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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

[   ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

Commission file number: 0-52953

QUANTUM MATERIALS
 CORP.
(Exact name of small business issuer as specified in its charter)
 
Nevada
20-8195578
20-8195578
(State or other jurisdiction of incorporation)
(IRS Employer Identification No.)
(IRS Employer Identification No.)
 
7700 S. River Parkway
Tempe, AZ 85284
(Address of principal executive offices)

           214-701-8779           
 (Registrant's telephone number)

Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [   ]

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the 12 preceding months (or such shorter period that the registrant was required to submit and post such file). Yes [ X  ]      No [   ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes [  ] No [X ].
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one):
 
 Large Accelerated Filer [ ]  
Accelerated Filer         [ ]
 Accelerated Filer       [ ]      
Smaller Reporting Company [X]
 
As of April 5, 2012, the issuer had 122,571,308 shares of common stock, $0.001 par value per share outstanding ("Common Stock") after giving effect to the issuance of 6,856,443 shares that we were obligated to issue in March 2012.
 
 
1

 

FINANCIAL INFORMATION
Item 1. Financial Statements


INDEX

 
PART 1 – FINANCIAL INFORMATION
Page
   
Item 1.  Financial Statements
3
   
Consolidated balance sheets as of  March 31, 2012 (unaudited) and June 30, 2011
3
   
Consolidated statements of operations, for the three and nine months ended March 31, 2012 and 2011 and for the period from inception (May 19, 2008) through March 31, 2012 (unaudited)
4
   
Consolidated statements of cash flows for the nine months ended March 31, 2012 and 2011 and for the period from inception (May 19, 2008) through December 31, 2011 (unaudited)
5
  
 
Notes to consolidated financial statements (unaudited)
6
   
Item 2.  Management’s Plan of Operation.
11
   
Item 3. Quantitative and Qualitative Disclosures and Market Risk
16
   
Item 4.  Controls and Procedures
16
   
PART 2 – OTHER INFORMATION
 
   
Item 1.  Legal Proceedings
18
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
18
   
Item 3.  Defaults upon Senior Securities
19
   
Item 4.  Removed and reserved.
19
   
Item 5.  Other Information
19
   
Item 6.  Exhibits
19
   
Signatures
21

 
2

 

Quantum Materials Corp.
 
(A Development Stage Company)
 
             
CONSOLIDATED BALANCE SHEETS
 
             
             
   
March 31
   
June 30
 
   
2012
   
2011
 
   
(Unaudited)
       
ASSETS
           
Current
           
Cash
  $ 481     $ 98  
                 
Total current assets
    481       98  
                 
Licenses
    55,000       55,000  
Furniture and equipment, net of deprecation of $11,502 and $9,250
    1,569       3,821  
Deferred financing cost, net of amortization of $315,000 and $278,833
    -       36,167  
                 
Total other assets
    56,569       94,988  
                 
Total assets
  $ 57,050     $ 95,086  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current liabilities
               
Accounts payable and accrued Liabilities
  $ 913,389     $ 861,635  
Accrued liabilities - related party
    829,721       446,027  
Advances - related party
    -       -  
Deferred revenue
    899       899  
Fair value of derivative liabilities
    631,000       1,223,000  
Convertible debenture, net of discount
    1,500,000       908,405  
                 
Total current liabilities
    3,875,009       3,439,966  
                 
Total liabilities
    3,875,009       3,439,966  
                 
Stockholders' deficit
               
Common stock, $0.001 par value,
               
200,000,000 shares authorized,
               
Issued and outstanding 120,816,155 and 110,651,446, respectively
    120,816       110,651  
Additional paid-in capital
    7,568,717       6,645,806  
Deficit accumulated during the development stage
    (11,507,492 )     (10,101,337 )
                 
Total stockholders' deficit
    (3,817,959 )     (3,344,880 )
                 
Total liabilities and stockholders' deficit
  $ 57,050     $ 95,086  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 
                 
 
 
3

 

Quantum Materials Corp.
 
(A Development Stage Company)
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the three and nine months ending March 31, 2012 and March 31, 2011
 
and period from May 19, 2008 (inception) through March 31, 2012
 
(Unaudited)
 
                               
                           
Inception
 
   
Three months ended
   
Nine months ended
   
through
 
   
March 31,
         
March 31,
         
March 31,
 
   
2012
   
2011
   
2012
   
2011
   
2012
 
                               
Operating expenses:
                             
General and administrative
  $ 760,265     $ 1,605,380     $ 1,240,284     $ 2,258,640     $ 7,931,445  
Research and development
    2,706       -       16,650       -       783,543  
                                         
Total operating expenses
    762,971       1,605,380       1,256,934       2,258,640       8,714,988  
                                         
Loss from operations
    (762,971 )     (1,605,380 )     (1,256,934 )     (2,258,640 )     (8,714,988 )
                                         
Other expenses (income):
                                       
Amortization of convertible debenture discount
    0       157,778       586,730       383,866       1,468,837  
Amortization of deferred finance cost
    0       26,250       36,167       78,750       315,000  
Change in fair value of derivative liabilities
    (123,000 )     (220,971 )     (592,000 )     (221,479 )     135,088  
Interest expense
    37,926       84,266       110,680       134,568       563,214  
Warrant expense
    -       -       7,644       39,877       310,365  
                                         
Total other expenses / (income)
    85,074       (47,323 )     (149,221 )     (415,582 )     (2,792,504 )
                                         
Net loss
  $ (677,897 )   $ (1,652,703 )   $ (1,406,155 )   $ (2,674,222 )   $ (11,507,492 )
                                         
Basic and diluted loss per common share
  $ (0.01 )   $ (0.02 )   $ (0.01 )   $ (0.03 )        
                                         
Weighted average number of common
                                       
shares outstanding
    116,185,204       96,214,344       113,547,678       89,304,879          
                                         
                                         
The accompanying notes are an integral part of these consolidated financial statements.
 
                                         
 
 
4

 
 
Quantum Materials Corp.
(A Development Stage Company)
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the nine months ending March 31, 2012 and March 31, 2011
 
and period from May 19, 2008 (inception) through December 31, 2011
 
(Unaudited)
 
                   
   
Nine months
 
Nine months
 
Inception
 
   
ended
   
ended
   
through
 
   
March 31
   
March 31
   
March 31
 
   
2012
   
2011
   
2012
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES
 
                   
Net loss
  $ (1,406,155 )   $ (2,674,222 )   $ (11,507,492 )
Adjustments to reconcile net loss to net cash
 
used in operating activities:
                       
Stock issued for services
    520,000       1,428,855       5,033,372  
Options issued for services
    19,618       -       19,618  
Stock issued for debenture interest
    110,680       164,568       553,214  
Depreciation of furniture and office equipment
    2,252       3,036       13,970  
Amortization of convertible debenture discount
    591,595       383,866       1,473,703  
Amortization of deferred finance cost
    36,167       78,750       315,000  
Warrant expense
    2,778       39,877       305,499  
Change in fair value of warrants and embedded
 
   conversion feature
    (592,000 )     (221,479 )     135,088  
Net change in:
                       
