The accompanying notes are an integral part of these condensed consolidated financial statements.

~~The accompanying consolidated financial statements include the accounts of~~ Quantum Materials Corp., a Nevada corporation, and its wholly owned subsidiary, Solterra Renewable Technologies, Inc. (collectively referred to as the “Company”).

~~The consolidated financial statements of the Company as of and for the six months ended December 31, 2016~~ are unaudited and have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended June 30, 2016. The year-end balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally acceptedheadquartered in the U.S. In the opinion of management, the accompanying unaudited financial information includes all adjustments necessary for a fair presentation of the interim financial information. Operating results for the interim periods are not necessarily indicative of the results of any subsequent periods. Certain information in the footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) has been condensed or omitted for the interim periods presented under the United States Securities and Exchange Commission (“SEC”) rules and regulations. As such, these interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016.

San Marcos, Texas. The Company is a nanotechnology company specializing in the design, development, production and supply of quantum dots, including tetrapod quantum dots, a ~~high performance~~high-performance variant of quantum dots, and highly uniform nanoparticles, using its patented automated continuous flow production process. Quantum dots and other nanoparticles are expected to be increasingly utilized in a range of applications in the life sciences, television and display, solid state lighting, solar energy, battery, security ink, and sensor sectors of the market. Key uncertainties and risks to the Company include, but are not limited to, if and how quickly various industries adopt and fully embrace quantum dot technology and technological changes, including those developed by the Company’s competitors, rendering the Company’s technology uncompetitive or obsolete.

The Company recorded losses from continuing operations in the current period presented and has a history of losses. As of December 31, 2018, the Company had a working capital deficit of $5,238,276 and net cash used in operating activities was $(530,988) for the six months ended December 31, 2018. The ability of the Company to continue as a going concern is dependent upon its ability to reverse negative operating trends, obtain revenues from operations, raise additional capital, and/or obtain debt financing.

In conjunction with anticipated revenue streams, and cash flows from licensing and development agreements, management is currently negotiating equity and debt financing, the proceeds from which would be used to settle outstanding debts, to finance operations, and for general corporate purposes. However, there can be no assurance that the Company will be able to raise capital, obtain debt financing, or improve operating results sufficiently to continue as a going concern.

The accompanying unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

Basis of Presentation: The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States and include the accounts of the Company and its subsidiaries. All significant inter-company transactions and account balances have been eliminated upon consolidation.

Use of Estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Financial Instruments: Financial instruments consist of cash and cash equivalents, restricted cash, payables, and convertible debentures. The carrying value of these financial instruments approximates fair value due to either their short-term nature or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.

Property and Equipment: Property and equipment are stated at cost. Depreciation is computed on the straight-line basis over the estimated useful lives of the various classes of assets as follows:

Licenses and Patents: Licenses and patents are stated at cost. Amortization is computed on the straight-line basis over the estimated useful life of five years.

Earnings per Share: The Company accounts for earnings per share in accordance with ASC 260“Earnings Per Share”. Basic earnings per share amounts are calculated by dividing net income (loss) by the weighted average number of common shares outstanding during each period. Diluted earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the periods, including the dilutive effect of stock options and warrants granted. Dilutive stock options and warrants that are issued during a period or that expire or are canceled during a period are reflected in the computations for the time they were outstanding during the periods being reported.

Beneficial Conversion: Debt and equity instruments that contain a beneficial conversion feature are recorded as a deemed dividend to the holders of the convertible notes. The deemed dividend associated with the beneficial conversion is calculated as the difference between the fair value of the underlying common stock less the proceeds that have been received for the equity instrument limited to the value received. The beneficial conversion amount is recorded as beneficial conversion expense and an increase to additional paid-in-capital.

Derivative Instruments: The Company enters into financing arrangements which may consist of freestanding derivative instruments or hybrid instruments that contain embedded derivative features. The Company accounts for these arrangements in accordance with ASC 815, “Accounting for Derivative Instruments and Hedging Activities”, as well as related interpretation of this standard. In accordance with this standard, derivative instruments are recognized as either assets or liabilities in the consolidated balance sheets and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, considering all of the rights and obligations of each instrument.

The Company estimates fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered consistent with the objective measuring fair values. In selecting the appropriate technique, the Company considers, 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, the Company generally uses the Black-Scholes model, adjusted for the effect of dilution, because it embodies all 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 the Company’s common stock. Since derivative financial instruments are initially and subsequently carried at fair values, income (expense) going forward will reflect the volatility in these estimates and assumption changes. 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.

Fair value measurements: The Company estimates fair value at a price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market for the asset or liability. The valuation techniques require inputs that are categorized using a three-level hierarchy, from highest to lowest level of observable inputs, as follows: (1) significant observable inputs, including unadjusted quoted prices for identical assets or liabilities in active markets (“Level 1”), (2) significant other observable inputs, including direct or indirect market data for similar assets or liabilities in active markets or identical assets or liabilities in less active markets (“Level 2”) and (3) significant unobservable inputs, including those that require considerable judgment for which there is little or no market data (“Level 3”). When multiple input levels are required for a valuation, the Company categorizes the entire fair value measurement according to the lowest level of input that is significant to the measurement even though other significant inputs that are more readily observable may have also utilized.

In July 2017, the FASB issued ASU 2017-11—Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 eliminates the requirement that a down round feature precludes equity classification when assessing whether an instrument is indexed to an entity’s own stock. A freestanding equity-linked financial instrument no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The Company elected to adopt ASU 2017-11 early, effective July 1, 2017, and implemented the pronouncement retrospectively with a cumulative effect adjustment to outstanding financial instruments. The adoption of this guidance did not have an impact on its financial statements. In the fiscal year 2018, the Company had three triggering events related to a down round feature which resulted in recording a charge for beneficial conversion expense of $1,021,500 during the year ended June 30, 2018.

In March 2016, the FASB issued ASU guidance related to stock-based compensation. The new guidance simplifies the accounting for stock-based compensation transactions, including income tax consequences, statement of cash flows presentation, estimating forfeitures when calculating compensation expense, and classification of awards as either equity or liabilities.

The new standard requires all excess tax benefits and tax deficiencies to be recognized as income tax benefit (expense) in the income statement. The new guidance also requires presentation of excess tax benefits as an operating activity on the statement of cash flows rather than a financing activity and requires presentation of cash paid to a tax authority when shares are withheld to satisfy the employer’s statutory income tax withholding obligation as a financing activity. The new guidance also provides for an election to account for forfeitures of stock-based compensation.

The Company adopted the guidance effective July 1, 2017. With respect to the forfeiture election, the Company will continue its current practice of estimating forfeitures when calculating compensation expense. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or related disclosures.

In March 2016, the FASB issued ASU 2016-09,Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting.This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted the guidance effective July 1, 2017. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or related disclosures.

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendment provides guidance on accounting for the impact of the Tax Cuts and Jobs Act (the “Tax Act”) and allows entities to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. The Tax Act has several significant changes that impact all taxpayers, including a transition tax, which is a one-time tax charge on accumulated, undistributed foreign earnings. The Company adopted the guidance effective July 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or related disclosures.

In May 2017, the FASB issued ASU 2017-09,Compensation – Stock Compensation (Topic 718) – Scope of Modification Accounting.The amendments included in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this update will be applied prospectively to an award modified on or after the adoption date. The Company adopted the guidance effective July 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or related disclosures.

Effective July 1, 2018, the Company adopted the Financial Accounting Standards Board’s (“FASB”) provisions of ASC 606,Revenue from Contracts with Customers(ASC 606), using the prospective method for all contracts not completed as of the date of adoption. The Company had no contracts not completed as of the date of adoption, nor had contracts that were modified before the effective date.

In February 2016, the FASB issued ASU 2016-02,Leases,which updates guidance on accounting for leases. The update requires that a lessee recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Similar to current guidance, the update continues to differentiate between finance leases and operating leases; however, this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The standards update is effective for interim and annual periods after December 15, 2018 with early adoption permitted. Entities are required to use a modified retrospective adoption, with certain relief provisions, for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements when adopted. The Company is in the process of evaluating the impact, if any, of the adoption of this guidance on its consolidated financial statements.

Depreciation expense ~~for the three months ended December 31, 2016 and 2015 was $23,937 and $21,591, respectively, and $46,952 and $42,000~~ for the six months ended December 31, ~~2016~~2018 and ~~2015,~~2017 was $50,007 and $49,470, respectively.

Amortization expense for the ~~three~~six months ended December 31, ~~2016~~2018 and ~~2015 was $9,637~~2017 $13,775 and ~~$9,637, respectively, and $19,274 and $19,274 for the six months ending December 31, 2016 and 2015,~~$19,266, respectively.

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2011-04“Fair Value Measurement” as it relates to financial assets and financial liabilities, which defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements.

This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Hierarchical levels, as defined in this guidance and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities are as follows:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – ~~Inputs that are both~~Valuations based on unobservable inputs reflecting management’s assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant tojudgment.

As of December 31, 2018, and June 30, 2018, the fair value ~~measurement and unobservable.~~

~~The reported fair values for~~of the Company’s financial instruments, that use Level 2 and Level 3 inputs to determine fair value are based on a variety of factors and assumptions. Accordingly, certain fair values may not represent actual values of the financial instruments that could have been realized as of December 31, 2016 and June 30, 2016 or that will be realized in the future and do not include expenses that could be incurred in an actual sale or settlement.

~~The carrying amounts of~~including cash and cash equivalents, accounts receivable, accounts payable and ~~current debt approximate their fair~~accrued expenses, approximates book value due to the short maturity of ~~those~~these instruments. Based upon borrowing rates currently available to the Company for loans with similar terms, the carrying value of its debt obligations approximates fair value. As of December 31, 2018, and June 30, 2018, the Company held no investments. The Company hired an independent resource to value its derivative liability as follows (unaudited):

The Company measured the estimated fair value of the convertible debentures using significant other observable inputs, representative of a Level 2 fair value measurement, including the interest and conversion rates for the instruments. The following table sets forth the fair value of the Company’s convertible debentures as of December 31, ~~2016,~~2018, and June 30, ~~2016:~~2018:

The Company is not a party to any hedge arrangements or commodity swap ~~agreements.~~agreement.

The following table sets forth activity associated with the convertible debentures:

Between September 16, 2014 and October 28, 2014, the Company entered into Convertible Debenture Agreements to obtain a total of $500,050 in gross proceeds from five non-affiliated parties (collectively hereinafter referred to as the “Debenture Holders”). The Debentures have terms of five years maturing between September 16, 2019 and October 30, 2019. The Debentures bear interest at the rate of 6% per annum and are pre-payable by the Company at any time without penalty. The Debenture Holders have the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.15 per share at any date and will receive an equal number of warrants having a strike price of $0.30 per share and a term of five years.

~~Interest expense for~~ None of the ~~three~~Debentures were converted into common shares during the six months ended December 31, ~~2016 and 2015 was $384 and $384, respectively.~~ 2018.

Interest expense for the six months ended December 31, ~~2016~~2018 and 2017 was $768 and $768, ~~in the comparable period in 2015.~~respectively

As of December 31, ~~2016,~~and June 30, 2018, $25,050 of principal was outstanding.

On January 15, 2015, the Company entered into Convertible Debenture Agreements to obtain $500,000 in gross proceeds from two non-affiliated parties (collectively hereinafter referred to as the “Debenture Holders”). The Debentures have a term of two years maturing on January 15, 2017 and bear interest at the rate of 8% per annum. The debentures are pre-payable by the Company at any time without penalty. The Debenture Holders have the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.06 per share at any date. The Debenture Holders received 6,250,000 common stock warrants exercisable at $0.06 per share through January 15, 2017. The debt is secured by a security interest in certain microreactor equipment. The Agreement also provides for the investors 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. On October 10, 2016, the maturity date of the debentures was extended to January 15, 2018 and ~~were reclassified as non-current on~~ the ~~consolidated balance sheet. The~~ 6,250,000 warrants were converted into common stock for total proceeds of ~~$375,000 in~~$375,000. On January ~~2017.~~12, 2018 the debentures were extended for ten days to January 25, 2018. On January 24, 2018, the debentures were extended to December 15, 2018. As compensation for extending the debentures, the Debenture Holders received 3,500,000 shares of Common Stock, which were valued at $0.06 per share, a total of $210,000 recorded as debt extension expense. On January 14, 2019, partial payment was made of $150,000, and the debentures were extended to March 15, 2019.

In accounting for the convertible debentures, the Company allocated the fair value of the warrants to the proceeds received in the amount of $348,105, recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, two years.

~~The Company recognized accretion of debt discount~~ Interest expense ~~for the three months ended December 31, 2016 and 2015 of $46,609 and $43,037, respectively, and~~ for the six months ended December 31, ~~2016~~2018 and ~~2015 the accretion expense was $92,298 and $85,224, respectively.~~

~~Interest expense for the three months ended December 31, 2016 and 2015 was $10,082 and $10,082, respectively, and for the six months ended December 31, 2016 and 2015~~2017 was $20,164 and $20,164, respectively.

As of December 31, ~~2016,~~and June 30, 2018, $500,000 of principal was outstanding.

C) April – June, August, October and ~~October~~November 2016 Convertible Debentures

During the fourth quarter of the year ended June 30, ~~2016,~~2017, the Company sold 1,565 Units for total proceeds of $1,565,000 from three affiliated and fourteen non-affiliated parties. In August 2016 the Company sold 200 additional Units for total proceeds of $200,000 and sold $50,000 in proceeds in October 2016. Each Unit consists of a $1,000 Unsecured Convertible Promissory Note (each, a “Note”) and a warrant to purchase 4,166 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at a purchase price of $0.15 per share (each, a “Warrant”) over a period of five years. The Notes which were issued at face value have a maturity of two years from the date of issuance, bear interest at the rate of 8% per annum and are convertible into unregistered and restricted shares of Common Stock at $0.12 per-share, subject to normal and customary adjustments including (a) any subdivisions, combinations and classifications of the Common Stock; or (b) any payment, issuance or distribution by the Company to its stockholders of (i) a stock dividend, (ii) debt securities of the Company, or (iii) assets (other than cash dividends payable out of earnings or surplus in the ordinary course of business). The conversion price also is subject to a full ratchet adjustment upon the Company’s issuance of Common Stock, warrants, or rights to purchase Common Stock or securities convertible into Common Stock for a consideration per share which is less than the then applicable conversion price of the Notes excluding Common Stock and options issued to officers, directors, and employees of the Company, except for the exercise or conversion of existing convertible securities of the Company. The conversion price was reset to $0.012 per share in June 2018 as a result of a triggering event.

In accounting for the convertible debentures, the Company allocated the fair value of the warrants to the proceeds received in the amount of $609,595, recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, two years. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018, and 2017, of $2,564 and $167,029, respectively.

The Company recognized a beneficial conversion expense for the six months ended December 31, 2018, and 2017, of $0 and $530,000, respectively.

