UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q








x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2010








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


For the transition period from                                                                                      to





Commission File Number: 000-27739











Royal Quantum Group, Inc.




(Exact name of small business issuer as specified in its charter)





Nevada
90-0315909(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)





Suite #145, 251 MidPark Blvd S.E. Calgary, AB Canada T2X 1S3(Address of principal executive offices)





(403) 288-4321(Issuer’s Telephone Number)


Indicate by check mark whether the issuer (1) has 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 o No





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





Large accelerated filer o
Accelerated filer oNon-accelerated filer    o   (Do not check if a smaller reporting company)
Smaller reporting company x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


o Yes x No





APPLICABLE ONLY TO CORPORATE ISSUERS




As of November 1st, 2010 there were 49,964,338 shares of the issuer's $.001 par value common stock issued and outstanding.




1









PART I - FINANCIAL INFORMATION





Item 1.  Financial Statements





ROYAL QUANTUM GROUP, INC.CONDENSED BALANCE SHEETSSeptember 30,


December 31,2010


2009(Unaudited)ASSETSCurrent assets:Cash and cash equivalents


228,024



12,022Accounts receivable


71,301



31,851Total current assets


299,325



43,873Property and equipment:Furniture and fixtures


1,851



1,851Less: accumulated depreciation


(1,573
)


(1,295
)Total property and equipment, net


278



556Other assets:Proved oil and gas properties, full cost method


410,859



255,868Less: accumulated depletion


(52,041
)


(5,657
)Unproved oil and gas properties


7,508



27,056Total other assets


366,326



277,267Total assets


665,929



321,696









2




ROYAL QUANTUM GROUP, INC.CONDENSED BALANCE SHEETS(Continued)September 30,


December 31,2010


2009(Unaudited)LIABILITIES & STOCKHOLDERS' DEFICITCurrent liabilities:Accounts payable


162,464



113,160Royalties due stockholders


55,281



21,568Related party payables


234,674



192,485Notes payable


337,765



309,648Stockholder loans


19,845



19,845Total current liabilities


810,029



656,706Long-term liabilities:Asset retirement obligation


10,980



10,980Total long-term liabilities


10,980



10,980Total liabilities


821,009



667,686Stockholders' Deficit:Preferred stock, par value $.001authorized 10,000,000 sharesno shares issued at September 30, 2010 and


-



-December 31, 2009Common stock, par value $.001Issued 49,964,338 shares at September 30, 2010and 48,980,338 shares at December 31, 2009


49,964



48,980Paid-in capital


5,151,296



4,824,482Accumulated deficit


(5,345,988
)


(5,219,452
)Other comprehensive Gain/(loss)


(10,352
)


-Total stockholders' deficit


(155,080
)


(345,990
)Total liabilities and stockholders' deficit


665,929



321,696









3




ROYAL QUANTUM GROUP, INC.CONDENSED STATEMENTS OF OPERATIONSFor the three months ended


For the nine months endedSeptember 30,





September 30,2010


2009


2010


2009(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)Oil revenue

$
103,364


$
6,755


$
361,696


$
6,755Operating expensesProduction costs


35,355



10,196



93,335



10,196Royalty expense


45,495



-



193,696



-Consulting fees


45,000



58,174



135,345



153,595General & administrative


7,330



29,527



47,215



73,288Total operating expenses


(133,180
)


(97,897
)


(469,591
)


(237,079
)Loss from operations


(29,816
)


(91,142
)


(107,895
)


(230,324
)Other income (expenses)Interest expense


(6,233
)


(7,600
)


(18,641
)


(22,121
)Total other income (expense)


(6,233
)


(7,600
)


(18,641
)


(22,121
)Net loss

$
(36,049
)

$
(98,742
)

$
(126,536
)

$
(252,445
)Loss per share - Basic and diluted

$
(0.00
)

$
(0.00
)

$
(0.00
)

$
(0.01
)Weighted average shares outstanding


49,791,066



48,202,316



49,583,994



48,111,830









4




ROYAL QUANTUM GROUP, INC.CONDENSED STATEMENTS OF CASH FLOWSFor the nine months endedSeptember 30,2010


2009(Unaudited)


(Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net Loss

$
(126,536
)

$
(252,445
)Adjustments to reconcile net income (loss) toNet cash provided by (used in) operating activities:Depreciation


278



278Depletion


46,384



5,387Stock issued for services


-



12,500Impairment of long term assets


-



1Increase (decrease) in accounts receivable


(39,450
)


(9,255
)Increase (decrease) in accrued interest on notes payable


18,641



22,121Increase (decrease) in accounts payable


(9,585
)


7,554Increase (decrease) in royalties due stockholders


33,714



-Increase (decrease) in related party accounts payable


42,190



63,061Net cash provided by (used in) operating activities


(34,364
)


(150,798
)CASH FLOWS FROM INVESTING ACTIVITIES:Investment in oil and gas properties


(198,757
)


(167,260
)Net cash (used in) investing activities


(198,757
)


(167,260
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from sale of units consisting of common stockand oil and gas royalties


450,000



-Payment on stockholders loans


-



-Stock Issued in Exchange for Cash


-



317,500Net cash provided by financing activities


450,000



317,500Effect of exchange rates on cash


(877
)


35,811Net increase in cash and cash equivalents


216,002



35,253Cash and cash equivalents - beginning of period


12,022



90,363Cash and cash equivalents - end of period

$
228,024


$
125,616SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the year for:Interest

$
-


$
-Income taxes

$
-


$
-SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Issuance of participating units for services rendered inconnection with private offerings (See Notes 3 and 7)

$
42,000


$
-






5
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
  
 NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
 
 Royal Quantum Group, Inc. (“the Company”) was incorporated under the laws of the State of Nevada on October 22, 1996 under the name PSM Corp.  The Company changed its emphasis to the exploration and development of natural resources and on November 23, 2005 changed its name to Royal Quantum Group, Inc.
 
