SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 2013
or
[ ] | TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____ to ___
Commission File Number: 0-52956
QUANTUM MATERIALS CORP.
(Exact name of Registrant as specified in its charter)
Nevada | 20-8195578 |
(State of jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
3055 Hunter Road, San Marcos, TX | 78666 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: | (214) 701-8779 |
(Former address of principal executive offices, if changed since last report) | (Zip Code) |
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.001 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes [ ] No [X]
Check whether the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. YesX. No ___.
Indicate by check mark whether the Registrant has submitted electronically and posted on it’s corporate Web site, if any, every Interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X ] No [ ]
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ].
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company as defined by Rule 12b-2 of the Exchange Act: 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).Yes [ ] No [X]
As of December 31, 2012,2013, of the 140,849,952198,875,204 outstanding shares of Common Stock,the number of shares held by non-affiliates was approximately 116,700,000161,000,000 shares with a market value of $10,503,000approximately $8,050,000 based upon a last sale for our Common Stock of $.09$.05 as of the close of business on December 31, 2012.
As of October 9, 2013,September 17, 2014, the issuer had 182,988,347257,459,909 shares of common stock, $0.001 par value per share outstanding.
FORWARD-LOOKING STATEMENTS
Some of the statements under this Form 10-K contain forward-looking statements. All statements other than statements of historical facts contained in this Form 10-K, including statements regarding our plans, objectives, goals, strategies, future events, capital expenditures, future results, our competitive strengths, our business strategy and the trends in our industry are forward-looking statements. The words “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “appear,” “forecast,” “future,” “likely,” “probably,” “suggest” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements.
Forward-looking statements reflect only our current expectations. We may not update these forward-looking statements, even though our situation may change in the future. In any forward-looking statement, where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements due to a number of uncertainties, many of which are unforeseen, including, without limitation:
• | we are a development stage company with no history of profitable operations; | |
• | we will need | |
• | our products may not gain market acceptance; | |
• | we need to | |
• | competition within our industry; | |
• | ||
the availability of additional capital on terms acceptable to us. | ||
In addition, you should refer to the “Risk Factors” section of this Form 10-K for a discussion of other factors that may cause our actual results to differ materially from those implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Form 10-K will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, if at all. Accordingly, you should not place undue reliance on these forward-looking statements.
We qualify all the forward-looking statements contained in this Form 10-K by the foregoing cautionary statements.
PART I
Item 1. Business
Introduction
Quantum Materials Corp. (OTC:QTMM) (“QMC”) is a nanotechnology company specializing in the design, development, production and supply of Nanomaterials including Quantum Dots and tetrapod quantum dots (“TQDs”), a high performance variant of quantum dots, for a range of applications in the life sciences, optoelectronics, photovoltaics, lighting, security ink and sensor sectors of the market. QMC owns 100% of Solterra Renewable Technologies, Inc. (“Solterra”), an operating subsidiary that is focused on the photovoltaic (solar cell) market. For convenience, the term “Company” is used to refer to both QMC and Solterra unless the context otherwise requires.
Nanoparticle are materials with features in the nanoscale, which features can be beneficial in a number of applications. Quantum dots are atomic crystals, tiny nanoparticles of a semiconductor material which emit light,can operate as up converters or fluoresce,down converters, emitting either photons or electrons when excited with energy.excited. The color of light emitted varies depending on the size of the quantum dot so that photonic emissions can be tuned by the creation of quantum dots of different sizes. Their unique properties as highly efficient, next generation semiconductors have led to the use of quantum dots in a range of electronic and other applications, including in the biomedical, display and lighting industries. Quantum dots also have applications in solar cells, where their characteristics enable conversion of light energy into electricity, with the potential for significantly higher efficiencies and lower costs than existing technologies, thereby creating the opportunity for a step change in the solar energy industry through the use of quantum dots in printed photovoltaic cells.
Quantum dots were first discovered in the early 1980’s and the industry has developed to the point where quantum dots are now being used in an increasing range of applications, including the television and display industries, the light emitting diode (“LED”) lighting industry and the biomedical industry. Sony, for example, has recently launched its first televisions using quantum dots to enhance the picture quality and power efficiency of its products, a number of major lighting companies are developing product applications using quantum dots to create a more natural light for LEDs, the biomedical industry is using quantum dots in diagnostic and therapeutic applications, and applications are being developed to “print” highly efficient photovoltaic solar cells in mass quantities at low cost.
According to a recent market research report, “Quantum Dots (QD) Market - Global Forecast & Analysis (2012 - 2022)” published in May 2012 by MarketsandMarkets (http://www.marketsandmarkets.com), the total market for quantum dots is expected to reach $7.48 billion by 2022, at a compound annual growth rate (CAGR) of 55.2% from 2012 to 2022. The key challenge for the quantum dot industry will be its ability to scale up production volumes sufficiently to meet growing demand for quantum dots while maintaining product quality and consistency and reducing the overall costs of supply to stimulate new applications. Quantum dots remain an extremely expensive commodity, with high cost small batch production processes constraining growth.
The Company recently acquired a patent portfolio from Bayer AG that includes 36 patents: 3 domestically and 33 internationally covering the high volume manufacture of quantum dots including heavy metal free, various methods for enhancing quantum dot performance and a quantum dot based solar cell technology. In addition the company has thea worldwide exclusive license to a patented chemical process that permits it to produce high performance heavy metal-free TQDs using a lower cost and environmentally friendly solvent for greater manufacturing flexibility. The Company has developed a proprietary method that it believes will allowallows it to mass produce consistent quantities of quantum dots and TQDs in a continuous process at lower capital costs than other existing processes, and has filed a provisional patent application on same.processes. It also has the exclusive license to a patented screen printing technique for manufacture of LED’s and OLED’s which can include quantum dot enhanced electronic displays and other electronic components. The Company believes that these threeintellectual properties and proprietary technologies position the Company to become a leader in the overall Nanomaterials and quantum dot industry, and a preferred supplier of high performance quantum dots and tetrapod quantum dots to an expanding range of applications.
History of the Company
QMC was formed in January, 2007, as a Nevada corporation under the name “Hague Corporation” and its shares began trading in the over the counter market in the first quarter of 2008. The original business of Hague Corporation was the exploitation of mineral interests.
Solterra, a Delaware corporation formed in May, 2008, by Mr. Stephen Squires (present Chief Executive Officer of QMC) and other shareholders, was founded to develop quantum dot applications in the solar cell industry. Solterra was acquired by Hague Corporation in November, 2008, pursuant to a merger transaction wherein the shareholders of Solterra exchanged their shares of common stock in Solterra for shares of common stock in Hague Corporation, and Solterra became a wholly-owned operating subsidiary of Hague Corporation. Upon the closing of the merger, Hague Corporation changed its business from the exploitation of minerals to the development of a quantum dots, and subsequently changed its name to “Quantum Materials Corp.” in 2010.
Shortly after formation, Solterra began to develop its solar cell business by licensing technology key to its business. In August 2008, Solterra was granted a license to develop, manufacture and exploit TQDs by William Rice Marsh University (“Rice“) of Houston, Texas, and in September 2011, the license was amended (the “Solterra Rice License”) and a new license was entered into between Rice and QMC (the “QMC Rice License”)(together with the Solterra Rice License, the “Rice Licenses“).The Rice Licenses grant to QMC and Solterra, respectively, the right to exploit a simplified and cost effective synthesis process for the production of TQDs of high quality and uniformity, which was invented in the Rice laboratory of Dr. Michael Wong, currently a director of QMC. Under the Rice Licenses, Solterra and QMC have been granted exclusive rights to develop, manufacture, market and exploit TQDs for photovoltaic applications (in the case of Solterra) and for electronic and medical applications (in the case of QMC). In October, 2008, Solterra also entered into a license agreement (the “UA License”) with the University of Arizona under which Solterra has been granted exclusive rights to use University of Arizona’s patented screen printing techniques in the production and sale of organic light emitting diodes incorporating quantum dots in printed electronic displays and other printed electronic components. This technology was developed at University of Arizona by DrDr. Ghassan Jabbour, also a director of QMC, and will be sub-licensed to QMC for utilization in its business.
Also in 2010, Solterra entered into an agreement with a third party provider of industrial process equipment to develop a proprietary process for continuous production of quantum dots under which Solterra retained all ownership and rights to the design and any related intellectual property. The initial development and pilot testing has been completed, a provisional patent application on the process has been filed and is pending, and the Company is in discussions regarding the purchase of two initial equipment units – one lower capacity unit primarily for internal research and development purposes, and one higher capacity unit for initial commercial production of TQDs. In the Company’s opinion, the design of this manufacturing process will uniquely position the Company to scale up and mass produce TQDs for commercial sale, allowing it to readily meet further increases in volume demand by simply adding additional equipment units to its manufacturing line. The Company is in the process of arranging the capital necessary to order the two initial units for its proposed manufacturing facility (as discussed in more detail below).
The recently acquired Bayer AG patent portfolio, Rice Licenses and the UA License, together with the proprietary manufacturing process, comprise the fundamental asset platform of the Company. Assuming the Company is successful in obtaining appropriate funding for the launch of an initial commercial production facility and for its continuing operations, theThe Company believes that this technology platform positions it to compete effectively in the global nanomaterials and quantum dot production and supply market.
Business Accomplishments
The following is an outline of the business accomplishments of the Company since July 2010:over the last few years:
The Company can provide no assurances that its accomplishments to date will result in the grant of patents for proprietary processes or result in future sales and/or profitable operations. See "Risk Factors."
Previously, the Company’s principal business emphasis was on the development of TQDs for solar cell applications through Solterra. Over the past year, theThe solar cell market has become increasingly volatile, with prices eroding due to the influx of subsidized products from abroad. Although the Company still intends to complete the development of its TQDquantum dot solar cell technology and attempt to bring a competitive product to market, it has decided not do so in the current environment. The Company intends to wait until it can produce solar cells with sufficiently high conversion efficiency that, when combined with its low cost proprietary manufacturing process, will result in a product capable of producing energy at a cost per watt significantly below existing solar cell technology and competitive with non-renewable energy sources such as natural gas. In the meantime the Company has experienced a significant increase in interest in its materials and technologies for other applications such as life sciences, displays and lighting. Management believes that these markets present the best near term opportunities for the Company’s exploitation of its TQDs on a commercial scale. The Company will continue to pursue the solar cell market along with other energy uses for TQDs, but as indicated above, it has implemented a more balanced approach that addresses the potential demand for high performance TQDs in the other emerging markets. See “Major Market Segments” below.
Industry Overview
The Product: Nanomaterials including Quantum Dots
Quantum dots are nanoparticles of a semiconductor material, typically between 2 and 10 nanometers (a billionth of a meter) in diameter or mean dimension, which emit light fluorescence or electrons when excited with energy. Emission or absorption wavelength can be tuned by the creation of quantum dots of different sizes. The smaller the quantum dot, the closer it is to the blue end of the spectrum, and the larger the quantum dot, the closer it is to the red end of the spectrum. The unique physical properties of quantum dots exist as electrons within the quantum dot are confined to a very small space which makes them subject to certain “quantum” effects. These qualities are driving demand for quantum dots as a performance and efficiency enhancing next generation engineered material, and have led to the use of quantum dots in a range of electronic and other applications, including in the optoelectronic (display), lighting and life sciences industries.
Quantum dots also have applications in solar cells, where their characteristics enable conversion of light energy into electricity, with the potential for significantly higher efficiency (up to 2X) resulting in a lower cost per watt of energy produced when compared with existing technologies. Use of quantum dots in solar cells creates the opportunity for a step change in efficiency and performance in printed photovoltaic cells.
Quantum dots were first discovered in the early 1980’s, by Alexei Ekimov and independently by Louis E. Brus. Following their discovery, other scientists and researchers have developed a deeper understanding of quantum dots and their potential uses, and the industry has continued to develop. Due to their high cost and limited availability, quantum dots have primarily found applications in the life sciences field where they are used to enhance the optical and targeting performance in diagnostic assays. Improved manufacturing techniques are expected to lower costs and increase the availability of quantum dots for applications across a broader range of industries, including solar cells, displays, lighting, security inks and sensors.
A high performance variant of quantum dots is tetrapod quantum dots (TQDs) that have material advantages over standard spherical quantum dots (“SQDs”), including brighter color emissions, greater purity, emissions in more than one color (“dual emissions”) and the need to employ less volume of quantum dot material in most applications. TQDs have a molecular configuration consisting of a center portion and four arms extending from the center that are equally spaced in three dimensions. TQDs can be used in virtually every application in which SQDs have been applied, and their unique architecture and shape promote more uniform distances between the dots, eliminating the problem of aggregation (the tendency of SQDs to clump together and in effect “short out”) which degrades the SQD emissions and effectiveness. But TQDs are more costly and difficult to produce in quantity using known methods, with the exception of the Company’s proprietary chemical process technology licensed exclusively to it under the Rice Licenses. The Company’s proprietary chemical process for creating TQDs uses lower cost and environmentally benign solvents (which are not toxic, corrosive or volatile) that nevertheless permit greater control for enhanced materials uniformity (>98% acceptable product per batch vs. <50% under other methods), reducing post-production reprocessing costs to attain requisite quality levels. The Company can manufacture cadmium-free TQDs as easily as cadmium based TQDs, so its TQDs are readily adaptable to applications that specify the absence of heavy metals. Thus both the Company’s heavy metal-free TQDs and its unique manufacturing process are the most environmentally responsible in the industry.
How Quantum Dots are Produced
Quantum dots are produced using four basic methods:
Colloidal synthesis: Growth of quantum dots from precursor compounds dissolved in solutions, much like traditional chemical processes. This manual batch process requires careful control of temperature, mixing and concentration levels of precursor materials. Precise control must be maintained uniformly throughout the solution otherwise non-uniform, irregular quantum dots are produced. Due to their very small size it is extremely difficult if not impossible to segregate the quantum dots by size once they have been produced and a conglomeration of varied size quantum dots are not capable of producing the unique features that are required in most applications.
Prefabricated seed growth: Quantum dots are created from chemical precursors in the presence of a molecular cluster compound under conditions whereby the integrity of the molecular cluster is maintained and acts as a prefabricated seed template. This manual batch method can produce reasonable quantities of quantum dots, but can take significant capital resources to achieve significant volume and still results in low yields, typically less than 50%.
Company’s proprietary continuous process method: Unlike the three processes above, the Company has developed a proprietary (patent pending) continuous process manufacturing technique to produce QD’s & TQDs that has the potential to overcome the cost and performance challenges presented by other manufacturing methods. The patented chemistry of the Company’s process eliminates conventional solvents and substitutes cheaper solvents that are not toxic, corrosive or volatile, thus enabling a significant reduction in the overall temperature required for manufacturing and eliminating any gassing of the solvents. The significant reduction in the manufacturing temperature and elimination of gassing enabled the Company to develop a proprietary manufacturing technology that also eliminates the creation of hazardous wastes in the production process. By using these solvents, the Company was also able to improve the manufacturing yield of its QD’d & TQDs significantly. The Company believes that these increases in the quantum dot yields and the use of cost-efficient continuous manufacturing techniques will enable the Company to scale production more readily (by simply adding more equipment units to its manufacturing line), thus reducing the produced cost of the QD’s & TQDs significantly compared to current quantum dot manufacturing methods. Note that the Company can also produce small quantities of its QD’s & TQDs using a batch process employing the chemistry and other techniques under the Rice Licenses, and has done so for sample development purposes.
Market for Quantum Dots
According to a recent market research report, “Quantum Dots (QD) Market - Global Forecast & Analysis (2012 - 2022)” published in August 2012 by MarketsandMarkets (http:(http://www.marketsandmarkets.com)www.marketsandmarkets.com), the total market for quantum dots is expected to reach $7.48 billion by 2022, at a CAGR of 55.2% from 2012 to 2022. The global market for quantum dots, which in 2010 was estimated to be $67 million in revenues, is projected to grow over the next 5 years at a CAGR of 58.3%, reaching almost $670 million by 2015, a tenfold increase. Following the initially modest revenues generated by standalone colloidal quantum dots—primarily serving the life sciences, academic, and other industrial research and development (R&D) communities—within the next 2 years several significant product launches are expected. The biggest growth sectors are forecast to be in optoelectronics, solar energy, optics and electronics, adding to the growth already established in the life sciences sector. Specific quantum dot-based products are expected to include lasers, sensors, flash memory, lighting and displays, second and third-generation solar panels, security deterrents, and several enhancements to portable devices.
Quantum dots remain an extremely expensive commodity, with costs in the range of $3,000-$10,000 per gram. The price of quantum dots is directly affected by the high cost of producing quantum dots in relatively small batch quantities. As with other nanomaterials, these relatively high prices have been supported by favorable performance of the quantum dots at very low concentrations. Prices for quantum dots are expected to moderate over time as greater production efficiencies are discovered and implemented, resulting in higher volumes. This is expected to support greater adoption of quantum dots for use in end products and further support the growth of the quantum dot market. Under current production methods, rigorous processing has been required from batch method synthesis to produce a consistently pure and tightly size-controlled quantum dot product. To significantly grow the market, the industry will need to achieve much lower production costs for quantum dots, while maintaining strict control over quality and uniformity.
Major Market Segments
Life Sciences. The life sciences industry is one of the early areas for adoption of quantum dot technology, especially for “stand-alone” quantum dots used in fluorescent markers in diagnostic and therapeutic applications. This includesthe use of quantum dots for marking (illuminating) particular cell types or metabolic processes for understanding diseases and conditions as well as the use of quantum dots to act as delivery agents for drug treatments or therapy for a wide range of ailments.The fluorescent qualities of quantum dots provide an attractive alternative to traditional organic dyes in bio-imaging procedures and are able to image a number of different color wavelengths simultaneously. Quantum dots are able to withstand irradiation from high powered microscopes for longer periods than organic dyes, and have been widely adopted in the bio-imaging sector. Applications in the life sciences field are expected to further increase as quantum dot performance vs. conventional fluorescing material and organic dyes continues to be proven. Quantum dots offer a host of benefits when compared to organic fluorophores such as biological dyes, including:
QMC is currently the only company capable of producing highly uniform tetrapod quantum dots. In addition QMC has developed the technology required to produce TQDs with very narrow emission peaks as well as TQDs with dual emissions. Both of these features are highly desirable for a broad range of life science applications. Management believes its licensed patented chemistry and proprietarypatented continuous production process will enable QMC to produce TQDs in volume and at a price point that will make them a very compelling choice for these applications.
Optoelectronics. This market is comprised principally of quantum dot displays (QDD) for televisions, computers, cell phones, PDAs and various other applications. A QDD provides better optical performance when compared to cathode ray tubes (CRT) and conventional liquid crystal displays (LCDs):
Sony, for example, has recently launched its first televisions using quantum dots to enhance the picture quality and power efficiency of its products. It is expected that quantum dots may also be used to improve the performance of other optoelectronic devices and lasers and optical components used in telecommunications.
QMC is currently the only company capable of producing highly uniform tetrapod quantum dots. In addition, QMC has developed the technology required to produce TQDs with very narrow emission peaks as well as TQDs with high quantum yield (high brightness). Both of these features are highly desirable for a broad range of display applications. In Management’s experience, TQDs are far less likely to aggregate due to their unique shape. Aggregation typically leads to self-extinguishing of the quantum dots, resulting in loss of emissions. This resistance to aggregation by TQDs results in the need to use fewer quantum dots in optoelectronic applications to achieve the same performance levels. It also allows TQDs to achieve higher optical densities. Management believes its licensed patented chemistry and proprietarypatented continuous production process will enable it to produce quantum dots and TQDs in volume and at a price point that will make them a very compelling choice for these applications.