Interest expense for the six months ended December 31, 2018, and 2017, of $52,133 and $62,267, respectively.

During the years ended June 30, 2018 and 2017, $455,000 and $285,000 of principal was converted into 3,791,666 and 2,375,000 shares of common stock respectively. As of December 30, and June 30, 2018, $1,275,000 of principal was outstanding. As of the date of this report, maturities totaling $825,000 of principal have been extended for one year until March and April of 2019, and the remaining $250,000 have not been extended, and are past due as of the date of this report.

During the third quarter of the year ended June 30, 2017, the Company sold 2,600 Units for total proceeds of $260,000 from five non-affiliated parties. Each Unit consists of a $1,000 Unsecured Convertible Promissory Note (each, a “Note”) and a warrant to purchase 4,166 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at a purchase price of $0.15 per share (each, a “Warrant”) over a period of five years. The Notes which were issued at face value have a maturity of two years from the date of issuance, bear interest at the rate of 8% per annum and are convertible into unregistered and restricted shares of Common Stock at $0.12 per-share, subject to normal and customary adjustments including (a) any subdivisions, combinations and classifications of the Common Stock; or (b) any payment, issuance or distribution by the Company to its stockholders of (i) a stock dividend, (ii) debt securities of the Company, or (iii) assets (other than cash dividends payable out of earnings or surplus in the ordinary course of business). The conversion price also is subject to a full ratchet adjustment upon the Company’s issuance of Common Stock, warrants, or rights to purchase Common Stock or securities convertible into Common Stock for a consideration per share which is less than the then applicable conversion price of the Notes excluding Common Stock and options issued to officers, directors, and employees of the Company, except for the exercise or conversion of existing convertible securities of the Company. In evaluating the accounting treatment of this anti-dilution feature, the Company believes that is has control over whether ~~or not~~ the anti-dilution feature will be exercised. The Company is able to decide on which type of financing is raised, and thus the Company can prevent the issuance of shares at a price below the anti-dilution strike price. The number of Warrants and exercise price is proportionately adjustable for events including subdivisions, combinations or consolidations, reclassifications, exchanges, mergers, and reorganizations.

In accounting for the convertible debentures, the Company allocated the fair value of the warrants to the proceeds received in the amount of ~~$566,778,~~$73,250, recorded as debt discount and is amortized using the effective interest rate method over the life of the loans, two years. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 and 2017 of $3,125 and $51,468, respectively.

During the year ended June 30, 2018, $200,000 of these debentures converted into 1,666,667 shares of common stock.

Interest expense for the six months ended December 31, 2018 and 2017 of $2,420 and $8,894, respectively.

In March 2017, the Company entered into Convertible Promissory Notes with SBI Investment LLC, 2014-1 (“SBI”) and L2 Capital, LLC (“L2 Capital”) to obtain $285,000 in gross proceeds. In connection with the first funding tranche, SBI and L2 received 253,525 and 760,576 common stock warrants, respectively, exercisable at $0.13 per share through March 28, 2022. At each subsequent funding to the first tranche, the Company will issue to each of SBI and L2 Capital warrants to purchase 50% of the total amount of each tranche funded plus the applicable original issue discount, divided by the lesser of (i) the closing bid of the common stock on March 29, 2017 and (ii) the closing bid price of the common stock on the funding date of each respective tranche. The promissory notes have a term of six months from the issuance date and bear interest at the rate of 6% per annum. The promissory notes are not pre-payable by the Company without penalty. The promissory notes are convertible into unregistered and restricted shares of Common Stock only if there is an Event of Default as defined in the notes.

In March 2017, the Company entered into an equity purchase agreement (“Eloc”) with SBI and L2 Capital, allowing them to purchase up to $5,000,000 of the Company’s common stock. As consideration for SBI and L2 Capital, the Company agreed to pay SBI and L2 Capital commitment fees of $63,000 and $147,000, respectively. These commitment fees were issued in the form of promissory notes, which bear interest at 8% per annum and have mature nine months from the date of issuance. The promissory notes are convertible into unregistered and restricted shares of Common Stock only if there is an Event of Default as defined in the notes.

In accounting for the convertible promissory note, the Company allocated the fair value of the warrants to the proceeds received in the amount of $86,673, recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, ~~two years.~~ eight months. The Company also recorded original issue discount (“OID”) of $31,850 as debt discount and is amortized using the effective interest rate method over the life of the loan, eight months.

The Company recognized accretion of debt discount expense for the ~~three~~six months ended December 31, ~~2016~~2018 and ~~2015~~2017 of ~~$100,349~~$0 and ~~$0, respectively and $162,454 and $0~~$43,661, respectively.

Interest expense for the six months ~~ending December 31, 2016 and 2015, respectively. The Company recognized a beneficial conversion expense for the three months~~ ended December 31, ~~2016~~2018 and ~~2015~~2017 of ~~$4,897~~$0 and ~~$0, respectively,~~$116,015, respectively.

As of December 31, 2017, the Company no longer had a derivative liability related to these notes, and ~~$45,291~~recognized interest expense of $418,786, and a change in derivative liability benefit of $373,004. As of December 31, 2018, the Company no longer had a derivative liability, and recognized a change in derivative liability benefit of $0 for the six months ended December 31, ~~2016 and 2015, respectively.~~

~~Interest expense for the three months ended December 31, 2016 and 2015 of $35,105 and $0, respectively, and $68,789 and $0 for the six months ending December 31, 2016 and 2015, respectively.~~2018.

As of December 31, ~~2016, $1,665,000~~and June 30, 2018, and 2017, $222,350 of principal was outstanding, ~~after conversion~~respectively. During the year ended June 30, 2018, the Company paid $319,500 of ~~$150,000 of debentures into common stock.~~principal.

In ~~September 2016,~~June 2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $100,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for ~~200,000 unregistered and restricted shares of common stock of the Company and~~ a convertible promissory note in the principal amount of $100,000. The Note Holder received 250,000 common stock warrants exercisable at $0.12 per share through ~~September~~June 15, ~~2019.~~2020. The promissory note has a term of ~~eight~~six months maturing on ~~May 15,~~December 16, 2017 and stipulates a one-time interest charge of eight percent (8%) shall be applied on the issuance date to the principal. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the Company allocated the fair value of the warrants to the proceeds received in the amount of $54,340, recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, six months. Interest expense was recorded for the six months ended December 31, 2018 and 2017 of $0. Beneficial conversion expense was recorded for the six months ended December 31, 2018 and 2017 of $0. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 and 2017 of $0 and $45,434, respectively. As of December 31, and June 30, 2018, and 2017, $100,000 of principal was outstanding. In May 2018 the maturity date was extended to February 1, 2019.

In July 2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $100,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $100,000. The Note Holder received 1,000,000 shares of common stock and 250,000 common stock warrants exercisable at $0.12 per share through September 11, 2000. The promissory note originally had a term of six months maturing on December 16, 2017 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The maturity date of the Note was extended to May 24, 2018 in an extension agreement dated April 6, 2018. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the Company allocated the fair value of the ~~common stock and~~ warrants to the proceeds received in the amount of ~~$29,523,~~$19,010 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, six months. The Company recognized a fair value of the common shares issued at $100,000. The Company recorded a debenture discount of $53,876 and a beneficial conversion expense of $45,544. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 and 2017 of $0 and $48,398, respectively. As of December 31, and June 30, 2017, $100,000 of principal was outstanding. In May 2018 the maturity date was extended to February 1, 2019.

As part of the extension agreement, a derivative liability was created, in connection to a “make-whole” provision. The value of this derivative at September 30, 2018 was $49,798, and a change in derivative liability expense of $28,561 for the three months then ended. This derivative liability was settled for 1,591,549 shares during the second quarter of 2018, resulting in additional interest expense of $18,002 during the six months ended December 31, 2018.

Interest expense for the six months ended December 31, 2018 and 2017 of $0 and $8,000, respectively.

In September 2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $150,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $150,000. The Note Holder received 1,650,000 shares of common stock and 375,000 common stock warrants exercisable at $0.12 per share through September 11, 2000. The promissory note had a term of six months maturing on March 26, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The maturity date of the Note was extended to February 1, 2019 in an extension agreement dated May 2018. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the Company allocated the fair value of the warrants to the proceeds received in the amount of $19,420 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, six months. The Company recognized a fair value of the common shares issued at $165,000. The Company recorded a debenture discount of $82,720 and a beneficial conversion expense of $45,219. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 and 2017 of $0 and $49,708, respectively. As of December 31, and June 30, 2018, $150,000 of principal was outstanding. In May 2018 the maturity date was extended to February 1, 2019.

As part of the extension agreement, a derivative liability was created, in connection to a “make-whole” provision. The value of this derivative at September 30, 2018 was $22,666, and a change in derivative liability expense of $14,483 for the three months then ended. This derivative liability was settled for 1,781,690 shares during the second quarter of 2018, resulting in additional interest expense of $53,234 during the six months ended December 31, 2018.

Interest expense for the six months ended December 31, 2018 and 2017 of $0 and $12,000, respectively.

In September 2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $450,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $495,000. The Note Holder received 10,000,000 shares of common stock and 2,000,000 common stock warrants exercisable at $0.12 per share through September 11, 2000. The promissory note had a term of seven months maturing on April 26, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The maturity date of the Note was extended to January 26, 2019 in an extension agreement dated April 2018. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the Company allocated the fair value of the warrants to the proceeds received in the amount of $318,337 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, seven months. The Company also recorded original issue discount (“OID”) of $45,000 as debt discount and is amortized using the effective interest rate method over the life of the loan, eight months. The Company recognized a fair value of the common shares issued at $1,000,000. The Company recorded a debenture discount of $318,337 and a beneficial conversion expense of $131,663. The Company recognized accretion of debt discount expense for the ~~three~~six months ended December 31, ~~2016~~2018 and ~~2015~~2017 of ~~$10,959~~$0 and ~~$0, respectively, and $14,564 and $0 for the six months ending~~$142,198, respectively. As of December 31, ~~2016~~ and ~~2015, respectively.~~June 30, 2018, $495,000 of principal was outstanding. In May 2018 the maturity date was extended to February 1, 2019.

As part of the extension agreement, a derivative liability was created, in connection to a “make-whole” provision. The ~~Company recognized~~value of this derivative at September 30, 2018 was $43,998, and a ~~beneficial conversion~~change in derivative liability expense of $28,864 for the three months ~~ended December 31, 2016 and 2015~~then ended. This derivative liability was settled for 7,432,432 shares during the second quarter of ~~$0 and $0, respectively, and $29,523 and $0 for~~2018, resulting in additional interest expense of $283,029 during the six ~~months ending December 31, 2016 and 2015, respectively. Interest expense for the three~~ months ended December 31, ~~2016 and 2015 were $3,653 and $0, respectively.~~ 2018.

Interest expense for the six months ended December 31, ~~2016 was $7,258~~2018 and 2017 of $0 and $36,000, respectively.

In November ~~2016,~~2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain ~~$200,000~~$225,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of ~~$200,000.~~$247,500. The promissory note has a term of ~~twenty-four~~six months maturing on ~~November 7, 2017~~April 26, 2018 and stipulates ~~a one-time~~an interest charge of eight percent (8%) shall be applied to the principal. The maturity date of the Note was extended to January 26, 2019 in an extension agreement dated April 2018. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the ~~issuance date~~next registration statement it files with the SEC all shares issuable upon conversion of the note.

The Company also recorded original issue discount (“OID”) of $22,500 as debt discount and is amortized using the effective interest rate method over the life of the loan, six months.

Interest expense for the six months ended December 31, 2018 and 2017 of $0 and $18,000, respectively.

In November 2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $27,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $27,000. The Note Holder received 416,600 common stock warrants exercisable at $0.15 per share through November 7, 2022. The promissory note has a term of 24 months maturing on November 13, 2019 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the Company allocated the fair value of the ~~common stock and~~ warrants to the proceeds received in the amount of ~~$52,817,~~$8,310 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, ~~twenty four~~24 months. The Company recognized accretion of debt discount expense for the ~~three months and six months ended December, 2016 and 2015 of $4,807 and $0, respectively. The Company recognized a beneficial conversion expense for the three months and~~ six months ended December 31, ~~2016~~2018 and ~~2015~~2017 of ~~$19,484~~$1,576 and ~~$0,~~$492, respectively. ~~The Company recognized interest~~Interest expense for the ~~three~~six months ended ~~and six months ending~~ December 31, ~~2016~~2018 and ~~2015~~2017 of ~~$2,400~~$1,104 and ~~$0,~~$294, respectively.

As of December 31, ~~2016, $200,000~~and June 30, 2018, $27,000 of principal was outstanding.

In December 2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $75,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $75,000. The Note Holder received 1,000,000 shares of common stock and 250,000 common stock warrants exercisable at $0.12 per share through December 27, 2020. The promissory note has a term of 6 months maturing on June 30, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The maturity date of the Note was extended to March 30, 2019 in an extension agreement dated June 2018. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $16,176 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $41,175 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, six months. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 and 2017 of $0 and $1,125, respectively. Interest expense for the six months ended December 31, 2018 and 2017 of $0 and $6,000, respectively. As of December 31, and June 30, 2018, $75,000 of principal was outstanding.

The debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this derivative at September 30, 2018 was $10,380, and a change in derivative liability expense of $8,061 for the three months then ended. This derivative liability was settled for 809,160 shares during the second quarter of 2018, resulting in additional interest expense of $21,420 during the six months ended December 31, 2018.

In February 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $45,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $45,000. The Note Holder received 1,500,000 shares of common stock and 500,000 common stock warrants exercisable at $0.12 per share through December 27, 2020. The promissory note has a term of 6 months maturing on August 8, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The maturity date of the Note was extended to February 8, 2019 in an extension agreement dated August 2018. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $9,046 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $31,546 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, six months. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 and 2017 of $6,761 and $0, respectively. Interest expense for the six months ended December 31, 2018 and 2017 of $0. As of December 31, and June 30, 2018, $45,000 of principal was outstanding.

The debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this derivative at September 30, 2018 was $64, and a change in derivative liability expense of $64 for the three months then ended. This derivative liability was settled for 582,955 shares during the second quarter of 2018, resulting in additional interest expense of $25,650 during the six months ended December 31, 2018.

In March 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $30,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $30,000. The Note Holder received 1,500,000 shares of common stock and 500,000 common stock warrants exercisable at $0.12 per share through March 6, 2021. The promissory note had a term of 6 months maturing on August 8, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The maturity date of the Note was extended to March 6, 2019 in an extension agreement dated August 2018. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $6,625 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $23,374 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, six months. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 and 2017 of $8,677 and $0, respectively. Interest expense for the six months ended December 31, 2018 and 2017 of $0 was recognized. As of December 31, and June 30, 2018, $30,000 of principal was outstanding.