Deferred revenue
    -       899       899  
Accounts payable and accrued liabilities
    51,753       306,433       1,142,553  
Accrued liabilities - related party
    383,695       483,443       534,297  
                         
Cash flows used by operating activities
    (279,617 )     (5,974 )     (1,980,279 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES
 
Purchase of license
    -       -       (55,000 )
Proceeds from disposal of furniture and equipment
    -       5,343  
Purchase of furniture & equipment
    -       -       (20,883 )
                         
Cash flows provided by investing activities
    -       -       (70,540 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES
 
Proceeds from issuance of common stock
    280,000       80,000       866,300  
Proceeds from related party advances
    -       (70,367 )     -  
Proceeds from convertible debenture issued
    -       -       1,500,000  
Payment of deferred finance cost
    -       -       (315,000 )
                         
Cash flows provided by financing activities
    280,000       9,633       2,051,300  
                         
NET INCREASE (DECREASE) IN CASH
    383       3,659       481  
                         
Cash, beginning of the period
    98       19       -  
                         
Cash, end of the period
  $ 481     $ 3,678     $ 481  
                         
Supplemental disclosure with respect to cash flows:
 
Cash paid for income taxes
  $ -     $ -     $ -  
Cash paid for interest
  $ -     $ -     $ -  
Non cash transactions
                       
Issuance of common stock in connection
 
    with recapitalization
  $ -     $ -     $ 2,202  
Cumulative effect of change in accounting
 
principle on convertible notes
  $ -     $ (49,541 )   $ (49,541 )
                         
                         
                         
The accompanying notes are an integral part of these consolidated financial statements.
 
                         
 
 
5

 
 
QUANTUM MATERIAL CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
 
Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial statements. Accordingly, our interim statements do not include all of the information and disclosures required for our annual financial statements. In the opinion of our management, the consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of these interim results. These consolidated financial statements should be read in conjunction with our consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended June 30, 2011. The results for the nine months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the full year ending June 30, 2012.

Since November 4, 2008, the Company has changed its business plans and is no longer intending to pursue the mining of mineral rights located in Nevada. The Company intends to pursue the business plans of its subsidiary, Solterra.  The following is a brief business overview of Solterra.

Solterra is a start-up solar technology and quantum dot manufacturing firm which was founded by Stephen Squires. Mr. Squires perceives an opportunity to acquire a significant amount of both quantum dot and solar photovoltaic market share by commercializing a low cost quantum dot processing technology and a low cost quantum dot based third generation photovoltaic technology/solar cell, pursuant to an exclusive license agreement with William Marsh Rice University (“Rice University” or “Rice”).  Our objective is to become the first bulk manufacture of high quality tetrapod quantum dots and the first solar cell manufacturer to be able to offer a solar electricity solution that competes on a non-subsidized basis with the price of retail electricity in key markets in North America, Europe, the Middle East and Asia.

Going Concern

The Company recorded losses from continuing operations in the current period presented. Current liabilities exceed current assets, resulting in a negative net worth and accumulated deficits during the development stage. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon its ability to reverse negative operating trends, raise additional capital, and obtain debt financing.

Management has revised its business strategy to include expansion into other lines of business. In conjunction with the anticipated new revenue streams, management is currently negotiating new debt and equity financing, the proceeds from which would be used to settle outstanding debts at more favorable terms, to finance operations, and to develop its business plans. 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 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.

 
6

 
 
Note 2. Derivatives and Fair Value
 
The Company has evaluated the application of ASC 815, Derivatives and Hedging, to the Convertible Note issued November 4, 2008.  Based on the guidance in ASC 815, the Company concluded these instruments were required to be accounted for as derivatives as of July 1, 2009 due to the down round protection feature on the conversion price and the exercise price.  The Company records the value of these derivatives on its balance sheet at fair value with changes in the values of these derivatives reflected in the statements of operations as “Gain (loss) on derivative liabilities.”  These derivative instruments are not designated as hedging instruments under ASC 815 and are disclosed on the balance sheet under Derivative Liabilities.
 
ASC 825-10, Financial Instruments, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 825-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 describes three levels of inputs that may be used to measure fair value:  Level 1  – Quoted prices in active markets for identical assets or liabilities;  Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and  Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. The Company’s Level 3 liabilities consist of the derivative liabilities associated with the November 4, 2008 note.  At March 31, 2012, all of the Company’s derivative liabilities were categorized as Level 3 fair value assets. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. 
 Level 3 Valuation Techniques
 
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.  Level 3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation.  We have valued the convertible note that contains down round provisions using a lattice model, with the assistance of a valuation consultant, for which management understands the methodologies. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as assumptions about future financings, volatility, and holder behavior as of July 1, 2009 and September 30, 2012.   The fair value of the derivatives as of July 1, 2009 upon implementation of ASC 815-40-15 was estimated by management to be $495,912.  As part of implementing ASC 815-40-14 the Company decreased the accumulated deficit by $162,643 and decreased additional paid in capital by $212,184 and increased the discount on the convertible debenture by $446,371.  The adjustment to the accumulated deficit was a result of the interest expense recorded in connection with the original derivative liability and the reversal of prior amortization expense, and the change in fair value of the derivative liability as of July 1, 2009.  

Derivative Liabilities and Fair Value
 
 
As of March 31, 2012
 
 
Fair Value Measuring Using
 
                             
                             
 
Carrying Value
   
Level 1
   
Level 2
   
Level 3
 
Total
 
Derivatives Liability
$ 631,000       -       -       631,000     $ 631,000  
                                       
Total Derivatives Liability
$ 631,000       -       -       631,000     $ 631,000  
 
The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the first nine months of fiscal year 2012:
 
 
Fair Value
     
 
Measurements
     
 
Using Level 3
     
 
Inputs
     
 
Derivative
     
 
Liabilities
 
Totals
 
Beginning Balance as of July 1, 2011
  $ 1,223,000     $ 1,223,000  
Total Gains or Losses (realized/unrealized) Included in Net Loss
    (592,000 )     (592,000 )
Purchases, issuances and settelements
    -       -  
Transfers in and/or out of Level 3
    -       -  
                 
Ending Balance at March 31, 2012
  $ 631,000     $ 631,000  
 
 
7

 

Note 3. Related party transactions
 
The Company expensed management fees to the CEO / major shareholder as well as other related party executives of $469,405 and $659,000 respectively in the nine months ended March 31, 2012 and the year ended June 30, 2011.  The Company was not able to pay the majority of these fees, and as a result the accrued liabilities related party were $829,722 and $446,027 respectively as of March 31, 2012 and June 30, 2011.

During the nine months ended March 31, 2012 the Company recorded $8,640 of rent expense for the use of executive office space in the home of the CEO / major shareholder, $0 was paid and $8,640 was accrued.

Note 4.  Stockholders’ Equity

Common stock

In July 2011 the Company issued 1,250,000 shares of common stock in exchange for cash at a price of $0.12 per share.

In September 2011 the Company issued 83,333 shares of common stock in exchange for cash at a price of $0.12 per share.

