NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
Nature
of Operations
Quantum
Materials Corp., a Nevada corporation, and its wholly owned subsidiary, Solterra Renewable Technologies, Inc. (collectively referred
to as the “Company”) are headquartered in San Marcos, Texas. The Company is a nanotechnology company specializing
in the design, development, production and supply of quantum dots, including tetrapod quantum dots, a high-performance variant
of quantum dots, and highly uniform nanoparticles, using its patented automated continuous flow production process. Quantum dots
and other nanoparticles are expected to be increasingly utilized in a range of applications in the life sciences, television and
display, solid state lighting, solar energy, battery, security ink, and sensor sectors of the market. Key uncertainties and risks
to the Company include, but are not limited to, if and how quickly various industries adopt and fully embrace quantum dot technology
and technological changes, including those developed by the Company’s competitors, rendering the Company’s technology
uncompetitive or obsolete.
Going
Concern
The
Company recorded losses from continuing operations in the current period presented and has a history of losses. As of March 31,
2019, the Company had a working capital deficit of $5,884,630 and net cash used in operating activities was $721,133 for
the nine months ended March 31, 2019. The ability of the Company to continue as a going concern is dependent upon its ability
to reverse negative operating trends, obtain revenues from operations, raise additional capital, and/or obtain debt financing.
In
conjunction with anticipated revenue streams, and cash flows from licensing and development agreements, management is currently
negotiating equity and debt financing, the proceeds from which would be used to settle outstanding debts, to finance operations,
and for general corporate purposes. However, there can be no assurance that the Company will be able to raise capital, obtain
debt financing, or improve operating results sufficiently to continue as a going concern.
The
accompanying unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification
of recorded assets, or the amounts and classification of liabilities that might be necessary if the Company is unable to continue
as a going concern.
Basis
of Presentation:
The consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States and include the accounts of the Company and its subsidiaries. All significant inter-company transactions
and account balances have been eliminated upon consolidation.
Use
of Estimates:
The preparation of consolidated financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect the amounts reported of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Financial
Instruments:
Financial instruments consist of cash and cash equivalents, restricted cash, payables, and convertible debentures.
The carrying value of these financial instruments approximates fair value due to either their short-term nature or interest rates
that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.
Property
and Equipment:
Property and equipment are stated at cost. Depreciation is computed on the straight-line basis over the estimated
useful lives of the various classes of assets as follows:
|
Furniture and fixtures
|
|
|
7
years
|
|
|
Computers and software
|
|
|
3
years
|
|
|
Machinery and equipment
|
|
|
3
- 10 years
|
|
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Licenses
and Patents:
Licenses and patents are stated at cost. Amortization is computed on the straight-line basis over the estimated
useful life of five years.
Earnings
per Share:
The Company accounts for earnings per share in accordance with ASC 260
“Earnings Per Share”
.
Basic earnings per share amounts are calculated by dividing net income (loss) by the weighted average number of common shares
outstanding during each period. Diluted earnings per share is calculated by dividing net income (loss) by the weighted average
number of common shares outstanding for the periods, including the dilutive effect of stock options and warrants granted. Dilutive
stock options and warrants that are issued during a period or that expire or are canceled during a period are reflected in the
computations for the time they were outstanding during the periods being reported.
Beneficial
Conversion:
Debt and equity instruments that contain a beneficial conversion feature are recorded as a deemed dividend to
the holders of the convertible notes. The deemed dividend associated with the beneficial conversion is calculated as the difference
between the fair value of the underlying common stock less the proceeds that have been received for the equity instrument limited
to the value received. The beneficial conversion amount is recorded as beneficial conversion expense and an increase to additional
paid-in-capital.
Derivative
Instruments:
The Company enters into financing arrangements which may consist of freestanding derivative instruments or hybrid
instruments that contain embedded derivative features. The Company accounts for these arrangements in accordance with ASC 815,
“
Accounting for Derivative Instruments and Hedging Activities”,
as well as related interpretation of this standard.
In accordance with this standard, derivative instruments are recognized as either assets or liabilities in the consolidated balance
sheets and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly
and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized
as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based
on available market data using appropriate valuation models, considering all of the rights and obligations of each instrument.
The
Company estimates fair values of derivative financial instruments using various techniques (and combinations thereof) that are
considered consistent with the objective measuring fair values. In selecting the appropriate technique, the Company considers,
among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For
less complex derivative instruments, such as freestanding warrants, the Company generally uses the Black-Scholes model, adjusted
for the effect of dilution, because it embodies all the requisite assumptions (including trading volatility, estimated terms,
dilution and risk-free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments
requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the
instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes
model) are highly volatile and sensitive to changes in the trading market price of the Company’s common stock. Since derivative
financial instruments are initially and subsequently carried at fair values, income (expense) going forward will reflect the volatility
in these estimates and assumption changes. Increases in the trading price of the Company’s common stock and increases in
fair value during a given financial quarter result in the application of non-cash derivative expense. Conversely, decreases in
the trading price of the Company’s common stock and decreases in trading fair value during a given financial quarter result
in the application of non-cash derivative income.
Fair
value measurements:
The Company estimates fair value at a price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants in the principal market for the asset or liability. The valuation
techniques require inputs that are categorized using a three-level hierarchy, from highest to lowest level of observable inputs,
as follows: (1) significant observable inputs, including unadjusted quoted prices for identical assets or liabilities in active
markets (“Level 1”), (2) significant other observable inputs, including direct or indirect market data for similar
assets or liabilities in active markets or identical assets or liabilities in less active markets (“Level 2”) and
(3) significant unobservable inputs, including those that require considerable judgment for which there is little or no market
data (“Level 3”). When multiple input levels are required for a valuation, the Company categorizes the entire fair
value measurement according to the lowest level of input that is significant to the measurement even though other significant
inputs that are more readily observable may have also utilized.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recent
Accounting Pronouncements
In
July 2017, the FASB issued ASU 2017-11—Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480),
and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 eliminates the requirement that a down round feature precludes
equity classification when assessing whether an instrument is indexed to an entity’s own stock. A freestanding equity-linked
financial instrument no longer would be accounted for as a derivative liability at fair value as a result of the existence of
a down round feature. The Company elected to adopt ASU 2017-11 early, effective July 1, 2017, and implemented the pronouncement
retrospectively with a cumulative effect adjustment to outstanding financial instruments. The adoption of this guidance did not
have an impact on its financial statements. In the fiscal year 2018, the Company had three triggering events related to a down
round feature which resulted in recording a charge for beneficial conversion expense of $1,021,500 during the year ended June
30, 2018.
In
March 2016, the FASB issued ASU guidance related to stock-based compensation. The new guidance simplifies the accounting for stock-based
compensation transactions, including income tax consequences, statement of cash flows presentation, estimating forfeitures when
calculating compensation expense, and classification of awards as either equity or liabilities.
The
new standard requires all excess tax benefits and tax deficiencies to be recognized as income tax benefit (expense) in the income
statement. The new guidance also requires presentation of excess tax benefits as an operating activity on the statement of cash
flows rather than a financing activity and requires presentation of cash paid to a tax authority when shares are withheld to satisfy
the employer’s statutory income tax withholding obligation as a financing activity. The new guidance also provides for an
election to account for forfeitures of stock-based compensation.
The
Company adopted the guidance effective July 1, 2017. With respect to the forfeiture election, the Company will continue its current
practice of estimating forfeitures when calculating compensation expense. The adoption of this standard did not have a material
impact on the Company’s consolidated financial statements or related disclosures.
In
March 2016, the FASB issued ASU 2016-09,
Compensation – Stock Compensation: Improvements to Employee Share-Based Payment
Accounting.
This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including
the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement
of cash flows. The Company adopted the guidance effective July 1, 2017. The adoption of this standard did not have a material
impact on the Company’s consolidated financial statements or related disclosures.
In
March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118. The amendment provides guidance on accounting for the impact of the Tax Cuts and Jobs Act (the “Tax Act”)
and allows entities to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date.
This standard is effective upon issuance. The Tax Act has several significant changes that impact all taxpayers, including a transition
tax, which is a one-time tax charge on accumulated, undistributed foreign earnings. The Company adopted the guidance effective
July 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements
or related disclosures.
In
May 2017, the FASB issued ASU 2017-09,
Compensation – Stock Compensation (Topic 718) – Scope of Modification Accounting.
The amendments included in this update provide guidance about which changes to the terms or conditions of a share-based payment
award require an entity to apply modification accounting. The amendments in this update will be applied prospectively to an award
modified on or after the adoption date. The Company adopted the guidance effective July 1, 2018. The adoption of this standard
did not have a material impact on the Company’s consolidated financial statements or related disclosures.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Effective
July 1, 2018, the Company adopted the Financial Accounting Standards Board’s (“FASB”) provisions of ASC 606,
Revenue from Contracts with Customers
(ASC 606), using the prospective method for all contracts not completed as of the
date of adoption. The Company had no contracts not completed as of the date of adoption, nor had contracts that were modified
before the effective date.
