10-Q 1 form10q.htm QUANTUM MATERIALS FORM 10-Q form10q.htm
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, 2013

[   ]     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
(State or other jurisdiction of incorporation)
 
(IRS Employer Identification No.)
 
12326 Scott Drive
Kingston, OK 73439
 (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 May 13, 2013, the issuer had  176,161,905 shares of common stock, $0.001 par value per share outstanding ("Common Stock").
 
 
1

 
 
FINANCIAL INFORMATION
Item 1. Financial Statements
 

INDEX

 
PART 1 – FINANCIAL INFORMATION
Page
   
Item 1.  Financial Statements
3
   
   
   
  
 
   
   
   
   
PART 2 – OTHER INFORMATION
 
   
   
22
   
   
   
   
   
   




 
2

 

(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS


 
     
March 31,
   
June 30,
 
     
2013
   
2012
 
     
(Unaudited)
       
ASSETS
             
Current
             
Cash
   
$
1,625
   
$
15,261
 
                   
  Total current assets    
1,625
     
15,261
 
                   
Licenses
     
55,000
     
55,000
 
Furniture and equipment, net of deprecation
   
-
     
1,160
 
                   
  Total other assets    
55,000
     
56,160
 
                   
Total assets
 
$
56,625
   
$
71,421
 
                   
Commitments and Contingencies (Note 6)
               
                   
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current liabilities
               
Accounts payable and accrued liabilities
 
$
205,393
   
$
151,573
 
Accrued liabilities - related party
   
1,784,122
     
1,018,945
 
Accrued expenses
   
72,500
     
72,500
 
Deferred revenue
   
899
     
899
 
Fair value of derivative liabilities
   
261,000
     
346,000
 
Convertible debenture, net of discount
   
1,500,000
     
1,500,000
 
                   
Total current liabilities
   
3,823,914
     
3,089,917
 
                   
  Total liabilities    
3,823,914
     
3,089,917
 
                   
Stockholders' deficit
               
Common stock, $0.001 par value,
               
400,000,000 shares authorized,
               
Issued and outstanding 163,614,395 and 124,113,887, respectively
   
163,614
     
124,114
 
Additional paid-in capital
   
10,135,993
     
8,324,417
 
Unearned Compensation
   
(438,000
)
   
-
 
Deficit accumulated during the development stage
   
(13,628,896
)
   
(11,467,027
)
                   
Total stockholders' deficit
   
(3,767,289
)
   
(3,018,496
)
                   
Total liabilities and stockholders' deficit
 
$
56,625
   
$
71,421
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
3

 
 
 
                           
Inception
 
   
Three months ended
   
Nine months ended
   
through
 
   
March 31,
         
March 31,
         
March 31,
 
   
2013
   
2012
   
2013
   
2012
   
2013
 
                               
Operating expenses:
                             
General and administrative
  $ 1,379,103     $ 760,265     $ 2,340,292     $ 1,240,284     $ 10,930,292  
Research and development
    12,804       2,706       18,804       16,650       802,346  
                                         
Total operating expenses
    1,391,907       762,971       2,359,096       1,256,934       11,732,638  
                                         
Loss from operations
    1,391,907       762,971       2,359,096       1,256,934       11,732,638  
                                         
Other expenses (income):
                                       
Amortization of convertible debenture discount
    -       -       -       586,730       1,468,837  
Amortization of deferred finance cost
    -       -       -       36,167       315,000  
Change in fair value of derivative liabilities
    (185,000 )     (123,000 )     (85,000 )     (592,000 )     (234,912 )
Gain on accounts payable writedowns
    -       -       -       -       (652,505 )
Interest expense
    37,511       37,926       113,373       110,680       727,451  
Warrant expense
    -       -       212,400       7,644       710,387  
                                         
Total other (income) / expenses
    (147,489 )     (85,074 )     240,773       149,221       2,334,258  
                                         
Net loss
  $ 1,244,418     $ 677,897     $ 2,599,869     $ 1,406,155     $ 14,066,896  
                                         
Basic and diluted loss per common share
  $ 0.01     $ 0.01     $ 0.02     $ 0.01          
                                         
Weighted average number of common
                                 
shares outstanding
    153,458,796       116,185,204       136,152,324       113,547,678          
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
4

 
   