 Interim Financial Statements
 
 Royal Quantum Group, Inc.’s interim financial statements are unaudited. They contain all necessary adjustments (consisting only of normal recurring adjustments) for a fair statement of the referenced interim period results.  These interim period results do not indicate expected full-year results or results for future quarters/periods, due to several factors, including price volatility of crude oil and natural gas, price volatility of commodity derivatives, volatility of interest rates, estimates of reserves, drilling risks, geological risks, transportation restrictions, timing of acquisitions, product demand, market competition, interruption(s) in production, our ability to obtain additional capital, and the success of proposed enhanced oil recovery work (EOR). These interim financial statements should be read in conjunction with the audited financial statements and related notes included in Royal Quantum Group, Inc.’s Form 10-K dated December 31, 2009.
 
 The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Management has made certain estimates and assumptions that affect reported amounts in the financial statements and disclosures of contingencies.  Actual results may differ from those estimates. The Company has made assumptions in valuing its oil and natural gas reserves, which may affect the amounts at which oil and natural gas properties are recorded.   The Company has also computed the components of the investments units sold in its private offerings using assumptions such as volatility, expected life and the risk-free interest rate (See Note 7).
 
 Going Concern
 
 The Company’s financial statements have been prepared on a going concern basis which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business.  The Company has incurred substantial losses from operations and has a working capital deficit, which history and circumstance raise substantial doubt as to the Company’s ability to continue as a going concern. The Company had a net loss of $126,536 for the nine months ended September 30, 2010 and an accumulated deficit at September 30, 2010 of $5,345,988.  The Company has raised sufficient funds through the private sale of participating units to acquire working interests in five oil and gas wells. Three of the wells are currently producing as of September 30, 2010.  Total gross revenue generated from these three wells during three and nine and month periods amounted to $103,364 and $361,696, respectively. It is anticipated that the fourth and fifth wells will be on-line and producing by December 31, 2010. Although the Company has been successful in raising the necessary funds to acquire these working interests, and has been able to generate net revenue from these wells, there is no assurance that these wells will continue to generate positive cash flow. Currently the net revenue generated from these wells is not sufficient to fund all of the Company’s operating costs. The Company is seeking to raise additional funds to acquire other oil and gas properties; however, there is no assurance that the necessary funds will be raised or even if the funds are raised, that the working interest acquired in the future will generate sufficient revenue to assist in the financing of the Company’s operations.  Until such funding is obtained and/or positive results from planned property development materialize, doubt about its ability to continue as a going concern may remain.
 
  6
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
  
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Cash and Cash Equivalents
 
 For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
 
 Use of Estimates
 
 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
 Accounts Receivable
 
 Accounts receivable are reported at the customer’s outstanding balances less any allowance for doubtful accounts.  Interest is not accrued on overdue accounts receivable.
 
 Allowance for Doubtful Accounts
 
 An allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses.  Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers.  Accounts receivable are charged off against the allowance when collectibility is determined to be permanently impaired.  Management has determined that as of September 30, 2010, no allowance is required.
 
 Revenue Recognition
 
 Oil and gas production revenues are recognized at the point of sale.
 
 Oil and Gas Properties
 
 The Company uses the full cost method of accounting under which all costs incurred in the acquisition, exploration and development of oil and natural gas reserves, including costs related to unsuccessful wells and estimated future site restoration and abandonment, are capitalized until such time as the aggregate of such costs net of accumulated depletion and oil and natural gas related deferred income taxes, on a country-by-country basis, equals the sum of 1) the discounted present value (at 10%), using prices as of the end of each reporting period on a constant basis, of the Company’s estimated future net cash flows from estimated production of proved oil and natural gas reserves as determined by independent petroleum consultants, less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet; plus 2) the cost of major development projects and unproven properties not subject to depletion, if any; plus 3) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion; less 4) related income tax effects.  If net capitalized costs exceed this limit, the excess is expensed unless subsequent market price changes eliminate or reduce the indicated write-down in accordance with U.S. SEC Staff Accounting Bulletin (“SAB”) Topic 12D.  Depletion is computed
  7
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
  using the units-of-production method whereby capitalized costs, net of estimated salvage values, plus estimated future costs to develop proved reserves and satisfy asset retirement obligations, are amortized over the total estimated proved reserves on a country-by-country basis.  Investments in major development projects are not depleted until either proved reserves are associated with the projects or impairment has been determined.
 
 Property and Equipment
 
 Property and equipment are stated at cost, less accumulated depreciation. Depreciation is provided over the five year estimated useful life of the assets computed on the straight-line method.
 
 Gains and losses resulting from sales and dispositions of property and equipment are included in current operations. Maintenance and repairs are charged to operations as incurred. Depreciation expense for the three months ended September 30, 2010 and 2009 amounted $93 and $93, respectively.  Depreciation expense for the nine months ended September 30, 2010 and 2009 amounted $278 and $278, respectively.
 
 Foreign Currency Translation
 
 The Company's primary functional currency is the U.S. dollar.  For foreign operations whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the year and income statement accounts are translated at average exchange rates for the period. Translation gains and losses are included as a separate component of stockholders’ deficit.
 
 Concentrations of Credit Risk
 
 The Company’s revenue is dependent upon the successful efforts of the respective well’s operator. Currently production from the Company’s three wells is sold to one customer.
 
