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 an emphasis in land holdings, refinery and fuel distribution.
The Company is domiciled in the Unites States of America and trades on the OTC market under the symbol QREE.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries FTPM Resources Ltd. and Dominion Energy Processing Group, Inc. after elimination of the intercompany accounts and transactions.
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.
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.
The Company considers all highly liquid investments with original maturities of three months or less when acquired to be cash equivalents.
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 August 31, 2022 and February 28, 2022, 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.
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.
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.
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.
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.
These 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 August 31, 2022 and February 28, 2022, the Company has limited financial resources with which to achieve the objectives and obtain profitability and positive cash flows. As shown in the accompanying consolidated balance sheets and consolidated statements of operations, the Company has an accumulated deficit at August 31, 2022 and February 28, 2022 and a working capital deficit at February 28, 2022. 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.
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 August 31, 2022 and February 28, 2022, respectively, would be as follows:
At February 28, 2022 the effect of the Company's outstanding options and warrants would have been anti-dilutive.
Depreciation expense for the six months ended August 31, 2022 and 2021 was $6,777 and $-0-, respectively.
Work in progress consists of partially manufactured and raw rare earth metal products used in production in the amount of $118,358 at August 31, 2022 and February 28, 2022.
Deposits – Related Party consist of deposits made to a related party that share board members of the Company. A with a letter of intent signed on October 12,2021 calls for the purchase of shares of common stock of the related party to obtain a majority stake at $2.10 for up to eighteen (18) months with closing on December 15, 2022. The letter of intent is non-binding and if the majority shares are not obtained the deal is terminated and the money is refunded. Hence, the classification of deposits of $12,005,000 at February 28, 2022. The Company is expecting to acquire majority ownership by the closing date.
Interest expense for the six months ended August 31, 2022 and 2021 was $1,200and $2,910, respectively.
NOTE 8 – PROMISSORY NOTES PAYABLE, RELATED PARTY AND OTHER RELATED PARTY TRANSACTIONS
The Company’s outstanding notes payable, related party are summarized as follows:
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|
August 31, 2022
|
|
|
February 28, 2022
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|
|
6% unsecured note payable – April 2019, due on demand
|
|
|
1 |
|
|
|
15,825 |
|
|
6% unsecured note payable – April 2019, due on demand
|
|
|
1 |
|
|
|
15,890 |
|
|
8% unsecured note payable - October 2019, due on demand
|
|
|
1 |
|
|
|
10,000 |
|
|
TOTAL
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|
$ |
1 |
|
|
$ |
41,715 |
|
Interest expense for the six months ended August 31, 2022 and 2021 was $-0- and $3,826, respectively.
Starting January 1, 2019, the Company began accruing a monthly management fee of $15,000 due to an advisory company owned by Andrew J. Kacic, the Company’s former chief executive officer (“CEO”). During the year ended February 28, 2019, the Company recognized management fees of $30,000 under this agreement which amount is included in “Accounts payable and accrued liabilities, related parties” on the consolidated balance sheet at February 28, 2019. Since February 28, 2019, no additional management fees have been accrued since the parties are in dispute. There were no similar management fees due the CEO prior to December 31, 2018. Certain directors and officers of the Company dispute the management fee asserting that no consulting agreement has been executed. It is possible that the amount ultimately paid to the advisory company will be other than the accrued balance of $30,000 due to continuing negotiations between the board of directors and the former CEO. The disputed amount as of the date of these financials is $150,000, which is the remaining 10 (ten) months of the management fee for the calendar year ended 2019. Amounts due to Andrew Kacic at November 30, 2021 and February 28, 2021 were $107,868 and $17,868, respectively. In January 2022, the Company settled their dispute with Andrew Kacic and paid him $88,000. Included in this settlement was $107,868 in accounts payable – related parties, $64,300 in notes payable related parties and $16,573 in accrued interest – related parties. Write off of the notes payable and the accrued interest are included in gain on debt conversion in the amount of $80,873 for the year ended February 28, 2022. Write off of $19,868 of accounts payable related parties is included in professional fees at February 28, 2022.
Certain officers, directors and other related parties of the Company have paid various expenses on behalf of the Company. Balances due to the officers, directors and a related company for reimbursement of these expenses were $198,803 at August 31, 2022 and February 2022, respectively, which amounts are included in “Accounts payable and accrued liabilities - related parties” on the consolidated balance sheets.