Nine months
 
Nine months
 
Inception
 
   
ended
   
ended
   
through
 
   
March 31,
   
March 31,
   
March 31,
 
   
2013
   
2012
   
2013
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES
 
                   
Net loss
 
$
(2,599,869
)
 
$
(1,406,155
)
 
$
(14,066,896
)
Adjustments to reconcile net loss to net cash
 
used in operating activities:
                       
Stock issued for services
   
292,000
     
520,000
     
5,675,372
 
Options issued for services
   
181,542
     
19,618
     
181,542
 
Stock issued for accrued liabilities-related party
   
538,540
     
-
     
538,540
 
Stock issued for debenture interest
   
111,774
     
110,680
     
715,852
 
Depreciation of furniture and office equipment
   
1,160
     
2,252
     
15,539
 
Amortization of convertible debenture discount
   
-
     
591,595
     
1,468,837
 
Amortization of deferred finance cost
   
-
     
36,167
     
315,000
 
Interest expense
   
90,666
     
-
     
90,666
 
Warrant expense
   
212,400
     
7,644
     
828,990
 
Changes in Assets and Liabilities
                       
Increase/(Decrease) in fair value of warrants and embedded
 
   conversion feature
   
(85,000
)
   
(592,000
)
   
(234,912
)
Deferred revenue
   
-
     
-
     
899
 
Increase/(Decrease) Accounts payable and accrued liabilities
   
53,820
     
51,753
     
511,924
 
Increase/(Decrease) Accrued liabilities - related party
   
736,331
     
378,829
     
1,361,512
 
                         
Cash flows used by operating activities
   
(466,636
)
   
(279,617
)
   
(2,597,135
)
                         
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
   
453,000
     
280,000
     
1,484,300
 
Proceeds from convertible debenture issued
   
-
     
-
     
1,500,000
 
Payment of deferred finance cost
   
-
     
-
     
(315,000
)
                         
Cash flows provided by financing activities
   
453,000
     
280,000
     
2,669,300
 
                         
NET INCREASE (DECREASE) IN CASH
   
(13,636
)
   
383
     
1,625
 
                         
Cash, beginning of the period
   
15,261
     
98
     
-
 
                         
Cash, end of the period
 
$
1,625
   
$
481
   
$
1,625
 
                         
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
)
Accounts payable write down
 
$
-
   
$
-
   
$
652,505
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
5

 
 
 
Note 1. Summary of Significant Accounting Policies

Business Overview

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.

Basis of Presentation

Interim Financial Statements

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these condensed financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements for the year ended June 30, 2012 and notes thereto and other pertinent information contained in our Form 10-K the Company has filed with the Securities and Exchange Commission (the “SEC”).

The results of operations for the nine month period ended March 31, 2013 are not necessarily indicative of the results for the full fiscal year ending June 30, 2013.

Development Stage Company

The Company is a development stage company as defined by section 915-10-20 of the FASB Accounting Standards Codification.  The Company is still devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced.  All losses accumulated since inception have been considered as part of the Company's development stage activities.
  
Principles of Consolidation

The consolidated financial statements include the accounts of Quantum Materials Corp. and its wholly-owned subsidiary, Solterra, Inc.  All material intercompany accounts and transactions are eliminated in consolidation. The financial statements have retroactively included the activity of Solterra, Inc. in the consolidated statements.  The year end for the Company and its subsidiary is June 30.

 
6

 
 
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements.  These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period.  Management evaluates these estimates and assumptions on a regular basis.  Actual results could differ from those estimates.
 
Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.    Cash and cash equivalents were $1,625 and $15,261 as of March 31, 2013 and June 30, 2012.

Long-lived Assets and Intangible Property

The company follows ASC 350 Intangibles – Goodwill and Other and ASC 360, Property Plant and Equipment.  Long-lived assets are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable.  When required impairment losses on assets to be held and used are recognized based on the fair value of the asset.  The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required.  If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset.  When fair values are not available, the company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets.  The company did not recognize any impairment losses for the periods presented.
 
Advertising Costs

No advertising costs were incurred for the three months ending March 31, 2013 and 2012.

Research and Development

The Company follows ASC Topic 730, “Accounting for Research and Development Costs” and expenses research and development costs as incurred.  Research and development costs were $12,804 and $2,706 for the three months ended March 31, 2013 and 2012, respectively.

