QUANTUM MATERIALS CORP. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - QUANTUM MATERIALS CORP.	Financial_Report.xls
EX-32.A - EXHIBIT 32.(A) - QUANTUM MATERIALS CORP.	ex321.htm
EX-31.B - EXHIBIT 31.(B) - QUANTUM MATERIALS CORP.	ex312.htm
EX-32.B - EXHIBIT 32.(B) - QUANTUM MATERIALS CORP.	ex322.htm
EX-31.A - EXHIBIT 31.(A) - QUANTUM MATERIALS CORP.	ex311.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, 2014

[ ] 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.)

3055 Hunter Road

San Marcos, TX 78666

(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 30, 2014, the issuer had 215,191,230 shares of common stock, $0.001 par value per share outstanding ("Common Stock").

FINANCIAL INFORMATION

Item 1. Financial Statements

INDEX

PART 1 – FINANCIAL INFORMATION	Page

Item 1. Financial Statements	3

Consolidated balance sheets as of March 31, 2014 (unaudited) and June 30, 2013 (audited)	3

Consolidated statements of operations, for the three and nine months ended March 31, 2014 and 2013 and for the period from inception (May 19, 2008) through March 31, 2014 (unaudited)	4

Consolidated statements of stockholders equity (deficit), for the period of May 19, 2008 (Inception) to March 31, 2014	5

Consolidated statements of cash flows for the nine months ended March 31, 2014 and 2013 and for the period from inception (May 19, 2008) through March 31, 2014 (unaudited)	6

Notes to consolidated financial statements (unaudited)	7

Item 2. Management’s Plan of Operation.	13

Item 3. Quantitative and Qualitative Disclosures and Market Risk	18

Item 4. Controls and Procedures	18

PART 2 – OTHER INFORMATION

Item 1. Legal Proceedings	19

Item 1A. Risk Factors	19

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	19

Item 3. Defaults upon Senior Securities	21

Item 4. Removed and reserved.	21

Item 5. Other Information	21

Item 6. Exhibits	21

Signatures	23

Quantum Materials Corp.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS


	March 31			June 30
	2014			2013
	(unaudited)
ASSETS
Current
Cash and cash equivalents	$	201,504		$	172,431

Total current assets		201,504			172,431

Licenses		55,000			55,000
Furniture and equipment, net of accumulated deprecation of $13,071		-			-
Deposits on assets		185,511			-

Total long term assets		240,511			55,000

Total assets	$	442,015		$	227,431

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued Liabilities	$	247,582		$	287,583
Accrued liabilities - related party		1,538,469			1,513,978
Accrued expenses		72,500			72,500
Deferred revenue		899			899
Fair value of derivative liabilities		622,335			787,000

Total current liabilities		2,481,785			2,661,960

Convertible debenture, net of discount		1,500,000			1,500,000
Convertible note		400,000			-

Total long term liabilities		1,900,000			1,500,000

Total liabilities		4,381,785			4,161,960

Stockholders' deficit
Common stock, $0.001 par value,
400,000,000 shares authorized,
Issued and outstanding 202,649,563 and 182,988,347, respectively		202,650			182,988
Additional paid-in capital		14,180,786			12,255,288
Deficit accumulated during the development stage		(18,323,206	)		(16,372,805	)

Total stockholders' deficit		(3,939,770	)		(3,934,529	)

Total liabilities and stockholders' deficit	$	442,015		$	227,431

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

Index

Quantum Materials Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and nine months ending March 31, 2014 and March 31, 2013

and period from May 19, 2008 (inception) through March 31, 2014

(unaudited)

													Inception
	Three months ended						Nine months ended						through
	March 31						March 31						March 31
	2014			2013			2014			2013			2014

Operating expenses:
General and administrative	$	391,554		$	1,379,103		$	1,615,872		$	2,340,292		$	14,327,888
Research and development		13,038			12,804			17,864			18,804			893,209

Total operating expenses		404,592			1,391,907			1,633,736			2,359,096			15,221,097

Loss from operations		(404,592	)		(1,391,907	)		(1,633,736	)		(2,359,096	)		(15,221,097	)

Other expenses (income):
Amortization of convertible debenture discount		-			-			-			-			1,468,837
Amortization of deferred finance cost		-			-			-			-			315,000
Change in fair value of derivative liabilities		169,709			(185,000	)		(164,665	)		(85,000	)		126,423
Beneficial conversion feature on convertible note		115,603						115,603						115,603
Gain on accounts payable writedowns		-			-			-			-			(652,505	)
Loss on settlement of accrued salaries		136,569			-			136,569			-			136,569
Interest expense		37,444			37,511			113,655			113,373			879,440
Warrant expense		115,503			-			115,503			212,400			712,742

Total other expenses / (income)		(574,828	)		147,489			(316,665	)		(240,773	)		(3,102,109	)

Net loss	$	(979,420	)	$	(1,244,418	)	$	(1,950,401	)	$	(2,599,869	)	$	(18,323,206	)

Basic and diluted loss per common share	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.02	)

Weighted average number of common
shares outstanding		195,356,712			153,458,796			197,738,959			136,152,324

