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 subsidiaries, QMC HealthID Inc. and 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. QMC HealthID Inc is specifically focused on providing
a complete point of care testing solution that leverages the Company’s distributed ledger technology utilizing the QMC HealthID
application and platform which is currently being developed with a quantum dot enabled point of care lateral flow test platform.
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. This also includes achieving Federal Drug Administration
approval and emergency use authorization for medical tests that diagnose Covid-19 and other diagnostic purposes.
Sequencing
The
Company has adopted a sequencing policy under Accounting Standards Codification (“ASC”) 815-40-35 Derivatives and Hedging
(“ASC 815”) whereby in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant
to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities
convertible or exchangeable for a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest
issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC
815, issuances of securities to the Company’s employees or directors are not subject to the sequencing policy.
Asset
Purchase Agreement with Capstan Platform, Inc.
On
August 6, 2019, the Company completed the asset purchase under an agreement (the “Capstan Purchase Agreement”) of
the distributed ledger technology assets of Capstan Platform, Inc. (“Capstan”) for a purchase price of $650,000 which
is payable in common shares or cash. The company issued 9,718,182 common shares during the three months ended September 30, 2019
and an additional 3,527,337 common shares were issued during March 2021 in connection with this asset purchase and 6,095,535 remain issuable
at the date of this filing. As a part of the Capstan Purchase Agreement the Company paid $67,000 to settle existing debt to certain creditors
held by Capstan. In addition, the Company recorded $650,000 of intangible software assets acquired in the purchase. At the date of this
filing the software platform is still under construction and no amortization of such assets has been recorded.
Contract
Liabilities
The
Company issued advanced billings to Amtronics India LLC related to its exclusive license and development agreement related to the production
of quantum dots in Assam, India (“License Agreement”), which have been recorded as contract liabilities on the condensed
consolidated balance sheets and will be recognized as revenue in accordance with ASU 2014-09
Revenue from Contracts with Customers (Topic 606) once the performance obligations are satisfied. As
of September 30, 2019, and 2018 contract liabilities were $1,197,973 and $500,000, respectively. The current liability represents
the next twelve months’ portion of the license fees revenue. For each of the period ended September 30, 2019 and 2018, no
revenue was recorded related to the License Agreement.
In
November 2018, the Company entered into a license and development agreement with Amtronics India LLC related to the volume production
of quantum dots in Assam, India. The agreement is part of a larger project for the design, training, research and development of a quantum
dot manufacturing facility in Assam. This project has been under discussion for nearly three years. A ground-breaking ceremony took place
in Assam on January 16, 2019, and the Company anticipated operations being established and operational prior to year-end 2019. In addition
to an upfront fee and royalty, the agreement provides for the Company to sell equipment and training services, which the Company expects
will provide additional revenues. The project was delayed due to historic flooding in the region during 2019 and 2020. The project was
and continues to be delayed due to the severe Covid-19 outbreak and subsequent quarantine occurring throughout India. Construction on
the project has resumed and planning for a new timeline has begun.
The
Company believes that the terms of the licensing agreement will enable the Company to begin to leverage its intellectual property portfolio
and to begin generating revenues without overburdening the Company’s scientific staff in a manner that would disrupt new discovery.
The other participants in the Assam project have the responsibility of, among other things, developing the site, constructing the facilities
and hiring staff. The Company has agreed to construct and supply the proprietary equipment, assisting in the development and scale up
of the 3rd generation solar, display and SSL products, training and providing a broad range of consulting services at additional
cost, representing a potential ongoing revenue opportunity for the Company.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Going
Concern
The
Company recorded losses from continuing operations in the current period presented and has a history of losses. As of September 30, 2019,
the Company had a working capital deficit of $9,758,002 and net cash used in operating activities was $159,684 for the three months
ended September 30, 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, 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. We are continuing our plan to
further grow and expand operations and seek sources of capital to pay our contractual obligations as they come due. Management believes
that its current operating strategy will provide the opportunity for us to continue as a going concern as long as we are able to obtain
additional financing; however, there is no assurance this will occur. The accompanying consolidated financial statements do not include
any adjustments that might be necessary if we are unable 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 accompanying unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange Commission and contain all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly its financial position as of September 30, 2019 and its results of operations
and its cash flows for the periods presented. The condensed consolidated balance sheet at June 30, 2019 has been derived from the
Annual Report on Form 10-K for the fiscal year ended June 30, 2019. The accompanying unaudited condensed consolidated financial statements
and related notes should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form
10-K for the fiscal year ended June 30, 2019. Operating results for the interim periods presented are not necessarily indicative of the
results that may be experienced for the fiscal year ending June 30, 2020.
Use
of Estimates: The preparation of the condensed 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 condensed consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue
Recognition: The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects
the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements
that the Company determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a
customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction
price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The
five-step model is applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for
the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC
606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether
each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the
respective performance obligation when (or as) the performance obligation is satisfied.
Title
and risk of loss generally pass to our customers upon shipment. In limited circumstances where either title or risk of loss pass upon
destination, we defer revenue recognition until such events occur. The transaction price is allocated to the separate performance obligations
on a relative standalone selling price basis. Standalone selling prices are typically estimated based on observable transactions when
these services are sold on a standalone basis. For the three months ended September 30, 2019 and 2018 our revenue was immaterial.
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.