 Loss per Share of Common Stock
 
  The Company reports earnings (loss) per share in accordance with Accounting Standards Codification “ASC” Topic 260-10, "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per 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. Diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of warrants and debt to purchase common shares would have an anti-dilutive effect. Potential common shares as of September 30, 2010 that have been excluded from the computation of diluted net loss per share include warrants to purchase 3,788,000 shares of the Company’s common stock and Unit holders’ option to convert their respective oil revenue interests into a total 984,000 shares of the Company’s common stock.
  8
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
  Asset Retirement Obligations
 
 The Surface Mining Control and Reclamation Act of 1977 and similar state statutes require mine properties to be restored in accordance with specified standards. Accounting Standards Codification (“ASC”) Topic 410-20 requires recognition of an asset retirement obligation (“ARO”) for eventual reclamation of disturbed acreage remaining after mining has been completed. The Company records its reclamation obligations on a permit-by-permit basis using requirements as determined by the Office of Surface Mining of the U.S. Department of the Interior (“OSM”). The liability is calculated based upon the reclamation activities remaining after coal removal ceases, assuming that reclamation activities have been contemporaneous within state and federal guidelines during mining. A liability is recorded for the estimated future cost that a third party would incur to perform the required reclamation and mine closure discounted at the Company’s credit-adjusted risk-free rate. A corresponding increase in the asset carrying value of mineral rights is also recorded. The ARO asset is amortized on the units-of-production method over the proven and probable reserves associated with that permit.
 
 Long-Lived Assets
 
 The Company accounts for its long-lived assets in accordance with ASC No. 360, “Property, Plant and Equipment.” ASC No. 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate.  The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition.  If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. As of September 30, 2010, the Company does not believe there has been any impairment of its long-lived assets.
 
 Fair Value of Financial Instruments
 
 Pursuant to ASC No. 820, “Fair Value Measurements and Disclosures”, the Company is required to estimate the fair value of all financial instruments included on its balance sheet as of September 30, 2010. The Company’s financial instruments consist of cash, accounts receivables, payables, and other obligations.  The Company considers the carrying value of such amounts in the financial statements to approximate their fair value.
 
 Income Taxes
 
 The Company accounts for its income taxes under the provisions of ASC No. 740 ”Income Taxes”. The method of accounting for income taxes under ASC No. 740 is an asset and liability method. The asset and liability method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of other assets and   liabilities.
 
 Recent Accounting Pronouncements
 
 In August 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update
 2010-22 (ASU 2010-22), Accounting for Various Topics - Technical Corrections to SEC Paragraphs - An announcement made by the staff of the U.S. Securities and Exchange Commission. This Accounting Standards Update amends various SEC paragraphs based on external comments received and the issuance of SAB 112, which amends or rescinds portions of certain SAB topics. The Company does not expect the provisions of ASU 2010-22 to have a material effect on its financial position, results of operations or cash flows.
  9
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
  
 In August 2010, the FASB issued ASU 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules: Amendments to SEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies. The Company does not expect the provisions of ASU 2010-21 to have a material effect on its financial position, results of operations or cash flows.
 
 InJuly 2010, the FASB issued ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.The amendments in this Update are to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. The disclosures about activity that occurs during the reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The Company does not expect the provisions of ASU 2010-20 to have a material effect on its financial position, results of operations or cash flows.
 
 InMay 2010, the FASB issued ASU 2010-19, Foreign Currency (Topic 830): Multiple Foreign Currency Exchange Rates.The amendments in this Update are effective for reported balances in an entity’s financial statements that differ from their underlying U.S. dollar denominated values under Subtopic 830-30-S99-1 occurring in the first interim or annual period ending on or after March 15, 2010. The amendments are to be applied retrospectively. The adoption of ASU 2010-19 did not have a material effect on the Company’s financial position, results of operations or cash flows.
 
 InApril 2010, the FASB issued ASU 2010-18, Receivables (Topic 310): Effect of a Loan Modification When the Loan is Part of a Pool That Is Accounted for as a Single Asset-a consensus of the FASB Emerging Task Force.The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early application is permitted. The adoption of ASU 2010-18 did not have a material effect on the Company’s financial position, results of operations or cash flows.
 
 In April 2010, the FASB issued ASU 2010-17, Revenue Recognition – Milestone Method (Topic 605). ASU 2010-17 provides guidance on applying the milestone method of revenue recognition in arrangements with research and development activities. The Company does not expect this ASU to have a material impact on its revenue recognition when adopted for the fiscal year beginning January 1, 2011.
 
 In March 2010, the FASB issued ASU 2010-11, “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.”  The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010.  Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update.  The adoption of ASU 2010-11 did not have a material effect on the Company’s financial position, results of operations or cash flows.
 
 In February 2010, the FASB issued ASU 2010-10, “Consolidation (Topic 810): Amendments for Certain Investment Funds.”  The amendments in this Update are effective as of the beginning of a reporting entity’s first annual period that begins after November 15, 2009 and for interim periods within that first reporting period. Early application is not permitted.  The Company’s adoption of provisions of ASU 2010-10 did not have a material effect on the financial position, results of operations or cash flows.
 
  10
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
  In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (ASC Topic 855) “Amendments to Certain Recognition and Disclosure Requirements”. ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company’s financial position and results of operations.
 
 In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements.” ASU No. 2010-06 amends FASB Accounting Standards Codification (“ASC”) 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements and employers’ disclosures about postretirement benefit plan assets. This ASU is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a material impact on the Company’s financial statements.
 
 NOTE 3 - INVESTMENT IN OIL & GAS PROPERTY
 
 During the quarter ended June 30, 2009, the Company acquired a 28.80% working interest in the Gleason #4-16 well in Oklahoma. The Company raised a total of $180,000 for the drilling and completion of the Gleason #4-16 well through the issuance of 72 units.  Each of the 72 units was priced at $2,500 per unit totaling $180,000 cash and consisted of 5,000 restricted common shares, a pro rata share of 60% of the net revenue generated from the production of the well, and warrants to purchase 10,000 shares of the Company’s common stock at $0.25 per share with an expiration date of November 15, 2010. The unit holder also has the option to surrender their pro rata interest in the well back to the Company in exchange for 5,000 restricted common shares per unit surrendered for a period of 36 months from the date of receiving their first revenue check. During 2009, the Company capitalized a total of $167,260 in acquisition and exploration costs relating to the Gleason #4-16 well.
 
