company.

(i)

I have relied solely upon my own investigation in making a decision to invest in the Company.

(j)

I have received no representation or warranty from the Company or any of its officers, directors, employees or agents in respect of my investment in the Company and I have received no information (written or otherwise) from them relating to the Company or its business other than as set forth in the Offering Documents.  I am not participating in the offer as a result of or subsequent to: (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

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(k)

I have had full opportunity to ask questions and to receive satisfactory answers concerning the offering and other matters pertaining to my investment and all such questions have been answered to my full satisfaction.

(l)

I have been provided an opportunity to obtain any additional information concerning the offering and the Company and all other information to the extent the Company possesses such information or can acquire it without unreasonable effort or expense.

(m)

I am an “accredited investor” as defined in Section 2(15) of the Securities Act and in Rule 501 promulgated thereunder and have attached the completed Accredited Investor Questionnaire to indicate my “accredited investor” category.  I can bear the entire economic risk of the investment in the Notes for an indefinite period of time and I am knowledgeable about and experienced in investments in the equity securities of non-publicly traded companies, including early stage companies.  I am acquiring the Notes for my own account for investment purposes only and not with a view to the resale or distribution of such securities within the meaning of the Securities Act of 1933, as amended.  I am not acting as an underwriter or a conduit for sale to the public or to others of unregistered securities, directly or indirectly, on behalf of the Company or any person with r espect to such securities.

(n)

I understand that (1) the Notes and the underlying securities have not been registered under the Securities Act, or the securities laws of certain states in reliance on specific exemptions from registration, (2) no securities administrator of any state or the federal government has recommended or endorsed this offering or made any finding or determination relating to the fairness of an investment in the Company and (3) the Company is relying on my representations and agreements for the purpose of determining whether this transaction meets the requirements of the exemptions afforded by the Securities Act and certain state securities laws.

(o)

I understand that (1) since neither the offer nor sale of the Notes has been registered under the Securities Act or the securities laws of any state, the Notes may not be sold, assigned, pledged or otherwise disposed of unless they are so registered or an exemption from such registration is available, and (2) it is not anticipated that there will be any market for the resale of the Notes.

(p)

I have been urged to seek independent advice from my professional advisors relating to the suitability of an investment in the Company in view of my overall financial needs and with respect to the legal and tax implications of such investment.

(q)

If the Investor is a corporation, company, trust, employee benefit plan, individual retirement account, Keogh Plan, or other tax-exempt entity, it is authorized and qualified to become an Investor in the Company and the person signing this Subscription and Registration Rights Agreement on behalf of such entity has been duly authorized by such entity to do so.

(r)

The information contained in my Investor Questionnaire, as well as any information which I have furnished to the Company with respect to my financial position and business experience, is correct and complete as of the date of this Subscription and Registration Rights Agreement and, if there should be any material change in such information prior to the Closing of the offering, I will furnish such revised or corrected information to the Company.  I hereby acknowledge and am aware that except for any rescission rights that may be provided under applicable laws, I am not entitled to cancel, terminate or revoke this subscription and any agreements made in connection herewith shall survive my death or disability.

9

12.

Indemnification.  I hereby agree to indemnify and hold harmless the Company and its officers, directors, stockholders, employees, agents, and counsel against any and all losses, claims, demands, liabilities, and expenses (including reasonable legal or other expenses, including reasonable attorneys’ fees) incurred by each such person in connection with defending or investigating any such claims or liabilities, whether or not resulting in any liability to such person, to which any such indemnified party may become subject under the Securities Act, under any other statute, at common law or otherwise, insofar as such losses, claims, demands, liabilities and expenses (a) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact made by me and contained in this Subscription and Registration Rights Agreement or my Investor Questionnaire, or (b) arise out of or are based upon any breach by me of any representation, warranty, or agreement made by me contained herein or therein.

13.

Severability.  In the event any parts of this Subscription and Registration Rights Agreement are found to be void, the remaining provisions of this Subscription and Registration Rights Agreement shall nevertheless be binding with the same effect as though the void parts were deleted.

14.

Choice of Law and Jurisdiction.  This Subscription and Registration Rights Agreement shall be governed by the laws of the State of Nevada as applied to contracts entered into and to be performed entirely within the State of Nevada.  Any action arising out of this Subscription and Registration Rights Agreement shall be brought exclusively in a court of competent jurisdiction in Las Vegas, Nevada, and the parties hereby irrevocably waive any objections they may have to venue in Las Vegas, Nevada.