Cash
and Cash Equivalents: Cash and cash equivalents consist of cash in bank. The Company considers
any highly liquid short-term investments purchased with a maturity of three months or less to be cash equivalents.
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.
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. Unamortized
debt discount was $30,350.81 and $27,724 on September 30, 2019 and June 30, 2019, respectively. Amortization expense for the three
months ended June 30, 2019 and 2018 was $2,895 and $90,010, respectively.
Earnings
per Share: The Company utilizes ASC 260, “Earnings per Share” for calculating the basic and diluted loss per share.
In accordance with ASC 260, the basic and diluted loss per share is computed by dividing net loss available to common stockholders by
the weighted average number of common shares outstanding. Diluted net loss per share is computed similar to basic loss per share except
that the denominator is adjusted for the potential dilution that could occur if stock options, warrants, and other convertible securities
were exercised or converted into common stock. Potentially dilutive securities are not included in the calculation of the diluted loss
per share if their effect would be anti-dilutive. As such, these potential shares were excluded from the shares used to calculate diluted
earnings per share as their inclusion would reduce net loss per share for the three months ended September 30, 2019 and 2018. There are
750,000,000 shares authorized resulting in approximately 23,756,489 of insufficient shares as of September 30, 2019.
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
February 2016, the FASB issued ASU 2016-02, Leases, which updates guidance on accounting for leases. The update requires that a lessee
recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to
use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting
policy election by class of underlying asset not to recognize lease assets and lease liabilities. Similar to current guidance, the update
continues to differentiate between finance leases and operating leases; however, this distinction now primarily relates to differences
in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The standards
update is effective for interim and annual periods after December 15, 2018 with early adoption permitted. Entities are required to use
a modified retrospective adoption, with certain relief provisions, for leases that exist or are entered into after the beginning of the
earliest comparative period in the financial statements when adopted. We adopted this standard
effective July 1, 2019 and it did not have a material impact on our condensed consolidated financial statements.
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 condensed 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 condensed financial statements or related disclosures.
Pronouncements
Yet To Be Adopted
In
December 2019, the FASB issued ASU No. 2019-12: Simplifying the Accounting for Income Taxes (Topic 740). The objective
of the standard is to improve areas of GAAP by removing certain exceptions permitted by ASC 740 and clarifying existing guidance to facilitate
consistent application. The standard will become effective for the Company beginning on June 1, 2021. The Company is currently evaluating
the new standard to determine the potential impact on its financial condition, results of operations, cash flows, and financial statement
disclosures.
In
November 2019, the FASB issued ASU 2019-08, Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers
(Topic 606): Codification Improvements - Share-based Consideration Payable to a Customer. The objective of the standard is
to clarify that an entity must measure and classify share-based payment awards granted to a customer by applying the guidance in Topic
718. ASU 2019-08 is effective for fiscal years beginning after December 15, 2019, including interim reporting periods within those
fiscal years. The Company will adopt ASU 2019-08 effective July 1, 2020 and its adoption is not expected to have a material impact
on the Company’s financial condition or its results of operations.
In
August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,”
which simplifies and clarifies certain calculation and presentation matters related to convertible and equity and debt instruments. Specifically,
ASU-2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 815 and removing the requirement
to account for beneficial conversion features on such instruments. Accounting Standards Update 2020-06 also provides clearer guidance
surrounding disclosure of such instruments and provides specific guidance for how such instruments are to be incorporated in the calculation
of Diluted EPS. The guidance under ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods
within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company
will adopt this standard using a modified retrospective approach effective January 1, 2021. The Company is currently evaluation the effects
of adoption on its consolidated financial statements.
In
June 2016, the FASB issued Accounting Standards Update 2016-13 “Financial Instruments-Credit Losses” (“ASC Topic
326”), which amends the guidance on the impairment of financial instruments. The standard adds an impairment model, referred to
as current expected credit loss, which is based on expected losses rather than incurred losses. The standard applies to most debt instruments,
trade receivables, lease receivables, reinsurance receivables, financial guarantees and loan commitments. Under the guidance, companies
are required to disclose credit quality indicators disaggregated by year of origination for a five-year period. The new guidance is effective
for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. We do not anticipate that this will
have a material impact to our consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material
effect on the accompanying condensed consolidated financial statements.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
|
|
Furniture and fixtures
|
|
$
|
3,502
|
|
|
$
|
3,502
|
|
Computers and software
|
|
|
17,007
|
|
|
|
11,447
|
|
Machinery and equipment
|
|
|
946,515
|
|
|
|
956,655
|
|
|
|
|
967,024
|
|
|
|
971,604
|
|
Less: accumulated
depreciation
|
|
|
467,354
|
|
|
|
446,095
|
|
|
|
|
|
|
|
|
|
|
Total property and
equipment, net
|
|
$
|
499,670
|
|
|
$
|
525,509
|
|
Depreciation
expense for the three months ended September 30, 2019 and 2018 was $24,834 and $25,006, respectively.
