QUANTUM ENERGY INC. - Quarter Report: 2021 May (Form 10-Q)

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended May 31, 2021

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

 

Commission file number 333-225892

 

Quantum Energy, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada	98-0428608
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3825 Rockbottom North Las Vegas, NV	89030
(Address of principal executive offices)	(Zip Code)

 

Registrant's telephone number, including area code: 702-323-6455

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common stock, $0.001 Par Value	QEGY	OTC.PK

 

Securities registered pursuant to Section 12(g) of the Act:
None

 

Indicate by check mark whether the issuer (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 ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically on its corporate Website, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit filed). Yes ☒ No ☐

 

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

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐
Smaller reporting company	☒	Emerging growth company	☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

The number of shares of issuer’s common stock, par value $0.001 per share, outstanding as of May 31, 2021 was approximately 48,491,485.

 

 

 

Contents

 

PART I - FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS	3
ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.	15
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
ITEM 4.   CONTROLS AND PROCEDURES	19
PART II - OTHER INFORMATION	20
ITEM 1.   LEGAL PROCEEDINGS.	20
ITEM 1A.   RISK FACTORS.	20
ITEM 2.   RECENT SALES OF UNREGISTERED SECURITIES.	20
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.	21
ITEM 4.   MINE SAFETY DISCLOSURES.	21
ITEM 5.   OTHER INFORMATION.	21
ITEM 6. EXHIBITS.	21

 

 

 

		May 31,				February 28,
		2021				2021
ASSETS
Current Assets
Cash		$	1,353,848			$	47
Total Current Assets			1,353,848				47
Investment - IEC			3,630,000				—
Total Assets		$	4,983,848			$	47
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts Payable and Accrued Expenses		$	210,740			$	220,140
Accounts Payable and Accrued Expenses - Related Parties			677,311				343,770
Common Stock Payable			6,180,170				200,000
Convertible Note Payable			—				67,500
Derivative Liability			—				116,399
Promissory Notes Payable			76,305				76,305
Promissory Notes Payable - Related Parties			106,015				106,015
Total Current Liabilities			7,250,541				1,130,129
Total Liabilities			7,250,541				1,130,129
Stockholders' Deficit
Common Stock - $0.001 Par; 495,000,000 Shares Authorized, 48,491,485 Issued and Outstanding, Respectively			48,491				48,491
Additional Paid-In-Capital			11,449,681				11,449,681
Accumulated Deficit			(13,764,865	)			(12,628,254	)
Total Stockholders' Deficit			(2,266,693	)			(1,130,082	)
Total Liabilities and Stockholders' Deficit		$	4,983,848			$	47

 

		For the Three Months Ended
		May 31,				May 31,
		2021				2020
Sales - Related Party		$	541,211			$	—
Operating Expenses
Advertising and Marketing			—				—
Management Fees and Consulting			56,250				—
General and Administrative			335,667				—
Professional Fees			881,721				—
Total Operating Expenses			1,273,638				—
Loss Before Other Income and (Expense)			(732,427	)			—
Other Income and (Expense)
Gain on Debt Conversion			140,395				—
Gain on Derivative			—				20,441
Interest Expense			(3,368	)			(7,379	)
Total Other Income and (Expense)			137,027				13,062
Income (Loss) Before Income Tax Expense			(595,400	)			13,062
Income Tax Expense			—				—
Net Income (Loss) for the Period		$	(595,400	)		$	13,062
Weighted Average Number of Common Shares -
Basic and Diluted			48,491,485				48,491,485
Net Income (Loss) for the Period Per Common Shares -
Basic and Diluted		$	(0.01	)		$	0.00

 