NOTE 9 – COMMON STOCK PAYABLE
Common Stock Payable – Deposits Received on Subscriptions Agreements
Common stock payable for deposits received on stock subscription agreements consist of 17,407,266 shares owed to various investors who have paid for these shares. At August 31, 2022 and February 28, 2022, the fair value of the these shares were adjusted to its fair value of $208,887,196 and $18,515,734 based on the closing price of the stock on that date. The Company recognized unrealized loss on common stock payable of $784,851,492 and $2,153,915 during the six months ended August 31, 2022 and 2021, respectively.
NOTE 10– 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.
On February 23, 2022, the board of directors approved a 150 to 1 reverse stock split. The reverse has been retrospectively accounted for at March 1, 2020 in the statements of changes in stockholders’ deficit.
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. The Company issued 915,000 shares of its preferred stock class D to pay consulting services in the amount of $539,850 during the year ended February 28, 2022. During the six months ended August 31, 2022, the Company issued 2,750 shares of its preferred stock in the amount of $89,458. These shares have voting rights of 100 to 1. The shares value was based on the market price of the Company’s common stock of $.3253 and $0.59 on the measurement date. The reverse stock split did not affect preferred stock.
Treasury Stock
During year ended February 28, 2022, the Company bought back 27,914,411 shares of its common stock in the amount of $813,261 and placed it in treasury. On February 23, 2022, the board of directors approved a 150 to 1 reverse stock split. The reverse has been retrospectively accounted for at March 1, 2020 in the statements of changes in stockholders’ deficit.
NOTE 11 - WARRANTS
The following is a summary of the Company’s warrants issued and outstanding:
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August 31, 2022
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|
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February 28, 2022
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|
| |
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Warrants
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|
|
Price (a)
|
|
|
Warrants
|
|
|
Price (a)
|
|
|
Beginning balance
|
|
|
1,925,000 |
|
|
$ |
.25 |
|
|
|
2,925,000 |
|
|
$ |
.25 |
|
|
Issued
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
Exercised
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
Expired
|
|
|
(1,925,000 |
) |
|
––
|
|
|
|
(1,000,000 |
) |
|
––
|
|
|
Ending balance
|
|
–– |
|
|
$ |
0.00 |
|
|
|
1,925,000 |
|
|
$ |
.25 |
|
| |
(a)
|
Weighted average exercise price per shares
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NOTE 12 – RISKS and UNCERTAINTIES
Suprock Litigation
On December 10, 2021, the Company filed an action against the Suprock Parties in the United States District Court of the State of Nevada. (See: 2:21-cv-02184-JAD-BNW Quantum Energy Inc. v. PCS Advisors LLC et al). The complaint alleges breach of implied covenant of good faith & fair dealing, unjust enrichment, and breach of contract. The Company is seeking the return of the shares of its common stock and monetary damages.
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ITEM 2.
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MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report and the exhibits attached hereto contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements concern the Company’s anticipated results and developments in the Company’s operations in future periods, plans related to its business and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
Any statement that expresses or involves discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates”, or “intends”, or states that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:
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●
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Risks related to government regulation;
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●
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Risks related to environmental concerns;
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●
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Risks related to the Company’s ability to obtain additional required capital
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●
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Risks related to the Company’s insurance coverage for operating risks;
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●
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Risks related to the fluctuation of prices for crude oil;
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●
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Risks related to the commodity prices of rare earth minerals and related materials;
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●
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Risks related to the possible dilution of the Company’s common stock from additional financing activities;
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●
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Risks related to potential conflicts of interest with the Company’s management;
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●
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Risks related to the Company’s shares of common stock.
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This list is not exhaustive of the factors that may affect the Company’s forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking statements are described further under the sections “Description of Business” and “Management’s Discussion and Analysis and Plan of Operation” of this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Quantum Energy, Inc. disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as required by law. The Company advises readers to carefully review the reports and documents filed from time to time with the Securities and Exchange Commission (the “SEC”), particularly the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Quantum Energy, Inc. qualifies all forward-looking statements contained in this Quarterly Report by the foregoing cautionary statement.
Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements.” These statements, identified by words such as “plan,” “anticipate,” “believe,” “estimate,” “should,” “expect,” and similar expressions include the Company’s expectations and objectives regarding its future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth under the caption “Management’s Discussion and Analysis and Plan of Operation” and elsewhere in this Quarterly Report.
