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.

The following is an outline of the business accomplishments of the Company since July 2010:over the last few years:

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.

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.

Quantum dots are produced using four basic methods:

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.

• Increased photo-stability
• Longer shelf life
• Resilience to photo bleaching
• Increased sensitivity
• Narrow emission peaks
• Broad excitation profile
• Multiplexing capability

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.

• 50 to 100 times more brightness in comparison with CRTs and LCDs
• pure colors due to size tunability and narrow color-band frequency emission of the quantum dots
• significant energy savings, with power consumption being 1/5th to 1/10th that of an OLED or LCD displays

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.

As stated above, QMC is currently the only company capable of producing highly uniform tetrapod quantum dots.

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.

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.

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.

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:

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.

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.”

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.

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:

• Product quality and performance characteristics: Manufacturers who will incorporate quantum dots in specific applications will carefully consider the quality, characteristics and physical properties of the quantum dots for efficacy in their targeted applications. This includes the purity and consistency of dots from batch to batch, brightness, clarity and consistency of emissions, energy consumption, effective life spans, volume of dots necessary to produce the intended result, whether the dots have dual emission capabilities, whether their application or their customers’ preferences require that dots to be free of heavy metals or other hazardous compounds, the end product manufacturing techniques supported by the dots, etc.
• Volume: Before a manufacturer makes the commitment and dedicates capital and marketing resources to incorporate quantum dots in its end product, it must be confident that the volume of quantum dots it can obtain from a supplier will be sufficient to meet production needs short term and long term, including substantial growth following a successful new product launch. The strategies employed by a quantum dot company to scale production rapidly are critical to its attracting commercial users for its product, regardless of the quality of its quantum dots.
• Price: The price at which quantum dots can be delivered for incorporation in a new product will dictate the rate at which new applications can be developed and supported. High prices restrict the market for quantum dots to only the highest value uses, while the potential for lower prices of supply can open new markets.
• Continuing R&D and Product Improvements: Research and industry relationships are important to ensure a quantum dot company stays on the leading edge of technological development and commercialization. R&D is supported by collaboration with academic institutions or industrial companies, and having a close relationship with a major industry player provides a young quantum dot company with access to product development, marketing and distribution resources.

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.”

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.

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.