The terms “we,” “our,” “us”, “Quantum Energy” and the “Company” refer to Quantum Energy Inc. and its subsidiaries, unless the context suggests otherwise.
General
We, Quantum Energy Inc., are a Nevada corporation. We were 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, our name was changed to Quantum Energy, Inc. and our business focus was changed to concentrate on the energy industry and, in particular, the oil and gas portions of the energy industry. We currently have two 100% owned subsidiaries: Dominion Energy Processing Group, Inc. (“DEPG”), a Canadian Federal business corporation, which is our 100% owned Canadian subsidiary and FTPM Resources, Inc., a Texas corporation.
In connection with our efforts in the energy industry, we acquired interests in various oil & gas properties in the Barnett Shale area of West Texas. After the initial success of the Barnett Shale leases, the production program in the Barnett Shale area encountered substantial difficulties. Numerous wells throughout this extensive area experienced production difficulties. In addition to the production problems was the severe drop in natural gas prices. As a result, all of the wells in which we had interests were suspended and all marginal wells were capped, and we abandoned our interest in the Barnett Shale area. From 2008 through 2010, we 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 needed substantial finding for these for opportunities was not available. From 2010 to 2017, we continued to consider and explore other energy industry opportunities. We focused on the development and operation of an oil refinery to refine oil from the Bakken formation. In 2013, we entered into various transactions in pursuit of the financing needed for the development of such a refinery and we pursued other potential energy related opportunities. However, we were not able to raise the substantial funding that would be needed to acquire the land, obtain the required permits, and developing and operating such a refinery. During the period from October 2017 to April 2019, among other things: we reviewed all of the outstanding agreements and transactions that we had entered into between August 2013 and November 2017 and we began to renegotiate, rescind or settle all of those agreements that had proven not to be in our best interest or in the best interest of our stockholders. In this regard, the shares of our common stock that had been issued in connection with such cancelled transactions were returned to us and shares of our Series B Preferred Stock that had been issued were returned and cancelled.
Since December 5, 2016, we have continued to pursue energy opportunities, including alternative energy opportunities, as well as, the substantial financing needed by such energy opportunities as follows:
(i) Provided substantial financing is available, we focused on developing a smaller “state-of-the art”, energy efficient, 40,000 BPD full slate refinery in Stoughton (southeastern) Saskatchewan, Canada (the “Stoughton Refinery”) in the heart of the Viewfield oil field area of the Bakken formation. The Stoughton Refinery was to be designed to use light sweet crude feedstock from the Bakken formation in the Viewfield oil field area of the Province of Saskatchewan, Canada to produce a limited number of products for the local market. We planned to utilize Bakken crude as our feedstock since it would be the most plentiful crude slate in the Viewfield oil field area where the Stoughton Refinery was to be located. We planned to refine and sell a variety of refined products to our customers, including natural gas liquids, gasoline, jet fuel, diesel, drilling mud oil, ultra-low sulfur fuel oil, and sulfur and feedstocks. In this regard, on August 2, 2016, we formed our Canadian subsidiary, Dominion Energy Processing Group, Inc. for purposes of the pre-development work, construction and operation of the Stoughton Refinery.
In connection with our efforts regarding developing and operating the Stoughton Refinery, we identified a 480-acre site in Stoughton, Saskatchewan (the “Land”) on which to construct the Stoughton Refinery provided various tests to confirm the validity and suitability of the hydrology and the Land for the construction and operation of the Stoughton Refinery. The Land is located approximately 100 kilometers north of the Canadian USA border in southeastern Saskatchewan in the regional municipality of Tecumseth in the heart of the Viewfield oil field area of the Bakken formation. The Land has sufficient acreage to accommodate expansion of the Stoughton Refinery facilities to included future ethanol and rail-car load and unload facilities. According to a 2015 report from the National Energy Board (an independent economic regulatory agency created in 1959 by the Government of Canada, the unconventional, marketable resources of the Bakken in the Viewfield oil field area are expected to be 74 million m³ (464 million barrels) (see “The Ultimate Potential for Unconventional Petroleum from the Bakken Formation of Saskatchewan – Energy Briefing Note” April 2015 of the National Energy Board (an independent economic regulatory agency created in 1959 by the Government of Canada, http://www.nebone.gc.ca/nrg/sttstc/crdlndptrlmprdct/rprt/2015bkkn/2015bkkneng. pdf).