 Santeo Financial Corporation  (a related party) agreed to forgive $15,000 of debt owed by the Company in exchange for a 4% interest in the Company’s share of the net revenue received from the Gleason #4-16 well.  During 2009, the $15,000 was written off and recorded as additional paid in capital.
 
 During the quarter ended September 30, 2009, the Company acquired a 20% working interest in the Bond #1-18 well in Oklahoma.  The Company raised a total of $137,500 for the drilling and completion of the Bond #1-18 through the issuance of 55 units priced at $2,500 per unit.  Each unit consists of 10,000 restricted common shares, a pro rata share of 60% of the net revenue generated from the production of the well, and warrants to purchase 20,000 shares of the Company’s common stock at $0.25 per share with an expiration date of March 8, 2011. Each unit holder was granted the option to surrender their pro rata interest in the revenue from the well back to the Company in exchange for 5,000 restricted common shares per unit surrendered. This option is exercisable for a period of 36 months from the date the investor receives the first revenue check. The Company issued a total of 550,000 shares and 1,100,000 options related to the private placement.  A consulting fee in connection with offering was paid through the issuance of 55 units. The Company capitalized a total of $77,628 in acquisition and exploration costs relating to the Bond #1-18 well.
 
  11
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
  In January 2010, the Company acquired a 20% working interest in the Bond #2-18 well in Oklahoma.  The Company raised a total of $150,000 for the drilling and completion of the Bond #2-18 well through the issuance of 60 units.  Each of the 60 units was priced at $2,500 per unit totaling $150,000 cash and consisted of 5,000 restricted common shares, a pro rata share of 60% of the net revenue generated from the production of the well, and warrants to purchase 10,000 shares of the Company’s common stock at $0.25 per share with an expiration date of July 2011. Each unit holder was granted the option to surrender their pro rata interest in the revenue from the well back to the Company in exchange for 5,000 restricted common shares per unit surrendered. This option is exercisable for a period of 36 months from the date that the investor receives the first revenue check. Of the $150,000 received, the Company allocated $36,412 towards the value of the investors’ 60% interest in the Company’s share of the well’s net revenue and credited this amount against the $99,954 it paid and capitalized towards the drilling cost of the well. A consulting fee in connection with offering was paid through the issuance of 5.6 units. The capitalized cost of the well was further reduced by the Consultant’s allocated share in the well’s net revenue of $3,400.
 
 In March 2010, the Company raised a total of $150,000 for the drilling and completion of the Sattler #1 well through the issuance of 60 units.  Each of the 60 units was priced at $2,500 per unit totaling $150,000 cash and consisted of 5,000 restricted common shares, a pro rata share of 60% of the net revenue generated from the production of the well, and warrants to purchase 10,000 shares of the Company’s common stock at $0.25 per share with an expiration date of September 2011. Each unit holder was granted the option to surrender their pro rata interest in the revenue from the well back to the company in exchange for 5,000 restricted common shares per unit surrendered. This option is exercisable for a period of 36 months from the date the investor receives the first revenue check. Of the $150,000 received, the Company allocated $36,412 towards the value of the investors’ 60% interest in the Company’s share of the well’s net revenue and credited this amount against the $100,089 it has currently paid and capitalized towards the drilling cost of the well. A consulting fee in connection with offering was paid through the issuance of 5.6 units. The capitalized cost of the well was further reduced by the Consultant’s allocated share in the well’s net revenue of $3,400.
 
 In August 2010 the Company closed a private placement unit funding of 60 units totaling $150,000 for a 25% participation in the Bond #3-18 well and for working capital.  60% of the Company’s net revenue received from the Bond #3-18 is allocated proportionally to the unit holders.  Each of the 60 units was priced at $2,500 per unit for gross proceeds totaling $150,000 and consisted of 5,000 restricted common shares and 10,000 share purchase options at $0.25 per share with an expiration date of February 15, 2012. The Company issued a total of 300,000 shares and 600,000 options related to the private placement.  The unit holder also has the option to surrender their interest in the well back to the Company in exchange for 5,000 restricted common shares per unit surrendered for a period of 36 months from the date of receipt of the first revenue check paid to the unit holders.  Of the $150,000 received, the Company allocated $38,945 towards the value of the investors’ 60% interest in the Company’s share of the well’s net revenue and credited this amount against the $99,954 it has currently capitalized towards the drilling cost of the well. A consulting fee in connection with offering was paid through the issuance of 5.6 units. The capitalized cost of the well was further reduced by the Consultant’s allocated share in the well’s net revenue of $3,635.  The Company’s 5.6 units issued to the consultant for commission were valued at $14,000.  The $14,000 was converted to a proportionate interest in the private placement, resulting in the issuance of an additional 28,000 restricted shares and 56,000 options.
 
 As of September 30, 2010, the Company’s accrued asset retirement obligation totaled $10,980 that was included in the capitalized cost of the oil and gas properties. Depletion expense for the three months ended September 30, 2010 and 2009 amounted to $13,637 and $5,387, respectively.  Depletion expense for the nine months ended September 30, 2010 and 2009 amounted to $46,384 and $5,387, respectively.
 
  12
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
  
 NOTE 4 - RELATED PARTY TRANSACTIONS
 
 The Company has entered into a month-to-month lease agreement with Trio Gold for an office in Calgary, Alberta, Canada. Trio Gold’s President is the father of Ron Ruskowsky, the President and CEO of the Company.  This lease can be canceled on one month’s written notice. The current lease requires rental payments of approximately $450 per month plus applicable taxes.  For the three months ended September 30, 2010, the Company incurred rent expense of $1,382.  For the nine months ended September 30, 2010, the Company incurred rent expense of $4,111.
 