Lighting. In the lighting market, quantum dot LEDs have begun to be commercialized in 2013, with significant R&D occurring among manufacturers of solid-state lighting. While companies have launched quantum dot LED lamps, the current market for quantum dot LED lamps and the other lighting products is still very small. The Company believes quantum dot based lighting will be the best replacement for currently available compact florescent lighting (CFL) and LED lighting, as quantum dot technology provides better efficiency and high power intensity, and the ability to tune the light spectrum to emit light that is the most pleasing and/or appropriate for the application.
As stated above, QMC is currently the only company capable of producing highly uniform tetrapod quantum dots.
Solar Energy. Quantum dots are capable of producing energy from a broad spectrum of solar and radiant energy, including ultraviolet and infrared frequencies. They have conversion potentials of approximately twice that of conventional solar cells, and can be developed out of a variety of materials. Applications are being developed to “print” highly efficient photovoltaic solar cells in mass quantities at low cost. Management believes that quantum dot solar cells and panels will be the next evolutionary development in the field of solar energy, and that commercialization will begin in 2014.2016.
Management further believes that the increased conversion efficiencies of TQDs, its low cost continuous production method and the screen print technology obtained under the UA License will permit QMC’s subsidiary Solterra to offer solar electricity solutions that can compete on a non-subsidized basis with the price of retail electricity in key markets in North America, Europe, the Middle East and Asia.
Other applications. Current and future applications of quantum dots may impact a broad range of other industrial markets. These potentially include computing and memory, improved thermoelectric components, security applications such as covert identification tagging, biohazard detection sensors and other uses. Quantum dots have the theoretical potential to enable batteries to increase charge capacity up to ten fold, reduce re-charge cycle time by half and double usable life by replacing the current graphite anodes with silicon quantum dots.
The Company intends to position itself to provide lower cost, higher volume, higher quality QD’s & TQDs that will benefit from one or more of these potential market trends.
Business Development Overview
In the past year, the Company has entered into an increased number of non-disclosure agreements (“NDAs”) and sample supply agreements with a several product manufacturers in different industries as well as universities and independent research laboratories. In most cases, the NDAs with manufacturers are for exploring joint development of specific products in the liquid crystal display (LCD) and light-emitting diode (LED) industries, solid state lighting industry, life sciences and for quantum dot adaptable printing equipment and other new technologies. The focus of the Company is on those sectors of the market in which utilization of quantum dots will have a transformational effect on the quality of end use products and their performance. The Company believes that its advantages in delivery of high quality, high performance quantum dots and TQDs (utilizing the chemistry under the Rice Licenses), patented continuous production techniques (provisional patent application filed) and screen printing techniques (to which it has exclusive rights under UA License) make it an attractive supplier to these markets.
Current Position
For Quantum Materials Corporation, our recent achievements are bringing us closer to develop two solar pilot plants overseas, oneour goals. In July 2013 we moved into new offices and wet labs at STAR Park, in IndiaSan Marcos, Texas. Shortly after that we began production of tetrapod quantum dots and oneshipped TQD samples to some waiting potential clients.
In Summer 2014, we welcomed our first automated production system and have scaled its original 2 gms/hr to 25gms/hr with expectation we can subsequently further scale this system type to 100gms/hr in the Kingdomearly part of Saudi Arabia. Incalendar 2015.
The advantages and benefits of our automated production are:
Shipping Samples to Potential Clients
As a result of our automated production system, we have increased our rate of shipping samples to potential customers and we have delivered more than two dozen shipments.
To our knowledge this represents the first shipments of automated production, not manual “batch” production. Our volume production process assures our clients that we can deliver high volumes of quantum dots for industrial use.
Industries or uses intended include – Displays, Lighting, Biotech, Anti-counterfeiting, Sensors, Solar, Paint, and Coatings.
For the most part, our shipments of samples are to client’s specifications, and for others, these samples are preliminary shipments for evaluation for secondary purposes as we collaborate toward the development of their specific quantum dot enabled product.
Today we have a very active pipeline of potential clients that grows daily. These potential clients require a broad range of nanomaterials from relatively simple Red emitting quantum dots to both casesnear and far Infrared emitting Quantum Dots, Thick-Shell Quantum Dots and/or Non-Heavy Metal Quantum Dots. Industries or uses intended include – Solid-State Lighting, Hydrogen Conversion, Displays, Solar, Automotive Glass and BIPV films, Batteries, Lasers, Biotech and Inks.
Eleven of the Company has experienced delays in advancing from memoranda of understanding to binding contracts. The Company has been informed that these delays are largely attributable to difficulties in arranging the funding necessary to initiate these projects. In addition, the Indian project has experienced delays in gaining certain regulatory approvals. There can be no assurance that either of these projects will advance beyond the present preliminary stage of development,twenty-four potential clients have already had one or that they will result in any revenues or profits to the Company. See “Risk Factors.”
To maintain control of quantum dot production and quality, the Company’s preferred business relationship is a joint venture that evolves from a collaborative development effort where the parties agree to cooperate in the design and production of a range of new end products utilizing the Company’s TQDs andNanomaterials and/or screen printing processes, with the other party contributing industry expertise and substantial marketing, distribution and sales capabilities. In most cases, the Company envisions that the industry joint venture party would provide the financial resources to underwrite the project. In some cases, the joint venture may need to seek outside financing for the commercialization phase of the project. In either case, the Company would continue to control the production of the TQDsnanomaterials for incorporation into the end products.
Alternatively, the Company may choose to license a manufacturer of end products to incorporate the Company’s TQDsNanomaterials into one or more specific products on an exclusive or non-exclusive basis. In some cases, it may be appropriate to dedicate an equipment unit to a single product line (for example, silicon nanocrystals for energy storage) for a single licensee, whether sited at the Company’s facilities or at the facilities of the licensee. In all cases, the license would contain provisions restricting the use of the Company’s technology and protecting its intellectual property.
In advancing these development activities, the Company follows a disciplined process to protect its intellectual property and foster collaborative arrangements. First, NDAs are entered into, followed by sample agreements. The Company then formulates, manufactures and supplies product samples to the counterparty’s specifications for evaluation and testing. If successful, this then leads to discussions on the form of a possible commercial relationship. Each step takes time, and the Company is increasing its sample production capacity to satisfy the backlog of requests for TQDsits materials of different compositions. TQD sampleSample production is currently accommodated through use of the lab facilities at Rice, Texas State University and the Company’s Wet Lab described below.
In seeking to expand its customer base, the Company’s marketing strategy will be to engage in joint ventures or other strategic arrangements with manufacturers and others to jointly develop applications using its proprietary TQDs,patented continuous production process and licensed screen printing technology to maximum effect. Such joint collaborations will involve the Company working closely with the industry counterpart to optimize the performance of the Company’s TQDsmaterials in each application or device, and to use the results from product development and testing to further enhance product specifications to meet the requirements of the market. These collaborations will support the Company’s internal research and development activities, which will continue to be a primary part of the Company’s business. The principal revenue streams for the Company are expected to be from (i) sales of TQDs,Nanomaterials, (ii) royalties from sales of products and components by third parties incorporating the Company’s TQDs,Nanomaterials, (iii) milestone payments under joint development arrangements with product developers and manufacturers, and (iv) sub-licensing fees where the Company engages in sub-licensing arrangements for its technology.
As of this date, the Company has not entered into any formal commercial joint ventures or licensing agreements, but has executed the following array of agreements and taken the following steps toward commercialization of its TQDsNanomaterials in various market sectors:
Product Manufacturers | Universities, Researchers, Other | |
NDAs | 25 | 7 |
Sample Agreements | 8 | 2 |
Initial Samples Delivered | 8 | 2 |
Commercial Discussions Underway | 3 | 1 |
Product Manufacturers | Universities, Researchers, Other | |
NDAs | 26 | 13 |
Sample Agreements | 8 | 2 |
Initial Samples Delivered | 8 | 2 |
Commercial Discussions Underway | 21 | 5 |
However, there can be no assurance that the above activities will result in sales of the Company’s products or that such sales will result in profits to the Company. See “Risk Factors.”
The Company’s existing business development team is led by its director of marketing, who handles the North American, U.K. and European Union markets, supported by two staff employees responsible for Asia and the Middle East, respectively. The Company’s marketing and sales capabilities, considered to be critical to the success of the business, will also be expanded with the recruitment of one additional full time person during the next twelve months.
Operational Overview
The Company has to date been a research and development business operating out of temporary facilities. It has nowrecently entered the commercialization stage of its business with the launch of the Wet Lab in July, 2013, its first permanent facility. The Wet Lab is located in San Marcos, Texas, approximately 30 miles south of Austin, Texas. This facility is part of the Star Park Technology Center, an extension of Texas State University, the fifth largest university in Texas and one of eight Texas Emerging Research Universities. This arrangement provides the Company with the opportunity to expand its operations within this 30 acre technology park. The Company has a year to year lease agreement and the option to add additional lab and office space on an as-needed basis. This location provides the Company with convenient access to an experienced faculty and specialized laboratory facilities that can support joint research and development efforts with Texas State University, and is in proximity to a number of leading companies in the life sciences, lighting, solar and electronics markets.
The Wet Lab will be the center of operations of the Company and will be used by the Company to produce small sample quantities of TQDs (via batch method) andNanomaterials as well as larger quantities of TQDs (viaNanomaterials via its proprietarypatented process units, once this equipment is acquired) for supply to research facilities, customers and potential customers, and potential development joint ventures. The facility will beis used to support test production runs, to fine tune the characteristics of the quantum dotsmaterials for optimized performance in the customer's specific application, and for continued R&D activities. The Wet Lab was established through funds raised in a private placement of common shares of the Company completed in early June 2013.
The Company obtained $250,000 to finance the build out and costs of operation of the Wet Lab for the balance of 2013.
The Company is preparing to enter the next phase of its development – production and supply of commercial scale volumes of TQDsmaterials to potential customers and joint ventures in order to develop a platform of initial customers in various industries. In order to finance the development of its business, including the establishment of its continuous process manufacturing facility, purchase of the first twosecond equipment unitsunit and the expansion of its marketing and sales capabilities, the Company will be seeking additional investment capital. Provided this capital raise is successful and can be accomplished in the fourth quarter of 2013, thecapabilities. The Company expects to commence generating limited revenues from the production of TQDsmaterials at the Wet Lab in the firstthird quarter of 2014. Such revenues are expected to be modest at first and will be dependent upon the Company generating purchase orders from potential customers currently under NDAs and evaluating the Company’s technology. As part of this strategy, the Company has engaged in discussions with numerous target customers and has signed a number of NDAs and Sample Agreements to increase the probability of receiving firm orders from one or more of these entities.
The Company’s ongoing research and development functions are considered key to maintaining and enhancing its competitive position in the growing nanomaterials and quantum dot market. Nanomaterials and Quantum dot technology continuescontinue to evolve, with new discoveries and refinements being made on an ongoing basis. The Company intends to be at the forefront of technological development, and will focus a significant part of its efforts on this, as it has done historically. Continuing R&D activities at the Wet Lab will be an important aspect of the Company’s strategy, as will the Company’s collaboration with Rice University, University of Arizona, Texas State University and the numerous research centers and departments with which the Company has relationships.
The key assets of the Company are its patents, high volume process equipment, licenses and other intellectual property rights, its knowhow and the expertise, capabilities and relationships brought to the Company by its management team. The Company will continue to develop its intellectual property portfolio and licensing rights, and currently has two patents pending for continuous process production of quantum dots.rights. The Company willis also workworking closely with Ricenumerous universities and University of Arizonapublic and private labs to develop and expand its intellectual property portfolio. As the business progresses, the Company will continually build out its portfolio of owned and licensed intellectual property, and take all appropriate steps to protect these rights.
The Licenses with Rice and University of Arizona include provisions for milestones and milestone payments. To date, these have been paid as agreed, waived andand/or extended by both Rice and University of Arizona, respectively, illustrating the support each university has given to the Company as it has attempted to advance its business with limitedmeasured resources. As the Company moves forward, it expects to be able to meet all payment and other obligations under the Licenses, and the Company’s funding strategy takes account of these requirements.
The business of the Company is subject to various types of government regulations, including restrictions on the chemical composition of quantum dotsnanomaterials used in life sciences and other sensitive applications, and regulation of hazardous materials used in or produced by the manufacture or use of quantum dots. Management believes that its patented technology, licensed patented chemistry and proprietary manufacturing process allow the Company to comply with current regulations by producing heavy metal-free TQDs (where required for the intended applications),nanomaterials and by using environmentally friendly solvents, which are nevertheless contained and recycled in the production process. However, new regulations or requirements may develop that could adversely affect the Company or its products in the future. See “Risk Factors.”
Management and Personnel
The Company has traditionally operated with limited resources and infrastructure. It has a total of eight10 employees, including the management team, all of whom, apart from Mr. Stephen Squires, the Chief Executive Officer, Mr. David Doderer, Vice President of Research and Development and a staff chemist, work part time for the Company.
The board of directors, scientific advisory board and management team of the Company are comprised of individuals from a range of backgrounds, with a strong representation from the business and scientific community. This includes Dr. Michael Wong the inventor of our TQD dot chemistry and Dr. Ghassan Jabbour, the inventor of our printed electronics technology. Each of these individuals brings significant value to the Company through his connections and relationships with Rice University, University of Arizona and various other university, research and industry contacts.
As the Company moves into the next stage of its business, the board of directors and management team will continue to be strengthened by the recruitment of additional members, and by restructuring the present board into a corporate governance board andboard. The Company has recently established a separate scientific advisory board comprised of individuals with strong scientific backgrounds. The Company willhas also seek, at the appropriate time,begun to build out the corporate board bywith the addition of one or moreboard directors in non-executive positions to add independence, depth of experience and strategic support as the business of the Company grows.
Once additional funding is raised and the Company commences commercial manufacturing operations, the business will add additional employees in operating management, sales/marketing, R&D, production and administration. Additional staffing would be added from time to time, as necessary, when the business expands and the scale up of production accelerates.
Competition
The commercial nanomaterials industry and more specifically, the quantum dot industry, is relatively young and undeveloped, with a number of small competitors attempting to establish themselves in different segments employing one or more competitive strategies. Competition among these companies is based on the following factors:
The Company believes it is well positioned in all four areas described above. The Company’s TQDsmaterials offer higher performance than spherical quantum dots in virtually all applications,known competitors and purity and consistence from batch to batchconsistency exceeds 98% (versus 50% or less with most othermanual quantum dot processes), minimizing the need for intensive post-production processing to maintain quality of the delivered product. The Company’s TQDs have dual emission capabilities and can be produced free of cadmium and other heavy metals or hazardous materials. The Company can also combine its TQDsmaterials with the proprietarypatented screen printing methods licensed from University of Arizona to deliver an engineered solution in certain applications (displays and solar cells, for example) that will reduce the production cost for the end product manufacturer. The Company believes that implementation of its proprietarypatented manufacturing process will allow it to scale up production to reliably meet commercial supply demands while reducing price, opening up the potential for new applications. Lastly, its continuing relationships with Universities such as Rice, University of Arizona and Texas State University as well as private and public labs such as LANL along with its approach to joint development ventures should allowenable the Company to achieve and maintain a leading position in R&D and commercialization of new products.
The Company is subject to other competitive risks of early stage and commercial businesses generally, and of advanced technology businesses in particular, including competing in an environment where other companies may be better financed or have more experience that the Company. See “Risk Factors.”
Licenses and Intellectual Property
The Company purchased the patent portfolio from Bayer AG out right and no further financial obligation between the Company and Bayer AG exist. The company is however responsible for the ongoing expenses of prosecuting and maintaining the subject patents.
As noted above, under the Rice Licenses, Solterra and QMC have been granted exclusive rights to develop, manufacture, market and exploit tetrapod quantum dots, in the case of Solterra, for photovoltaic applications, and in the case of QMC, for all electronic and life sciences applications (other than photovoltaics). During the term of the Rice Licenses, Rice is entitled to royalties ranging from 2% to 4% on sales of quantum dots for photovoltaic cells and 7.5% on sales of quantum dots for other electronic and life sciences applications. Rice is also entitled to certain milestone payments under each of the Rice Licenses. The milestone payments, payable on successive annual dates, were due to commence in August 2012. Certain key milestones, such as commencement of initial and scaled production by particular dates, were also required to be achieved by certain dates in 2013. As all of the milestones were not achieved by the originally anticipated dates, Rice has agreed to amend the minimum payment dates as set forth below, and extend the time for achievement of remaining key milestones to August 15, 2014.milestones. The Company now believes that, subject to receivingit has meet the funding it is presently pursing,development milestones that it will be able to meet thesethe revised milestones and payment requirements. Rice is also entitled to fees in the event of certain liquidity events occurring in relation to the Company and its business.
QMC/ Amended Due Dates under Rice Licenses | Minimum Royalty Due | |||
January 1, 2015 | $ | 29,450 | ||
January 1, 2016 | $ | 117,000 | ||
January 1, 2017 | $ | 292,500 | ||
January 1, 2018 and forward | $ | 585,000 |
Solterra / Amended Due Dates under Rice Licenses | Minimum Royalty Due | |||
January 1, 2016 | $ | 100,000 | ||
January 1, 2017 | $ | 356,250 | ||
January 1, 2018 | $ | 1,453,500 | ||
January 1, 2019 and forward | $ | 3,153,600 |
As noted above, Solterra is also a party to the UA License with the University of Arizona under which Solterra has been granted exclusive rights to use University of Arizona’s patented screen printing techniques in the production and sale of organic light emitting diodes in printed electronic displays and other printed electronic components. Under the UA License, University of Arizona is entitled to royalties on sales of products within the scope of the UA License of 2% on net sales of licensed products in non-display electronic products and 2.5% on net sales of licensed products for printed electronic displays, subject to certain minimum annual payments. University of Arizona had agreed to amendThe Company has satisfied all the firstrequired minimum annual royalty payment of $5,000 to June 30, 2013, and this payment has been made. University of Arizona also agreed to amend the time for future minimum payments as indicated below.payments. The Company believes that subject to receiving the funding it is presently pursing, it will be able to meet these revised payment requirements.
Amended Due Dates under UA License | Minimum Royalty Due | |||
December 31, 2013 | $ | 25,000 | ||
December 31, 2014 | $ | 25,000 | ||
June 30, 2015 | $ | 50,000 | ||
June 30, 2016 | $ | 125,000 | ||
Each June 30 thereafter | $ | 200,000 |
Amended Due Dates under UA License | Minimum Royalty Due | |||
June 30, 2015 | $ | 50,000 | ||
June 30, 2016 | $ | 125,000 | ||
Each June 30 thereafter | $ | 200,000 |
The Company’s intellectual property is comprised of both owned and licensed technology for the production and application of nanomaterials and quantum dots. The Company owns a patent portfolio purchased from Bayer AG and has the exclusive worldwide license to the patented chemistry process developed by Rice University for the development, manufacturing, marketing and exploitation of TQDs for photovoltaic applications (in the case of Solterra) and for electronic and medical applications (in the case of QMC). The Company also has the exclusive worldwide license to the University of Arizona’s patented screen printing techniques in the production and sale of organic light emitting diodes incorporating quantum dots in printed electronic displays and other printed electronic components. Leveraging the unique features of Rice’s patented chemistry process, the Company has developed a proprietary process for continuous production of TQDsnanomaterials via custom designed equipment units, and has filed a provisional patent application with the U.S. Patent and Trademark Office and expects to pursue a final patent on same.units. The Company also owns additional intellectual property in the form of trademarks, trade names, copyrights, scientific and technical know-how and “trade secrets” that it intends to further develop and apply in its business, seeking to protect same with appropriate governmental filings and/or secrecy agreements. See “Risk Factors.”