		For the Three Months Ended
		May 31,				May 31,
		2021				2020
Cash Flows from Operating Activities
Net Income (Loss) for the Period		$	(595,400	)		$	13,062
Non-Cash Adjustments:
Gain on Derivative			—				(20,441	)
Gain on Debt Conversion			(140,395	)			—
Changes in Assets and Liabilities:
Accounts Receivable			(541,211	)			—
Accounts Payable and Accrued Expenses			14,596				7,379
Accounts Payable and Accrued Expenses - Related Parties			333,541				—
Net Cash Flows Used In Operating Activities			(928,869	)			—
Cash Flows from Investing Activities
Cash Paid for Investment			(3,630,000	)			—
Net Cash Flows Used In Investing Activities			(3,630,000	)			—
Cash Flows from Financing Activities
Cash Received for Stock Payable			5,980,170				—
Repayment of Convertible Note Payable			(67,500	)			—
Net Cash Flows Provided By Financing Activities			5,912,670				—
Net Change in Cash			1,353,801				—
Cash - Beginning of Period			47				47
Cash - End of Period		$	1,353,848			$	47
Cash Paid During the Period for:
Interest		$	2,500			$	—
Income Taxes		$	—			$	—

 

		Common Stock								Additional								Total
		$0.001 Par								Paid-In				Accumulated				Stockholders'
		Shares				Amount				Capital				Deficit				Deficit
Balance - March 1, 2020			48,491,485			$	48,491			$	11,449,681			$	(12,410,855	)		$	(912,683	)
Net Income for the Period			—				—				—				13,062				13,062
Balance - May 31, 2020			48,491,485			$	48,491			$	11,449,681			$	(12,397,793	)		$	(899,621	)
Balance - March 1, 2021			48,491,485			$	48,491			$	11,449,681			$	(12,628,254	)		$	(1,130,082	)
Net Loss for the Period			—				—				—				(595,400	)			(595,400	)
Balance - May 31, 2021			48,491,485			$	48,491			$	11,449,681			$	(13,223,654	)		$	(1,725,482	)

 

NOTE 1 - NATURE OF OPERATIONS

 

QUANTUM ENERGY INC. (“the Company”) was incorporated under the name “Boomers Cultural Development Inc.” under the laws of the State of Nevada on February 5, 2004. On May 18, 2006, the Company changed its name to Quantum Energy, Inc.

 

The Company is a development stage diversified holding company; with operations centered on the refining of rare earth materials and the production of magnets and magnetic assemblies including an emphasis in real estate holdings, refinery assets, and related waste water treatment assets and operations.

 

The Company is domiciled in the Unites States of America and trades on the OTC market under the symbol QEGY.

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying condensed consolidated balance sheet has been derived from the February 28, 2021 audited financial statements and the unaudited condensed consolidated financial statements as of May 31, 2021 and 2020, have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited financial statements and related footnotes included in our Annual report on Form 10-K for the year ended February 28, 2021 (the “2021 Annual Report”), filed with the Securities and Exchange Commission (the “SEC”). It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments), have been made which are necessary for fair condensed consolidated financial statements presentation. Operating results for the three months ended May 31, 2021, are not necessarily indicative of the results of operations expected for the year ending February 28, 2021. 

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of the Company after elimination of the intercompany accounts and transactions.

 

Use of Estimates

 

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

 

Risks and uncertainties

 

The Company’s operations are subject to significant risks and uncertainties, including financial, operational, technological and other risks associated with operating an emerging business, including the potential risk of business failure.

 

Cash and cash equivalents

 

The Company considers all highly liquid investments with original maturities of three months or less when acquired to be cash equivalents.

 

 

QUANTUM ENERGY, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

MAY 31, 2021

 

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - continued

 

Fair value of financial instruments

 

The Company's financial instruments include cash and cash equivalents, promissory notes payable, and promissory notes payable - related parties. All instruments are accounted for on a cost basis, which, due to the short maturity of these financial instruments, approximates fair value at May 31, 2021 and February 28, 2021, respectively.

 

When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date.

 

At May 31, 2021 and February 28, 2021, the Company had no assets or liabilities accounted for at fair value on a recurring basis.

