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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| Quarterly Report Pursuant To Section 13 or 15(d) Of The Securities Exchange
Act Of 1934
For the quarterly period ended November 30, 2006
Commission File Number 333-118138
QUANTUM ENERGY, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 98-0428608
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
29 - 3800 Pinnacle Way
Gallaghers Canyon, Kelowna, British Columbia, Canada V1W 3Z8
----------------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
250 - 809 -9185
-------------------------
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ]No
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12B-2 of the Exchange Act) [ ] Yes [X] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of January 8, 2007, 47,000,000
shares of common stock of the issuer were issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<page>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUANTUM ENERGY INC.
(formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
FINANCIAL STATEMENTS
November 30, 2006
(Stated in US Dollars)
<page>
QUANTUM ENERGY INC.
(formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
BALANCE SHEETS
(Stated in US Dollars)
<table>
<caption>
November 30, February 28,
ASSETS 2006 2006
------ ------------ ------------
( Unaudited)
<s> <c> <c>
Current Assets
Cash and cash equivalents $ 50,625 $ 1,016
Accounts receivable 16,645 -
------------------ ------------------
Total Current Assets 67,270 1,016
Capital Assets 111,774 3,846
Website Development 9,443 1,333
Oil and Gas Properties 3,467,625 -
------------------ ------------------
$ 3,656,112 $ 6,195
================== ==================
LIABILITIES
-----------
Current Liabilities
Accounts payable and accrued liabilities $ 171,448 $ 4,703
Promissory notes payable 2,094,760 -
Due to related party - 5,000
------------------ ------------------
Total Current Liabilities 2,266,208 9,703
Common Stock Issuance Liability 381,250 -
Total Liabilities 2,647,458 9,703
------------------ ------------------
STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
Common stock
Authorized:
75,000,000 common stock, $0.001 par value
Issued and outstanding:
47,000,000 and 45,500,000 common shares, respectively 47,000 45,500
Additional paid-in capital 1,685,913 40,500
Deficit accumulated during the development stage (724,259) (89,508)
------------------ ------------------
1,008,654 (3,508)
------------------ -------------------
$ 3,656,112 $ 6,195
================== ==================
</table>
SEE ACCOMPANYING NOTES
<page>
QUANTUM ENERGY INC.
(formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
for the three and nine months ended November 30, 2006 and 2005 and
for the period February 4, 2004 (Date of Incorporation) to November 30, 2006
(Stated in US Dollars)
<table>
<caption>
Three months ended Nine months ended February 4, 2004
November 30, November 30, To August 31,
---------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c>
2006 2005 2006 2005 2006
---- ---- ---- ---- ----
( Unaudited) ( Unaudited) ( Unaudited) ( Unaudited) (Unaudited)
Oil and Gas Revenue $ 35,362 $ - $ 46,241 $ - $ 46,241
------------------ --------------- ----------------- ---------------- -----------------
Total Oil and Gas Revenue 35,362 - 46,241 - 46,241
Operating Expenses
Amortization and Depreciation 12,104 622 23,551 1,817 27,434
Management fees 15,200 - 30,200 - 30,200
Marketing 10,691 10,335 14,733 23,027 41,760
Office and administration 19,101 2,985 21,101 6,255 33,127
Professional fees 37,237 1,074 129,130 27,619 175,702
Lease operating expenses 16,759 - 26,029 - 26,029
------------------ ---------------- -------------- ---------------- -----------------
Total Operating Expenses 111,092 15,016 244,744 58,718 334,252
------------------ ---------------- -------------- ---------------- -----------------
Net loss before other income (expenses) (75,730) (15,016) (198,503) (58,718) (288,011)
Other Items
Interest expense (401,545) (441,337) (441,337)
Currency translation (2,790) (4,445) (4,445)
Other income - - 9,534 - 9,534
------------------ ---------------- --------------- --------------- -----------------
Total Other Income (Expenses) (404,335) - (436,248) - (436,248)
------------------ ---------------- --------------- --------------- -----------------
Net loss $ (480,065)$ (15,016) $ (634,751) $ (58,718) $ (724,259)
================== ================ =============== =============== =================
Basic and diluted loss per share (0.01)$ (0.00) $ (0.01) $ (0.01)
================== ================ =============== ================
Weighted average number
of shares outstanding 47,000,000 45,500,000 46,250,000 45,500,000
================== ================ =============== ================
</table>
SEE ACCOMPANYING NOTES
<page>
QUANTUM ENERGY INC.
(formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
for the nine months ended November 30, 2006 and 2005 and
for the period February 4, 2004 (Date of Incorporation) to November 30, 2006
(Stated in US Dollars)
<table>
<caption>
Nine months ended February 4, 2004
November 30, to November 30,
2006 2005 2006
---- ---- ----
( Unaudited) ( Unaudited) (Unaudited)
<s> <c> <c> <c>
Operating Activities
Net loss $ (634,751) $ (58,718) $ (724,259)
Adjustment to reconcile net loss to net cash used by operating
activities
Amortization and depreciation 23,551 1,817 24,436
Interest charge paid in common stock 381,250 - 381,250
Changes in operating assets and liabilities
Accounts receivable (16,645) - (16,645)
Accounts payable and accrued liabilities 66,746 (376) 71,447
------------------ ------------------- ------------------
Cash used in operating activities (179,849) (57,277) (263,771)
------------------ ------------------ ------------------
Investing Activities
Sale of common stock for cash - - 86,000
Acquisition of capital assets - (3,629) (5,062)
Acquisition of oil and gas properties (819,000) - (819,000)
Acquisition of other assets (11,592) - (12,592)
------------------ ------------------ ------------------
Cash used in investing activities (830,592) (3,629) (750,654)
------------------ ------------------- ------------------
Financing Activities
Issuance of promissory notes payable 1,065,050 - 1,065,050
Due to related party (5,000) - -
------------------- ------------------ ------------------
Cash used in financing activities 1,060,050 - 1,065,050
------------------ ------------------ ------------------
Increase (decrease) in cash during the period 49,609 (60,906) 50,625
Cash, beginning of the period 1,016 61,722 -
------------------ ------------------ ------------------
Cash, end of the period $ 50,625 $ 816 $ 50,625
================== ================== ==================
</table>
SEE ACCOMPANYING NOTES
<page>
QUANTUM ENERGY INC.
(formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS-CONTINUED
for the nine months ended November 30, 2006 and 2005 and
for the period February 4, 2004 (Date of Incorporation) to November 30, 2006
(Stated in US Dollars)
<table>
<caption>
Nine months ended February 4, 2004
November 30, to November 30,
2006 2005 2006
---- ---- ----
( Unaudited) ( Unaudited)
<s> <c> <c> <c>
Non-Cash Transactions
Acquisition of capital assets $ (127,998) $ - $ (127,998)
Acquisition of oil and gas properties (2,648,625) - (2,648,625)
Issuance of common stock 1,500 - 1,500
Issuance of promissory notes payable 1,029,710 - 1,029,710
Accounts payable and accrued expenses - 100,000
100,000
Additional paid-in capital 1,645,413 - 1,645,413
------------------ ------------------ ------------------
$ $ $ -
================== =================== ====================
</table>
SEE ACCOMPANYING NOTES
<page>
QUANTUM ENERGY INC.
(formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
for the period February 4, 2004 (Date of Incorporation) to November 30, 2006
(Stated in US Dollars)
<table>
<caption>
Deficit
Accumulated
During the
Common Shares Paid-in Development
------------------------------
Number Par Value Capital Stage Total
------ --------- ------- ----- -----
<s> <c> <c> <c> <c> <c>
Capital stock issued for cash:
February 12, 2004 - at $0.001 20,000,000 $ 20,000 $ (18,000)$ - $ 2,000
February 27, 2004 - at $0.001 19,000,000 19,000 - - 19,000
Net loss - - - (2,236) (2,236)
------------- -------------- -------------- --------------- ---------------
Balance February 2004 39,000,000 39,000 (18,000) (2,236) 18,764
Capital stock issued for cash:
December, 2004 - at $0.01 6,500,000 6,500 65,000
58,500 -
Net loss - - - (21,197) (21,197)
------------- -------------- -------------- --------------- ---------------
Balance February 2005 45,500,000 45,500 40,500 (23,433) 62,567
Net loss - - - (66,075) (66,075)
------------- -------------- -------------- --------------- ---------------
Balance February 2006 45,500,000 45,500 40,500 (89,508) (3,508)
Koko Petroleum Acquisition 1,500,000 1,500 1,645,413 1,646,913
-
Net loss - - (634,751) (634,751)
------------- -------------- -------------- --------------- ---------------
Balance November 30, 2006 (Unaudited)
47,000,000 $ 47,000 $ 1,685,913 $ (724,259) $1,008,654
============== ============= ============== =============== ===============
</table>
SEE ACCOMPANYING NOTES
<page>
QUANTUM ENERGY INC.
formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2006
(Stated in US Dollars)
(Unaudited)
Note 1 Basis of Presentation of Interim Financial Statements
-----------------------------------------------------
While the information presented in the accompanying interim
three-month and nine month financial statements is unaudited, it
includes all adjustments which are, in the opinion of management,
necessary to present fairly the financial position, results of
operations and cash flows for the interim period presented. All
adjustments are of a normal recurring nature. Except as disclosed
below, these interim financial statements follow the same
accounting policies and methods of their application as Quantum
Energy, Inc.'s ("the Company's") audited February 28, 2006 annual
financial statements.
The results of operations for the nine-month period ended November
30, 2006, are not necessarily indicative of the results to be
expected for the year ending February 28, 2007.
These unaudited interim financial statements should be read in
conjunction with the February 28, 2006 audited financial
statements of the Company.
Note 2 Nature and Continuance of Operations
------------------------------------
a) Organization
The Company was incorporated in the State of Nevada, United States
of America, on February 5, 2004. The name of the Company was
changed from Boomers Cultural Development Inc. to Quantum Energy
Inc on May 18, 2006
b) Development Stage Activities
The Company is in the development stage and has acquired various
working interests in six oil and gas projects located in the
Corsican and Barnett Shale oil fields in Texas. The drilling
activity carried on by the companies at the present is development
drilling. There are no exploratory wells. Several of the wells are
now in production and in the past quarter the Company realized
some revenues from its operations. The Company under prior
management was intending to establish itself as a provider of
personally guided tours for visitors to British Columbia, Canada.
The Company no longer intends to continue with this venture.
<page>
QUANTUM ENERGY INC.
formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2006
(Stated in US Dollars)
(Unaudited)
Note 2 Nature and Continuance of Operations (continued)
------------------------------------------------
c) Going Concern
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As of November 30,
2006 the Company has not yet attained profitable operations and
has accumulated losses of $343,009 since inception. The future of
the Company is dependent upon its ability to obtain financing and
upon future profitable operations from the development of their
interest in the oil and gas projects and to repay its liabilities
arising from normal business operations when they come due. These
financial statements do not include any adjustments to the amount
and classification of assets and liabilities that may be necessary
should the Company be unable to continue as a going concern.
Note 3 Significant Accounting Policies
-------------------------------
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the
United States of America. Because a precise determination of many
assets and liabilities is dependent upon future events, the
preparation of financial statements for a period necessarily
involves the use of estimates, which have been made using careful
judgment. Actual results may vary from these estimates.
The financial statements have, in management's opinion, been
properly prepared within reasonable limits of materiality and
within the framework of the significant accounting policies
summarized below:
a) Cash and Cash Equivalents
For purposes of the balance sheet and the statement of cash flows,
the Company considers all highly liquid debt instruments purchased
with maturity of three months or less to be cash equivalents. As
at November 30, 2006, the Company had no cash equivalents.
b) Foreign Currency Translation
The Company's functional currency is the U.S. dollar.
Transactions in Canadian dollars are translated into U.S. dollars
as follows:
i) monetary items at the rate prevailing at the balance
sheet date;
ii) non monetary items at the historical exchange rate
iii) revenue and expenses at the average rate in effect during
the period
Gains and losses are recorded in the statement of operations.
<page>
QUANTUM ENERGY INC.
formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2006
(Stated in US Dollars)
(Unaudited)
Note 3 Significant Accounting Policies (continued)
-------------------------------------------
c) Capital Assets
Capital assets are recorded at cost. Amortization of computer
equipment is at a rate of 30% per annum, on a straight-line basis.
