The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
ROYAL QUANTUM GROUP, INC.
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for Royal Quantum Group, Inc. (the “Company”) is presented to assist in understanding the Company's financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
Interim Financial Statements
The unaudited financial statements as of September 30, 2008 and the three and nine months then ended, reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and results of the operations for the three and nine months then ended. Operating results for interim periods are not necessarily indicative of the results which can be expected for full years.
Nature of Operations and Going Concern
The accompanying financial statements have been prepared on the basis of accounting principles applicable to a “going concern”, which assume that the Company will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations.
Several conditions and events cast doubt about the Company’s ability to continue as a “going concern”. The Company has incurred net losses of approximately $4,009,749 for the period from August 23, 2002 (inception of development stage) to September 30, 2008 has a liquidity problem, and as of September 30, 2008 has no sources of revenue. In the interim, shareholders of the Company have committed to meeting any shortfall of operational cash flow. In addition the company may require increasing equity and debt financing in order to finance its business activities on an ongoing basis.
These financial statements do not reflect adjustments that would be necessary if the Company were unable to continue as a “going concern”. While management believes that the actions already taken or planned, will mitigate the adverse conditions and events which raise doubt about the validity of the “going concern” assumption used in preparing these financial statements, there can be no assurance that these actions will be successful.
If the Company were unable to continue as a “going concern”, then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported expenses, and the balance sheet classifications used.
ROYAL QUANTUM GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
The Company was incorporated under the laws of the State of Nevada on October 22, 1996 under the name PSM Corp. The Company ceased all operating activities during the period from October 22, 1996 to July 9, 1999 and was considered dormant. On July 9, 1999, the Company obtained a Certificate of renewal from the State of Nevada.
On October 3, 2002, the Company changed its name to Platinum SuperYachts, Inc. in anticipation of a merger with SuperYachts Holdings, Inc. (a Nevada Corporation that was incorporated on August 23, 2002). On November 15, 2002, the shareholders of the Platinum SuperYachts, Inc. completed a stock exchange agreement with SuperYachts Holdings, Inc. dated August 8, 2002. The merger was accounted for as a reverse merger, with SuperYachts Holdings being treated as the acquiring entity for financial reporting purposes.
For financial reporting purposes, Platinum SuperYachts, Inc. was considered a new reporting entity on November 15, 2002
On November 23, 2005 holders of a majority of the Company’s common stock approved an Amendment to change the name of the Company to Royal Quantum Group, Inc., to increase the number of shares of common stock the Company is authorized to issue to 500,000,000 and to authorize the Company to issue up to 10,000,000 shares of preferred stock.
The Company has been in the development stage since August 23, 2002.
Nature of Business
Royal Quantum Group Inc. is a public company trading on the OTCBB market under the symbol RYQG. Royal Quantum is focused on the acquisition, exploration and development of mineral and resource properties located within favorable geo-political climates.
ROYAL QUANTUM GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
Depreciation and Amortization
Fixed assets are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets which range from three to five years. Fixed assets consisted of the following at September 30, 2008 and December 31, 2007:
| | | September 30, | | | December 31, | |
| | | 2008 | | | 2007 | |
| Furniture & Fixtures | | $ | 1,851 | | | $ | 1,851 | |
| Less accumulated depreciation | | | (833 | ) | | | (555 | ) |
| | | | | | | | | |
| Total | | $ | 1,018 | | | $ | 1,296 | |
Maintenance and repairs are charged to operations; betterments are capitalized. The cost of property sold or otherwise disposed of and the accumulated depreciation thereon are eliminated from the property and related accumulated depreciation accounts, and any resulting gain or loss is credited or charged to income.
Total depreciation expense for the nine months ended September 30, 2008 and the year end December 31 2007 was $278 and $370 respectively.
ROYAL QUANTUM GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Intangible Assets
The Company has adopted the Financial Accounting Standards Board SFAS No., 142, “Goodwill and Other Intangible Assets.” SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142.
Intangible Assets consisted of the following at September 30, 2008 and December 31, 2007:
| | | September 30, | | | December 31, | | |
| Intangible Asset | | 2008 | | | 2007 | | Amortization Period |
| E-Learning System | | $ | 1 1 | | | $ | 1 | | Indefinite |
| Less accumulated amortization | | | - | | | | - | | |
| Total | | $ | 1 | | | $ | 1 | | |
Total amortization expense for the six months ended September 30, 2008 and December 31, 2007 was $0 and $0 respectively.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles required 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.