Pronouncements
Yet To Be Adopted
In
February 2016, the FASB issued ASU 2016-02,
Leases,
which updates guidance on accounting for leases. The update requires
that a lessee recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing
its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to
make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Similar to
current guidance, the update continues to differentiate between finance leases and operating leases; however, this distinction
now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments
in the statement of cash flows. The standards update is effective for interim and annual periods after December 15, 2018. The
Company will adopt this pronouncement on July 1, 2019. Entities are required to use a modified retrospective adoption, with
certain relief provisions, for leases that exist or are entered into after the beginning of the earliest comparative period in
the financial statements when adopted. The Company is in the process of evaluating the impact, if any, of the adoption of this
guidance on its consolidated financial statements. The Company does not have any long-term leases as of March 31, 2019.
NOTE
2 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
|
|
|
March
31, 2019
|
|
|
June
30, 2018
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
3,502
|
|
|
$
|
3,502
|
|
|
Computers and software
|
|
|
11,447
|
|
|
|
11,447
|
|
|
Machinery and
equipment
|
|
|
956,655
|
|
|
|
956,655
|
|
|
|
|
|
971,604
|
|
|
|
971,604
|
|
|
Less: accumulated
depreciation
|
|
|
421,094
|
|
|
|
346,080
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property
and equipment, net
|
|
$
|
550,510
|
|
|
$
|
625,524
|
|
Depreciation
expense for the nine months ended March 31, 2019 and 2018 was $75,014 and $74,591, respectively.
NOTE
3 – LICENSES AND PATENTS
Licenses
and patents consisted of the following:
|
|
|
March
31, 2019
|
|
|
June
30, 2018
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Marsh Rice University
|
|
$
|
40,000
|
|
|
$
|
40,000
|
|
|
University of Arizona
|
|
|
15,000
|
|
|
|
15,000
|
|
|
Bayer acquired
patents
|
|
|
137,743
|
|
|
|
137,743
|
|
|
|
|
|
192,743
|
|
|
|
192,743
|
|
|
Less: accumulated
amortization
|
|
|
167,538
|
|
|
|
146,852
|
|
|
|
|
|
|
|
|
|
|
|
|
Total licenses
and patents, net
|
|
$
|
25,205
|
|
|
$
|
45,891
|
|
Amortization
expense for the nine months ended March 31, 2019 and 2018 $20,686 and $26,137, respectively.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The
Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2011-04
“Fair Value Measurement”
as it relates to financial assets and financial liabilities, which defines fair value,
establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. The provisions
of this standard apply to other accounting pronouncements that require or permit fair value measurements.
This
guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Hierarchical levels, as defined in this guidance and directly
related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities are as follows:
Level
1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets
or liabilities.
Level
2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability
(e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation
or other means.
Level
3 – Valuations based on unobservable inputs reflecting management’s assumptions, consistent with reasonably available
assumptions made by other market participants. These valuations require significant judgment.
As
of March 31, 2019, and June 30, 2018, the fair value of the Company’s financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximates book value due to the short maturity
of these instruments. Based upon borrowing rates currently available to the Company for loans with similar terms, the carrying
value of its debt obligations approximates fair value. As of March 31, 2019, and June 30, 2018, the Company held
no investments. The Company hired an independent resource to value its derivative liability as follows (unaudited):
|
|
|
Balance
at
March 31, 2019
|
|
|
Quoted Prices in Active
Markets for Identical
Liabilities (Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liability
|
|
$
|
5,060
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,060
|
|
|
Note Payable
|
|
|
20,000
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
-
|
|
|
Convertible debentures
|
|
|
3,194,732
|
|
|
|
-
|
|
|
|
3,194,732
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,219,792
|
|
|
$
|
-
|
|
|
$
|
3,214,732
|
|
|
$
|
5,060
|
|
Level
Three Roll-forward
|
|
|
Derivative
Liability
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Fair value of derivative
liability reclassified from equity
|
|
|
98,645
|
|
|
|
98,645
|
|
|
Settlement of derivative liabilities
|
|
|
(201,672
|
)
|
|
|
(201,672
|
)
|
|
Change in fair
value
|
|
|
108,087
|
|
|
|
108,087
|
|
|
Balance March 31, 2019
|
|
$
|
5,060
|
|
|
$
|
5,060
|
|
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5 – CONVERTIBLE DEBENTURES
The
following table sets forth activity associated with the convertible debentures:
|
|
|
March 31,
|
|
|
June 30,
|
|
|
Debenture
|
|
|
|
2019
|
|
|
2018
|
|
|
Reference
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Convertible debentures
issued in September 2014
|
|
$
|
25,050
|
|
|
$
|
25,050
|
|
|
A
|
|
Convertible debentures issued in
January 2015
|
|
|
-
|
|
|
|
500,000
|
|
|
B
|
|
Convertible debentures issued in
April - June 2016
|
|
|
1,075,000
|
|
|
|
1,075,000
|
|
|
C
|
|
Convertible debenture issued in August
2016
|
|
|
200,000
|
|
|
|
200,000
|
|
|
C
|
|
Convertible debentures issued in
January - March 2017
|
|
|
60,000
|
|
|
|
60,000
|
|
|
D
|
|
Convertible promissory notes issued
in March 2017
|
|
|
222,350
|
|
|
|
222,350
|
|
|
G
|
|
Convertible debenture issued in June
2017
|
|
|
100,000
|
|
|
|
100,000
|
|
|
I
|
|
Convertible debenture issued in July
2017
|
|
|
100,000
|
|
|
|
100,000
|
|
|
J
|
|
Convertible debenture issued in September
2017
|
|
|
645,000
|
|
|
|
645,000
|
|
|
K
|
|
Convertible debenture issued in November
2017
|
|
|
247,500
|
|
|
|
247,500
|
|
|
K
|
|
Convertible debenture issued in November
2017
|
|
|
27,000
|
|
|
|
27,000
|
|
|
L
|
|
Convertible debenture issued in December
2017
|
|
|
75,000
|
|
|
|
75,000
|
|
|
N
|
|
Convertible debenture issued in February
2018
|
|
|
45,000
|
|
|
|
45,000
|
|
|
O
|
|
Convertible debentures issued in
March 2018
|
|
|
65,000
|
|
|
|
65,000
|
|
|
P
|
|
Convertible debentures issued in
April 2018
|
|
|
60,000
|
|
|
|
60,000
|
|
|
Q
|
|
Convertible debentures issued in
April 2018
|
|
|
70,000
|
|
|
|
70,000
|
|
|
R
|
|
Convertible debentures issued in
April 2018
|
|
|
20,000
|
|
|
|
20,000
|
|
|
S
|
|
Convertible debentures issued in
June 2018
|
|
|
40,000
|
|
|
|
40,000
|
|
|
T
|
|
Convertible debentures issued in
July 2018
|
|
|
45,000
|
|
|
|
-
|
|
|
U
|
|
Convertible debentures issued in
August 2018
|
|
|
30,000
|
|
|
|
-
|
|
|
V
|
|
Convertible debentures issued in
September 2018
|
|
|
25,000
|
|
|
|
-
|
|
|
W
|
|
Convertible
debentures issued in December 2018
|
|
|
52,000
|
|
|
|
-
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,228,900
|
|
|
|
3,576,900
|
|
|
|
|
Less: unamortized
discount
|
|
|
34,168
|
|
|
|
134,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,194,732
|
|
|
|
3,442,645
|
|
|
|
|
Less: current
portion
|
|
|
3,060,219
|
|
|
|
3,402,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible
debentures, net of current portion
|
|
$
|
134,513
|
|
|
$
|
40,224
|
|
|
|
A)
September 2014 Convertible Debenture
Between
September 16, 2014 and October 28, 2014, the Company entered into Convertible Debenture Agreements to obtain a total of $500,050
in gross proceeds from five non-affiliated parties (collectively hereinafter referred to as the “Debenture Holders”).
The Debentures have terms of five years maturing between September 16, 2019 and October 30, 2019. The Debentures bear interest
at the rate of 6% per annum and are pre-payable by the Company at any time without penalty. The Debenture Holders have the right
of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.15 per share at any date and
will receive an equal number of warrants having a strike price of $0.30 per share and a term of five years. None of the Debentures
were converted into common shares during the nine months ended March 31, 2019.
Interest
expense for the nine months ended March 31, 2019 and 2018 was $1,144 and $1,144, respectively
As
of March 31, 2019, and June 30, 2018, $25,050 of principal was outstanding.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
B)
January 2015 Convertible Debenture
On
January 15, 2015, the Company entered into Convertible Debenture Agreements to obtain $500,000 in gross proceeds from two non-affiliated
parties (collectively hereinafter referred to as the “Debenture Holders”). The Debentures have a term of two years
maturing on January 15, 2017 and bear interest at the rate of 8% per annum. The debentures are pre-payable by the Company at any
time without penalty. The Debenture Holders have the right of conversion into unregistered and restricted shares of Common Stock
at a conversion price of $0.06 per share at any date. The Debenture Holders received 6,250,000 common stock warrants exercisable
at $0.06 per share through January 15, 2017. The debt is secured by a security interest in certain microreactor equipment. The
Agreement also provides for the investors to have the right to appoint one member to the Company’s Board of Directors in
the event any one of the aforementioned debentures are converted into common stock of the Company. On October 10, 2016, the maturity
date of the debentures was extended to January 15, 2018 and the 6,250,000 warrants were converted into common stock for total
proceeds of $375,000. On January 12, 2018 the debentures were extended for ten days to January 25, 2018. On January 24, 2018,
the debentures were extended to December 15, 2018. As compensation for extending the debentures, the Debenture Holders received
3,500,000 shares of Common Stock, which were valued at $0.06 per share, a total of $210,000 recorded as debt extension expense.