 

Long-Lived Assets

 

The Company reviews long-lived assets which include a deposit on land purchase for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows and reports any impairment at the lower of the carrying amount or the fair value less costs to sell.

 

Stock-based Compensation

 

The Company estimates the fair value of options to purchase common stock using the Black-Scholes model, which requires the input of some subjective assumptions. These assumptions include estimating the length of time stock options will be held before they are exercised (“expected life”), the estimated volatility of the Company’s common stock price over the expected term (“volatility”), forfeiture rate, the risk-free interest rate and the dividend yield. Changes in the subjective assumptions can materially affect the estimate of fair value of stock-based compensation. Options granted have a ten-year maximum term and varying vesting periods as determined by the Board of Directors. The value of shares of common stock awards is determined based on the closing price of the Company’s stock on the date of the award.

 

Related Parties

 

In accordance with ASC 850 “Related Party Disclosure”, a party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company; its directors, officers, and management; members of the immediate families of principal owners of the Company and its management; and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

 

 

QUANTUM ENERGY, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

MAY 31, 2021

 

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - continued

 

New Accounting Pronouncements

 

The Company has implemented all new accounting pronouncements that are in effect and is evaluating any that may impact its financial statements, including the new lease standard. The Company does not have any leases and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

 

 

NOTE 3 – GOING CONCERN

 

These condensed consolidated financial statements have been prepared in accordance with U.S. GAAP to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for the next twelve months.

 

As shown in the accompanying financial statements, the Company has incurred operating losses since inception. As of May 31, 2021 and February 28, 2021, the Company has limited financial resources with which to achieve the objectives and obtain profitability and positive cash flows. As shown in the accompanying condensed consolidated balance sheets and condensed consolidated statements of operations, the Company has an accumulated deficit and a working capital deficit at May 31, 2021 and February 28, 2021. Achievement of the Company's objectives will be dependent upon the ability to obtain additional financing, generate revenue from current and planned business operations, and control costs. The Company plans to fund its future operations by joint venturing, obtaining additional financing from investors, and/or lenders, and attaining additional commercial revenue. However, there is no assurance that the Company will be able to achieve these objectives, therefore substantial doubt about its ability to continue as a going concern exists.

 

 

 

NOTE 4 – EARNINGS PER SHARE

 

Basic Earnings Per Share (“EPS”) is computed as net income (loss) available to common stockholders divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options and warrants.

 

The dilutive effect of outstanding securities as of May 31, 2021 and February 28, 2021, respectively, would be as follows:

 

 

At May 31, 2021 and February 28, 2021, respectively, the effect of the Company's outstanding options and warrants would have been anti-dilutive.

 

 

 

NOTE 5 – OTHER ASSETS

 

Peconic Note Receivable

On April 17, 2019, the Company loaned funds under a secured convertible promissory note (“Peconic Note”) to Peconic Energy, Inc. (“Peconic”) for the principal amount of $30,000 with the principal balance and all accrued interest being due and payable 18 months from the date of the note. Interest shall be accrued at rate of 12% per annum or 40% of the gross revenues generated by the maker, whichever is greater. The Peconic Note is secured by 100% of the Peconic’s assets and is convertible at any time during the term of the note into 40% of the Peconic’s assets. For the period ended May 31, 2019, it was determined that it was highly unlikely that the Company would collect this note receivable. Therefore, the Company allowed for this note in the amount of $30,000 on May 31, 2019.

 

 

QUANTUM ENERGY, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

MAY 31, 2021

 

 

NOTE 5 – OTHER ASSETS - continued

 

Deposit on land purchase

 

On December 5, 2016, the Company executed a Farm Contract of Purchase and Sale with a landowner in Stoughton, Saskatchewan (“the Stoughton Agreement”). The purchase price of the property is $500,000 (Canadian) subject to certain terms and conditions including approval of the purchase by the Saskatchewan Farmland Review board, the Company completing various test for hydrology and land suitability, the proposed refinery project meeting all requirements of various Saskatchewan government laws and bylaws, and full approval by all levels of provincial government and agencies. The Company paid $7,822 as a deposit on the property.