In March 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $35,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $35,000. The Note Holder received 1,500,000 shares of common stock and 500,000 common stock warrants exercisable at $0.12 per share through March 23, 2021. The promissory note has a term of six months maturing on September 23, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The maturity date of the Note was extended to March 23, 2019 in an extension agreement dated September 2018. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $8,702 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $26,298 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, six months. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 and 2017 of $12,254 and $0, respectively. Interest expense for the six months ended December 31, 2018 and 2017 of $0. As of December 31, and June 30, 2018, $35,000 of principal was outstanding.

The debenture agreements above include a “make-whole” provision, creating a potential derivative liability. The value of this derivative at December 31, 2018 was $20,823, and a change in derivative liability expense of $18,751 for the six months then ended.

In April 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $60,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $60,000. The Note Holder received 2,000,000 shares of common stock and 1,000,000 common stock warrants exercisable at $0.12 per share through April 26, 2021. The promissory note has a term of approximately 6 months maturing on November 1, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The maturity date of the Note was extended to May 1, 2019 in an extension agreement dated September 2018. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $6,175 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $41,175 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, six months. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 and 2017 of $26,720 and $0, respectively. Interest expense for the six months ended December 31, 2018 and 2017 of $0 was recognized. As of December 31, and June 30, 2018, $60,000 of principal was outstanding.

The debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this derivative at December 31, 2018 was $2,230, and a change in derivative liability expense of $2,182 for the six months then ended.

In April 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $70,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $70,000. The Note Holder received 1,000,000 shares of common stock and 200,000 common stock warrants exercisable at $0.12 per share through April 25, 2021. The promissory note has a term of 2 years maturing on April 25, 2020 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $0 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $31,188 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, 2 years. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 and 2017 of $7,444 and $0, respectively. Interest expense for the six months ended December 31, 2018 and 2017 of $2,862 and $0 was recognized, respectively. As of December 31, and June 30, 2018, $70,000 of principal was outstanding.

In April 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $20,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $20,000. The Note Holder received 1,166,660 common stock warrants exercisable at $0.15 per share through April 25, 2023. The promissory note has a term of 2 years maturing on April 19, 2020 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $4,384 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $14,384 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, 2 years. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 and 2017 of $3,452 and $0, respectively. Interest expense for the six months ended December 31, 2018 and 2017 of $818 and $0 was recognized, respectively. As of December 31, and June 30, 2018, $20,000 of principal was outstanding.

In June 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $40,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $40,000. The Note Holder received 2,000,000 shares of common stock and 1,000,000 common stock warrants exercisable at $0.12 per share through June 7, 2021. The promissory note has a term of approximately 7 months maturing on December 31, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $8,044 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $31,957 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, 7 months. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 and 2017 of $27,440 and $0, respectively. Interest expense for the six months ended December 31, 2018 and 2017 of $0 was recognized. As of December 31, and June 30, 2018, $40,000 of principal was outstanding.

The debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this derivative at December 31, 2018 was $0, and there was no benefit nor expense for change in derivative liability for the six months then ended.

In July 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $45,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $45,000. The Note Holder received 2,000,000 shares of common stock and 1,000,000 common stock warrants exercisable at $0.12 per share through July 9, 2021. The promissory note has a term of approximately 7 months maturing on January 31, 2019 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $7,235 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $33,485 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, 7 months. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 of $26,667. Interest expense for the six months ended December 31, 2018 of $3,600 was recognized. As of December 31, $45,000 of principal was outstanding.

The debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this derivative at December 31, 2018 was $68, and a change in derivative liability expense of $68 for the six months then ended.

In August 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $30,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $30,000. The Note Holder received 1,250,000 shares of common stock and 1,000,000 common stock warrants exercisable at $0.12 per share through August 27, 2021. The promissory note has a term of approximately 7 months maturing on March 30, 2019 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $5,160 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $22,659 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, 7 months. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 of $14,122. Interest expense for the six months ended December 31, 2018 of $2,400 was recognized. As of December 31, 2018, $30,000 of principal was outstanding.

The debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this derivative at December 31, 2018 was $1,338, and a change in derivative liability expense of $1,338 for the six months then ended.

In September 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $25,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $25,000. The Note Holder received 2,000,000 shares of common stock and 1,000,000 common stock warrants exercisable at $0.12 per share through September 17, 2021. The promissory note has a term of approximately 7 months maturing on April 30, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $4,475 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $19,058 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, 7 months. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 of $9,148. Interest expense for the six months ended December 31, 2018 of $2,000 was recognized. As of December 31, 2018, $25,000 of principal was outstanding.

The debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this derivative at December 31, 2018 was $1,435, and a change in derivative liability expense of $1,435 for the six months then ended.

During the second quarter of the year ended June 30, 2019, the Company sold 52 Units for total proceeds of $52,000 from three affiliated and fourteen non-affiliated parties. Each Unit consists of a $1,000 Unsecured Convertible Promissory Note (each, a “Note”) and a warrant to purchase 4,166 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at a purchase price of $0.15 per share (each, a “Warrant”) over a period of five years. An additional 45,826 warrants with identical terms, were granted with this debenture. The Notes which were issued at face value have a maturity of two years from the date of issuance, bear interest at the rate of 8% per annum and are convertible into unregistered and restricted shares of Common Stock at $0.08 per-share, subject to normal and customary adjustments including (a) any subdivisions, combinations and classifications of the Common Stock; or (b) any payment, issuance or distribution by the Company to its stockholders of (i) a stock dividend, (ii) debt securities of the Company, or (iii) assets (other than cash dividends payable out of earnings or surplus in the ordinary course of business). The conversion price also is subject to a full ratchet adjustment upon the Company’s issuance of Common Stock, warrants, or rights to purchase Common Stock or securities convertible into Common Stock for a consideration per share which is less than the then applicable conversion price of the Notes excluding Common Stock and options issued to officers, directors, and employees of the Company, except for the exercise or conversion of existing convertible securities of the Company.

In accounting for the convertible debentures, the Company allocated the fair value of the warrants to the proceeds received in the amount of $6,835, recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, two years. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018, and 2017, of $264 and $0, respectively.

Interest expense for the six months ended December 31, 2018, and 2017, of $300 and $0, respectively.

In December 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $350,000 in gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a convertible promissory note in the principal amount of $350,000. The Note Holder received 3,000,000 shares of common stock and 5,000,000 common stock warrants exercisable at $0.04 per share through December 26, 2021. The promissory note has a term of 20 months maturing on August 14, 2020 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.03 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $126,908 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $126,908 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, 20 months. The Company recognized accretion of debt discount expense for the six months ended December 31, 2018 and 2017 of $1,191 and $0, respectively. Interest expense for the six months ended December 31, 2018 and 2017 of $385 and $0 was recognized, respectively. As of December 31, and June 30, 2018, $350,000 of principal was outstanding.

The costs related to the issuance of debt are presented on the balance sheet as a direct deduction from the related debt and amortized to interest expense using the effective interest method over the maturity period of the related debt. Amortization expense for the ~~three~~six months ended December 31, ~~2016~~2018 and ~~2015~~2017 was ~~$15,821~~$151,403 and ~~$0, respectively, and $31,329 and $0 for the six months ending December 31, 2016 in 2015,~~$725,007 respectively.

In September ~~2016~~2018, the Company issued ~~an unsecured~~a promissory note secured by the Company’s CEO for ~~proceeds~~$20,000 with interest rate of ~~$100,000.~~6%, maturing on March 9, 2019. The note ~~bears 0% interest and~~is convertible into the ~~Company issued 416,667~~Company’s common stock, ~~warrants exercisable~~ at ~~$0.15~~the lenders discretion, at a rate of $0.04 per share, ~~through September 29, 2021. The note was due October 13, 2016 and was repaid on October 11, 2016.~~

~~In accounting for the promissory note, the Company allocated the fair value of the~~with warrants to ~~the proceeds received in the~~purchase an equal amount of ~~$26,454, recorded as debt discount and is amortized using the effective interest rate method over the life of the loan, fourteen days. The Company recognized accretion of debt discount~~stock. Interest expense for ~~the three months ended December 31, 2016 and 2015 of $24,564 and $0, respectively. For~~ the six months ended December 31, ~~2016 and 2015 the accretionof debt discount~~2018 was ~~$26,454 and $0 respectively.~~

$319. As of December 31, ~~2016, $0~~2018, $20,000 of principal was outstanding. ~~See Note 13 for additional information.~~

In August 2016, to finance an insurance premium, the Company issued a negotiable promissory note for $13,959 at an interest rate of 4.87% per annum. The note is due May 5, 2017. The balance outstanding at December 31, 2016 was $7,818.

During the six months ended December 31, ~~2016,~~2018, the Company ~~granted 250,000~~issued 15,048,042 shares for $602,922 in consulting services, $61,255 of ~~common stock to consultants~~which was accrued at ~~the fair market value of $25,000. This was recognized as a prepaid asset and will be amortized to expense over the life of the agreement.~~June 30, 2018.

During the six months ended December 31, ~~2016,~~2018, the Company issued ~~1,750,000 shares for consulting services valued at $175,000.~~

~~During the six months ended December 31, 2016, the Company issued 35,708~~757,800 shares of common stock at the fair market value of ~~$4,285~~$43,463 for payment of debenture interest.

During the six months ended December 31, ~~2016,~~2018, the Company issued ~~1,250,000~~16,714,339 shares of common stock at the fair market value of ~~$150,000 as a result~~$708,840 in connection with debenture derivative liabilities, relieving $126,842 of ~~debenture conversions.~~the derivative liability, and resulting in $401,355 of additional interest expense.

As of December 31, 2018, the company owed a total of 19,653,779 shares of common stock. 3,500,000 shares were in exchange for extinguishment of a $150,000 debenture, with a fair value of $280,000. 991,279 shares were for the settlement of a derivative liability related to price protection in the extinguishment agreement, with a fair value of $39,651. 600,000 shares were in relation to the extension of debt, with a fair value of $36,000. 14,250,000 shares were in relation to a new debenture borrowing of $615,000 in aggregate, valued at $150,524. 312,500 shares were in relation to the sale of shares for cash, valued at $12,500. These subscribed shares also included 702,250 warrants to purchase shares of common stock at $0.04 per share. The shares are included in the weighted average shares outstanding for purposes of calculation earning per share for the three and six months ended December 31, 2018.

15,173,333 shares with a fair value of $491,105, were issued, reducing shares issuable, during the six months ended December 31, ~~2016, the Company issued 200,000 shares in connection with the issuance of the September 2016 promissory note.~~2018.

~~During the six months ending December 31, 2016, the Company issued 8,750,000 shares of common stock for warrants exercised, including 2,500,000 shares issued in connection with cashless exercises.~~

~~During the six months ending December 31, 2016, the Company cancelled 194,059 common shares.~~

A summary of activity of the Company’s stock warrants for the six months ended December 31, ~~2016~~2018 is presented ~~below:~~below (unaudited):

Outstanding warrants at December 31, ~~2016~~2018 expire during the period ~~January 2017~~February 2019 to ~~November 2021~~December 2023 and have exercise prices ranging from ~~$0.04~~$0.03 to ~~$0.30.~~$0.30, valued at $4,805,468. These warrants are issued for salary conversions of employees and consultants, and the origination warrants related to debentures.

The Company follows FASB Accounting Standards Codification (“ASC”) 718“Compensation — Stock Compensation”for share-based payments which requires all stock-based payments, including stock options, to be recognized as an operating expense over the vesting period, based on their grant date fair values.

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 increased to 10,000,000 shares in December 2009 and approved by stockholders in January 2010. The Plan provides for the direct issuance of common stock and the grant of incentive and non-incentive stock options. As of December 31, ~~2016,~~2018, 9,200,000 options have been granted, with terms ranging from five to ten years, and ~~250,000~~800,000 have been ~~cancelled.~~cancelled leaving a balance of 8,400,000 of options outstanding. During the six months ended December 31, 2018, we issued 1,500,000 shares of restricted stock out of the plan, leaving 100,000 options or grants available for grant under the plan.

In March 2012, 3,500,000 stock options, with a term of five years, were granted outside of a stock option plan. In March 2017, the term of these options was extended for an additional five years. In June 2016, and 2017, 6,000,000 and 17,000,000 stock options, with a term of ten years, were granted, respectively, outside of a stock option plan, and 3,000,000 shares were cancelled, leaving a balance of 23,500,000 outstanding outside of a defined option plan.

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 increased to 60,000,000 shares in March 2013 and approved by stockholders in March 2013. The Plan provides for the direct issuance of common stock and the grant of incentive and non-incentive stock options. As of December 31, ~~2016, 72,653,473~~2018, 80,153,473 options have been granted, with terms ranging from five to ten years, 3,325,000 have been exercised and ~~12,803,225~~18,886,559 have been ~~cancelled.~~cancelled, and 57,941,914 remain outstanding.

On February 17, 2016, the Shareholders approved the 2015 Employee Benefit and Consulting Services Compensation Plan covering 15,000,000 shares. The Plan provides for the direct issuance of common stock and the grant of incentive and non-incentive stock options. As of December ~~31, 2016, 2,800,000~~30, 2018, 4,900,000 options have been granted with a term of five ~~years.~~

~~In June 2016 6,000,000 stock options, with~~years, and 1,625,000 have been cancelled leaving a ~~term~~balance outstanding of ~~ten years, were granted outside of a stock option plan, and 3,000,000 shares were cancelled.~~3,275,000 options.

Incentive Stock Options: The Company estimates the fair value of each stock option on the date of grant using the Black-Scholes-Merton valuation model. The volatility is based on expected volatility over the expected life of thirty-six to sixty months. Compensation cost is not reduced by the Company for estimated forfeitures based on historical forfeiture rates for options granted after July 1, 2018. For grants prior to July 1, 2018, compensation cost was recognized based on awards that are ultimately expected to vest, therefore, the Company has reduced the cost for estimated forfeitures based on historical forfeiture rates, which were between 14% and 17% ~~during the six months ended December 31, 2016.~~. As the Company has not historically declared dividends, the dividend yield used in the calculation is zero. Actual value realized, if any, is dependent on the future performance of the Company’s common stock and overall stock market conditions. There is no assurance the value realized by an optionee will be at or near the value estimated by the Black-Scholes-Merton model.

The computation of expected volatility during the six months ended December 31, ~~2016~~2018 and ~~2015~~2017 was based on the historical volatility. Historical volatility was calculated from historical data for the time approximately equal to the expected term of the option award starting from the grant date. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve in effect at the time of grant for the period corresponding with the expected life of the option.

A summary of the activity of the Company’s stock options for the six months ended December 31, ~~2016~~2018 is presented ~~below:~~below (unaudited):

Outstanding options at December 31, ~~2016~~2018, expire during the period ~~March 2017~~February 2019 to June 2026 and have exercise prices ranging from ~~$0.04~~$0.03 to $0.17.