On December 5, 2016, we executed a Farm Contract of Purchase and Sale (the “Land Contract”) with the landowner. The purchase price of the Land under the Land Contract was $500,000(CAD). We paid $10,000(USD) ($7,822(CAD)) as a deposit on the Land. Our obligation to purchase the Land under the Land Contract is subject to certain terms and conditions including: (1) the completion of the various tests to confirm the validity and suitability of the hydrology and the Land for the construction and operation of the Stoughton Refinery; (2) the proposed Stoughton Refinery meeting all requirements of various Saskatchewan government laws, and bylaws and being fully approved by all levels of the Saskatchewan government and agencies; and (3) the Land purchase being approved the Saskatchewan Farm Land Security Board (collectively the “Predevelopment Work”). The Land Contract had an initial expiration date of December 15, 2017, however, we have negotiated several extensions of the Land Contract until October 31, 2019 (unless further extended), for removal of all terms and conditions to the purchase of the Land and the purchase price of the Land under the Land Contract was increased to $525,000(CAD). No assurances can be given that we will be able to obtain all required governmental approvals.
If the viability and suitability of the Land for the development, construction and operation of the Stoughton Refinery is validated, and provided we have obtained the required substantial capital, and provided substantial funding is available, we intend to commence the process of obtaining necessary permits and approvals to develop, construct and operate the Stoughton Refinery.
As of the date of this report, we have been unable to raise the substantial funds required to acquire the Land or complete the predevelopment work or to construct the proposed Stoughton Refinery. No Assurances can be given that we will obtain the needed substantial capital to acquire and validate the suitability of the Land or to develop, construct and operate the Stoughton Refinery.
(ii) On April 15, 2018, we entered into a (conditional) binding letter of intent (the “IEC LOI”) with Inductance Energy Corporation Energy Corporation, a Wyoming corporation (“IEC”), which purports to have developed an alternative source of energy through the invention and development of magnetic “earth engines”. Pursuant to the IEC LOI , if all of the conditions contained in the IEC LOI are satisfied, (a) we would merge with a newly formed subsidiary of IEC with us being the surviving company, (b) we would issue to IEC such number of new shares of our Common Stock as shall represent 60% of our then issued and outstanding shares of Common Stock, and (c) IEC would provide to us, as the surviving company, up to $50,000,000(USD), a portion of which (estimated at $7,500,000 CAD) we would use to validate the viability and suitability of the development of the Stoughton Refinery on the land (“Land”) for intended sight in Stoughton Saskatchewan Canada, which would include obtaining environmental and engineering studies to validate the viability and suitability of the intended site for the Stoughton Refinery, and if the site is determined to be viable and suitable, we would commence the process of obtaining the required permits to build the Stoughton Refinery and we would acquire the Land, and (c) we would pay other related costs. The conditions to the IEC LOI were not satisfied and on April 23, 2019, we entered into a Mutual Agreement with IEC to cancel and rescind the IEC LOI. The parties agreed that the mutual cancellation/rescission is based on the inability of the parties to reach an agreement that serves their respective best interests and priorities, and that the cancellation/rescission of the IEC LOI will enable each party to pursue its unique opportunities and interests.
(iii) On April 2, 2019, we and our wholly owned subsidiary FTPM Resources, Inc. entered into non-binding Letter of Intent with Easy Energy systems Inc. (“EESI”) to form a joint venture the purpose of developing and marketing of clear glucose using EESI’s patented Modular Energy Production System technology (“MEPS®”). EESI’s Modular Energy Production Systems are small-scale modular biorefineries for the production of alternative liquid biofuels and other products from various feedstocks. MEPS® modules are fully automated, self-contained shipping container sized modules (the “Modules”) that contain a specific scientific process to process energy based on the particular targeted Feedstock. The Modules are factory-built and can be connected together in a matter of weeks to convert different forms of Feedstock into different forms of renewable energy and other high value products. The Modules can be shipped to remote villages and cities all over the world. That joint venture was to have been owned 33% by FTPM and 67% by EESI.
On June 28, 2019, we and EESI modified that proposed joint venture transaction and we entered into a Binding Letter of Intent (the June 28, 2019 Binding Letter of Intent”) with EESI to form a joint venture (hereinafter referred to as “JV-1”) for the purpose of creating and funding multiple operating joint venture limited liability companies (each an “Operating JV”) each of which to be focused on a different vertical market feedstock utilizing the MEPS® technology to create energy. Each Operating JV is expected to be assigned exclusive distribution rights based on a territory and/or specified Feedstock, and each of which will be financed by the funding source of that Operating JV. Each Operating JV would be owned 50% by that funding source for the particular LLC and the remaining 50% by JV-1 (which will be split equally between us and EESI).