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

Index

Quantum Materials Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

For the period from May 19,2008 (inception) to March 31, 2014

									Deficit
									accumulated
							Additional		during the			Total
	Common Stock						paid in		development			Stockholders
	Shares			Amount			capital		stage			Equity
Balance June 30 2012		124,113,887		$	124,114		$	8,324,417		(11,467,027	)		(3,018,496	)

Common stock issued for cash		22,388,375			22,388			609,849		-			632,237
Stock warrants attached to common, proceeds allocated								65,361					65,361
Common stock issued for debenture interest payable		2,176,247			2,176			149,531					151,707
Common stock issued in exchange for accrued salaries		14,540,589			14,541			523,999					538,540
Common stock issued in exchange for accounts payable		137,400			137			7,673					7,810
Fair market value of shares issued in excess of liabilities								263,687					263,687
Common stock issued for employment agreements		15,000,000			15,000			1,035,000					1,050,000
Common stock issued for services		4,631,849			4,632			264,656					269,288
													-
Stock options issued for services								471,023					471,023
Stock options issued with employment contracts								440,840					440,840
Stock options issued for extension of debenture terms								99,252					99,252
													-
Net loss to June 30, 2013		-			-			-		(4,905,778	)		(4,905,778	)

Balance June 30 2013		182,988,347		$	182,988		$	12,255,288		(16,372,805	)		(3,934,529	)

Common stock issued for cash		4,312,500			4,512			204,988					209,500
Stock warrants attached to common, proceeds allocated		-			-			-					-
Common stock issued for debenture interest payable		2,185,472			2,186			111,525					113,711
Common stock issued in exchange for accrued salaries		-			-			-					-
Common stock issued in exchange for accounts payable		-			-			-					-
Fair market value of shares issued in excess of liabilities		-			-			-					-
Common stock issued for employment agreements		-			-			-					-
Common stock issued for services		15,163,244			14,964			693,036					708,000
Cancellation of shares		(2,000,000	)		(2,000	)		2,000					-
Beneficial conversion feature of debenture		-			-			115,603					115,603
Allocated value of warrants related to debenture		-			-			95,603					95,603
Stock options issued for services		-			-			-					-
Stock options issued in exchange for accrued salaries		-			-			682,843					682,843
Stock options issued for extension of debenture terms		-			-			19,900					19,900
													-
Net loss to March 31, 2014 (unaudited)										(1,950,401	)		(1,950,401	)

Balance March 31, 2014		202,649,563		$	202,650		$	14,180,786		(18,323,206	)		(3,939,770	)

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

Index

Quantum Materials Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ending March 31, 2014 and March 31, 2013

and period from May 19, 2008 (inception) through March 31, 2014

(unaudited)

	Nine months			Nine months			Inception
	ended			ended			through
	March 31			March 31			March 31
	2014			2013			2014

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss	$	(1,950,401	)	$	(2,599,869	)	$	(18,323,206	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock issued for services		708,000			292,000			7,674,347
Options issued for services		-			181,542			911,863
Options issued for debenture extension		19,900			-			19,900
Loss on stock issued for accrued liabilities - related party								136,569
Stock issued for debenture interest		113,711			111,774			869,496
Beneficial conversion		115,603			90,666			115,603
Warrant expense					212,400			617,503
Allocated value of warrants related to debenture								95,603
Depreciation of furniture and office equipment		-			1,160			15,539
Amortization of convertible debenture discount		-			-			1,468,837
Amortization of deferred finance cost		-			-			315,000
Change in fair value of warrants and embedded
conversion feature		(164,665	)		(85,000	)		126,423

Net change in:
Deferred revenue		-			-			899
Accounts payable and accrued liabilities		(40,001	)		53,820			561,923
Accrued liabilities - related party		570,765			736,331			2,327,858


Cash flows used by operating activities		(394,916	)		(466,636	)		(3,065,843	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of license		-			-			(55,000	)
Proceeds from disposal of furniture and equipment					-			5,343
Deposits on assets		(185,511	)		-			(185,511	)
Purchase of furniture & equipment		-			-			(20,883	)

Cash flows provided by investing activities		(185,511	)		-			(256,051	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock		209,500			453,000			1,938,398
Proceeds from convertible debenture issued		400,000			-			1,900,000
Payment of deferred finance cost		-			-			(315,000	)

Cash flows provided by financing activities		609,500			453,000			3,523,398

NET INCREASE (DECREASE) IN CASH		29,073			(13,636	)		201,504

Cash, beginning of the period		172,431			15,261			-

Cash, end of the period	$	201,504		$	1,625		$	201,504

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
Stock issued in exchange for:
Accrued salaries	$			$			$	538,540
Accounts payable	$			$			$	7,810

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

Index

QUANTUM MATERIAL CORP.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014

(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, 2013. The results for the three months and nine months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the full year ending June 30, 2014.

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

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.

Note 2. 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.

Index

ASC 825-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 825-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 describes three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets or liabilities; Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. The Company’s Level 3 liabilities consist of the derivative liabilities associated with the November 4, 2008 note. At June 30, 2013, 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. At the date of the original transaction, we 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. Using assumptions, consistent with the original valuation, the Company has subsequently used the Black-Scholes model for calculating the fair value, as of June 30, 2013 and 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.