15.

Counterparts.  This Subscription and Registration Rights Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  The execution of this Subscription and Registration Rights Agreement may be by actual or facsimile signature.

16.

Benefit.  This Subscription and Registration Rights Agreement shall be binding upon and inure to the benefit of the parties hereto.

17.

Notices and Addresses.  All notices, offers, acceptance and any other acts under this Subscription and Registration Rights Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addresses in person, by Federal Express or similar courier delivery or by facsimile delivery, as follows:

Investor:

At the address designated on the signature page of this Subscription and Registration Rights Agreement.

The Company:

The Quantum Group, Inc.

Attn: Noel J. Guillama, President

3420 Fairlane Farms Road, Suite C

Wellington, Florida 33414

phone: 561-798-9800

fax: 561-828-0454

or to such other address as any of them, by notice to the others may designate from time to time.  The transmission confirmation receipt from the sender’s facsimile machine shall be conclusive evidence of successful facsimile delivery.  Time shall be counted to, or from, as the case may be, the delivery in person or by mailing.

10

18.

Entire Agreement.  This Subscription and Registration Rights Agreement, together with the Transaction Documents, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof.  This Subscription and Registration Rights Agreement may not be changed, waived, discharged, or terminated orally but, rather, only by a statement in writing signed by the party or parties against which enforcement or the change, waiver, discharge or termination is sought.

19.

Section Headings.  Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part, any of the terms or provisions of this Subscription and Registration Rights Agreement.

20.

Survival of Representations, Warranties and Agreements.  The representations, warranties and agreements contained herein shall survive the delivery of, and the payment for, the Notes.

21.

Acceptance of Subscription.  The Company may accept this Subscription and Registration Rights Agreement at any time for all or any portion of the Notes subscribed for by executing a copy hereof as provided and notifying me within a reasonable time thereafter.

22.

Inconsistencies.  If there are any inconsistencies between this Agreement and the Financing Agreement, the terms of the Financing Agreement shall govern.

RESIDENTS OF ALL STATES: THE NOTES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS.  THE NOTES ARE SUBJECT TO REGISTRATIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.  INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.  THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING DOCUMENTS.  ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

(REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)

11

Manner in Which Title is to be Held.  (check one)

—

Individual Ownership

—

Community Property

—

Joint Tenant with Right of Survivorship (both parties must sign)

—

Partnership

—

Tenants in common

—

Corporation Trust

—

IRA or Keogh

—

Other (please indicate)

	Dated:
INDIVIDUAL INVESTORS	ENTITY INVESTORS
	Name of entity, if any
Signature (Individual)	By:
		Signature
	Its:
Signature (Joint)	Title:
(all record holders must sign)
Name(s) Typed or Printed	Name Typed or Printed
Address to Which Correspondence Should be Directed:	Address to Which Correspondence Should be Directed:
Phone Number	Phone Number
Email Address	Email Address
Tax Identification or Social Security Number	Tax Identification or Social Security Number

The foregoing subscription is accepted and the Company hereby agrees to be bound by its terms on _____ day of ___________________, 2009.

	THE QUANTUM GROUP, INC.
Dated:	By:
	Name:
	Its:

12

EX-10.5

EXHIBIT 10.5

THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.

_____________

10% SUBORDINATED SECURED PROMISSORY NOTE

$______________________	Wellington, Florida
	___________________, 2009

The Quantum Group, Inc., a Nevada corporation (the “Company”), the principal office of which is located at 3420 Fairlane Farms Road, Suite C, Wellington, Florida 33414, for value received hereby promises to pay to _________________, or its registered assigns (the “Holder”), the sum of $__________________, or such other amount as shall then equal the outstanding principal amount hereof and all accrued and unpaid interest, as set forth below, on or before September 30, 2009 (the “Maturity Date”). Notwithstanding the foregoing, the Company hereby promises to pay, prior to the Maturity Date, to the Holder ten percent (10%) of the net proceeds of each closing of a firmly underwritten public offering or a private placement of the Company’s securities subsequent to the issuance of this Note, resulting in net proceeds to the Company of at least $3 million (a “Qualifi ed Offering”), with all such Qualified Offering closings, in the aggregate, not to exceed $3 million. Upon subsequent closings of the Qualified Offering resulting in net proceeds to the Company in excess of $3 million, the Company shall repay Holder, at the final closing of such offering, the remaining unpaid principal balance on the Note, which payment (or payments) shall not exceed, in the aggregate, one hundred percent (100%) of the principal balance of the Note hereof, plus accrued interest.  Payment for all amounts due hereunder shall be made by wire transfer of immediately available funds, in lawful tender of the United States, to an account designated in writing by the Holder.