Amortization of office equipment is at a rate of 20% per annum, on
a straight-line basis. Amortization of other equipment is at a
rate of 20% per annum, on a straight-line basis.
d) Website Development Costs
Website development costs represent capitalized costs of design,
configuration, coding, installation and testing of the Company's
web-site up to its initial implementation. The asset is being
amortized over its estimated useful life of three years using the
straight-line method. Ongoing website maintenance costs will be
expensed as incurred.
e) Basic and Diluted Loss Per Share
In accordance with SFAS No. 128 - "Earnings per Share", the basic
loss per common share is computed by dividing net loss available
to common stockholders by the weighted average number of common
shares outstanding. Diluted loss per common share is computed
similar to basic loss per common share except that the denominator
is increased to include the number of additional common shares
that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive.
At November 30, 2006, the Company had no stock equivalents that
were anti-dilutive and excluded in the earnings per share
computation.
f) Financial Instruments
The carrying value of the Company's financial instruments
consisting of cash and accounts payable and accrued liabilities
approximate their fair value due to the short term maturity of
such instruments. Unless otherwise noted, it is management's
opinion that the Company is not exposed to significant interest,
currency or credit risks arising from these financial statements.
g) New Accounting Standards
Management does not believe that any recently issued, but not yet
effective, accounting standards, if currently adopted, could have
a material effect on the accompanying financial statements.
QUANTUM ENERGY INC.
formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2006
(Stated in US Dollars)
(Unaudited)
Note 4 Capital Assets
--------------
<table>
<caption>
Cost Accumulated Net Book Net Book February
Amortization November 2006 2006
<s> <c> <c> <c> <c>
Office equipment $ 3,629 $ 1,209 $ 2,420 $ 2,965
Computer equipment 1,433 877 556 881
Equipment 127,998 19,200 108,798 -
------------------------------------------------------------------
$ 133,060 $ 21,286 $ 111,774 $ 3,846
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</table>
<table>
<caption>
Note 5 Website Development
-------------------
<s> <c> <c> <c> <c>
Cost Accumulated Net Book Net Book February
Amortization November 2006 2006
Website development $ 12,591 $ 3,148 $ 9,443 $ 1,333
------------------------------------------------------------------
$ 12,591 $ 3,148 $ 9,443 $ 1,333
------------------------------------------------------------------
</table>
Note 6 Oil and Gas Properties
----------------------
Corsicana Field - JMT Pilot Project
On October 11, 2005, KOKO ("KOKO") Petroleum, whose assets and
liabilities were acquired and assumed by the Company on May 31,
2006 (KOKO Purchase Agreement), signed a letter of intent with JMT
Resources Ltd. ("JMT"), a majority owner and operator of certain
oil and gas leases, comprising 4,000 acres of mineral leasehold,
located in Corsicana, Navarro County, Texas. KOKO provided an
initial equity contribution of $602,300 during the year ended
2005. KOKO contributed a further $150,000 on May 23, 2006 which
brings its joint venture partnership interest to 25%.
<page>
QUANTUM ENERGY INC.
formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2006
(Stated in US Dollars)
(Unaudited)
Note 6 Oil and Gas Properties (continued)
----------------------------------
Corsicana Field - JMT Pilot Project (continued)
The effective date of the KOKO Purchase agreement was July 1, 2006
with the following terms:
a) The Company would acquire all of the oil and gas operations,
leases and wells in the Coriscana Texas and Barnett Shale
Texas properties.
b) The Company would assume all of the promissory notes payable.
See note 7
c) The Company agreed to contribute up to $100,000 to assist KOKO
in KOKO SB2 application. To date the Company has contributed
$27,000.
d) The Company will cause to be issued 1,500,000 common stock
shares of the Company to KOKO.
Any reference to the KOKO acquisition of oil and gas assets means
an acquisition by the Company pursuant to this purchase agreement.
Boyd #1, Barnett Shale Project, Texas
On September 20, 2005, by letter of agreement with REO Energy Ltd.
