UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.20549





FORM 10-Q











T QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2011








£TRANSITION 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, ABCanadaT2X 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.                    TYes £ 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 £
Accelerated filer £Non-accelerated filer   £    (Do not check if a smaller reporting company)
Smaller reporting company T





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). £Yes T No





APPLICABLE ONLY TO CORPORATE ISSUERS




As of May 10, 2011 there were 50,389,338 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 SHEETSMarch 31,


December 31,2011


2010(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
90,274


$
205,102Accounts receivable


52,746



51,665Total current assets


143,020



256,767Property and equipment:Furniture and fixtures


1,851



1,851Less: accumulated depreciation


(1,758
)


(1,665
)Total property and equipment, net


93



186Other assets:Proved oil and gas properties, full cost method


477,487



462,662Less: accumulated depletion


(113,730
)


(99,363
)Unproved oil and gas properties


7,507



7,507Total other assets


371,264



370,806Total assets

$
514,377


$
627,759The accompanying notes are an integral part of these financial statements


2




ROYAL QUANTUM GROUP, INC.CONDENSED BALANCE SHEETS(Continued)March 31,


December 31,2011


2010(Unaudited)LIABILITIES & STOCKHOLDERS' DEFICITCurrent liabilities:Accounts payable

$
118,942


$
171,220Royalties due stockholders


24,507



46,865Related party payables


252,488



234,674Notes payable


386,722



373,977Stockholder loans


19,845



19,845Total current liabilities


802,504



846,581Long-term liabilities:Asset retirement obligation


10,980



10,980Total long-term liabilities


10,980



10,980Total liabilities


813,484



857,561Stockholders' Deficit:Preferred stock, par value $.001authorized 10,000,000 sharesno shares issued at March 31, 2011 and


-



-December 31, 2010Common stock, par value $.001Issued 50,182,338 shares at March 31, 2011and 50,182,338 shares at December 31, 2010


50,182



50,182Paid-in capital


5,217,642



5,217,642Accumulated deficit


(5,541,543
)


(5,472,618
)Other comprehensive Gain/(loss)


(25,388
)


(25,008
)Total stockholders' deficit


(299,107
)


(229,802
)Total liabilities and stockholders' deficit

$
514,377


$
627,759The accompanying notes are an integral part of these financial statements






3




ROYAL QUANTUM GROUP, INC.CONDENSED STATEMENTS OF OPERATIONSFor the three months endedMarch 31,2011


2010(Unaudited)


(Unaudited)Oil revenue

$
86,860


$
135,597Operating expensesProduction costs


40,523



31,450Royalty expense


37,015



74,933Related party consulting fees


45,000



45,345Related Party Rent Expense


3,150



-Professional fees


13,441



-General & administrative


5,391



7,317Total operating expenses


(144,520
)


(159,045
)Loss from operations


(57,660
)


(23,448
)Other income (expenses)Interest expense


(11,265
)


(6,164
)Total other income (expense)


(11,265
)


(6,164
)Net loss

$
(68,925
)

$
(29,612
)Loss per share - Basic and diluted

$
(0.00
)

$
(0.00
)Weighted average shares outstanding


50,182,338



49,296,060The accompanying notes are an integral part of these financial statements




4




ROYAL QUANTUM GROUP, INC.CONDENSED STATEMENTS OF CASH FLOWSFor the three months endedMarch 31,2011


2010(Unaudited)


(Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net Loss

$
(68,925
)

$
(29,612
)Adjustments to reconcile net income (loss) toNet cash provided by (used in) operating activities:Depreciation


93



93Depletion


14,367



18,471Increase (decrease) in accounts receivable


(1,081
)


(51,466
)Increase (decrease) in accrued interest on notes payable


11,265



6,164Increase (decrease) in accounts payable


(52,280
)


(8,551
)Increase (decrease) in royalties due stockholders


(22,359
)


52,476Increase (decrease) in related party accounts payable


17,813



14,017Net cash provided by (used in) operating activities


(101,107
)


1,592CASH FLOWS FROM INVESTING ACTIVITIES:Investment in oil and gas properties


(14,825
)


(120,381
)Net cash (used in) investing activities


(14,825
)