In September 2011 the Company issued 220,264 shares of common stock to pay accrued interest of $30,000 for the three month period ended September 1, 2011.

In October 2011 the Company issued 625,000 shares of common stock in exchange for cash at a price of $0.08 per share.

In December 2011 the Company issued 254,669 shares of common stock to pay accrued interest of $30,000 for the three month period ended December 1, 2011.

In December 2011 the Company issued 750,000 shares of common stock in exchange for cash at a price of $0.08 per share.

In January 2012 the Company issued 125,000 shares of common stock in exchange for cash at a price of $0.08 per share.

In March 2012 the Company issued 356,443 shares of common stock to pay accrued interest of $30,000 for the three month period ended March 1, 2012.

In March 2012 the Company issued 6,500,000 shares of common stock to related parties for services rendered at a price of $0.08 per share.

Warrants

On December 18, 2011 the Company issued 2,000,000 common stock warrants (The Warrants), each of which entitles the holder to one share of the Company’s common stock with a strike price of $0.08 per share and a three-year term to the debenture holders in relation to the extension of the debenture expiration date to November 4, 2012. 

Options

In March 2012 the Company issued 3,500,000 common stock options to related parties in exchange for services rendered, each of which entitles the holder to one share of the Company’s common stock with a strike price of $0.03 per share and a five-year term.

Fair Value Considerations
 
The Company’s accounting for the issuance of warrants to the required the estimation of fair values of the financial instruments. The development of fair values of financial instruments requires the selection of appropriate methodologies and the estimation of often subjective assumptions. The Company selected the valuation techniques based upon consideration of the types of assumptions that market participants would likely consider in exchanging the financial instruments in market transactions. The warrants were valued using a Black-Scholes-Merton Valuation Technique because it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments.
 
 
8

 
 
The Warrants were valued at $233,367 or $0.117 per warrant.  The following tables reflect assumptions used to determine the fair value of the Warrants:

   
Fair Value
Hierarchy 
Level
   
December 2011 Warrants
 
Indexed shares
          2,000,000  
Exercise price
        $ 0.08  
Significant assumptions:
             
Stock price
  3     $ 0.141  
Remaining term
  3    
3 years
 
Risk free rate
  2       1.08 %
Expected volatility
  2       136.46 %
 
Fair value hierarchy of the above assumptions can be categorized as follows:
 
 
(1)
There were no Level 1 inputs.
 
(2)
Level 2 inputs include:
 
 
Risk-free rate- The risk-free rate of return reflects the interest rate for United States Treasury Note with similar time-to-maturity to that of the warrants.
 
Expected volatility – The Black-Scholes volatility standard deviation of the underlying stock price's daily logarithmic returns, annualized.
 
 
(3)
Level 3 inputs include:
 
 
Stock price - The Company’s average common stock for the prior ten days was utilized.   
 
Remaining term - The remaining term of the warrants.

Note 5.  Commitments and Contingencies

Contingency

Certain default clauses related to the various agreements discussed in Item 2 (Management’s Plan of Operation) would result in a change of control of the board of directors.  Certain debt holders would have the option to appoint independent members to the board under such default.
 
License Agreement - Work-Study Arrangements
 
License Agreement with Rice University

On August 20, 2008, Solterra entered into a License Agreement with Rice University. In September 2011, Solterra entered into an amended License Agreement and Quantum Materials entered into a new License Agreement with Rice. Rice is the owner of certain inventions and patent applications, know-how and rights pertaining to the synthesis of uniform nanoparticle shapes with high selectivity.  We have obtained the exclusive rights to license and sublicense (subject to Rice’s consent, which shall not be unreasonably withheld), develop, manufacture, market and exploit Rice’s inventions, patent applications and any issued patents in the case of Solterra, for the manufacture and sale of photovoltaic cells and photovoltaic applications and in the case of Quantum Materials for the manufacture and sale of quantum dots for electronic and medical applications (excluding photovoltaic applications). With respect to Rice’s patent applications, Rice made a provisional filing for an invention disclosure titled “synthesis of uniform nanoparticle shapes with high selectivity” with the United States Patent and Trademark Office on April 13, 2007 and a subsequent utility filing on April 11, 2008 under the Patent Cooperation Treaty (“PCT”). PCT enables the U.S. applicant to file one application, "an international application," in a standardized format in English in the U.S. Receiving Office (the U.S. Patent and Trademark Office), and have that application acknowledged as a regular national or regional filing in any State or region that is party to the PCT. Dr. Michael Wong is a director of our company and is the inventor of Rice’s patent application licensed by Solterra.

Our initial agreement with Rice requires the payment of certain patent fees to Rice and for us to acquire additional funding and to meet certain milestones by specific dates.  Rice and the Company recently established new milestones for the Company to achieve in the months and years ahead, the failure of which could lead to the termination of the license agreement.
 
 
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Rice is entitled to receive during the term of each License Agreement certain royalties under the License Agreement of adjusted gross sales (as defined) ranging from 2% to 4% for photovoltaic cells and 7.5% of adjusted gross sales for quantum dots sold in electronic and medical applications. Minimum royalties payable under the License Agreement include $129,412 due August 1, 2012, $473,250 due August 1, 2013, $1,746,000 due August 1, 2014 and $3,738,600 due August 1, 2015 and each August 1 of every year thereafter, subject to adjustments for changes in the consumer pricing index. In the event of a Liquidity Event (as defined), Rice is entitled to receive from Licensee a fee of $750,000 within five business days of the Liquidity Event. The term of the License Agreement is to expire on the expiration date of Rice’s rights in its intellectual property and the Licensee’s rights are worldwide. Our Agreement, as amended, with Rice provides for termination of each Agreement in the event that we are determined to be insolvent as defined in the Agreements. The milestones of each License Agreement also require a quantum dot production pilot plant to be established by February 28, 2012, capable of producing 1,000 grams per week.  This requirement has been met.   The subsequent milestone of the License Agreement require a full scale quantum dot production plant be established by May 31, 2012.  No assurances can be given that this milestone will be met by the Company on a timely basis.

Agreement with Arizona State University

Solterra had an agreement with Arizona State University (“ASU”) pursuant to which ASU at a cost of $835,000 will assist Solterra under the direction of Dr. Ghassan Jabbour in scaling up or optimizing the solar cells so that they can be printed. As of June 30, 2010, $630,000 of these costs in this agreement have been incurred and an additional $205,000 was to accrue before the end of the fiscal year ended June 30, 2010.  During February 2010, Dr. Jabbour accepted a Directorship at the King Abdullah University of Science and Technology (KAUST), in Saudi Arabia. As a result of Dr. Jabbour now being located in Saudi Arabia, it is no longer logistically feasible for him to conduct the development work at ASU. As of December 31, 2010, we have paid ASU $175,000 under our contract with ASU. We are therefore working with Dr. Jabbour to continue his development work at the KAUST facilities and we are negotiating a substantially reduced fee with ASU.  Dr. Jabbour is also our Chief Science Officer and is an employee of QMC/Solterra. 