("REO") for $140,000 KOKO acquired a 10% undivided working
interest in and to a lease known as Boyd #1, Barnett Shale Project
in Cooke County, Texas, containing approximately 40 acres and
burdened by a total of 25% royalty and overriding royalty
interest. The undivided 10% working interest is subject to a
pro-rata share of the royalty and overriding royalty interest
equal to a 7.5% net revenue. The operator of record is Rife Energy
Operating Inc. A standard operating lease governs the day to day
operations. Boyd #1 is now in production and producing
approximately 5 barrels of oil and 130 mcf of natural gas per day.
Inglish #2, Barnett Shale Project, Texas
On October 20, 2005, by letter of agreement with REO Energy Ltd.
("REO") for $140,000 KOKO acquired a 10% undivided working
interest in and to a lease known as Inglish #2, Barnett Shale
Project in Cooke County, Texas, containing approximately 40 acres
and burdened by a total of 25% royalty and overriding royalty
interest. The undivided 10% working interest is subject to a
pro-rata share of the royalty and overriding royalty interest
equal to a 7.5% net revenue. The operator of record is RIFE Energy
Operating Inc. A standard operating lease governs the day to day
operations. This well was drilled in December 2005 and is now in
production producing approximately 10 barrels of oil and 120 mcf
of natural gas per day.
<page>
QUANTUM ENERGY INC.
formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2006
(Stated in US Dollars)
(Unaudited)
Note 6 Oil and Gas Properties (continued)
----------------------------------
McKinney 1-B, 2-B and Blackburn 1-C, Corsicana Field, Navarro
County, Texas
In 2004 KOKO entered into an informal participation agreement with
Armen Energy LLC ("Armen"), whereby the Company would participate
with Armen in the exploration and production of 1,000 acres of
held by production leases in the Corsicana Field. Navarro County,
Texas. KOKO, for nominal initial consideration, was assigned an
undivided 45% working interest in these leases after completion of
well drilling, including a 37% net revenue interest. The total
production for these three wells is approximately 10 barrels of
oil per day.
Corsicana Seismic Project
The Company has also acquired a 23.5% working interest the lands
under lease by JMT Resources and Rife Energy Operating Inc. and
referred to as the Corsicana Field - JMT Project. The Company
believes there are substantial potentials for deeper zone
discoveries in this project. At present, only the Nacatoch zone is
being produced at 900 feet. This area is known to possess
significant oil bearing structures or traps in the Pecan Gap,
Woodbine, Wolf City, Cotton Valley and Smackover down to 11,000
feet.
The intention of the Corsicana partners and the purpose of the 3
dimensional seismic is to "shoot" seismic lines over the 8 square
miles and 4,000 acres of land, which upon interpretation will
identify the existence of potential traps for exploratory or
development drilling in one or more of the above mentioned
reservoirs. Total cost to shoot is approximately $500,000. The
Company has paid $100,000 towards 50% of the cost and will pay the
next $150,000 upon seismic completion. Anticipated completion of
the seismic program is March 31, 2007.
Inglish #1H - Barnett Shale Project
The Company has acquired a 5% working interest in this project for
$135,000. This is the first horizontal well drilled by REO Energy
Ltd. (the operator) in the Barnett Shale. All previous wells were
vertical wells. Total cost of this well is approximately
$2,700,000. The well has been drilled, completed and is now in
production. The well has produced for approximately 3 months and
to date has produced in excess of 4,160 barrels of oil and 20,156
mcf of natural gas.
Inglish#4,#5,#D1,#D2, Craig Muncaster#6 and#7
On September 1, 2006, the Company acquired a 50% working interest
in oil and gas projects located in the State of Texas. Terms of
the asset purchase agreement were for gross proceeds of $400,000
payable by way of a non-interest bearing promissory note, due
November 1, 2006. See note 9.
<page>
QUANTUM ENERGY INC.
formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2006
(Stated in US Dollars)
(Unaudited)
Note 6 Oil and Gas Properties (continued)
----------------------------------
Other properties
On November 17, 2006 the Company entered into negotiations in an
agreement to acquire a property lease, located in Oklahoma
("Cannon Lease") for gross proceeds of $14,000 and future stock,
(amount to be determined) in the Company.
On September 11, 2006 the Company completed the waste water
disposal project for gross proceeds of $20,000.