NOTE
3 – INTANGIBLES
Internally
Developed Software
In
July 2019, the Company acquired certain intellectual property consisting of in-process research and development software and recorded
$650,000 to Intangibles on the condensed consolidated balance sheets as of September 30, 2019. The aggregate purchase price paid in connection
with the asset purchase was $650,000. At closing, the Company issued 9,718,182 of shares of our common stock with a fair market value
of $277,940, and a note payable of $372,060 to the sellers. The note payable is payable in cash or shares of the Company’s common
stock. Subsequent to the closing, the Company issued 3,527,337 common shares in March 2021 and
6,095,535 remain issuable at the date of this filing. The software consists of costs
incurred during the application development stage, which include costs to design the software configuration and interfaces, coding, installation,
and testing. No software amortization was recorded during the three months ended September 30, 2019 and amortization will commence when
the software module is functional and ready for intended use.
Licenses
and Patents
The
Company maintains certain patents and licenses which are key to maintaining and enhancing our competitive
position in the growing nanomaterials market. Licenses and patents are stated at cost. Amortization is computed on the straight-line
basis over the estimated useful life of five years. Amortization expense for the three months ended September 30, 2019 and 2018
$6,911 and $6,864, respectively. The table below sets forth our license and patents as of September
30, 2019 and June 30, 2019.
|
|
September
30, 2019
|
|
|
June
30, 2019
|
|
|
|
(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
|
|
|
181,360
|
|
|
|
174,449
|
|
|
|
|
|
|
|
|
|
|
Total licenses and patents,
net
|
|
$
|
11,383
|
|
|
$
|
18,294
|
|
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.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 September 30, 2019, and June 30, 2019, 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 September 30, 2019, and June 30, 2019, the Company held no investments. The Company hired an independent resource to
value its derivative liability as follows (unaudited):
Fair
Value Table
|
|
Balance
at September 30, 2019
|
|
|
Quoted
Prices in Active Markets for Identical Liabilities (Level 1)
|
|
|
Significant
Other Observable Inputs (Level 2)
|
|
|
Significant
Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
21,810
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
21,810
|
|
Liability for insufficient shares
|
|
|
-
|
|
|
|
2,497,955
|
|
|
|
-
|
|
|
|
2,497,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,810
|
|
|
$
|
2,497,955
|
|
|
$
|
-
|
|
|
$
|
2,519,765
|
|
Level Three Roll-forward
|
|
Derivative
Liability
|
|
|
Total
|
|
|
|
|
|
|
|
|
Balance June 30, 2019
|
|
$
|
45,692
|
|
|
$
|
45,692
|
|
Addition
of derivative liabilities
|
|
|
50,522
|
|
|
|
50,522
|
|
Settlement of derivative liabilities
|
|
|
(45,692
|
)
|
|
|
(45,692
|
)
|
Change in fair value
|
|
|
(28,712
|
)
|
|
|
(28,712
|
)
|
Balance September
30, 2019
|
|
$
|
21,810
|
|
|
$
|
21,810
|
|
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5 – DEBENTURES
The
following table sets forth activity associated with the convertible and non-convertible debentures:
|
|
September 30,
|
|
|
June 30,
|
|
|
Debenture
|
|
|
2019
|
|
|
2019
|
|
|
Reference
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures issued in
September 2014
|
|
$
|
25,050
|
|
|
$
|
25,050
|
|
|
A
|
Convertible debentures issued in April - June
2016
|
|
|
1,060,716
|
|
|
|
1,218,772
|
|
|
B
|
Convertible debenture issued in August 2016
|
|
|
200,000
|
|
|
|
200,000
|
|
|
B
|
Convertible debentures issued in January -
March 2017
|
|
|
60,000
|
|
|
|
60,000
|
|
|
C
|
Convertible promissory notes issued in March
2017
|
|
|
222,350
|
|
|
|
222,350
|
|
|
D
|
Convertible debenture issued in June 2017
|
|
|
-
|
|
|
|
100,000
|
|
|
E
|
Convertible debenture issued in July 2017
|
|
|
100,000
|
|
|
|
100,000
|
|
|
F
|
Convertible debenture issued in September 2017
|
|
|
150,000
|
|
|
|
150,000
|
|
|
G
|
Convertible debenture issued in November 2017
|
|
|
27,000
|
|
|
|
27,000
|
|
|
H
|
Convertible debenture issued in December 2017
|
|
|
75,000
|
|
|
|
75,000
|
|
|
I
|
Convertible debenture issued in February 2018
|
|
|
45,000
|
|
|
|
45,000
|
|
|
J
|
Convertible debentures issued in March 2018
|
|
|
65,000
|
|
|
|
65,000
|
|
|
K
|
Convertible debentures issued in April 2018
|
|
|
100,000
|
|
|
|
60,000
|
|
|
L
|
Convertible debentures issued in April 2018
|
|
|
70,000
|
|
|
|
70,000
|
|
|
M
|
Convertible debentures issued in April 2018
|
|
|
20,000
|
|
|
|
20,000
|
|
|
N
|
Convertible debentures issued in June 2018
|
|
|
-
|
|
|
|
40,000
|
|
|
O
|
Convertible debentures issued in July 2018
|
|
|
45,000
|
|
|
|
45,000
|
|
|
P
|
Convertible debentures issued in August 2018
|
|
|
30,000
|
|
|
|
30,000
|
|
|
Q
|
Convertible debentures issued in September
2018
|
|
|
25,000
|
|
|
|
25,000
|
|
|
R
|
Convertible debentures issued in December 2018
|
|
|
52,000
|
|
|
|
52,000
|
|
|
S
|
Non-convertible debentures
issued in July 2019
|
|
|
175,000
|
|
|
|
-
|
|
|
T
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,547,116
|
|
|
|
2,630,172
|
|
|
|
Less: unamortized discount
|
|
|
30,351
|
|
|
|
27,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,516,765
|
|
|
|
2,602,448
|
|
|
|
Less: current portion
|
|
|
2,388,041
|
|
|
|
2,467,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible debentures,
net of current portion
|
|
$
|
128,725
|
|
|
$
|
135,342
|
|
|
|
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
three months ended September 30, 2019. As of the date of this filing the notes are past due.