	As of March 31, 2014
	Fair Value Measuring Using


	Carrying Value		Level 1		Level 2		Level 3		Total
Derivatives Liability	$	622,335		-		-		622,335	$	622,335

Total Derivatives Liability	$	622,335		-		-		622,335	$	622,335

Index

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 2014:

	Fair Value
	Measurements
	Using Level 3
	Inputs
	Derivative
	Liabilities				Totals
Beginning Balance as of June 30, 2013		$	787,000		$	787,000
Total Gains or Losses (realized/unrealized) Included in Net Loss			(164,665	)		(164,665	)
Purchases, issuances and settelements			-			-
Transfers in and/or out of Level 3			-			-

Ending Balance at March 31, 2014		$	622,335		$	622,335

Note 3. Convertible debentures

2008 Convertible Debenture

Balance of convertible debenture issued in 2008 consist of the following as of March 31, 2014 and June 30, 2013:

	March 31, 2014		June 30, 2013

Convertible debenture from 2008	$	1,500,000	$	1,500,000
Debenture discount amortized		-		-
Debenture warrant value amortized		-		-

	$	1,500,000	$	1,500,000

On November 4, 2008, Quantum Materials Corp entered into a Securities Purchase Agreement, Debenture, Security Agreement, Subsidiary Guarantee Agreement, Registration Rights Agreement, Escrow Agreement, Stock Pledge Agreement and other related transactional documents (the “Transaction Documents”) to obtain $1,500,000 in gross proceeds from three non-affiliated parties (collectively hereinafter referred to as the “Lenders”) in exchange for 3,525,000 restricted shares of Common Stock of Quantum Materials Corp (the “Restricted Shares”) and Debentures in the principal amount aggregating $1,500,000. Each Debenture originally had a term of three years maturing on November 4, 2011 bearing interest at the rate of 8% per annum and is pre-payable by Quantum Materials Corp at any time without penalty, subject to the Debenture holders’ conversion rights. The debt is secured pursuant to a Stock Pledge Agreement, to which Stephen Squires, the Company’s Chief Executive Officer, has pledged 20,000,000 shares of stock personally held, until such time as the Debentures are paid in their entirety. Beginning in 2011, the Company has obtained a series of annual one year extensions of the original maturity date of the Debentures, in exchange for a set amount of warrants, and is currently extended through November 4, 2014.

The Company has also issued shares, on a quarterly basis, for interest that has accrued on the outstanding debt.

In accounting for the above convertible debentures, the Company has recognized a derivative liability associated with the conversion feature, in the amount of $126,423 and $787,000, as of March 31, 2014 and June 30, 2013, respectively.

2014 Convertible Debenture

Balance of convertible debenture issued in 2014 consist of the following as of March 31, 2014 and June 30, 2013:

	March 31, 2014		June 30, 2013

Convertible debenture	$	400,000	$	-
Debenture discount amortized		-		-
Debenture warrant value amortized		-		-

	$	304,397	$	-

Index

On February 6, 2014, the Company entered into a Securities Purchase Agreement, Debenture, Security Agreement, Subsidiary Guarantee Agreement, Registration Rights Agreement, Escrow Agreement, Stock Pledge Agreement and other related transactional documents (the “Transaction Documents”) to obtain $400,000 in gross proceeds from two non-affiliated parties (collectively hereinafter referred to as the “Lenders”) in exchange for 5,000,000 common stock warrants exercisable at $.06 per share through December 31, 2016. The Debenture has a term of two years maturing on January 31, 2016. The Debenture bears interest at the rate of 8% per annum and is pre-payable by the Company at any time without penalty, subject to the Debenture holders’ right of conversion at a conversion price of $.04 per share. The debt is secured by a security interest in certain microreactor equipment. Pursuant to the Securities Purchase Agreement, the investor has certain preferential rights to fund a second microreactor at a cost of up to $650,000. In the event of a second investment, the investor would receive warrants to purchase up to 8,125,000 shares, exercisable at $.06 per share with the second Debenture convertible at a conversion price of $.06 per share. The Agreement also provides for the investor to have the right to appoint one member to the Company’s Board of Directors in the event that any one of the aforementioned Debentures are converted into Common Stock of the Company.

In accounting for the above convertible debentures, the Company has recognized a beneficial conversion factor expense of $115,603, warrant expense of $95,603, and interest expense of 3,983 for the three months ended March 31, 2014.

The debenture funds are held in escrow and released as progress payments are made on the microreactor construction. These payments are classified as Deposit on Assets on the balance sheet.

Note 4. Related party transactions

The Company expensed management fees to the CEO / major shareholder as well as other related party executives of $536,404 and $569,623 respectively in the nine months ended March 31, 2014 and the year ended June 30, 2013. The Company has accrued liabilities due to related parties of $1,538,468 and $1,513,978, respectively, as of March 31, 2014 and June 30, 2013.

During the nine months ended March 31, 2014 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. Common stock

In July 2013, the Company issued 4,000,000 shares of common stock in exchange for services rendered, at a fair market value of $223,000.

In August 2013, the Company issued 200,000 shares of common stock in exchange for cash at a price of $0.05 per share and 2,612,500 shares of common stock in exchange for cash at a price of $0.04 per share, for total proceeds of $112,000.

In August 2013, the Company issued 1,700,000 shares of common stock in exchange for services of outside consultants, at a fair market value of $79,900.