Note 7 Promissory Notes Payable
------------------------
In accordance with the KOKO Purchase Agreement, the Company has
accepted financing for $1,694,760 due on demand, interest
compounded annually at 4% and $400,000 at 10%. At any time the
Company may pay off all or any part of the principal that remains
unpaid together with applicable interest. Gross promissory notes
of $1,694,760 are not secured, and have no defined terms of
repayment. Promissory notes of $400,00 are secured, by way of
250,000 shares in the capital stock of the Company and a
collateral interest in the properties. Interest in the amount of
$60,038 has been accrued to November 30, 2006 on these notes.
Note 8 Common Stock
------------
In the period ended February 29, 2004, the Company issued
20,000,000 common shares at a price of $0.001 per share for total
gross proceeds of $2,000 and 19,000,000 common shares at a price
of $0.001 per share for total gross proceeds of $19,000.
In the year ended February 28, 2005, the Company issued 6,500,000
common shares at a price of $0.01 per share for total gross
proceeds of $65,000.
Effective August 26, 2005, the Board of Directors authorized a 1
for 10 stock split of the Company's issued common stock. One (1)
old issued common share was split into 10 new issued common
shares. All references in the accompanying financial statements to
the number of common shares have been restated to reflect the
stock split. The authorized number of common shares remains at
75,000,000 common shares with a par value of $0.001.
In the nine month period ended November 30, 2006, the Company
issued 1,500,000 common shares at a price of $.001 pursuant to the
Koko Purchase Agreement.
<page>
QUANTUM ENERGY INC.
formerly Boomers' Cultural Development Inc.)
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2006
(Stated in US Dollars)
(Unaudited)
Note 9 Subsequent Events
-----------------
On November 1, 2006, the Company was in default of a promissory
note issued by the Company for gross consideration of $400,000. An
extension to February 28, 2007 was granted with security, by way
of 250,000 shares in the common stock of the Company, along with a
collateral interest in the property obtained by the Company.
Interest at ten percent (10%) will accrue, commencing November 1,
2006, on the principle of the note payable.
The Company is under obligation to issue the 250,000 shares of
common stock of the Company free and clear of all liens and
encumbrances. If the Company duly observes and performs all of the
Company's covenants, one-half of the common stock issued (125,000
shares) shall be returned to the Company by the lender.
The Company recognized and has recorded a charge to interest
expense of $381,250 which represented the fair value ($3.05 per
share) of the 125,000 shares of common stock which will not be
returned to the Company.
<page>
ITEM 2. MANAGEMENT DISCUSSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
Quantum Energy Inc. (referred to as "Quantum" or the "Company") was incorporated
on February 5, 2004, in the State of Nevada. The Company's principal executive
offices now are located at 29 - 3800 Gallagers Canyon, Kelowna, BC V1W 3Z8. The
Company's telephone number is (250) 809-9185.
Starting in May of 2006 the Company decided to embark on a new business path in
oil and gas exploration and acquisitions. The Company intends to acquire
interests in the properties and working interests in the production owned by
established oil and gas production companies, whether public or private, in
United States oil producing areas. The Company believes this opportunity may
have considerable future potential.
The degree of expansion of the Company's oil and gas business will depend on
availability of funds. When and if funding becomes available, the Company plans
to acquire high-quality oil and gas properties, primarily proven producing and
proven undeveloped reserves. The Company will also explore low-risk development
drilling and work-over opportunities with experienced, well-established
operators.
Plan of Operation
On May 19, 2006, the Company acquired its first oil and gas interest. The
company entered into an Asset Purchase Agreement with KOKO Petroleum, Inc.,
purchasing oil and gas assets in Texas, USA, which included three producing
wells and 10% working interests in two additional wells. Ted Kozub, the
Company's chief executive officer and a director, is also the president and a
director of KOKO Petroleum.
On September 1, 2006, the Company entered into an Asset Purchase Agreement with
Nitro Petroleum Incorporated ("Nitro"), purchasing oil and gas assets in Texas,
USA. In consideration, the Company issued Nitro an unsecured promissory note for
$400,000, which did not accrue interest and was due and payable on November 1,
2006. The assets acquired consist of 50% of the working interests in the wells
identified below:
1. 10% working interest in Inglish 4 well;
2. 10% working interest in Inglish 5 well;
3. 10% working interest in Inglish D1 well;
4. 10% working interest in Inglish D2 well;
5. 5% working interest in Craig Muncaster 6 well; and
6. 5% working interest in Craig Muncaster 7 well.