Agreement with University of Arizona

Solterra has entered into an exclusive Patent License Agreement with the University of Arizona ("UA") to license US Patent # 7,015,052, which was issued on March 21, 2006, entitled “Screen Printing Techniques for the Fabrication of Organic Light - Emitting Diodes”. Pursuant to the License Agreement, Solterra has an exclusive license to market, sell and distribute licensed products within its field of use which is defined as organic light emitting diodes in printed electronic displays and all other printed electronic components. Solterra has the right to grant sublicenses with respect to the licensed product and the license method (as defined in the agreement). Pursuant to said agreement, as amended, we are obligated to pay minimum annual royalties of $25,000 by June 30, 2012, $50,000 by December 31, 2012, $125,000 by June 30, 2013 and $200,000 on each June 30th thereafter, subject to adjustments for increases in the Consumer Price Index.  Royalties based on net sales are 2% of net sales of licensed products for non-display electronic component applications and 2.5% of net sales of licensed products for printed electronic displays. Our Agreement with UA may be terminated by UA in the event that we are in breach of any provision of this Agreement and said breach continues for 60 days after receiving written notice. Our Agreement with UA will also automatically terminate if Solterra becomes insolvent or unable to pay its debts as they become due. We can provide no assurances that we will be able to meet our obligations under our Agreement with UA. Termination of our Agreement with UA could materially adversely affect our operations.
  
Development service agreements
 
In October 2008, the Company entered into a development service agreement with Arizona State University ("ASU") to optimize the printing process of solar cells.  The agreement is for the period October 1, 2008 to January 30, 2010 with an option for two additional years of services.  This Agreement has not been extended by the parties due to the departure of Dr. Jabour from ASU.  The final balance due ASU is under negotiation.  The table below summarizes these financial commitments under this agreement.  These amounts are recorded as research and development expenses in the consolidated financial statements.

The Company is currently in arrears for payment of obligations due to ASU totaling $455,000 as of March 31, 2012.

In addition, the Company had one other service agreement with a major university for a twelve month period starting in November 2009.  These services were not completed as the Professor responsible for exercising the agreement has moved out of the country.  The Company is negotiating final settlement for this agreement.

Employment agreements

The Company has four employment agreements in effect.  The CEO has a three-year agreement which started in January 2010 and the Chief Technology Officer has a one-year agreement which started in October 2009 and has been renewed for an additional 2 years. In addition, the Company has employment agreements with two other individuals which were scheduled to terminate in April 2012:  one for Asian business development  and one for Middle East business development .
 
 
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Summary
 
Fiscal
 
Services
   
Employment
   
License
       
Year
 
agreements
   
agreements
   
agreements
   
Total
 
2012
  $       $ 70,000     $ 154,450     $ 224,450  
2013
            100,000       317,000       417,000  
2014
                    492,500       492,500  
2015
                    785,000       785,000  
2016
                    785,000       785,000  
Thereafter
                    785,000       785,000  
                                 
                                 
Total
  $ -     $ 170,000     $ 3,318,950     $ 3,488,950  

Note 6.  Warrants

No warrants were issued in the nine month period ending March 31, 2012.
 
Note 7.  Subsequent events
 
We have evaluated subsequent events through May 8, 2012, the date our financial statements were available to be issued.   We are not aware of any significant events that occurred subsequent to the balance sheet date that would have a material impact on our financial statements.
 
 
 
 
 
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Item 2.  Management’s Plan of Operation

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 statement 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 that 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 financial statements and notes thereto included elsewhere in this Form 10-Q and our Form 10-K filed February 15, 2012 for the fiscal year ended June 30, 2011.  Except for the historical information contained herein, the discussion in this Form 10-Q contains certain 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 period ended March 31, 2012 have been included.

Business Overview
 
Quantum Material Corp. is a start-up solar technology and quantum dot manufacturing firm.  We perceive an opportunity to acquire a significant amount of both quantum dot and solar photovoltaic market share by commercializing a low cost quantum dot processing technology and a low cost quantum dot based third generation photovoltaic technology/solar cell, pursuant to an exclusive license agreement with William Marsh Rice University (“Rice University” or “Rice”).  Our objective is for Quantum to become the first bulk manufacturer of high quality tetrapod quantum dots and for Solterra to be the first solar cell manufacturer to be able to offer a solar electricity solution that competes on a non-subsidized basis with the price of retail electricity in key markets in North America, Europe, the Middle East and Asia.

Competitors are pursuing different nanotechnological approaches to developing solar cells, but the general idea is the same for all. When light hits an atom in a semiconductor, those photons of light with lots of energy can push an electron out of its nice stable orbital around the atom. The electron is then free to move from atom to atom, like the electrons in a piece of metal when it conducts electricity.  Using nano-size bits of semiconductor embedded in a conductive plastic maximizes the chance that an electron can escape the nanoparticle and reach the conductive plastic before it is "trapped" by another atom that has also been stripped of an electron. Once in the plastic, the electron can travel through wires connecting the solar cell to an electronic device. It can then wander back to the nanocrystal to join an atom that has a positive charge, which scientifically is called “electron-hole recombination”.

A quantum dot solar cell typically uses a thin layer of quantum dot semiconductor material, rather than silicon chips, to convert sunlight into electricity. Quantum Dots, also known as nanocrystals, measure near one billionth of an inch and are a non-traditional type of semiconductor. Management believes that they can be used as an enabling material across many industries and that quantum dots are unparalleled in versatility and flexible in form.   See “Note 5” regarding License Agreements with Rice University.
 
 
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Quantum intends to design and manufacture solar cells using a proprietary thin film semiconductor technology that we believe will allow us to reduce our average solar cell manufacturing costs and be extremely competitive in this market. Quantum will be one of the first companies to integrate non-silicon quantum dot thin film technology into high volume low cost production using proprietary technologies.  Our objective is to become one of the first solar module manufacturers to offer a solar electricity solution that competes on a non-subsidized basis with the price of retail electricity in key markets in North America, Europe and Asia. Management believes that the manufacture of our thin film quantum dot solar cells can introduce a cost effective disruptive technology that can help accelerate the conversion from a fossil fuel dependent energy infrastructure to one based on renewable, carbon-neutral energy sources. We believe that our proposed products also can be a part of the solution to greenhouse gases and global warming.
 
Plan of Reorganization, Recent Financing and Change in Control

On November 4, 2008, the Company closed on an Agreement and Plan of Merger and Reorganization by and among the Company, Solterra Renewable Technologies, Inc. (“Solterra”), the shareholders of Solterra and Gregory Chapman as “Indemnitor” (the “Agreement”), which resulted in Solterra becoming a wholly-owned subsidiary of the Company. Pursuant to the Agreement, Mr. Chapman cancelled 40,000,000 shares of Common Stock of the Company owned by him and issued a general release in favor of the Company terminating its obligations to repay Mr. Chapman monies owed to him.

In accordance with the Agreement, the Company issued 41,250,000 shares of its Common Stock to the former stockholders of Solterra. Certain existing stockholders of the Company in consideration of Solterra and its shareholders completing the transaction, issued to the Company a Promissory Note in the amount of $3,500,000 due and payable on or before January 15, 2009, through the payment of cash or, with the consent of the Company, the cancellation of up to 12,000,000 issued and outstanding shares of the Company owned by them.  While this note is in default and the Company has made demand for payment and is considering all legal options, our Management does not believe that this Note is collectible.