In September 2013, the Company issued 416,667 shares of common stock in exchange for cash at a price of $0.06 per share, 312,500 shares of common stock in exchange for cash at a price of $0.08 per share and 187,500 shares of common stock in exchange for cash at a price of $0.04 per share, for total proceeds of $57,500.

In September 2013, the Company issued 766,668 shares of common stock to pay accrued interest of $38,334 for the three month period ended September 1, 2013.

In September 2013, the CEO and majority shareholder cancelled 2,000,000 shares held.

In October 2013, the Company issued 1,950,000 shares of common stock in exchange for services of outside consultants, at a fair market value of $114,500.

In December 2013, the Company issued 777,778 shares of common stock to pay accrued interest of $37,877 for the three month period ended December 1, 2013.

In January 2014, the company issued 83,333 shares of common stock in exchange for cash at a price of $0.06 per share for total proceeds of $5,000.

In February 2014, the company issued 1,250,000 shares of common stock in exchange for services of outside consultants at $0.06 per share, a fair market value of $75,000.

In March 2014, the company issued 2,500,000 shares of common stock in exchange for services of outside consultant at $0.06 per share, a fair market value of $150,000.

In March 2014, the Company issued 641,026 shares of common stock to pay accrued interest of $37,500 for the three month period ended March 1, 2014.

Index

Note 6. 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 August 2013, Solterra entered into an amended License Agreement and Quantum Materials entered into a new License Agreement with Rice. Rice is the owner of certain inventions and patent applications, know-how and rights pertaining to the synthesis of uniform nanoparticle shapes with high selectivity. We have obtained the exclusive rights to license and sublicense (subject to Rice’s consent, which shall not be unreasonably withheld), develop, manufacture, market and exploit Rice’s inventions, patent applications and any issued patents in the case of Solterra, for the manufacture and sale of photovoltaic cells and photovoltaic applications and in the case of Quantum Materials for the manufacture and sale of quantum dots for electronic and medical applications (excluding photovoltaic applications). With respect to Rice’s patent applications, Rice made a provisional filing for an invention disclosure titled “synthesis of uniform nanoparticle shapes with high selectivity” with the United States Patent and Trademark Office on April 13, 2007 and a subsequent utility filing on April 11, 2008 under the Patent Cooperation Treaty (“PCT”). PCT enables the U.S. applicant to file one application, "an international application," in a standardized format in English in the U.S. Receiving Office (the U.S. Patent and Trademark Office), and have that application acknowledged as a regular national or regional filing in any State or region that is party to the PCT. Dr. Michael Wong is a director of our company and is the inventor of Rice’s patent application licensed by Solterra.

Our initial agreement with Rice requires the payment of certain patent fees to Rice and for us to acquire additional funding and to meet certain milestones by specific dates. Rice and the Company recently established new milestones for the Company to achieve in the months and years ahead, the failure of which could lead to the termination of the license agreement.

Rice is entitled to receive during the term of each License Agreement certain royalties under the License Agreement of adjusted gross sales (as defined) ranging from 2% to 4% for photovoltaic cells and 7.5% of adjusted gross sales for quantum dots sold in electronic and medical applications. Minimum royalties payable under the License Agreement include $29,450 due January 1, 2015, $217,000 due January 1, 2016, $648,750 due January 1, 2017, $2,038,500 due January 1, 2018 and $3,738,600 due January 1, 2019 and each January 1 of every year thereafter, subject to adjustments for changes in the consumer pricing index. The term of the License Agreement is to expire on the expiration date of Rice’s rights in its intellectual property and the Licensee’s rights are worldwide. Our Agreement, as amended, with Rice provides for termination of each Agreement in the event that we are determined to be insolvent as defined in the Agreements.

Agreement with 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.

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Employment agreements

The Company has two employment agreements in effect with Stephen Squires and David Doderer. Each executive officer has a five year agreement which started in January 2013. In August 2013, Robert Glass resigned from the Board of Directors and terminated his employment agreement. The Company intends to request that Dr. Glass return his 5,000,000 share signing bonus and agree to cancel his 5,000,000 options signing bonus. The Company will consider legal redress if necessary to accomplish the foregoing. No assurances can be given that the Company’s efforts to have the aforementioned securities cancelled will be successful.

Note 7. Warrants

In January 2014, the following employees converted the amount of monies set forth beside their names into five-year warrants at with an exercise price of $0.06. The value of these warrants exceeded the amounts owed, resulting in an expense of $136,569 recognized as Loss on Stock Issued for Accrued Salaries.

Employee	Salary Converted		Warrants		Life (Years)		Exercise Price
Stephen Squires	$	95,000		2,968,750		5	$	0.06
David Doderer	$	25,000		781,250		5	$	0.06
Chris Benjamin	$	90,000		2,812,500		5	$	0.06
Ghassan Jabbour	$	120,000		3,750,000		5	$	0.06
Andfew Robinson	$	50,000		1,562,500		5	$	0.06
Toshinon Ando	$	99,870		3,120,934		5	$	0.06
Art Lamstein	$	66,405		2,075,148		5	$	0.06
Total	$	546,275		17,071,082

In January 2014, 5,000,000 common stock warrants were issued in connection with the Convertible Debenture issued for $400,000. The warrants have an expiration of December 31, 2016 and an exercise price of $0.06 per share. Refer to Note 3.