Beneficial conversion
Equity instruments that contain a beneficial conversion feature are recorded as a deemed dividend to the holders of the convertible equity instruments. 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 a deemed dividend or interest expense and an increase to additional paid-in-capital.
 
Share-based Expenses.
ASC 718 “Compensation – Stock Compensation” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired.  Transactions include incurring liabilities, or issuing or offering to issue shares, options,  and other equity instruments such as employee stock ownership plans and stock appreciation rights.  Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).  
 
For the three months ended March 31, 2013, $624,707 was recognized in additional compensation expense related to the issuance of 14,540,588 shares to employees who elected to convert accrued salaries into common stock.  $538,540 of compensation expense had previously been recognized as services were performed and expense accrued.
 
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity – Based Payments to Non-Employees.”  Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable:  (a) the goods or services received; or (b) the equity instruments issued.  The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.  
 
For the three months ended March 31, 2013, $50,000 was recognized as expense for public relations consulting which was paid by issuing 4,500,000 shares of common stock.

 
7

 
 
Deferred Income Taxes and Valuation Allowance
 
The Company accounts for income taxes under ASC 740 “Income Taxes.”  Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements 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 the enactment occurs.  A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.  No deferred tax assets or liabilities were recognized as of March 31, 2013 and June 30, 2012, respectively.

Earnings Per Share 

The Company computes basic and diluted earnings per share amounts in accordance with ASC Topic 260, “Earnings per Share”. Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company.  As of March 31, 2013 and June 30, 2012, there were no common stock equivalents or options outstanding.

Financial Instruments

The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization.
 
ASC 820, “Fair Value Measurements and Disclosures”,  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 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

 ● 
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 significant to the fair value measurement and unobservable.
 
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2013. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.

Related Parties

The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.  

 
8

 
 
Commitments and Contingencies

The Company follows ASC 450-20, Loss Contingencies, to report accounting for contingencies.  Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.  There were no commitments or contingencies as of March 31, 2013.

Recently Implemented Standards

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

Note 2. 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.
 
Note 3. Derivatives and Fair Value
 
The Company has evaluated the application of ASC 815 to the Convertible Note issued November 4, 2008.  Based on the guidance in ASC 815, the Company concluded these instruments were required to be accounted for as derivatives as of July 1, 2009 due to the down round protection feature on the conversion price and the exercise price.  The Company records the fair value of these derivatives on its balance sheet at fair value with changes in the values of these derivatives reflected in the statements of operations as “Gain (loss) on derivative liabilities.”  These derivative instruments are not designated as hedging instruments under ASC 815 and are disclosed on the balance sheet under Derivative Liabilities.
 
The Company’s Level 3 liabilities consist of the derivative liabilities associated with the November 4, 2008 note.  At September 30, 2011, 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 March 31, 2013.   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.  
 
 
9

 
 
 
As of March 31, 2013  
Fair Value Measuring Using  
                               
                               
   
Carrying
Value
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Derivatives Liability   $ 261,000       -       -       261,000     $ 261,000  
                                         
Total Derivatives Liability   $ 261,000       -       -       261,000     $ 261,000  
                                         

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 2013:

 
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
   
(962,000
)
   
(962,000
)
Purchases, issuances and settlements
   
-
     
-
 
Transfers in and/or out of Level 3
   
-
     
-
 
                 
Balance as of June 30, 2012                
                 
Ending Balance at March 31, 2013
 
$
261,000
   
$
261,000
 

Note 4. Related party transactions
 
The Company expensed management fees to the CEO / major shareholder as well as other related party executives of $807,727 and $843,405 respectively in the nine months ended March 31, 2013 and the year ended June 30, 2012.  The Company was not able to pay the some of these fees, as a result the accrued liabilities related party was $1,784,122 and $1,108,945 respectively as of March 31, 2013 and June 30, 2012.

During the nine months ended March 31, 2013 the Company recorded $8,640 of rent expense for the use of executive office space in the home of the CEO / major shareholder, $nil was paid and $8,640 was accrued.

Note 5.  Equity

Common Stock

The Company has 400,000,000 authorized shares of common stock, $0.001 par value per share outstanding ("Common Stock").  As of March 31, 2013, 163,614,395 shares were issued and outstanding.
 