Foreign Currency Translation
The Company's primary functional currency is the U.S. dollar. However, the Company has a few transactions in Canada. Transaction gains and losses are included in income.
ROYAL QUANTUM GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Credit Risk
The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company had cash and cash equivalents in the amount of $164,452 and $3,448 as of September 30, 2008 and December 31, 2007.
Earnings (Loss) per Share
Basic loss per share has been computed by dividing the loss for the period applicable to the common stockholders by the weighted average number of common shares outstanding during the years. There were no common equivalent shares outstanding at September 30, 2008 and 2007.
Stock Compensation for Non-Employees
Effective June 1, 2006, the company adopted the provisions of SFAS No. 123 (R) requiring employee equity awards to be accounted for under the fair value method. Accordingly, share-based compensation is measured at grant date, based on the fair value of the award. Prior to June 1, 2006, the company accounted for awards granted to employees under its equity incentive plans under the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related interpretations, and provided the required pro forma disclosures prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), as amended. No stock options were granted to employees during the years ended December 31, 2006, and 2005 and accordingly, no compensation expense was recognized under APB No. 25 for the years ended December 31, 2007, and 2006. In addition, no compensation expense is required to be recognized under provisions of SFAS No. 123 (R) with respect to employees. Under the modified prospective method of adoption for SFAS No. 123 (R), the compensation cost recognized by the company beginning on June 1, 2006 includes (a) compensation cost for all equity incentive awards granted prior to, but not vested as of June 1, 2006, based on the grant-dated fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all equity incentive awards granted subsequent to June 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No, 123 (R). The company uses the straight-line attribution method to recognize share-based compensation costs over the service period of the award. Upon exercise, cancellation, forfeiture, or expiration of stock options, or upon vesting or forfeiture of restricted stock units, deferred tax assets for options and restricted stock units with
ROYAL QUANTUM GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Compensation for Non-Employees (Continued)
multiple vesting dates are eliminated for each vesting period on a first-in, first-out basis as if each vesting period was a separate award. To calculate the excess tax benefits available for use in offsetting future tax shortfalls as of the dated of implementation, the company followed the alternative transition method discussed in FASB Staff Position No. 123 (R)-3. During the periods ended December 31, 2007 and 2006, no stock options were granted to non-employees. Accordingly, no stock-based compensation expense was recognized for new stock option grants in the Statement of Operations and Comprehensive Loss at December 31, 2007 and 2006.
Financial Instruments
The Company’s financial instruments, as defined under SFAS No. 107, Disclosure about Fair Value of Financial Instruments, include its cash and cash equivalents, accounts payable and accrued liabilities. Except as otherwise noted, it is management’s opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values due to the short-term maturities of these instruments.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No.109, “Accounting for Income Taxes.” SFAS No.109 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities.
Recent Accounting Standards
In February 2007, the FASB issued SFAS no, 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies with an option to report selected financials assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. The FASB has indicated it believes that SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also
ROYAL QUANTUM GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Standards (Continued)
establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS 157 and SFA No. 107, “Disclosures about Fair Value of Financial Instruments.” SFAS 159 is effective for the Company as of the beginning of fiscal year 2009. The adoption of this pronouncement is not expected to have an impact on the Company’s financial position, results of operations or cash flows.
In December 2007, the FASB issued No. 160, “Noncontrolling Interests in Financial Statements, an amendment of ARB No. 51" (“SFAS 160"). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement is effective for fiscal years beginning on or after December 15, 2008. Early adoption is not permitted. Management is currently evaluating the effects of this statement, but it is not expected to have any impact on the Company’s financial statements.
In December 2007, the FASB issued No. 141(R), “Business Combinations” (“SFAS 141(R)”. SFAS 141(R) provides companies with principles and requirements on how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree as well as the recognition and measurement of goodwill acquired in a business combination. SFAS 141(R) also requires certain disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Acquisition costs associated with the business combination will generally be expensed as incurred. SFAS 141(R) is effective for business combinations occurring in fiscal years beginning after December 15, 2008, which will require the Company to adopt these provisions for business combinations occurring in fiscal 2009 and thereafter. Early adoption of SFAS 141(R) is not permitted. Management is currently evaluating the effects of this statement, but it is not expected to have any impact on the Company’s financial statements.