In February 2014, 1,000,000 of the 2,000,000 common stock warrants issued to the debenture holders in December 2011 were amended to extend the warrant period to five years. The original expiration date was December 10, 2014, which now expires on December 10, 2015. The exercise price has been changed to $0.06.

Note 8. Subsequent events

In April 2014, the Company had the following issuances of common stock:

4,583,333 shares at $0.06 in exchange for cash of $275,000;

3,291,667 shares at $0.06 for services with a fair value of $197,500 and;

4,666,667 shares at a fair value $0.06 for salary conversion of $280,000.

On April 3, 2014, the Board of Directors approved the following:

The issuance of 2,000,000 shares of common stock be issued to Andrew Robinson as payment for securing a letter of intent (LOI) related to a solar pilot plant;

The termination of three outside party consulting agreements due to satisfactory completion of the contracts;

The engagement of an outside marketing and public relations firm;

The option for the company’s outside counsel to convert fees of about $200,000 owed to them to a convertible note, payable on demand, at a conversion price of $0.06 per share.

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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 October 15, 2013 for the fiscal year ended June 30, 2013. 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 December 31, 2013 have been included.

Business Overview

QMC is a nanotechnology company specializing in the design, development, production and supply of tetrapod quantum dots (“TQDs”), a high performance variant of quantum dots, for a range of applications in the life sciences, optoelectronics, photovoltaics, lighting, security ink and sensor sectors of the market. QMC owns 100% of Solterra Renewable Technologies, Inc. (“Solterra”), an operating subsidiary that is focused on the photovoltaic (solar cell) market.

Quantum dots are tiny nanoparticles of a semiconductor material which emit light, or fluoresce, when excited with energy. The color of light emitted varies depending on the size of the quantum dot so that photonic emissions can be tuned by the creation of quantum dots of different sizes. Their unique properties as highly efficient, next generation semiconductors have led to the use of quantum dots in a range of electronic and other applications, including in the biomedical, display and lighting industries. Quantum dots also have applications in solar cells, where their characteristics enable conversion of light energy into electricity, with the potential for significantly higher efficiencies and lower costs than existing technologies, thereby creating the opportunity for a step change in the solar energy industry through the use of quantum dots in printed photovoltaic cells.

The Company has the exclusive license to a patented chemical process that permits it to produce high performance, heavy metal-free TQDs using a lower cost and environmentally friendly solvent for greater manufacturing flexibility. The Company has developed a proprietary method that it believes will allow it to mass produce consistent quantities of TQDs in a continuous process at lower costs than other existing processes, and has filed a provisional patent application on same. It also has the exclusive license to a patented screen printing technique for manufacture of quantum dot enhanced electronic displays and other electronic components. The Company believes that these three proprietary technologies position the Company to become a leader in the overall quantum dot industry, and a preferred supplier of high performance tetrapod quantum dots to an expanding range of applications.

Critical Accounting Policies

Fair value of financial instruments

The Company's financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable and debt. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates

Long-lived assets

We review our long-lived assets, which include intangible assets subject to amortization, for recoverability whenever events or changes in circumstances indicate that the carrying amount of such long-lived asset or group of long-lived assets (collectively referred to as “the asset”) may not be recoverable. Such circumstances include, but are not limited to:

·a significant decrease in the market price of the asset;

·a significant change in the extent or manner in which the asset is being used;

·a significant change in the business climate that could affect the value of the asset;

·a current period loss combined with projection of continuing loss associated with use of the asset; and

· a current expectation that, more likely than not, the asset will be sold or otherwise disposed of before the end of its previously estimated useful life

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Quantum enters into Securities Purchase Agreement and Transaction Documents to fund the purchase of its first two microractors

Plan of Operation

The Company has to date been a research and development business operating out of temporary facilities. It has now entered the commercialization stage of its business with the launch of the Wet Lab in July, 2013, its first permanent facility. The Wet Lab is located in San Marcos, Texas, approximately 30 miles south of Austin, Texas. This facility is part of the Star Park Technology Center, an extension of Texas State University, the fifth largest university in Texas and one of eight Texas Emerging Research Universities. This arrangement provides the Company with the opportunity to expand its operations within this 30 acre technology park. The Company has a year to year lease agreement and the option to add additional lab and office space on an as-needed basis. This location provides the Company with convenient access to an experienced faculty and specialized laboratory facilities that can support joint research and development efforts with Texas State University, and is in proximity to a number of leading companies in the life sciences, lighting, solar and electronics markets.

The Wet Lab will be the center of operations of the Company and will be used by the Company to produce small sample quantities of TQDs (via batch method) and larger quantities of TQDs (via its proprietary process units, once this equipment is acquired) for supply to research facilities, customers and potential customers, and potential development joint ventures. The facility will be used to support test production runs, to fine tune the characteristics of the quantum dots for optimized performance in the customer's specific application, and for continued R&D activities. The Wet Lab was established through funds raised in a private placement of common shares of the Company completed in early June 2013. The Company obtained $250,000 to finance the build out and initial costs of operation of the Wet Lab.