 

The purchase contract originally expired on December 15, 2017; however, the contract was amended to extend the closing date to July 10, 2018 for removal of all terms and conditions to the purchase.

 

On June 8, 2018, the Company amended the Stoughton Agreement to a purchase price of $525,000 (Canadian) and extended the option to purchase the property until December 31, 2018 for no additional consideration. The Stoughton Agreement expired on December 31, 2018.

 

On June 3, 2019, by mutual agreement of the parties, the Stoughton Agreement was extended until October 31, 2019 for no additional consideration. At the date of the report for the period ended May 31, 2019, the Stoughton Agreement had been terminated. (Note 13). Due to the termination of the agreement, the Company reclassed this deposit of $7,822 to accounts payable related party as the deposit was refunded but the money was given to a related party to pay amounts due him.

 

 

 

NOTE 6 – PROMISSORY and CONVERTIBLE NOTES PAYABLE

 

The Company’s outstanding notes payable are summarized as follows:

 

 

Interest expense for the three months ended May 31, 2021 and 2020 was $1,913 and $1,953, respectively. Interest expense for the three months ended May 31, 2021 and 2019 was $4,357 and $1,121, respectively.

 

Convertible note payable consists of one note payable in the amount of $-0- and $67,500 at May 31, 2021 and February 28, 2021, respectively. The note which was issued in April 2019 for $45,000 accrues interest at an annual rate of 12% and matures in April 2020. In the event of default, the note principal is increased by 150% times the outstanding principal and provides for default interest at 22%.

 

 

QUANTUM ENERGY, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

MAY 31, 2021

 

 

NOTE 6 – PROMISSORY and CONVERTIBLE NOTES PAYABLE - continued

 

The conversion option expires on October 7, 2020.

 

On June 18, 2019, the Company received a default notice from Power Up stating that the Company is in default under the Power Up Note because, among other reasons, the Company failed to comply with the reporting requirements of the Securities Exchange Act of 1934 as required by the Note, and therefore accelerating the terms of the Power Up Note and demanding that the Company pay the default sum of $67,500 together with accrued interest and accrued default interest with respect to the Power Up Note. The Company reached a settlement of this matter with Power Up as of April 2021 in the amount of $70,200.

 

NOTE 7 – PROMISSORY NOTES PAYABLE, RELATED PARTY AND OTHER RELATED PARTY TRANSACTIONS

 

The Company’s outstanding notes payable, related party are summarized as follows:

 

 

Interest expense for the three months ended May 31, 2021 and 2019 was $1.894 and $1,714, respectively. Interest expense for the three months ended May 31, 2021 and 2019 was $5,721 and $6,834, respectively.

 

Certain officers and directors of the Company had paid various expenses on behalf of the Company. Balances due to the officers, directors and a related company for reimbursement of these expenses were $173,969 and $158,969 at May 31, 2021 and February 28, 2021, respectively, which amounts are included in “Accounts payable and accrued liabilities - related parties” on the condensed consolidated balance sheets.

 

 

QUANTUM ENERGY, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

MAY 31, 2021

 

 

 

NOTE 8 – COMMON STOCK

 

Common stock

 

The Company is authorized to issue 495,000,000 shares of its common stock with a par value of $0.001 per share. All shares of common stock are equal to each other with respect to voting, liquidation, dividend, and other rights. Owners of shares are entitled to one vote for each share owned at any Shareholders’ meeting.

 

Preferred stock

 

The Company is authorized to issue 5,000,000 shares of its preferred stock with a no-par value per share with no designation of rights and preferences.  