(iv) On April 8, 2019, we entered into a non-binding memorandum of understanding (“Peconic MOU”) with Peconic Energy Inc., a Wyoming corporation. Peconic is presently engaged in the business of exploring for oil, gas and other hydrocarbons within the State of Texas and is the owner of certain lands located in Gonzales and Wilson counties Texas, which lands are considered by Peconic to be prospective for finding oil, gas and other hydrocarbons. Pursuant to the Peconic MOU, if the parties negotiated and executed a binding agreement, we would acquire 100% of Peconic for shares of newly created preferred stock and we were to contribute to Peconic a loan of $500,000 and an additional $150,000 of bridge financing from a funding source introduced by Peconic.
Also, on April 17, 2019, we loaned $30,000 to Peconic Energy, Inc. (“the Peconic Loan”). This loan is evidenced by a secured convertible promissory note (“Peconic Note”) which provides for interest which shall accrue at rate of 12% per annum or 40% of the gross revenues generated by the maker, whichever is greater, the principal balance and all accrued interest being due and payable 18 months from the date of the note. The Peconic Note is secured by 100% of the Peconic’s assets and is convertible at any time during the term of the note into 40% of the Peconic’s assets (see (v) below regarding Power Up Lending Group Ltd.).
Pursuant to the Peconic MOU, if definitive agreements were not executed by the close of business on April 22, 2019, the Peconic MOU would be automatically rescinded. Definitive agreements were not executed and the proposed transaction with Peconic was automatically rescinded. As of the date of this report, no further action is anticipated relating to the Peconic MOU.
(v) In connection with the Peconic MOU (see (iv) above), on April 9, 2019 we entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Power Up”) providing for the issuance of a Convertible Promissory Note (the “Power Up Note”) in the principal amount of $45,000. From this loan, we in turn loaned $30,000 to Peconic. The Power Up Note bears 12% interest with the principal balance and all accrued interest being due and payable on April 9, 2020. The Power Up Note provides for default interest at 22%, in the event of default. The Power Up Note contains conversion terms whereby Power Up has the right to convert the Power Up Note into shares of the Company’s common stock at a 39% discount on the lowest closing price of the Company’s common stock during the prior 20 trading day period. The conversion option expired on October 7, 2020. On June 18, 2019, we received a default notice from Power Up stating that we are in default under the Power Up Note because, among other reasons, we failed to comply with the reporting requirements of the Securities Exchange Act of 1934 as required by the Note, and therefore accelerating the terms of the Power Up Note and demanding that the Company pay the default sum of $67,500 together with accrued interest and accrued default interest with respect to the Power Up Note. We are currently seeking to reach a settlement of this matter with Power Up but as of the date of this report no settlement has been reached.
(vi) On April 16, 2019, we entered into a Non-Binding Memorandum of Understanding (“EESI Infrastructure MOU”) to acquire EESI Infrastructure Series, LLC (“EESI Infrastructure”). The prospective EESI Infrastructure acquisition, if consummated as contemplated in the EESI Infrastructure MOU, would provide an Engineering, Procurement and Construction (“EPC”) guarantee for the construction of an addition to the existing $11.2 million plant of EESI Systems in Emmetsburg, Iowa. This addition would add a 9.3 Mega Watt dual gas power plant to EESI Systems’ Emmetsburg facility at an anticipated cost of approximately $10 million dollars. The EPC guarantee would provide a Warranty Bond Guarantee to ensure the plant will remain operational for 18 months after completion of the Emmetsburg facility Power Plant. The EESI Infrastructure MOU also contemplated that we would issue shares of newly authorized preferred stock and that cash would be paid to EESI Infrastructure. Upon signing the EESI Infrastructure MOU, we advanced $25,000 to the EESI Infrastructure. As of the date of this report, the transactions contemplated by the EESI Infrastructure MOU have not been consummated, we are currently seeking to get a refund from EESI Infrastructure of the $25,000 we advanced to EESI Infrastructure and no further action is anticipated relating to the EESI Infrastructure MOU.