(120,381
)CASH FLOWS FROM FINANCING ACTIVITIES:Stock issued in exchange for cash


-



300,000Net cash provided by financing activities


-



300,000Effect of exchange rates on cash


1,104



(471
)Net increase in cash and cash equivalents


(114,828
)


180,740Cash and cash equivalents - beginning of period


205,102



12,022Cash and cash equivalents - end of period

$
90,274


$
192,762SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the year for:Interest

$
-


$
-Income taxes

$
-


$
-SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTINGAND FINANCING ACTIVITIES:Issuance of participating units for services rendered inconnection with private offerings

$
-


$
28,000The accompanying notes are an integral part of these financial statements


5
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
  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, 2010.
 
 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 $68,925 for the three months ended March 31, 2011 and an accumulated deficit at March 31, 2011 of $5,541,543.  The Company has raised sufficient funds through the private sale of participating units to acquire working interests in six oil and gas wells. Four of the wells are currently producing as of March 31, 2011.  Total gross revenue generated from these four wells during three month period amounted to $86,860. It is anticipated that the fifth and sixth wells will be on-line and producing by mid-2011. 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.
 
 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.
  6
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
  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 collectability is determined to be permanently impaired.  Management has determined that as of March 31, 2011, 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 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.
 
  7
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
  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 March 31, 2011 and 2010 amounted $93 and $93, 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 four 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 March 31, 2011 that have been excluded from the computation of diluted net loss per share include warrants to purchase 2,404,000 shares of the Company’s common stock and Unit holders’ option to convert their respective oil revenue interests into a total 1,202,000 shares of the Company’s common stock.
 
 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.
 
  8
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
  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 March 31, 2011, 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 March 31, 2011. 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 January 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2011-01 (ASU 2011-01) Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.  ASU 2011-01 temporarily delay the effective date of the disclosures about troubled debt restructurings.  The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated.  Currently, the guidance is anticipated to be effective for interim and annual period ending after June 15, 2011.    The Company does not expect the provisions of ASU 2011-01 to have a material effect on its financial position, results of operations or cash flows.
 
 NOTE 3 - INVESTMENT IN OIL & GAS PROPERTY
 
 As of March 31, 2011, 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 March 31, 2011 and 2010 amounted to $14,367 and $18,471, respectively.
 
 On March 24, 2011, the Company purchased an 8% working interest in the Haggard Wells #5-17. The Company’s allocated share of exploration and development costs associated with the well is approximately $15,000. The Company’s allocated share of the well’s anticipated completion costs is approximately $17,000.
 
  9
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
  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 lease agreement was amended in February 2011 which increased rental payments from approximately $450 to $1,300 per month plus applicable taxes.  For the three months ended March 31, 2011, the Company incurred rent expense of $3,150.
 
 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 March 31, 2011, the Company owed Santeo Financial $244,693. Consulting fees expensed during the three months ended March 31, 2011 and 2010 amounted to $45,000 and $45,345, respectively. Mr. Ron Ruskowsky owns a controlling interest in Santeo Financial.
 
 As of March 31, 2011, the Company owed Ron Ruskowsky, an officer of the Company, $2,813 for unreimbursed expenses.
 
 As of March 31, 2011, the Company owed Roger Janssen, an officer and director of the Company, $1,345 for services previously performed.
 
 As of March 31, 2011, the Company owed Phil Van Angren, an officer and director of the Company, $3,636 for consulting services previously performed.
 
 As of March 31, 2011, 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 March 31, 2011, the balance due including accrued interest amounted to $386,722.  Interest accrued and charged to operations for the three months ended March 31, 2011 and 2010 amounted to $11,265 and $6,164 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 December 31, 2010, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $13,100,000 that may be offset against future taxable income through 2030.  Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs.  Therefore, the amount available to offset future taxable income may be limited.  No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carryforwards will expire unused.  Accordingly, the potential tax benefits of the loss carryforwards are offset by a valuation allowance of the same amount.
   10
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
  
 2010


2009Net Operating Losses

$
4,454,000


$
4,386,000Accrued Consulting Fees


123,000



62,000Valuation Allowance


(4,577,000
)


(4,448,000
)$
-


$
-
 
 The provision for income taxes differ from the amount computed using the federal US statutory income tax rate as follows:
 2010


2009Provision (Benefit) at US Statutory Rate

$
(86,076
)

$
(116,394
)Stock Compensation / Interest


17,340



4,250Accrued Consulting Fees


19,380



28,849Other


(79,644
)


50,295Increase (Decrease) in Valuation Allowance


129,000



33,000$
-


$
-
 
 The Company evaluates its valuation allowance requirements based on projected future operations.  When circumstances change and causes a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation is reflected in current income.
 