As used in this Quarterly Report, the terms “we,” “us,” “our,” “Quantum Energy,”, “Quantum” and the “Company”, mean Quantum Energy, Inc., unless otherwise indicated. All dollar amounts in this Quarterly Report are expressed in U.S. dollars, unless otherwise indicated.
The following statements may be forward-looking in nature and actual results may differ materially.
OFFICES
Our principal executive offices are located at 3805 Rockbottom, Henderson, Nevada. The Company’s telephone number is (877) 355-1277. Our website is www.qegy.energy and is not part of this Quarterly Report.
Historical Operations
The Company was originally incorporated as Boomers Cultural Development, Inc. (“Boomers”) on February 5, 2004, in the State of Nevada to be a service-oriented firm that would integrate the cultural interests of baby boomers with destination learning, by packaging onsite personal growth, education, and entertainment seminars with a variety of vacation destinations. On May 18, 2006, its name was changed to Quantum Energy, Inc. and business plans were changed to focus on the energy industry and in particular the oil and gas segments of the energy industry. From 2008 through 2010, the Company planned, when and if funding became available, to acquire high-quality oil and gas properties, primarily proven producing and proven undeveloped reserves as well as exploring low-risk development drilling and work-over opportunities with experienced, well-established operators. However, the anticipated funding opportunities did not materialize.
The business plan from 2008 to 2020 included our plan to develop, construct and operate a “state-of-the-art”, energy efficient, full slate oil refinery including a storage tank farm and associated facilities in Stoughton, Saskatchewan, Canada (the Stoughton Refinery”). In this regard, on August 2, 2016, the Company formed a Canadian subsidiary, Dominion Energy Processing Group, Inc. for purposes of the Pre-development work, construction and operation of the Stoughton Refinery.
The Company previously identified a 480-acre site in Stoughton Saskatchewan (the “Land”) on which it planned to construct the Stoughton Refinery. However, we never obtained the necessary funding to build the finery and so in 2020, it we gave up on that idea.
The Company formed a strategic alliance with Inductance Energy Corporation in 2019, finding tactical advantages through solutions in mining, producing, trading, and manufacturing components and working instruments from rare earth metals and oxides. Within this alliance the two companies also found leadership and specialized talent advantages, thereby fulfilling the Company’s past due compliance obligations to the SEC. This raised investors interest and awareness to the opportunities associated with the production of rare earth materials, which can be used to produce and manufacture innovative technological devices over the next era of energy supply and demand.
Current Business Strategy
On September 22, 2020 the Company entered into a joint development agreement with MP Special Purpose Corporation to enter into the business of mining and refining rare earth materials.
The Company developed a straightforward strategic and tactical business plan that could be executed around 3 basic business segments: Mining, Minerals and Magnets. These 3 segments would become a highly focused center of work for the Company.
Various work at the Company by its technical committee had shown that the Company could enter the mining industry through a very unique path of recovering rare earth and ferrite magnet material from discarded appliances, computers, and other sources in the United States and Canada. Secondly, the Company would concentrate its efforts on the recovery of rare earth materials from other waste streams including fly ash and fly bottom waste streams from combusted coal burning power plants in the United States and Canada. It is estimated that over 1 billion tons of this material exists and dumpsites, and far greater than 4 billion pounds of this material is still generated from coal burning power plants and other sources in the United States alone each year.
Successful recovery from these waste streams are described as follows;
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1.
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Rare Earth and Ferrite (Iron) Magnets that are used in a wide variety of appliances and electronics that can be recovered, that were disposed of in the United States and Canada. These appliances include; televisions, computers, refrigerators, microwaves, dishwashers, as well as motor vehicles, and used electrical motors. Quantum is working with a wide variety of returned merchandise centers, landfills, and other recycling businesses to secure these resources. These types of magnet resources can be mechanically gathered, and reprocessed for use by IEC, and other customers.
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2.
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Fly ash and fly bottom waste streams. Fly ash and fly bottom waste streams are the remaining byproduct of coal combustion. There are billions of pounds of fly ash and fly bottom waste that are produced every year in the United States and Canada, as well as foreign countries. Currently Quantum has two large developmental projects to recover and test both fly ash and fly bottom waste streams for their rare earth content. These two sources currently produce just over 1.4 billion pounds of fly ash and fly bottom waste on an annual basis. Well-known resource testing shows that most fly ash, as well as fly bottom waste streams on average contain about 1.85% rare earth material.