ROYAL QUANTUM GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Standards (Continued)
In March 2008, the FASB issued No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. (“SFAS 161"). SFAS 161 requires enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. Management is currently evaluating the effects of this statement, but it is not expected to have any impact on the Company’s financial statements.
NOTE 2 - INCOME TAXES
| | | 2007 | | | 2006 | |
| Net Operating Losses | | $ | 3,967,923 | | | $ | 3,832,138 | |
| Accrued Consulting Fees | | | 39,251 | | | | 29,881 | |
| Valuation Allowance | | | (4,007,174 | ) | | | (3,862,019 | ) |
| | | $ | - | | | $ | - | |
As of December 31, 2007, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $11,670,364 that may be offset against future taxable income through 2025. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carryforwards will expire unused. Accordingly, the potential tax benefits of the loss carryforwards are offset by a valuation allowance of the same amount.
ROYAL QUANTUM GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 2 - INCOME TAXES (Continued)
The provision for income taxes differ from the amount computed using the federal US statutory income tax rate as follows:
| | | 2007 | | | 2006 | |
| Provision (Benefit) at US Statutory Rate | | $ | (145,081 | ) | | $ | (135,630 | ) |
| Excess Capital Losses over Capital Gains | | | - | | | | 50,315 | |
| Accrued Consulting Fees | | | - | | | | (20,454 | ) |
| Depreciation | | | (74 | ) | | | (62 | ) |
| Increase (Decrease) in Valuation Allowance | | | 145,155 | | | | 105,831 | |
| | | $ | - | | | $ | - | |
The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and causes a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation is reflected in current income.
NOTE 3 - DEVELOPMENT STAGE COMPANY/GOING CONCERN
The Company has not commenced its intended principal operations and as is common with a development stage company, the Company has had recurring losses. Continuation of the Company as a going concern is dependent upon obtaining the additional working capital necessary to be successful in its planned activity, and the management of the Company has developed a strategy, which it believes will accomplish this objective through additional equity funding and long term financing, which will enable the Company to operate for the coming year.
NOTE 4- INVESTMENT IN OIL & GAS PROPERTY
The company has acquired an option to purchase a 6,000 acre Oil & Gas property located in the state of Ohio. As at September 30, 2008 expenditures on the property total approximately $477,000. As of September 30, 2008 the company issued notice to the landowner of its intent to not pursue the acquisition of the project. The company has also issued a demand letter to the land owner for the return of the $300,000 paid in June for the extension. No response has been received from the land owner to date.
In February of 2008 the company signed an agreement with First Diversified Financial Services (FDFS) and Launchpad Capital to assist the company in securing the necessary capital for the Anderson Oil and Gas project acquisition. The agreement requires payment of USD $100,000 to FDFS as well as 3% of any cash received and 2% of any debt financing completed as a result of FDFS efforts. Launchpad Capital is to receive a fee of 3.5% of the debt and/or equity portion of the funding received by the company as a result of their efforts.
ROYAL QUANTUM GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 5 – INVESTMENT IN MINERAL PROPERTY
In May 2007, we entered into a Purchase Agreement (“Agreement”) with U3, LLC (“U3”) to acquire a 100% interest in 1,540 acres that consist of 77 claims of prospective uranium property located adjacent to the Sheep Mountain Mine in Fremont County, Central Wyoming, approximately 90 miles southwest of Casper, Wyoming. We paid $10,000 to U3 when we executed the Agreement on May 28, 2007. However, we later agreed with U3 not to continue to acquire the claims, due to delays in receiving WMC numbers on the claims, and we have requested U3 return the $10,000 as per the agreement terms. We did not issue any shares pursuant to this Agreement and as of the date of this report have not received the $10,000.
NOTE 6 - LEASE AGREEMENT
The Company has entered into a month-to-month lease agreement for an office in Calgary, Alberta, Canada. This lease can be canceled on one month’s written notice. The current lease requires rental payments of approximately $250 ($250 Canadian Dollars) per month plus applicable taxes. For the nine months ended September 30, 2008 the Company had $1500 in rent expense.