The primary short term objective of the Company is to establish its first continuous manufacturing process at the Wet Lab and produce volumes of TQDs for supply to customers on a commercial scale. The Company has completed a joint development effort with a non-affiliated third party provider of industrial process equipment which resulted in the design and successful proof of concept testing of a scalable production unit for manufacturing the Company’s proprietary TQDs on a low cost, continuous basis. The Company has negotiated an agreement with the equipment provider for the delivery of a lab scale equipment unit capable of producing 2 grams per hour. This first unit will be used to validate synthesis protocols for customized TQDs developed to meet customer specification and will also be used to produce samples and to fulfill small to medium-size orders. The Company has also negotiated an agreement with the equipment provider for the delivery of a production scale equipment unit capable of producing 2 kilograms per hour. This unit is intended to be used to fulfill additional commercial orders. Subject to the Company obtaining financing for both of these equipment acquisitions, pursuant to a Securities Purchase Agreement described above, the sample size and production size equipment units are expected to be delivered to the Wet Lab during the first and third quarters of 2014, respectively. Each unit will be commissioned and tested upon delivery, with a view towards commencing initial production runs of TQDs within 30-60 days after installation. While the Company plans to work extensively with this provider of equipment units , the Company owns all rights to the designs and intellectual property resulting from the development project, and could contract with one or more other competent suppliers of equipment if that became necessary.

The Company is preparing to enter the next phase of its development – production and supply of commercial scale volumes of TQDs to potential customers and joint ventures in order to develop a platform of initial customers in various industries. In order to finance the development of its business, including the establishment of its continuous process manufacturing facility, purchase of the first two equipment units and the expansion of its marketing and sales capabilities, the Company will be seeking additional investment capital. Provided this capital raise is successful and can be accomplished in the first quarter of 2014, the Company expects to commence generating limited revenues from the production of TQDs at the Wet Lab in the second quarter of 2014. Such revenues are expected to be modest at first and will be dependent upon the Company generating purchase orders from potential customers currently under NDAs and evaluating the Company’s technology. As part of this strategy, the Company has engaged in discussions with numerous target customers and has signed a number of NDAs and Sample Agreements to increase the probability of receiving firm orders from one or more of these entities.

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The Company’s ongoing research and development functions are considered key to maintaining and enhancing its competitive position in the growing quantum dot market. Quantum dot technology continues to evolve, with new discoveries and refinements being made on an ongoing basis. The Company intends to be at the forefront of technological development, and will focus a significant part of its efforts on this, as it has done historically. Continuing R&D activities at the Wet Lab will be an important aspect of the Company’s strategy, as will the Company’s collaboration with Rice, University of Arizona, Texas State University and the numerous research centers and departments with which the Company has relationships.

The key assets of the Company are its licenses and intellectual property rights, its knowhow and the expertise, capabilities and relationships brought to the Company by its management team. The Company will continue to develop its intellectual property portfolio and licensing rights, and currently has two patents pending for continuous process production of quantum dots. The Company will also work closely with Rice and University of Arizona to develop and expand its intellectual property portfolio. As the business progresses, the Company will continually build out its portfolio of owned and licensed intellectual property, and take all appropriate steps to protect these rights.

The Licenses with Rice and University of Arizona include provisions for milestones and milestone payments. To date, these have been waived and extended by both Rice and University of Arizona, respectively, illustrating the support each university has given to the Company as it has attempted to advance its business with limited resources. As the Company moves forward, it expects to be able to meet all payment and other obligations under the Licenses, and the Company’s funding strategy takes account of these requirements.

Liquidity and Capital Resources

At March 31, 2014 the Company had a working capital deficit of approximately $2,280,281 with total current liabilities of approximately $2,481,785. Approximately $1,538,468 of these liabilities is owed to our officers, directors and employees for services rendered and accrued through March 31, 2014. 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, 2014, the Company lacks cash or cash equivalent assets and continues to incur losses in its development stage operations. Over the past five years, the Company relied on sales of its Common Stock to support its operations and on various universities performing work and providing U.S. licensing rights under business agreements in which the Company has at times been in arrears in payments as well as employees and consultants agreeing to defer payment of wages and fees owed to them and/or converting such wages and fees into the securities of the Company. Currently, the Company is seeking additional financing in excess of $3,000,000; 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 $394,916 for the nine months ending March 31, 2014. This is a result of a net loss of $1,950,401 and changes in accounts payable of $40,001 and change in fair value of warrants of $164,665, partially offset by stock issued for services of $708,000, stock issued for debenture interest of $113,711, stock issued for payment of accrued liabilities of $682,843 and net changes in accrued liabilities for related parties of $24,491. Cash flows from investing activities during the nine months ended March 31, 2014 were $185,511 which consisted of deposits on assets of $185,511. Cash flows from financing activities during the nine months ended March 31, 2014 were $609,500 which consisted of proceeds of the sale of common stock of $209,500 and proceeds from the issuance of a convertible debenture of $400,000. In 2010, our board approved granting Mr. Squires the two year right to convert loans made by him of up to $200,000 into a maximum 5% interest in the common stock of Solterra, which option has expired unexercised. As of March 31, 2014, Mr. Squires does not have any unreimbursed cash advances due to him, and has accrued payroll and expenses totaling $175,839 owed to him and accrued payroll of $93,421 owed to his wife in her role as a bookkeeper for the Company.