 The Company’s President provides services through a consulting agreement that the Company has with Santeo Financial for $15,000 a month. The $15,000 monthly fee is accrued by the Company and is reduced by amounts actually paid. As of September 30, 2010, the Company owed Santeo Financial $229,693. Consulting fees expensed during the three months ended September 30, 2010 and 2009 amounted to $45,000 and $45,000, respectively.  Consulting fees expensed during the nine months ended September 30, 2010 and 2009 amounted to $135,000 and $135,000, respectively.  Ron Ruskowsky owns a controlling interest in Santeo Financial.
 
 As of September 30, 2010, the Company owed Roger Janssen, an officer and director of the Company, $1,345 for services previously performed.
 
 As of September 30, 2010, the Company owed Phil Van Angren, an officer and director of the Company, $3,636 for consulting services previously performed.
 
 As of September 30, 2010, certain shareholders have advanced the Company a total of $19,845 that is payable on demand and is non-interest bearing.
 
 NOTE 5 – NOTES PAYABLE
 
 The Company has a note payable to Integrated Business Concepts, Inc. that is due upon demand and is assessed interest at an annual rate of 12%.  As of September 30, 2010, the balance due including accrued interest amounted to $337,765.  Interest accrued and charged to operations for the three months ended September 30, 2010 and 2009 amounted to $6,233 and $7,600 respectively. Interest accrued and charged to operations for the nine months ended September 30, 2010 and 2009 amounted to $18,641 and $22,121, respectively.
 
 NOTE 6 – INCOME TAXES
 
 The Company accounts for income taxes under ASC No. 740 (ASC 740).  This statement mandates the liability method of accounting for deferred income taxes and permits the recognition of deferred tax assets subject to an ongoing assessment of realizability.
 
 As of September 30, 2010, the Company had estimated federal net operating loss carry forwards totaling approximately $5,346,000 which can be used to offset future federal income taxes.  The federal net operating loss carryforwards expire at various dates through 2030.  Deferred tax assets resulting from the net operating losses are reduced by a valuation allowance, when, in the opinion of management, utilization is not reasonably assured.  At September 30, 2010, the Company’s gross deferred tax asset totaled $1,338,290. This amount was reduced 100% by a valuation allowance, making the net deferred tax asset $0.
  13
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
  
 The components of the Company’s income tax provision for the nine months ended September 30, 2010 and 2009 amounted to:
 
  NOTE 7 - COMMON STOCK AND WARRANTS
 
 As discussed in Note 3, during January 2010, the Company received a total of $150,000 through the issuance of 60 participating units. Each unit is sold for $2,500 and consisted of 5,000 restricted shares of the Company’s common stock, a warrant to purchase 10,000 shares of the Company’s common stock at $0.25 per share, expiring 18 months from date of issuance, a pro rata interest in 60% of the total revenue interest that the Company owns in the Bond #2-18 well, and an option to convert the unit holder’s pro rata share in the well revenue into 5,000 shares of the Company’s common stock expiring 36 months after the first revenue check is received by the unit holder. The Company valued the four components of each unit separately.  In the valuation of the common shares issued and the pro rata interest in oil revenue, the Company’s used the trading price of the Company’s common shares on the date of issuance. The common stock warrant and the option to convert the oil revenue interest into shares of the Company’s common stock were valued using the Black-Scholes Option Model using a risk free interest rate ranging from .89% to 1.6%, with volatility ranging from 186% to 208%. Of the $150,000 received, $36,412 was credited allocated against the payments made towards the Company’s well costs. The remaining $113,588 was credited to equity.
 
 As discussed in Note 3, during March 2010, the Company received a total of $150,000 through the issuance of 60 participating units. Each unit is sold for $2,500 and consisted of 5,000 restricted shares of the Company’s common stock, a warrant to purchase 10,000 shares of the Company’s common stock at $0.25 per share, expiring 18 months from date of issuance, a pro rata interest in 60% of the total revenue interest that the Company owns in the Sattler #1 well, and an option to convert the unit holder’s pro rata share in the well revenue into 5,000 shares of the Company’s common stock expiring 36 months after the first revenue check is received by the unit holder. The Company valued the four components of each unit separately.  In the valuation of the common shares issued and the pro rata interest in oil revenue, the Company’s used the trading price of the Company’s common shares on the date of issuance. The common stock warrant and the option to convert the oil revenue interest into shares of common shares were valued using the Black-Scholes Option Model using a risk free interest rate ranging from .95% to 1.69%, with volatility ranging from 186% to 208%. Of the $150,000 received, $36,412 was credited allocated against the payments made towards the Company’s well costs. The remaining $113,588 was credited to equity.
 
 During March 2010, the Company paid a consultant 12.8 participating units in consideration for services rendered in connection with the offerings, of the $28,000 fee, $7,399 was credited against the payments made towards the Company’s well costs.
  14
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
  
 As discussed in Note 3, during August 2010, the Company received a total of $150,000 through the issuance of 60 participating units. Each unit is sold for $2,500 and consisted of 5,000 restricted shares of the Company’s common stock, a warrant to purchase 10,000 shares of the Company’s common stock at $0.25 per share, expiring 18 months from date of issuance, a pro rata interest in 60% of the total revenue interest that the Company owns in the Bond #3-18 well, and an option to convert the unit holder’s pro rata share in the well revenue into 5,000 shares of the Company’s common stock expiring 36 months after the first revenue check is received by the unit holder. The Company valued the four components of each unit separately.  In the valuation of the common shares issued and the pro rata interest in oil revenue, the Company’s used the trading price of the Company’s common shares on the date of issuance. The common stock warrant and the option to convert the oil revenue interest into shares of the Company’s common stock were valued using the Black-Scholes Option Model using a risk free interest rate ranging from .53% to .8%, with volatility ranging from 201% to 259%. Of the $150,000 received, $38,945 was credited against the allocated payments made towards the Company’s well costs. The remaining $110,055 was credited to equity.
 