Item 1.A. Risk Factors
You should carefully consider the following risk factors, in addition to the other information presented in this Form 10-K, in evaluating us and our business. Any of the following risks, as well as other risks and uncertainties, could harm our business and financial results and cause the value of our securities to decline, which in turn could cause you to lose all or part of your investment.
RISKS ASSOCIATED WITH INVESTING IN OUR COMPANY
Our business, operations and financial condition are subject to various risks. Some of these risks are described below and you should take these risks into account in making a decision to invest in our common stock. If any of the following risks actually occurs, we may not be able to conduct our business as currently planned and our financial condition and operating results could be seriously harmed. In that case, the market price of our common stock could decline and you could lose all or part of your investment in our common stock.
We need to continue as a going concern if our business is to succeed, if we do not we will go out of business.
Our independent auditors’ report to our audited consolidated financial statements for the past three years indicate that there are a number of factors that raise substantial doubt about our ability to continue as a going concern. Such factors identified in the report are our accumulated deficit since inception, our failure to attain profitable operations and our dependence upon financing to pay our liabilities. If we are not able to continue as a going concern, it is likely investors will lose their investments.
We will need additional funds to meet our obligations under our Secured Debentures which become due and payable upon the earlier of November13, 2014 or a default under the Transaction Documents.
Pursuant to certain loan and related documents (the “Transaction Documents), we borrowed $1,500,000 from certain (then) non-affiliated parties on November 4, 2008 and issued Debentures. In June 2014, $1,000,000 of the Debentures secured bywas converted into Common Stock leaving a pledgebalance due of stock from Mr. Squires, our Chief Executive Officer and by our assets. Recently,outstanding principal in the Debenture holders agreed to extend theamount of $500,000 due November 4, 2014. In February 2014, we issued a $400,000 convertible debenture, with maturity date of these Debentures to November 4, 2014.January 16, 2016. We can provide no assurances that we will be able to meet our obligations under the Transaction Documents, the failure of which could materially adversely affect our operations and business prospects and our ability to meet our obligations as they become due and payable under the Debentures. Aside from the Debentures, the Company owes approximately $2,000,000$1.0 million in accounts payable and accrued liabilities and expenses. Without immediate and additional financing, the Company may not be able to meet its obligations and to remain a going concern.
We will need to raise significant and immediate additional capital for working capital purposes and to grow our business.
Our business plans are based upon the immediatepossible need to raise substantial immediate funds estimated at $3,000,000$500,000 to support our operational and business objectives as described in Item 1 and plans for expansion and growth. As such, we can provide no assurances that we will be able to successfully raise additional financing as needed, on terms satisfactory to us, if at all. Any additional financing will also likely cause substantial dilution to our stockholders.
We have a limited operating history and limited historical financial information upon which you may evaluate our performance.
We continue to be a development stage company and face risks associated in a growth industry. We may not successfully address these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could impair the value of our common stock to the point investors may lose their entire investment. Even if we accomplish these objectives, we may not generate positive cash flows or the profits we anticipate in the future.
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Our business plans for the sale of quantum dots may not materialize.
“Business Development” overview in Item 1 of this Form 10-K described various potential business opportunities for the production and sale of quantum dots. We can provide no assurances that these opportunities will have the desired end result which is most favorable or beneficial to the Company, if at all, or that the Company will achieve profitable operations.
Our intended business is based on rights granted to Solterra pursuant to a license agreement with William Marsh Rice University.
We have entered into exclusive license agreements, as amended (the “Rice License”) with Rice University to use, develop, manufacture, market and exploit certain inventions, patent applications and issued patents of licensor with respect to the manufacture and sale of photovoltaic cells and the manufacture and sale of quantum dots for electronic and medical applications. Our license agreements with Rice University require us to be financially solvent, meet certain milestones and other obligations, conditions and to make certain royalty and other payments during the term of the license agreements. Any default under the terms of our license agreements, which if not cured or waived by Rice University, could result in the loss of our exclusive license agreements and the right to manufacture and sell our intended products. While Rice has waived certain milestone dates and extended certain payment dates, there is no assurance that the Company will meet the new milestones or payment requirements or that Rice will agree to waive any future requirements. TheWhile the Company owns patents acquired from Bayer AG pertaining to the high volume production of quantum dots, Management believes that the loss of our exclusive license agreement with Rice University wouldcould have a material adverse effect on our operations and investors could lose their entire investment.operations. See “Item 1 – Licenses and Intellectual Property.”
Our intended business is dependent on our patent license agreement with University of Arizona. Our ability to print electronics, such as solar cells, is based upon our Agreement with the University of Arizona.
Solterra has entered into an exclusive Patent License Agreement with the University of Arizona to license US Patent # 7,015,052, which was issued on March 21, 2006, entitled Screen Printing Techniques for the Fabrication of Organic Light - Emitting Diodes. Pursuant to the UA License, Solterra has an exclusive license to market, sell and distribute licensed products within the field of use which is defined as organic light emitting diodes in printed electronic displays and all other printed electronic components. Solterra has the right to grant sublicenses with respect to the licensed product and the license method (as defined in the UA License). Pursuant to said agreement, as amended, we are obligated to pay minimum annual royalties. While University of Arizona has waived certain milestone dates and extended certain payment dates, there is no assurance that the Company will meet the new milestones or payment requirements or that University of Arizona will agree to waive any future requirements. Termination of our Agreement with University of Arizona could materially adversely affect our operations. See “Item 1 – Licenses and Intellectual Property.”
Market for quantum dots is expected to grow significantly over the next ten years.
“Item 1 – Market for Quantum Dots” and “Item 1 – Market Segments” cite various estimates for the expected growth of the market for quantum dots and discuss their potential applications. No assurances can be given that the quantum dots industry will grow as forecasted, that these potential applications will develop as discussed or that the Company will be able to capitalize on the growth and developments that do occur.
The Company’s production method is expected to enable the Company to scale production more readily thereby reducing the production costs of the TQDs significantly.
Quantum dots remain an extremely expensive commodity, and the price of quantum dots is directly affected by the high cost of producing quantum dots in relatively small batch quantities. As with other nanomaterials, these relatively high prices have been supported by favorable performance of the quantum dots at very low concentrations. Prices for quantum dots are expected to moderate over time as greater production efficiencies are discovered and implemented, resulting in higher volumes. This is expected to support greater adoption of quantum dots for use in end products and further support the growth of the quantum dot market. Under current production methods, rigorous processing has been required from batch method synthesis to produce a consistently pure and tightly size-controlled quantum dot product. To significantly grow the market, the industry will need to achieve much lower production costs for quantum dots, while maintaining strict control over quality and uniformity.The Company has developed a proprietary manufacturing technique to produce TQDs that it believes has the potential to overcome the cost and performance challenges presented by other manufacturing methods, but there can be no assurances that the process will allow the Company to become competitive or to remain competitive against other manufacturing techniques that may be developed and applied.
Management believes that QMCthe Company is currently the only company capable of producing highly uniform tetrapod quantum dots.
Management believedbelieves that QMCthe Company is currently the only company capable of producing highly uniform tetrapod quantum dots. In addition, QMCthe Company has developed the technology required to produce TQDs with very narrow emission peaks as well as TQDs with dual emissions. Both of these features are highly desirable for a broad range of life science, optoelectronics, lighting and solar energy applications. Management believes its licensed patented chemistry and proprietary manufacturing process will enable QMC to produce TQDs in volume and at a price point that will make them a very compelling choice for these and other applications. No assurances can be given that Management’s beliefs and expectations will be realized or that competitors will not develop techniques capable of producing highly uniform TQDs that are competitive or functionally better than those produced (or to be produced) by QMC.the Company.
The Company has entered into a number of non-disclosures agreements and sample supply agreements with several product manufacturers as well as others. No assurances can be given that sales, joint venture agreements and/or license agreements will result from these agreements.
In the past year,two years, the Company has entered into a number of non-disclosure agreements (“NDAs”) and sample supply agreements with a several product manufacturers in different industries as well as universities and independent research laboratories. In most cases, the NDAs with manufacturers are for exploring joint development of specific products or applications. While the Company’s preferred business relationship is a joint venture that evolves from a collaborative effort where the parties agree to cooperate in the design and production of a range of new end products utilizing the Company’s TQDs and screen printing processes, with the other party contributing industry expertise and substantial marketing, distribution and sales capabilities, no assurances can be given that joint venture agreements will be entered into on terms satisfactory to the Company, if at all. Further, no assurances can be given that the non-disclosure agreements and sample supply agreements entered into by the Company as described above will resultin sales of the Company’s products. Also, in the event the Company decides to become a licensed manufacturer of end products to incorporate the Company’s TQDs into one or more specific products on an exclusive or non-exclusive basis, no assurances can be given that the Company will successfully enter into license agreements satisfactory to the Company, if at all.
The Company opened up a wet lab in June 20032013 to produce TQDs. Subject to obtaining additional financing, the Company intends to purchase certain equipment units to produce higher volume of the TQDs.
The Company opened up a wet lab in June 20032013 to produce TQDs on a small scale and then, subject to the Company obtaining financing for the purchase of certain equipment units, on a larger scale. The first equipment unit will beis capable of producing 2 grams per hour of TQDsquantum dots and tetrapod quantum dots and the second equipment unit will be capable of producing 2 kilograms per hour of TQDs.quantum dots and tetrapod quantum dots and nanomaterials. The Company anticipates eachthe second unit being commissioned and tested upon delivery with a view towards commencing initial production runs of TQDsmaterials within 30 to 60 days of installation. No assurances can be given that the Company will be able to raise the necessary financing to carry out the Company’s plan of operation as described herein, or that the commissioning and start-up of the equipment units will progress as described.herein.
The Company’s ongoing research and development functions are considered key to maintaining and enhancing its competitive position in the growing quantum dot market.
The Company’s ongoing research and development functions are considered key to maintaining and enhancing its competitive position in the growing quantum dot market. Quantum dot technology continues to evolve, with new discoveries and refinements being made on an ongoing basis. The Company intends to be at the forefront of technological development, and will focus a significant part of its efforts on this, as it has done historically. Continuing R&D activities at the Wet Lab will be an important aspect of the Company’s strategy, as will the Company’s collaboration with Rice, University of Arizona, Texas State University and the numerous research centers and departments with which the Company has relationships. No assurances can be given that the Company will be able to successfully maintain and enhance its competitive position in the growing quantum dot market.
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Our future success is dependent upon our licenses and intellectual property rights and know-how and protecting these rights.
The key assets of the Company are its patents, licenses and intellectual property rights, its knowhow and the expertise, capabilities and relationships brought to the Company by its management team. The Company will continue to develop its intellectual property portfolio and licensing rights, and currently has two patents pending for continuous flow production of quantum dots. The Company will also work closely with Rice and University of Arizona to develop and expand its intellectual property portfolio. As the business progresses, the Company will continually build out its portfolio of owned and licensed intellectual property, and take all appropriate steps to protect these rights. No assurances can be given that the Company will be successful in building out its portfolio of owned and licenses intellectual property and in protecting these rights.
The Company’s business is subject to environmental and other regulations.
The business of the Company is subject to various types of government regulations, including restrictions on the chemical composition of quantum dots used in life sciences and other sensitive applications, regulation of hazardous materials used in or produced by the manufacture or use of quantum dots.nanomaterials. Management believes that its patented, licensed patented chemistry and continuous manufacturing process allow the Company to comply with current regulations by producing heavy metal-free TQDs (where required for the intended applications),nanomaterials and by its use of environmentally friendly solvents, which are nevertheless contained and recycled in the production process. However, new regulations or requirements may develop that could adversely affect the Company or its products in the future.
As the Company grows, it will need to obtain and retain additional qualified management and personnel.
The Company has traditionally operated with limited resources and infrastructure. It has a total of eight10 employees, including the management team, all of whom, apart from Mr. Stephen Squires, the Chief Executive Officer, Mr. David Doderer, Vice President of Research and Development and a staff chemist, work part time for the Company.team. The board of directors, scientific advisory board and management team of the Company are comprised of individuals from a range of backgrounds, with a strong representation from the business and scientific community. This includes Dr. Michael Wong the inventor of our TQD dot chemistry and Dr. Ghassan Jabbour, the inventor of our printed electronics technology. Each of these individuals brings significant value to the Company through his connections and relationships with Rice University, University of Arizona and various other university, research and industry contacts.
As the Company moves into the next stage of its business, the board of directors and management team will seek to continue to be strengthened by the recruitment of additional members, and by restructuring the present board into a corporate governance board andboard. The Company has recently established a separate scientific advisory board comprised of individuals with strong scientific backgrounds. The Company willhas also seek, at the appropriate time,begun to build out the corporate board bywith the addition of one ortwo more directors in non-executive positions to add independence, depth of experience and strategic support as the business of the Company grows. Once additional funding is raised and the Company commences continuous flow manufacturing operations, the businessAs our financings permit, we will seek to add additional employees in operating management, sales/marketing, R&D, production and administration. Additional staffing would be added from time to time,time-to-time, as necessary, when the business expands and the scale up of production accelerates. No assurances can be given that the Company will be successful in hiring and retaining additional qualified board members, management and staff personnel from time-to-time as necessary.
Our future success depends upon our ability to compete in the market place.
The commercial quantum dot industry is relatively young and undeveloped, with a number of small competitors attempting to establish themselves in different segments employing one or more competitive strategies. Competition among these companies is based on product quality and performance characteristics, volume, price and continuing research development and product improvements. The Company believes that it is well positioned to compete in each of the aforementioned four areas, each of which is more fully described under “Item 1.” Nevertheless, the Company is subject to other competitive risks of early stage and commercial businesses generally, and of advanced technology businesses in particular, including competing in an environment where other companies may be better financed or have more experience that the Company.
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Our future success depends on our ability to develop our manufacturing capacity. If we are unable to achieve our capacity expansion goals, it would limit our growth potential and impair our operating results and financial condition.
In the future, we may seek to establish large scale production facilities. Our ability to complete the planning, construction and equipping of large scale manufacturing facilities is subject to significant risk and uncertainty, including:
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• | We will need to raise additional capital in order to finance the costs of constructing and equipping of large scale manufacturing facilities, which we may be unable to do so on reasonable terms or at all, and which could be dilutive to our existing stockholders; | |
• | The build-out of any facilities will be subject to the risks inherent in the development of a manufacturing facility, including risks of delays and cost overruns as a result of a number of factors, many of which may be out of our control, such as delays in government approvals, burdensome permit conditions and delays in the delivery of manufacturing equipment from numerous suppliers; | |
• | We may be required to depend on third parties or strategic partnerships that we establish in the development and operation of additional production capacity, which may subject us to risks that such third parties do not fulfill their obligations to us under our arrangements with them; and | |
• | We may be required to obtain licenses, permits or authorizations from regulatory authorities, the failure of which to obtain, could delay or prevent the construction or opening of large scale manufacturing facilities. |
If we are unable to develop and successfully operate manufacturing facilities, or if we encounter any of the risks described above, we may be unable to scale our business to the extent necessary to improve results of operations and achieve profitability. Moreover, there can be no assurance that if we do expand our manufacturing capacity that we will be able to generate customer demand for our quantum dot products at these production levels or that we will increase our revenues or achieve profitability.
We may be unable to effectively manage the expansion of our operations.
We expect to expand our business in order to satisfy demand for our quantum dots and obtain market share. To manage the development and expansion of our operations, we will be required to improve our operational and financial systems, procedures and controls and expand, train and manage a larger employee base. Our management will also be required to maintain and expand our relationships with customers, distribution partners, suppliers and other third parties and attract new customers, distribution partners and suppliers. In addition, our current and planned operations, personnel, systems and internal procedures and controls might be inadequate to support our future growth. If we cannot manage our growth effectively, we may be unable to take advantage of market opportunities, execute our business strategies or respond to competitive pressures, and our business and results of operations could be harmed.
Our products may not gain market acceptance, which would prevent us from achieving increased revenues and market share.
The development of a successful market for our products may be adversely affected by a number of factors, many of which are beyond our control, including:
If our products fail to gain market acceptance, we would be unable to increase our revenues and market share and to achieve and sustain profitability.
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Technological changes in the quantum dots and end-user industries could render our products uncompetitive or obsolete, which could reduce our market share and cause our revenues to decline.
The nanotechnology market is characterized by continually changing technology requiring improved features. Our failure to further refine our technology and develop and introduce new products could cause our products to become uncompetitive or obsolete, which could reduce our market share and cause our revenues to decline. The nanotechnology industry is rapidly evolving and competitive. We will need to invest significant financial resources in research and development to keep pace with technological advances in the industry and to effectively compete in the future. A variety of competing technologies are under development by other companies that could result in lower manufacturing costs or higher product performance than those expected for our products. Our development efforts may be rendered obsolete by the technological advances of others, and other technologies may prove more advantageous for the commercialization of products.
Our ability to develop market share and revenues depends on our ability to successfully grow our distribution relationships and distribution channels.
If we are unable to develop successfully our distribution relationships and distribution channels, our revenues and future prospects will be materially harmed. As we seek to grow our revenues by entering new markets in which we have little experience selling our products, our ability to increase market share and revenues will depend substantially on our ability to expand our distribution channels by identifying, developing and maintaining relationships with resellers. We may be unable to enter into relationships with resellers in the markets we target or on terms and conditions favorable to us, which could prevent us from entering these markets or entering these markets in accordance with our plans. Our ability to enter into and maintain relationships with resellers will be influenced by the relationships between these resellers and our competitors, market acceptance of our products and our low brand recognition as a new entrant.
We face risks associated with the marketing, distribution and sale of our products and if we are unable to effectively manage these risks, it could impair our ability to develop expand our business.
Significant management attention and financial resources will be required to develop successfully our sales channels. In addition, the marketing, distribution and sale of our products outside the United States expose us to a number of markets in which we have limited experience. If we are unable to manage effectively these risks, it could impair our ability to grow our business abroad. These risks include:
Problems with product quality or product performance may cause us to incur warranty expenses and may damage our market reputation and prevent us from achieving increased sales and market share.
Consistent with standard practice in the industry, the duration of our product warranties could be lengthy. We believe our warranty periods are consistent with industry practice. The possibility of future product failures could cause us to incur substantial expenses to repair or replace defective products. Furthermore, widespread product failures may damage our market reputation and reduce our market share and cause sales to decline.
Our success in the future may depend on our ability to establish and maintain strategic alliances, and any failure on our part to establish and maintain such relationships could adversely affect our market penetration and revenue growth.
Our ability to establish strategic relationships will depend on a number of factors, many of which are outside our control, such as the competitive position of our technology and our products relative to our competitors. We can provide no assurance that we will be able to establish new strategic relationships in the future. In addition, strategic alliances that we may establish, will subject us to a number of risks, including risks associated with sharing proprietary information, loss of control of operations that are material to our business and profit-sharing arrangements. Moreover, strategic alliances may be expensive to implement, require us to issue additional shares of our common stock and subject us to the risk that the third party will not perform its obligations under the relationship, which may subject us to losses over which we have no control or expensive termination arrangements. As a result, even if our strategic alliances with third parties are successful, our business may be adversely affected by a number of factors that are outside of our control.
If we are unable to protect our intellectual property adequately, we could lose our competitive advantage in the nanotechnology market.