(vii) Effective May 24, 2019, we entered into an Asset for Stock Swap Agreement (“Swap Agreement”) with the Looper Family Office, LLC, a Texas limited liability company and Quay View Partners, LLC (“Sellers”) pursuant to which the Sellers agreed to convey to us 100% of their rights, titles and interests in and to certain identified oil and gas producing properties in exchange for 100,000 shares of a newly created Series W Preferred Convertible Preferred Stock and a $250,000 loan from us to the Sellers. Pursuant to the Swap Agreement, if consummated, we would own the leases through a wholly owned subsidiary to be formed and the Series W Preferred Convertible Stock would be issued to secure debt and or equity for such subsidiary. We were also to contribute a loan of $250,000 to the Sellers, funded in two installments as follows: the first upon the execution of the Swap Agreement and the second on or before June 7, 2019. We were not able to obtain the funding of such loan. On June 21, 2019, the Sellers notified us that the Swap Agreement was cancelled because we had not provided the consideration required under the Swap Agreement. No payments were made by the Company, no assets were transferred to the Company and no shares of Series W Preferred Stock were issued to the Sellers. As of the date of this report, no further action is anticipated relating to the Swap Agreement;
(viii) In connection with the June 28, 2019, Binding Letter of Intent with EESI and to monetize the distribution rights to EES’ modular Technologies, (a) on July 8, 2019, JV-1 entered into a License and Operating Agreement – Major Terms Summary with Raul Factor BV (“RF”) pursuant to which the RF and JV-1 created a new joint venture to be named Easy Energy Systems – Europe (“EES-E”) and pursuant to which the EES-E Operating JV purchased the distribution rights for the EESI “MEPS®” technology for the territory of the European Union, and (b) on July 8, 2019, JV-1 entered into a License and Operating Agreement – Major Terms Summary with RF pursuant to which the parties created a new joint venture to be named Easy Energy Turf & Carpet (“EETC”) and pursuant to which the EETC Operating JV purchased the global distribution rights to EESI’s MEPS® technology for turf & carpet feedstock. Each of EES-E and EETC is owned 25% by us, 25% by EES and 50% by Raul Factor The aggregate purchase price paid for the licensing and distribution for EES-E and EETC was $150,000 (US).
In connection with and as part of the foregoing joint venture transactions with JV-1 and RF, on July 11, 2019, the principals of RF, who are existing holders of our common stock, purchased for an aggregate price of $200,000, 1,000,000 additional restricted shares of our common stock and warrants to purchase 1,000,000 restricted shares (at an exercise price of $0.25 per share) of our common stock, and pursuant to the EES-E and EETC Joint Ventures we agreed to use the proceeds from the sale of such shares and warrants to purchase from EESI the above mentioned EES-E and EETC distribution rights for an aggregate price of $150,000, and we then assigned such distribution rights to EES-E and EETC respectively. Raul Factor also agreed to invest the required reasonable funding as determined by the board of directors of EETC for the startup, working capital, specific module development and required 6 months of economic demonstration of carpet and artificial turf into energy or value-added products for EETC. Also, EES agreed to contribute its module technologies developed by or available via license agreements from others to EES further on to EES-E via license agreements conforming to the terms set forth in these License and Operating Agreements. Raul Factor also agreed to fund additional capital requirements;
Pursuant to this June 28, 2019, Binding Letter of Intent, the parties agreed to, among other things, that within 90 days from the date of the Binding Letter of Intent, we would raise $10,000,000 in capital for use by EESI. As of the date of this report, we were not able to raise such capital. In connection therewith, on October 29, 2019, delivered to us the terms of a proposed termination of the June 28, 2019 Binding Letter of Intent. As of the date of this report this the terms of such termination have not been finalized.
We intend to continue to pursue business opportunities in the energy and alternative energy industries, as well as other industries that we believe are viable and to obtain the financing needed for such opportunities. Our ability to pursue any future plan of operation is dependent upon our ability to obtain financing. To date, our primary sources of financing have been sales of our debt and equity securities.
Effective Registration Statement
On June 26, 2018, we filed a Registration Statement on Form S-1 to register 2,000,000 shares of our common stock for sale by us (the “Primary Offering”) and 21,563.669 shares of common stock for sale by our stockholders (the “Secondary Offering”). On December 21, 2018, that registration statement became effective. As of the date of this report, none of the 2,000,000 shares of our common stock in the Primary Offering have been sold.
Changes in Management and the Board of Directors
During period from February 28, 2018 to April 23, 2019, there were various changes in our management and board of directors. (See Part III, Item 10. Directors, Executive Officers and Corporate Governance).
In connection with the April 10, 2018, Conditional Binding Letter of Intent (“LOI”) between the Company and Inductance Energy Corporation (“IEC”), William J. Hinz, Richard K. Ethington and Pamela L. Bing were appointed as independent members of our Board of Directors and Mr. Ethington and Ms. Bing were appointed as independent directors on our Audit Committee. In connection with the April 23, 2019, agreement between the Company and IEC cancelling/rescinding the LOI, Mr. Hinz, Mr. Ethington and Ms. Bing each resigned as a director of the Registrant effective April 23, 2019. Their resignations were not a result of any disagreement with the Company regarding any, matter relating to the Registrant’s operations, policies or practices or otherwise, and none of them were removed for cause from the board of directors.