Compensation expense associated with stock options for the ~~three months ended December 31, 2016 and 2015 was $568,599 and $1,162,431, respectively, and $740,789 and $1,340,905 for the~~ six months ended December 31, ~~2016~~2018 and ~~2015,~~2017 was $535,155 and $511,728 respectively and was included in general and administrative expenses in the consolidated statements of operations.

At December 31, ~~2016,~~2018, the Company had ~~9,866,668~~10,732,167 shares of nonvested stock option awards. The total cost of nonvested stock option awards which the Company had not yet recognized was ~~$721,253~~$463,807 at December 31, ~~2016.~~2018. Such amounts are expected to be recognized over a period of ~~2.75~~1.0 years.

Restricted Stock: To encourage retention and performance, the Company granted certain employees restricted shares of common stock with a fair value per share determined in accordance with conventional valuation techniques, including but not limited to, arm’s length transactions, net book value or multiples of comparable company earnings before interest, taxes, depreciation and amortization, as applicable. Generally, the stock vests over a ~~3 year~~3-year period. A summary of the activity of the Company’s restricted stock awards for the six months ended December 31, ~~2016~~2018, and year ended June 30, 2018 is presented ~~below:~~below (unaudited):

Compensation expense associated with restricted stock ~~for the three months ended December 31, 2016 and 2015 was $52,931 and $87,932, respectively, and $105,863 and $140,863~~awards for the six months ended December 31, ~~2016~~2018 and ~~2015,~~2017 was $0 and $99,046, respectively, and was included in general and administrative expenses in the consolidated statements of operations.

The total cost of nonvested stock awards which the Company had not yet recognized was ~~$112,192~~$0 at December 31, ~~2016. This amount is expected to be recognized over a period of 1 year.~~

~~Agreements with Officers and Employees:~~ In June 2016, the Company’s officers and certain employees owning options to purchase 57,670,933 shares of the Company’s common stock entered into an agreement with the Company that such persons cannot exercise their options and the Company does not have to reserve for the issuance of shares of common stock underlying their options until the earlier of June 30, 2017 or the Company having unreserved shares sufficient for all outstanding options to be exercised. This could happen through an increase in authorized common shares, the cancellation of outstanding convertible notes or warrants, or a shareholder approved reverse stock split.2018.

The Company follows ASC 260,“Earnings Per Share”, for share-based payments that are considered to be participating securities within the definition provided by the standard. All share-based payment awards that contained non-forfeitable rights to dividends, whether paid or unpaid, were designated as participating securities and included in the computation of earnings per share (“EPS”).

The following table sets forth the computation of basic and diluted loss per share:

For the three months and six months ended December 31, 2016 and 2015, 31,914,784 and 36,994,557 stock warrants, respectively, were excluded from diluted earnings per share because they are considered anti-dilutive.

For the three months and six months ended December 31, 2016 and 2015, 74,775,248 and 62,625,248 stock options, respectively, were excluded from diluted earnings per share because they are considered anti-dilutive.

On August 20, 2008, Solterra entered into a License Agreement with Rice University, which was amended and restated on September 26, 2011; also on September 26, 2011, QMC entered into a new License Agreement with Rice (collectively the “Rice License Agreements”). On August 21, 2013, QMC and Solterra each entered into amended license agreements with Rice University. QMC and Solterra entered into second amended license agreements with Rice University on March 15 and 24, 2016, respectively.

The Rice License Agreements, as amended, require the payment of certain patent fees to Rice and for QMC and Solterra to meet certain milestones by specific dates. Pursuant to the Solterra Rice License Agreement, as amended, Rice is entitled to receive, during the term, certain royalties of adjusted gross sales (as defined therein) ranging from 2% to 4% for photovoltaic cells and 7.5% of adjusted gross sales for QDs sold in electronic and medical applications. Additionally, minimum royalties payable under the Solterra Rice License Agreement include $100,000 due January 1, 2017, $356,250 due January 1, 2018, $1,453,500 due January 1, 2019, $3,153,600 due January 1, 2020 and each January 1 of every year thereafter, subject to adjustments for changes in the consumer pricing index. Such minimum royalty payments shall be credited against royalties due in each respective royalty year, January 1 to December 31, following the due date. Pursuant to the QMC Rice License Agreement, as amended, Rice is entitled to receive, during the term, a royalty of 7.5% of adjusted gross sales for QDs sold in electronic and medical applications. Additionally, minimum royalties payable under the QMC Rice License Agreement include $117,000 due January 1, 2017, $292,500 due January 1, 2018, $585,000 due January 1, 2019 and each January 1 of every year thereafter, subject to adjustments for changes in the consumer pricing index. Such minimum royalty payments shall be credited against royalties due in each respective royalty year, January 1 to December 31, following the due date. The Rice License Agreements and subsequent amendments have been filed on Form 8-K and are incorporated by reference herein. The Company is in the process of renegotiating the minimum royalty commitments and while oral modifications have been agreed to a final amendment has not been finalized.

Solterra entered into an exclusive Patent License Agreement with the University of Arizona (“UA”) in July 2009. On ~~June 8, 2016,~~March 3, 2017, Solterra entered into an amended license agreement with UA. Pursuant to UA License Agreement, as amended, Solterra is obligated to pay minimum annual royalties of $50,000 by ~~December 31, 2016,~~June 30, 2017, $125,000 by ~~June 30,~~September 15, 2017 and $200,000 on each June 30th thereafter, subject to adjustments for increases in the consumer price index. Such minimum royalty payments shall be credited against royalties due in each respective royalty year, July 1 to June 30, following the due date. 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. The UA License Agreements and subsequent amendments have been filed on Form 8-K and are incorporated by reference herein. The Company is in the process of renegotiating the minimum royalty commitments and while oral modifications have been agreed to a final amendment has not been finalized. As of December 31, 2018, no royalties have been accrued for this obligation.

The Company entered into a Service Agreement with Texas State University (“TSU”) by which the Company occupies certain office and lab space at TSU’s STAR Park (Science Technology and Advanced Research) Facility. The agreement is month-to-month and can be terminated with ~~30-days~~60-days written notice of either party.

~~The Company follows ASC 740~~~~“Income Taxes”~~ regarding the accounting for deferred tax assets and liabilities. Under the asset and liability method required by this guidance, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A deferred tax asset will be reduced by a valuation allowance when, based on the Company’s estimates, it is more likely than not that a portion of those assets will not be realized in a future period.Operating Leases

The Company assesses the likelihood that deferred tax assets will be recovered from the existing deferred tax liabilities or future taxable income. To the extent the Company believes that recovery will not meet the more likely than not threshold, it establishesleases certain office and lab space under a valuation allowance. The Company has recorded valuation allowances in the U.S. for its net deferred tax assets since management believes it is more likely than not that these assets will not be realized because future taxable income necessary to utilize these losses cannot be established or projected.month-to-month operating lease agreement.

~~The Company had approximately $25,560,000 in U.S. net~~Rental expense for the operating ~~loss (“NOL”) carryforwards that expire beginning in 2029 as of its fiscal year ending June 30, 2016, and $28,230,000 in NOL’s available as of~~lease for the six months ended December 31, 2016 prior to any reductions under Section 382 of the Internal Revenue Code of 1986, as amended (“IRC Section 382”). Section 382 provides that a corporation that undergoes an “ownership change”, as defined therein, is subject to limitations on its use of pre-change NOL carryforwards to offset future taxable income.2018 and 2017 was $63,572 and $108,812, respectively.

The Company ~~completed~~was served in Hays County, Texas in a complaint for breach of contract in February 2017. In April 2017, the Company settled this complaint for $129,000 payable over a four-month period. As of the filing date of this Form 10-Q, the balance in arrears is $95,000 plus interest and other charges which has been accrued at September 30, 2018. The Company repaid $237,300 in principal plus interest to L2 Capital LLC and $101,700 plus interest to SBI Investments LLC on September 30, 2017, and $149,555 plus interest to L2 Capital LLC and $64,095 plus interest to SBI Investments LLC on November 3, 2017, respectively.

Two lenders, SBI Investments LLC, 2014-1, and L2 Capital, LLC, asked Quantum Materials’ transfer agent, Empire Stock Transfer, Inc., to set aside fifty-million (50,000,000) shares of stock as collateral for four loan agreements Quantum Materials had entered into in late March 2017. This joint request occurred despite the fact that or about September 30, 2017 Quantum had repaid $339,000 (plus accrued interest of $10,170) on two of the loans. Subsequently, in November 2017, the Company also repaid $213,650 and $8,636 of accrued interest on two of the remaining loans on their due dates.

Quantum filed suit for an ~~evaluation study whether~~injunction to stop the release of the stock. The two lenders, SBI Investments LLC, 2014-1 (SBI), and L2 Capital, LLC (L2), hired the national law firm of K&L Gates to stop the injunction; problematically, this same firm had previously represented Quantum Materials. Quantum filed a motion to disqualify the law firm for that conflict, and they subsequently withdrew.

New counsel for SBI and L2, Cleveland Terrazas PLLC, brought suit against Quantum for $1.5 million on the four notes that had been repaid and were not in actual default, though SBI Investments LLC, 2014-1, and L2 Capital, LLC claimed technical defaults. The court in Hays County granted Quantum’s temporary injunction and set the full case for trial. The next day, SBI Investments LLC, 2014-1, and L2 Capital, LLC dismissed their suit against Quantum and refiled similar actions in Kansas and Florida on the notes claiming that one note was paid on a Monday when it was due on a Sunday, demanding late payment in stock (they refused cash), and another was paid on a Friday when it was due Saturday, claiming a pre-payment penalty. All three suits are related to the same transactions. The lenders claim 140% interest, attorney’s fees, 20 million shares of stock, and damages. Quantum maintains all loans have been paid timely.

The Company denies all the above-mentioned allegations and will vigorously defend all claims.

The Kansas lawsuit is based on the same nucleus of facts. The putative default is the failure to properly and timely file a Form S-1 with the SEC. Three causes of action are alleged: the first is breach of contracts regarding the Registration Rights Agreement against Quantum; the second claim is for breach of contract of the first L2 promissory note against Quantum; the final claim is for breach of contract regarding the second L2 promissory note against both Quantum and Squires, individually.

The Company denies all the above-mentioned allegations and will vigorously defend all claims.

The Florida lawsuit largely mirrors the suit in Kansas; defaults are alleged as follows:

On July 6, 2017, Quantum filed a revised Form 10-Q/A report (the Report) with the SEC, restating its financial statements. In comparison to the unrestated financial statement previously filed by Quantum, the Revised Report materially and adversely affects SBI’s rights with respect to the notes. This restatement of financial statements constituted a breach of each of the notes. Furthermore, because each note contains a cross-default clause, each of Quantum’s breaches of a specific note also constituted a breach of every other note.

On July 27, 2017, Quantum’s auditor resigned, and replaced its auditor without seeking or obtaining the consent of SBI. This replacement of Quantum’s auditor constituted an ~~“ownership change”~~alleged breach of the SBI notes. Because each note contains a cross-default clause, each of Quantum’s breaches of a specific note also constituted a breach of every other note.

The Company denies all of the above-mentioned allegations and will vigorously defend all claims.

The case was reheard in late March 2018 and a 45-day continuance was decided resulting in an April 30, 2018 rehearing. After a day of litigation in San Marcos, QTMM’s motion to enjoin L2 and SBI and prevent them from obtaining stock before a full trial on the merits was granted on October 27, 2017, by Judge Gary Steel. L2 and SBI objected to the injunction and appealed to the Third Court of Appeals in Austin, TX. On March 8, 2018, in a unanimous opinion, the Third Court of Appeals denied the appeal, sustained the injunction in favor of QTMM and awarded costs of court.

On March 29, 2018, at a discovery hearing, wherein QTMM asked the court to order L2 and SBI to produce evidence to support their positions, L2 and SBI requested and received a stay of litigation, postponing the trial date of April 2018, which they had ~~occurred~~previously requested, and ~~determined~~also postponing discovery until rulings in Florida and Kansas, or until further order of the court. The court also announced that when Florida and Kansas have spoken, discovery will be expedited. A jurisdiction hearing for the ~~limitation would be approximately $750,000, thereby reducing~~Florida case on August 15, 2018 resulted in the ~~net operating loss~~lawsuit being dismissed and a hearing is scheduled in Kansas in April 2019.

The Company expects to successful in the L2 and SBI litigation. The ultimate outcome is not determinable and as such, no liability has been recorded for this contingent liability at December 31, 2018.

In September 2017, Quantum filed an injunction suit against two of its lenders, SBI Investments, LLC, 2014-1 and L2 Capital LLC, in Hays County, Texas (428th Judicial District; Cause No. 17-2033). On October 2017, these two lenders intervened in the proceeding, asserted affirmative claims for monetary damages against Quantum, and opposed Quantum’s request for temporary injunctive relief. The lenders’ law firm was K&L Gates. In 2016, tothe Board of Directors for Quantum retained the law firm of K&L Gates. In this professional capacity, K&L Gates attended confidential board meetings and reviewed, inter alia, corporate secrets. K&L Gates billed approximately ~~$27,480,000.~~$100,000 per month. The Company has ~~recorded a valuation allowance~~accrued $319,000 in relation to this action. Quantum moved to disqualify K&L Gates. The day before Quantum’s motion to disqualify was ruled on, ~~the entire NOL as it believes that it is more likely than not that all~~K&L Gates withdrew in lieu of the ~~deferred tax asset associated with~~Austin law firm Cleveland & Terrazas. On September 21, 2018, the ~~NOLs will not be realized regardless~~“Deputy General Counsel of ~~whether an “ownership change” has occurred.~~

~~When~~K&L Gates,” Mr. Charles Tea, sent a ~~company operates in a jurisdiction that generates ordinary losses but does not expect~~demand for payment of over $300,000 to ~~realize them, ASC 740-270-30-36(a) requires the exclusion~~Quantum’s CEO. On October 16, 2018, Quantum filed suit against K&L Gates alleging Breach of ~~the respective jurisdiction from the overall annual effective tax rate (“AETR”) calculation~~Fiduciary Duty, Deceptive Trade Practices, and instead, a separate AETR should be computed. The Company operates in one jurisdiction and has determined that its deferred tax assets are not realizable on a more likely than not basis and has recorded a full valuation allowance. The effective income tax rate for the three months and six ended December 31, 2016 and 2015 was 0%.Legal Malpractice.

The following is supplemental disclosure of non-cash investing and financing activities:

At December 31, 2018 and June 30, 2018, the Company had accrued salaries payable to executives in the amount of $536,825 and $568,575, respectively.

During the ~~six months~~year ended ~~December 31, 2016,~~June 30, 2017, the Company issued a convertible debenture to a family member of a former key executive for proceeds of $200,000. This transaction is described in more detail in Note 5 under the ~~heading~~debenture reference C) April – June, August, October and ~~October~~November 2016 Convertible Debentures.

In September 2016, the Company’s Chief Financial Officer loaned the Company $100,000 to provide short-term bridge financing. This transaction is described in more detail in Note 6 under the heading “Promissory Note”. The Company repaid the loan on October 11, 2016.