Our ability to compete effectively against competing technologies will depend, in part, on our ability to protect our current and future licensed and other proprietary technology, product designs and manufacturing processes by obtaining, maintaining, and enforcing our intellectual property rights through a combination of licenses, patents, copyrights, trademarks, and trade secrets and also through unfair competition laws. We may not be able to obtain, maintain or enforce adequately our intellectual property and may need to defend our products against infringement or misappropriation claims, either of which could result in the loss of our competitive advantage in our marketplace and materially harm our business and profitability. We face the following risks in protecting our intellectual property and in developing, manufacturing, marketing and selling our products:
possible loss of our exclusive licenses with Rice and the University of Arizona; we cannot be certain that Rice’s patent will be sufficient to prevent others from developing or using technology similar to ours or in developing, using, manufacturing, marketing or selling products similar to ours; given the costs of obtaining patent protection, we may choose not to file patent applications for or not to maintain issued patents for certain innovations that later turn out to be important, or we may choose not to obtain foreign patent protection at all or to obtain patent protection in only some of the foreign countries, which later turn out to be important markets for us; the laws of some foreign jurisdictions do not protect intellectual property rights to the same extent as laws in the United States, and we may encounter difficulties in protecting and defending our rights in such foreign jurisdictions; third parties may design around our licensed technologies, and there is no assurance that any licensed patents and other intellectual property rights will be sufficient to deter infringement or misappropriation of our intellectual property rights by others; third parties may seek to challenge or invalidate any licensed patents, which can result in a narrowing of or invalidating our patents or licensed patents, or rendering such rights unenforceable; we may have to participate in proceedings such as interference, cancellation, or opposition, before the United States Patent and Trademark Office, or before foreign patent and trademark offices, with respect to our patents, licensed patents, any patent applications, trademarks or trademark applications or those of others, and these actions may result in substantial costs to us as well as a diversion of management attention; although we are not currently involved in any litigation involving intellectual property rights, we may need to enforce our intellectual property rights against third parties for infringement or misappropriation or defend our intellectual property rights through lawsuits, which can result in significant costs and diversion of management resources, and we may not be successful in those lawsuits; we rely on trade secret protections to protect our interests in proprietary know-how and processes for which patents are difficult to obtain or enforce; however, we may not be able to protect our trade secrets adequately; and the contractual provisions on which we rely to protect our trade secrets and proprietary information, such as our confidentiality and non-disclosure agreements with our employees, consultants and other third parties, may be breached, and our trade secrets and proprietary information may be disclosed to competitors, strategic partners and the public, or others may independently develop technology equivalent to our trade secrets and proprietary information.
Our technology and products could infringe intellectual property rights of others, which may require costly litigation and, if we are not successful, could cause us to pay substantial damages and disrupt our business. In recent years, there has been significant litigation involving patents and other intellectual property rights in many technology-related industries. There may be patents or patent applications in the United States or other countries that are pertinent to our products or business of which we are not aware. The technology that we incorporate into and use to develop and manufacture our intended products may be subject to claims that they infringe the patents or proprietary rights of others. The success of our business will also depend on our ability to develop new technologies without infringing or misappropriating the proprietary rights of others. Third parties may allege that we infringe patents, trademarks or copyrights, or that we misappropriated trade secrets. These allegations could result in significant costs and diversion of the attention of management. If a successful claim were brought against us and we are found to infringe a third party’s intellectual property right, we could be required to pay substantial damages, including treble damages if it is determined that we have willfully infringed such rights, or be enjoined from using the technology deemed to be infringing or using, making or selling products deemed to be infringing. If we have supplied infringing products or technology to third parties, we may be obligated to indemnify these third parties for damages they may be required to pay to the patent holder and for any losses they may sustain as a result of the infringement. In addition, we may need to attempt to license the intellectual property right from such third party or spend time and money to design around or avoid the intellectual property. Any such license may not be available on reasonable terms, or at all. Regardless of the outcome, litigation can be very costly and can divert management’s efforts. An adverse determination may subject us to significant liabilities and/or disrupt our business. We may be unable to protect adequately or enforce our proprietary information, which may result in its unauthorized use, reduced revenues or otherwise reduce our ability to compete. Our business and competitive position depend upon our ability to protect our patents, licensed and other proprietary technology, including any manufacturing processes and products that we develop. Despite our efforts to protect this information, unauthorized parties may attempt to obtain and use information that we regard as proprietary. Any patents issued to our licensor or us in connection with our efforts to develop new technology for our products may not be broad enough to protect all of the potential uses of the technology. In addition, when we do not control the prosecution, maintenance and enforcement of certain important intellectual property, such as a technology licensed to us, the protection of the intellectual property rights may not be in our hands. If the entity that controls the intellectual property rights does not adequately protect those rights, our rights may be impaired, which may impact our ability to develop, market and commercialize our products. Our means of protecting our proprietary rights may not be adequate, and our competitors may: • independently develop substantially equivalent proprietary information, products and techniques; • otherwise gain access to our proprietary information; or • design around our We intend to pursue a policy of having our employees, consultants and advisors execute proprietary information and invention agreements when they begin working for us. However, these agreements may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure. If we fail to maintain trade secret and patent protection, our potential, future revenues may be decreased. Licenses for technologies and intellectual property may not be available to us. We have entered into license agreements for technologies and intellectual property rights, including quantum dots. Our license agreements with Rice, which currently permit us to grant sublicenses, is subject to other terms and conditions which may limit our ability to use the licensed intellectual property under certain circumstances. For example, our quantum dot license may terminate if we materially breach the license agreement or if we abandon the construction of a manufacturing facility to exploit the licensed technology. We may need to enter into additional license agreements in the future for other technologies or intellectual property rights of third parties. Such licenses, however, may not be available to us on commercially reasonable terms or at all. We anticipate that our products could be subject to oversight and regulation in accordance with national, state and local laws and ordinances relating to safety, environmental protection, and related matters. There is also a burden in having to track the requirements of individual states and design equipment to comply with the varying standards. Any new government regulations or industry or corporate policies pertaining to our products may result in significant additional expenses to us and our resellers and their customers and, as a result, could cause a significant reduction in demand for our products. Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in potentially significant monetary damages and penalties and adverse publicity. If we fail to comply with present or future environmental laws or regulations we may be required to pay substantial civil or criminal penalties, incur significant capital expenditures, suspend or limit production or cease operations. Any failure by us to control the use of or generation of, or to restrict adequately the discharge or disposal of, hazardous substances or wastes or to otherwise comply with the complex, technical environmental regulations governing our activities could subject us to potentially significant monetary damages and penalties, criminal proceedings, third party property damage or personal injury claims, natural resource damage claims, cleanup costs or other costs, or restrictions or suspensions of our business operations. In addition, under some foreign, federal and state statutes and regulations governing liability for releases of hazardous substances or wastes to the environment, a governmental agency or private party may seek recovery of response costs or damages from generators of the hazardous substances or operators of property where releases of hazardous substances have occurred or are ongoing, even if such party was not responsible for the release or otherwise at fault. Also, federal, state or international environmental laws and regulations may ban or restrict the availability and use of certain hazardous or toxic raw materials that are or may be used in producing our products, and substitute materials may be more costly or unsatisfactory in performance. We believe that we either have all environmental permits necessary to conduct our business or have initiated the process to obtain additional or modified environmental permits needed to conduct our business. While we are not aware of any outstanding, material environmental claims, liabilities or obligations, future developments such as the implementation of new, more stringent laws and regulations, more aggressive enforcement policies, or the discovery of unknown environmental conditions associated with our current or past operations or properties may require expenditures that could have a material adverse effect on our business, results of operations or financial condition. Any noncompliance with or incurrence of liability under environmental laws may subject us to adverse publicity, damage our reputation and competitive position and adversely affect sales of our products. Compliance with occupational safety and health requirements and best practices can be costly, and noncompliance with such requirements may result in potentially significant monetary penalties and adverse publicity. Our intended manufacturing operations and research and development activities involve the use of mechanical equipment which involve a risk of potential injury to our employees. These operations are subject to regulation under the Occupational Safety and Health Act, or OSHA. If we fail to comply with OSHA requirements, or if an employee injury occurs, we may be required to pay substantial penalties, incur significant capital expenditures, suspend or limit production or cease operations. Also, any such violations, employee injuries or failure to comply with industry best practices may subject us to adverse publicity, damage our reputation and competitive position and adversely affect sales of our products.
Product liability claims against us could result in adverse publicity and potentially significant monetary damages. Like other retailers, distributors and manufacturers of products that are used by consumers, we face an inherent risk of exposure to product liability claims in the event that the use of our products we sell results in injury. Since some of our products are used in electricity producing devices, it is possible that consumers could be injured or killed by our products, whether by product malfunctions, defects, improper installation or other causes. In addition, since revenues generated from our existing products have been modest and the products we are developing incorporate new technologies and use new installation methods, we cannot predict whether or not product liability claims will be brought against us in the future or the effect of any resulting adverse publicity on our business. We intend to rely on our general liability insurance to cover product liability claims and currently do not expect to obtain separate product liability insurance. The successful assertion of product liability claims against us could result in potentially significant monetary damages and if our insurance protection is inadequate to cover these claims, they could require us to make significant payments. Also, any product liability claims and any adverse outcomes with respect thereto may subject us to adverse publicity, damage our reputation and competitive position and adversely affect sales of our products. Our sales, marketing and distribution plans may substantially rely on the efforts and abilities of third parties and such plans may not be successful. We intend to sell our products to product manufactures, domestic and international distributors, and other resellers. Most of our distribution partners will have a geographic or applications focus. We expect to collaborate closely with a number of manufacturers and distributors, both domestically and in the future internationally. We are actively working to recruit our distribution partners by very careful selection of a few accounts and channel partners. We intend to selectively pursue additional strategic relationships with other companies worldwide for the joint marketing, distribution and manufacturing of our products. These resellers are expected to range from large, multinational corporations to small, development-stage companies, each chosen for their particular expertise. We believe that these relationships will enable us to leverage the marketing, manufacturing and distribution capabilities of other companies, explore opportunities for additional product development and more easily enter new geographic markets in a cost effective manner, attract new distribution partners and develop new applications for our products. Our sales, marketing and distribution plans may substantially rely on the efforts and abilities of third parties and such plans may not be successful. Moreover, we face risks associated with the marketing, distribution and sale of our products internationally. RISKS RELATED TO OUR COMMON STOCK Our common stock trades in the OTCQB and there can be no assurance that an established trading market will develop. Our common stock trades in the over-the-counter marketplace in the OTCQB under the symbol “QTMM.” The OTCQB marketplace offers trading for securities of smaller reporting companies like the Company that are reporting to the Securities and Exchange Commission. variations in our quarterly operating results; announcements that our revenue or income/loss levels are below analysts' expectations;
changes in market valuations of similar companies; announcements by us or our competitors of significant contracts; and/or acquisitions, strategic partnerships, joint ventures or capital commitments. We are subject to the reporting requirements of the federal securities laws, which can be expensive. We are a public reporting company in the United States and, accordingly, subject to the information and reporting requirements of the Securities Exchange Act of 1934 and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly reports and other information with the SEC will cause our expenses to be higher than they would be if we were a privately-held company. Our common stock may be considered to be a “penny stock” and, as such, the market for our common stock may be further limited by certain Commission rules applicable to penny stocks. To the extent the price of our Common Stock remains below $5.00 per share or we have a net tangible assets of $5,000,000 or less, our common shares will be subject to certain “penny stock” rules promulgated by the Commission. Those rules impose certain sales practice requirements on brokers who sell penny stock to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000). For transactions covered by the penny stock rules, the broker must make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction prior to the sale. Furthermore, the penny stock rules generally require, among other things, that brokers engaged in secondary trading of penny stocks provide customers with written disclosure documents, monthly statements of the market value of penny stocks, disclosure of the bid and asked prices and disclosure of the compensation to the brokerage firm and disclosure of the sales person working for the brokerage firm. These rules and regulations adversely affect the ability of brokers to sell our common shares in the public market and they limit the liquidity of our shares. The issuance or sale of equity, convertible or exchangeable securities in the market, or the perception of such future sales or issuances, could lead to a decline in the price, if any, of our common stock. Any issuance of equity, convertible or exchangeable securities, including for the purposes of expansion of our business, may have a dilutive effect on our existing stockholders. In addition, the perceived risk associated with the possible issuance of a large number of shares or securities convertible or exchangeable into a large number of shares could cause some of our stockholders to sell their stock, thus causing the price of our stock to decline. Subsequent sales of our common stock in the open market or the private placement of our common stock or securities convertible or exchangeable into our common stock could also have an adverse effect on the market price, if any, of our shares. If our stock price declines, it may be more difficult for us to or we may be unable to raise additional capital. In addition, future sales of substantial amounts of our currently outstanding common stock in the public market, or the perception that such sales could occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related securities. We cannot predict what effect, if any, future sales of our common stock, or the availability of shares for future sales, will have on the market price of our stock. Our operating results will be subject to quarterly fluctuations which could lead to uncertainty in the marketplace. Our revenue may fluctuate significantly from quarter to quarter in the future due to a variety of factors, including, without limitation: the size and timing of orders and shipments of our products; the rate and cost at which we are able to expand our manufacturing capacity to meet product demand, including the rate and cost at which we are able to implement advances in our quantum dot technologies; our ability to establish and expand key distribution partners; our ability and the terms upon which we are able to raise capital sufficient to finance the expansion of our manufacturing capacity and our sales and marketing efforts; our ability to establish strategic relationships with third parties to accelerate our growth plans; the amount and timing of expenses associated with our research and development programs and our ability to develop enhancements to our manufacturing processes and our products; developments in the competitive environment, including the introduction of improved products or technological advancements by our competitors; and the timing of adding the personnel necessary to execute our growth plan. We anticipate that our operating expenses will continue to increase significantly, particularly as we develop our internal infrastructure to support our anticipated growth. If our product revenues in any quarter do not increase correspondingly, our net losses for that period will increase. Moreover, given that a significant portion of our operating expenses is largely fixed in nature and cannot be quickly reduced, if our product revenues are delayed or below expectations, our operating results are likely to be adversely and disproportionately affected. For these reasons, quarter-to-quarter comparisons of our results of operations are not necessarily meaningful and you should not rely on results of operations in any particular quarter as an indication of future performance. If our quarterly revenue or results of operations fall below the expectations of investors or public market analysts in any quarter, the market value of our common stock would likely decrease, and it could decrease rapidly and substantially. THE FOREGOING RISK FACTORS DO NOT PURPORT TO BE A COMPLETE EXPLANATION OF THE RISKS INHERENT IN AN INVESTMENT IN THE COMPANY. Item 1B.Unresolved Staff Comments Not applicable. Item 2.Description of Property Since inception of Solterra, Solterra utilizes the home of Stephen Squires
The Company commenced an action against Robert Allan Glass in Federal Court in Austin, Texas regarding the termination of his employment agreement. The Company seeks to recover all common stock and cancel all options issued to Mr. Glass as part of his employment agreement. Mr. Glass has filed a contract of the employment agreement seeking allegedly unpaid compensation. Item 4.Mine Safety Disclosures Not applicable. PART II Item 5.Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our Common Stock trades in the over-the-counter marketplace in the OTCQB under the symbol “QTMM.” The OTCQB marketplace offers trading for securities of smaller reporting companies like the Company that are reporting to the Securities and Exchange Commission. The OTCQB The table below sets out the range of high and low sales information for our common stock for each quarterly period from July 1, 2011 through June 30,
2014.
These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Holders As of Dividends We have not paid dividends on our common stock, and do not anticipate paying dividends on our common stock in the foreseeable future. Issuer Sales of Restricted Securities
Repurchase of Securities In the year ended June 30, 2014, there were no purchases by the Company of its Common Stock. Item 6.Selected Financial Data Not applicable. Item 7.Management’s Discussion and Analysis of Financial Condition andResults of Operations The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this Form 10-K. All statements contained herein that are not historical facts, including, but not limited to, statements regarding anticipated future capital requirements, our future plan of operations, our ability to obtain debt, equity or other financing, and our ability to generate cash from operations, are based on current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties that may cause the Company’s actual results in future periods to differ materially from forecasted results. Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe harbor for forward-looking statements made by or on behalf of our Company. Our Company and its representatives may from time to time make written or verbal forward-looking statements, including statements contained in this report and other Company filings with the Securities and Exchange Commission and in our reports to stockholders. Statements that relate to other than strictly historical facts, such as statements about the Company's plans and strategies and expectations for future financial performance are forward-looking statements within the meaning of the Act. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will” and other similar expressions identify forward-looking statements. The forward-looking statements are and will be based on management's then current views and assumptions regarding future events and operating performance, and speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. See “Risk Factors” for a discussion of events and circumstances that could affect our financial performance or cause actual results to differ materially from estimates contained in or underlying our forward-looking statements. Business Overview QMC is a nanotechnology company specializing in the design, development, production and supply of nanomaterials, including quantum dots and tetrapod quantum dots (“TQDs”), a high performance variant of quantum dots, for a range of applications in the life sciences, optoelectronics, photovoltaics, lighting, security ink and sensor sectors of the market. QMC owns 100% of Solterra Renewable Technologies, Inc. (“Solterra”), an operating subsidiary that is focused on the photovoltaic (solar cell) market. Nanoparticle are materials with features in the nanoscale, which features can be beneficial in a number of applications. Quantum dots are atomic crystals, tiny nanoparticles Quantum dots were first discovered in the early 1980’s and the industry has developed to the point where quantum dots are now being used in an increasing range of applications, including the television and display industries, the light emitting diode (“LED”) lighting industry and the biomedical industry. Sony, for example, has recently launched its first televisions using quantum dots to enhance the picture quality and power efficiency of its products, a number of major lighting companies are developing product applications using quantum dots to create a more natural light for LEDs, the biomedical industry is using quantum dots in diagnostic and therapeutic applications, and applications are being developed to “print” highly efficient photovoltaic solar cells in mass quantities at low cost. According to a recent market research report, “Quantum Dots (QD) Market - Global Forecast & Analysis (2012 - 2022)” published in May 2012 by MarketsandMarkets (http://www.marketsandmarkets.com), the total market for quantum dots is expected to reach $7.48 billion by 2022, at a compound annual growth rate (CAGR) of 55.2% from 2012 to 2022. The key challenge for the quantum dot industry will be its ability to scale up production volumes sufficiently to meet growing demand for quantum dots while maintaining product quality and consistency and reducing the overall costs of supply to stimulate new applications. Quantum dots remain an extremely expensive commodity, with high cost small batch production processes constraining growth. The Company recently acquired a patent portfolio from Bayer AG that includes a number of patents covering the high volume manufacture of quantum dots including heavy metal free, various methods for enhancing quantum dot performance and a quantum dot based solar cell technology. In addition the company has Critical Accounting Policies Cash and cash equivalents Cash and cash equivalents include cash and all highly liquid financial instruments with original purchased maturities of three months or less. At various times during the year, the Company maintained cash balances in excess of FDIC insurable limits. Management feels this risk is mitigated due to the longstanding reputation of these banks. Fair value of financial instruments The Company's financial instruments consist of cash and cash equivalents, Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Deferred Finance Costs Deferred finance costs which arose from the Company’s convertible debenture financing are amortized using the effective interest method over the term of the debentures. Equipment Office furniture, office equipment and the microreactor are stated at cost less accumulated depreciation. Major renewals and improvements are capitalized: minor replacements, maintenance and repairs are charged to current operations. Depreciation is computed by applying the straight-line method over the estimated useful lives which are generally three to ten years.