Mr. Kozub is also the president and a director of Nitro Petroleum.
<page>
On November 1, 2006 the Company entered into an Extension Agreement with Nitro
in regard to the APA and Company's obligation to Nitro.
Under the Extension Agreement the Promissory Note 1 has been cancelled and new
note has been executed (the "Promissory Note 2"). The Promissory Note 2 is for
the same amount of $400,000, but now accrues interest at ten (10 %) percent per
annum. As security for the Promissory Note 2 Company granted to Nitro a security
interest over all of Company's assets perfected by UCC-1 filing in a state of
Nevada, which shall be released upon repayment of the Promissory Note 2. Also
under the new terms Company is required to issue to Nitro 250,000 restricted
shares of Company's common stock, 125,000 of which shall be returned to Company
if the principal amount of the Promissory Note 2 together with the interest is
repaid on time. The Promissory Note 2 is due and payable on February 28, 2007.
The Company now owns the following oil and gas projects:
Corsicana, Navarro County, Texas
o A 50% working interest in Corsicana Pilot Project, which is currently
being developed, partially went into production in a late August and
upon completion will earn a 23.5% net revenue interest in seven
producing wells of the Corsicana leases.
o Surtek Engineers are designing the polymer flood program for the pilot
project, which is now expected to commence by the first quarter of
2007. Surtek filed the reservoir enhancement engineering report for the
polymer flood program on August 28, 2008. In addition, the Company will
adopt CO2 and nitrogen injections to supplement Surtek process. Six
injecting wells are going to be used in this project. A seismic project
is rescheduled to start in the first quarter of 2007 to shoot the
three-dimensional seismic over a 4,000 acre series of leases.
o The Company has an interest in a 1,000 acres of leases in Corsicana
Field, from which the Company will receive a 45% working interest that
amounts to 37% net revenue in McKinney 1B, McKinney 2B and Blackburn 1C
wells. These well are currently in production.
o The Company is also involved into the water disposal project. The
Company paid its share of the initial down payment for the purchase of
a surface area for the drilling and construction of a waste water
disposal project, which is reflected in the financial statements. This
project is expected to be completed in the first quarter of 2007 and
provide a revenue to the Company shortly thereafter. The company will
earn a 25% interest in the project.
Barnett Shale, Texas
o The Company is receiving revenues from a 10% working interest (7.5% net
revenue) in Boyd 1 well of Barnett Shale lease, which is subject to
royalty and overriding royalty interests. Boyd 1 went into production
in July 2006.
o The Company is receiving revenues from a 10% working interest in
Inglish 2 well, Barnett Shale, which amounts to 7.5% net revenue. The
Inglish 2 went into production in October 2006.
o Quantum also acquired a 5% working interest in Inglish 1H (horizontal)
well for $135,000 from REO Energy Ltd. The well is in production and
the Company is receiving revenues since September 20, 2006.
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o The Inglish 4 and Inglish 5 wells are now complete. Company's working
interest in each of these wells is 5% pursuant to the APA of September
1, 2006 described above. The Inglish D1 and D2 wells have been
completed and are now in production (Quantum has 5% working interest in
each of these wells).
o Additionally, as a result of the APA of September 1, 2006, the Company
has 2.5% working interest in Craig Muncaster 7 and Craig Muncaster 6.
Both these wells have been completed and are now producing. The Craig
Muncaster 7 went into production in October 2006 and Craig Muncaster 6
went into production in late November 2006.
General and Administrative Expenses
General and administrative expenses consist of expenses related to general
corporate functions including marketing expenses, development costs and travel.
General and administrative expenses totaled $19,101 for the three months ending
November 30, 2006, compared to $2,985 for the three months ending November 30,
2005. This increase was due to increases in office administration and marketing
costs associated with the movement into the oil and gas business.