On November 4, 2008, the Company entered into a Securities Purchase Agreement, Debenture, Security Agreement, Subsidiary Guarantee Agreement, Registration Rights Agreement, Escrow Agreement, Stock Pledge Agreement and other related transactional documents (the “Transaction Documents”) to obtain $1,500,000 in gross proceeds from three non-affiliated parties (collectively hereinafter referred to as the “Lenders”) in exchange for 3,525,000 restricted shares of Common Stock of the Company (the “Restricted Shares”) and Debentures in the principal amount aggregating $1,500,000.  Each Debenture has a term of three years maturing on November 4, 2011, which was recently extended to November 4, 2012, bears interest at the rate of 8% per annum and is prepayable by the Company at anytime without penalty, subject to the Debenture holders’ conversion rights. Each Debenture is convertible at the option of each Lender into the Company’s Common Stock (the “Debenture Shares”, which together with the Restricted Shares shall collectively be referred to as the “Securities”), currently at a conversion price of $.12 per share (the “Conversion Price”).  The Registration Rights Agreement requires the Company to register the resale of the Securities within certain time limits and to be subject to certain penalties in the event the Company fails to timely file the Registration Statement, fails to obtain an effective Registration Statement or, once effective, to maintain an effective Registration Statement until the Securities are saleable pursuant to Rule 144 without volume restriction or other limitations on sale. The Debentures are secured by the assets of the Company and are guaranteed by Solterra as the Company’s subsidiary. In the event the Debentures are converted in their entirety, the Company would be required to issue an aggregate of 12,500,000 shares of the Company’s Common Stock, subject to anti-dilution protection for stock splits, stock dividends, combinations, reclassifications and sale of the Company’s Common Stock a price below the Conversion Price.  Certain changes of control or fundamental transactions such as a merger or consolidation with another company could cause an event of default under the Transaction.   We also entered into a Standstill Agreement with the Debenture Holders effective June 1, 2009 which was amended and expired on December 1, 2009.   At the time the Standstill Agreement expired, the Company did not have an effective registration statement, registering the resale of all Registrable Securities as required by the Registration Rights Agreement. Nevertheless, management believes that no such registration statement was then or is currently required to be filed with the Securities and Exchange Commission as management believes that all securities of the Company held by the Debenture Holders are saleable pursuant to Rule 144 without volume restriction or other limitations on sale, so long as the Debenture Holders are not affiliated parties of the Company.  As of the filing date of this Form 10-Q, the Debenture Holders have taken no action under the Registration Rights Agreement or other transaction documents to notify the Company that it is in default under any of such agreements even though an event of default may be deemed to exist for several reasons; including, without limitation, those enumerated above and the Company's failure to obtain director and officer liability insurance, failure to make a payment of interest on a timely basis and failure to be current from time-to-time with all obligations and responsibilities owed to Rice under our license agreement.

On December 18, 2011 the Company executed an agreement with the debenture holders to extend the maturity date of the convertible debenture to November 4, 2012.  All other terms in the original agreement remain unchanged.  In addition, the debenture holders were granted 2,000,000 three-year common stock warrants with a strike price of $0.08.
 
 
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Plan of Operation

Since November 4, 2008, the Company is executing its business plan as follows:  

Solterra plans to:
 
a)  
Scale up Quantum Dot Production by applying proprietary technology licensed from Rice University for our quantum dot synthesis process and accomplishing large scale production using proprietary Micro-Reactor technology jointly developed through an agreement with Access2Flow an advanced flow chemistry consortium based in the Netherlands. These proprietary technologies enable Solterra to produce the highly desirable tetrapod quantum dots at a cost savings of greater than 75% compared to competing suppliers, and will organically supply Solterra’s requirements for quantum dots for its solar cells and other quantum dot enabled products. Additionally, Solterra intends to market these Q-Dots through various existing supply channels into various markets, including but not limited to medical diagnostics and electronics. The initial pilot scale up will take place at the Access2Flow facilities in the Netherlands and once optimized will be relocated to a solar cell production facility, which is anticipated to be located in Saudi Arabia.

b)  
Fabricate solar cells and optimize the performance of solar cells based on a proprietary blend of  quantum dots (QDs).  The aim is to invest our best efforts to demonstrate and scale up production of low cost quantum dot solar cells having peak efficiency of greater than 6%. The efficiency of solar cells is the electrical power it puts out as percentage of the power in incident sunlight. Within the photovoltaic market, cell pricing and peak efficiency are key benchmarks for consumers in the decision for system selection and installation. The design and manufacture of Solterra's quantum dot based solar cells is projected to allow for the conversion of sunlight into usable electricity at a combination of efficiencies and cell cost at a very low "cents per kilowatt-hour" rate. This work to date has been accomplished on site at the Arizona State University labs but is being relocated better accommodate the logistic requirements of our Chief Science Officer, Professor Ghassan Jabbour, who is working at Kaust University in Saudi Arabia.
 
c)  
The Company has received a number of inquiries for its Tetrapod quantum dots (“TQD”) for a broad range of applications. It is our desire to, establish a pilot line Tetrapod quantum dot production plant as soon as possible so we can better exploit these opportunities and have the ability to custom tailor the features of the TQD’s for a specific customers applications. We are currently in discussions with a Canadian based group that has expressed interest in providing the funding for this pilot plant to be established in Canada. This group is currently conducting its due diligence. It is our desire to establish a second TQD pilot production plant in Austin Texas and we are in preliminary discussions with several groups in order to arrange for the funding necessary to establish this pilot plant as well. If we are successful in establishing the pilot production plants in Canada and/or Texas, of which there can be no assurances given, we are anticipating revenues in the eighth month after receipt of funding for each respective plant. We can provide no assurances that funding for the proposed pilot plants will be available to us on terms satisfactory to us, if at all.

Objectives:

              The Current Objectives of Solterra upon receipt of additional financing are as follows:

·  
Become the first bulk manufacture of high quality tetrapod quantum dots and the first solar cell manufacturer to be able to offer a solar electricity solution that competes on a non-subsidized basis with the price of retail electricity in key markets in North America, South America, Europe the Middle East and Asia.

·  
Build a robust intellectual property portfolio in third generation photovoltaics, quantum dot process technologies and other quantum dot enabled technologies. Success criteria include completion of preparation and filing of various patent applications in the area of Quantum Dot Solar Cell technology, defining and initiating the strategy to secure a reliable source of key materials, and filing or acquiring additional process related patent applications in solar or printed electronics, which intellectual property would be owned or controlled by Solterra.
 
·  
Initiate scaled manufacturing of tetrapod quantum dots, based in part on technology licensed from William H. Marsh Rice University, and building on continued research.  Planning includes the implementation of one or more pilot lines based on outcomes of collaboration with Access2Flow, an advanced flow chemistry consortium based in the Netherlands.  The design of the pilot line is intended such that the initial target output of the line, at approximately one kilogram per day, can be further scaled at least by an order of magnitude to 100 Kilograms per day in 2012.  The output of the tetrapod quantum dots manufacturing will be used for Solterra’s quantum dot solar cells as well as stand-alone sales into the biomedical research fields and to third party developers of quantum dot products such as displays, memory and computer and consumer electronics.
 