Long-lived assets We review our long-lived assets, which include intangible assets subject to amortization, for recoverability whenever events or changes in circumstances indicate that the carrying amount of such long-lived asset or group of long-lived assets (collectively referred to as “the asset”) may not be recoverable. Such circumstances include, but are not limited to:
Beneficial conversion Equity instruments that contain a beneficial conversion feature are recorded as a deemed dividend to the holders of the convertible Research and development costs Research and development costs are expensed as they are incurred. Research and development expense was $91,803 and $114,980 for the years ended June 30, 2013 and June 30, 2014, respectively. Basic and diluted loss per share The Company reports basic loss per share in accordance with the ASC 260, “Earnings Per Share”. Basic loss per share is computed using the weighted average number of shares outstanding during the period. Diluted loss per share has not been provided as it would anti-dilutive. Dilution is computed by applying the treasury stock method. Plan of Operation The Company has The Wet Lab will be the center of operations of the Company and will be used by the Company to produce small sample quantities of
The Company is preparing to enter the next phase of its development – production and supply of commercial scale volumes of The Company’s ongoing research and development functions are considered key to maintaining and enhancing its competitive position in the growing nanomaterials and quantum dot market. Nanomaterials and Quantum dot technology The key assets of the Company are its patents, high volume process equipment, licenses and other intellectual property rights, its knowhow and the expertise, capabilities and relationships brought to the Company by its management team. The Company will continue to develop its intellectual property portfolio and licensing The Licenses with Rice and University of Arizona include provisions for milestones and milestone payments. To date, these have been paid as agreed, waived The business of the Company is subject to various types of government regulations, including restrictions on the chemical composition of nanomaterials used in life sciences and other sensitive applications, and regulation of hazardous materials used in or produced by the manufacture or use of quantum dots. Management believes that its patented technology, licensed patented chemistry and proprietary manufacturing process allow the Company to comply with current regulations by producing nanomaterials and by using environmentally friendly solvents, which are nevertheless contained and recycled in the production process. However, new regulations or requirements may develop that could adversely affect the Company or its products in the future. See Liquidity and Capital Resources At June 30, As of June 30, Cash was used in operating activities of $956,639 for fiscal 2014. This is a result of a net loss of $5,302,487 partially offset by stock issued for services of $902,300 and options issued for services of $1,252,828, stock issued for debenture interest and charges of $194,454, and change in the fair value of the derivative liability of $1,084,337. Cash flows used in investing activities during 2014 were $303,514 for the purchase of microreactor equipment. Cash flows provided by financing activities during 2014 were $1,273,533 which consisted of proceeds of the sale of common stock of $873,533 and proceeds from equipment financing debenture of $400,000. As of June 30, 2014, Mr. Squires does not have any unreimbursed cash advances due to him, and has accrued payroll and expenses totaling $119,681 owed to him and accrued payroll of $3,009 owed to his wife in her role as a bookkeeper for the Company. Cash was used in operating activities of $540,428 for fiscal 2013. This is a result of a net loss of related parties. These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying value and classification of assets and liabilities should the Company be unable to continue as a going concern. At June 30, Off-balance sheet arrangements We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits. Officers and employees convert accrued salaries and bonus into warrants In November 2010, Steven Squires ($125,000), Brian Lukian ($234,375), David Doderer ($62,500), Robert Glass ($37,500), Ghassan Jabbour ($243,750), Andrew Robinson ($50,000) and In May 2011, David Doderer ($81,250), Robert Glass ($61,250), Ghassan Jabbour ($62,500), Andrew Robinson ($50,000) and Toshinon Ando ($65,000) converted the amount of monies set forth beside their names into five-year warrants to purchase 738,636 shares, 556,818 shares, 568,181 shares, 454,545 shares and 590,909 shares, respectively, In summary, a total of $320,000 was converted into warrants to purchase 2,909,089 shares exercisable at $.11 per share through the expiration date of May 18, 2016. In January 2013, Chris Benjamin ($39,825), Art Lamstein ($101,139), Toshinon Ando ($125,000), Robin Squires ($122,577), and Ghassan Jabbour ($150,000) converted the amount of monies set forth beside their names into 1,075,275 common shares, 2,730,744 common shares, 3,375,000 common shares, 3,309,570 common shares and 4,050,000 common shares, respectively, In January 2013, David Doderer ($120,000), and Robert Glass ($96,629) converted the amount of monies set forth beside their names into five-year warrants to purchase 3,000,000 common shares and 2,415,725 common shares respectively. In February 2014, Stephen Squires ($95,000), David Doderer ($25,000), Chris Benjamin ($90,000), Ghassan Jabbour ($120,000), Andrew Robinson ($50,000), Toshinori Ando ($99,870), and Art Lamstein ($66,405) converted the amount of monies set forth beside their names into five-year warrants to purchase 17,071,082 shares exercisable at $.06 per share through the expiration date of February 10, 2019. In June 2014, Stephen Squires ($125,000), Chris Benjamin ($80,000), Ghassan Jabbour ($120,000), Robin Squires ($75,000), Toshinori Ando ($86,000) and Andrew Robinson ($40,000) converted the amount of monies set forth beside their name into an aggregate of 6,575,000 common shares and 5,000,000 five-year warrants exercisable at $.08 per share through the expiration date of June 6, 2019. In June 2014, Art Lamstein ($65,000) converted the amount of monies set forth beside his name into five-year warrants to purchase 1,083,333 shares exercisable at $.06 per share through the expiration date of June 6, 2019. Debt Conversions On April 3, 2014, Morse & Morse, PLLC converted $200,000 of legal fees into a $200,000 promissory note convertible at $.06 per share. On that date, the note was assigned to the firm’s partners and an employee. In June 2014, the noteholders converted the principal and accrued interest into an aggregate of 3,363,654 shares of the Company’s restricted Common Stock. On June 30, 2014, our holders of $1,000,000 in principal of secured debt, converted the principal of their debt into 16,666,667 shares of the Company’s Common Stock at the conversion price of $.06 per share. Since Mr. Squires pledged his 20 million shares of Common Stock to secure the repayment of their loans, the former debt holders released the pledged securities back to Mr. Squires. The remaining $500,000 of secured debt which was originally incurred in November 2008, remains due and payable on November 4, 2014, subject to the noteholder’s right of conversion through that date. The Company has the right of prepayment through the maturity date of this debt, subject to the debenture holder’s right to receive prior written notice and its opportunity to convert prior to the redemption date of such note. Results of Operations – June 30, 2013 Balance Sheet Cash At June 30, $185,811. The Company has been in a development stage since inception. As a result, the Company has relied on financing through the issuance of common stock and a convertible debenture in November 2008 as well as advances from related parties. License QMC and Solterra are parties to the Rice Licenses with Rice University. As noted herein, under the Rice Licenses, Solterra and QMC have been granted exclusive rights to develop, manufacture, market and exploit tetrapod quantum dots, in the case of Solterra, for photovoltaic applications, and in the case of QMC, for all electronic and medical applications. During the term of each Rice License, Rice is entitled to royalties ranging from 2% to 4% on sales of quantum dots for photovoltaic cells and 7.5% on sales of quantum dots for other electronic and Life Sciences applications. Rice is also entitled to certain milestone payments under each of the Rice Licenses. The milestone payments, payable on successive annual dates, and escalating from $129,412 up to $3,738,600 (subject to certain adjustments) were due to commence in August 2012. Certain key milestones, such as commencement of initial and scaled production by particular dates, were also required to be achieved by dates in 2013. As all of the milestones were not achieved by the originally anticipated dates, Rice has agreed to amend the first royalty payment date to November 15, 2014, and extend the time for achievement of remaining key milestones to August 15, 2014. Rice is also entitled to fees in the event of certain liquidity events occurring in relation to the Company and its business. As noted above, Solterra is also party to the UA License with the University of Arizona under which Solterra has been granted exclusive rights to use UA’s patented screen printing techniques in the production and sale of organic light emitting diodes in printed electronic displays and other printed electronic components. Under the UA License, UA is entitled to royalties on sales of products within the scope of the UA License, of 2% on net sales of licensed products in non-display electronic products and 2.5% on net sales of licensed products for printed electronic displays, subject to certain minimum annual payments. Patent license costs have been expensed as 2013. Furniture and equipment During the years ended June 30, During the year ended June 30, 2014 the company acquired microreactor equipment, which was placed into service in April 2014. The company is depreciating the microreactor equipment on a straight line basis over 10 years, and has charged operations with $7,588 of depreciation expense for the year ended June 30, 2014.
Deferred financing costs Deferred finance cost $75,683, which off-sets the face value of the note payable. Accounts payable and accrued liabilities The balance at June 30, 2014 was $966,841. Included in accounts payable is accrued liabilities to related parties of $784,164 for unpaid wages, legal fees of $18,432, other pro fees of $10,346, and accounting fees of $30,500. The balance at June 30, 2013 was $1,801,561. Included in accounts payable is accrued liabilities to related parties of $1,513,978 for unpaid wages, legal fees of $173,432, research & development fees of $68,000, and accounting fees of $39,641. Fair value of embedded conversion feature The Company has evaluated the application of ASC 815 to the Convertible Note issued November 4, 2008. Based on the guidance in ASC 815, the Company concluded these instruments were required to be accounted for as derivatives as of July 1, 2009 due to the down round protection feature on the conversion price and the exercise price. The Company records the fair value of these derivatives on its balance sheet at fair value with changes in the values of these derivatives reflected in the statements of operations as “Gain (loss) on derivative liabilities.” Further explanation can be found in Note 7. As part of implementing ASC 815-40-14 the Company adjusted accumulated deficit by $162,643 and additional paid in capital by The increase is due primarily to the increase in stock price. Convertible debenture 2008 Convertible Debenture On November 4, 2008, the Company entered into a Securities Purchase Agreement, Debenture, Security Agreement, Subsidiary Guarantee Agreement, Registration Rights Agreement, Escrow Agreement, Stock Pledge Agreement and other related transactional documents to obtain $1,500,000 in gross proceeds from three non-affiliated parties in exchange for 3,525,000 restricted shares of Common Stock of Hague Corp and Debentures in the principal amount aggregating $1,500,000. 2014 Convertible Debenture On February 6, 2014, the Company entered into a Securities Purchase Agreement, Debenture, Security Agreement, Subsidiary Guarantee Agreement, Registration Rights Agreement, Escrow Agreement, Stock Pledge Agreement and other related transactional documents (the “Transaction Documents”) to obtain $400,000 in gross proceeds from two non-affiliated parties (collectively hereinafter referred to as the “Lenders”) in exchange for 5,000,000 common stock warrants exercisable at $.06 per share through December 31, 2016. The Debenture has a term of two years maturing on January 31, 2016. The Debenture bears interest at the rate of 8% per annum and is pre-payable by the Company at any time without penalty, subject to the Debenture holders’ right of conversion at a conversion price of $.04 per share. The debt is secured by a security interest in certain microreactor equipment. Pursuant to the Securities Purchase Agreement, the investor has certain preferential rights to fund a second microreactor at a cost of up to $650,000. In the event of a second investment, the investor would receive warrants to purchase up to 8,125,000 shares, exercisable at $.06 per share with the second Debenture convertible at a conversion price of $.06 per share. The Agreement also provides for the investor to have the right to appoint one member to the Company’s Board of Directors in the event that any one of the aforementioned Debentures are converted into Common Stock of the Company. In accounting for the above convertible debentures, the Company has recognized a beneficial conversion factor expense of $115,603, allocated warrant expense (deferred financing costs) of $95,603, and interest expense of 19,920 for the twelve months ended June 30, 2014. The warrant expense is treated as deferred financing costs and is being amortized using the effective interest rate method over the life of the loan agreement, twenty-four months. The debenture funds are held in escrow and released as progress payments are made on the microreactor construction. The funds which have been released as payment are originally classified as Deposits on Assets, until such time that the microreactor was put in service. The amounts are now classified as the Microreactor Equipment. On April 3, 2014, Morse & Morse, PLLC converted $200,000 of legal fees into a $200,000 promissory note convertible at $.06 per share. On that date, the note was assigned to the firm’s partners and an employee. In June 2014, the noteholders converted the principal and accrued interest into an aggregate of 3,363,654 shares of the Company’s restricted Common Stock. Common Stock During the fiscal year ended June 30, 2014. During the fiscal year ended June 30, 2013 according to the provisions of the Convertible Debenture agreement, the Company elected to issue 2,176,247 shares of the Company’s Common Stock to pay accrued interest on the debentures. The Company also issued 22,388,375 restricted shares of common stock at between $0.035 per share and $0.12 per share for a total of $697,598. Common stock increased from 124,113,887 shares at June 30, 2012 to 182,988,347 shares at June 30, 2013. Statement of operations – June 30, 2014 General and administrative expenses During the twelve months ended June 30, $89,653. Included in the expenses for the current twelve months were stock based compensation of $139,893. Research and development expenses. The Company incurred research and development expenses of Amortization of convertible debenture discount The convertible debenture discount of $1,500,000 was amortized over the original 36 month term of the debenture using the effective interest method. The debenture was issued on November 4, 2008. Amortization recorded for the twelve month period ended June 30, $0. In addition, $1,000,000 of the debenture was converted to 16,666,667 common shares in June 2014, leaving a remaining balance of $500,000 for the debenture on the balance sheet. Amortization of deferred finance cost This amount relates to the $315,000 of expenses associated with the $1,500,000 convertible debenture financing raised in November 2008. The deferred financing cost was amortized using the effective interest method over the thirty-six month life of the debenture. Amortization expense recorded for the twelve month period ended June 30, In February 2014 the Company recognized deferred financing costs associated with the $400,000 convertible note issued with warrants, in the amount of $95,603. The deferred financing cost is being amortized using the effective interest method over the twenty-four month life of the note. Amortization expense recorded for the twelve month period ended June 30, 2014 and 2013 was $19,920 and $0, respectively. Interest expense on the convertible debenture This amount relates to the 8% interest associated with the $1,500,000 convertible debenture issued in November 2013. According to the provisions of the Convertible Debenture $30,378. Change in fair value of warrants and embedded conversion feature This amount relates to the change in value of the derivative liabilities. The change recorded in the year ended June 30, $441,000. Option and Warrant expense The Company issued 2,000,000 common stock warrants related to the debenture extension and has attributed $138,800 to the warrant value using the Black Scholes price model during the year ended June 30, 2013. The value will be expensed over the duration of the debenture extension, as such, $99,252 of the warrant value was recognized as expense in current fiscal year, with the remainder of $39,548 to be recognized in the subsequent fiscal year. The Company issued 5,415,725 common stock options to employees in exchange for salaries owed and has attributed $440,840 to the options value using the Black Scholes price model during the year ended June 30, 2013. As $216,629 was previously recognized as salary expense, the remainder of $224,211 was recognized in In October 2012, the Company issued 15,000,000 shares of common stock and options to purchase an additional 15,000,000 shares to executives as part of their employment agreements entered into during the fiscal year and has attributed The Company issued 2,000,000 common stock options to two individuals for services. The options were valued using the Black Scholes Model, resulting in a valuation of $136,200, Reference is made to Item 5 for a description of securities sold in fiscal 2014. Significant Accounting Pronouncements Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. Management has reviewed the aforementioned rules and releases and believes any effect will not have a material impact on the Company's present or future financial statements. Item 8.Consolidated Financial Statements Consolidated Financial Statements The report of the Independent Registered Public Accounting Firm on the Consolidated Financial Statements and Schedules are set forth beginning on the next page of this Annual Report on Form 10-K following this page.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors Quantum Materials Corp. San Marcos, TX We have audited the accompanying consolidated balance sheets of Quantum Materials Corp., a development stage company, as of June 30, We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company was not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that were appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements, referred to above, present fairly, in all material respects, the consolidated financial position of Quantum Materials Corp. as of June 30, The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has had no revenues, has incurred recurring losses resulting in a stockholders’ deficit, has negative cash flows from operating activities, and a working capital deficit. The Company requires additional equity funding or financing to commence its operating plan. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Messineo & Co., CPAs, LLC Messineo & Co., CPAs, LLC Clearwater, Florida September 19, 2014 Quantum Materials Corp. (A Development Stage Company) Consolidated Balance Sheets For the 2014
The accompanying notes are an integral part of these consolidated financial statements.