 

Common shares issued for cash

 

On February 28, 2018, the Company closed a private placement of its securities (the “2018 Offering). The 2018 Offering consisted of the sale of “units” of the Company’s securities at the per unit price of $0.15. Each unit consisted of one share of common stock and one warrant to purchase an additional share of common stock. Warrants issued pursuant to the 2018 Offering entitled the holders to purchase shares of common stock for the price of $0.15 per share. The term of each warrant is for twenty-four months from date of issuance. Total proceeds of $125,000 for the sale of 833,333 units were received prior to February 28, 2018 but the shares of common stock had not been issued until after that date. Thus, the proceeds are classified as “Common Stock Payable” as of February 28, 2018. The Company issued these shares on April 4, 2018.

 

On March 01, 2021, the Company a private placement of its securities (the “2021 Offering”). The 2021 Offering consisted of the sale of “units” of the Company’s securities at the per unit price of $0.25. Each unit consisted of one share of common stock and one warrant to purchase an additional share of common stock. Warrants issued pursuant to the 2021 Offering entitled the holders to purchase shares of common stock for the price of $0.25 per share. The term of each warrant is for twenty-four months from date of issuance. Total proceeds of $2,570,925 was received with no issuance has been rendered to datre. Thus, the proceeds are classified as “Common Stock Payable” as of May 31, 2021. The Company intends to issue these shares sometime in the second to third quarter of its fiscal year.

 

Common stock retirement

 

On January 27, 2018, the former chairman of the Company’s board of directors and a current director of the Company’s board of directors each agreed to return 5,000,000 shares of the Company’s common stock for an aggregate total of 10,000,000 common shares for consideration of $Nil. The shares are held by the Company as authorized but unissued treasury shares as of May 31, 2021.

 

 

 

NOTE 9 - WARRANTS

 

On July 10, 2017, in conjunction with a Private Placement, the Company issued 500,000 warrants to purchase shares of the Company’s common stock with an exercise price of $0.21 per share expiring in one year. In March 2018, by mutual agreement, the Company amended 500,000 common stock purchase warrants from an exercise price of $0.21 per share to $1.00 per share and extended the expiration date to June 9, 2020.

 

On March 20, 2019 and April 17, 2019, the Company issued 1,250,000 and 675,000 warrants respectively to purchase 1,925,000 additional shares of its common stock to eight investors. Each warrant is for thirty-six months from date of issuance with an exercise price of $0.25. The value of the warrants calculated at March 20 and April 17, 2019 was $200,439 and $76,243 for a combined total of $276,682 and is in included in interest expense -warrants on the condensed consolidated statements of operations for the three months ended May 31, 2019. The value of the warrants was calculated utilizing a Black Scholes method which used the market value of the stock based on the issue date, an exercise price of $0.25, a volatility of 228% and a discount bond equivalent range of 2.34% - 2.37%.

 

 

QUANTUM ENERGY, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

MAY 31, 2021

 

 

NOTE 9 – WARRANTS - continued

 

The following is a summary of the Company’s warrants issued and outstanding:

 

 

(a)

Weighted average exercise price per shares

 

The following table summarizes additional information about the warrants granted by the Company as of May 31, 2021 and February 28, 2021:

 

 

 

 

NOTE 10 – OTHER MATTERS- Joint Venture

 

Easy Energy Systems Inc. Memorandums of Understanding

On April 2, 2019, the Company and its subsidiary FTPM Resources, Inc. entered into a Non-Binding Memorandum of Understanding (“MOU-1”) with Easy Energy Systems, Inc. (“EESI Systems”).

 

On April 16, 2016 the Company entered into a separate Non-Binding Memorandum of Understanding (“MOU-2”) to acquire EESI Infrastructure Series, LLC (“EESI Infrastructure”).

 

As of May 9, 2021, no action has been performed under either MOU.

 

 

QUANTUM ENERGY, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - UNAUDITED

MAY 31, 2021

 

 

NOTE 10 – OTHER MATTERS- Joint Venture - continued

 

Private Placement – Raul Factor

At February 28, 2021, the purchase price for the joint venture was expensed as it was determined that the joint venture was not viable. The Company is currently working on agreeable terms and conditions with the Parties to the failed joint venture and parties therein.