NOTE 7 - UNCERTAIN TAX POSITIONS
Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The adoption of the provisions of FIN 48 did not have a material impact on the company’s condensed consolidated financial position and results of operations. At January 1, 2007, the company had no liability for unrecognized tax benefits and no accrual for the payment of related interest and penalties. The Company did not record a cumulative effect adjustment relating to the adoption of FIN 48.
ROYAL QUANTUM GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 7 - UNCERTAIN TAX POSITIONS - CONTINUED
Interest costs related to unrecognized tax benefits are classified as “Interest expense, net” in the accompanying condensed consolidated statements of operations. Penalties, if any, would be recognized as a component of “Selling, general and administrative expenses”. The Company recognized $0 of interest and penalties expense related to unrecognized tax benefits during 2007. In many cases the company’s uncertain tax positions are related to tax years that remain subject to examination by relevant tax authorities. With few exceptions, the company is generally no longer subject to U.S. federal, state, local or non-U.S. income tax examinations by tax authorities for years before 2004. The following describes the open tax years, by major tax jurisdiction, as of December 31, 2007:
| United States (a) | | 2004 - Present |
(a) Includes federal as well as state or similar local jurisdictions, as applicable.
NOTE 8 - RELATED PARTY TRANSACTIONS
As of September 30, 2008 and December 31, 2007, the Company owed Santeo Financial $82,508 and $118,743 respectfully for consulting services. Ron Ruskowsky, President and CEO of the Company is an affiliate of Santeo Financial. Currently the Company has an agreement with Santeo Financial whereby Santeo Financial provides consulting services in exchange the Company agrees to pay a consultant fee of $5,000 per month.
As of September 30, 2008 and December 31, 2007 the Company owed Roger Janssen $1,345 for services paid directly by Roger.
As of September 30, 2008 and December 31, 2007, shareholders have advanced the Company $19,845 and $25,485, respectively, payable on demand and do not carry an interest rate. This transaction has been recorded in the accompanying financial statements as Shareholder loans.
ROYAL QUANTUM GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 9 - COMMON STOCK AND WARRANTS
The company issued 6,250,000 shares for satisfaction of a $500,000 note from a private investor. As per the terms of the note the company was to repay the $500,000 plus interest of $75,000 on or before July 31, 2008. An additional interest fee of $50,000 was also charged by the lender as per the terms of the note for non payment.
In May 2008, the Company issued 580,000 shares in a private placement for $0.25 per Unit. Each Unit entitled the holder to acquire 1 common share of the company’s stock at $0.25 per share and one share purchase warrant, entitling the holder to purchase one share at a price of $0.40 for a period of 12 months from closing of the private placement, resulting in the Company receiving $145,000 in cash. The shares were issued in a transaction which the Company believes satisfies the requirements of the Regulation S exemption from the registration and prospectus delivery requirements of the Securities Act of 1933. The Company is using those funds for working capital.
In April of 2008 the Company issued 100,000 shares in a private placement for $.25 per share which resulted in the Company receiving $25,000 in cash. The shares were issued in a transaction which the Company believes satisfies the requirements of the Regulation S exemption from the registration and prospectus delivery requirements of the Securities Act of 1933. The Company is using those funds for working capital.
In April of 2008 the Company issued 125,000 shares of restricted stock recorded at $0.47 per share along with a $25,000 cash payment in consideration for an extension on the Anderson Oil & Gas property to May 30, 2008.
In March of 2008 the Company issued 50,000 shares to M2 Law in settlement of outstanding legal invoices totaling $50,000. The shares were recorded at $0.65 per share for a value of $32,500 and the difference of $17,500 was booked as forgiveness of debt.
In March 2008, the Company issued 1,820,000 shares in a private placement for $0.10 per Unit. Each Unit entitled the holder to acquire 1 common share of the company’s stock at $0.10 per share and one share purchase warrant, entitling the holder to purchase one share at a price of $0.15 for a period of 18 months from closing of the private placement, resulting in the Company receiving $182,000 in cash. The shares were issued in a transaction which the Company believes satisfies the requirements of the Regulation S exemption from the registration and prospectus delivery requirements of the Securities Act of 1933. The Company is using those funds for working capital.
On June 26, 2007 the Company issued 333,333 shares of common stock to Randall Lanham in total satisfaction of legal fees in the amount of $20,000.