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3.
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Coal and other mining resources. Currently in the United States and Canada, the mining of coal to be consumed in coal power plants is in rapid decline. Coal producing states such as Wyoming, Kentucky, and West Virginia must move from a coal-based economy or continue to face declining royalty revenues from these natural resources. Rare earth minerals could be one answer to this problem. It is well known from a wide variety of Department of Energy studies that coal, and coal byproducts contain high concentrations of rare earth materials. Quantum is in negotiations with several operating and now defunct coal burning properties in order to secure rights to process and refine rare earth materials.
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Governmental Regulation
All of our contemplated operations and properties are and will be subject to extensive Canadian and U.S. federal, provincial, state and local environmental and health and safety regulations governing, among other things, the generation, storage, handling, use and transportation of rare earth minerals; the emission and discharge of materials into the environment; waste management. Our operations also require numerous permits and authorizations under various environmental and health and safety laws and regulations. Failure to comply with these permits or environmental laws generally could result in fines, penalties or other sanctions or a revocation of our permits. We will have to make significant capital and other expenditures related to environmental and health and safety compliance, including with respect to our air permits and the low-sulfur gasoline and ultra-low-sulfur diesel regulations.
Certain environmental laws hold current or previous owners or operators of real property liable for the costs of cleaning up spills, releases and discharges of petroleum or hazardous substances, even if these owners or operators did not know of and were not responsible for such spills, releases and discharges. These environmental laws also assess liability on any person who arranges for the disposal or treatment of hazardous substances, regardless of whether the affected site is owned or operated by such person.
In addition to clean-up costs, we may face liability for personal injury or property damage due to exposure to chemicals or other hazardous substances that we may have manufactured, used, handled or disposed of or that are located at or released from our refinery or otherwise related to our current or former operations. We may also face liability for personal injury, property damage, natural resource damage or for clean-up costs for the alleged migration of petroleum or hazardous substances.
Results of Operations
Three Months Ended August 31, 2022 Compared to Three Months Ended August 31, 2021.
Sales for the three months ended August 31, 2022 was $0 compared to $-0- for the three months ended August 31, 2021. Cost of goods sold for the three months ended August 31, 2022 was $0 compared to $-0- for the three months ended August 31, 2021. Operating expenses for the three months ended August 31, 2022, was $556,464 compared to $668,229 for the three months ended August 31, 2021. The increase in operating expenses was due to the fact that the Company had cash available and therefore were able to resume operations and their SEC filings. Other income and (expense) for the three months ended August 31, 2022 was $4,013,855 compared to $785,500 for the three months ended August 31, 2021. This increase in other income and (expense) of $3,228,355 was due to an increase in unrealized gain on common stock payable of $3,366,158, absence a gain on debt settlement of $140.395 and a decrease in interest expense of $(2,592).
Net Income
Net income for the three months ended August 31, 2022 and 2021 was $2,447,391 and $117,271, respectively. The increase in net income of $2,330,120 was due to the sales and increase in operating expenses of $978,290 and increase in other income and (expense) of $3,228,355.
Liquidity and Capital Resources:
As of August 31, 2022, our assets totaled $21,158,115 which consisted of $6,533,299 in cash, $118,358 in work in progress and $13,855,000 in deposits - related part,51,558 in PPE,$5,00,000 in Escrow-related party,$1,00,000 in Note receivable-related party The Company's total liabilities were $21,138,703 which consisted of accounts payable and accrued expenses, – related parties, common stock payable – for contracts/agreements, , common stock payable – deposits received on subscriptions agreements, promissory notes payable and promissory notes payable – related parties. As of May 31, 2022, the Company had an accumulated deficit of $65,004,957 and working capital deficit of $13,887,046.
Cash Used in Operating Activities
Net cash used in operating activities for the three months ended August 31, 2022 and 2021 was $1,945,449 and $718,502-, respectively. The increase in the amount used was attributed to Increase in unrealized gain on common stock payable.
Cash from Investing Activities
Net cash used in investing activities was $2,003,400 and $ 2,430,000 for the three months ended August 31, 2022 and 2021, respectively.