On January 14, 2019, partial payment was made of $150,000, and the debentures were extended to March 15, 2019.
On
March 22, 2019, the remainder of the outstanding balance was converted to shares of common stock. 11,147,726 shares of common
stock were issued, for the outstanding balance of $165,877, plus accrued interest of $29,205.
In
accounting for the convertible debentures, the Company allocated the fair value of the warrants to the proceeds received in the
amount of $348,105, recorded as debt discount and is amortized using the effective interest rate method over the life of the loan,
two years. Interest expense for the nine months ended March 31, 2019 and 2018 was $49,370 and $30,027, respectively.
As
of March 31, 2019, and June 30, 2018, $0 and $500,000 of principal was outstanding, respectively.
C)
April – June, August, October and November 2016 Convertible Debentures
During
the fourth quarter of the year ended June 30, 2017, the Company sold 1,565 Units for total proceeds of $1,565,000 from three affiliated
and fourteen non-affiliated parties. In August 2016 the Company sold 200 additional Units for total proceeds of $200,000 and sold
$50,000 in proceeds in October 2016. Each Unit consists of a $1,000 Unsecured Convertible Promissory Note (each, a “Note”)
and a warrant to purchase 4,166 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”)
at a purchase price of $0.15 per share (each, a “Warrant”) over a period of five years. The Notes which were issued
at face value have a maturity of two years from the date of issuance, bear interest at the rate of 8% per annum and are convertible
into unregistered and restricted shares of Common Stock at $0.12 per-share, subject to normal and customary adjustments including
(a) any subdivisions, combinations and classifications of the Common Stock; or (b) any payment, issuance or distribution by the
Company to its stockholders of (i) a stock dividend, (ii) debt securities of the Company, or (iii) assets (other than cash dividends
payable out of earnings or surplus in the ordinary course of business). The conversion price also is subject to a full ratchet
adjustment upon the Company’s issuance of Common Stock, warrants, or rights to purchase Common Stock or securities convertible
into Common Stock for a consideration per share which is less than the then applicable conversion price of the Notes excluding
Common Stock and options issued to officers, directors, and employees of the Company, except for the exercise or conversion of
existing convertible securities of the Company. The conversion price was reset to $0.012 per share in June 2018 as a result of
a triggering event.
In
accounting for the convertible debentures, the Company allocated the fair value of the warrants to the proceeds received in the
amount of $609,595, recorded as debt discount and is amortized using the effective interest rate method over the life of the loan,
two years. The Company recognized accretion of debt discount expense for the nine months ended March 31, 2019, and 2018, of $2,564
and $220,602, respectively.
The
Company recognized a beneficial conversion expense for the nine months ended March 31, 2019, and 2018, of $0 and $1,012,042, respectively.
Interest
expense for the nine months ended March 31, 2019, and 2018, of $77,633 and $87,787, respectively.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During
the years ended June 30, 2018 and 2017, $455,000 and $285,000 of principal was converted into 3,791,666 and 2,375,000
shares of common stock, respectively. As of March 31, 2019, and June 30, 2018, $1,275,000 of principal was outstanding.
As of the date of this report, maturities totaling $825,000 of principal have been extended until July and August
of 2019, and the remaining $450,000 have not been extended and are past due as of the date of this report.
D)
January-March 2017 Convertible Debentures
During
the third quarter of the year ended June 30, 2017, the Company sold 2,600 Units for total proceeds of $260,000 from five non-affiliated
parties. Each Unit consists of a $1,000 Unsecured Convertible Promissory Note (each, a “Note”) and a warrant to purchase
4,166 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at a purchase price
of $0.15 per share (each, a “Warrant”) over a period of five years. The Notes which were issued at face value have
a maturity of two years from the date of issuance, bear interest at the rate of 8% per annum and are convertible into unregistered
and restricted shares of Common Stock at $0.12 per-share, subject to normal and customary adjustments including (a) any subdivisions,
combinations and classifications of the Common Stock; or (b) any payment, issuance or distribution by the Company to its stockholders
of (i) a stock dividend, (ii) debt securities of the Company, or (iii) assets (other than cash dividends payable out of earnings
or surplus in the ordinary course of business). The conversion price also is subject to a full ratchet adjustment upon the Company’s
issuance of Common Stock, warrants, or rights to purchase Common Stock or securities convertible into Common Stock for a consideration
per share which is less than the then applicable conversion price of the Notes excluding Common Stock and options issued to officers,
directors, and employees of the Company, except for the exercise or conversion of existing convertible securities of the Company.
In evaluating the accounting treatment of this anti-dilution feature, the Company believes that is has control over whether the
anti-dilution feature will be exercised. The Company is able to decide on which type of financing is raised, and thus the Company
can prevent the issuance of shares at a price below the anti-dilution strike price. The number of Warrants and exercise price
is proportionately adjustable for events including subdivisions, combinations or consolidations, reclassifications, exchanges,
mergers, and reorganizations.
In
accounting for the convertible debentures, the Company allocated the fair value of the warrants to the proceeds received in the
amount of $73,250, recorded as debt discount and is amortized using the effective interest rate method over the life of the loans,
two years. The Company recognized accretion of debt discount expense for the nine months ended March 31, 2019 and 2018 of $3,125
and $52,954, respectively.
During
the year ended June 30, 2018, debentures for an aggregate principal amount of $200,000 were converted into 1,666,667 shares of
common stock.
Interest
expense for the nine months ended March 31, 2019 and 2018 of $3,603 and $10,078, respectively.
As
of March 31, 2019, and June 30, 2018, $60,000 of principal was outstanding.
G)
March 2017 Convertible Promissory Notes
In
March 2017, the Company entered into Convertible Promissory Notes with SBI Investment LLC, 2014-1 (“SBI”) and L2 Capital,
LLC (“L2 Capital”) to obtain $285,000 in gross proceeds. In connection with the first funding tranche, SBI and L2
received 253,525 and 760,576 common stock warrants, respectively, exercisable at $0.13 per share through March 28, 2022. At each
subsequent funding to the first tranche, the Company will issue to each of SBI and L2 Capital warrants to purchase 50% of the
total amount of each tranche funded plus the applicable original issue discount, divided by the lesser of (i) the closing bid
of the common stock on March 29, 2017 and (ii) the closing bid price of the common stock on the funding date of each respective
tranche. The promissory notes have a term of six months from the issuance date and bear interest at the rate of 6% per annum.
The promissory notes are not pre-payable by the Company without penalty. The promissory notes are convertible into unregistered
and restricted shares of Common Stock only if there is an Event of Default as defined in the notes.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
March 2017, the Company entered into an equity purchase agreement (“Eloc”) with SBI and L2 Capital, allowing them
to purchase up to $5,000,000 of the Company’s common stock. As consideration for SBI and L2 Capital, the Company agreed
to pay SBI and L2 Capital commitment fees of $63,000 and $147,000, respectively. These commitment fees were issued in the form
of promissory notes, which bear interest at 8% per annum and mature nine months from the date of issuance. The promissory notes
are convertible into unregistered and restricted shares of Common Stock only if there is an Event of Default as defined in the
notes.
In
accounting for the convertible promissory note, the Company allocated the fair value of the warrants to the proceeds received
in the amount of $86,673, recorded as debt discount and is amortized using the effective interest rate method over the life of
the loan, eight months. The Company also recorded original issue discount (“OID”) of $31,850 as debt discount and
is amortized using the effective interest rate method over the life of the loan, eight months.
The
Company recognized accretion of debt discount expense for the nine months ended March 31, 2019 and 2018 of $0 and $43,661, respectively.
Interest
expense for the nine months ended March 31, 2019 and 2018 of $0 and $116,015, respectively.
As
of March 31, 2018, the Company no longer had a derivative liability related to these notes, and recognized interest expense of
$418,786, and a change in derivative liability benefit of $373,004 during the nine months then ended. As of March 31, 2019, the
Company had no derivative liability, and did not recognize a change in derivative liability benefit for the nine months then ended.
As
of March 31, 2019, and June 30, 2018, $222,350 of principal was outstanding. During the year ended June 30, 2018, the Company
paid $319,500 of principal.
I)
June 2017 Convertible Debenture
In
June 2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $100,000 in gross
proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a
convertible promissory note in the principal amount of $100,000. The Note Holder received 250,000 common stock warrants exercisable
at $0.12 per share through June 15, 2020. The promissory note has a term of six months maturing on December 16, 2017 and stipulates
a one-time interest charge of eight percent (8%) shall be applied on the issuance date to the principal. The promissory note is
pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted
shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration
rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion
of the note.