Interest
expense for the three months ended September 30, 2019 and 2018 was $384 and $384, respectively.
As
of September 30, 2019 and June 30, 2018, $25,050 of principal was outstanding.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
B)
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 three months ended September 30, 2019, and 2018, of $2,564
and $2,564, respectively.
Interest
expense for the three months ended September 30, 2019, and 2018, of $24,881 and $26,067, respectively.
During
the years ended June 30, 2018 and 2017, $455,000 and $285,000 of principal was converted into 3,791,666 and 2,375,000 shares of common
stock, respectively. As of September 30, 2019 and June 30, 2019, $1,260,716 and $1,418,772 of principal was outstanding,
respectively. Maturities totaling $825,000 of principal have been extended for one year until March and April of 2019. As of the date
of this filing the notes are past due.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
C)
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 three months ended September 30, 2019 and 2018 of $2,595 and $1,547,
respectively.
During
the year ended June 30, 2018, $200,000 of these debentures converted into 1,666,667 shares of common stock.
Interest
expense for the three months ended September 30, 2019 and 2018 of $2,085 and $1,210, respectively.
As
of September 30, 2019 and June 30, 2019, $60,000 of principal was outstanding. As of the date of this filing the notes are past due.
D)
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.
In
March 2017, the Company entered into an equity purchase agreement (“Eloc”) with SBI and L2 Capital, allowing them to purchase
up to $5,000,000 of the Company’s common stock. As consideration for SBI and L2 Capital, the Company agreed to pay SBI and L2 Capital
commitment fees of $63,000 and $147,000, respectively. These commitment fees were issued in the form of promissory notes, which bear
interest at 8% per annum and have mature nine months from the date of issuance. The promissory notes are convertible into unregistered
and restricted shares of Common Stock only if there is an Event of Default as defined in the notes.
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 $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 three months ended September 30, 2019 and June 30, 2019 of $0.
Interest
expense for the three months ended September 30, 2019 and 2018 of $3,811 and $0, respectively.
As
of September 30, 2019, and June 30, 2019, $222,350 of principal was outstanding, respectively. During the year ended June 30, 2018, the
Company paid $319,500 of principal. As of the date of this filing the notes are past due.
E)
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 maturity date of the Note was extended to May 1, 2018
in an extension agreement dated April 6, 2018. The promissory note is pre-payable by the Company at any time without penalty. The Note
Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.12 per share at
any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement
it files with the SEC all shares issuable upon conversion of the note.
In
accounting for the convertible promissory note, the Company allocated the fair value of the 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 three months ended September 30, 2019 and 2018 of $0. The Company recognized accretion
of debt discount expense for the three months ended September 30, 2019 and 2018 of $0. In July 2019, the debenture and interest payable
were converted to 6,136,363 shares of common stock.
F)
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 has a term of six months maturing on December 16, 2017
and stipulates a interest charge of eight percent (8%) shall be applied to the principal. The maturity date of the Note was extended
to May24, 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 three months ended
September 30, 2019 and 2018 of $0. As of September 30, 2019, and June 30, 2019, $100,000 of principal was outstanding. In May 2018 the
maturity date was extended to February 1, 2019. As of the date of this filing the note is past due.
Interest
expense for the three months ended September 30, 2019 and 2018 was $17,066 and $0, respectively.
G)
September 2017 Convertible Debenture
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 has 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 three months ended
September 30, 2019 and 2018 of $0. As of September 30, 2019, and June 30, 2019, $150,000 of principal was outstanding. In May 2018 the
maturity date was extended to February 1, 2019. As of the date of this filing the note is past due.
Interest
expense for the three months ended September 30, 2019 and 2018 was $21,100 and $0.
H)
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.
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 three months ended September 30, 2019 and 2018 of $845 and $780, respectively.
Interest expense for the three months ended September 30, 2019 and 2018 of $552 and $552, respectively. As of September 30, 2019 and
June 30, 2019, $27,000 of principal was outstanding. As of the date of this filing the note is past due.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
I)
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
three months ended September 30, 2019 and 2018 of $0. Interest expense for the three months ended September 30, 2019 and 2018 of $16,924
and $0, respectively. As of September 30, 2019 and June 30, 2019, $75,000 of principal was outstanding. As of the date of this filing
the note is past due.
J)
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.
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
three months ended September 30, 2019 and 2018 of $0 and $6,761, respectively. Interest expense for the three months ended September
30, 2019 and 2018 of $12,738 and $0, respectively. As of September 30, 2019 and June 30, 2019, $45,000 of principal was outstanding.
As of the date of this filing the note is past due.
K)
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 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 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.
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 $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
three months ended September 30, 2019 and 2018 of $0 and $8,677, respectively. Interest expense for the three months ended September
30, 2019 and 2018 of $11,804 and $0, respectively was recognized. As of September 30, 2019 and June 30, 2018, $30,000 of principal was
outstanding. As of the date of this filing the note is past due.