In July 2012 the Company issued 343,750 shares of common stock at a price of $0.08 per share in exchange for cash totaling $27,500.

In September 2012 the Company issued 125,000 shares of common stock, at a price of $0.08 per share, in exchange for cash totaling $10,000.

In September 2012 the Company issued 561,729 shares of common stock to pay accrued interest of $30,333 for the three month period ended September 1, 2012.

In the period from October 2012 to December 2012, the Company issued 7,820,000 shares of common stock, at a price of $0.025 per share, in exchange for cash totaling $195,000.

In November 2012, the Company issued 3,000,000 shares of common stock at $0.04 for investor relations services totaling $120,000 which will be provided for a 6-month period starting January 2013.
 
 
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In November 2012, the Company issued 4,300,000 shares of common stock in exchange for marketing and growth strategy consulting services totaling $172,000.  The services will begin in March 2013 for a duration of 8 months.

In December 2012 the Company issued 585,586 shares of common stock to pay accrued interest of $30,333 for the three month period ended December 1, 2012.

In the period from January 2013 to March 2013, the Company issued 7,190,625 shares of common stock at prices between $0.025 and $0.06 per share for cash totaling $220,000.

In January 2013 the Company issued 14,540,589 shares of common stock to pay accrued salaries of $538,540 which were earned in the fiscal year ended June 30, 2012.

In March 2013 the Company issued 452,490 shares of common stock to pay accrued interest of $30,000 for the three month period ended March 1, 2012.

Note 6.  Commitments and Contingencies

Contingencies

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.

Note 7. 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.
 
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 and a full scale quantum dot production plant be established by May 31, 2012.  The Company was unable to meet the August 2012 minimum royalty and the aforesaid milestones and is in discussions with Rice regarding the License Agreement.
 
 
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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 a further $205,000 were 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. We have paid ASU $175,000 under our contract with ASU. Dr. Jabbour is continuing his development work at the KAUST facilities and we have attempted to negotiate a substantially reduced fee payable to 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 $5,000 by June 30, 2012, $25,000 by December 31, 2013, $50,000 by December 31, 2014, $125,000 by June 30, 2015 and $200,000 on each June 30th thereafter, subject to adjustments for increases in the Consumer Price Index.  Royalties based on net sales are 2% of net sales of licensed products for non-display electronic component applications and 2.5% of net sales of licensed products for printed electronic displays. Our Agreement with UA may be terminated by UA in the event that we are in breach of any provision of this Agreement and said breach continues for 60 days after receiving written notice. Our Agreement with UA will also automatically terminate if Solterra becomes insolvent or unable to pay its debts as they become due. We can provide no assurances that we will be able to meet our obligations under our Agreement with UA. Termination of our Agreement with UA could materially adversely affect our operations.
 
Note 8. Employment agreements

In October 2012, the Company entered into new employment agreements with the Company’s Chief Executive Office, Chief Technology Officer and Vice President of Research and Development. Each of the new employment agreements become effective on January 1, 2013 and have a term of five years. In the case of Mr. Squires, he will receive an annual salary of $225,000 and a signing bonus of 5,000,000 shares of restricted Common Stock to be granted on March 29, 2013. On the same date, Mr. Squires will also be granted an option to purchase an additional 5,000,000 shares exercisable at $.03 per share and the options being fully vested and exercisable through March 29, 2023. In the event of termination of his services as a director, he is entitled to receive payment of $225,000 in one lump sum no later than 30 days after termination of his services as a director. Mr. Squires would also be eligible to receive a one year extension of the expiration date of his option. Messrs. Glass, Chief Technology Officer, and Doderer, Vice President of Research, have employment agreements with terms similar to those of Mr. Squires, except that Messrs. Glass and Doderer each receive an annual salary of $150,000 and potential termination pay from their services as a director, also in the amount of $150,000.
 
 
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Note 9.  Warrants

On October 12, 2012 the Company executed an agreement with the debenture holders to extend the maturity date of the convertible debenture to November 4, 2013.  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.

In January 2013, David Doderer ($120,000), and Robert Glass ($96,629) converted the amount of monies set forth beside their names into five-year warrants to purchase 3,000,000 common shares and 2,415,725 common shares respectively.
 
Note 10.  Convertible Debt

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, 2013, bears interest at the rate of 8% per annum and is prepayable by the Company at any time 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.  
 