On April 23, 2019: (i) Andrew J. Kacic, then our director, Secretary, and member of our Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee of our Board was also appointed as our Co-Chairman of the Board and Chief Executive Officer; (ii) Jeffrey Mallmes, then our director and our Chairman of Board, President, Treasurer and member of the Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee of the our Board, ceased to be our Chairman and as a member of our Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee, and he was also appointed President of our wholly owned Canadian subsidiary Dominion Energy Processing Group, Inc.; (iii) Raleigh C. Kone, one of our stockholders was appointed as a director, and our Co-Chairman of the Board, and Executive Vice-President; and (iv) Michael Ballmann, was appointed as an independent director and an independent member of our Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee.
On October 6, 2019 Michael Ballmann resigned as a director. Mr. Ballmann’s resignation was not a result of any disagreement with the Company regarding any, matter relating to the Company’s operations, policies or practices or otherwise, and he was not removed for cause from the board of directors.
Consulting Agreement
On April 9, 2019, we entered into a Consulting Agreement with Windsor Consulting Group to provide services related to our fund-raising efforts. Pursuant to this agreement, the Consultant agreed to make introductions to private “accredited investors”, but will not act in the capacity of selling agent or broker on behalf of the Company and the Consultant will not assist in the preparation of any offering documents or materials to be used in the solicitation of potential investors. On the successful completion of a financing transaction introduced by the Consultant, we agreed to compensate the Consultant as follows: in connection with equity financing, up to $220,000, including a $10,000 payment upon execution of the Consulting Agreement and a 3-year warrant to purchase 210,000 shares of the Company’s common stock at an exercise price of $1.00 per share; and in connection with debt financing, up to $60,000 plus a 3-year warrant to purchase up to 60,000 shares of the Company’s common stock at an exercise price of $1.00 per share. This agreement expired on October 7, 2020. No equity or debt financing transactions have been completed as of the date of this report.
Crowdfunding Agreement
On August 29, 2019, we entered into a month-to-month Listing and Marketing Agreement with Funding OTC (“FOTC”) to establish a crowd funding investment platform to raise approximately $1,000,000. We paid $15,000 for the initial engagement with FOTC. We plan to use funds received under the crowdfunding arrangement to further develop an “Ocean Clean-Up” initiative to use the Easy Energy Systems, Inc technology to convert plastic to fuel. For its services, FOTC will receive $37,500 per month - $15,000 from the Company and $22,500 from funds received under the agreement. In the event that the crowdfunding campaign is unsuccessful, we will bear no obligation or liability to otherwise pay the $22,500 to FOTC. As of the date of this report, no crowdfunding transaction has commenced, no funds have been raised under this agreement and no money is owed to FOTC pursuant to the terms of Listing and Marketing Agreement.
Competition
If we are able to obtain the substantial financing needed to develop, construct and operate the Stoughton Refinery in the Bakken region of Stoughton, Saskatchewan Canada, as a new entrant to the refining industry, we believe that we will face significant competition and barriers to entry from larger companies such as Valero Energy Corp and BP and others. Because of their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of our competitors may be better able to withstand volatile market conditions, to compete on the basis of price, to obtain crude oil in times of shortage, and to bear the economic risk inherent in all phases of the refining industry. Because we have not yet commenced the development or operation of the Stoughton Refinery, we have not commenced competing with other refineries or distributors of refined oil products.
Also, if we can commence operating the Stoughton Refinery and/or the Operating JVs commence operations, we will be competing with alternative energy sources, including, in particular, electricity. Electric utilities offer electricity as a rival energy source and compete for the space heating, water heating and cooking markets. Promotional incentives, improved equipment efficiencies and promotional rates all contribute to the acceptability of electrical equipment. The principal means to compete against alternative fuels is lower prices, and natural gas historically has maintained its price advantage in the residential, commercial and industrial markets.
Employees
We have no employees as of the date of this report.
Intellectual Property
As of the date of this report, we do not own any patents, trademarks, licenses, franchises, concessions, and royalty agreements, or other intellectual property contracts.
Available Information
Our Periodic Reports including Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports, and amendments to those reports, and other forms that we file with or furnish to the Securities and Exchange Commission (SEC) are available to review on the SEC’s EDGAR website.
Corporate Governance
In accordance with and pursuant to relevant related rules and regulations of the SEC, the Board of Directors of the Company has established and periodically updated our Corporate Governance Guidelines and Code of Conduct, which is applicable to all directors, officers and employees of the Company. We have established an audit committee of our board of directors. We intend to appoint three directors to our audit committee and least one of the appointees shall be independent and shall be an audit committee financial expert.