The Holder of this Note is subject to certain restrictions set forth in the Subscription and Registration Rights Agreement and shall be entitled to certain rights and privileges set forth in the Subscription and Registration Rights Agreement.  This Note is one of the 10% Subordinate Secured Promissory Notes referred to as the “Notes” in the Subscription and Registration Rights Agreement.  In addition to the Note, the Holder shall also be entitled to receive certain Equity Consideration, as set forth under the terms of the Subscription and Registration Rights Agreement.

The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees:

1.

Definitions. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings:

(i)

“Company” includes any corporation that, to the extent permitted by this Note or the Subscription and Registration Rights Agreement, shall succeed to or assume the obligations of the Company under this Note.

(ii)

“Holder,” when the context refers to a holder of this Note, shall mean any person who shall at the time be the registered holder of this Note.

2.

Interest. Until all outstanding principal and all accrued and unpaid interest on this Note shall have been paid in full, interest on the unpaid principal balance of this Note shall accrue from the date hereof at the rate of ten percent (10%) per annum (the “Initial Interest Rate”). In the event that the principal amount of this Note and all accrued and unpaid interest is not paid in full when such amount becomes due and payable, the Initial Interest Rate shall increase to fifteen percent (15%) per annum and shall continue to accrue on the outstanding balance until such outstanding balance is paid.

3.

Events of Default. If any of the events specified in this Section 3 shall occur (herein individually referred to as an “Event of Default”), the Company agrees to give the Holder prompt written notice of such event. The Holder may, so long as such condition exists or has not  been cured during the applicable cure period (whether or not the Holder has received notice of such event), declare the entire principal and unpaid accrued interest hereon immediately due and payable, by notice in writing to the Company:

(i)

Failure by the Company to make any payment hereunder when due, which failure has not been cured within thirty (30) days following such due date; or

(ii)

Any breach by the Company of any material representation, warranty or covenant in this Note or the Subscription and Registration Rights Agreement which results in a Material Adverse Effect on the Company business, operations or financial condition; provided, that, in the event of any such breach, such breach shall not have been cured by the Company within 30 days after the earlier to occur of (a) written notice to the Company of such breach, and (b) the knowledge by the Company of such breach; or

(iii)

The institution by the Company of proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to institution of bankruptcy or insolvency proceedings against it or the filing by it of a petition or answer or consent seeking reorganization or release under the federal Bankruptcy Act, or any other applicable federal or state law, or the consent by it to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of the Company, or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the taking of corporate action by the Company in furtherance of any such action; or

2

(iv)

If, within sixty (60) days after the commencement of an action against the Company seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such action shall not have been resolved in favor of the Company or all orders or proceedings thereunder affecting the operations or the business of the Company stayed, or if the stay of any such order or proceeding shall thereafter be set aside, or if, within sixty (60) days after the appointment without the consent or acquiescence of the Company of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment shall not have been vacated; or

(v)

Failure by the Company to pay, perform or otherwise comply with any agreement or obligation under any other loans, contracts or agreement of the Company, which failure has not been cured within ninety (90) days following such due date.

4.

Prepayment. The principal amount of this Note together with accrued interest thereon is subject to prepayment, in whole or part, at any time at the option of the Company.  In the case of any prepayment of less than the total principal amount outstanding on the Note, the prepayment shall be applied first to the interest owed and then to installments of principal in the inverse order of their maturity.

5.

Subordination. The indebtedness represented by this Note shall be subordinate to all other existing and future indebtedness of the Company.

6.

Covenants.

6.1

Affirmative Covenants of the Company. The Company covenants and agrees that, between the date hereof and the earlier of (i) the conversion of this Note pursuant to Section 5, and (ii) the date of repayment of all principal and interest on this Note, the Company shall:

6.1.1

Ordinary Course Operations.  Operate the Company business only in the ordinary course.