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, 2014, the Company had not yet achieved profitable operations, has accumulated losses of $18,323,206 since its inception, at March 31, 2014, has a working capital deficit of $2,280,281 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 (estimated at $3,000,000) during fiscal 2014 to maintain and expand 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.”

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Off-balance sheet arrangements

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

Officers and employees convert accrued salaries and bonus into warrants

In November 2010, Steven Squires ($125,000), Brian Lukian ($234,375), David Doderer ($62,500), Robert Glass ($37,500), Ghassan Jabbour ($243,750), Andrew Robinson ($50,000) and Toshinori 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 Toshinori 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), Toshinori Ando ($125,000), Robin Squires ($122,577), and Ghassan Jabbour ($150,000) converted the amount of monies set forth beside their names into 1,075,275 common shares, 2,730,744 common shares, 3,375,000 common shares, 3,309,570 common shares and 4,050,000 common shares, respectively,

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

In February 2014, Stephen Squires ($95,000), David Doderer ($25,000), Chris Benjamin ($90,000), Ghassan Jabbour ($120,000), Andrew Robinson ($50,000), Toshinori Ando ($99,870), and Art Lamstein ($66,405)converted the amount of monies set forth beside their names into five-year warrants to purchase 17,071,082 shares exercisable at $.06 per share through the expiration date of February 10, 2019.

Results of operations – Three Months Ended March 31, 2014 and 2013

General and administrative expenses

During the three months ended March 31, 2014 the Company incurred $391,554 of general and administrative expenses a decrease of $987,549 from the $1,379,103 recorded for the three months ended March 31, 2013. The increase in general and administrative expenses was primarily due to a decrease in executive compensation, primarily stock based compensation, in the amount of $882,255.

Included in the expenses for the current three months ended March 31, 2014 were remuneration of staff $216,910, legal and audit of $23,352, travel expense of $10,347, corporate expense of $18,093, and other professional fees of $94,216. This compares to the three months ended March 31, 2013 which included 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..

Research and development expenses.

Research and development expenses of $13,038 were incurred in the three months ended March 31, 2014, compared to $12,804 in the three months ended March 31, 2013. The increase is the result of a decrease in patent expense of $12,804, offset by an increase in Q Dot manufacturing expense of $1,787 and an increase in licensing fees of $11,251.

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.

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In March 2014 the Company issued 641,026 shares of common stock to pay accrued interest of $37,500 for the three month period ended March 1, 2014.

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, 2014 the Company issued 641,026 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 increase in interest expense was recorded of $7,500 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, 2014 and 2013 was an increase of $169,709 and an decrease of $185,000, respectively, increasing the fair value of embedded conversion feature liability from $452,626 as of December 31, 2013 to $622,335 as of March 31, 2014.

Results of operations – Nine Months Ended March 31, 2014 and 2013

General and administrative expenses

During the nine months ended March 31, 2014 the Company incurred $1,615,872 of general and administrative expenses an decrease of $724,420 from the $2,340,292 recorded for the nine months ended March 31, 2013. The decrease in general and administrative expenses was primarily due to a decrease in executive compensation, primarily stock based compensation, in the amount of $974,933.

Included in the expenses for the current nine months ended March 31, 2014 were remuneration of staff $737,610, legal and audit of $67,019, travel expense of $31,311, corporate expense of $56,985, and other professional fees of $638,244. This compares to the nine months ended March 31, 2013 which included 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.

Research and development expenses.

Research and development expenses of $17,864 were incurred in the nine months ended March 31, 2014, compared to $18,804 in the nine months ended March 31, 2013. The decrease is the result of a decrease in patent expense of $14,804 and a decrease in royalties of $110, offset by an increase in Q Dot manufacturing of $2,721 and an increase in licensing fees of $11,251.

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 September 2013 the Company issued 766,668 shares of common stock to pay accrued interest of $38,334 for the three month period ended September 1, 2013.

In December 2013 the Company issued 777,778 shares of common stock to pay accrued interest of $37,878 for the three month period ending December 1, 2013.

In March 2014 the Company issued 641,026 shares of common stock to pay accrued interest of $37,500 for the three month period ending March 1, 2014.

Interest expense recorded for the nine months ended March 31, 2014 was $113,711 compared to $113,373 in the nine month period ended March 31, 2013.

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, 2014 the Company issued 2,185,472 shares of the Company’s restricted Common Stock to pay $91,000 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 increase in interest expense was recorded of $22,696 for the period.

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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, 2014 and 2013 was a decrease of $164,665 and a decrease of $85,000, respectively, decreasing the fair value of embedded conversion feature liability from $787,000 as of June 30, 2013 to $622,335 as of March 31, 2014.

Cash Flow

During the nine months ended March 31, 2014, cash was used in operations of $5,084. During this period the Company received proceeds from financing activities of $209,500 and had cash expenditures from investing activities of $185,511. These changes resulted in an increase of $29,073 in the cash position for nine months ended March 31, 2014. The opening cash at June 30, 2013 was $172,431 and the closing balance at March 31, 2014 was $201,504.

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, 2014. Management basis its determination upon the company’s inability for timely 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.