Quantum Materials Corp. (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS For the years ending June 30, 2013 For the period from May 19,2008 (inception) to June 30, 2014
The accompanying notes are an integral part of these consolidated financial statements. Quantum Materials Corp. (A Development Stage Company) CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) For the period from May 19,2008 (inception) to June 30, 2014
The accompanying notes are an integral part of these consolidated financial statements. Quantum Materials Corp. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS For the period from May 19,2008 (inception) to June 30, 2013 and period from May 19, 2008 (inception) through June 30, 2012
The accompanying notes are an integral part of these consolidated financial statements. Notes to Consolidated Financial Statements for year ended June 30, Note 1.Basis of Presentation The consolidated balance sheets and the consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years ended June 30, Since November 4, 2008, the Company has changed its business plans and is no longer intending to pursue the mining of mineral rights located in Nevada. The Company intends to pursue the business plans of its subsidiary, Solterra Renewable Technologies, Inc. (“Solterra”). The following is a brief business overview of Solterra. Solterrais a start-up solar technology and quantum dot manufacturing firm which was founded by Stephen Squires. Mr. Squires perceives an opportunity to acquire a significant amount of both quantum dot and solar photovoltaic market share by commercializing a low cost quantum dot processing technology and a low cost quantum dot based third generation photovoltaic technology/solar cell, pursuant to an exclusive license agreement with William Marsh Rice University (“Rice University” or “Rice”). Our objective is to become the first bulk manufacture of high quality tetrapod quantum dots and the first solar cell manufacturer to be able to offer a solar electricity solution that competes on a non-subsidized basis with the price of retail electricity in key markets in North America, Europe, the Middle East and Asia. Note 2.Nature and Continuance of Operations In November 2008, the Company acquired Solterra, through an Agreement and Plan of Merger and Reorganization (the “Merger”) by and among Solterra, the Shareholders of Solterra and Quantum Materials Corp and Gregory Chapman as “Indemnitor” which resulted in Solterra becoming a wholly-owned subsidiary of Quantum Materials Corp. Pursuant to the Merger, Mr. Chapman cancelled 40,000,000 shares of Common Stock of Quantum Materials Corp owned by him and issued a general release in favor of Quantum Materials Corp terminating its obligations to repay Mr. Chapman approximately $34,000 in principal owed to him. In accordance with the Merger, Quantum Materials Corp issued 41,250,000 shares of its Common Stock to the former stockholders of Solterra. Certain existing stockholders of Quantum Materials Corp in consideration of Solterra and its shareholders completing the transaction, issued to Quantum Materials Corp a Promissory Note in the amount of $3,500,000 due and payable on or before January 15, 2009, through the payment of cash or, with the consent of Quantum Materials Corp, the cancellation of up to 12,000,000 issued and outstanding shares of Quantum Materials Corp owned by them. The Company has recorded the note receivable in equity as a subscription receivable which is offset by additional paid in capital, thus this entry has a zero net effect in the financial statements. As of Quantum Materials Corp. ceased the mining business that we had previously conducted, we closed our offices in Canada, and we moved our offices to the offices of Solterra in Arizona, and thereafter to San Marcos, Texas. These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying value and classification of assets and liabilities should the Company be unable to continue as a going concern. At June 30, Note 3.Summary of Significant Accounting Policies Cash and cash equivalents Cash and cash equivalents include cash and all highly liquid financial instruments with original purchased maturities of three months or less. At various times during the year, the Company maintained cash balances in excess of FDIC insurable limits. Management feels this risk is mitigated due to the longstanding reputation of these banks. Fair value of financial instruments The Company's financial instruments consist of cash and cash equivalents Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Deferred Finance Costs Deferred finance costs which arose from the Company’s convertible debenture financing are amortized using the effective interest method over the three year term of the debentures. Equipment Office furniture, office equipment and
Long-lived assets We review our long-lived assets, which include intangible assets subject to amortization, for recoverability whenever events or changes in circumstances indicate that the carrying amount of such long-lived asset or group of long-lived assets (collectively referred to as “the asset”) may not be recoverable. Such circumstances include, but are not limited to:
Beneficial conversion Equity instruments that contain a beneficial conversion feature are recorded as a deemed dividend to the holders of the convertible Derivative The Company enters into financing arrangements that consist of freestanding derivative instruments We estimate fair values of derivative financial instruments using various techniques (and combinations thereof) that are objective measuring fair values. In selecting the appropriate technique, we consider, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as freestanding warrants, we generally use the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price of our common stock. Since derivative financial instruments are initially and subsequently carried at fair values, our income (expense) going forward will reflect the volatility in these estimates and assumption changes. Under the terms of the new accounting standard, increases in the trading price of the Company’s common stock and increases in fair value during a given financial quarter result in the application of non-cash derivative expense. Conversely, decreases in the trading price of the Company’s common stock and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative income. Revenue Recognition The Company recognizes revenue from the sale of products and services in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial Statements.” We recognize a sale when the product has been delivered and risk of loss has passed to the customer, collection of the resulting receivable is reasonably assured, persuasive evidence of an arrangement exists, and the fee is fixed or determinable. The assessment of whether the fee is fixed or determinable considers whether a significant portion of the fee is due after our normal payment terms. If we determine that the fee is not fixed or determinable, we recognize revenue at the time the fee becomes due, provided that all other revenue recognition criteria have been met. Also, sales arrangements may contain customer-specific acceptance requirements for both products and services. In such cases, revenue is deferred at the time of delivery of the product or service and is recognized upon receipt of customer acceptance. Research and development costs Research and development costs are expensed as they are incurred. Research and development expense was $114,980, $91,803 Stock compensation awards The Company follows ASC 718 when accounting for stock compensation awards to employees. Compensation cost to employees is based on the stock’s fair value at grant date. The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity – Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date Compensation costs, which includes shares issued in exchange for services and options and warrants issued to employees and consultants, 2013, respectively. Basic and diluted loss per share The Company reports basic loss per share in accordance with the ASC 260, “Earnings Per Share”. Basic loss per share is computed using the weighted average number of shares outstanding during the period. Diluted loss per share has not been provided as it would anti-dilutive. Dilution is computed by applying the treasury stock method. As of June 30, 2014 there were warrants outstanding with strike price less than the current fair market value. Recently Adopted Accounting Standards In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-10, which eliminated certain financial reporting requirements of companies previously identified as “Development Stage Entities” (Topic 915). The amendments in this ASU simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs by eliminating the requirement for development stage entities to present inception-to-date information in the statements of income, cash flows, and shareholder equity. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915. The Company will adopt this standard for future reporting periods. In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09,Revenue from Contracts with Customers. The revenue recognition standard affects all entities that have contracts with customers, except for certain items. The new revenue recognition standard eliminates the transaction-and industry-specific revenue recognition guidance under current GAAP and replaces it with a principle-based approach for determining revenue recognition. Public entities are required to adopt the revenue recognition standard for reporting periods beginning after December 15, 2016, and interim and annual reporting periods thereafter. Early adoption is not permitted for public entities. The Company has reviewed the applicable ASU and has not, at the current time, quantified the effects of this pronouncement, however it believes that there will be no material effect on the consolidated financial statements. In June 2014, FASB issued Accounting Standards Update (ASU) No. 2014-12Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition under Accounting Standards Codification (ASC) 718,Compensation — Stock Compensation. As a result, the target is not reflected in the estimation of the award’s grant date fair value. Compensation cost would be recognized over the required service period, if it is probable that the performance condition will be achieved. The guidance is effective for annual periods beginning after 15 December 2015 and interim periods within those annual periods. Early adoption is permitted. Management has reviewed the ASU and believes that they currently account for these awards in a manner consistent with the new guidance, therefore there is no anticipation of any effect to the consolidated financial statements. In August2014, FASB issued Accounting Standards Update (ASU) No. 2014-15Preparation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Under generally accepted accounting principles (GAAP), continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Subtopic 205-30, Presentation of Financial Statements—Liquidation Basis of Accounting. Even when an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the amendments in this Update should be followed to determine whether to disclose information about the relevant conditions and events. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company will evaluate the going concern considerations in this ASU, however, at the current period, management does not believe that it has met conditions which would subject these financial statements for additional disclosure. The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's consolidated financial position, consolidated results of operations or consolidated cash flow. Note 4.Long-lived assets Furniture and equipment Components of furniture and equipment consist of the following items as of June 30,:
Depreciation expense was $7,588 and $1,160 for the years ending June 30, 2014 and 2013, respectively. Licenses The Company has entered into licensing arrangements for intellectual property rights. As of June 30,:
Amortization expense was $2,750 and
Note 5. Related party transactions The Company expensed management fees to the CEO / major shareholder as well as other related party executives and employees of During the year ended June 30, 2014, in exchange for shares of common stock, a director accepted settlement on amounts due to him and forgiving the remaining balance. The Company recognized a benefit in the amount of $30,898, the amount of liability in excess of the fair value of common shares received in the exchange, and treated as a contribution to capital. As a result the accrued liabilities related party was During the twelve months ended June 30, 2014 and 2013 the Company recorded $0 and $11,520 of rent expense for the use of executive office space in the home of the CEO / major shareholder, all of which was included in the accrued liabilities for related parties. In January 2011 the Company issued 10,000,000 restricted shares to Stephen Squires the CEO in recognition of his support of the Company and in cancellation of all outstanding cash loans and payments made on behalf of the Company totaling $270,145. Note 6. Convertible debentures 2008 Convertible Debenture Balance of convertible
June 30, 2013:
On November 4, 2008, Quantum Materials Corp entered into a Securities Purchase Agreement, Debenture, Security Agreement, Subsidiary Guarantee Agreement, Registration Rights Agreement, Escrow Agreement, Stock Pledge Agreement and other related transactional documents (the “Transaction Documents”) to obtain $1,500,000 in gross proceeds from three non-affiliated parties (collectively hereinafter referred to as the “Lenders”) in exchange for 3,525,000 restricted shares of Common Stock of Quantum Materials Corp (the “Restricted Shares”) and Debentures in the principal amount aggregating $1,500,000. Each Debenture originally had a term of three years maturing on November 4, 2011 bearing interest at the rate of 8% per annum and is prepayable by Quantum Materials Corp at any time without penalty, subject to the Debenture holders’ conversion rights. In recognition of the 3,525,000 shares issued at origination, the Company recorded a discount of $1,155,826. The discount is made up of two components: $577,913 related to the discount for the relative fair value of the shares issued; and $577,913 related to a beneficial conversion feature. The discount was amortized over the 3 year life of the debenture, using the interest rate method and recorded as interest expense.Each Debenture is convertible at the option of each Lender into Quantum Materials Corp’s Common Stock (the “Debenture Shares”, which together with the Restricted Shares shall collectively be referred to as the “Securities”) at a conversion price of $.2667 per share (the “Conversion Price”). In October 2010, the conversion price was decreased to $0.12 per share and in June 2013, the conversion price was lowered to $.06 per share. The Registration Rights Agreement requires Quantum Materials Corp to register the resale of the Securities within certain time limits and to be subject to certain penalties in the event Quantum Materials Corp fails to timely file the Registration Statement, fails to obtain an effective Registration Statement or, once effective, to maintain an effective Registration Statement until the Securities are saleable pursuant to Rule 144 without volume restriction or other limitations on sale. The Debentures are secured by the assets of Quantum Materials Corp and are guaranteed by Solterra as Quantum Materials Corp’s subsidiary. To date, no registration statement has been filed by the Company or demanded by the Debenture On June 30, 2014, $1 million of the Debentures thereunder. The Transaction Documents include a Stock Pledge Agreement pursuant to which Stephen Squires, the Company's Chief Executive Officer, 2014 Convertible Debenture Balance of convertible debenture issued in 2014 consist of the following as of June 30,:
On February 6, 2014, the Company entered into a Securities Purchase Agreement, Debenture, Security Agreement, Subsidiary Guarantee Agreement, Registration Rights Agreement, Escrow Agreement, Stock Pledge Agreement and other related transactional documents (the “Transaction Documents”) to obtain $400,000 in gross proceeds from two non-affiliated parties (collectively hereinafter referred to as the “Lenders”) in exchange for 5,000,000 common stock warrants exercisable at $.06 per share through December 31, 2016. The Debenture has a term of two years maturing on January 31, 2016. The Debenture bears interest at the rate of 8% per annum and is pre-payable by the Company at any time without penalty, subject to the Debenture holders’ right of conversion at a conversion price of $.04 per share. The debt is secured by a security interest in certain microreactor equipment. Pursuant to the Securities Purchase Agreement, the investor has certain preferential rights to fund a second microreactor at a cost of up to $650,000. In the event of a second investment, the investor would receive warrants to purchase up to 8,125,000 shares, exercisable at $.06 per share with the second Debenture convertible at a conversion price of $.06 per share. The Agreement also provides for the investor to have the right to appoint one member to the Company’s Board of Directors in the event that any one of the aforementioned Debentures are converted into Common Stock of the Company. In accounting for the above convertible debentures, the Company has recognized a beneficial conversion factor expense of $115,603, warrant expense of $95,603 recorded as debt financing costs, and interest expense of 19,920 for the year ended June 30, 2014. The debt discount or deferred financing costs are amortized using the effective interest rate method over the life of the loan terms, twenty-four months. The debenture funds are held in escrow and released as progress payments are made on the microreactor construction. The funds which have been released as payment are originally classified as Deposits on Assets, until such time that the microreactor was put in service. The amounts are now classified as the Note 7.Derivatives and Fair Value The Company has evaluated the application of ASC 815 to the Convertible Note issued November 4, 2008. Based on the guidance in ASC 815, the Company concluded these instruments were required to be accounted for as derivatives as of July 1, 2009 due to the down round protection feature on the conversion price and the exercise price. The Company records the fair value of these derivatives on its balance sheet at fair value with changes in the values of these derivatives reflected in the statements of operations as “Gain (loss) on derivative liabilities.” These derivative instruments are not designated as hedging instruments under ASC 815 and are disclosed on the balance sheet under Derivative Liabilities. ASC 825-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 825-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 describes three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets or liabilities; Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. The Company’s Level 3 liabilities consist of the derivative liabilities associated with the November 4, 2008 note. At June 30, Level 3 Valuation Techniques Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation.
The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the twelve months of fiscal year
Assumptions used in the calculation of the derivative
liability are as follows:
Note 8.Equity Transactions: Common stock On January 20, 2010 the stockholders of the Company by majority of written consent approved the filing of an amendment to the Company's Article of Incorporation to change the name of the corporation from Hague Corp. to Quantum Materials Corp. and to increase the authorized common stock to 200,000,000 shares, $.001 par value. The stockholders also ratified the Company's compensation plan covering 10,000,000 options to purchase shares of common stock. This plan provides for the direct issuance of common stock or the grant of options thereunder. The Amendment to the Company's Article of Incorporation was filed March 23, 2010 with the secretary of the state of Nevada. In March 2013, the stockholders approved an amendment to its Articles of Incorporation to increase the authorized common shares to 400,000,000 shares. The Amendment to the Company's Article of Incorporation was filed April 4, 2013 with the secretary of the state of Nevada. In January 2013, the Company’s Board approved the 2013 Employee Benefit and Consulting Services Compensation Plan covering 20,000,000 shares, which automatically increased to 60,000,000 shares on March 29, 2013. During the year ended June 30, 2013 the Company issued 22,388,375 common shares for total cash proceeds of $697,598. The selling price per share ranged from $0.03 to $0.12 per share or an average price of $0.0336 per share. The April 2013 stock offering included warrants to purchase an additional 1,659,000 shares of common stock at $.12 per share. The Company allocated $65,361 of the total proceeds of $199,080 from that offering to additional paid in capital. In September 2012, January 2013, March 2013 and June 2013 the Company issued 2,176,247 of restricted common shares to pay accrued interest on the convertible debentures of $151,707, which included provisional interest in the amount of $30,374, for the 12 months from June 1, 2012 to June 1, 2013. During the year ended June 30, 2013 the Company issued 14,540,589 shares of common stock in exchange for accrued salaries in the amount of $538,540, for services previously performed. The Company issued shares at a bonus rate, whereby the fair market value of the share, at the date of grant, was $799,732. The variance of the fair market value over the accrued salaries, in the amount of $261,192 was charged to compensation expense. Additionally, 137,400 shares were issued in satisfaction of outstanding accounts payable of $7,810. The fair market value of these shares was $10,305 at the date of grant, resulting in compensation of $2,495 charged to compensation expense. In the quarter ended June 30, 2013, the Company issued 15,000,000 shares and 15,000,000 stock options to executives related to their employment agreements under the 2013 stock option plan. The fair value of the stock was $1,050,000 and has been recognized as compensation expense in the year ended June 30, 2013. During the year ended June 30, 2013 the Company issued 4,631,849 shares of common stock to employees and consultants. The fair market value of the shares, at the date of grant, was $269,288, which has been recognized as compensation expense for the year ended June 30, 2013. During the During the year ended June 30, 2014 the Company issued 880,000 shares of common stock for warrants which were exercised at an average price of $.0491, for proceeds of 43,200. In September 2013, December During the year ended June 30, 2014 the Company issued 13,241,667 shares of common stock in exchange for unpaid accrued compensation in the amount of $767,085, for services previously performed. During the year ended June 30, 2014 the Company issued 16,500,000 shares of common stock to consultants in exchange for services. The fair market value of the shares, at the date of grant, was $902,300, which has been recognized as professional fees for the year ended June 30, 2014. During the year ended June 30, During the year ended June 30, the debenture was $.06. Warrants In October 2012, the Company issued 2,000,000 warrants to the debenture holders. The warrants are exercisable at $.08 per share, expiring October 12, 2015. In June 2013, 2013. In In August 2013, the In January 2014, the Company issued 5,000,000 warrants to the equipment financing debenture holders. The warrants are exercisable at $.06 and expire December 31, 2015. The warrants were valued using the Black Scholes Method, the resulting value was allocated proportionately to the total of In May 2014, the Company issued 113,000 warrants to a service provider. The as financing costs. In valued at $64,959, included as warrant expense. Stock Options In In March 2013 the In January 2013 the Company issued 15,000,000 shares and 15,000,000 stock options to executives related to their employment agreements under the 2013 stock option plan. The options are exercisable at a price per share of $0.05 through March 29, 2023. The Company calculated the fair value of the options to be $1,036,500 using the Black Scholes price model. Of this amount, $52,790 has been recognized as compensation expense in the year ended June 30, 2013. In expense in the year ended June 30, 2014. In June 2014 the Company issued 6,083,333 stock options to employees in exchange for salaries accrued. The options are exercisable at a price per share of $.08, for a five (5) year term. The Company calculated the fair value of the options to be $1,116,260 using the Black Scholes price model, which has been recognized as compensation expense in the year ended June 30, 2014. The following assumptions were used in the calculation of warrant and option expense:
The following table summarizes warrants that are issued, outstanding and exercisable.
In October 2009 the Board of Directors authorized the approval of a stock option plan covering 7,500,000 shares of common stock, which was later increased to 10,000,000 shares on December 2, 2009 and approved by stockholders on January 25, 2010. The Plan provides for the direct issuance of common stock and the grant of incentive and non-incentive stock options. The Company issued 9,200,000 options and valued the options at $955,242 using the Black Scholes pricing model. The Company recorded the entire $944,317 value of 2010 options as stock based compensation for the year ended June 30, 2010. Option activity was as follows for the twelve months ended June 30,
2013.