ROYAL QUANTUM GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 9 - COMMON STOCK AND WARRANTS – (CONTINUED)
On May 9, 2007 the company issued 500,000 shares to Phil van Angeren as compensation for his assuming the position of Exploration Manager of the Corporation. These shares have been valued at the market price of $0.29. Compensation expense of $145,000 has been booked on the accompanying Statement of Operations. $145,000 has been booked on the accompanying Statement of Operations.
In February 2007, the Company issued 2,653,640 shares in a private placement for $.05 per share which resulted in the Company receiving $132,682 in cash. The shares were issued in
a transaction which the Company believes satisfies the requirements of the Regulation S exemption from the registration and prospectus delivery requirements of the Securities Act of 1933. The Company is using those funds for working capital.
On June 14, 2006, the Company issued 2,500,000 shares of common stock to Keith Campbell in total satisfaction of a shareholder loan in the principal amount of $25,000 and interest of $100,000. The securities were issued pursuant to Section 4(2) of the Securities Act of 1933.
On October 4, 2005, in accordance to the Board of Directors written consent effective July 11, 2005 the Company issued 2,000,000 restricted shares to Roger Janssen the company’s Vice President and Secretary. These shares have been valued at the market price of $0.012. Compensation expense of $24,000 has been booked on the accompanying Statement of Operations.
On October 4, 2005, in accordance to the Board of Directors written consent effective September 13, 2005, the Company issued 14,970,000 shares of common stock (the “Shares”) to Santeo Financial Corporation (“Santeo”) in exchange for the cancellation of $149,700 owed by the Company to Santeo. Ron Ruskowsky, the Company’s Director, President and Chief Executive Officer is an affiliate of Santeo. The Shares were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended and Regulation D promulgated thereunder. These shares have been valued at the market price on the date of the agreement of $0.017. In addition to the cancellation of the $149,700 an additional amount of compensation expense of $104,790 has been booked on the accompanying Statement of Operations.
ROYAL QUANTUM GROUP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 10 – NOTES PAYABLE
The company was unable to secure the neessary funding to repay the note issued to a private lender in June of 2008 and as a result has issued 6,250,000 shares in total satisfaction of the debt in the amount of $500,000 in principal; interest of $75,000 and penalties of $50,000, totaling $625,000.
In June 2008 the company received a loan of $500,000 from a private investor. The loan carries an interest rate of 15% and is due and payable on or before July 31, 2008. The terms of the note allow for a 1% per week penalty up to a maximum of 10% at which time the note and all outstanding interest and penalties will be converted into 6,250,000 shares of the companies stock. The Lender has the right at his sole discretion, the ability to convert any unpaid debt, along with any interest due, into free-trading common stock of the Company at a conversion price of forty cents ($0.40) per share. As at June 30, 2008 the company has booked a $575,000 note payable consisting of principal in the amount of $500,000 and interest in the amount of $75,000.
The Company has a note payable with Integrated Business Concepts, Inc. that is due upon demand and carries and interest rate of 12%. As of September 30, 2008 the amount owing on the notes is $264,307 which consists of principal in the amount of $201,952 and interest of $62,355.
NOTE 11 – SUBSEQUENT EVENTS
As at October 31, 2008 the company has not been able to come to terms with the land owner on an acceptable agreement for the acquisition of the Ohio Oil & Gas property. As a result management has determined it is not in the best interest of the company to continue with the project and has notified the landowner of its intent not to pursue the acquisition. The company has also demanded the return of the funds issued to the landowner for the final extension. To date the landowner has not responded to our request.
Item 2. Plan of Operation
This following information specifies certain forward-looking statements of management of the company. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot guaranty that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.
Critical Accounting Policy and Estimates. Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management 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 revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.
These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the financial statements included in our Quarterly Report on Form 10-Q for the period ended September 30, 2008.
Overview . Royal Quantum Group Inc. is a public company trading on the OTCBB market under the symbol RYQG. Royal Quantum is focused on the acquisition, exploration and development of oil and gas and mineral properties located within favorable geo-political climates.
In February 2007 and in reliance on the exemption from registration under Regulation S, we sold 2,653,640 shares at $0.05 for a total of $132,682. We used those funds for working capital.