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
three months ended September 30, 2019 and 2018 of $0 and $12,254, respectively. Interest expense for the three months ended September
30, 2019 and 2018 of $12,562 and $0. As of September 30, 2019 and June 30, 2018, $35,000 of principal was outstanding. As of
the date of this filing the note is past due.
L)
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 $100,000. 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
three months ended September 30, 2019 and 2018 of $0 and $20,673, respectively. Interest expense for the three months ended September
30, 2019 and 2018 of $16,673 and $0, respectively was recognized. As of September 30, 2019 and June 30, 2019, $100,000 and $60,000,
respectively, of principal was outstanding. As of the date of this filing the note is past due.
M)
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.
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 $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
three months ended September 30, 2019 and 2018 of $3,991 and $3.685, respectively. Interest expense for the three months ended September
30, 2019 and 2018 of $1,431 and $2,458 was recognized, respectively. As of September 30, 2019 and June 30, 2019, $70,000 of principal
was outstanding. In July of 2020, the Company entered into an extension agreement with the Note Holder to extend the maturity date
of the note to April 2022.
N)
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.
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
three months ended September 30, 2019 and 2018 of $1,851 and $1,709, respectively. Interest expense for the three months ended September
30, 2019 and 2018 of $409 and $724 was recognized, respectively. As of September 30, 2019 and June 30, 2019, $20,000 of principal was
outstanding. As of the date of this filing the note is past due.
O)
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
three months ended September 30, 2019 and 2018 of $0 and $13,583, respectively. Interest expense for the three months ended September
30, 2019 and 2018 of $0 was recognized. In July 2019, the debenture and interest payable were converted into 3,287,458 of common shares.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
P)
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
three months ended September 30, 2019 and 2019 of $0 and $12,260, respectively. Interest expense for the three months ended September
30, 2019 and 2018 of $12,615 and $3,600, respectively was recognized. As of September 30, 2019 and June 30, 2018 $45,000 of principal
was outstanding. As of the date of this filing the note is past due.
Q)
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
three months ended September 30, 2019 and 2018 of $0 and $4,450. Interest expense for the three months ended September 30, 2019 and 2018
of $12,170 and $2,400, respectively was recognized. As of September 30, 2019 and June 30, 2018, $30,000 of principal was outstanding.
As of the date of this filing the note is past due.
R)
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.
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 $4,475 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
three months ended September 30, 2019 and 2018 of $0 and $1,067, respectively. Interest expense for the three months ended September
30, 2019 and 2018 of $12,176 and $2,000, respectively was recognized. As of September 30, 2019 and June 30, 2019, $25,000 of principal
was outstanding. As of the date of this filing the note is past due.
S)
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 three months ended September 30, 2019 and 2018, of $834 and $264, respectively.
Interest
expense for the three months ended September 30, 2019 and 2018, was $1,063 and $300, respectively. As of September 30, 2019 and June
30, 2019, $52,000 of principal was outstanding. As of the date of this filing the notes are past due.
T)
July 2019 Non-Convertible Debentures
In
July 2019, the Company entered into Non- Convertible Promissory Notes to obtain $175,000 in gross proceeds from non-affiliated parties
(collectively hereinafter referred to as the “Note Holders”) in exchange for the non-convertible promissory notes in the
principal amount of $175,000. The Note Holders received warrants to purchase 700,000 shares of the Company’s common stock, par
value $0.001 per share (the “Common Stock”) at a purchase price of $0.025 per share (each, a “Warrant”) over
a period of three years. The promissory note has a term of approximately 12 months maturing in July 2020 and stipulates an interest charge
of ten percent (10%) shall be paid quarterly. The promissory note is pre-payable by the Company at any time without penalty.
In
accounting for the non-convertible promissory note, the company allocated the fair value of the warrants to the proceeds received in
the amount of $15,530 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan,
12 months. The Company recognized accretion of debt discount expense for the three months ended September 30, 2019 of $3,883. Interest
expense for the three months ended September 30, 2019 of $2,700 was recognized. As of September 30, 2019 $175,000 of principal was outstanding.
In July of 2020, the Company entered into an extension agreement with the Note Holders to extend the maturity date of the notes to
July 2021.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Warrant
Liability
The
Company issued warrants to purchase 700,000 shares of its common stock in connection with the non-convertible debentures in
note T above during the three months ended September 30, 2019 and recorded these outstanding warrants as a liability at fair
value utilizing a Black-Scholes-Merton model. This liability is subject to re-measurement at each balance sheet date, and any change
in fair value is recognized in the Company’s condensed consolidated statements of operations. The assumptions utilized
in this model for warrants issued during the three months ended September 30, 2019 are presented below (unaudited).
|
|
September
30, 2019
|
Expected
volatility
|
|
|
126.70
|
%
|
Expected
dividend yield
|
|
|
0.0
|
%
|
Risk-free
interest rates
|
|
|
1.63
|
%
|
Expected
term (in years)
|
|
|
2.78
- 2.79
|
|
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 three
months ended September 30, 2019 and 2018 was $2,895 and $90,010 respectively.
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 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 $.04 per share,
with warrants to purchase an equal amount of stock. Interest expense for the three months ended September 30, 2019 and 2018 was $0 and
$69, respectively. As of September 30, 2019 and June 30, 2019, $20,000 of principal was outstanding.