In
accounting for the convertible promissory note, the Company allocated the fair value of the warrants to the proceeds received
in the amount of $54,340, recorded as debt discount and is amortized using the effective interest rate method over the life of
the loan, six months. Interest expense was recorded for the nine months ended March 31, 2019 and 2018 of $0. Beneficial conversion
expense was recorded for the nine months ended March 31, 2019 and 2018 of $0. The Company recognized accretion of debt discount
expense for the nine months ended March 31, 2019 and 2018 of $0 and $45,434, respectively. As of March 31, 2019, and June 30,
2018, $100,000 of principal was outstanding. In May 2018 the maturity date was extended to February 1, 2019. This debenture
was past due as of the date of this report.
J)
July 2017 Convertible Debenture
In
July 2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $100,000 in gross
proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a
convertible promissory note in the principal amount of $100,000. The Note Holder received 1,000,000 shares of common stock and
250,000 common stock warrants exercisable at $0.12 per share through September 11, 2000. The promissory note originally had a
term of six months maturing on December 16, 2017 and stipulates an interest charge of eight percent (8%) shall be applied to the
principal. The maturity date of the Note was extended to May 24, 2018 in an extension agreement dated April 6, 2018. The promissory
note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered
and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback
registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable
upon conversion of the note.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
accounting for the convertible promissory note, the Company allocated the fair value of the warrants to the proceeds received
in the amount of $19,010 recorded as debt discount and is amortized using the effective interest rate method over the life of
the loan, six months. The Company recognized a fair value of the common shares issued at $100,000. The Company recorded a debenture
discount of $53,876 and a beneficial conversion expense of $45,544. The Company recognized accretion of debt discount expense
for the nine months ended March 31, 2019 and 2018 of $0 and $53,875, respectively. As of March 31, 2019, and June 30, 2017, $100,000
of principal was outstanding. In May 2018 the maturity date was extended to February 1, 2019. This debenture was past
due as of the date of this report.
As
part of the extension agreement, a derivative liability was created, in connection to a “make-whole” provision. The
value of this derivative at September 30, 2018 was $49,798, and a change in derivative liability expense of $28,561 for the three
months then ended. This derivative liability was settled for 1,591,549 shares during the second quarter of fiscal year 2019, resulting
in additional interest expense of $18,002 during the nine months ended March 31, 2019.
Interest
expense for the nine months ended March 31, 2019 and 2018 of $0 and $8,000, respectively.
K)
September 2017 Convertible Debenture
Debenture
A)
In
September 2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $150,000 in
gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange
for a convertible promissory note in the principal amount of $150,000. The Note Holder received 1,650,000 shares of common stock
and 375,000 common stock warrants exercisable at $0.12 per share through September 11, 2000. The promissory note had a term of
six months maturing on March 26, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal.
The maturity date of the Note was extended to February 1, 2019 in an extension agreement dated May 2018. The promissory note is
pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted
shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration
rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion
of the note.
In
accounting for the convertible promissory note, the Company allocated the fair value of the warrants to the proceeds received
in the amount of $19,420 recorded as debt discount and is amortized using the effective interest rate method over the life of
the loan, six months. The Company recognized a fair value of the common shares issued at $165,000. The Company recorded a debenture
discount of $82,720 and a beneficial conversion expense of $45,219. The Company recognized accretion of debt discount expense
for the nine months ended March 31, 2019 and 2018 of $0 and $82,720, respectively. As of March 31, 2019, and June 30, 2018, $150,000
of principal was outstanding. In May 2018 the maturity date was extended to February 1, 2019. This debenture was past due as
of the date of this report.
As
part of the extension agreement, a derivative liability was created, in connection to a “make-whole” provision. The
value of this derivative at September 30, 2018 was $22,666, and a change in derivative liability expense of $14,483 for the three
months then ended. This derivative liability was settled for 1,781,690 shares during the second quarter of 2018, resulting in
additional interest expense of $53,234 during the nine months ended March 31, 2019.
Interest
expense for the nine months ended March 31, 2019 and 2018 of $0 and $12,000, respectively.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Debenture
B)
In
September 2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $450,000 in
gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange
for a convertible promissory note in the principal amount of $495,000. The Note Holder received 10,000,000 shares of common stock
and 2,000,000 common stock warrants exercisable at $0.12 per share through September 11, 2000. The promissory note had a term
of seven months maturing on April 26, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal.
The maturity date of the Note was extended to January 26, 2019 in an extension agreement dated April 2018. The promissory note
is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted
shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration
rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion
of the note.
In
accounting for the convertible promissory note, the Company allocated the fair value of the warrants to the proceeds received
in the amount of $318,337 recorded as debt discount and is amortized using the effective interest rate method over the life of
the loan, seven months. The Company also recorded original issue discount (“OID”) of $45,000 as debt discount and
is amortized using the effective interest rate method over the life of the loan, eight months. The Company recognized a fair value
of the common shares issued at $1,000,000. The Company recorded a debenture discount of $318,337 and a beneficial conversion expense
of $131,663. The Company recognized accretion of debt discount expense for the nine months ended March 31, 2019 and 2018 of $0
and $279,680, respectively. As of March 31, 2019, $495,000 of principal was outstanding. This debenture was past due
as of the date of this report.
As
part of the extension agreement, a derivative liability was created, in connection to a “make-whole” provision. The
value of this derivative at September 30, 2018 was $43,998, and a change in derivative liability expense of $28,864 for the three
months then ended. This derivative liability was settled for 7,432,432 shares during the second quarter of 2018, resulting in
additional interest expense of $283,029 during the nine months ended March 31, 2019.
Interest
expense for the nine months ended March 31, 2019 and 2018 of $0 and $36,000, respectively.
Debenture
C)
In
November 2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $225,000 in
gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange
for a convertible promissory note in the principal amount of $247,500. The promissory note has a term of six months maturing on
April 26, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The maturity date of
the Note was extended to January 26, 2019 in an extension agreement dated April 2018. The promissory note is pre-payable by the
Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common
Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the
Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.
The
Company also recorded original issue discount (“OID”) of $22,500 as debt discount and is amortized using the effective
interest rate method over the life of the loan, six months.
As
of March 31, 2019, $247,500 of principal was outstanding. This debenture was past due as of the date of this report.
Interest
expense for the nine months ended March 31, 2019 and 2018 of $0 and $18,000, respectively.
L)
November 2017 Convertible Debenture
In
November 2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $27,000 in gross
proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a
convertible promissory note in the principal amount of $27,000. The Note Holder received 416,600 common stock warrants exercisable
at $0.15 per share through November 7, 2022. The promissory note has a term of 24 months maturing on November 13, 2019 and stipulates
an interest charge of eight percent (8%) shall be applied to the principal. The promissory note is pre-payable by the Company
at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock
at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company
shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
accounting for the convertible promissory note, the Company allocated the fair value of the warrants to the proceeds received
in the amount of $8,310 recorded as debt discount and is amortized using the effective interest rate method over the life of the
loan, 24 months. The Company recognized accretion of debt discount expense for the nine months ended March 31, 2019 and 2018 of
$2,389 and $1,242, respectively. Interest expense for the nine months ended March 31, 2019 and 2018 of $1,644 and $834, respectively.
As of March 31, 2019, and June 30, 2018, $27,000 of principal was outstanding.
N)
December 2017 Convertible Debenture
In
December 2017, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $75,000 in gross
proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a
convertible promissory note in the principal amount of $75,000. The Note Holder received 1,000,000 shares of common stock and
250,000 common stock warrants exercisable at $0.12 per share through December 27, 2020. The promissory note has a term of 6 months
maturing on June 30, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The maturity
date of the Note was extended to March 30, 2019 in an extension agreement dated June 2018. The promissory note is pre-payable
by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares
of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights
and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of
the note.
In
accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $16,176 and the Company
allocated the fair value of the warrants to the proceeds received in the amount of $41,175 recorded as debt discount and is amortized
using the effective interest rate method over the life of the loan, six months. The Company recognized accretion of debt discount
expense for the nine months ended March 31, 2019 and 2018 of $0 and $21,530, respectively. Interest expense for the nine months
ended March 31, 2019 and 2018 of $0 and $6,000, respectively. As of March 31, 2019, and June 30, 2018, $75,000 of principal was
outstanding.
The
debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this
derivative at September 30, 2018 was $10,380, and a change in derivative liability expense of $8,061 for the three months then
ended. This derivative liability was settled for 809,160 shares during the second quarter of fiscal year 2019, resulting in additional
interest expense of $21,420 during the nine months ended March 31, 2019.