In January 2013 the Board of Directors authorized the approval of a stock option plan covering 20,000,000 shares of common stock, which was later increased to 60,000,000 shares on March 29, 2013 and approved by stockholders on March 18, 2013. The Plan provides for the direct issuance of common stock and the grant of incentive and non-incentive stock options. Note 9. Commitments and Contingencies Contingency Certain default clauses related to the various agreements discussed in Note 6 would result in a change of control of the board of directors. Certain debt holders would have the option to appoint independent members to the board under such default. From time to time the Company may become a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations. License Agreement - Work-Study Arrangements License Agreement with Rice University On August 20, 2008, Solterra entered into a License Agreement with Rice University. In August 2013, Solterra entered into an amended License Agreement and Quantum Materials entered into a new License Agreement with Rice. Rice is the owner of certain inventions and patent applications, know-how and rights pertaining to the synthesis of uniform nanoparticle shapes with high selectivity. We have obtained the exclusive rights to license and sublicense (subject to Rice’s consent, which shall not be unreasonably withheld), develop, manufacture, market and exploit Rice’s inventions, patent applications and any issued patents in the case of Solterra, for the manufacture and sale of photovoltaic cells and photovoltaic applications and in the case of Quantum Materials for the manufacture and sale of quantum dots for electronic and medical applications (excluding photovoltaic applications). With respect to Rice’s patent applications, Rice made a provisional filing for an invention disclosure titled “synthesis of uniform nanoparticle shapes with high selectivity” with the United States Patent and Trademark Office on April 13, 2007 and a subsequent utility filing on April 11, 2008 under the Patent Cooperation Treaty (“PCT”). PCT enables the U.S. applicant to file one application, "an international application," in a standardized format in English in the U.S. Receiving Office (the U.S. Patent and Trademark Office), and have that application acknowledged as a regular national or regional filing in any State or region that is party to the PCT. Dr. Michael Wong is a director of our company and is the inventor of Rice’s patent application licensed by Solterra. Our initial agreement with Rice requires the payment of certain patent fees to Rice and for us to acquire additional funding and to meet certain milestones by specific dates. Rice and the Company recently established new milestones for the Company to achieve in the months and years ahead, the failure of which could lead to the termination of the license agreement. Rice is entitled to receive during the term of each License Agreement certain royalties under the License Agreement of adjusted gross sales (as defined) ranging from 2% to 4% for photovoltaic cells and 7.5% of adjusted gross sales for quantum dots sold in electronic and medical applications. Minimum royalties payable under the License Agreement include $29,450 due January 1, 2015, $217,000 due January 1, 2016, $648,750 due January 1, 2017, $2,038,500 due January 1, 2018 and $3,738,600 due January 1, 2019 and each January 1 of every year thereafter, subject to adjustments for changes in the consumer pricing index. The term of the License Agreement is to expire on the expiration date of Rice’s rights in its intellectual property and the Licensee’s rights are worldwide. Our Agreement, as amended, with Rice provides for termination of each Agreement in the event that we are determined to be insolvent as defined in the Agreements. Agreement with University of Arizona Solterra has entered into an exclusive Patent License Agreement with the University of Arizona ("UA") to license US Patent # 7,015,052, which was issued on March 21, 2006, entitled “Screen Printing Techniques for the Fabrication of Organic Light - Emitting Diodes”. Pursuant to the License Agreement, Solterra has an exclusive license to market, sell and distribute licensed products within its field of use which is defined as organic light emitting diodes in printed electronic displays and all other printed electronic components. Solterra has the right to grant sublicenses with respect to the licensed product and the license method (as defined in the agreement). Pursuant to said agreement, as amended, we are obligated to pay minimum annual royalties of $5,000 by June 30, 2012, $25,000 by December 31, 2013, $50,000 by December 31, 2014, $125,000 by June 30, 2015 and $200,000 on each June 30th thereafter, subject to adjustments for increases in the Consumer Price Index. Royalties based on net sales are 2% of net sales of licensed products for non-display electronic component applications and 2.5% of net sales of licensed products for printed electronic displays. Our Agreement with UA may be terminated by UA in the event that we are in breach of any provision of this Agreement and said breach continues for 60 days after receiving written notice. Our Agreement with UA will also automatically terminate if Solterra becomes insolvent or unable to pay its debts as they become due. We can provide no assurances that we will be able to meet our obligations under our Agreement with UA. Termination of our Agreement with UA could materially adversely affect our operations. Agreement with Virginia Tech Intellectual Properties Quantum Materials has entered into an exclusive Option Agreement with Virginia Tech Intellectual Properties (VA Tech) to evaluate US Patent #61/906,927, entitled “Fabrication of Physically Unclonable Functions via Additive Manufacturing”. Pursuant to the Option Agreement, Quantum has a 12 month period to evaluate the usefulness of the above mentioned patent and to provide VA Tech with its desire to obtain the patent, along with Quantums plan for developing such patent into products or processes for public use. Quantum paid $10,000 in Q4 of FY 2014 for the 12 month option. Our agreement will terminate automatically on May 23, 2015 if Quantum has not yet expressed its desire to fully license the patent, or provide VA Tech with a plan on how it will develop the patent into a product or process. Agreement with Texas State University Quantum Materials has entered into a Memorandum of Understanding (MOU) with Texas State University (TSU) for the purpose of formalizing a collaboration in which TSU will support Quantums efforts to commercialize Quantum Dot materials. Both parties agree to cooperate in a mutually beneficial arrangement, in which TSU will provide access to facilities, faculty and students in several departments, with Quantum providing internship opportunities and business growth opportunities in the San Marcos, Texas area. The MOU expires on December 31, 2016, and either party can terminate the MOU with 30 days written notice. Employment agreements The Company has See “Note 11 – Legal Proceeding.” Summary
Commitments / Contracts / Leases
Note 10. Income taxes Quantum Materials Corp. follows the guidance of ASC 740, "Income Taxes." Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carryforwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry forward has been recognized, as it is not deemed likely to be realized. The provision for refundable Federal income tax consists of the following for the period ending June 30:
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
At June 30, Under regulations, the Company has open tax years, subject to audit, beginning for the year ended June 30, Note 11. Legal Proceeding The Company commenced an action against Robert Allan Glass in Federal Court in Austin, Texas regarding the termination of his employment agreement. The Company seeks to recover all common stock and cancel all options issued to Mr. Glass as part of his employment agreement. Mr. Glass has filed a counterclaim against the Company alleging breach of contract of the employment agreement seeking allegedly unpaid compensation. Note On July 15, 2014, the Board of Directors approved the following: The addition of Mr. John Heaton to the Board of Directors; The approval of a scientific advisory board to be chaired by Dr. The addition of Mr. Tomio Gotoh to the scientific advisory board; The removal of Dr. Michael Wong from the Board of Directors, and his The renewal of The approval of a 3 year contract with Toshi Ando who will hold the title of Director of Operations, which includes a stock grant of 1,500,000 shares which vest over a 3 year period; In July 2014, the Company had the following issuances of common stock: 240,385 shares at $0.21 in exchange for cash of $50,000; 766,667 shares at $0.06 in exchange for cash of $46,000; In August 2014, the Company had the following issuances of common stock: 240,000 shares at $0.06 in exchange for cash of $14,400; 262,034 shares at $0.23 in exchange for cash of $60,000; 320,000 shares at $0.18 in exchange for cash of $57,600; 249,999 shares at $0.10 in exchange for cash of $25,000; 300,000 shares at $0.067 in exchange for cash of $20,000; 400,000 shares at $0.05 in exchange for cash of $20,000; 538,462 shares at $0.065 in exchange for cash of $35,000; 1,617,362 shares at $0.13 in exchange for cash of $210,000; 138,899 shares at $0.18 in exchange for services valued at $25,000; Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not Applicable Item 9.A. Scope of the Evaluation The CEO and CFO’s evaluation of the our Disclosure Controls and Internal Controls included a review of the controls’ (i) objectives, (ii) design, (iii) implementation, and (iv) the effect of the controls on the information generated for use in this annual report. In the course of the Evaluation, the CEO and CFO sought to identify data errors, control problems, acts of fraud, and they sought to confirm that appropriate corrective action, including process improvements, was being undertaken. This type of evaluation is done on a quarterly basis so that the conclusions concerning the effectiveness of our controls can be reported in our quarterly reports on Form 10-Q and annual reports on Form 10-K. The overall goals of these various evaluation activities are to monitor our Disclosure Controls and Internal Controls, and to make modifications if and as necessary. Our intent in this regard is that the Disclosure Controls and the Internal Controls will be maintained as dynamic systems that change (including improvements and corrections) as conditions warrant. Among other matters, the Evaluation was to determine whether there were any significant deficiencies or material weaknesses in our Internal Controls, which are reasonably likely to adversely affect our ability to record, process, summarize and report financial information, or whether the Evaluators identified any acts of fraud, whether or not material, involving management or other employees who have a significant role in our Internal Controls. This information was important for both the Evaluation, generally, and because the Rule 13a-14(a)/15d-14(a) Certifications require that the CEO and CFO disclose that information to our Board (audit committee), and our independent auditors, and to report on related matters in this section of the annual report. In the professional auditing literature, "significant deficiencies" are referred to as "reportable conditions". These are control issues that could have significant adverse effect on the ability to record, process, summarize and report financial data in the financial statements. A "material weakness" is defined in the auditing literature as a particularly serious reportable condition where the internal control does not reduce, to a relatively low level, the risk that misstatement cause by error or fraud may occur in amounts that would be material in relation to the financial statements and not be detected within a timely period by employee in the normal course of performing their assigned functions. The Evaluators also sought to deal with other controls matters in the Evaluation, and in each case, if a problem was identified, they considered what revisions, improvements and/or corrections to make in accordance with our ongoing procedures. Conclusions Based upon the Evaluation, (i) our disclosure controls and procedures are not effective in giving us reasonable assurance that they are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Report of Management on Internal Controls over Financial Reporting. Board of Directors and Quantum Materials Corp.: The Management of Quantum Materials Corp. is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U. S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U. S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and, (iii) provide reasonable assurance regarding prevention of timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to correct deficiencies as identified. Because of its inherent limitations, internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, the effectiveness of internal control over financial reporting was made as of a specific date. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, Based on this assessment, management determined that, as of June 30, Although currently we do not identify any material weaknesses in the process of This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting as such attestation is not required by a smaller reporting company such as the Company. Item 9.B. Other Information. Not Applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance The names, ages and principal occupations of the Company's present officers and directors are listed below.
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The terms of all officers expire at the annual meeting of directors following the annual stockholders meeting. Officers serve at the pleasure of the Board and may be removed, either with or without cause, by the Board of Directors, and a successor elected by a majority vote of the Board of Directors, at any time. Background The following is a brief summary of the background of each director, director nominee and executive officer of our company: Stephen Squires has over 25 years of experience in turnarounds, startups, business development, mergers and acquisitions and strategic planning. Mr. Squires is skilled at identifying emerging technologies and driving commercialization/global market introduction to position companies for growth. From 1977 to 1983, he worked at McDonnell Douglas Corporation, a company engaged in the business of building advanced tactical fighter aircraft and space vehicles, developing and adapting advanced materials for combat aircraft applications. From1983 to 2001, Mr. Squires, as founder, served as President and Chief Executive Officer of Aviation Composite Technologies, Inc., a company whose principal business was the engineering, design, manufacture and refurbishment of advanced composite aero structures. Under Mr. Squire’s leadership the company grew from zero to over 200 employees and operated a 100,000 square foot state of the art facility. Aviation Composite was merged with USDR Aerospace in 2001. Prior to his employment with the Company which commenced upon the closing date of the Agreement and Plan of Reorganization, Mr. Squire’s principal occupation was consulting and advising in the areas of advanced materials, nanotechnology, applications engineering, strategic international marketing with emphasis on middle east and commercialization of emerging technologies for Orasi LLC. Since 1998, Mr. Squires has pursued his interests in advanced materials such as nano fibers and nanotubes where he quickly recognized the potential of the unique quantum features these materials held. Mr. Squires' extensive business, managerial, executive and leadership experience in a variety of industries, particularly qualifies him for service on the Board. Mr. Squires has had experience working for McDonnell Douglas Corporation and Aviation Composite Technologies, each of which brings valuable business experience to the Board. Christopher Benjaminhas served as Chief Financial Officer of the Company since June 2011.Mr. Benjamin's experience includes both public and private company financial reporting expertise, which he brings to the Board of Directors. Based in Phoenix, AZ, Mr. Benjamin has served as President of Rogue CFO Consulting since November 2007. Prior to this, Chris spent 12 years in the corporate world, with his last several years spent as CFO to growth stage ventures. His responsibilities at these companies included monthly financial reporting and analysis, audit and cash management, forecasting, oversight of the General Ledger, as well as ensuring compliance with GAAP, FASB and SEC reporting standards. Earlier in his career when working with larger corporations his responsibilities included serving as Controller and being involved in Sarbanes Oxley process documentation, process flow creation and SEC reporting support. He received his M.B.A. from the University of Washington in Seattle in 2007 and a B.A. in accounting from the University of Fraser Valley in Abbotsford, British Columbia, Canada in 1997. Dr. Ghassan E. Jabbouris theDirector of the Solar and Alternative Energy Science and Engineering Research Center at KAUST (King Abdullah University of Science and Technology)
David Doderer has over Ray Martinis President and Chief Executive Officer of Advanced Lighting Technologies, holding the position since October 2012, an intellectual property company developing drivers and innovative solutions for LED lighting. Prior to Advanced Lighting Technologies, Mr. Martin worked as Vice President of Technology at Daewon Semiconductor Packaging International Corporation from December 2010 to September 2012, and Vice President of Sales & Marketing PowerKnot LLC from November 2009 to September 2010. He has 30 years of product development experience in the semiconductor, energy and lighting industries at companies including Intel Corporation, Asyst Technologies, and Daewon Semiconductor Packaging Industrial Corporation. In his 14 years at Intel, Mr. Martin worked primarily in Intel’s Technology Development facility where the manufacturing processes for Intel’s microprocessors were developed. Mr. Martin has a BS in Industrial Engineering from Georgia Tech and a M.S. Engineering Management from Santa Clara University. He serves on the board of Sustainable Silicon Valley, a non-profit dedicated to promoting sustainability solutions. Mr. Martin’s expertise and experience in semi-conductors, batteries and solid state lighting together with his dedication towards sustainability and energy efficiency makes Mr. Martin a solid candidate for our Board of Directors. John Heaton,spent 29 years in the semiconductor equipment industry, with 10 years as CEO of NASDAQ traded Nanometrics. He is currently Executive Vice President at Advenira since January 2013, a nanocomposites coatings and deposition technology company. Prior to Advenira, Mr. Heaton worked with EcoVoltz Inc. from 2008 to 2012. Mr. Heaton has broad management, product development, public company and board experience within the semiconductor and nanotechnology fields. Mr. Heaton’s expertise and experience in semi-conductors, batteries and solid state lighting together with his dedication towards sustainability and energy efficiency makes Mr. Heaton a solid candidate for our Board of Directors.
Robin Squires, Possible Expansion of the Board in the event of Default under Outstanding Debentures The Transaction Documents described under Item 7 MKM has converted their debentures to common shares in June 2014.As of the filing date of this Form 10-K, Corporate Governance Our business, property and affairs are managed by, or under the direction of, our Board, in accordance with the General Corporation Law of the State of Nevada and our By-Laws. Members of the Board are kept informed of our business through discussions with the Chief Executive Officer and other key members of management, by reviewing materials provided to them by management. In the past, there have been no arrangements or understandings pursuant to which a director or executive officer was selected to be a director or executive officer other than employment contracts with two of our executive officers. We have had no nominating committee of the Board. Executive officers serve at the pleasure of the Board, subject to their rights under any employment contracts. We review our corporate governance policies and practices by comparing our policies and practices with those suggested by various groups or authorities active in evaluating or setting best practices for corporate governance of public companies. Based on this review, we have adopted, and will continue to adopt, changes that the Board believes are the appropriate corporate governance policies and practices for our Company. We intend to comply with the Sarbanes-Oxley Act of 2002 and subsequent rule changes made by the SEC and any applicable securities exchange. Director Qualificationsand Diversity The board seeks independent directors who represent a diversity of backgrounds and experiences that will enhance the quality of the board’s deliberations and decisions. Candidates shall have substantial experience with one or more publicly traded companies or shall have achieved a high level of distinction in their chosen fields. The board is particularly interested in maintaining a mix that includes individuals who are active or retired executive officers and senior executives, particularly those with experience in the renewable energy, finance and capital market industries. In evaluating nominations to the Board of Directors, our Board also looks for certain personal attributes, such as integrity, ability and willingness to apply sound and independent business judgment, comprehensive understanding of a director’s role in corporate governance, availability for meetings and consultation on Company matters, and the willingness to assume and carry out fiduciary responsibilities. Qualified candidates for membership on the Board will be considered without regard to race, color, religion, sex, ancestry, national origin or disability. See “Lack of Nominating Committee.” Risk Oversight The full board has oversight of and will prioritize the following risks: Risks and exposures associated with corporate governance, and management and director succession planning, strategic, financial and execution risks and other current matters that may present material risk to our operations, plans, prospects or reputation. Risks and exposures associated with financial matters, particularly financial reporting, tax, accounting, disclosure, internal control over financial reporting, financial policies, investment guidelines and credit and liquidity matters. Risks and exposures associated with leadership assessment, and compensation programs and arrangements, including incentive plans. Board Leadership Structure The Chairman of the Board presides at all meetings of the Board according to our bylaws. The Chairman is required to be appointed on an annual basis by at least a majority vote of the remaining directors. Currently, the Scientific Board In July 2014, the Company announced the formation of a Scientific Advisory Board chaired by Dr. Ghassan Jabbour, the Company’s Chief Science Officer and member of the Company’s Board of Directors. Also appointed to the Scientific Advisory Board were Dr. Michael Wong of Rice University and former member of our Board of Directors, and Mr. Tomio Gotoh, a pioneer of the personal computer in Japan. Dr. Ghassan Jabbour, a Fellow SPIE and Fellow EOS, chairs the Quantum Materials Science Advisory Board and serves on the Board of Directors and is also Chief Science Officer. Dr. Jabbour is the Director of Renewable Energy Center at University of Nevada, Reno and in addition to leading his own research groups has directed research centers that address a wide spectrum of renewable energy and energy efficiency including solar, bio-fuels, geothermal, energy storage, solid-state lighting and displays, and low cost manufacturing of energy devices. He is the inventor of numerous patents, including a fundamental patent on printing nanoparticles that is exclusively licensed by the Company as a basis for its quantum dot printing technologies. For a complete biographical information on Dr. Jabbour, see the description of his biographical information above under Executive Officers and Directors. Dr. Michael S. WongPrincipal Investigator, Associate Professor in Chemical and Biomolecular Engineering Associate Professor in Chemistry (Joint Appointment) at William Marsh Rice University. Dr. Wongheads the Catalysis and Nanomaterials Laboratory and is the inventor of the patented synthesis for tetrapod quantum dots licensed exclusively worldwide by the Company. His research interests lie in the areas of nanostructured materials, heterogeneous catalysis, bioengineering applications, and developing new approaches to assembling nanoparticles into functional macrostructures. His accomplishments include: · Smithsonian Magazine "37 Under 36" Young Innovator Award (2007) · 3M Non-tenured Faculty Award (2006, 2007) · GOLD 2006 Conference Best Presentation Award, for "best new idea in gold catalysis" (2006) · AIChE South Texas Section Best Applied Paper Award (2006) · AIChE Nanoscale Science and Engineering Forum Young Investigator Award (2006) · MIT Technology Review's TR35 Young Innovator Award (2006) · Hershel M. Rich Invention Award (2006) · National Academy of Engineering Indo-America Frontiers of Engineering Symposium, Invited Speaker (2006) · Smalley/Curl Innovation Award (2005) · National Academies Keck Futures Initiative (NAKFI) Symposium, Invited Participant (2004) · Oak Ridge Associated Universities Ralph E. Powe Junior Faculty Enhancement Award (2003) · National Academy of Engineering Japan-America Frontiers of Engineering (JAFOE) · Symposium, Invited Participant (2002) · Rice Quantum Institute (RQI), Fellow (2002) · Robert P. Goldberg Grand Prize, MIT $50K Entrepreneurship Competition (2001) · Union Carbide Innovation Recognition Award (2000) · MIT Chemical Engineering Edward W. Merrill Outstanding Teaching Assistant Award (1997) · Faculty advisor for Phi Lambda Upsilon, chemical sciences honorary society (2003 - present) Dr. Michael S. Wong joined the Department of Chemical Engineering in 2001, and received a joint appointment in the Department of Chemistry in 2002. Before coming to Rice University, he did post-doctoral research with Dr. Galen D. Stucky of the Department of Chemistry and Biochemistry at University of California, Santa Barbara. Mr. Wong’s educational background includes a B.S. in Chemical Engineering from Caltech, an M.S. in Chemical Engineering Practice (“Practice School”) from MIT, and a Ph.D. in Chemical Engineering from MIT (under the supervision of Dr. Jackie Y. Ying, “Supramolecular Templating of Mesoporous Zirconia-Based Nanocomposite Catalysts”). With the underlying theme of designing and engineering novel materials for catalytic and encapsulation applications, his research interests lie in the areas of nanostructured materials (e.g. nanoporous materials, nanoparticle-based hollow spheres, and quantum dots), heterogeneous catalysis, and bioengineering applications. He is particularly interested in developing new chemical approaches to assembling nanoparticles into functional macrostructures. Dr. Wong, as a Professor at William Marsh Rice University, the licensor of our quantum dots technology, is 100% familiar with our licensing rights with Rice and the capabilities of this technology. His scientific experience was invaluable as a member of the Board of Directors through July 2014 at which time he elected to resign from the Board and to join the Company’s Scientific Advisory Board. Tomio Gotoh,is a consultant for Diverse Technologies in Japan. Mr. Gotoh is a principal inventor of the NEC TK-80, the first Japanese microcomputer in 1976. He led numerous product launches that made Nippon Electric Company (NEC) the Japanese personal computer industry leader. As NEC's visionary pioneer, Mr. Gotoh contributed significantly during the dawn of the Personal Computer era. Lack of Committees; Independent Directors We do not have standing audit, nominating or compensation committees, or committees performing similar functions. Our board of directors believes that it is not necessary to have standing audit, nominating or compensation committees at this time because the functions of such committees are adequately performed by our board of directors. Our Board has determined that In the future, we intend to have an audit committee and such other committees as determined by the Board of Directors to be in the best interest of the Company and to be in compliance with all applicable securities and state laws and listing requirements of any applicable exchanges or NASDAQ that the Company’s securities may become listed on in the future, of which we can provide no assurances that this will occur. In the event we form an audit committee, we will seek to have a “financial expert” as an independent board member serving on the Audit Committee. Lack of Nominating Committee The Board of Directors has acted as the nominating committee for the Company and no separate nominating committee has been formed to date. This type of committee, if one existed, would be responsible for identifying and recommending the director nominees to be selected by the Board of Directors for each annual meeting of shareholders and reviewing any stockholder nominees; implementing the Board’s criteria for selecting new directors; developing, reviewing and recommending to the Board a set of corporate governance policies applicable to Quantum; providing oversight for the evaluation of the performance of the Board of Directors; and adopting a written charter. Management believes that the cost of having a nominating committee for Quantum as a Smaller Reporting Company outweighs the benefits that may be derived from implementing such a committee. The Board of Directors, acting as the nominating committee on December 2, 2009, by unanimous written consent, approved our then five directors for election by the Consenting Stockholders in Lieu of an actual meeting, which occurred in January 2010. (Note: No other meeting of the Board acting as the nominating committee has been held since December 2009.) Based upon the size of the Company and the Board’s familiarity with the Company since its inception, the Board also has determined that each of the Directors is qualified to suggest nominees for consideration to the nominating committee. The Board of Directors, when acting as the nominating committee, is generally responsible for:
The Board of Directors, when fulfilling the duties of a nominating committee, does not operate under a charter and it does not have a policy with regard to the consideration of any Director candidates recommended by members. Director Qualifications. While the members of our Board have not established specific minimum qualifications for director candidates, the candidates for Board membership should have the highest professional and personal ethics and values, and conduct themselves consistent with our Code of Ethics. While the members of the Board have not formalized specific minimum qualifications they believe must be met by a candidate to be recommended by the members, the members of the Board believe that candidates and nominees must reflect a Board that is comprised of directors who (i) have broad and relevant experience, (ii) include some independent directors, (iii) are of high integrity, (iv) have qualifications that will increase overall Board effectiveness and enhance long-term stockholder value, and (v) meet other requirements as may be required by applicable rules, such as financial literacy or financial expertise with respect to potential Audit Committee members. These factors, and others as considered useful by our Board acting as its own nomination and governance committee, will be reviewed in the context of an assessment of the perceived needs of our Board of Directors at a particular point in time. As a result, the priorities and emphasis of our Board of Directors may change from time to time to take into account changes in business and other trends, and the portfolio of skills and experience of current and prospective directors. Consideration of new director candidates is expected to involve a series of Board discussions, review of information concerning candidates and interviews with selected candidates. The Board does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. Candidates for nomination to our Board of Directors may be suggested by other members of our Board of Directors. From time to time, our Board acting as its own nomination committee may in the future (although it has not done so in the past) engage the services of a third party search firm to identify director candidates. Limitation of Directors’ Liability and Indemnification Our company is incorporated under the laws of the State of Nevada, which laws provide for indemnification of officers and directors under certain circumstances. Our Bylaws provide for the indemnification of our directors to the fullest extent permitted under the general corporation law of the State of Nevada from time to time against all expenses, liability and loss (including attorneys’ fees, judgments, fines and amounts paid or to be paid in settlement) reasonably incurred or suffered in connection with acting as directors of our company. Our articles of incorporation provide that no Director or Officer of the corporation shall be personally liable to the corporation or any of its stockholders for damages for breach of fiduciary duty as a Director or Officer involving any act or omission of any such Director or Officer; provided, however, that: the foregoing provision shall not eliminate or limit the liability of a Director or Officer (i) for acts or omissions which involve intentional misconduct, fraud or a knowing violation of the law, or (ii) the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any repeal or modification of this Article by the Stockholders of the corporation shall be prospective only, and shall not adversely affect any limitations on the personal liability of a Director or Officer of the corporation for acts or omissions prior to such repeal or modification. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of our company under Nevada law or otherwise, we have been advised the opinion of the Securities and Exchange Commission is that such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event a claim for indemnification against such liabilities (other than payment by us for expenses incurred or paid by a director, officer or controlling person of our company in successful defense of any action, suit, or proceeding) is asserted by a director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction, the question of whether such indemnification by it is against public policy in the Securities Act of 1933 and will be governed by the final adjudication of such issue. Code of Ethics The Securities & Exchange Commission requires registrants like the Company to either adopt a code of ethics that applies to the Company’s Chief Executive Officer and Chief Financial Officer or explain why the Company has not adopted such a code of ethics. For purposes of item 406 of Regulation S-K, the term “code of ethics” means written standards that are reasonably designed to deter wrongdoing and to promote: Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; Full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities & Exchange Commission and in other public communications made by the Company; The Code of Ethics was previously filed as an exhibit to our report on Form 10-K for the fiscal year ended June 30, 2008. Management intends in the future to review the Code of Ethics and will consider appropriate amendments and revisions thereto. Section 16(a) Compliance Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders (the “Reporting Persons”) are required by the SEC regulations to furnish us with copies of all Section 16(a) reports that they file. Based solely on our review of the copies of such forms received by us, or written representations from the Reporting Persons, we believe that Ray Martin, Stephen Squires, Robin Squires, Christopher Benjamin and Ghassan Jabbour each had at least one form 3 or form 4 filed late for the fiscal year ended June 30, 2014.