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.

On October 12, 2012 the Company executed an agreement with the debenture holders to extend the maturity date of the convertible debenture to November 4, 2013.  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.
 
Note 11. Subsequent events

In May 2013, the Company offered a private placement with a maximum offering amount of $275,000. The funds from the private placement are to be used exclusively to build a wet lab, suitable for development and sample production of tetrapod quantum dots. The subscription was offered at a price of $0.12 per share with matching warrants exercisable at $.12 per share through April 30, 2015. Certain executive officers of the Company at no additional cost to investors agreed to transfer from their personal holdings, additional shares of Common Stock to each investor to bring down the effective purchase price to $.06 per share and in the event of conversion of said warrants, to bring down the effective warrant exercise price to $.06 per share.

The subscription agreement also states that once $100,000 had been successfully raised by the offering, the funds would be released to the company to begin development of the wet lab. As of the date
of the filing of this Form 10-Q, the aggregate amount raised is approximately $181,000. Production of the wet lab has started and is being built in San Marcos, Texas.

 
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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 October 11, 2012 for the fiscal year ended June 30, 2012.  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, 2013 have been included.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the condensed consolidated financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our condensed consolidated financial statements.

While we believe that the historical experience, current trends and other factors considered support the preparation of our condensed consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.

For a full description of our critical accounting policies, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2012 Annual Report on Form 10-K.

Business Overview
 
Quantum Materials 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”.

 
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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.

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, 2013, bears interest at the rate of 8% per annum and is prepayable by the Company at any time 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.  
 
 
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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.

On October 12, 2012 the Company executed an agreement with the debenture holders to extend the maturity date of the convertible debenture to November 4, 2013.  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.

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.

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 2013 with significant increases later in 2013.
 
 
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Liquidity and Capital Resources

At March 31, 2013 the Company had a working capital deficit of $3,822,289 with total current assets of $1,625 and liabilities of $3,823,914.  Approximately $1,784,122 of these liabilities are owed to our officers, directors and employees for services rendered and expenses not reimbursed through March 31, 2013.  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, 2013, the Company lacks sufficient cash 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 that is owned by him.  The Company has also relied on various universities to perform work and to provide U.S. licensing rights under business agreements.   The Company is in arrears in payments related to these business agreements.  The company also owes $1,784,122 in back wages and salaries; employees and consultants have agreed to defer payment of the 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 was used in operating activities of $466,636 for the nine months ended March 31, 2013.  This is a result of a net loss of $2,599,859 partially offset by non-cash items including stock issued for debenture interest $111,774, stock issued for services of $292,000, options issued for services of $181,542, stock issued for accrued liabilities of related parties of $538,540, as well as change in accounts payables and accrued liabilities of $53,820, change in accrued liabilities related parties $637,992, and a change in fair value of warrants and embedded conversion feature of $85,000.  Cash flows from financing activities during the nine months ended March 31, 2013 were $453,000 which consisted of $453,000 from the proceeds of the sale of common stock. This resulted in a decrease in cash for the period of $13,636 and cash on hand at the end of the period of $1,625.  
 
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 $1,406,155 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.
 
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, 2013, the Company had not yet achieved profitable operations, had accumulated losses of $14,066,896 (since its inception), and had a working capital deficit of $3,822,289.  The company  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 2013 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 1” 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.
 
 
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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.
 
In January 2013, Chris Benjamin ($39,825), Art Lamstein ($101,139), Toshinon Ando ($125,000), Robin Squires ($122,577), and Ghassan Jabbour ($150,000) converted the amount of monies set forth beside their names into 1,075,275 common shares, 2,730,744 common shares, 3,375,000 common shares, 3,309,570 common shares and 4,050,000 common shares, respectively,
 
In January 2013, David Doderer ($120,000), and Robert Glass ($96,629) converted the amount of monies set forth beside their names into five-year warrants to purchase 3,000,000 common shares and 2,415,725 common shares respectively.
 
Results of operations – Three Months Ended March 31, 2013 and 2012

General and administrative expenses

During the three months ended March 31, 2013 the Company incurred $1,379,103 of general and administrative expenses a increase of $618,838 from the $760,265 recorded for the three months ended March 31, 2012.  The increase in general and administrative expenses was primarily due to an increase in remuneration of staff of $1,029,255.
 