NOTE
7 – EQUITY TRANSACTIONS
Common
Stock
On
August 6, 2019, the Company purchased the distributed ledger technology assets of Capstan Platform, Inc. for $650,000 payable
in common shares or cash. The company issued 9,718,182 and 3,527,337 common shares during August 2019 and March 2021, respectively,
and 6,095,535 remain issuable at the date of this filing. The number of shares issued is determined by using a five-day average,
prior to the date of issuance, of our common stock closing price. During the three months ending September 30, 2019 the aggregate fair
value of the 9,718,182 issued in such period was $277,940. The remaining amount due to the seller as of September 30, 2019 of $372,060
has been recorded in accrued expenses. See Note 1 – “Basis of Presentation” for additional information.
During
the three months ended September 30, 2019, the Company issued 15,068,772 shares for $365,558 in consulting services, $128,968 of which
was accrued at June 30, 2019.
During
the three months ended September 30, 2019, the Company issued 282,348 shares of common stock at the fair market value of $8,470 for payment
of debenture interest.
During
the three months ended September 30, 2019, the Company issued 21,926,474 shares of common stock at the fair market value of $779,705
for payment of debenture conversions of which $578,946 was accrued at June 30, 2019.
During
the three months ended September 30, 2019, the Company amortized a market value of $214,882 of stock paid for future services.
In
total, the Company has recorded a fair market value of $457,792 for common stock payable to accrued expenses as of September 30, 2019.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock
Warrants
A
summary of activity of the Company’s stock warrants for the three months ended September 30, 2019 is presented below (unaudited):
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
Remaining
|
|
Average
|
|
Aggregate
|
|
|
Exercise
|
|
Number
of
|
|
Contractual
|
|
Grant
Date
|
|
Intrinsic
|
|
|
Price
|
|
Warrants
|
|
Term
in Years
|
|
Fair
Value
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of June 30, 2019
|
|
|
0.10
|
|
|
|
44,913,101
|
|
|
|
1.83
|
|
|
|
0.08
|
|
|
$
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
0.030
|
|
|
|
700,000
|
|
|
|
2.79
|
|
|
|
0.030
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
0.12
|
|
|
|
(250,000.00
|
)
|
|
|
-
|
|
|
|
0.12
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
and exercisable as of September 30, 2019
|
|
$
|
0.10
|
|
|
|
45,363,101
|
|
|
|
1.64
|
|
|
$
|
0.08
|
|
|
$
|
-
|
|
Outstanding
warrants at September 30, 2019 expire during the period October 2019 to December 2023 and have exercise prices ranging from $0.03 to
$0.30, valued at $4,696,468. 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 September 30, 2018, 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 three months ended September 30, 2019, we issued 1,500,000 shares of restricted stock out of the plan, leaving 100,000 options
or grants available for grant under the plan.
In
March 2012, 3,500,000 stock options, with a term of five years, were granted outside of a stock option plan. In March 2017, the term
of these options was extended for an additional five years. In June 2016, and 2017, 6,000,000 and 17,000,000 stock options, with a term
of ten years, were granted, respectively, outside of a stock option plan, and 3,000,000 shares were cancelled, leaving a balance of 23,500,000
outstanding outside of a defined option plan.
In
January 2013 the Board of Directors authorized the approval of a stock option plan covering 20,000,000 shares of common stock, which
was increased to 60,000,000 shares in March 2013 and approved by stockholders in March 2013. The Plan provides for the direct issuance
of common stock and the grant of incentive and non-incentive stock options. As of September 30, 2019, 72,653,473 options have been granted,
with terms ranging from five to ten years, 3,325,000 have been exercised and 18,886,559 have been cancelled, and 50,441,914 remain outstanding.
On
February 17, 2016, the Shareholders approved the 2015 Employee Benefit and Consulting Services Compensation Plan covering 15,000,000
shares. The Plan provides for the direct issuance of common stock and the grant of incentive and non-incentive stock options. As of September
30, 2019, 4,900,000 options have been granted with a term of five years, and 1,625,000 have been cancelled leaving a balance outstanding
of 3,275,000 options.
Incentive
Stock Options: The Company estimates the fair value of each stock option on the date of grant using the Black-Scholes-Merton valuation
model. The volatility is based on expected volatility over the expected life of thirty-six to sixty months. 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)
A
summary of the activity of the Company’s stock options for the three months ended September 30, 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, 2019
|
|
$
|
0.07
|
|
|
|
109,908,433
|
|
|
|
3.93
|
|
|
$
|
0.09
|
|
|
$
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2019
|
|
$
|
0.07
|
|
|
|
109,908,433
|
|
|
|
3.37
|
|
|
$
|
0.09
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable as of September
30, 2019
|
|
$
|
0.07
|
|
|
|
106,158,433
|
|
|
|
3.37
|
|
|
$
|
0.09
|
|
|
$
|
-
|
|
Outstanding
options at September 30, 2019, expire during the period October 2019 to June 2026 and have exercise prices ranging from $0.02 to $0.17.
Compensation
expense associated with stock options for the three months ended September 30, 2019 and 2018 was $37,366 and $207,452 respectively and
was included in general and administrative expenses in the condensed consolidated statements of operations.
At
September 30, 2019, the Company had 3,750,000 shares of nonvested stock option awards. The total cost of nonvested stock option awards
which the Company had not yet recognized was $32,387. Such amounts are expected to be recognized in the current year.