In May 2007, we entered into a Purchase Agreement (“Agreement”) with U3, LLC (“U3”) to acquire a 100% interest in 1,540 acres that consist of 77 claims of prospective uranium property located adjacent to the Sheep Mountain Mine in Fremont County, Central Wyoming, approximately 90 miles southwest of Casper, Wyoming. We paid $10,000 to U3 when we executed the Agreement on May 28, 2007. However, we later agreed with U3 not to continue to acquire the claims, due to delays in receiving WMC numbers on the claims, and we have requested U3 return the $10,000 as per the agreement terms. We did not issue any shares pursuant to this Agreement and as of the date of this report have also not received the $10,000.
In May 2007, we appointed Phil van Angeren, P. Geol as our Exploration Manager and as a member of our board of directors. Mr. van Angeren is responsible for our property acquisition and development. Mr. van Angeren, 51, has been the exploration manager and a director of a junior Canadian exploration and development company for the past 5 years. He has over 25 years of experience in exploration of uranium and precious metals in North America. Mr. van Angeren is a graduate from McGill University with a BSc. Honors degree in geology, which he earned in 1977. We issued Mr. van Angeran 500,000 shares of our common stock, equivalent to approximately 1.2% of our issued and outstanding shares.
On June 26, 2007, we issued 333,333 shares of common stock to Randall Lanham in total satisfaction of legal fees in the amount of $20,000.
In January of 2008 the company acquired an option to purchase a 6,000 acre Oil & Gas property located in the state of Ohio. The closing date of the transaction has been extended to July 31, 2008 and is subject to financing.
In February of 2008 the company signed an agreement with First Diversified Financial Services (FDFS) and Launchpad Capital to assist the company in securing the necessary capital for the Anderson Oil and Gas project acquisition. The agreement requires payment of USD $100,000 to FDFS as well as 3% of any cash received and 2% of any debt financing completed as a result of FDFS’s efforts. Launchpad Capital is to receive a fee of 3.5% of the debt and/or equity portion of the funding received by the company as a result of their efforts.
In March 2008, the Company issued 1,820,000 shares in a private placement for $0.10 per Unit. Each Unit entitled the holder to acquire 1 common share of the company’s stock at $0.10 per share and one share purchase warrant, entitling the holder to purchase one share at a price of $0.15 for a period of 18 months from closing of the private placement, resulting in the Company receiving $182,000 in cash. The shares were issued in a transaction which the Company believes satisfies the requirements of the Regulation S exemption from the registration and prospectus delivery requirements of the Securities Act of 1933. The Company is using those funds for working capital.
In April of 2008 we issued 125,000 shares of restricted stock recorded at $0.47 per share along with a $25,000 cash payment in consideration for an extension on the Anderson Oil & Gas property to May 30, 2008.
In March of 2008 we issued 50,000 shares to M2 Law in settlement of outstanding legal invoices totaling $50,000. The shares were recorded at $0.65 per share for a value of $32,500 and the difference of $17,500 was booked as forgiveness of debt.
In April of 2008 the company issued 100,000 shares in a private placement for $.25 per share which resulted in the Company receiving $25,000 in cash. The shares were issued in a transaction which the Company believes satisfies the requirements of the Regulation S exemption from the registration and prospectus delivery requirements of the Securities Act of 1933. The Company is using those funds for working capital.
In May 2008, the Company issued 580,000 shares in a private placement for $0.25 per Unit. Each Unit entitled the holder to acquire 1 common share of the company’s stock at $0.25 per share and one share purchase warrant, entitling the holder to purchase one share at a price of $0.40 for a period of 12 months from closing of the private placement, resulting in the Company receiving $145,000 in cash. The shares were issued in a transaction which the Company believes satisfies the requirements of the Regulation S exemption from the registration and prospectus delivery requirements of the Securities Act of 1933. The Company is using those funds for working capital.
In June 2008 the company received a loan of $500,000 from a private investor. The loan carries an interest rate of 15% and is due and payable on or before July 31, 2008. The terms of the note allow for a 1% per week penalty up to a maximum of 10% at which time the note and all outstanding interest and penalties will be converted into 6,250,000 shares of the companies stock. The Lender has the right at his sole discretion, to convert any unpaid debt, along with any interest due, into free-trading common stock of the Company at a conversion price of forty cents ($0.40) per share. The funds from this loan are being used for the Ohio Property Extension payment, payment for a third party engineering evaluation of the Ohio Property and working capital.