Included in the expenses for the current three months ended March 31, 2013 were remuneration of staff $1,029,255, legal and audit of $29,882, travel expense of $36,258, corporate expense of $15,815, and amortization of furniture and equipment of $342.  This compares to the three months ended March 31, 2013 which included 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.

 Research and development expenses.

Research and development expenses of $12,804 were incurred in the three months ended March 31, 2013, compared to $2,706 in the three months ended March 31, 2012.  The increase is the result of an increase in patents of $10,804.

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 three month period ended March 31, 2013 and 2012 was $nil and $nil, respectively.  The amortized balance of the discount at March 31, 2013 is $nil resulting in the convertible debenture value on the balance sheet net of the discount $1,500,000. 
 
 
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Amortization of deferred finance cost
 
This amount relates to the $315,000 of expenses associated with the $1,500,000 convertible debenture financing raised in November 2008.  The deferred financing cost was amortized using the effective interest method over the thirty-six month life of the debenture.  Amortization expense for the three months ended March 31, 2013 and 2012 was $nil and $nil, 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 452,490 shares of common stock to pay accrued interest of $30,000 for the three month period ended March 1, 2012.
 
Interest expense recorded for the three months ended March 31, 2013 was $37,511 compared to $37,926 in the three month period ended March 31, 2012.
 
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 three months ended March 31, 2013 the Company issued 452,490 shares of the Company’s restricted Common Stock to pay $30,000 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 $7,511 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 three months ended March 31, 2013 and 2012 was a decrease of $185,000 and a decrease of $123,000, respectively, decreasing the fair value of embedded conversion feature liability from $346,000 to $261,000.  
 
Cash Flow

During the three months ended March 31, 2013, cash was used in operations of $528,548.  During this period the Company received proceeds from financing activities of $500,449.  These changes resulted in a decrease of $28,099 in the cash position for three months ended March 31, 2013.  The opening cash at January 1, 2013 was $29,724 and the closing balance at March 31, 2013 was $1,625.

Results of operations – Nine Months Ended March 31, 2013 and 2012

General and administrative expenses

During the nine months ended March 31, 2013 the Company incurred $2,340,292 of general and administrative expenses an increase of $1,359,585 from the $1,240,284 recorded for the nine months ended March 31, 2012.  The increase in general and administrative expenses was primarily due to an increase in remuneration of staff of $1,252,834, which included expense for warrants issued in lieu of bonuses.
 
Included in the expenses for the current nine months ended March 31, 2013 were remuneration of staff $1,792,967, legal and audit of $72,692, travel expense of $87,155, corporate expense of $42,536, and amortization of furniture and equipment of $1,160.  This compares to the nine months ended March 31, 2012 which included 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.

 Research and development expenses.

Research and development expenses of $18,804 were incurred in the nine months ended March 31, 2013, compared to $16,650 in the nine months ended March 31, 2012.  The increase is the result of an increase in patent expense of $10,523, a decrease in manufacturing of $5,698, and a decrease in royalties of $2,671.

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, 2013 and 2012 was $nil and $36,167, respectively.  The amortized balance of the discount at March 31, 2013 is $nil resulting in the convertible debenture value on the balance sheet net of the discount $1,500,000. 
 
 
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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, 2013 and 2012 was $nil and $36,167, 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 2013 the Company issued 452,490 shares of common stock to pay accrued interest of $30,000 for the three month period ended March 1, 2013.
 
In the nine months ended March 31, 2013 the Company issued 1,599,805 shares of common stock to pay accrued interest of $90,667 for the nine month period ended March 1, 2013.
 
Interest expense recorded for the nine months ended March 31, 2013 was $113,374 compared to $110,680 in the nine month period ended March 31, 2012.
 
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, 2013 the Company issued 1,599,805 shares of the Company’s restricted Common Stock to pay $90,667 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, an increase in interest expense was recorded of $22,707 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, 2013 and 2012 was a decrease of $85,000 and a decrease of $592,000, respectively, decreasing the fair value of embedded conversion feature liability from $1,223,000 to $261,000.  
 
Cash Flow

During the nine months ended March 31, 2013, cash was used in operations of $746,982.  During this period the Company received proceeds from financing activities of $733,346.  These changes resulted in an decrease of $13,636 in the cash position for nine months ended March 31 2013.  The opening cash at June 30, 2012 was $15,261 and the closing balance at March 31, 2013 was $1,625.