Item The following table sets forth the overall compensation earned over the fiscal years ended June 30,
For a description of the material terms of each named executive officers’ employment agreement or arrangement, including the terms of any contract, agreement, plan or other arrangement that provides for any payment to a named executive officer in connection with his or her resignation, retirement or other termination, or a change in control of the company see section below entitled “Employment Agreements.” No outstanding common share purchase option or other equity-based award granted to or held by any named executive officer in Outstanding Equity Awards At Fiscal Year-End The following table provides certain information concerning any common share purchase options, stock awards or equity incentive plan awards held by each of our named executive officers and directors that were outstanding, exercisable and/or vested as of June 30,
2014.
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Employment Agreements Stephen Squires and David Doderer Mrs. Squires.
Salary or Consulting Accruals As of November 4, 2010, the Company's executive officers, directors and employees converted accrued salaries (and/or consulting fees) of $630,500 and bonuses of $157,625 totaling $788,125 into warrants to purchase 10,508,331 shares, exercisable at $.075 per share over a period of five years. The following table lists the names of such persons, the dollar amount converted and the total number of warrants received.
As of May 18, 2011, the Company's executive officers, directors and employees converted accrued salaries (and/or consulting fees) of $256,000 and bonuses of $64,000 totaling $320,000 into warrants to purchase 2,909,089 shares, exercisable at $.11 per share over a period of five years. The following table lists the names of such persons, the dollar amount converted and the total number of warrants received.
In January 2013, officers, directors and employees of the Company listed below converted accrued
In February 2014, officers, directors and employees of the Company listed below converted accrued salaries (and/or consulting fees) as of June 30, 2013 into Common Stock options under the 2013 Plan.
In June 2014, officers, directors and employees of the Company listed below converted accrued salaries (and/or consulting fees) as of June 30, 2014 into shares of Common Stock and options under the 2013 Plan.
As of June 30,
Employment Agreement - Stephen Squires Pursuant to an employment agreement dated October 26, 2012, the Company entered into a five-year employment contract to retain the services of Stephen Squires as Chief Executive Officer of the Company for the period of January 1, 2013 through January 1, 2018. The agreement is subject to automatic successive renewal terms of one year, unless either party provides written notice to the other party terminating the initial term of any extension thereof at least 60 days prior to the scheduled termination date of the contract. Mr. Squires is to receive an annual salary of $225,000, paid in monthly installments at the rate of $18,750 per month. Mr. Squires also received a signing bonus of 5,000,000 restricted shares of Common Stock and 5,000,000 stock options with an amended exercise price of $0.05 per share, fully vested, expiring on March 29, 2023. In the event Mr. Squires' services as a director are terminated for any reason, including, termination by his own choice, within six months of a change in control event as defined in said agreement, he shall receive one year's fees of $225,000 payable in one lump sum no later than 30 days after the termination of his services as a director and, in such event, any options that are not fully vested shall become immediately vested and the options shall be extended for an additional one year following the final exercise date of said option agreement. Mr. Squires' employment agreement may be terminated for cause as defined in the agreement. In such event, he shall receive his unpaid portion of his base salary computed up to the date of termination, plus certain other benefits. In the event of death, his estate shall receive compensation of the unpaid portion of his base salary up to the date of his death, plus certain benefits. The agreement contains certain prohibitions against soliciting employees and clients of the Company for his own personal benefit during the term of the agreement and for a period of one year thereafter. Mr. Squires’ employment agreement does not reflect the following approved by the Company’s Board: Compensation of $5,000 per month paid to Mr. Squires’ spouse for administrative services; Prior to entering into his employment agreement, Mr. Squires and his spouse received in October 2009 options to purchase a total of 1,600,000 shares of the Company in 2009 at $.05 per share through October 2019; The November 2010 issuance of five year warrants to purchase 1,666,666 shares exercisable at $.005 per share in exchange for the cancellation of $125,000 of accrued salary;
Employment Agreement – David Doderer Pursuant to an employment agreement dated October 26, 2012, the Company entered into a five-year employment contract to retain the services of David Doderer as Vice President of Research and Development of the Company for the period of January 1, 2013 through January 1, 2018. The agreement is subject to automatic successive renewal terms of one year, unless either party provides written notice to the other party terminating the initial term of any extension thereof at least 60 days prior to the scheduled termination date of the contract. Mr. Doderer is to receive an annual salary of $150,000, paid in monthly installments at the rate of $12,500 per month. Mr. Doderer also received a signing bonus of 5,000,000 restricted shares of Common Stock and 5,000,000 stock options with an amended exercise price of $0.05 per share, fully vested, expiring on March 29, 2023. In the event Mr. Squires' services as a director are terminated for any reason, including, termination by his own choice, within six months of a change in control event as defined in said agreement, he shall receive one year's fees of $120,000 payable in one lump sum no later than 30 days after the termination of his services as a director and, in such event, any options that are not fully vested shall become immediately vested and the options shall be extended for an additional one year following the final exercise date of said option agreement. Mr. Squires' employment agreement may be terminated for cause as defined in the agreement. In such event, he shall receive his unpaid portion of his base salary computed up to the date of termination, plus certain other benefits. In the event of death, his estate shall receive compensation of the unpaid portion of his base salary up to the date of his death, plus certain benefits. The agreement contains certain prohibitions against soliciting employees and clients of the Company for his own personal benefit during the term of the agreement and for a period of one year thereafter. Other Employment Arrangements Dr. Ghassan E. Jabbour and Chris Benjamin are each receiving monthly salaries of $10,000. Robin Squires, the wife of Stephen Squires, is receiving a monthly salary of $5,000 in recognition of her administrative services. The Company has the right to terminate the services of Dr. Jabbour, Mr. Benjamin and Mrs. Squires at any time. Benjamin and Mrs. Squires. Loans from Stephen Squires In November 2008, Mr. Squires received 35,500,000 shares of the Company's Common Stock as part of a plan of reorganization, 20,000,000 of which he pledged to secure certain company indebtedness. Between December 2008 and December 2010, Mr. Squires privately sold an aggregate of approximately 13,431,000 shares of the Company's Common Stock for an aggregate of $595,000. Mr. Squires advanced to the Company cash loans and made payment of Company expenses utilizing $270,145 of the net proceeds of these private sales. On December 30, 2010, the Board of Directors authorized Mr. Squires to receive 10,000,000 restricted shares in cancellation of all outstanding cash loans and advanced expenses totaling $270,145. Not reflected in the foregoing, were additional cash loans that have been made by Mr. Squires to the Company and repaid to him. In January 2010, the board of directors granted Mr. Squires the option to convert his cash loans to the Company into common stock of the Company's subsidiary. In this respect, Mr. Squires has a two-year option to convert up to $200,000 into a maximum of 5% of the outstanding common stock of Solterra. As of the filing date of this Form 10-K, Mr. Squires has declined to exercise this option. DIRECTOR COMPENSATION Cash Fees As of the filing date of this Form 10-K, no cash fees have been paid to any directors of the Company, although the board reserves the right to pay such cash fees in the future. Restricted Stock and Options Dr. Michael Wong received in October 2009 and in June 2012, options to purchase 300,000 shares and 250,000 shares, respectively, under the Company’s 2009 Plan as defined herein under “2009 Stock Option Plan.” These options were granted over a term of ten years and five years, respectively, at exercise prices ranging from $.04 per share to $.05 per share. The Company’s other directors, namely, Stephen Squires, David Doderer, Ghassan Jabbour and Chris Benjamin Travel Expenses All directors shall be reimbursed for their reasonable out of pocket expenses associated with attending the meeting. 2014 Compensation The following table shows the overall compensation earned for the
2014.
2009 Stock Option Plan On December 2, 2009, the Company established a 2009 Employee Benefit and Consulting Services Compensation Administration Our Board of Directors, Compensation Committee or both, in the sole discretion of our Board, administers the 2009 Plan, which was approved by the Company’s Board of Directors on December 2, 2009 and by stockholders as of January 25, 2010. The Board, subject to the provisions of the 2009 Plan, has the authority to determine and designate officers, employees, directors and consultants to whom awards shall be made and the terms, conditions and restrictions applicable to each award (including, but not limited to, the option price, any restriction or limitation, any vesting schedule or acceleration thereof, and any forfeiture restrictions). The Board may, in its sole discretion, accelerate the vesting of awards. The Board of Directors must approve all grants of Options and Stock Awards issued to our officers or directors. Types of Awards The 2009 Plan is designed to enable us to offer certain officers, employees, directors and consultants of us and our subsidiaries equity interests in us and other incentive awards in order to attract, retain and reward such individuals and to strengthen the mutuality of interests between such individuals and our stockholders. In furtherance of this purpose, the Plan contained provisions for granting incentive and non-statutory stock options and Common Stock Awards. Stock Options. A "stock option" is a contractual right to purchase a number of shares of Common Stock at a price determined on the date the option is granted. The option price per share of Common Stock purchasable upon exercise of a stock option and the time or times at which such options shall be exercisable shall be determined by the Board at the time of grant. Such option price shall not be less than 100% of the fair market value of the Common Stock on the date of grant. The option price must be paid in cash, money order, check or Common Stock of the Company. The Options may also contain at the time of grant, at the discretion of the Board, certain other cashless exercise provisions. Options shall be exercisable at the times and subject to the conditions determined by the Board at the date of grant, but no option may be exercisable more than ten years after the date it is granted. If the Optionee ceases to be an employee of our company for any reason other than death, any option granted as an Incentive Stock Option exercisable on the date of the termination of employment may be exercised for a period of thirty days or until the expiration of the stated term of the option, whichever period is shorter. In the event of the Optionee’s death, any granted Incentive Stock Option exercisable at the date of death may be exercised by the legal heirs of the Optionee from the date of death until the expiration of the stated term of the option or six months from the date of death, whichever event first occurs. In the event of disability of the Optionee, any granted Incentive Stock Options shall expire on the stated date that the Option would otherwise have expired or 12 months from the date of disability, whichever event first occurs. The termination and other provisions of a non-statutory stock option shall be fixed by the Board of Directors at the date of grant of each respective option. Common Stock Award. “Common Stock Award” is shares of Common Stock that will be issued to a recipient at the end of a restriction period, if any, specified by the Board if he or she continues to be an employee, director or consultant of us. If the recipient remains an employee, director or consultant at the end of the restriction period, the applicable restrictions will lapse and we will issue a stock certificate representing such shares of Common Stock to the participant. If the recipient ceases to be an employee, director or consultant of us for any reason (including death, disability or retirement) before the end of the restriction period unless otherwise determined by the Board, the restricted stock award will be terminated. Eligibility The Company’s officers, employees, directors and consultants of the Company and its subsidiaries are eligible to be granted stock options, and Common Stock Awards. Eligibility shall be determined by the Board; however, all Options and Stock Awards granted to officers and directors must be approved by the Board. Termination or Amendment of the Plan The Board may at any time amend, discontinue, or terminate all or any part of the Plan, provided, however, that unless otherwise required by law, the rights of a participant may not be impaired without his or her consent, and provided that we will seek the approval of our stockholders for any amendment if such approval is necessary to comply with any applicable federal or state securities laws or rules or regulations. Awards As of June 30,
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It is not possible to predict the individuals who will receive future awards under the 2009 Plan or the number of shares of Common Stock covered by any future award because such awards are wholly within the discretion of the Board. The foregoing table does not reflect options/warrants or shares granted to officers and directors outside of the 2009 Plan. Shares Subject to the Plan The maximum number of shares of Common Stock that may be issued pursuant to awards granted under the Plan is 10,000,000 shares. Such shares may be either authorized and unissued shares or issued shares reacquired by the Company and held in treasury. The Plan does not limit the number of shares of Common Stock with respect to which options or Stock Awards may be granted to any individual during any calendar year. The aggregate number of shares issuable under the Plan and the number of shares subject to options and awards to be granted under the Plan are subject to adjustment in the event of certain mergers, reorganizations, consolidations, recapitalizations, dividends (other than a regular cash dividend), stock split or other change in corporate structure affecting the Common Stock. Shares subject to options that expire, terminate or are canceled unexercised, shares of stock that have been forfeited to the Company and shares that are not issued as a result of forfeiture or termination of an award may be reissued under the Plan. 2013 Stock Option Plan In January 2013, the Company approved the 2013 Employee Benefit and Consulting Services Compensation Plan covering 20,000,000 shares, which automatically increased to 60,000,000 shares on March 29, 2013. The Plan is identical to the terms of the 2009 Plan except that unless stockholders approve the Plan within 12 months of the Board’s adoption of said Plan, no incentive stock options may be granted under the Plan. Awards As of
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It is not possible to predict the individuals who will receive future awards under the 2013 Plan or the number of Item The following table sets forth, as of
____________ * Less than 1%
The foregoing table and notes thereto do not include Robert Glass, a former officer and director of the Company. As described under Item 3, the Company is seeking to terminate various securities owned by Dr. Glass, which securities if retained by him would make him a greater than 5% owner. See “Item 3.” Securities Authorized for Issuance under Equity Compensation Plans. The following summary information is as of the Record Date and relates to our 2009 Plan (which Plan was approved by the board and ratified by stockholders) described elsewhere herein pursuant to which we have granted options to purchase our Common Stock:
(1) Options exercisable at prices ranging from $.04 per share to $.12 per share. The following summary information is as of the Record Date and relates to our 2013 Plan (which Plan was approved by the board but not ratified by stockholders as of the date of this Form 10-K) described elsewhere herein pursuant to which we have granted options to purchase our Common Stock:
(1) Options exercisable at Item 13.Certain Relationships and Related Transactions and Director Independence. For a description of certain transactions between the Company and its affiliated parties, reference is made to Item 13 of the Company’s Form 10-K for the Company’s fiscal year ended June 30, For a description of transactions during fiscal In 2008, the Company borrowed $1,500,000 from three non-affiliated persons pursuant to a Securities Purchase Agreement, Secured Promissory Notes, a Pledge Agreement, a Registration Rights Agreement and other Transaction Documents. A description of the Company’s right to call the note after giving appropriate written notice. The Company is paying the debenture holder interest at the rate of 8% per annum through the delivery of shares of Common Stock in lieu of cash interest payments. As described under Item 10, the noteholder had certain rights to appoint members to the Board of Directors until the debenture is retired. Director Independence Our Board has determined that See “Item 10.” Item 14.Principal Accountant Fees and Services. Services of Audit Fees During fiscal Financial Information Systems Design and Implementation Fees During All Other Fees During Item 15.Exhibits and Financial Statement Schedules (a) Financial Statements The following documents are filed under “Item 8. Financial Statements and Supplementary Data” and are included as part of this Form 10-K as the consolidated financial statements of the Company for the years ended June 30, Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders’ Deficit Notes to Consolidated Financial Statements (b) Exhibits The following exhibits are all previously filed in connection with our Form 8-K filed November 10, 2008, unless otherwise noted.
____________ * Filed herewith. (c) Financial Statement Schedules We are not filing any financial statement schedules as part of this Form 10-K because such schedules are either not applicable or the required information is included in the financial statements or notes thereto. SIGNATURES Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Stephen Squires, 64 |