Cash from Financing Activities
Net cash provided by financing activities was $4,115,418 and $2,532842- for the three months ended August 31, 2022 and 2021.
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ITEM 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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The Company does not hold any derivative instruments and does not engage in any hedging activities.
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ITEM 4.
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CONTROLS AND PROCEDURES
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Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2022.
Our management, with the participation of our president (our principal executive officer, principal accounting officer and principal financial officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our president (our principal executive officer, principal accounting officer and principal financial officer) has concluded that, as of the end of such period, our disclosure controls and procedures were not effective to ensure that information that is required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our president (our principal executive officer and our principal accounting officer and principal financial officer), as appropriate, to allow timely decisions regarding required disclosure.
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1)
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We have an inadequate number of administrative personnel.
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2)
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We do not have sufficient segregation of duties within our accounting functions.
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3)
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We have insufficient written policies and procedures over our disclosures.
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The reason for this deficiency relates to the fact that our management is relying on external consultants for purposes of preparing our financial reporting package; however, the officers may not be able to identify errors and irregularities in the financial reporting package before its release as a continuous disclosure document.
Evaluation of Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our president (our principal executive officer and our principal accounting officer and principal financial officer), to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of our Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our Company’s assets that could have a material affect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has conducted, with the participation of our president, our principal executive officer and our principal accounting officer and principal financial officer, an evaluation of the effectiveness of our internal control over financial reporting as of August 31, 2022 in accordance with the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control — Integrated Framework. Based on this assessment, management concluded that as of August 31, 2022, our internal control over financial reporting was not effective. We are in the process of adopting specific internal control mechanisms. Future controls, among other things, will include more checks and balances and communication strategies between the management and the board to ensure efficient and effective oversight over Company activities as well as more stringent accounting policies to track and update our financial reporting.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal controls over financial reporting identified in connection with the evaluation described above during the quarter ended August 31, 2022 that has materially affected or is reasonably likely to materially affect our internal controls over financial reporting.
PART II - OTHER INFORMATION
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ITEM 1.
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LEGAL PROCEEDINGS.
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Quantum Energy, Inc. is not a party to any material legal proceedings and, to Management’s knowledge, no such proceedings are threatened or contemplated. No director, officer or affiliate of Quantum Energy, Inc. and no owner of record or beneficial owner of more than 5% of the Company’s securities or any associate of any such director, officer or security holder is a party adverse to Quantum Energy, Inc. or has a material interest adverse to Quantum Energy, Inc. in reference to pending litigation.
Quantum Energy, Inc. initiated a lawsuit against PCS Advisors, LLC and its principal John Suprock (See 2:21-cv-02184-JAD-BNW Quantum Energy Inc. v. PCS Advisors LLC et al in regards to failure to perform on an agreement executed between Suprock and Quantum on March 30, 2017, which was agreed to and executed by previous Quantum management, all of whom have voluntarily resigned and are no longer associated with the Company. The Company as Plaintiff in this matter seeks the return of approximately 3.4 million shares that the Company intends to prove were gained through the defendants operating as unlicensed broker/dealers.
The Company is not a party to any other material legal proceedings and, to Management’s knowledge, no such proceedings are threatened or contemplated. No director, officer or affiliate of Quantum Energy, Inc. and no owner of record or beneficial owner of more than 5% of the Company’s securities or any associate of any such director, officer or security holder is a party adverse to Quantum Energy, Inc. or has a material interest adverse to Quantum Energy, Inc. in reference to pending litigation.
Not applicable.
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ITEM 2.
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RECENT SALES OF UNREGISTERED SECURITIES.
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On June 7, 2021 the Company issued 1,000,000 shares of its common stock in consideration for cancellation of a debt in the amount of $190,000.00. These shares were issued pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933. The issuance was not a public offering as defined in Section 4(2) due to the limited number of persons that received the shares, and the manner of the issuances. In addition, the transferees of the common stock represented that they had the necessary investment intent as required by Section 4(2) and agreed to receive share certificates or book entry shares containing a legend that states the securities were restricted pursuant to Rule 144 of the Securities Act.
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ITEM 3.
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DEFAULTS UPON SENIOR SECURITIES.
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None
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ITEM 4.
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MINE SAFETY DISCLOSURES.
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None
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ITEM 5.
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OTHER INFORMATION.
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None