Liquidity and Capital Resources
The Company had cash of $50,625 as of November 30, 2006, compared to cash of
$1,016 as of February 28, 2006. The Company had a working capital deficit of
$2,580,188 as of November 30, 2006, compared to working capital deficit of
$8,687 as of February 28, 2006.
The decrease in working capital was substantially due to increased general and
administrative expenses and expenditures for oil and gas properties incurred by
the Company. The Company will continue to utilize the free labor of its
directors and stockholders until such time as funding is sourced from the
capital markets. It is anticipated that substantial additional funding will be
required to maintain the Company for the next twelve months.
The Company's continued operations will depend upon its ability to raise
additional funds through bank borrowings, equity or debt financing. While the
Company has been successful in raising funds to date, there is no assurance that
the Company will be able to obtain additional funding when needed, or that such
funding, if available, can be obtained on terms acceptable to the Company. If
the Company cannot obtain needed funds, it may be forced to curtail or cease its
activities.
If additional shares are issued to obtain financing, current shareholders may
suffer a dilutive effect on their percentage of stock ownership in the Company.
A large portion of the Company's financing to date has been through the issuance
of shares or through equity financing with share based collateral. There can be
no assurances that the Company will become self-sufficient. Therefore, the
Company may continue to issue shares to further the business, and existing
shareholders may suffer a dilutive effect on the price of their shares as well
as a loss of voting power in the Company.
Going Concern
The Company has not attained profitable operations and is dependent upon
obtaining financing to pursue its business objectives. For these reasons, the
Company's auditors stated in their report on the Company's audited financial
statements that they have substantial doubt the Company will be able to continue
as a going concern without further financing.
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The Company may continue to rely on equity sales of the common shares in order
to continue to fund the Company's business operations. Issuances of additional
shares will result in dilution to existing stockholders. There is no assurance
that the Company will achieve any additional sales of the equity securities or
arrange for debt or other financing to fund planned business activities.
Off-Balance Sheet Arrangements
The Company has no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company's financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to stockholders.
ITEM 3. CONTROLS AND PROCEDURES.
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed by it in the reports that it
files or submits to the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified by the Securities and Exchange
Commission's rules and forms, and that information is accumulated and
communicated to management, including the Company's principal executive and
principal financial officers (whom the Company refers to in this periodic report
as its Certifying Officers), as appropriate to allow timely decisions regarding
required disclosure. The Company's management evaluated, with the participation
of its Certifying Officers, the effectiveness of the Company's disclosure
controls and procedures as of November 30, 2006, pursuant to Rule 13a-15(b)
under the Securities Exchange Act. Based upon that evaluation, the Company's
Certifying Officers concluded that, as of November 30, 2006, the Company's
disclosure controls and procedures were effective.
There were no changes in the Company's internal control over financial reporting
that occurred during its most recently completed fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
ITEM 6. EXHIBITS
Exhibit
Number* Description of Exhibit Location
Item 3 Articles of Incorporation and Bylaws
3.1 Articles of Incorporation Incorporated by reference
from the Registration
Statement Amendment 2
on Form SB-2 filed
October 26, 2004,
SEC File No. 333-118138.
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3.2 Bylaws, as amended Incorporated by reference
from the Registration
Statement Amendment 2
on Form SB-2 filed
October 26, 2004, SEC
File No. 333-118138.
3.3 Articles of Amendment Incorporated by reference
from 10-KSB annual report
filed on June 14, 2006,
SEC File No. 333-118138.
Item 10 Material Contracts
10.5 Extension Agreement between Nitro Petroleum and This filing
Quantum Energy Inc. dated November 1, 2006
10.6 Promissory Note 2 dated November 1, 2006 This filing
10.7 General Security Agreement between Nitro Petroleum This filing
and Quantum Energy Inc. dated November 7, 2006
Item 31 Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certification of Chief Executive Officer This filing
and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Item 32 Section 1350 Certifications
32.1 Certification of Chief Executive Officer and This filing
Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
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* The number preceding the decimal indicates the applicable SEC reference
number in Item 601, and the number following the decimal indicating the
sequence of the particular document.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 8th day of
January, 2006.
QUANTUM ENERGY INC.
By: /s/Ted Kozub
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Ted Kozub
President, CEO, CFO