 During August 2010, the Company paid a consultant 5.6 participating units in consideration for services rendered in connection with the offerings.  The units issued were valued at $14,000.  Of the $14,000, $3,635 was credited against the payments made towards the Company’s well costs
 
 As indicated, during the nine months ended September 30, 2010, the Company issued warrants to purchase 1,968,000 common shares at $0.25 per share. The warrants expire 18 months from the date of issuance.
 
 The following table sets forth common share purchase warrants outstanding as of September 30, 2010:
 
 Warrants Outstanding


Weighted Average Exercise PriceBalance, December 31, 2009


4,220,000


$
0.23Warrants granted


1,968,000


$
0.25Warrants expired


2,400,000


$
0.21Balance, September 30, 2010


3,788,000


$
0.24
 
 
 NOTE 8. FAIR VALUE
 
 The Company’s financial instruments consist of principally related party payables, stockholder loans and notes payable. The Company believes all of the financial instruments’ recorded values approximate fair market value because of their nature and respective durations.
 
  15
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
  The Company complies with the provisions of ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”).  ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements required under other accounting pronouncements. ASC 820-10-35, “Fair Value Measurements and Disclosures - Subsequent Measurement” (“ASC 820-10-35”), clarifies that fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820-10-35 also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model.  The Company also follows ASC 825 “Interim Disclosures about Fair Value of Financial Instruments”, previously referred to as FAS 107-1 to expand required disclosures.
 
 ASC 820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under ASC 820-10-35 are described below:
 
 Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
 
 Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
 
 Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
 The Company utilizes the best available information in measuring fair value. The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis as of September 30, 2010:
 
  September 30, 2010Fair Value MeasurementsLevel 1


Level 2


Level 3


Total Fair ValueLiabilitiesRelated parties payable

$
-


$
234,674


$
-


$
234,674Note payable

$
-


$
337,765


$
-


$
337,765Stockholder loan

$
-


$
19,845


$
-


$
19,845
 
  
 
  16


Item 2.  Plan of Operation





This following information specifies certain forward-looking statements of management of the company. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.





The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot guaranty that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.





Critical Accounting Policies and Estimates




The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with our Board of Directors, we have identified the following accounting policies that it believes are key to an understanding of its financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.





Revenue Recognition





Oil and gas production revenues are recognized at the point of sale.





Oil and Gas Properties





The Company uses the full cost method of accounting under which all costs incurred in the acquisition, exploration and development of oil and natural gas reserves, including costs related to unsuccessful wells and estimated future site restoration and abandonment, are capitalized until such time as the aggregate of such costs net of accumulated depletion and oil and natural gas related deferred income taxes, on a country-by-country basis, equals the sum of 1) the discounted present value (at 10%), using prices as of the end of each reporting period on a constant basis, of the Company’s estimated future net cash flows from estimated production of proved oil and natural gas reserves as determined by independent petroleum consultants, less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet; plus 2) the cost of major development projects and unproven properties not subject to depletion, if any; plus 3) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion; less 4) related income tax effects.  If net capitalized costs exceed this limit, the excess is expensed unless subsequent market price changes eliminate


17


or reduce the indicated write-down in accordance with U.S. SEC Staff Accounting Bulletin (“SAB”) Topic 12D.  Depletion is computed using the units-of-production method whereby capitalized costs, net of estimated salvage values, plus estimated future costs to develop proved reserves and satisfy asset retirement obligations, are amortized over the total estimated





Foreign Currency Translation





The Company's primary functional currency is the U.S. dollar.  For foreign operations whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the year and income statement accounts are translated at average exchange rates for the period. Translation gains and losses are included as a separate component of stockholders’ deficit.





Asset Retirement Obligations





The Surface Mining Control and Reclamation Act of 1977 and similar state statutes require mine properties to be restored in accordance with specified standards. Accounting Standards Codification (“ASC”) Topic 410-20, formerly Statement of Financial Accounting Standards No. 143 (“SFAS No. 143”) requires recognition of an asset retirement obligation (“ARO”) for eventual reclamation of disturbed acreage remaining after mining has been completed. The Company records its reclamation obligations on a permit-by-permit basis using requirements as determined by the Office of Surface Mining of the U.S. Department of the Interior (“OSM”). The liability is calculated based upon the reclamation activities remaining after coal removal ceases, assuming that reclamation activities have been contemporaneous within state and federal guidelines during mining. A liability is recorded for the estimated future cost that a third party would incur to perform the required reclamation and mine closure discounted at the Company’s credit-adjusted risk-free rate. A corresponding increase in the asset carrying value of mineral rights is also recorded. The ARO asset is amortized on the units-of-production method over the proven and probable reserves associated with that permit.





Fair Value Measurement




The Company adopted ACS Topic 820-10, formerly Statement of Financial Accounting Standard No. 157, Fair Value Measurements (“Topic 820-10”), at the beginning of fiscal year 2009 to measure the fair value of certain of its financial assets and liabilities required to be measured on a recurring basis. The adoption of Topic 820-10 did not impact the Company’s consolidated financial position or results of operations. Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The three levels of the fair value hierarchy under Topic 820-10 are described below: Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. The Company has no Level 1 assets or liabilities.




Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.




The Company has no Level 2 assets. The Company’s Level 2 liabilities consist of notes payable, convertible debentures and a derivative warrant liability. The Company determines the fair value of notes payable and convertible debentures based on the effective yields of similar obligations. The Company determines the fair value of its derivative warrant liability based upon the trading prices of its common stock on the date of issuance and when applicable, on the last day of the quarter. The Company uses the Black-Scholes Option Model in valuing the fair value of its derivative warrant liability.




Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company has no Level 3 assets or liabilities.





Overview.Royal Quantum Group Inc. is a public company trading on the OTCBB market under the symbol RYQG.  Royal Quantum is focused on the acquisition, exploration and development of oil and gas and mineral properties located within favorable geo-political climates.





18


During the nine month period ending September 30, 2010 the company raised $150,000 for the drilling of the Bond #3-18.  The company acquired a 25% interest in this well with 60% of the revenue received from this well being distributed proportionately to the investors.  The company issued 300,000 shares relating to this financing.  The company also agreed to pay a 10% commission to a 3rd party on the portion of the funds raised by the 3rd party relating to the Bond #3-18 well.  This commission totaled $14,000 which was converted to a proportionate interest in the well along with 28,000 shares of our common stock.





During the nine month period ending September 30, 2010 the company raised $150,000 for the drilling of the Bond #2-18.  The company acquired a 25% interest in this well with 60% of the revenue received from this well being distributed proportionately to the investors.  The company issued 300,000 common shares relating to this financing.  The company also agreed to pay a 10% commission to a 3rd party on the portion of the funds raised by the 3rd party relating to the Bond #2-18 well.  This commission totaled $14,000 which was converted to a proportionate interest in the well along with 28,000 shares of our common stock.





During the nine month period ending September 30, 2010 the company raised $150,000 for the drilling of the Sattler #1-18.  The company acquired a 25% interest in this well with 60% of the revenue received from this well being distributed proportionately to the investors.  The company issued 300,000 shares relating to this financing.  The company also agreed to pay a 10% commission to a 3rd party on the portion of the funds raised by the 3rd party relating to the Sattler #1-18 well.  This commission totaled $14,000 which was converted to a proportionate interest in the well along with 28,000 shares of our common stock.





Liquidity and Capital Resources.We had cash of $228,024 and accounts receivable of $71,301 as of September 30, 2010, all of which comprised our total current assets. As of the nine month period ended September 30, 2010, we also had property and equipment of $278 represented by furniture and fixtures of $1,851 less accumulated depreciation of $1,573. The decrease in total fixed assets is due solely to depreciation.  We also had $366,326 of oil & gas properties. Therefore, at September 30, 2010, we had total assets of $665,929.





For the nine month period ended September 30, 2010, we had $810,029 in total current liabilities, which was represented by $162,464 in accounts payable, $55,281 due to certain shareholders on their interest in our oil and gas net revenue, $234,674 due to related parties, $337,765  in notes payable, and $19,845 in shareholder loans.  Additionally, we accrued $10,980 on our asset recovery obligations related to our oil and gas properties. Therefore, for the nine months ended September 30, 2010 we had total liabilities of $821,009. We had no other long term liabilities, commitments or contingencies.  Other than anticipated explorations costs associated with the mineral and oil interests that we acquire and anticipated increases in the legal and accounting costs of being a public company, we are not aware of any other known trends, events or uncertainties which may affect our future liquidity.





Results of Operations.





For the Three Months Ended September 30, 2010 and 2009





Revenues and Gross Profit (Loss).We had revenue of $103,364 and associated production and royalty costs of $80,850 for the three month period ended September 30, 2010, as compared to $6,755 in revenue and $10,196 in production costs for the three month period ended September 30, 2009. Our gross profit from our oil gas operations for the three months ended September 30, 2010 was $22,514 before other operating expenses including consulting fees of $45,000 and general and administrative expenses of $7,330. Our operating expenses for the three months ended September 30, 2009 included consulting fees of $58,174 and general and administrative expenses of $29,527. Consulting expense includes $45,000 in each three month period for fees accrued to a company for services rendered by our President. Our loss from operations for the three months ended September 30, 2010 and 2009 was $29,816 and $91,142, respectively.





Other expenses for the three months ended September 30, 2010 and 2009 include interest expense of $6,233 and $7,600, respectively, of which were accrued on a note payable.  Our net loss for the three months ended September 30, 2010 and 2009 was $36,049 and $98,742, respectively.





19


For the Nine Months Ended September 30, 2010 and 2009





We had revenue of $361,696 and associated production and royalty costs of $287,031 for the nine month period ended September 30, 2010, as compared to $6,755 in revenue and $10,196 in production costs for the nine month period ended September 30, 2009.  Our gross profit from our oil gas operations for the nine months ended September 30, 2010 was $74,665 before other operating expenses including consulting fees of $135,345 and general and administrative expenses of $47,215.  Our operating expenses for the nine months ended September 30, 2009 included consulting fees of $153,595 and general and administrative expenses of $73,288. Consulting expense includes $135,000 in each nine month period for fees accrued to a company for services rendered by our President. Our loss from operations for the nine months ended September 30, 2010 and 2009 was $107,895 and $230,324, respectively.





Other expenses for the nine months ended September 30, 2010 and 2009 include interest expense of $18,641 and $22,121, respectively, which were accrued on a note payable. Our net loss for the nine months ended September 30, 2010 and 2009 was $126,536 and $252,445, respectively.





Our Plan of Operation for the Next Twelve Months. Our focus is to acquire oil and gas, mineral and resource properties for exploration and development with the intent to bring the projects to feasibility at which time we will either contract out the operations or joint venture the project to qualified interested parties.





We had cash of $228,024 as of September 30, 2010. In the opinion of management, our available funds will not satisfy our working capital requirements for the next twelve months.