~~In March 2016, the FASB issued ASU 2016-09,~~~~Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting.~~ This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is in the process of evaluating the impact, if any, of the adoption of this guidance on its consolidated financial statements.

~~In February 2016, the FASB issued ASU 2016-02,~~~~Leases,~~ which updates guidance on accounting for leases. The update requires that a lessee recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Similar to current guidance, the update continues to differentiate between finance leases and operating leases; however, this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The standards update is effective for interim and annual periods after December 15, 2018 with early adoption permitted. Entities are required to use a modified retrospective adoption, with certain relief provisions, for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements when adopted. The Company is in the process of evaluating the impact, if any, of the adoption of this guidance on its consolidated financial statements.

~~In November 2015, the FASB issued ASU 2015-17,~~~~Income Taxes: Balance Sheet Classification of Deferred Taxes.~~ This ASU requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. It thus simplifies the current guidance, which requires entities to separately present deferred tax assets and deferred tax liabilities as current and noncurrent. This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company adopted this guidance effective for the year ended June 30, 2016.

~~In August 2014, the FASB issued ASU No. 2014-15~~~~Preparation of Financial Statements — Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.~~ Under 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 adoption is permitted. The Company will continue to evaluate the going concern considerations in this ASU, however, at this time, the Company has not adopted this standard. The Company does not anticipate or expect adoption of this ASU will have a material effect to the consolidated financial statements.

~~In May 2014, the Financial Accounting Standards Board (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 generally accepted accounting principles (GAAP) and replaces it with a principle-based approach for determining revenue recognition. In August 2015, the FASB issued ASU 2015-14,~~Revenue from Contracts with Customers: Deferral of the Effective Date,~~ which defers the effective date of ASU 2014-09 for all entities by one year. Public business entities are required to adopt the revenue recognition standard for reporting periods beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-10,~~Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing.~~ Early adoption of this updated guidance is permitted as of the original effective date of December 31, 2016. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements

January 2015 Convertible Debenture — On January ~~12, 2017,~~14, 2019, partial payment was made of $150,000, and the debentures were extended to March 1, 2019. The payment was allocated first to interest, the remainder was allocated to outstanding principal. $7,890 was allocated to interest, and $143,110 was principal payment.

During the period January 1, 2019 through the date of this report, the Company issued ~~a total of $110,000 in unsecured convertible promissory notes and 458,260 warrants to purchase common shares of the Company at a purchase price of $0.15 per share.~~5,500,000 for services.

OnDuring the period January ~~17, 2017,~~1, 2019 through the date of this report, the Company issued ~~1,000,000 common~~1,664,894 shares ~~to San Diego Torrey Hills Capital, Inc. at a value~~in connection with the settlement of ~~$70,000 for financial services to be rendered for~~ the ~~twelve months ending~~recorded derivative liability, which was $9,835 as of December 31, ~~2017.~~2018.

OnDuring the period January ~~30, 2017, our joint venture partner, The Guanghui Technology Group (“GTG”) and Quantum Materials Asia Co., Ltd. (“QMA”) agreed to an investment by~~1, 2019 through the ~~China Government Guidance Fund~~date of $21.8 million US dollars in GTG and QMA. Quantum owns a 25% interest in QMA. Quantum has the right to 50% of the profit distributions from QMA. Quantum also manages QMA and has 50% of the board membership in QMA. The QMA joint venture will be registered in Hong Kong. The investment by China Government Guidance Fund described above in GTG and QMA together with Quantum Materials patented mass-productions quantum dot manufacturing technology will enable QMA to start supplying quantum dots to clients in the display, lighting and solar industries.

On February 1, 2017, Quantum Materials Corp. and Craig Lindberg entered into a Resignation Agreement pursuant to which Mr. Lindberg’s resigned as Chief Financial Officer. In accordance with the Resignation Agreement, Quantum agreed to recognize fully vested stock options and warrants totaling 11,729,157 shares. Quantum also agreed to reimburse Mr. Lindberg and to make payment of unpaid wages of $10,000 through December 31, 2016, $20,000 for January and February, 2017, and $14,543 in expenses.

~~On February 1, 2017, the Board of Directors of Quantum elected E. Jamie Schloss as Chief Financial Officer. Mr. Schloss does not have an employment agreement at~~ this time and he is an employee at will. He will receive an initial salary of $4,600 per month (inclusive of certain expenses). Quantum and Mr. Schloss have agreed to re-evaluate his initial base salary after a period of three months.

~~In February, 2017,~~report, the Company issued ~~1,466,666 common~~1,500,000 shares ~~pursuant to~~which were issuable at December 31, 2018, in connection with a ~~line~~debenture entered into March of ~~credit agreement allowing for borrowing of up to $500,000 and 200,000 common shares pursuant to a Securities Purchase Agreement.~~2018.

~~In February, 2017, the Company issued 5,125,000 common shares pursuant to two consulting agreements.~~

~~In February, 2017, the Company issued 2,000,000 common shares pursuant to a consulting agreement.~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Form 10-Q contains “forward-looking statements” relating to us which represent our current expectations or beliefs, including statements concerning our operations, performance, financial condition and growth. For this purpose, any statements contained in this report that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “anticipation”, “intend”, “could”, “estimate”, or “continue” or the negative or other comparable terminology are intended to identify forward-looking statements.

Statements contained herein that are not historical facts are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in such forward-looking statements are reasonable, the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and those actual results may differ materially from those in the forward-looking statements. Such risks and uncertainties include, without limitation: well-established competitors who have substantially greater financial resources and longer operating histories, regulatory delays or denials, ability to compete as a start-up company in a highly competitive market, and access to sources of capital.

The following discussion should be read in conjunction with the Company’s risk factors, consolidated financial statements and notes thereto included elsewhere in this Form 10-Q and our Form 10-K filed ~~September 23, 2016~~October 15, 2018 for the fiscal year ended June 30, ~~2016.~~2018. Except for the historical information contained herein, the discussion in this Form 10-Q contains certain ~~forward looking~~forward-looking statements that involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear herein. The Company’s actual results could differ materially from those discussed here.

The financial information furnished herein has not been audited by an independent accountant; however, in the opinion of management, all adjustments (only consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the three and six-month periods ended December 31, ~~2016~~2018 and ~~December 31, 2015~~2017 have been included.

We are a nanotechnology company specializing in the design, development, production and supply of nanomaterials, including quantum dots (“QDs”), tetrapod quantum dots (“TQDs”), and other nanoparticles for a range of applications in televisions, displays and other optoelectronics, photovoltaics, solid state lighting, life sciences, security ink, battery, and sensor sectors of the market. ~~We are currently trading in the over-the-counter marketplace on the OTCQB under the ticker symbol “QTMM.”~~ Our wholly-owned operating subsidiary, Solterra Renewable Technologies, Inc. (“Solterra”) ~~is a wholly-owned operating subsidiary of QMC that~~, is focused on the next generation photovoltaic (solar cell) ~~market.~~market, using quantum dot semiconductors.

QDs are nanoscale semiconductor crystals typically between 10 and 100 atoms in diameter. Approximately 10,000 would fit across the diameter of a human hair. Their small size makes it possible for them to exhibit certain quantum mechanical properties. QDs emit either photons or electrons when excited. In the case of photons, the wavelength (color) of light emitted varies depending on the composition and size of the quantum dot. As such, the photonic emissions can be tuned by the creation of QDs of different types and/or sizes. Their unique properties as highly efficient, next generation semiconductors have led to the use of QDs in a range of electronic and other applications, in the ~~biomedical,~~ display and lighting industries. QDs 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 QDs in printed photovoltaic cells.

QDs were first discovered in the early 1980s and the industry has developed to the point where QDs are now being used in an increasing range of applications, including ~~the television~~televisions and ~~display industries, the~~displays, light emitting diode (“LED”) lighting (also known as solid-state lighting) ~~industry,~~, and in the biomedical industry. LG, Samsung, and other ~~manufacturers~~companies have recently launched new televisions using QDs to enhance the picture color quality and power efficiency. A number of major lighting companies are developing product applications using QDs to create a more natural light for LEDs. The biomedical industry is using QDs in diagnostic and therapeutic applications; and applications are being developed to print highly efficient photovoltaic solar cells in mass quantities at a low cost.

QDs also have applications in solar cells, where their characteristics enable conversion of light energy into electricity with the potential for significantly higher efficiency than existing technologies. In traditional solar cells, a photon can only be converted into a fixed amount of energy per photon, regardless of the photon’s total energy. Excess energy is converted to heat which further lowers the efficiency of the panel. QD-based solar cells have the potential to significantly exceed this efficiency because QDs are capable of generating multiple electrons per photon strike rather than converting the extra energy of high energy photons to heat as in the case of traditional solar cells. QD solar cells can also convert the infrared portion of the spectrum that is not absorbed by traditional solar cells. These attributes make the theoretical maximum efficiency of QD solar cells substantially higher that of traditional silicon solar cells. We believe the use of QDs in solar cells will create the opportunity for a step change in efficiency and performance in printed photovoltaic cells.

A key challenge for the quantum dot industry has been and may continue to be its ability to scale up production volumes sufficiently to meet growing demand for QDs while maintaining product quality and consistency and reducing the overall costs of supply to stimulate new applications. QDs remain an expensive product, ~~however a number of recent market research reports have forecasted~~but we anticipate rapid growth of the QD ~~market, including an April 2016 report~~market.

We were formed in January 2007 as a Nevada corporation in the business of the exploitation of mineral interests. We acquired Solterra in November 2008 and changed our business to the development of QDs.

In October 2008, Solterra entered into a license agreement with the University of Arizona, which was later amended, (the “UA License”) pursuant to which Solterra has been granted exclusive rights to use the University of Arizona’s patented screen-printing techniques in the production and sale of organic light emitting diodes (“OLEDs”) incorporating QDs in printed electronic displays and other printed electronic components. This technology was developed at University of Arizona by ~~Credence Research which states “The quantum dots market is expected to cross US$ 8.0 Bn by 2022, expanding at~~Dr. Ghassan Jabbour, a ~~CAGR~~member of ~~51.3% during~~ the forecast period 2015 to 2022,” and a report published by Transparency Market Research, also in April 2014, which forecasts that “the market will develop at an exceptional 53.8% CAGR between 2013 and 2023. If the projections hold true, the market could rise from a valuationCompany’s Board of ~~US$88.5 mn in 2011 to US$8.2 bn by 2023.”~~Directors.

In 2014, wethe Company acquired ~~several~~a patent portfolio from Bayer AG that included patents and patent applications ~~in five diverse sets~~covering the high-volume manufacture of ~~patent families from Bayer Technology Services GmbH, the global technological backbone~~QDs, including heavy metal-free compositions, various methods for enhancing quantum dot performance, and ~~major innovation driver for Bayer AG of Leverkusen, Germany~~a quantum dot based solar cell technology (the “Bayer Patents”).

The Bayer Patents, ~~acquired provide broad intellectual property protection for advances we have achieved in economical high-volume QD manufacturing. In addition,~~ the ~~Bayer Patents cover volume production technology for cadmium-free QDs~~UA License, organically developed technologies and ~~nanoparticles; increasing quantum yields; and hybrid organic quantum dot solar cell (“QDSC”) production as well as a surface modification~~our proprietary continuous flow manufacturing process ~~for increased efficiency of high performance solar cells and printed electronics.~~

In addition to the Bayer Patents, we have a worldwide exclusive license from William Marsh Rice University (“Rice”) to a patented chemical process that permits it to produce high performance TQDs using a lower cost and environmentally friendly solvent for greater manufacturing flexibility.

We have developed proprietary equipment that allows it to mass produce consistent quantities of QDs and TQDs in a continuous process at lower capital costs than other existing processes. We also have the exclusive license from the University of Arizona (“UA”) to a patented technique for printing LEDs.comprise our fundamental asset platform. We believe that ~~these~~the intellectual ~~properties~~property and proprietary technologies position usthe Company to become a leader in the overall nanomaterials and quantum dot industry, and a preferred supplier of high performance QDs and TQDs to an expanding range of applications.

~~We currently operate from~~In 2016, Mr. Squires returned as President and CEO and implemented a ~~leased facility~~cost reduction initiative streamlining the G&A overhead and devoting more resources to R&D and commercialization readiness. These efforts have resulted in ~~San Marcos, Texas at~~further optimization of the ~~STAR Park Technology Center, an extension~~chemistry and the products. Through this refinement, we have been able to continually refine and increase the throughput of ~~Texas State University (the “San Marcos Facility”). This location provides~~our production equipment to the metric ton range of QDs per year. All our discoveries are purposely developed to be compatible with our patented flow manufacturing process. Management believes that this and a number of other material performance enhancement discoveries made by us provide us with ~~convenient access~~the ability to ~~university faculty~~provide industry leading material performance at a very competitive price point.

In November 2018, the Company entered into a license and ~~specialized laboratory facilities that can support joint~~development agreement with Amtronics India LLC related to the volume production of quantum dots in Assam, India. The agreement is part of a larger project for the design, training, research and development ~~efforts with Texas State University. Located approximately 30 miles south~~ of ~~Austin, Texas, this location is also~~a quantum dot manufacturing facility in ~~close proximity~~Assam. This project has been under discussion for nearly three years. A ground-breaking ceremony took place in Assam on January 16, 2019, and the Company anticipates operations being established and operational prior to ~~a number of leading companies in~~year-end 2019. In addition to an upfront fee and royalty, the ~~electronics, lighting, solar,~~agreement provides for the Company to sell equipment and ~~life sciences markets.~~training services, which the Company expects will provide additional revenues.

The Company has established commercial-scale manufacturing equipment at the San Marcos facility and now has the capacity to produce more than two metric tons (2,000kg) per year of quantum dots and other nanomaterials for supply to its customers. Management believes that the ~~production capacity~~terms of the ~~San Marcos~~licensing agreement will enable the Company to begin to leverage its intellectual property portfolio and to begin generating revenues without overburdening the Company’s scientific staff in a manner that would disrupt new discovery. The other participants in the Assam project have the responsibility of, among other things, developing the site, constructing the facilities and hiring staff. The Company has agreed to construct and supply the proprietary equipment, assisting in the development and scale up of the 3^rd generation solar, display and SSL products, training and providing a broad range of consulting services at additional cost, representing a potential ongoing revenue opportunity for the Company.

On or about December 23, 2018, Assam Electronics Development Corporation LTD (an Indian government enterprise involved in the development of the manufacturing facility ~~is similar to, or greater than its largest competitors’ operating factories which are much larger and required significantly higher capital expenditures. This efficiency is~~in India) paid the ~~direct result~~first investment of ~~our patented continuous flow process and proprietary manufacturing knowhow and equipment. While we plan to work extensively with its current provider of equipment, we own all rights~~$1M USD into the overall project fund. Amtronics then transferred a $500K USD commitment fee to the ~~designs and intellectual property resulting~~group that has secured the $20M investment funding. In terms of direct funding to the Company, on December 29, 2018 the Company received a letter from the managing director of the Assam Electronics Development Corporation LTD confirming that the $1M USD upfront license fee would be paid to the Company on or before January 31, 2019. The Company has recently been provided additional validation that the governmental transfer approval was complete and that funds should be received by the Company on or before February 20, 2019.