O)
February 2018 Convertible Debenture
In
February 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $45,000 in gross
proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a
convertible promissory note in the principal amount of $45,000. The Note Holder received 1,500,000 shares of common stock and
500,000 common stock warrants exercisable at $0.12 per share through December 27, 2020. The promissory note has a term of 6 months
maturing on August 8, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The maturity
date of the Note was extended to February 8, 2019 in an extension agreement dated August 2018. The promissory note is pre-payable
by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares
of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights
and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of
the note.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $9,046 and the Company
allocated the fair value of the warrants to the proceeds received in the amount of $31,546 recorded as debt discount and is amortized
using the effective interest rate method over the life of the loan, six months. The Company recognized accretion of debt discount
expense for the nine months ended March 31, 2019 and 2018 of $6,761 and $8,988, respectively. Interest expense for the nine months
ended March 31, 2019 and 2018 of $0 and $3,600. As of March 31, 2019, and June 30, 2018, $45,000 of principal was outstanding.
The
debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this
derivative at September 30, 2018 was $64, and a change in derivative liability expense of $64 for the three months then ended.
This derivative liability was settled for 582,955 shares during the second quarter of fiscal year 2019, resulting in additional
interest expense of $25,650 during the nine months ended March 31, 2019.
P)
March 2018 Convertible Debenture
In
March 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $30,000 in gross
proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a
convertible promissory note in the principal amount of $30,000. The Note Holder received 1,500,000 shares of common stock and
500,000 common stock warrants exercisable at $0.12 per share through March 6, 2021. The promissory note had a term of 6 months
maturing on August 8, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The maturity
date of the Note was extended to March 6, 2019 in an extension agreement dated August 2018. The promissory note is pre-payable
by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares
of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights
and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of
the note.
In
accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $6,625 and the Company
allocated the fair value of the warrants to the proceeds received in the amount of $23,374 recorded as debt discount and is amortized
using the effective interest rate method over the life of the loan, six months. The Company recognized accretion of debt discount
expense for the nine months ended March 31, 2019 and 2018 of $8,677 and $3,065, respectively. Interest expense for the nine months
ended March 31, 2019 and 2018 of $0 and $2,400 was recognized, respectively. As of March 31, 2019, and June 30, 2018, $30,000
of principal was outstanding.
In
March 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $35,000 in gross
proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a
convertible promissory note in the principal amount of $35,000. The Note Holder received 1,500,000 shares of common stock and
500,000 common stock warrants exercisable at $0.12 per share through March 23, 2021. The promissory note has a term of six months
maturing on September 23, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The
maturity date of the Note was extended to March 23, 2019 in an extension agreement dated September 2018. The promissory note is
pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted
shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration
rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion
of the note.
In
accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $8,702 and the Company
allocated the fair value of the warrants to the proceeds received in the amount of $26,298 recorded as debt discount and is amortized
using the effective interest rate method over the life of the loan, six months. The Company recognized accretion of debt discount
expense for the nine months ended March 31, 2019 and 2018 of $12,254 and $1,005, respectively. Interest expense for the nine months
ended March 31, 2019 and 2018 of $0 and $2,800, respectively. As of March 31, 2019, and June 30, 2018, $35,000 of principal
was outstanding.
The
debenture agreements above include a “make-whole” provision, creating a potential derivative liability. The value
of this derivative at December 31, 2018 was $20,823, and a change in derivative liability expense of $18,751 for the six months
then ended. This derivative liability was settled for 3,950,920 shares during the third quarter of fiscal year 2019, resulting
in additional interest expense of $74,844 during the nine months ended March 31, 2019.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Q)
April 2018 Convertible Debenture
In
April 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $60,000 in gross
proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a
convertible promissory note in the principal amount of $60,000. The Note Holder received 2,000,000 shares of common stock and
1,000,000 common stock warrants exercisable at $0.12 per share through April 26, 2021. The promissory note has a term of approximately
6 months maturing on November 1, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal.
The maturity date of the Note was extended to May 1, 2019 in an extension agreement dated September 2018. The promissory note
is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted
shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration
rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion
of the note.
In
accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $6,175 and the Company
allocated the fair value of the warrants to the proceeds received in the amount of $41,175 recorded as debt discount and is amortized
using the effective interest rate method over the life of the loan, six months. The Company recognized accretion of debt discount
expense for the nine months ended March 31, 2019 and 2018 of $26,720 and $0, respectively. Interest expense for the nine months
ended March 31, 2019 and 2018 of $0 was recognized. As of March 31, 2019, and June 30, 2018, $60,000 of principal was outstanding.
The
debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this
derivative at December 31, 2018 was $2,230, and a change in derivative liability expense of $2,182 for the six months then ended.
This derivative liability was settled for 2,484,305 shares during the third quarter of fiscal year 2019, resulting in additional
interest expense of $97,142 during the nine months ended March 31, 2019.
R)
April 2018 Convertible Debenture
In
April 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $70,000 in gross
proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a
convertible promissory note in the principal amount of $70,000. The Note Holder received 1,000,000 shares of common stock and
200,000 common stock warrants exercisable at $0.12 per share through April 25, 2021. The promissory note has a term of 2 years
maturing on April 25, 2020 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The promissory
note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered
and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes piggyback
registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable
upon conversion of the note.
In
accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $0 and the Company allocated
the fair value of the warrants to the proceeds received in the amount of $31,188 recorded as debt discount and is amortized using
the effective interest rate method over the life of the loan, 2 years. The Company recognized accretion of debt discount expense
for the nine months ended March 31, 2019 and 2018 of $11,278 and $0, respectively. Interest expense for the nine months ended
March 31, 2019 and 2018 of $4,262 and $0 was recognized, respectively. As of March 31, 2019, and June 30, 2018, $70,000 of principal
was outstanding.
S)
April 2018 Convertible Debenture
In
April 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $20,000 in gross
proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a
convertible promissory note in the principal amount of $20,000. The Note Holder received 1,166,660 common stock warrants exercisable
at $0.15 per share through April 25, 2023. The promissory note has a term of 2 years maturing on April 19, 2020 and stipulates
an interest charge of eight percent (8%) shall be applied to the principal. The promissory note is pre-payable by the Company
at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock
at a conversion price of $0.12 per share at any date. The promissory note includes piggyback registration rights and the Company
shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $4,384 and the Company
allocated the fair value of the warrants to the proceeds received in the amount of $14,384 recorded as debt discount and is amortized
using the effective interest rate method over the life of the loan, 2 years. The Company recognized accretion of debt discount
expense for the nine months ended March 31, 2019 and 2018 of $5,230 and $0, respectively. Interest expense for the nine months
ended March 31, 2019 and 2018 of $1,217 and $0 was recognized, respectively. As of March 31, 2019, and June 30, 2018, $20,000
of principal was outstanding.
T)
June 2018 Convertible Debenture
In
June 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $40,000 in gross
proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a
convertible promissory note in the principal amount of $40,000. The Note Holder received 2,000,000 shares of common stock and
1,000,000 common stock warrants exercisable at $0.12 per share through June 7, 2021. The promissory note has a term of approximately
7 months maturing on December 31, 2018 and stipulates an interest charge of eight percent (8%) shall be applied to the principal.
The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into
unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes
piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares
issuable upon conversion of the note.
In
accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $8,044 and the Company
allocated the fair value of the warrants to the proceeds received in the amount of $31,957 recorded as debt discount and is amortized
using the effective interest rate method over the life of the loan, 7 months. The Company recognized accretion of debt discount
expense for the nine months ended March 31, 2019 and 2018 of $28,526 and $0, respectively. Interest expense for the nine months
ended March 31, 2019 and 2018 of $0 was recognized. As of March 31, 2019, and June 30, 2018, $40,000 of principal was outstanding.
The
debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this
derivative at March 31, 2019 was $3,184, and a change in derivative liability expense of $3,184 for the nine months then ended.
U)
July 2018 Convertible Debenture
In
July 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $45,000 in gross
proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a
convertible promissory note in the principal amount of $45,000. The Note Holder received 2,000,000 shares of common stock and
1,000,000 common stock warrants exercisable at $0.12 per share through July 9, 2021. The promissory note has a term of approximately
7 months maturing on January 31, 2019 and stipulates an interest charge of eight percent (8%) shall be applied to the principal.
The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into
unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes
piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares
issuable upon conversion of the note.
In
accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $7,235 and the Company
allocated the fair value of the warrants to the proceeds received in the amount of $33,485 recorded as debt discount and is amortized
using the effective interest rate method over the life of the loan, 7 months. The Company recognized accretion of debt discount
expense for the nine months ended March 31, 2019 of $33,485. Interest expense for the nine months ended March 31, 2019 of $3,600
was recognized. As of March 31, 2019, $45,000 of principal was outstanding.
The
debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this
derivative at March 31, 2019 was $883, and a change in derivative liability expense of $883 for the nine months then ended.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
V)
August 2018 Convertible Debenture
In
August 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $30,000 in gross
proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange for a
convertible promissory note in the principal amount of $30,000. The Note Holder received 1,250,000 shares of common stock and
1,000,000 common stock warrants exercisable at $0.12 per share through August 27, 2021. The promissory note has a term of approximately
7 months maturing on March 30, 2019 and stipulates an interest charge of eight percent (8%) shall be applied to the principal.