6.1.2

Corporate Existence. At all times cause to be done all things reasonably necessary to maintain, preserve and renew its corporate existence and all material licenses, authorizations and permits necessary to the conduct of its businesses.

6.1.3

Properties. Maintain and keep its properties in good repair, working order and condition, normal wear and tear expected.

6.1.4

Compliance with Laws. Comply with all applicable laws, rules and regulations of all governmental authorities, the violation of which could reasonably be expected to have a Material Adverse Effect.

6.1.5

Books and Records. Maintain proper books of record and account which present fairly in all material respects its financial condition and results of operations and make provisions on its financial statements for all such proper reserves as in each case are required in accordance with generally accepted accounting principles (“GAAP”), consistently applied.

3

6.1.6

Taxes and Other Liabilities. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, except as may be properly extended or those subject to good faith contest or as to which a bona fide dispute may exist that is being diligently pursued.

6.2

Negative Covenants of the Company. The Company covenants and agrees that, between the date hereof and the earlier of (i) the conversion of this Note pursuant to Section 5 or (ii) the repayment of all principal and interest on this Note, the Company shall not:

6.2.1 Ability to Perform Obligations. Become subject to (including, without limitation, by way of amendment to or modification of), any agreement or instrument which by its terms would (under any circumstances) restrict the right of the Company to perform the provisions of this Note.

6.2.2 Amend the Certificate of Incorporation or Bylaws. Amend its Certificate of Incorporation or Bylaws in any manner that adversely affects the rights associated with this Note without the prior consent of a majority in interest of the outstanding Notes.

6.2.3 Dividends. Make a distribution upon its capital stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend, or Subscription, redeem or otherwise acquire or retire for value any of its capital stock or any warrants, rights or options to Subscription or acquire any shares of its capital stock, without the prior consent of a majority in interest of the outstanding Notes.

6.2.4 Affiliates. Effect an extraordinary transaction not contemplated pursuant to the Subscription and Registration Rights Agreement with any “affiliate” (as such term is defined in Rule 405 of the Securities Act) of the Company, without prior notice to the Holder.

6.2.5 Mergers, Etc. Without prior notice to the Holder, (i) merge or consolidate with or into, or permit any of its subsidiaries to merge or consolidate with or into, any corporation, or (ii) sell, lease, transfer or otherwise dispose of all or any substantial part of its assets (except in the ordinary course of business), whether now owned or hereafter acquired, unless the Company or one of its subsidiaries would be the acquiring or surviving party in such transaction and no Event of Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom.

7.

Assignment. Subject to the restrictions on transfer described in Sections 8 and 11, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors and assigns of the parties.  This Note may not be assigned or transferred by the parties except in accordance with the terms hereof.

8.

Waiver and Amendment. Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the Holder issued pursuant to the Subscription and Registration Rights Agreement.

9.

Transfer of this Note or Securities Issuable on Conversion Hereof. With respect to any offer, sale or other disposition of this Note or securities into which this Note may be

4

converted, the Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder’s counsel, which counsel must be acceptable to the Company, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect). Promptly upon receiving such written notice and opinion, the Company, as promptly as practicable, shall notify such Holder that such Holder may sell or otherwise dispose of this Note or such securities, all in accordance with the terms of the notice delivered to the Company.  Each Note thus transferred and each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in t he opinion of counsel for the Company such legend is not required. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

10.

Security.

With the exception of Renaissance Administrative Solutions, Inc., the Notes are secured by a lien on all tangible and intangible assets of the Company. Such lien will be subordinate in security interest to that of certain investors in the anticipated offering of the debt securities of the Company which offering is to be managed by J.P. Turner & Co., LLC.

11.

Treatment of Note. To the extent permitted by U.S. GAAP, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities.

12.

Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if faxed with confirmation of receipt by telephone or if mailed by registered or certified mail, postage prepaid, at the respective addresses of the parties as set forth in the Subscription and Registration Rights Agreement. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when personally delivered, faxed, or when deposited in the mail in the manner set forth above and shall be deemed to have been received when delivered.

13.

No Stockholder Rights.  Nothing contained in this Note shall be construed as conferring upon the Holder or any other person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company; and no dividends or interest shall be payable or accrued in respect of this Note or the interest represented hereby or the shares of Common Stock obtainable hereunder until, and only to the extent that, this Note shall have been converted.