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 (unaudited):
|
|
Three
Months Ended
|
|
|
|
September
30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,968,994
|
)
|
|
$
|
(1,624,946
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
606,938,649
|
|
|
|
471,961,937
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss
per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
QUANTUM
MATERIALS CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 September 30, 2019, no royalties have been accrued for this obligation.
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 three months ended September 30, 2019 and 2018 was $24,407 and $18,864, 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-K, the balance in arrears is approximately
$53,000 plus interest and other charges which has been accrued at June 30, 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.
QUANTUM
MATERIALS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CAUSE
NUMBER 17-2033; Hays County, Texas
Two
lenders, SBI Investments LLC, 2014-1, and L2 Capital, LLC, asked the Company’ transfer agent, Empire Stock Transfer, Inc., to set
aside fifty-million (50,000,000) shares of stock as collateral for four loan agreements the Company 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 on September 28, 2017. 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 the Company. The Company filed a motion to disqualify the law firm for that conflict, and they subsequently withdrew.
SBI
and L2, with new counsel, and Cleveland Terrazas PLLC, brought suit against the Company on October 10, 2017 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 the Company’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 the Company 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 claimed 140% interest, attorney’s fees, 20 million shares of stock, and damages.
The
case has been dismissed as of the date of this report.
CAUSE
NUMBER: 17CV06093; Johnson County, Kansas
The
Kansas lawsuit, instituted on October 30, 2017, 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 the Company; the second claim is for breach of contract of the first L2 promissory note against the Company;
the final claim is for breach of contract regarding the second L2 promissory note against both the Company and Stephen Squires, individually.
The claims against Squires individually were abandoned. Trial was conducted October 13th, 2020. Final arguments were submitted
in writing to the court February 2021. The court has not yet ruled.
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, instituted on October 30, 2017, largely mirrors the suit in Kansas; defaults are alleged as follows:
On
July 6, 2017, the Company 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 the Company, SBI alleged that the Revised Report materially and adversely affects
SBI’s rights with respect to the notes, constituting a breach of each of the notes. Furthermore, because each note contains a cross-default
clause, SBI alleged that each of the Company’s breaches of a specific note also constituted a breach of every other note.
On
July 27, 2017, the Company’s auditor resigned, and the Company replaced its auditor without seeking or obtaining the consent of
SBI. SBI alleged that this replacement of the Company’s auditor constituted a breach of the SBI notes, and because each note contains
a cross-default clause, of every other note.
The
Company denies all of the above-mentioned allegations and will vigorously defend all claims.
The
case was reheard in late March 2018 and a 45-day continuance was decided resulting in an April 30, 2018 rehearing. After a day of litigation
in San Marcos, the Company’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 the Company and awarded costs of court.
QUANTUM
MATERIALS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On
March 29, 2018, at a discovery hearing, wherein the Company 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 is scheduled in Kansas in April 2019.
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 September 30, 2019.
CAUSE
NUMBER: PSC190273; Riverside California
Edward
James Schloss file a complaint against Quantum Materials Corp and Solterra alleging financial elder abuse, fraud, breach of written contract,
breach of oral contract, constructive termination, retaliation, failure to pay wages, waiting time penalties, failure to permit inspection
of employee records, unfair competition, intentional infliction of emotional distress and failure to indemnify employee expenses. Mr.
Schloss was a former officer and later a contractor to the company after his dismissal and is owed fees. The Company expects to be
successful in the litigation. The ultimate outcome is not determinable and as such, no liability has been recorded for this contingent
liability at September 30, 2019.
CAUSE
NUMBER: 19-2774; Hays County Texas
This
litigation filed November 12, 2019 in Hays County (San Marcos) alleged misappropriation of trade secrets and related claims based on
Quantum Material Corp’s (“QMC” or “Company”) hiring of a previous employee of the Plaintiff (Practice Interactive,
Inc. d/b/a Intiva Health “Intiva”). Intiva initiated the case by securing a no-notice temporary restraining order against
the Company and the employee (“Hartigan”).
At
a temporary injunction trial in December 2019, the court granted a limited injunction against Hartigan and found no basis to enjoin the
Company. The court set the bond at $50,000: Intiva never took action to post the bond; thus the injunction never went into effect. The
order also set the case for trial in July 2021. Although the plaintiff only recently proposed a discovery and trial schedule, no discovery
has occurred. The parties filed a Rule 11 Agreement on December 15, 2020.
CAUSE
NUMBER: 18-2393; Hays County, Texas
The
current litigation with K&L Gates was pending before the Texas Supreme Court. It was awaiting a ruling to determine if the strong
opinion at the 3rd Court of Appeals in Austin in favor of Quantum Materials will be reversed. The state Supreme Court on Oct 15, 2020
declined to take the interlocutory appeal. The case has now been sent back to Hays County for a jury trial.
Quantum
Materials retained K&L Gates (“Gates”) on a myriad of issues. As part of that representation, a lawyer from Gates sat
in on confidential board meetings and participated in the company’s most important negotiations, including but not limited to a
new contract with the founder and former CEO, Steve Squires, to become CEO again. Gates billed a very substantial fee in a very short
period of time. Over $300,000. Before negotiations occurred on what Squires believed to be an excessive bill, SBI Investments and L2,
creditors of Quantum Materials, demanded that the transfer agent, Empire Stock Transfer, transfer huge amounts of stock as collateral
for loans.