 NOTE 7 - COMMON STOCK AND WARRANTS
 
 The following table sets forth common share purchase warrants outstanding as of March 31, 2011:
 
 Warrants Outstanding


Weighted Average Exercise PriceBalance, December 31, 2010


3,604,000


$
0.24Warrants granted


-


$
-Warrants expired


1,200,000


$
0.24Balance, March 31, 2011


2,404,000


$
0.24
 
  11
 ROYAL QUANTUM GROUP, INC.
 NOTES TO FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
  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.
 
 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 March 31, 2011:
 
 March 31, 2011Fair Value MeasurementsLevel 1


Level 2


Level 3


Total Fair ValueLiabilitiesRelated parties payable

$
-


$
252,488


$
-


$
252,488Note payable

$
-


$
386,722


$
-


$
386,722Stockholder loan

$
-


$
19,845


$
-


$
19,845
 
   12





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 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 producing life of the well.





13


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.





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Liquidity and Capital Resources.We had cash of $90,274 and accounts receivable of $52,746 as of March 31, 2011, all of which comprised our total current assets. As of the three month period ended March 31, 2011, we also had property and equipment of $93 represented by furniture and fixtures of $1,851 less accumulated depreciation of $1,758. The decrease in total fixed assets is due solely to depreciation.  We also had $371,264 of oil & gas properties. Therefore, at March 31, 2011, we had total assets of $514,377.





For the three month period ended March 31, 2011, we had $802,504 in total current liabilities, which was represented by $118,942 in accounts payable, $24,507 due to certain shareholders on their interest in our oil and gas net revenue, $252,488 due to related parties, $386,722  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 three months ended March 31, 2011 we had total liabilities of $813,484. 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 March 31, 2011 and 2010





Revenues and Gross Profit (Loss). We had revenue of $86,860 and associated production and royalty costs of $77,538 for the three month period ended March 31, 2011, as compared to $135,597 in revenue and $106,383 in production costs for the three month period ended March 31, 2010. Our gross profit from our oil gas operations for the three months ended March 31, 2011 was $9,322 before other operating expenses including consulting fees of $45,000 and general and administrative expenses of $21,982. Our operating expenses for the three months ended March 31, 2010 included consulting fees of $45,345 and general and administrative expenses of $7,317. 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 March 31, 2011 and 2010 was $57,660 and $23,448, respectively.





Other expenses for the three months ended March 31, 2011 and 2010 include interest expense of $11,265 and $6,164, respectively, which were accrued on a note payable.  Our net loss for the three months ended March 31, 2011 and 2010 was $68,925 and $29,612, 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 $90,274 as of March 31, 2011. In the opinion of management, our available funds will not satisfy our working capital requirements for the next twelve months.





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.


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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 43% 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 March 31, 2011, the date of this report, our chief executive officer and the principal financial officer concluded that our disclosure controls and procedures were effective.





Item 4(T). Controls and Procedures.





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








PART II — OTHER INFORMATION





Item 1. Legal Proceedings.





None.





Item 1A. Risk Factors.





Not applicable.





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





Not applicable for this reporting quarter.





Item 3.  Defaults Upon Senior Securities





None.





Item 4.  Submission of Matters to Vote of Security Holders





None.


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Item 5.  Other Information





None.





Item 6.  Exhibits




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




32. Section 1350 Certifications.




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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





May 10, 2011
By:
/S/ Ron RuskowskyRon RuskowskyIts:
Principal executive officerPrincipal accounting officerPresident, CEO and a directorMay 10, 2011
By:
/s/ Roger JanssenRoger JanssenIts:
Vice-President, Secretary and a director