The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into
unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The promissory note includes
piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares
issuable upon conversion of the note.
In
accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $5,160 and the Company
allocated the fair value of the warrants to the proceeds received in the amount of $22,659 recorded as debt discount and is amortized
using the effective interest rate method over the life of the loan, 7 months. The Company recognized accretion of debt discount
expense for the nine months ended March 31, 2019 of $22,659. Interest expense for the nine months ended March 31, 2019 of $2,400
was recognized. As of March 31, 2019, $30,000 of principal was outstanding.
The
debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this
derivative at March 31, 2019 was $552, and a change in derivative liability expense of $552 for the nine months then ended.
W)
September 2018 Convertible Debenture
In
September 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $25,000 in
gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange
for a convertible promissory note in the principal amount of $25,000. The Note Holder received 2,000,000 shares of common stock
and 1,000,000 common stock warrants exercisable at $0.12 per share through September 17, 2021. The promissory note has a term
of approximately 7 months maturing on April 30, 2018 and stipulates an interest charge of eight percent (8%) shall be applied
to the principal. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right
of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at any date. The
promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files
with the SEC all shares issuable upon conversion of the note.
In
accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $4,475 and the Company
allocated the fair value of the warrants to the proceeds received in the amount of $19,058 recorded as debt discount and is amortized
using the effective interest rate method over the life of the loan, 7 months. The Company recognized accretion of debt discount
expense for the nine months ended March 31, 2019 of $17,392. Interest expense for the nine months ended March 31, 2019 of $2,000
was recognized. As of March 31, 2019, $25,000 of principal was outstanding.
The
debenture agreement includes a “make-whole” provision, creating a potential derivative liability. The value of this
derivative at March 31, 2019 was $441, and a change in derivative liability expense of $441 for the nine months then ended.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
X)
December 2018 Convertible Debenture
During
the second quarter of the year ended June 30, 2019, the Company sold 52 Units for total proceeds of $52,000 from three affiliated
and fourteen non-affiliated parties. Each Unit consists of a $1,000 Unsecured Convertible Promissory Note (each, a “Note”)
and a warrant to purchase 4,166 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”)
at a purchase price of $0.15 per share (each, a “Warrant”) over a period of five years. An additional 45,826 warrants
with identical terms, were granted with this debenture. The Notes which were issued at face value have a maturity of two years
from the date of issuance, bear interest at the rate of 8% per annum and are convertible into unregistered and restricted shares
of Common Stock at $0.08 per-share, subject to normal and customary adjustments including (a) any subdivisions, combinations and
classifications of the Common Stock; or (b) any payment, issuance or distribution by the Company to its stockholders of (i) a
stock dividend, (ii) debt securities of the Company, or (iii) assets (other than cash dividends payable out of earnings or surplus
in the ordinary course of business). The conversion price also is subject to a full ratchet adjustment upon the Company’s
issuance of Common Stock, warrants, or rights to purchase Common Stock or securities convertible into Common Stock for a consideration
per share which is less than the then applicable conversion price of the Notes excluding Common Stock and options issued to officers,
directors, and employees of the Company, except for the exercise or conversion of existing convertible securities of the Company.
In
accounting for the convertible debentures, the Company allocated the fair value of the warrants to the proceeds received in the
amount of $6,835, recorded as debt discount and is amortized using the effective interest rate method over the life of the loan,
two years. The Company recognized accretion of debt discount expense for the nine months ended March 31, 2019 of $1,065.
Interest
expense for the nine months ended March 31, 2019 of $1,340.
December
2018 Convertible Promissory Note
In
December 2018, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $350,000 in
gross proceeds from a non-affiliated party (collectively hereinafter referred to as the “Note Holder”) in exchange
for a convertible promissory note in the principal amount of $350,000. The Note Holder received 3,000,000 shares of common stock
and 5,000,000 common stock warrants exercisable at $0.04 per share through December 26, 2021. The promissory note has a term of
20 months maturing on August 14, 2020 and stipulates an interest charge of eight percent (8%) shall be applied to the principal.
The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into
unregistered and restricted shares of Common Stock at a conversion price of $0.03 per share at any date. The promissory note includes
piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares
issuable upon conversion of the note.
In
accounting for the convertible promissory note, the company recorded a beneficial conversion expense of $126,908 and the Company
allocated the fair value of the warrants to the proceeds received in the amount of $126,908 recorded as debt discount and is amortized
using the effective interest rate method over the life of the loan, 20 months.
On
March 22, 2019, the remainder of the outstanding balance was converted to shares of common stock. 11,666,667 shares of common
stock were issued, for the outstanding balance of $350,000.
The
Company recognized accretion of debt discount expense for the nine months ended March 31, 2019 of $126,908. Interest
expense for the nine months ended March 31, 2019 of $6,615 was recognized. As of March 31, 2019, $0 of principal was outstanding.
This convertible promissory note is not in the table above, as the debt was entered into and paid off in the same fiscal year.
Debt
Issuance Costs
The
costs related to the issuance of debt are presented on the balance sheet as a direct deduction from the related debt and amortized
to interest expense using the effective interest method over the maturity period of the related debt. Amortization expense for
the nine months ended March 31, 2019 and 2018 was $309,032 and $41,511 respectively.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
6 – NOTES PAYABLE
Promissory
Note
In
September 2018, the Company issued a promissory note secured by the Company’s CEO for $20,000 with an interest rate
of 6%, maturing on March 9, 2019. The note is convertible into the Company’s common stock, at the lenders discretion, at
a rate of $0.04 per share, with warrants to purchase an equal amount of stock. Interest expense for the nine months ended March
31, 2019 was $667. As of March 31, 2019, $20,000 of principal was outstanding, and is past due as of the date of this report.
NOTE
7 – EQUITY TRANSACTIONS
Common
Stock
During
the nine months ended March 31, 2019, the Company issued 20,548,042 shares for $822,922 in consulting services, $61,255 of which
was accrued at June 30, 2018.
During
the nine months ended March 31, 2019, the Company issued 729,877 shares of common stock at the fair market value of $42,796 for
payment of debenture interest.
During
the nine months ended March 31, 2019, the Company issued 23,149,564 shares of common stock at the fair market value of $636,698
in connection with debenture derivative liabilities, relieving $149,895 of the derivative liability, and resulting in $573,341
of additional interest expense.
Common
Stock Issuable
As
of March 31, 2019, the company owed a total of 10,749,548 shares of common stock. 4,872,208 shares were in relation
to a new debenture borrowing of $405,000 in aggregate, valued at $80,090. 312,500 shares were in relation to the
sale of shares for cash, valued at $12,500. 5,564,840 shares were in relation to amounts owed for salaries and consulting fees.
These subscribed shares also included 702,250 warrants to purchase shares of common stock at $0.04 per share. The shares are included
in the weighted average shares outstanding for purposes of calculation earning per share for the three and nine months ended March
31, 2019.
During
the nine months ended March 31, 2019,
21,164,612 shares with a fair value of $604,383, were issued, reducing shares issuable.
Stock
Warrants
A
summary of activity of the Company’s stock warrants for the nine months ended March 31, 2019 is presented below (unaudited):
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
Exercise
Price
|
|
|
Number
of
Warrants
|
|
|
Contractual
Term
in Years
|
|
|
Grant
Date
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June
30, 2018
|
|
$
|
0.11
|
|
|
|
36,781,726
|
|
|
|
2.80
|
|
|
$
|
0.09
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Granted
|
|
|
0.10
|
|
|
|
8,964,708
|
|
|
|
|
|
|
|
0.04
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Cancelled
|
|
|
0.12
|
|
|
|
(833,333
|
)
|
|
|
|
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2019
|
|
$
|
0.10
|
|
|
|
44,913,101
|
|
|
|
2.08
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable as of March
31, 2019
|
|
$
|
0.10
|
|
|
|
44,913,101
|
|
|
|
2.08
|
|
|
$
|
0.08
|
|
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Outstanding
warrants at March 31, 2019 expire during the period September 2019 to December 2023 and have exercise prices ranging from $0.03
to $0.30, valued at $4,705,468. These warrants are issued for salary conversions of employees and consultants, and the origination
warrants related to debentures.
NOTE
8 – STOCK-BASED COMPENSATION
The
Company follows FASB Accounting Standards Codification (“ASC”) 718
“Compensation — Stock Compensation”
for share-based payments which requires all stock-based payments, including stock options, to be recognized as an operating
expense over the vesting period, based on their grant date fair values.
In
October 2009 the Board of Directors authorized the approval of a stock option plan covering 7,500,000 shares of common stock,
which was increased to 10,000,000 shares in December 2009 and approved by stockholders in January 2010. The Plan provides for
the direct issuance of common stock and the grant of incentive and non-incentive stock options. As of March 31, 2019, 9,200,000
options have been granted, with terms ranging from five to ten years, and 800,000 have been cancelled leaving a balance of 8,400,000
of options outstanding. During the nine months ended March 31, 2019, the Company issued 1,500,000 shares of restricted stock out
of the plan, leaving 100,000 options or grants available for grant under the plan.