14.

Usury. This Note is hereby expressly limited so that in no event whatsoever, whether by reason of acceleration of maturity of the loan evidenced hereby or otherwise, shall the amount paid or agreed to be paid to the Holder hereunder for the loan, use, forbearance or detention of money exceed that permissible under applicable law. If at any time the performance of any provision of this Note or of any other agreement or instrument entered into in connection with this Note involves a payment exceeding the limit of the interest that may be validly charged for the loan, use, forbearance or detention of money under applicable law, then automatically and retroactively, ipso facto, the obligation to be performed shall be reduced to such limit, it being

5

the specific intent of the Company and the Holder that all payments under this Note are to be credited first to interest as permitted by law, but not in excess of (i) the agreed rate of interest set forth herein or therein or (ii) that permitted by law, whichever is the lesser, and the balance toward the reduction of principal. The provisions of this Section 15 shall never be superseded or waived and shall control every other provision of this Note and all other agreements and instruments between the Company and the Holder entered into in connection with this Note.

15.

Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Nevada, excluding that body of law relating to conflict of laws.

16.

Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except where otherwise indicated, all references herein to Sections refer to Sections hereof.

17.

Waiver. The Company hereby waives demand, notice, presentment, protest and notice of dishonor.

* * * * *

6

IN WITNESS WHEREOF, the Company has caused this Note to be issued this ___ day of ________________ 2009.

	The Quantum Group, Inc.
	By:
	Name:
	Title:
Name of Holder:
Address:
Telephone:
Email:

Wiring Instructions to the Escrow Agent:

Please See Attached Wire Instructions.

7

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13A-14

UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

(SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)

I, Noel J. Guillama, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of The Quantum Group, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the smaller reporting company as of, and for, the periods presented in this report;

4.

The smaller reporting company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the smaller reporting company and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the smaller reporting company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the smaller reporting company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the smaller reporting company’s internal control over financial reporting that occurred during the smaller reporting company’s most recent fiscal quarter (the smaller reporting company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the smaller reporting company’s internal control over financial reporting; and

5.

The smaller reporting company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the smaller reporting company’s auditors and the audit committee of the smaller reporting company’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the smaller reporting company’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the smaller reporting company’s internal control over financial reporting.

Date: September 21, 2009

/s/ Noel J. Guillama

Noel J. Guillama

President and Chief Executive Officer
(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13A-14

UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

(SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)

I, Donald B. Cohen, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of The Quantum Group, Inc;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the smaller reporting company as of, and for, the periods presented in this report;

4.

The smaller reporting company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the smaller reporting company and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the smaller reporting company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the smaller reporting company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the smaller reporting company’s internal control over financial reporting that occurred during the smaller reporting company’s most recent fiscal quarter (the smaller reporting company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the smaller reporting company’s internal control over financial reporting; and

5.

The smaller reporting company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the smaller reporting company’s auditors and the audit committee of the smaller reporting company’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the smaller reporting company’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the smaller reporting company’s internal control over financial reporting.

Date: September 21, 2009

/s/ Donald B. Cohen

Donald B. Cohen

Executive Vice President, Chief Financial Officer

(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350 (AS ADOPTED

PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002)

In connection with the quarterly report of The Quantum Group, Inc. (the “Company”) on Form 10-Q for the quarter ended July 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Noel J. Guillama, President and Chief Executive Officer, certify to my knowledge and in my capacity as an officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and,

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Date: September 21, 2009

/s/ Noel J. Guillama

Noel J. Guillama

President and Chief Executive Officer

(Principal Executive Officer)

A certification furnished pursuant to this Item will not be deemed “filed” for purposes of section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the smaller reporting company specifically incorporates it by reference.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350 (AS ADOPTED

PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002)

In connection with the quarterly report of The Quantum Group, Inc. (the “Company”) on Form 10-Q for the quarter ended July 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Donald B. Cohen, Executive Vice President, Chief Financial Officer, certify to my knowledge and in my capacity as an officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and,

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Date: September 21, 2009

/s/ Donald B. Cohen

Donald B. Cohen

Executive Vice President, Chief Financial Officer

(Principal Financial Officer)

A certification furnished pursuant to this Item will not be deemed “filed” for purposes of section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the smaller reporting company specifically incorporates it by reference.