In addition to Company’s efforts to commercialize its QD-LED remote phosphor technology for displays, the Company plans for its core focus in the first half of 2019 to be research and development ~~project, and could contract with one or more other competent suppliers~~for the optimization of ~~equipment, if necessary.~~its 3^rd generation perovskite QD based solar technology in preparation of scaling up to commercial production levels in Assam, India.

We ~~expect~~have continued to ~~commence generating revenues from the production of materials at the San Marcos facility~~maintain aggressive cost control measures, never forgetting this is a marathon and not a sprint. We are continuing to focus more resources on R&D and with our continuous flow technology we have been able to leverage every dollar spent. To further streamline our operations, we have continued to analyze our operating costs and make reductions whenever and wherever possible. To that end we have recently changed transfer agents in ~~the fourth quarter of 2017. Such revenues are expected to be modest at first and will be dependent upon our ability to generate purchase orders from development partners.~~

Our marketing strategy is to engage in strategic arrangements with manufacturers, distributors, and others to jointly develop applications using its patented continuous production process. Such joint collaborations will involve us working closely with its industry counterparts to optimize the performance of our materials in each application or device and to use the results from product development and testingorder to further ~~enhance product specifications. On July 15, 2015 we entered into a joint development agreement with an unnamed major display panel manufacturer~~reduce overhead cost and on September 11, 2015 we entered into a funded product development agreement with a leading global optical film manufacturer, Nitto Denko Corporation. In June 2016 we entered into a development agreement with an unnamed company in the oil and natural gas sector to produce novel technology for use in that industry. To date, we have ~~not entered into any formal commercial supply agreements, joint ventures, or licensing agreements.~~made additional cost cutting measures in our compliance operations to reduce audit fees.

These collaborations will support our internal research and development activities which will continue to be a primary part our business. Our principal revenue streams are expected to come from (i) sales of quantum dots and other nanomaterials, (ii) royalties from sales of products and components by third parties incorporating the Company’s products, (iii) milestone payments under joint development arrangements with product developers and manufacturers, and (iv) sublicensing fees where we engage in sublicensing arrangements for its owned and/or licensed technology.

Our ongoing research and development functions are considered key to maintaining and enhancing its competitive position in the growing nanomaterials and quantum dot market. Nanomaterial and quantum dot technology continues to evolve, with new discoveries and refinements being made on an ongoing basis. We intend to be at the forefront of technological development, and intend to focus a significant part of our efforts on this, as we have done historically. Continuing R&D activities at the San Marcos facility and our collaboration with Texas State University, Rice, UA, and the numerous other research centers and departments with which we have relationships will be important aspects of our strategy.

Solterra plans to utilize QMC’s patented low-cost, high-volume quantum dot production combined with TQD technology licensed from Rice to commercialize quantum dot solar cells at a cost that is competitive with conventional fossil fuel generation on an unsubsidized basis.

Our business 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 QDs. Management believes the patented (owned and licensed) processes and proprietary manufacturing equipment employed allow us to comply with current regulations. However, new regulations or requirements may develop which could adversely affect the Company or its products in the future.

The Company recorded losses from continuing operations in the current period presented and has a history of losses. The ability of the Company to continue as a going concern is dependent upon its ability to reverse negative operating trends, obtain revenues from operations, raise additional capital, and/or obtain debt financing.

In conjunction with anticipated revenue streams, management is currently negotiating equity and debt financing, the proceeds from which would be used to settle outstanding debts, to finance operations, and for general corporate purposes. However, there can be no assurance that the Company will be able to raise capital, obtain debt financing, or improve operating results sufficiently to continue as a going concern, if at all.

The Company has continued to maintain aggressive cost control measures, although we plan on increasingly to focus more resources on research and development during the last half of fiscal year 2019, and fiscal year 2020. To further streamline operations, the Company has continued to analyze its operating costs and to make reductions where management believes prudent. To that end, the Company has recently changed transfer agents in order to further reduce overhead cost and has made additional cost cutting measures.

The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

As of December 31, ~~2016~~2018, we had a working capital deficit of ~~$1,922,062,~~$5,238,276, with total current assets and liabilities of ~~$51,507~~$1,154,037 and ~~$1,973,169,~~$6,392,014 respectively. Included in the liabilities are ~~$362,100 that is~~$779,125 owed to our officers, directors and employees for services rendered and accrued through December 31, ~~2016, $85,042~~2018, $3,403,402 of convertible debentures, net of unamortized discount and $191,979 of notes payable that are due within one year. As a result, we have relied on financing through the issuance of common stock and convertible debentures.

As of December 31, ~~2016,~~2018, we have cash and cash equivalent assets of ~~$6,821 and~~$325,437. We continue to incur losses in operations. Over the past five years we have primarily relied on sales of common stock and debt instruments to support operations as well as employees and consultants agreeing to defer payment of wages and fees owed to them and/or converting such wages and fees into securities of the Company. Management believes it ~~will~~may be necessary for the Company to rely on external financing to supplement working capital ~~in order~~ to meet the Company’s liquidity needs in the fiscal ~~year 2017~~years ended 2019 and ~~2018;~~2020; the success of securing such financing on terms acceptable to the Company, if at all, cannot be assured. The Company is seeking to raise to $2,500,000 in equity and/or debt financings to support operations over the next twelve months. These financings, plus the potential exercise of stock options and stock purchase warrants previously issued, coupled with material reductions in general & administrative expenses, should provide sufficient working capital to scale up to full production over the next six months. If we are unable to achieve the financing necessary to continue our plan of operations, our stockholders may lose their entire investment in the Company.

The following table summarizes the net cash provided by (used in) operating, investing and financing activities for the periods indicated:

Operating ~~Activities:~~Activities. Net cash used in operating activities was ~~$1,152,293~~$530,988 for the six months ended December 31, ~~2016~~2018 compared to ~~$816,812~~$608,231 for the same period of ~~2015, an increase~~2017, a decrease in cash used of ~~$335,481.~~$77,243. The ~~increase~~decrease was ~~due to~~ primarily driven by ~~an increase of general~~decreased in net loss for the quarter, and ~~administrative expenses and increased research and development costs.~~decreased payments on accounts payable.

Investing ~~Activities:~~Activities. Net cash used in investing activities was ~~$32,871 for~~primarily related to purchases of equipment. No purchases of capital equipment occurred in the six months ended December 31, ~~2016 compared to net cash provided by investing activities of $21,682 for the same period of 2015, a net decrease of cash provided by $54,553.~~2018 or 2017.

Financing ~~Activities:~~Activities. Net cash provided by financing activities was ~~$925,000~~$854,400 for the six months ended December 31, ~~2016~~2018 compared to ~~$430,500~~$614,612 for the same period of ~~2015,~~2017, an increase of ~~$494,500.~~$239,788. The increase is primarily due to an increase of proceeds ~~received from conversion~~for the sale of common stock, fewer principal payments on debentures and notes payable due to maturities, partially offset by fewer issuances of convertible debentures ~~and warrants exercised.~~during the six months ended December 31, 2018.

~~These~~Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes we will be able to meet our obligations and continue our operations for the next fiscal year. Realization values may be substantially different from carrying values as shown and these consolidated financial statements do not give effect to adjustments that would be necessary to reflect the carrying value and classification of assets and liabilities should we be unable to continue as a going concern. As

Over the course of meeting our capital needs, we have entered into various debentures and debt instruments, which generally have short maturity terms, typically 6 to 18 months. Many of these instruments were accompanied by shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock. The outstanding principal amount of these instruments at December 31, ~~2016, we had not yet achieved profitable operations, had a working capital deficit~~2018 was $3,856,550. The terms of ~~$1,922,062 and expect to incur further losses~~the instruments are set forth in the ~~development of the business, all of which casts substantial doubt about our ability to continue as a going concern.~~

Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. We continue to explore available financing options, including, without limitation, the sale of equity, debt borrowing and/or the receipt of product licensing fees and royalties. We can provide no assurances that future financing, if needed, will be obtained on terms satisfactory to us, if at all. In this respect, see Note 1 in our notes to the unaudited consolidated financial statements for additional information as to the possibility that we may not be able to continue as a going concern.following table.

Three Months Ended December 31, ~~2016~~2018, Compared to Three Months Ended December 31, ~~2015~~2017.

Revenue for the three months ended December 31, 2017 and 2018 was $0. No revenue was recorded for the license and development agreement in Assam, India for the three months ended December 31, 2018, as our performance obligation has not been fulfilled as of December 31, 2018.

During the three months ended December 31, ~~2016,~~2018, the Company incurred ~~$1,825,983~~$1,261,793 of general and administrative expenses compared with ~~$2,410,431~~$1,626,390 incurred in the ~~three month~~three-month period ended December 31, ~~2015,~~2017, a decrease of ~~$584,448.~~$364,597, or 22.4%. The decrease in general and administrative expenses was primarily due to decreases in ~~stock based employee~~legal and audit, compensation, ~~of $1,077,465 less increases of $359,850 in employee compensation.~~and general corporate expenses, partially offset by stock-based compensation expense, and other professional fees.

Included in general and administrative expenses for the three months ended December 31, ~~2016 was employee compensation of $579,993, legal~~2018 and ~~audit fees of $164,305, other professional fees of $256,673, travel expense of $14,556, corporate expense of $155,353, stock-based compensation of $621,350, and other expenses of $33,753.~~2017 are the following:

Included in general and administrative expenses for the three months ended December 31, 2015 was employee compensation of $220,143, legal and audit fees of $134,765, other professional fees of $201,120, travel expense of $23,047, corporate expense of $101,313, stock-based compensation of $1,698,815, and other expenses of $31,228.

During the three months ended December 31, ~~2016,~~2018, the Company incurred ~~$126,343~~$15,449 of research and development expenses, ~~an increase~~a decrease of ~~$70,619~~$38,114, or 71.2% from the ~~$55,724~~$53,563 recorded for the three months ended December 31, ~~2015.~~2017. The ~~increase~~decrease is primarily due to ~~increased~~decreased expenditures for lab equipment, repairs and maintenance, and chemicals and consumables in the San Marcos facility.

During the three months ended December 31, ~~2016~~2018 the Company incurred ~~$24,381~~$126,908 of beneficial conversion expense compared to $0$16,176 recorded for the three months ended December 31, ~~2015.~~2017. The increase in beneficial conversion expenses of $110,732, or 684.5% was due to ~~the issuance~~beneficial conversion feature of ~~new convertible~~a certain debentures entered into during the three months ending December 31, ~~2016.~~2018, resulting in $126,908 of expense.

Interest expense recorded for the three months ended December 31, ~~2016~~2018 was ~~$63,743~~$441,196 compared to ~~$10,466~~$154,847 in the three months ended December 31, ~~2015,~~2017, an increase of ~~$53,277.~~$286,349, or 184.9%. The increased interest expense recorded in the three months ending December 31, ~~2016~~2018 was primarily related to ~~the 8%~~amounts charged to interest ~~rate on the April~~expense related to ~~June and August 2016 debentures~~derivative liability settlements, of ~~outstanding convertible debentures.~~approximately $400,000.

During the three months ended December 31, ~~2016~~2017 the Company recorded ~~$186,569~~a benefit of $424,260 related to the change in value of derivative liability. The benefit is related to the change in value of the convertible debentures feature issued in March and May of 2017. During the three months ended December 31, 2018 the Company recorded an expense of $23,706 related to the change in value of derivative liability. The expense is related to the change in value of the “make-whole” provision issued in relation to debenture extensions during the quarter.

During the three months ended December 31, 2018 the Company recorded $61,393 of accretion of debt discount expense, ~~an increase~~a decrease of ~~$143,532~~$332,452, or 84.4% from the ~~$43,037~~$393,845 recorded for the three months ended December 31, ~~2015.~~2017. The ~~increase~~decrease in accretion of debt discount expense is primarily related to the issuance of the ~~April-June and August 2016~~debt discount on convertible debentures ~~during the quarter.~~outstanding being fully recognized.

Six Months Ended December 31, ~~2016~~2018, Compared to Six Months Ended December 31, ~~2015~~2017.

Revenue for the six months ended December 31, 2017 was $11,870. This revenue is from the sale of sale of samples to potential customers, for testing and evaluation of licensed product. No corresponding revenue was recorded for the six months ended December 31, 2018. No revenue was recorded for the license and development agreement covering Assam, India for the six months ended December 31, 2018, as our performance obligation has not been fulfilled as of December 31, 2018.

During the six months ended December 31, ~~2016,~~2018, the Company incurred ~~$3,013,784~~$2,623,525 of general and administrative expenses compared with ~~$3,308,325~~$2,893,843 incurred in the ~~six month~~six-month period ended December 31, ~~2015,~~2017, a decrease of ~~$294,541.~~$270,318, or 9.3%. The decrease in general and administrative expenses was primarily due to decreases in ~~stock based compensation of $1,083,568, decrease in travel and related costs of $25,458, increases in employee compensation of $518,402, increases in~~ legal and audit, and compensation expenses, ~~of $157,154, increases in corporate expenses of $108,966, increases in~~partially offset by other professional ~~of $25,011,~~fees and ~~increases in other expenses of $4,452.~~corporate expenses.

Included in general and administrative expenses for the six months ended December 31, ~~2016 was employee compensation of $1,001,194, legal~~2018 and ~~audit fees of $426,925, other professional fees of $354,132, travel expense of $23,430, corporate expense of $295,225, stock-based compensation of $846,652, and other expenses of $66,226.~~2017 are the following:

Included in general and administrative expenses for the six months ended December 31, 2015 was employee compensation of $482,792, legal and audit fees of $269,771, other professional fees of $329,121, travel expense of $48,888, corporate expense of $186,259, and stock based compensation of $1,930,220, and other expenses of $61,774.

During the six months ended December 31, ~~2016~~2018, the Company incurred ~~$271,802~~$38,536 of research and development expenses, ~~an increase~~a decrease of ~~$125,747~~$92,969, or 70.7% from the ~~$146,055~~$131,505 recorded for the six months ended December 31, ~~2015.~~2017. The ~~increase~~decrease is primarily due to ~~increased~~decreased expenditures for lab equipment, repairs and maintenance, and chemicals and consumables in the San Marcos facility.

During the six months ended December 31, ~~2016~~2018 the Company incurred ~~$94,298~~$143,778 of beneficial conversion expense compared to $0$768,602 recorded for the six months ended December 31, ~~2015.~~2017. The ~~increase~~decrease in beneficial conversion expenses of $624,824, or 81.3% was due primarily to ~~the~~ issuance of ~~four~~new convertible debentures, and the adoption of ASU 2017-11 during the six months ending December 31, ~~2016 with no convertible debentures issued in the comparable period in 2015.~~2017.