·  
Continue to develop and characterize the Quantum Dot Solar Cell product; moving towards pilot proof line for solar cells and leading to high throughput print line ultimately capable of yearly solar cell output near gigawatt range. Target cell efficiencies are 6% within one year, 15% within 2 years and greater than 25% within five years.  Coupled within cell cost per watt decreasing below $.75/Watt, we intend to pursue initial product sales in early 2012 with significant increases later in 2012.
 
 
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Liquidity and Capital Resources

At March 31, 2012 the Company had a working capital deficit of $3,874,528 with total current assets of $481 and total current liabilities of  $3,875,009. Approximately $ $829,721 of these liabilities are owed to our officers, directors and employees for services rendered and expenses not reimbursed through March 31, 2012.  The Company has been in the development stage since inception.  As a result, the Company has relied on financing through the issuance of common stock and a convertible debenture as well as advances from a director shareholder and employees’ wages being partially or fully accrued but not paid.
 
As of March 31, 2012, the Company lacks cash or cash equivalent assets and continues to incur losses in its development stage operations.  In the past, the Company has been relying on loans from its Chief Executive Officer resulting from private sale transactions of our common stock he owned.  The Company has also relied on various universities performing work and providing U.S. licensing rights under business agreements in which the Company is in arrears in payments as well as employees and consultants agreeing to defer payment of wages and fees owed to them.   Currently, the Company is seeking additional financing; however, no definitive agreements for additional financing have been received and the Company cannot provide any assurance that additional funding will be available to finance our operations on terms acceptable to us, if at all, in order to support our plan of operations.  If we are unable to achieve the financing necessary to continue our plan of operations, then our stockholders may lose their entire investment in the Company.  See "Notes to Financial Statements."
 
Cash used in operating activities for the nine months ended March 31, 2012 was $279,617. This is a result of a net loss of $866,637 partially offset by non-cash items including stock issued for debenture interest $110,680, as well as change in accounts payables and accrued liabilities of $51,753, change in accrued liabilities related parties $383,695, change in fair value of warrants and embedded conversion feature of $(592,000), amortization of convertible debenture discount of $591,595 and amortization of deferred finance cost of $36,167.  Cash flows from financing activities during the nine months ended March 31, 2012 were $280,000 which consisted of $280,000 from the proceeds of the sale of common stock.
 
Cash was used in operating activities of $5,974 for the nine months ended March 31, 2011. This is a result of a net loss of $2,674,222 partially offset by non-cash items including stock issued for services of $1,428,855, and stock issued for debenture interest $164,568, as well as change in accounts payables and accrued liabilities of $306,433, change in accrued liabilities related parties $483,443, change in fair value of warrants and embedded conversion feature of $(221,479), amortization of convertible debenture discount of $383,866 and amortization of deferred finance cost of $78,750, and non-cash warrant expense of $29,877. Cash flows from financing activities during the nine months ended March 31, 2011 were $9,633 which consisted of $80,000 from the proceeds of the sale of common stock and ($70,367) from related party advances from Stephen Squires, our Chief Executive Officer, for certain loans to the Company. This resulted in an increase in cash for the period of $3,659 and cash on hand at the end of the period of 3,678.
 
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year.  Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying value and classification of assets and liabilities should the Company be unable to continue as a going concern.  At March 31, 2012, the Company had not yet achieved profitable operations, has accumulated losses of  $11,507,492 since its inception; at March 31, 2012, the Company has a working capital deficit of $3,874,528; and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern.  The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company requires immediate and substantial additional financing during fiscal 2012 to maintain its development stage operations. The Company is exploring all reasonable avenues of financing at this time, 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 such financing will be obtained on terms satisfactory to the Company, if at all. Further, we can provide no assurances that one or more mutually acceptable licensing agreement(s) will be entered into on terms satisfactory to us, if at all. In this respect, see “Note 2” in our notes to the consolidated financial statements for additional information as to the possibility that we may not be able to continue as a “going concern.”

Off-balance sheet arrangements

We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.

Officers convert accrued salaries and bonus into warrants
 
In November 2010, Steven Squires ($125,000), Brian Lukian ($234,375), David Doderer ($62,500), Robert Glass ($37,500), Ghassan Jabbour ($243,750), Andrew Robinson ($50,000) and Toshinon Ando ($35,000) converted the amount of monies set forth beside their names into five-year warrants to purchase 1,666,666 shares, 3,125,000 shares, 833,333 shares, 500,000 shares, 3,250,000 shares, 666,666 shares and 466,666 shares, respectively, In summary, a total of $788,125 was converted into warrants to purchase 10,508,331 shares exercisable at $.075 per share through the expiration date of November 4, 2015.

In May 2011, David Doderer ($81,250), Robert Glass ($61,250), Ghassan Jabbour ($62,500), Andrew Robinson ($50,000) and Toshinon Ando ($65,000) converted the amount of monies set forth beside their names into five-year warrants to purchase 738,636 shares, 556,818 shares, 568,181 shares, 454,545 shares and 590,909 shares, respectively. In summary, a total of $320,000 was converted into warrants to purchase 2,909,089 shares exercisable at $.11 per share through the expiration date of May 18, 2016.
 
 
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Loans from Stephen Squires
 
In November 2008, Mr. Squires received 35,500,000 shares of the Company's Common Stock as part of a plan of reorganization, 20,000,000 of which he pledged to secure certain company indebtedness. Between December 2008 and December 2010, Mr. Squires privately sold an aggregate of approximately 13,431,000 shares of the Company's Common Stock for an aggregate of $595,000. Mr. Squires advanced to the Company cash loans and made payment of Company expenses utilizing $270,145 of the net proceeds of these private sales. On December 30, 2010, the Board of Directors authorized Mr. Squires to receive 10,000,000 restricted shares of Quantum Material Corp. in recognition of his support of the Company and in cancellation of all outstanding cash loans and advanced expenses totaling $270,145.
 
In January 2010, the board of directors granted Mr. Squires the option to convert his cash loans to the Company into common stock of the Company's subsidiary. In this respect, Mr. Squires has a two-year option to convert up to $200,000 into a maximum of 5% of the outstanding common stock of Solterra.  As of the filing date of this Form 10-Q, Mr. Squires has declined to exercise this option.
 
Results of operations – Three and Nine Months Ended March 31, 2012 and 2011

General and administrative expenses

During the nine months ended March 31, 2012 the Company incurred $1,240,284 of general and administrative expenses, a decrease of $1,018,356 from the $2,258,640 recorded for the nine months ended March 31, 2011.  The decrease in general and administrative expenses was primarily due to decreases in stock based compensation of $720,238, other professional fees of $199,004, remuneration of staff of  $97,219, audit and legal expenses of $15,543, and offset by an increase in corporate expenses of $7,485 and travel expense of $6,457 .
 