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, 2013, management concluded that our internal control over financial reporting was effective as of June 30, 2013.

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, 2013, 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 remediate 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 remediation measures we are taking, if effectively implemented and maintained, will remediate 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.

Index

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.

In March 2014, a settlement agreement was reached between the British Columbia Securities Commission, Quantum Materials and CEO Stephen Squires, absolving the company of the cease trade order placed on the company in November 2009.

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, 2013 to March 31, 2014, 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 2013	Common Stock	4,000,000	Shares issued for services; no commissions paid	Section 4(2); and/or Rule 506	Not applicable.

August 2013	Common Stock	200,000	$10,000 cash received; no commissions paid	Section 4(2); and/or Rule 506	Not applicable.

August 2013	Common Stock	2,612,500	$104,500 cash received; no commissions paid	Section 4(2); and/or Rule 506	Not applicable.

August 2013	Common Stock	1,700,000	Shares issued for services; no commissions paid	Section 4(2); and/or Rule 506	Not applicable.

August 2013	Common Stock Warrant	312,500	Warrants issued in addition to shares issued for cash of $12,500; no commissions paid	Section 4(2); and/or Rule 506	$0.055 exercise price, expires August 14, 2015

August 2013	Common Stock Warrant	250,000	Warrants issued in addition to shares issued for cash of $15,000; no commissions paid	Section 4(2); and/or Rule 506	$0.06 exercise price, expires August 30, 2015

August 2013	Common Stock Warrant	1,250,000	Warrants issued in addition to shares issued for cash of $50,000; no commissions paid	Section 4(2); and/or Rule 506	$0.055 exercise price, expires August 2, 2014

September 2013	Common Stock	500,000	$30,000 cash received; no commissions paid	Section 4(2); and/or Rule 506	Not applicable.

September 2013	Common Stock	312,500	$25,000 cash received; no commissions paid	Section 4(2); and/or Rule 506	Not applicable.

Index


September 2013	Common Stock	187,500	$7,500 cash received; no commissions paid	Section 4(2); and/or Rule 506	Not applicable.

September 2013	Common Stock	300,000	$15,000 cash received; no commissions paid	Section 4(2); and/or Rule 506	Not applicable.

September 2013	Common Stock	766,668	Shares issued in exchange for $30,667 of interest through September 1, 2013	Section 4(2); and/or Rule 506	Not applicable.

September 2013	Common Stock Warrant	687,500	Warrants issued in addition to shares issued for cash of $27,500; no commissions paid	Section 4(2); and/or Rule 506	$0.062 exercise price, expires August 8, 2014

October 2013	Common Stock	1,950,000	Shares issued for services; no commissions paid	Section 4(2); and/or Rule 506	Not applicable.

December 2013	Common Stock	777,778	Shares issued in exchange for $30,333 of interest through December 1, 2013	Section 4(2); and/or Rule 506	Not applicable.

January 2014	Common Stock	83,333	$5,000 cash received; no commissions paid	Section 4(2); and/or Rule 506	Not applicable.

January 2014	Common Stock Warrant	17,071,081	Warrants issued in exchange for accrued salaries of $546,275; no commissions paid	Section 4(2); and/or Rule 506	$0.06 exercise price, expires February 10, 2019

February 2014	Common Stock	1,250,000	Shares issued $25,000; no commissions paid	Section 4(2); and/or Rule 506	Not applicable.

February 2014	Common Stock Warrant	5,000,000	Warrants issued related to the closing of $400,000 debenture; no commissions paid	Section 4(2); and/or Rule 506	$0.06 exercise price, expires December 31, 2016

March 2014	Common Stock	641,026	Shares issued in exchange for $30,000 of interest through March 1, 2014	Section 4(2); and/or Rule 506	Not applicable.

March 2014	Common Stock	2,500,000	Shares issued for services; no commissions paid	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, 2014, there were no repurchases by the Company of its Common Stock.

Index

Item 3. Defaults Upon Senior Securities. None

Item 4. Mining Safety Disclosures – 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 Quantum Materials 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 Form 8-K filed June 9, 2009)

4.12	Amended Standstill Agreement dated June 1, 2009. (Incorporated by reference to Form 10-K filed for the year ended June 30, 2009.)

4.13	Extension of Standstill Agreement dated October 29, 2009. (Incorporated by reference to Form 10-K filed for the year ended June 30, 2009.)

Index

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

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

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

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

10.5	Consulting Agreement between Steven Posner, Oceanus Capital and The issuer. (Incorporated by reference to Form 10-K filed for the year ended June 30, 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	Letter dated December 16, 2010 from Rice University amending the License Agreement contained in Exhibit 10.1 (Incorporated by reference to the Registrant’s Form 10-K for its fiscal year ended June 30, 2010.)

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

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

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

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

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

10.14	Employment Agreement – David Doderer (Incorporated by reference to Form 8-K filed January 23, 2013)

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

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

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.

Index

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 15, 2014	By:	/s/ Stephen Squires
		Stephen Squires,
		Principal Executive Officer


May 15, 2014	By:	/s/ Chris Benjamin
		Chris Benjamin,
		Principal Financial Officer

QUANTUM MATERIALS CORP. - FORM 10-Q - May 15, 2014

Attached files

QUANTUM MATERIALS CORP. Reports