Interest expense recorded for the six months ended December 31, 2018 was $492,281 compared to $855,540 in the six months ended December 31, ~~2016 was $128,908 compared to~~2017, a decrease of $363,259, or 42.5%. The decreased interest ~~expense of $21,571, an increase of $107,337.~~

~~The increase is primarily related to the 8% interest associated with the $1,465,000 of convertible debentures issued in April-June and August, 2016.~~

~~Accretion of debt discount~~ expense recorded in the six months ending December 31, 2018 was primarily related to deemed interest expense on debenture extinguishment, recorded in the six months ending December 31, 2017, which did not occur in the current six months ended December 31, ~~2016~~2018. This was ~~$299,857 compared with $85,224 for~~partially offset by amounts charged to interest expense related to derivative liability settlements of approximately $400,000 during the ~~period ending December 31, 2015.~~current six-month period.

~~The increase~~Change in ~~debt discount is primarily related to the discount recorded on the $1,565,000 convertible debentures issued in 2016 and four convertible debentures issued during~~value of derivative liability

During the six months ended December 31, ~~2016.~~2017 the Company recorded a benefit of $514,969 related to the change in value of derivative liability. The benefit is related to the change in value of the convertible debentures feature issued in March and May of 2017. During the six months ended December 31, 2018 the Company recorded an expense of $105,868 related to the change in value of derivative liability. The expense is related to the change in value of the “make-whole” provision issued in relation to debenture extensions during the six-month period.

~~The following table sets forth our consolidated results~~Accretion of ~~operations~~debt discount

During the six months ended December 31, 2018 the Company recorded $151,403 of accretion of debt discount expense, a decrease of $572,604, or 79.1% from the $725,007 recorded for the ~~periods indicated:~~six months ended December 31, 2017. The decrease in accretion of debt discount expense is primarily related to the issuance of the debt discount on convertible debentures outstanding being fully recognized.

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.

~~The Company maintains disclosure~~Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are controls and other procedures that are designed to ~~provide reasonable assurance~~ensure that ~~material~~ information required to be disclosed by us in the reports that we file or submit under the ~~Securities~~ Exchange Act ~~of 1934~~ is recorded, processed, summarized and reported within the time periods specified in the ~~SEC’s~~ rules and forms of the Securities and Exchange Commission (the “SEC”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the ~~information~~reports that we file under the Exchange Act is accumulated and communicated to our management including our ~~Chief Executive Officer~~chief executive officer and ~~Chief Financial Officer,~~our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. ~~We performed~~In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Due to the inherent limitation of controls systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of ~~the design and operation of~~ our disclosure controls and procedures as(as defined in Rule 13a-15(e) and Rule 15d-15(f) under the Securities Exchange Act of ~~the end of the period covered by this report.~~1934). Based on ~~their~~this evaluation, ~~our management, including~~ our Chief Executive Officer and Chief Financial Officer have concluded that ~~our~~the Company’s disclosure controls and procedures were not effective atas of December 31, ~~2016.~~2018, because of material weaknesses in our internal control over financial reporting.

~~Change~~In connection with the preparation of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, management concluded that, as of June 30, 2018, our internal control over financial reporting was not effective, as a result of material weaknesses in ~~Accounting Staff~~

~~Subsequent~~our control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weaknesses identified in our internal control over financial reporting related to ~~December 31, 2016~~the lack of timely and prior to the filing of this Form 10-Q, there has been a complete change in the Company’s accounting staff, including the Chief Financial Officer. Prior to March 31, 2017, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) will conduct an evaluationeffective review of the Company’s ~~disclosure controls~~period-end closing process and adequate personnel and resources.

Management is committed to remediating the material weaknesses discussed above. The Company has recruited experienced US GAAP/financial reporting professional to augment and upgrade its finance and accounting staff to address issues of accuracy, completeness, adequate segregation of duties, and timeliness in financial statement preparation and reporting. However, the Company may be unable to remediate this weakness until it has received additional funding that may be necessary to hire additional personnel. Until the Company has sufficient internal finance and accounting staff, it plans to work closely with external financial advisors to review and monitor its accounting procedures, perform internal audit procedures, and to prepare its consolidated financial statements and reports. In addition, The Company does not believe it has sufficient documentation with its existing financial processes, risk assessment and internal controls. Until it has sufficient internal finance and accounting staff, it plans to work closely with external financial advisors to document the existing financial processes, risk assessment, and internal controls ~~which include a review~~systematically. The Company believes its recently hired personnel, or through professional engagement of the controls’ (i) objectives, (ii) design, (iii) implementation, and (iv) the effect of the controls on the information generated for use in quarterly and annual reports. In the course of the evaluation, the CEO and CFOconsultants, will seek to identify data errors, control problems, acts of fraud, and if appropriate, then seek to confirm that appropriate corrective action, including process improvements to be undertaken. This type of evaluation will be 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 controlsimprove its documentation and internal ~~controls,~~control processes and ~~to make modifications if and as necessary.~~

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.procedures.

~~There~~During the last fiscal quarter, there were no changes in the ~~Company’s~~Company's internal control over financial reporting ~~that occurred during~~(as defined in Rule 13a-15(f) and 15d-15(f) of the ~~Company’s fiscal quarter ended December 31, 2016~~Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except as set forth above.

~~The Company is not subject to any material legal proceedings.~~Not applicable.

As a Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 1A.Not applicable.

From ~~July~~October 1, ~~2016~~2018 to December 31, ~~2016,~~2018, we had the following sales and issuances of unregistered equity securities:

These transactions were conducted in reliance on the exemptions from the registration requirements of the Securities Act of 1933, as amended, based on the private sale of the securities and the Company’s relationships with the security holders.

~~None.~~We issued $1,275,000 of convertible debentures between April 2016 and August 2016. The maturities range from March 29, 2018 to May 6, 2019, and $250,000 in principal amount of these debentures is past due at the date of this report. We are currently in discussions with the holders regarding these matters, although we have not obtained a written waiver or entered into an amendment revising these terms.

The convertible debentures issued in January 2015 in the aggregate original principal amount of $500,000 were past due as of December 15, 2018. On January 14, 2019, the Company entered into a Partial Payment and Temporary Stand Still Agreement that, among other things, provided for a partial payment of accrued and unpaid interest and outstanding principal in the amount of 150,000 and extended the maturity date of the debentures to March 1, 2019. The holders agreed not to exercise any remedy under their respective debentures with respect to any event of default or other breach, default or violation under the debentures to demand any payment under the debentures prior to the maturity date.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Arrangements” and “Other Information – Partial Payment and Temporary Stand Still Agreement.”.

On November 19, 2018, the Company entered into a License and Development Agreement with Amtronics India LLC relating to the production of quantum dots. Pursuant to the agreement, the Company licensed its patents related to its quantum dots (nanoscale semiconductor crystals) for solar cells and LED lighting. The license is limited to the manufacture of quantum dots, thin film quantum dot solar cells, and light emitting diodes for lighting and display applications and the territory of the State of Assam, Republic of India.

In ~~February, 2017,~~consideration of the license, Amtronics agreed to pay the Company ~~elected Chris Benjamin, formerly CFO~~an upfront fee of $500,000 within thirty days of the agreement and ~~a director~~an additional $500,000 within sixty days of the date of the agreement. During the term of the agreement, Amtronics will purchase equipment necessary for the production of the licensed products in an aggregate amount of $3,250,000, subject to payment terms related to delivery and setup.

The Company has also agreed to provide consulting services for additional fees related to the design of the manufacturing facility and training and consulting services for manufacturing and for the implementation and operation of the equipment purchased under the agreement.

The agreement provides that Amtronics is required to devote commercially reasonable efforts to commercialize, develop and manufacture products described in the agreement and will be deemed to have satisfied this requirement upon meeting certain milestones described in the agreement. The Company is required to continue to improve and optimize its technology under milestone requirements in the agreement.

Amtronics will pay to the Company a ~~Director and head of~~royalty on gross sales under the ~~Company’s audit committee.~~license, including annual minimum royalties beginning in 2021.

~~Item 6. Exhibits (items indicated by an (*) are filed herewith)~~Partial Payment and Temporary Stand Still Agreement

The ~~following exhibits are all previously filed~~Company entered into a Partial Payment and Temporary Stand Still Agreement, dated January 14, 2019 with Carson Diversified Investments, LP (“Diversified”) and Carson Haysco Holdings, LP (“Haysco”), each of which holds convertible debentures in ~~connection~~the outstanding principal amounts of $250,000 secured by certain microreactor equipment of the Company. Under the agreement, the Company made payments of $75,000 to each of Diversified and Haysco for accrued interest and outstanding principal, and the remaining outstanding principal amounts on the debentures and agreed to pay the remaining outstanding principal and accrued and unpaid interest on the debentures on March 1, 2019. Interest will accrue at the default rate, or 18% per annum, until repayment. Prior to March 1, 2019, each of Diversified and Haysco agreed not to exercise any remedy under their respective debentures with ~~our Form 8-K filed November 10, 2008, unless otherwise noted.~~respect to any event of default or other breach, default or violation under the debentures to demand any payment under the debentures.

#Pursuant to 17 C.F.R. 240.246-2, portions of this exhibit have been omitted and have been filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

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

3055 Hunter Road, San Marcos, Texas		78666
(Address of principal executive offices)		(Zip Code)

Large ~~Accelerated Filer~~accelerated filer [ ]	Accelerated ~~Filer~~filer [ ]
~~Non-Accelerated Filer~~Non-accelerated filer [ ]	Smaller ~~Reporting Company~~reporting company [X]
	Emerging growth company [ ]

		Page

PART I – FINANCIAL INFORMATION		3

Item 1. Financial Statements		3

Consolidated Balance Sheets		3

Consolidated Statements of Operations		4

~~Consolidated Statements of Stockholders’ (Deficit) Equity~~		5

Consolidated Statements of Cash Flows		65

Notes to Consolidated Financial Statements		76

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1931

Item 3. Quantitative and Qualitative Disclosures about Market Risk		2338

Item 4. Controls and Procedures		2439

PART II – OTHER INFORMATION		40

Item 1. Legal Proceedings		2440

Item 1A. Risk Factors		2440

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		2440

Item 3. Defaults upon Senior Securities		2540

Item 4. Mine Safety Disclosures		2540

Item 5. Other Information		2540

Item 6. Exhibits		2541

Signatures		2842

	December 31, 2016			June 30, 2016			December 31, 2018			June 30, 2018
	(unaudited)							(unaudited)
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	6,821		$	266,985		$	325,437		$	2,025
Accounts receivable		-			8,835
Subscription receivable								-			10,000
Prepaid expenses and other current assets		44,286			102,100			828,600			1,746,181
TOTAL CURRENT ASSETS		51,107			377,920			1,154,037			1,758,206

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $197,094 and $150,142		760,593			774,674
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $396,093 and $346,080								575,511			625,524

LICENSES AND PATENTS, net of accumulated amortization of $94,530 and $75,256		98,213			117,487
LICENSES AND PATENTS, net of accumulated amortization of $160,627 and $146,852								32,116			45,891

LONG TERM PORTION OF PREPAID EXPENSES								369,811			184,660

TOTAL ASSETS	$	909,913		$	1,270,081		$	2,131,475		$	2,614,281
												��
LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	1,518,209		$	617,292
Accounts payable							$	1,580,378		$	1,511,691
Accrued expenses								546,615			548,667
Accrued salaries		362,100			238,182			816,023			682,575
Notes payable, net of unamortized discount		7,818			10,093			20,000			-
Short term derivative liability								25,895			-
Current portion of convertible debentures, net of unamortized discount		85,042			407,702			3,403,402			3,402,421
TOTAL CURRENT LIABILITIES		1,973,169			1,273,269			6,392,313			6,145,354

CONVERTIBLE DEBENTURES, net of current portion, unamortized discount and debt issuance costs		1,914,418			1,039,656			483,701			40,224

TOTAL LIABILITIES		3,887,587			2,312,925			6,876,014			6,185,578

COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES (See Note 10)								-			-

STOCKHOLDERS’ DEFICIT
Common stock, $.001 par value, authorized 400,000,000 shares, 337,105,438 and 324,563,789 issued and outstanding at December 31, 2016 and June 30, 2016, respectively		337,105			324,564
Common stock, $.001 par value, authorized 750,000,000 shares, 492,313,256 and 442,564,332 issued and outstanding at December 31, 2018 and June 30, 2018, respectively								492,325			442,564
Common stock issuable								576,042			800,131
Additional paid-in capital		30,252,621			28,415,843			44,586,658			42,030,181
Accumulated deficit		(33,567,400	)		(29,783,251	)		(50,399,564	)		(46,844,173	)
TOTAL STOCKHOLDERS’ DEFICIT		(2,977,674	)		(1,042,844	)		(4,744,539	)		(3,571,297	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	909,913		$	1,270,081		$	2,131,475		$	2,614,281

													Three Months Ended						Six Months Ended
													December 31,						December 31,
	Three Months Ended						Six Months Ended						2018			2017			2018			2017
	December 31,						December 31,						(unaudited)						(unaudited)
	2016			2015			2016			2015
REVENUES	$	19,500		$	-		$	24,500		$	-		$	-		$	-		$	-		$	11,870

OPERATING EXPENSES
General and administrative	$	1,825,983		$	2,410,431		$	3,013,784		$	3,308,325			1,261,793			1,626,390			2,623,525			2,893,843
Research and development		126,343			55,724			271,802			146,055			15,449			53,563			38,536			131,505
TOTAL OPERATING EXPENSES		1,952,326			2,466,155			3,285,586			3,454,380			1,277,242			1,679,953			2,662,061			3,025,348

LOSS FROM OPERATIONS		(1,932,826	)		(2,466,155	)		(3,261,086	)		(3,454,380	)		(1,277,242	)		(1,679,953	)		(2,662,061	)		(3,013,478	)

OTHER (INCOME) EXPENSE
Gain on settlement		-			-			-			(174,568	)
OTHER EXPENSE (INCOME)
Beneficial conversion expense		24,381			-			94,298			-			126,908			16,176			143,778			768,602
Interest expense, net		63,743			10,466			128,908			21,571			441,196			154,847			492,281			855,540
Change in value of derivative liability														23,706			(424,260	)		105,868			(514,969	)
Accretion of debt discount		186,569			43,037			299,857			85,224			61,393			393,845			151,403			725,007
TOTAL OTHER (INCOME) EXPENSE		274,693			53,503			523,063			(67,773	)
TOTAL OTHER EXPENSE														653,203			140,608			893,330			1,834,180

NET LOSS	$	(2,207,519	)	$	(2,519,658	)	$	(3,784,149	)	$	(3,386,607	)	$	(1,930,445	)	$	(1,820,561	)	$	(3,555,391	)	$	(4,847,658	)