Included in the expenses for the current nine months ended March 31, 2012 are remuneration of staff $1,079,751, legal and audit of $57,760, travel expense of $54,032, corporate expense of $21,429, other professional fees of $2,438, and amortization of furniture and equipment of $2,253.  This compares to the nine months ended March 31, 2011 which included other professional fees of $201,442, remuneration of staff $637,352, stock based compensation of $1,259,855, license maintenance costs of $1,323, legal and audit of $73,303, corporate expense of $22,900, office expenses of $34,601, travel expense of $18,021 and amortization of furniture and equipment of $3,616.

During the three months ended March 31, 2012 the Company incurred $760,265 of general and administrative expenses, a decrease of $845,115 from the $1,605,380 recorded for the three months ended March 31, 2011.  The decrease in general and administrative expenses was primarily due to a decrease in remuneration of staff of $155,897,  a decrease in audit and legal of $14,618, a decrease in corporate expenses of 6,423, offset by an increase in travel of $14,439.   For the three months ended March 31, 2012, other (income) expenses were ($85,074) as compared to $47,323.  The decrease in other expenses was related primarily to the change in the fair value of the embedded conversion feature, amortization of convertible debenture discount and amortization of deferred finance costs.
 
Included in the expenses for the current three months ended March 31, 2012 were remuneration of staff $175,728, legal and audit of $15,500, travel expense of $15,068, corporate expense of $6,395 and amortization of furniture and equipment of $1,163. This compares to the three months ended March 31, 2011 which included remuneration of staff $331,625, legal and audit of $30,118, corporate expense of $12,818, travel expense of $629 and amortization of furniture and equipment of $1,156.

Research and development expenses.

Research and development expenses of $16,650 were incurred in the nine months ended March 31, 2012, compared to $0 in the nine months ended March 31, 2011.  The increase is the result of $6,671 in royalties to Rice University, $4,281 in patent expenses and $5,698 in sample Qdot manufacturing.  Development expenses of $2,706 were recorded in the three months ended March 31, 2012, compared to $0 in the three months ended March 31, 2011.

Amortization of convertible debenture discount

The convertible debenture discount of $1,500,000 was amortized over the 36 month term of the debenture using the effective interest method.  The debenture was issued on November 4, 2008.  Amortization recorded for the nine month period ended March 31, 2012 and 2011 was $586,730 and $383,866, respectively.  The amortized balance of the discount at March 31, 2012 is $0 resulting in the convertible debenture value on the balance sheet net of the discount $1,500,000.   For the three months ended March 31, 2012, the amortization of convertible debenture discount was $0 as compared to $157,778 for the comparable period of the prior year.
 
 
16

 
 
Amortization of deferred finance cost
 
This amount relates to the $315,000 of expenses associated with the $1,500,000 convertible debenture financing raised in November 2008.  The deferred financing cost is being amortized using the effective interest method over the thirty-six month life of the debenture.  Amortization expense for the nine months ended March 31, 2012 and 2011 was $36,167 and $78,750 respectively.  Amortization expense for the three months ended March 31, 2012 and 2011 was $0 and $26,250, respectively.
 
Interest expense on the convertible debenture

This amount relates to the 8% interest associated with the $1,500,000 convertible debenture issued in November 2008.  
 
In March 2012 the Company issued 356,443 shares of common stock to pay accrued interest of $30,333 for the three month period ended March 1, 2012.
 
Interest expense recorded for the nine months ended March 31, 2012 was $110,680 compared to $134,568 in the nine month period ended March 31, 2011.  Interest expense recorded for the three months ended March 31, 2012 and 2011 was $37,926 and $84,266, respectively.
 
According to the provisions of the Convertible Debenture agreement the Company has elected to issue shares of the Company’s Stock to pay accrued interest on the debentures.  In the nine months ended March 31, 2012 the Company issued 831,376 shares of the Company’s restricted Common Stock to pay $90,333 of accrued interest payable.  As the provision to pay stock for interest discounts the market price of the stock the Company has attributed this discount to interest expense and additional paid in capital.  However the timing of the shares being issued resulted in the share value being less than the interest paid therefore a decrease in interest expense was recorded of $20,347 for the period.  
 
Change in fair value of warrants and embedded conversion feature

This amount relates to the change in value of the derivative liabilities.  The change recorded in the nine months ended March 31, 2012 and 2011 was a decrease of $592,000 and a decrease of $221,479, respectively, decreasing the fair value of embedded conversion feature liability from $1,223,000 to $631,000.   In the three months ended March 31, 2012 the decrease was $123,000.  In the three months ended December 31, 2011 the decrease was $220,971.
 
Cash Flow

During the nine months ended March 31, 2012, cash was used in operations of $279,617.  During this period the Company received proceeds from financing activities of $280,000.  These changes resulted in an increase of $383 in the cash position for nine months ended March 31, 2012.  The opening cash at June 30, 2011 was $98 and the closing balance at March 31, 2012 was $481.

Item 3.  Quantitative And Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our short-term money market investments. The Company does not have any financial instruments held for trading or other speculative purposes and does not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure. The Company does not have any credit facilities with variable interest rates.

Item 4.  Controls and Procedures

The Company maintains disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed by us in the reports 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, and that the information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We performed an evaluation, 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 of the end of the period covered by this report. Based on their evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are not effective at March 31, 2012.  Management bases its’ determination upon the untimely filing of our Form 10-K for the years ended June 30, 2011 and 2010 and our Form 10-Q for the periods ended September 30, 2010, December 31, 2010, March 31, 2011,September 30, 2011 and December 31, 2011. 
 
 
17

 

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.
 
Changes in Internal Control over Financial Reporting
 
In our Management’s Report on Internal Control over Financial Reporting included in the Company’s Form 10-K for the year ended June 30, 2011, management concluded that our internal control over financial reporting was effective as of June 30, 2011.
 
Management did; however, identify a significant deficiency; a significant deficiency is a deficiency, or a combination of deficiencies, that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting.  Currently we do not have sufficient in-house expertise in US GAAP reporting.  Instead, we rely very much on the expertise and knowledge of external financial advisors in US GAAP conversion.  External financial advisors have helped prepare and review the consolidated financial statements.  This deficiency of not having sufficient qualified staff has resulted in the Company being unable to file our 10-K for the years ending June 30, 2011 and 2010 and our Form 10-Q for the periods ended September 30, 2010, December 31, 2010, March 31, 2011, September 30, 2011 and December 31, 2011 in a timely manner.  Although we have not identified any material errors with our financial reporting or any material weaknesses with our internal controls, no assurances can be given that there are no such material errors or weaknesses existing.  To resolve this situation, we are seeking to recruit experienced professionals to augment and upgrade our financial staff to address issues of timeliness and completeness in US GAAP financial reporting.  In addition, we do not believe we have sufficient documentation with our existing financial processes, risk assessment and internal controls.  We plan to work closely with external financial advisors to document the existing financial processes, risk assessment and internal controls systematically.
 
We believe that the measures we are taking, if effectively implemented and maintained, will resolve the significant deficiency discussed above.
 