In
March 2012, 3,500,000 stock options, with a term of five years, were granted outside of a stock option plan. In March 2017, the
term of these options was extended for an additional five years. In June 2016, and 2017, 6,000,000 and 17,000,000 stock options
were granted, with a term of ten years, were granted, respectively, outside of a stock option plan. In February 2019, 5,000,000
stock options, with a term of five years, were granted outside of a stock option plan. 3,000,000 shares were cancelled, leaving
a balance of 28,500,000 as of March 31, 2019 outstanding outside of a defined option plan.
In
January 2013 the Board of Directors authorized the approval of a stock option plan covering 20,000,000 shares of common stock,
which was increased to 60,000,000 shares in March 2013 and approved by stockholders in March 2013. The Plan provides for the direct
issuance of common stock and the grant of incentive and non-incentive stock options. As of March 31, 2019, 84,153,473 options
have been granted, with terms ranging from five to ten years, 3,325,000 have been exercised and 21,211,707 have been cancelled,
and 59,616,766 remain outstanding.
On
February 17, 2016, the Shareholders approved the 2015 Employee Benefit and Consulting Services Compensation Plan covering 15,000,000
shares. The Plan provides for the direct issuance of common stock and the grant of incentive and non-incentive stock options.
As of March 31, 2019, 16,900,000 options have been granted with a term of five years, and 2,225,000 have been cancelled leaving
a balance outstanding of 14,675,000 options.
Incentive
Stock Options:
The Company estimates the fair value of each stock option on the date of grant using the Black-Scholes-Merton
valuation model. The volatility is based on expected volatility over the expected life of thirty-six to sixty months. Compensation
cost is not reduced by the Company for estimated forfeitures based on historical forfeiture rates for options granted after July
1, 2018. For grants prior to July 1, 2018, compensation cost was recognized based on awards that are ultimately expected to vest,
therefore, the Company has reduced the cost for estimated forfeitures based on historical forfeiture rates, which were between
14% and 17%. As the Company has not historically declared dividends, the dividend yield used in the calculation is zero. Actual
value realized, if any, is dependent on the future performance of the Company’s common stock and overall stock market conditions.
There is no assurance the value realized by an optionee will be at or near the value estimated by the Black-Scholes-Merton model.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
following assumptions were used for the periods indicated:
|
|
|
Nine Months Ended
|
|
|
|
|
March
31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(unaudited)
|
|
|
Expected volatility
|
|
|
122.52%
- 126.99
|
%
|
|
|
129.46
|
%
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
Risk-free interest rates
|
|
|
2.46%
- 2.95
|
%
|
|
|
2.62
|
%
|
|
Expected term (in years)
|
|
|
5.0
|
|
|
|
5.0
|
|
The
computation of expected volatility during the nine months ended March 31, 2019 and 2018 was based on the historical volatility.
Historical volatility was calculated from historical data for the time approximately equal to the expected term of the option
award starting from the grant date. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve in effect
at the time of grant for the period corresponding with the expected life of the option.
A
summary of the activity of the Company’s stock options for the nine months ended March 31, 2019 is presented below (unaudited):
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
|
Number of
|
|
|
Remaining
|
|
|
Optioned
|
|
|
Aggregate
|
|
|
|
|
Exercise
|
|
|
Optioned
|
|
|
Contractual
|
|
|
Grant Date
|
|
|
Intrinsic
|
|
|
|
|
Price
|
|
|
Shares
|
|
|
Term
in Years
|
|
|
Fair
Value
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June
30, 2018
|
|
$
|
0.09
|
|
|
|
85,616,914
|
|
|
|
4.00
|
|
|
$
|
0.11
|
|
|
$
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
Granted
|
|
|
0.03
|
|
|
|
28,500,000
|
|
|
|
|
|
|
|
0.03
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
Cancelled
|
|
|
0.07
|
|
|
|
(2,925,148
|
)
|
|
|
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2019
|
|
$
|
0.07
|
|
|
|
111,191,766
|
|
|
|
4.02
|
|
|
$
|
0.09
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable as of March
31, 2019
|
|
$
|
0.07
|
|
|
|
100,459,599
|
|
|
|
3.76
|
|
|
$
|
0.09
|
|
|
$
|
-
|
|
Outstanding
options at March 31, 2019, expire during the period May 2019 to June 2026 and have exercise prices ranging from $0.02 to $0.17.
Compensation
expense associated with stock options for the nine months ended March 31, 2019 and 2018 was $1,171,581 and $655,528 respectively
and was included in general and administrative expenses in the consolidated statements of operations.
At
March 31, 2019, the Company had 10,732,167 shares of nonvested stock option awards. The total cost of nonvested stock option awards
which the Company had not yet recognized was $245,491 at March 31, 2019. Such amounts are expected to be recognized over a period
of 0.75 years.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Restricted
Stock:
To encourage retention and performance, the Company granted certain employees restricted shares of common stock with
a fair value per share determined in accordance with conventional valuation techniques, including but not limited to, arm’s
length transactions, net book value or multiples of comparable company earnings before interest, taxes, depreciation and amortization,
as applicable. Generally, the stock vests over a 3-year period. A summary of the activity of the Company’s restricted stock
awards for the nine months ended March 31, 2019, and year ended June 30, 2018 is presented below (unaudited):
|
|
|
Number of
|
|
|
|
|
|
|
|
Nonvested,
|
|
|
Weighted
|
|
|
|
|
Unissued
|
|
|
Average
|
|
|
|
|
Restricted
|
|
|
Grant Date
|
|
|
|
|
Share
Awards
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
Nonvested, unissued restricted
shares outstanding at June 30, 2017
|
|
|
1,500,000
|
|
|
|
0.21
|
|
|
Granted
|
|
|
5,500,000
|
|
|
|
0.06
|
|
|
Vested
|
|
|
(7,000,000
|
)
|
|
|
0.09
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Nonvested, unissued
restricted shares outstanding at June 30, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Nonvested, unissued
restricted shares outstanding at March 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
Compensation
expense associated with restricted stock awards for the nine months ended March 31, 2019 and 2018 was $100,000 and
$343,509, respectively, and was included in general and administrative expenses in the consolidated statements of operations.
The
total cost of nonvested stock awards which the Company had not yet recognized was $0 at March 31, 2019.
NOTE
9 – LOSS PER SHARE
The
Company follows ASC 260,
“Earnings Per Share”,
for share-based payments that are considered to be participating
securities within the definition provided by the standard. All share-based payment awards that contained non-forfeitable rights
to dividends, whether paid or unpaid, were designated as participating securities and included in the computation of earnings
per share (“EPS”).
The
following table sets forth the computation of basic and diluted loss per share:
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,041,000
|
)
|
|
$
|
(2,736,682
|
)
|
|
$
|
(5,596,391
|
)
|
|
$
|
(7,584,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
521,743,994
|
|
|
|
428,394,955
|
|
|
|
497,693,368
|
|
|
|
401,191,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
NOTE
10 - COMMITMENTS AND CONTINGENCIES
Agreement
with University of Arizona
Solterra
entered into an exclusive Patent License Agreement with the University of Arizona (“UA”) in July 2009. On March 3,
2017, Solterra entered into an amended license agreement with UA. Pursuant to UA License Agreement, as amended, Solterra is obligated
to pay minimum annual royalties of $50,000 by June 30, 2017, $125,000 by September 15, 2017 and $200,000 on each June 30th thereafter,
subject to adjustments for increases in the consumer price index. Such minimum royalty payments shall be credited against royalties
due in each respective royalty year, July 1 to June 30, following the due date. Royalties based on net sales are 2% of net sales
of licensed products for non-display electronic component applications and 2.5% of net sales of licensed products for printed
electronic displays. The UA License Agreements and subsequent amendments have been filed on Form 8-K and are incorporated by reference
herein. The Company is in the process of renegotiating the minimum royalty commitments and while oral modifications have been
agreed to a final amendment has not been finalized. As of March 31, 2019, no royalties have been accrued for this obligation.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Agreement
with Texas State University
The
Company entered into a Service Agreement with Texas State University (“TSU”) by which the Company occupies certain
office and lab space at TSU’s STAR Park (Science Technology and Advanced Research) Facility. The agreement is month-to-month
and can be terminated with 60-days written notice of either party.
Operating
Leases
The
Company leases certain office and lab space under a month-to-month operating lease agreement.
Rental
expense for the operating lease for the nine months ended March 31, 2019 and 2018 was $57,142 and $115,541, respectively.
NOTE
11 — LITIGATION
The
Company was served in Hays County, Texas in a complaint for breach of contract in February 2017. In April 2017, the Company settled
this complaint for $129,000 payable over a four-month period. As of the filing date of this Form 10-Q, the balance in arrears
is $95,000 plus interest and other charges which has been accrued at March 31, 2019. The Company repaid $237,300 in principal
plus interest to L2 Capital LLC and $101,700 plus interest to SBI Investments LLC on September 30, 2017, and $149,555 plus interest
to L2 Capital LLC and $64,095 plus interest to SBI Investments LLC on November 3, 2017, respectively.