In August 2010 the company closed a private placement unit funding of 60 units totaling $150,000 for a 25% participation in the Bond #3-18 well and for working capital.  60% of the company’s net revenue received from the Bond #3-18 is allocated proportionally to the unit holders.  Each of the 60 units was priced at $2,500 per unit for gross proceeds totaling $150,000 and consisted of 5,000 restricted common shares and 10,000 share purchase options at $0.25 per share with an expiration date of February 15, 2012. The Company issued a total of 300,000 shares and 600,000 options related to the private placement.  The unit holder also has the option to surrender their interest in the well back to the company in exchange for 5,000 restricted common shares per unit surrendered for a period of 36 months from the date of receipt of the first revenue check paid to the unit holders.  The company paid a commission of $14,000 relating to the financing to a 3rd party.  The $14,000 was converted to a proportionate interest in the private placement, resulting in the issuance of an additional 28,000 restricted shares and 56,000 options.





In March 2010 the company closed a private placement unit funding of 60 units totaling $150,000 for a 25% participation in the Sattler #1-18 well and for working capital.  60% of the company’s net revenue received from the Sattler #1-18 is allocated proportionally to the unit holders.  Each of the 60 units was priced at $2,500 per unit for gross proceeds totaling $150,000 and consisted of 5,000 restricted common shares and 10,000 share purchase options at $0.25 per share with an expiration date of July 15, 2011. The Company issued a total of 300,000 shares and 600,000 options related to the private placement.  The unit holder also has the option to surrender their interest in the well back to the company in exchange for 5,000 restricted common shares per unit surrendered for a period of 36 months from the date of receipt of the first revenue check paid to the unit holders.  The company paid a commission of $14,000 relating to the financing to a 3rd party.  The $14,000 was converted to a proportionate interest in the private placement, resulting in the issuance of an additional 28,000 restricted shares and 56,000 options.





In January 2010 the company closed a private placement unit funding of 60 units totaling $150,000 for a 25% participation in the Bond #2-18 well and for working capital.  60% of the company’s net revenue received from the Bond #2-18 is allocated proportionally to the unit holders.  Each of the 60 units was priced at $2,500 per unit for gross proceeds totaling $150,000 and consisted of 5,000 restricted common shares and 10,000 share purchase options at $0.25 per share with an expiration date of July 15, 2011. The Company issued a total of 300,000 shares and 600,000 options related to the private placement.  The unit holder also has the option to surrender their interest in the well back to the company in exchange for 5,000 restricted common shares per unit surrendered for a period of 36 months from the date of receipt of the first revenue check paid to the unit holders.  The company paid a commission of $14,000 relating to the financing to a 3rd party.  The $14,000 was converted to a proportionate interest in the private placement, resulting in the issuance of an additional 28,000 restricted shares and 56,000 options.





20


The company intends to continue to raise additional capital for participation in additional oil and gas projects.





Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors. We will need to raise additional capital to expand our operations to the point at which we are able to operate profitably. Other than anticipated explorations costs associated with the resource and mineral interests that we acquire and anticipated increases in the legal and accounting costs of being a public company, we are not aware of any other known trends, events or uncertainties, which may affect our future liquidity.





In the event that we experience a shortfall in our capital, we intend to pursue capital through public or private financing as well as borrowings and other sources, such as our officers, directors and principal shareholders. We cannot guaranty that additional funding will be available on favorable terms, if at all.  If adequate funds are not available, then our ability to expand our operations may be significantly hindered. If adequate funds are not available, we believe that our officers, directors and principal shareholders will contribute funds to pay for our expenses to achieve our objectives over the next twelve months.





Our belief that our officers, directors and principal shareholders will pay our expenses is based on the fact that our officers, directors and principal shareholders collectively own approximately 44% of our outstanding common stock. We believe that our officers, directors and principal shareholders will continue to pay our expenses as long as they maintain their ownership of our common stock, so long as they do not incur financial hardship.





We are not currently conducting any research and development activities.  We do not anticipate conducting such activities in the near future. We do not anticipate that we will purchase or sell any significant equipment. In the event that we expand our customer base, then we may need to hire additional employees or independent contractors as well as purchase or lease additional equipment.





Off-Balance Sheet Arrangements.We have no off-balance sheet arrangements.





Item 3. Quantitative and Qualitative Disclosures about Market Risk





Not applicable.





Item 4. Controls and Procedures





Evaluation of disclosure controls and procedures. We maintain controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed as of September 30, 2010, the date of this report, our chief executive officer and the principal financial officer concluded that our disclosure controls and procedures were effective.





Item 4(T). Controls and Procedures.





Changes in internal controls.There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.








21


PART II — OTHER INFORMATION





Item 1. Legal Proceedings.





None.





Item 1A. Risk Factors.





Not applicable.





Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.





In connection with three private placements of participation units that occurred during the nine months ended September 30, 2010, the Company received a total of $450,000 and issued a total of 900,000 shares of its common stock. The Company used these funds to acquire interests to three oil and gas properties.





All sales were issued as exempted transactions under Section 4(2) of the Securities Act of 1933 and are subject to Rule 144 of the Securities Act of 1933. The recipient(s) of our securities took them for investment purposes without a view to distribution. Furthermore, they had access to information concerning our Company and our business prospects; there was no general solicitation or advertising for the purchase of our securities; and the securities are restricted pursuant to Rule 144.





Item 3.  Defaults Upon Senior Securities





None.





Item 4.  Submission of Matters to Vote of Security Holders





None.





Item 5.  Other Information





None.





Item 6.  Exhibits







31. Rule 13a-14(a)/15d-14(a) Certifications.






32. Section 1350 Certifications.




22


SIGNATURES





In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





Royal Quantum Group, Inc.


a Nevada corporation








November 15, 2010                                                                           By:             _/s/______________________


Ron Ruskowsky


Its:          Principal executive officer


Principal accounting officer


President, CEO and a director








November 15, 2010                                                                            By:             _/s/______________________


Roger Janssen


Its:          Vice-President, Secretary and a director