Except as described above, there have been no changes in our internal controls over financial reporting that occurred during our last fiscal quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
18

 

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings.

We are not a party to any pending legal proceedings. Our property is not the subject of any pending legal proceedings. To our knowledge, no governmental authority is contemplating commencing a legal proceeding in which we would be named as a party.
 
Item 1A. Risk Factors

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.
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
 
(a)
 
From July 1, 2011 to March 31, 2012, we had the following sales of unregistered Common Stock.

 
Date of Sale
 
Title of Security
 
Number Sold
 
Consideration Received and Description of Underwriting or Other Discounts to Market Price or Convertible Security, Afforded to Purchasers
 
Exemption from Registration Claimed
 
If Option, Warrant or Convertible Security, terms of exercise or conversion
                     
July  2011
 
Common Stock
 
1,250,000
 
$150,000 cash received;
no commissions paid
 
Section 4(2); and/or
Rule 506
 
Not applicable.
                     
September 2011
 
Common Stock
 
83,333
 
$10,000 cash received;
no commissions paid
 
Section 4(2); and/or
Rule 506
 
Not applicable.
                     
September 2011
 
Common Stock
 
220,264
 
Shares issued in
exchange for $30,000
of interest through
September 1, 2011
 
Section 4(2); and/or
Rule 506
 
Not applicable.
                     
October 2011
 
Common Stock
 
625,000
 
$50,000 cash received; no commissions paid
 
Section 4(2); and/or
Rule 506
 
Not applicable.
                     
December 2011
 
Common Stock
 
254,669
 
Shares issued in
exchange for $30,000
of interest through
December 1, 2011
 
Section 4(2); and/or
Rule 506
 
Not applicable.
                     
December 2011
 
Common Stock
 
125,000
 
$10,000 cash received; no commissions paid
 
Section 4(2); and/or
Rule 506
 
Not applicable.
                     
December 2011
 
Common Stock
 
625,000
 
$50,000 cash received; no commissions paid
 
Section 4(2); and/or
Rule 506
 
Not applicable.
                     
December 2011
 
Common Stock Warrants
 
2,000,000
 
Warrants issued as part of a debenture maturity date extension; no commissions paid
 
Section 4(2); and/or
Rule 506
 
Not applicable.
                     
January 2012
 
Common Stock
 
125,000
 
$10,000 cash received; no commissions paid
  Section 4(2); and/or
Rule 506
 
Not applicable.
                     
March 2012
 
Common Stock
 
356,443
 
Shares issued in
exchange for $30,333
of interest through
March 1, 2012
  Section 4(2); and/or
Rule 506
 
Not applicable.
                     
March 2012
 
Common Stock
 
6,500,000
 
Services rendered of $520,000, no commissions paid
 
Section 4(2); and/or
Rule 506
 
Not applicable.
                     
March 2012
 
Common Stock Options
 
3,500,000
 
Services rendered, no commissions paid
 
Section 4(2); and/or
Rule 506
 
5 year term, exercisable at $0.03 per share
 
 
(b) 
Rule 463 of the Securities Act is not applicable to the Company.
(c)
In the nine months ended March 31, 2012, there were no repurchases by the Company of its Common Stock.

 
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Item 3. Defaults Upon Senior Securities. None

Item 4.  Mining Safety Discosures – not applicable.
 
Item 5. Other Information.
 
See "Note 3 to the Financial Statements" for description of Various Related Party and Other Transactions.
 
Item 6. Exhibits

The following exhibits are all previously filed in connection with our Form 8-K filed November 10, 2008, unless otherwise noted.
 
2.1
Agreement and Plan of Merger and Reorganization, dated as of October 15, 2008, by and among Hague Corp., Solterra Renewable Technologies, Inc., the shareholders of Solterra and Greg Chapman, as Indemnitor.
   
4.1
Form of Securities Purchase Agreement dated as of November 4, 2008.
   
4.2 
Form of Security Agreement dated November 4, 2008.
   
4.3
Form of Subsidiary Guarantee dated November 4, 2008.
   
4.4
Form of Stock Pledge Agreement dated November 4, 2008.
   
4.5
Form of Debenture-- MKM Opportunity Master Fund, Ltd.
   
4.6
Form of Debenture-- MKM SP1, LLC.
   
4.7
Form of Debenture-- Steven Posner Irrevocable Trust u/t/a Dated 06/17/65.
   
4.8
Form of Escrow Agreement.
   
4.9
Form of Amended Waiver and Consent.
   
4.10
Form of Registration Rights Agreement.
   
4.11
Standstill Agreement dated June 1, 2009 (incorporated by reference to the Registrant’s Form 8-K filed on June 9, 2009).
   
4.12
Amended Standstill Agreement dated June 1, 2009 (incorporated by reference to the Registrant’s Form 10-K for its fiscal year ended June 30, 2009 filed November 12, 2009).
   
4.13
Extension of Standstill Agreement dated October 29, 2009 (incorporated by reference to the Registrant’s Form 10-K for its fiscal year ended June 30, 2009 filed November 12, 2009).
   
10.1
License Agreement by and between William Marsh Rice University and Solterra Renewable Technologies, Inc. dated August 20, 2008 (incorporated by reference to the Registrant’s Form 10-Q for its Quarter year ended March 31, 2009 filed May 15, 2009).
   
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 (incorporated by reference to the Registrant’s Form 10-K for its fiscal year ended June 30, 2009 filed November 12, 2009).
   
10.4
Letters dated November 5, 2009 and November 9, 2009 amending Rice University Agreement (incorporated by reference to the Registrant’s Form 10-K for its fiscal year ended June 30, 2009 filed November 12, 2009).
   
10.5
Consulting Agreement between Steven Posner, Oceanus Capital and the issuer (incorporated by reference to the Registrant’s Form 10-K for its fiscal year ended June 30, 2009 filed November 12, 2009).
   
10.6
Consulting Agreement between Sound Capital Inc and the issuer dated November 12, 2009 (Incorporated by reference to the Registrant's Form 10-Q for the quarter ended September 30, 2009).
   
10.7
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).
   
10.8
Agreement to amend the maturity date of the 8% Senior Secured Convertible Debenture to November 4, 2012.
   
21.1
Subsidiaries of Registrant listing state of incorporation (incorporated by reference to the Registrant’s Form 10-K for its fiscal year ended June 30, 2009 filed on November 12, 2009).
   
31(a)
Rule 13a-14(a) Certification – Principal Executive Officer *
   
31(b)
Rule 13a-14(a) Certification –Principal Financial Officer *
   
32(a)
Section 1350 Certification –Principal Executive Officer *
   
32(b)
Section 1350 Certification –Principal Financial Officer *
   
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 *
____________
* Filed herewith.
 
20

 


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

 
QUANTUM MATERIALS CORP.
 
       
May 11, 2012   
By:
/s/ Stephen Squires
 
   
Stephen Squires,
 
   
Principal Executive Officer
 
       
 
       
May 11, 2012   
By:
/s/ Chris Benjamin
 
   
Chris Benjamin,
 
   
Principal Financial Officer
 
       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21