LOSS PER COMMON SHARE
Basic	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)
Basic and diluted													$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.01	)

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic and diluted		334,497,865			318,834,426			329,764,251			313,323,270			499,897,012			400,312,285			485,929,475			387,913,206

	Common Stock						Additional Paid-In		Accumulated
	Shares			Amount			Capital		Deficit			Totals
Balance at June 30, 2016		324,563,789		$	324,564		$	28,415,843	$	(29,783,251	)	$	(1,042,844	)

Common stock issued for services		2,000,000			2,000			198,000					200,000

Stock-based Compensation		500,000			500			846,152					846,652

Beneficial conversion feature of debentures								94,298					94,298

Common stock issued for debenture interest		35,708			36			4,249					4,285

Common stock issued for debenture conversions		1,250,000			1,250			148,750					150,000

Allocated value of common stock issued for debenture conversion		200,000			200			178,884					179,084

Common stock issued for warrants exercised		8,750,000			8,750			366,250					375,000

Share cancellations		(194,059	)		(195	)		195					-

Current period loss										(3,784,149	)		(3,784,149	)

Balance at December 31, 2016		337,105,438		$	337,105		$	30,252,621	$	(33,567,400	)	$	(2,977,674	)

Furniture and fixtures			7 years
Computers and software			3 years
Machinery and equipment			3 - 10 years

Fair Value Table	Balance at December 31, 2018		Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Derivative Liability	$	25,895	$	-	$	-	$	25,895
Note Payable		20,000		-		20,000		-
Convertible debentures		3,887,103		-		3,887,103		-

	$	3,932,998	$	-	$	3,907,103	$	25,895

Level Three Roll-forward	Derivative Liability			Total

Balance June 30, 2018	$	-		$	-
Fair value of derivative liability reclassified from equity		98,645			98,645
Settlement of derivative liabilities		(178,618	)		(178,618	)
Change in fair value		105,868			105,868
Balance December 31, 2018	$	25,895		$	25,895

						Weighted								Weighted
	Weighted					Average		Weighted		Weighted				Average		Weighted
	Average					Remaining		Average		Average				Remaining		Average
	Exercise		Number of			Contractual		Grant Date		Exercise		Number of		Contractual		Grant Date
	Price		Warrants			Term in Years		Fair Value		Price		Warrants		Term in Years		Fair Value

Balance as of June 30, 2016	$	0.11		39,262,305				$	0.15
Balance as of June 30, 2018										$	0.11		36,781,726		2.80	$	0.09
Expired		0.18		(555,555	)				0.14		-		-				-
Granted		0.17		4,458,034					0.09		0.10		8,964,708				0.04
Exercised		0.06		(11,250,000	)				0.15		-		-				-
Cancelled		-		-					-		-		-				-
											-
Balance as of December 31, 2016	$	0.13		31,914,784			2.76	$	0.14
Balance as of December 31, 2018										$	0.11		45,746,434		2.29	$	0.08

Vested and exercisable as of December 31, 2016	$	0.13		31,914,784			2.76	$	0.14
Vested and exercisable as of December 31, 2018										$	0.11		45,746,434		2.29	$	0.08

	Number of					Number of
	Nonvested,			Weighted		Nonvested,			Weighted
	Non-issued			Average		Unissued			Average
	Restricted			Grant Date		Restricted			Grant Date
	Share Awards			Fair Value		Share Awards			Fair Value

Nonvested, nonissued restricted shares outstanding at June 30, 2016		1,000,000		$	0.42
Nonvested, unissued restricted shares outstanding at June 30, 2017							1,500,000			0.21
Granted		-			-		5,500,000			0.06
Vested		(500,000	)		0.42		(7,000,000	)		0.09
Forfeited		-			-		-			-

Nonvested, nonissued restricted shares outstanding at December 31, 2016		500,000		$	0.42
Nonvested, unissued restricted shares outstanding at June 30, 2018							-		$	-
Granted							-			-
Vested							-			-
Forfeited							-			-
Nonvested, unissued restricted shares outstanding at December 31, 2018							-		$	-

					Six Months Ended
	SixMonths Ended December 31				December 31,
	2016		2015		2018		2017
	(unaudited)				(unaudited)

Cash paid for interest	$	292	$	20,055	$	-	$	25,555

Cash paid for income taxes	$	-	$	-	$	-	$	-

Issuance Date	Outstanding Principal Amount ($) (1)		Interest Rate			Conversion Price ($)		Maturity Term	No. of Shares Exercisable Under Related Warrant		Warrants Strike Price ($)		Warrant Exercise Period
Sep-14		25,050		6	%		0.15	September 2019 - October 2019		3,333,667		0.3		Sep-19
January 2015(2)		356,890		8	%		0.06	Mar-19		-		-		-
April - June 2016 (3)		1,075,000		8	%		0.01	March 2018 - April 2019		5,686,590		0.15		Aug-21
August 2016 (4)		200,000		8	%		0.01	Aug-18		833,200		0.15		Aug-21
January - March 2017		60,000		8	%		0.12	January - March 2019		10,831,600		0.15		January 2022 – March 2022
Jun-17		100,000		8	%		0.12	Feb-19		250,000		0.12		Jun-20
Jul-17		100,000		8	%		0.12	Feb-19		250,000		0.12		Jul-20
Sep-17		150,000		8	%		0.12	Feb-19		375,000		0.12		Sep-20
Sep-17		495,000		8	%		0.12	Jan-19		2,000,000		0.12		Sep-20
Nov-17		247,500		8	%		0.12	Jan-19		-		-		-
Nov-17		27,000		8	%		0.12	Nov-19		416,600		0.15		Nov-22
Dec-17		75,000		8	%		0.12	Mar-19		250,000		0.12		Dec-20
Feb-18		45,000		8	%		0.12	Feb-19		500,000		0.12		Dec-20
Mar-18		65,000		8	%		0.12	Mar-19		500,000		0.12		Mar-21
Apr-18		60,000		8	%		0.12	Mar-19		500,000		0.12		Mar-21
Apr-18		70,000		8	%		0.12	Apr-21		200,000		0.12		Apr-21
Apr-18		20,000		8	%		0.12	Apr-20		1,166,660		0.15		Apr-23
Jun-18		40,000		8	%		0.12	Dec-18		1,000,000		0.12		Jun-21
Jul-18		45,000		8	%		0.12	Jan-19		1,000,000		0.12		Jun-21
Aug-18		30,000		8	%		0.12	Mar-19		1,000,000		0.12		Aug-21
Sep-18		25,000		8	%		0.12	Apr-19		1,000,000		0.12		Sep-21
Dec-18		52,000		8	%		0.12	Dec-20		262,458		0.15		Dec-23
Dec-18		350,000		8	%		0.03	Aug-20		5,000,000		0.04		Dec-21

(1)	This table does not include $222,350 of promissory notes held by SBI Investments LLC, 2014-1, and L2 Capital, LLC issued as consideration for an equity line of credit that did not close in the form of promissory notes, which bear interest at 8% per annum, matured on December 29, 2017 and are considered past due at the time of this report. The promissory notes are convertible into unregistered and restricted shares of shares of the Company’s common stock only if there is an Event of Default, as defined in the notes. These amounts are subject to ongoing litigation, and the Company does not intend to pay the balances or honor a conversion until the litigation has concluded. See Note 11 to the Notes to Condensed Consolidated Financial Statements.
(2)	Secured by a security interest in certain microreactor equipment.
(3)	$250,000 is past due as of the date of this report.
(4)	$200,000 is past due as of the date of this report.

	Three Months Ended
	December 31,					Increase/
	2018		2017			(Decrease)			%
Statement of Operations Information:

Revenues	$	-	$	-		$	-			-%
General and administrative		1,261,793		1,626,390			(364,597	)		-22.4	%
Research and development		15,449		53,563			(38,114	)		-71.2	%
Change in fair value of derivative liabilities		23,706		(424,260	)		447,966			-105.6	%
Beneficial conversion expense		126,908		16,176			110,732			684.5	%
Interest expense, net		441,196		154,847			286,349			184.9	%
Accretion of debt discount		61,393		393,845			(332,452	)		-84.4	%

~~2.1~~10.1*#		License and Development Agreement, ~~and Plan of Merger and Reorganization,~~ dated ~~as of October 15, 2008,~~November 19, 2018, by and ~~among~~between Quantum Materials ~~Corp., Solterra Renewable Technologies, Inc., the shareholders of Solterra~~Corporation and ~~Greg Chapman, as Indemnitor.~~Amtronics CC

~~3.1~~10.2*		~~Articles of Incorporation. (Incorporated by reference to Form SB-2 Registration Statement filed October 5, 2007.)~~

~~3.2~~		~~2010 Amendment to Articles of Incorporation. (Incorporated by reference to the Form 10-K filed for the fiscal year ended June 30, 2014 filed on September 29, 2014.)~~

~~3.3~~		~~2013 Amendment to Articles of Incorporation. (Incorporated by reference to the Form 10-K filed for the fiscal year ended June 30, 2014 filed on September 29, 2014.)~~

~~3.4~~		~~Bylaws. (Incorporated by reference to Form SB-2 Registration Statement filed October 5, 2007.)~~

~~10.1~~		~~License Agreement by~~Partial Payment and ~~between William Marsh Rice University and Solterra Renewable Technologies, Inc. dated August 20, 2008.~~

~~10.2~~		~~Letter dated October 2, 2008 from Rice University amending the License Agreement contained in Exhibit 10.1.~~

~~10.3~~		~~Agreement with Arizona State University executed by ASU on October 8, 2008 and executed by Solterra on September 18, 2008.~~

~~10.4~~		~~Letters dated November 5, 2009 and November 5, 2009 amending Rice University Agreement. (Incorporated by reference to Form 10-K filed for the year ended June 30, 2009.)~~

~~10.5~~		~~License Agreement between The University of Arizona and the issuer dated July 2009. (Incorporated by reference to the Registrant’s Form 10-Q for the quarter ended September 30, 2009.)~~

~~10.6~~		Letter dated December 16, 2010 from Rice University amending the License Agreement contained in Exhibit 10.1 (Incorporated by reference to the Registrant’s Form 10-K for its fiscal year ended June 30, 2010.)

~~10.7~~		Amendment to Exclusive Patent License Agreement between University of Arizona and Solterra Renewable Technologies (i.e. amendment to exhibit 10.7). (Incorporated by reference to the Registrant’s Form 10-K for its fiscal year ended June 30, 2010 filed on February 14, 2011.)

~~10.8~~		~~Amended License Agreement by and between William Marsh Rice University and Solterra Renewable Technologies, Inc. (Incorporated by reference to Form 8-K dated September 19, 2013.)~~

~~10.9~~		~~License Agreement by and between William Marsh Rice University and Quantum Materials Corp. (Incorporated by reference to Form 8-K dated September 19, 2013.)~~

~~10.10~~		~~Second Amendment to Issuer’s Agreement with University of Arizona. (Incorporated by reference to Form 10-K for the fiscal year ended June 30, 2012.)~~

~~10.11~~		~~Employment Agreement — Stephen Squires. (Incorporated by reference to Form 8-K filed January 23, 2013.)~~

~~10.12~~		~~Employment Agreement — David Doderer (Incorporated by reference to Form 8-K filed January 23, 2013.)~~

~~10.13~~		~~Employment Agreement – Craig Lindberg (Incorporated by reference to Form 8-K filed June 17, 2015.)~~

~~10.14~~		~~Agreement with Christopher Benjamin, former officer/director (Incorporated by reference to Form 10-Q for the quarter ended September 30, 2015.)~~

~~10.15~~		~~Amended and Restated Employment Agreement – Stephen Squires (Incorporated by reference to Form 8-K filed December 15, 2015.)~~

~~10.16~~		~~Amended and Restated Employment Agreement – David Doderer (Incorporated by reference to Form 8-K filed December 15, 2015.)~~

~~10.17~~		~~Amended and Restated Employment Agreement – Craig Lindberg (Incorporated by reference to Form 8-K filed December 15, 2015.)~~

~~10.18~~		~~Amended License Agreement by and between William Marsh Rice University and Solterra Renewable Technologies, Inc. (Incorporated by reference to Form 8-K filed April 1, 2016.)~~

~~10.19~~		~~Amended License Agreement by and between William Marsh Rice University and Quantum Materials Corp. (Incorporated by reference to Form 8-K filed April 1, 2016.)~~

~~10.20~~		~~Amended License Agreement by and between The University of Arizona and Solterra Renewable Technologies, Inc. (Incorporated by reference to Form 8-K filed June 9, 2016.)~~

~~10.21~~		~~Employment Agreement – Sri Peruvemba (Incorporated by reference to Form 8-K filed June 16, 2016.)~~

~~10.22~~		~~Amended and Restated Employment Agreement – Stephen Squires (Incorporated by reference to Form 8-K filed June 16, 2016.)~~

~~10.23~~		~~Amended and Restated Subscription~~Temporary Stand Still Agreement, dated January ~~15, 2015~~14, 2019 by and among Quantum Materials Corp., Carson Diversified Investments, LP and Carson Haysco Holdings, ~~LP. (Incorporated by reference to Form 8-K filed October 14, 2016.)~~

~~10.24~~		~~Agreement dated October 10, 2016 by and among Quantum Materials Corp., Carson Diversified Investments,~~ LP ~~and Carson Haysco Holdings, LP. (Incorporated by reference to Form 8-K filed October 14, 2016.)~~

~~10.25~~		~~Resignation Agreement of Sriram Peruvemba dated December 22, 2016. (Incorporated by reference to Form 8-K filed December 30, 2016.)~~

~~10.26~~		~~Resignation Agreement of Craig Lindberg dated as of February 1, 2017. (Incorporated by reference to Form 8-K filed February 3, 2017.)~~

~~21.1~~		~~Subsidiaries of Registrant listing state of incorporation (Incorporated by reference to Form 10-K for fiscal year ended June 30, 2011.)~~

31(a)		Rule 13a-14(a) Certification — Principal Executive Officer Officer

31(b)		Rule 13a-14(a) Certification — Principal Financial Officer Officer

32(a)		Section 1350 Certification — Principal Executive Officer *

32(b)		Section 1350 Certification — Principal Financial Officer *

101.INS		XBRL Instance Document *

101.SCH		Document, XBRL Taxonomy Extension *

101.CAL		Calculation Linkbase, XBRL Taxonomy Extension Definition *

101.DEF		Linkbase, XBRL Taxonomy Extension Labels *

101.LAB		Linkbase, XBRL Taxonomy Extension *

101.PRE		Presentation Linkbase *

	QUANTUM MATERIALS CORP.

Date: ~~March 3, 2017~~February 14, 2019	/s/ Stephen Squires
	Stephen Squires
	Principal Executive Officer

Date: ~~March 3, 2017~~February 14, 2019	/s/ ~~E. J. Schloss~~Robert A. Phillips
	~~E.J. Schloss~~Robert A. Phillips
	Principal Financial Officer