In June 2008 we paid $300,000 in consideration for an extension on the Ohio Oil & Gas property to July 31, 2008.
In September 2008 we issued 6,250,000 shares as satisfaction for the $500,000 note due to a private investor.
In October, the company issued notice to the landowner on the Ohio Oil & Gas property of its intent to not pursue the acquisition of the project. The company has also issued a demand letter to the land owner for the return of the $300,000 paid in June for the extension. No response has been received from the land owner to date.
Liquidity and Capital Resources. We had cash of $164,452 as of September 30, 2008, all of which comprised our total current assets. As of the nine month period ended September 30, 2008, we also had fixed assets of $1,018, represented by furniture and fixtures of $1,851 less accumulated depreciation of $833. The decrease in total fixed assets is due solely to depreciation. We also had $1 in intangible assets and $1 in total other assets, which was represented by our E-learning System which is related to our former business and $487,477 for mineral and oil properties and deferred expenditures. Therefore, for the nine month period ended September 30, 2008, we had total assets of $652,948.
For the nine month period ended September 30, 2008, we had $489,390 in total current liabilities, which was represented by $141,230 in accounts payable, $264,307 notes payable and $83,853 in related party accounts payable. We also had $19,845 in shareholder loans for the nine months ended September 30, 2008. Therefore, for the nine months ended September 30, 2008, we had total liabilities of $509,235. We had no other long term liabilities, commitments or contingencies. Other than anticipated explorations costs associated with the mineral and oil interests that we acquire and anticipated increases in the legal and accounting costs of being a public company, we not aware of any other known trends, events or uncertainties which may affect our future liquidity.
Results of Operations.
Revenues. We had no revenue for the nine month period ended September 30, 2008 or for the nine month period ended September 30, 2007.
Operating Expenses and Net Loss. We had a loss from operations of $237,200 for the nine month period ended September 30, 2008, as compared to a loss from operations of $326,694 for the nine month period ended September 30, 2007. For the nine month period ended September 30, 2008, our operating expenses were comprised of general and administrative expenses of $51,262 and consulting fees in the amount of $185,938. We also had $148,649 in interest expense, a $18,499 foreign currency exchange gain and a gain from debt forgiveness of $17,500. Therefore, our net loss for the September 30, 2008 was $349,850 as compared to a net loss of $346,840 for the nine month period ended September 30, 2007.
Our Plan of Operation for the Next Twelve Months. Our focus is to acquire oil and gas, mineral and resource properties for exploration and development with the intent to bring the projects to feasibility at which time we will either contract out the operations or joint venture the project to qualified interested parties.
We had cash of $164,452 as of September 30, 2008. In the opinion of management, our available funds will not satisfy our working capital requirements for the next twelve months. The company issued 6,250,000 shares as settlement for the note ($500,000), interest ($75,000) and penalties ($50,000) totaling $625,000 from a private lender.
Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors. We will need to raise additional capital to expand our operations to the point at which we are able to operate profitably. Other than anticipated explorations costs associated with the resource and mineral interests that we acquire and anticipated increases in the legal and accounting costs of being a public company, we are not aware of any other known trends, events or uncertainties, which may affect our future liquidity.
In the event that we experience a shortfall in our capital, we intend to pursue capital through public or private financing as well as borrowings and other sources, such as our officers, directors and principal shareholders. We cannot guaranty that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to expand our operations may be significantly hindered. If adequate funds are not available, we believe that our officers, directors and principal shareholders will contribute funds to pay for our expenses to achieve our objectives over the next twelve months.
Our belief that our officers, directors and principal shareholders will pay our expenses is based on the fact that our officers, directors and principal shareholders collectively own approximately 45% of our outstanding common stock. We believe that our officers, directors and principal shareholders will continue to pay our expenses as long as they maintain their ownership of our common stock.
We are not currently conducting any research and development activities. We do not anticipate conducting such activities in the near future. We do not anticipate that we will purchase or sell any significant equipment. In the event that we expand our customer base, then we may need to hire additional employees or independent contractors as well as purchase or lease additional equipment.
Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures. We maintain controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed as of September 30, 2008, the date of this report, our chief executive officer and the principal financial officer concluded that our disclosure controls and procedures were effective.
Item 4(T). Controls and Procedures.
Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
32. Section 1350 Certifications.