CAUSE
NUMBER 17-2033; Hays County, Texas
Two
lenders, SBI Investments LLC, 2014-1, and L2 Capital, LLC, asked Quantum Materials’ transfer agent, Empire Stock Transfer,
Inc., to set aside fifty million (50,000,000) shares of stock as collateral for four loan agreements Quantum Materials
had entered into in late March 2017. This joint request occurred despite the fact that or about September 30, 2017 Quantum had
repaid $339,000 (plus accrued interest of $10,170) on two of the loans. Subsequently, in November 2017, the Company also repaid
$213,650 and $8,636 of accrued interest on two of the remaining loans on their due dates.
Quantum
filed suit for an injunction to stop the release of the stock. The two lenders, SBI Investments LLC, 2014-1 (SBI), and L2 Capital,
LLC (L2), hired the national law firm of K&L Gates to stop the injunction; problematically, this same firm had previously
represented Quantum Materials. Quantum filed a motion to disqualify the law firm for that conflict, and they subsequently withdrew.
New
counsel for SBI and L2, Cleveland Terrazas PLLC, brought suit against Quantum for $1.5 million on the four notes that had been
repaid and were not in actual default, though SBI Investments LLC, 2014-1, and L2 Capital, LLC claimed technical defaults. The
court in Hays County granted Quantum’s temporary injunction and set the full case for trial. The next day, SBI Investments
LLC, 2014-1, and L2 Capital, LLC dismissed their suit against Quantum and refiled similar actions in Kansas and Florida on the
notes claiming that one note was paid on a Monday when it was due on a Sunday, demanding late payment in stock (they refused cash),
and another was paid on a Friday when it was due Saturday, claiming a pre-payment penalty. All three suits are related to the
same transactions. The lenders claim 140% interest, attorney’s fees, 20 million shares of stock, and damages. Quantum maintains
all loans have been paid timely.
The
Company denies all the above-mentioned allegations and will vigorously defend all claims.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CAUSE
NUMBER: 17CV06093; Johnson County, Kansas
The
Kansas lawsuit is based on the same nucleus of facts. The putative default is the failure to properly and timely file a Form S-1
with the SEC. Three causes of action are alleged: the first is breach of contracts regarding the Registration Rights Agreement
against Quantum; the second claim is for breach of contract of the first L2 promissory note against Quantum; the final claim is
for breach of contract regarding the second L2 promissory note against both Quantum and Squires, individually.
The
Company denies all the above-mentioned allegations and will vigorously defend all claims.
CAUSE
NUMBER: 2017-025283-CA-01; Miami-Dade County, Florida
The
Florida lawsuit largely mirrors the suit in Kansas; defaults are alleged as follows:
On
July 6, 2017, Quantum filed a revised Form 10-Q/A report (the Report) with the SEC, restating its financial statements. In comparison
to the unrestated financial statement previously filed by Quantum, the Revised Report materially and adversely affects SBI’s
rights with respect to the notes. This restatement of financial statements constituted a breach of each of the notes. Furthermore,
because each note contains a cross-default clause, each of Quantum’s breaches of a specific note also constituted a breach
of every other note.
On
July 27, 2017, Quantum’s auditor resigned, and replaced its auditor without seeking or obtaining the consent of SBI. This
replacement of Quantum’s auditor constituted an alleged breach of the SBI notes. Because each note contains a cross-default
clause, each of Quantum’s breaches of a specific note also constituted a breach of every other note.
The
Company denies all the above-mentioned allegations and will vigorously defend all claims.
The
case was reheard in late March 2018 and a 45-day continuance was decided resulting in an April 30, 2018 rehearing. After a day
of litigation in San Marcos, QTMM’s motion to enjoin L2 and SBI and prevent them from obtaining stock before a full trial
on the merits was granted on October 27, 2017, by Judge Gary Steel. L2 and SBI objected to the injunction and appealed to the
Third Court of Appeals in Austin, TX. On March 8, 2018, in a unanimous opinion, the Third Court of Appeals denied the appeal,
sustained the injunction in favor of QTMM and awarded costs of court.
On
March 29, 2018, at a discovery hearing, wherein QTMM asked the court to order L2 and SBI to produce evidence to support their
positions, L2 and SBI requested and received a stay of litigation, postponing the trial date of April 2018, which they had previously
requested, and also postponing discovery until rulings in Florida and Kansas, or until further order of the court. The court also
announced that when Florida and Kansas have spoken, discovery will be expedited. A jurisdiction hearing for the Florida case on
August 15, 2018 resulted in the lawsuit being dismissed and a hearing in Kansas resulted in partial dismissal. Mediation is scheduled
in May 21, 2019 in Dallas, Texas.
The
Company expects to be successful in the L2 and SBI litigation. The ultimate outcome is not determinable and as such, no
liability has been recorded for this contingent liability at March 31, 2019.
Quantum
v. K&L Gates, Inc., 18-2393, pending in Hays County, Texas.
In
September 2017, Quantum filed an injunction suit against two of its lenders, SBI Investments, LLC, 2014-1 and L2 Capital LLC,
in Hays County, Texas (428th Judicial District; Cause No. 17-2033). On October 2017, these two lenders intervened in the proceeding,
asserted affirmative claims for monetary damages against Quantum, and opposed Quantum’s request for temporary injunctive
relief. The lenders’ law firm was K&L Gates. In 2016, the Board of Directors for Quantum retained the law firm of K&L
Gates. In this professional capacity, K&L Gates attended confidential board meetings and reviewed, inter alia, corporate secrets.
K&L Gates billed approximately $100,000 per month. The Company has accrued $319,000 in relation to this action. Quantum moved
to disqualify K&L Gates. The day before Quantum’s motion to disqualify was ruled on, K&L Gates withdrew in lieu
of the Austin law firm Cleveland & Terrazas. On September 21, 2018, the “Deputy General Counsel of K&L Gates,”
Mr. Charles Tea, sent a demand for payment of over $300,000 to Quantum’s CEO. On October 16, 2018, Quantum filed suit against
K&L Gates alleging Breach of Fiduciary Duty, Deceptive Trade Practices, and Legal Malpractice.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
12 – SUPPLEMENTAL CASH FLOW INFORMATION
The
following is supplemental cash flow information:
|
|
|
Nine Months Ended
|
|
|
|
|
March
31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
6,904
|
|
|
$
|
29,023
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for
income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The
following is supplemental disclosure of non-cash investing and financing activities:
|
|
|
Nine Months Ended
|
|
|
|
|
March
31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Conversion
of debentures, and accrued interest into shares of common stock
|
|
$
|
699,517
|
|
|
$
|
855,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated
value of common stock and warrants issued with convertible debentures
|
|
$
|
208,945
|
|
|
$
|
602,544
|
|
|
|
|
|
|
|
|
|
|
|
|
Debenture extension paid in
shares of common stock
|
|
$
|
-
|
|
|
$
|
167,354
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued
for amounts in accounts payable
|
|
$
|
81,602
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and
stock warrants issued for conversion of accrued salaries
|
|
$
|
-
|
|
|
$
|
249,900
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expense
paid in shares of common stock
|
|
$
|
750,000
|
|
|
$
|
1,242,232
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
of prepaid insurance
|
|
$
|
-
|
|
|
$
|
12,738
|
|
NOTE
13 – TRANSACTIONS WITH AFFILIATED PARTIES
At
March 31, 2019 and June 30, 2018, the Company had accrued salaries payable to executives in the amount of $468,825 and $568,575,
respectively.
During
the year ended June 30, 2017, the Company issued a convertible debenture to a family member of a former key executive for proceeds
of $200,000. This transaction is described in more detail in Note 5 under the debenture reference C) April – June, August,
October and November 2016 Convertible Debentures.
In
February 2019, the Company granted 5,000,000 shares of common stock, vested immediately, to the CEO of the Company, Stephen Squires,
valued at $100,000. At March 31, 2019, these shares were not issued, and are reported in common stock issuable in the equity section
of the Balance Sheet.
NOTE
14 - SUBSEQUENT EVENTS
April
– June, August, October and November 2016 Convertible Debentures
— On April 5, 2019, the Company entered into
extension agreements for $700,000 of this debenture series. On May 6, 2019, the Company entered into an extension agreement for
an additional $125,000. In exchange for these extensions, the Company will issue 9,531,250 shares of restricted Common Stock.
As of the date of this report, the shares were not issued.
September
2017 Convertible Debentures
— On April 5, 2019, the Company converted $742,500 of principal, and $54,000 of accrued
interest on these debentures into 17,000,000 shares of common stock (see Note 5, reference K).
Share
issuances
During
the period April 1, 2019 through the date of this report, the Company issued 16,160,195 for services.
During
the period April 1, 2019 through the date of this report, the Company issued 17,000,000 for the conversion of debentures to common
stock.
During
the period April 1, 2019 through the date of this report, the Company issued 6,000,000 shares to the CEO for compensation.
During
the period April 1, 2019 through the date of this report, the Company issued 125,000 shares which were issuable at March 31, 2019,
in connection with the sale of common stock.