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.

 
 
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Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2013, due to the material weaknesses resulting from the Board of Directors not currently having any independent members, no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, management controlled by a small group and controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements.

For a full discussion of our controls and procedures, please refer to Item 9, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2012 Annual Report on Form 10-K.
 
Changes in internal control over financial reporting: There have been no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the three months ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
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PART II – OTHER INFORMATION


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.
 

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.
 
 
(a)
 
From July 1, 2012 to March 31, 2013, 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  2012
Common Stock
    343,750  
$27,500 cash received;
no commissions paid
Section 4(2); and/or
Rule 506
Not applicable.
                 
September  2012 Common Stock    
125,000
  $10,000 cash received;
no commissions paid
Section 4(2); and/or
Rule 506
 
Not applicable.
                 
September  2012 Common Stock    
561,729
  Shares issued in
exchange for $30,333
of interest through
September 1, 2012
Section 4(2); and/or
Rule 506
Not applicable.
                 
October  2012 Common Stock    
3,320,000
  $83,000 cash received;
no commissions paid
Section 4(2); and/or
Rule 506
 
Not applicable.
                 
November  2012 Common Stock    
1,000,000
  $25,000 cash received;
no commissions paid
Section 4(2); and/or
Rule 506
Not applicable.
 
 
 
 
22

 
 
                 
November  2012
Common Stock
   
3,000,000
 
Shares issued for services;
no commissions paid
Section 4(2); and/or
Rule 506
Not applicable.
                 
November  2012
Common Stock
   
4,300,000
 
Shares issued for services;
no commissions paid
Section 4(2); and/or
Rule 506
Not applicable.
                 
December  2012
Common Stock
   
3,500,000
 
$87,500 cash received;
no commissions paid
Section 4(2); and/or
Rule 506
Not applicable.
                 
December  2012
Common Stock
   
585,586
 
Shares issued in
exchange for $30,333
of interest through
December 1, 2012
Section 4(2); and/or
Rule 506
Not applicable.
                 
January  2013
Common Stock    
14,540,589
 
Shares issued in
exchange for $538,540
of accrued salaries as of June 30, 2012
Section 4(2); and/or
Rule 506
Not applicable.
                 
January  2013
Common Stock
   
137,400
 
Shares issued in
exchange for $4,122
of services through
June 30, 2012
Section 4(2); and/or
Rule 506
Not applicable.
                 
January thru March 2013
Common Stock
   
5,190,625
 
$175,415 cash received; no commissions paid
Section 4(2); and/or
Rule 506
Not applicable.
                 
March  2013
Common Stock
   
452,490
 
Shares issued in
exchange for $30,000
of interest through
March 1, 2013
Section 4(2); and/or
Rule 506
Not applicable.
                 
 
(b) 
Rule 463 of the Securities Act is not applicable to the Company.
(c)
In the nine months ended March 31, 2013, there were no repurchases by the Company of its Common Stock.

 
 
23

 
 


 
See "Note 3 to the Financial Statements" for description of Various Related Party and Other Transactions.
 

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).
 
 
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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).
   
Rule 13a-14(a) Certification – Principal Executive Officer *
   
Rule 13a-14(a) Certification – Principal Financial Officer *
   
Section 1350 Certification – Principal Executive Officer *
   
Section 1350 Certification – Principal Financial Officer *
   
101.SCH
101.SCH
Document, XBRL Taxonomy Extension *
   
101.CAL
101.CAL
Calculation Linkbase, XBRL Taxonomy Extension Definition *
   
101.DEF
101.DEF
Linkbase, XBRL Taxonomy Extension Labels *
   
101.LAB
101.LAB
Linkbase, XBRL Taxonomy Extension *
   
101.PRE
101.PRE
Presentation Linkbase *
______________
*  Filed herewith.
 
 
 
25

 
 
 
 
QUANTUM MATERIALS CORP.
 
       
May 15, 2013  
By:
/s/ Stephen Squires  
    Stephen Squires,  
   
Principal Executive Officer
 
       
       
May 15, 2013   
By:
/s/ Chris Benjamin  
   
Chris Benjamin,
 
   
Principal Financial Officer
 
       
 
 
26