Quantum
Materials sued Empire to prevent this transfer, first winning a Temporary Restraining Order, then a Temporary Injunction, and finally,
after an appeal to the 3rd Court of Appeals in Austin, an appellate victory.
Before
that appellate victory and before the Injunction trial, K&L Gates entered an appearance for SBI Investments and L2, even though they
were still under contract with Quantum Materials as intervenors. Quantum Materials objected and raised objections to their firm, entering
an appearance against them. K&L Gates forced substantial research, and briefs to be filed before withdrawing before the Temporary
Injunction trial. (see TRO, TI order, appellate opinion.)
Either
K&L Gates shared all information with their “new” client, to the disadvantage of their “old” client, a duty
under full disclosure, or they didn’t share. Gates claimed that the contract with Quantum Materials waived all conflicts.
Following
up on the actions begun by Gates on behalf of SBI Investments and L2, the suit by Gates against Quantum Materials was dismissed in Texas,
and another law firm sued Quantum Materials in both Florida and Kansas. In Florida, the case was ultimately dismissed, and legal fees
were ordered to be paid to Quantum Materials. Much of the Kansas case has been dismissed, but the balance is set to be tried in Kansas
in October. (see the report on Kansas case.)
Ultimately,
Quantum Materials sued K&L Gates for fiduciary violations and Deceptive Trade Practices and other claims (see suit), and Gates filed
a counterclaim for its $300,000 in alleged fees. Gates filed an action to dismiss the case, called a “SLAPP” action, and
after a hearing on the merits in Hays County, lost. Gates then appealed to the 3rd court of appeals in Austin, and after briefing
and oral argument, again lost. Gates has now appealed its most recent defeat to the Texas Supreme Court.
NOTE
12 – SUPPLEMENTAL CASH FLOW INFORMATION
The
following is supplemental cash flow information:
The
following is supplemental disclosure of non-cash investing and financing activities (unaudited):
|
|
Three
Months Ended
|
|
|
|
September
30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
179,109
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
Three
Months Ended
|
|
|
|
September
30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Conversion
of debentures, and accrued interest into shares of common stock
|
|
$
|
285,564
|
|
|
$
|
21,342
|
|
|
|
|
|
|
|
|
|
|
Allocated value of common
stock and warrants issued with convertible debentures
|
|
$
|
-
|
|
|
$
|
75,202
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
issued with convertible debentures
|
|
$
|
15,530
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Stock issued for purchase
of intangible assets
|
|
$
|
277,940
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Accrued
expenses for intangible assets
|
|
$
|
372,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for amounts
in accounts payable
|
|
$
|
-
|
|
|
$
|
61,255
|
|
|
|
|
|
|
|
|
|
|
Prepaid expense paid
in shares of common stock
|
|
$
|
-
|
|
|
$
|
164,588
|
|
NOTE
13 – TRANSACTIONS WITH AFFILIATED PARTIES
At
September 30, 2019 and 2018, the Company had accrued salaries payable to executives in the amount of $793,151 and $593,075, respectively.
NOTE
14 - SUBSEQUENT EVENTS
Debentures
Issuances
During
November 2019, the company issued five convertible debentures for $175,000 with a one-year term at 8% annual interest accompanied by
warrants to purchase 1,309,665 common shares at fair market value with a five-year term.
During
the three months ended March 31, 2020, the company issued five convertible debentures for $ 2,145,000 with a one-year to two-year term
at 8% annual interest accompanied by warrants to purchase 1,838,964 common shares at fair market value with a five-year term.
During
the three months ended June 30, 2020, under the Small Business Administration (“SBA”), the Company received proceeds the
Paycheck Protection Program (“PPP”) loan. These loans are forgiven if used for payroll, payroll benefits, including health
insurance and retirement plans, as well as certain rent payments, leases, and utility payments, which are limited to 40% of the loan
proceeds, all of which if paid within either 8 weeks or 24 weeks of the receipt of the loan proceeds. At the time of this filing, we
have been funded for $147,300 in loans. At the time of this filing, we anticipate having a significant amount of this loan forgiven,
however the forgiveness application process is not yet complete. If a portion of these loans are not forgiven, the unqualified portion
is to be repaid over 5 years, accruing interest at 1% per annum.
During
the three months ended June 30, 2020, the company issued five convertible debentures for $ 150,000 with a one-year term at 8% annual
interest accompanied by warrants to purchase 3,750,000 common shares at fair market value with a five-year term.
During
the three months ended September 30, 2020, the company issued seven convertible debentures for $525,000 with a one-year term at 8% annual
interest accompanied by warrants to purchase 8,035,725 common shares at fair market value with a five-year term.
During the three months ended December 31,
2020, the company issued three convertible debentures for $ 3,000,000 with a one-year term at 8% annual interest which were subsequently
converted into a two convertible notes payable in March 2021 for a total of $7,500,000 as part of the Pasaca
Capital investment transactions.
During
February 2020, the company entered into a marketing consulting and distribution agreement with QMVT Vertical Markets, LLC to assist in
building a marketing and sales force to operate in parallel with Research and development at Quantum Materials Corp. To move forward
along with this effort, QMVT invested a total of $2 million in two convertible notes with a 2-year term at 8% interest and convertible
into 66 million shares of common stock.
On
January 26, 2021, Quantum Materials Corp. (the “Company”) and Pasaca Capital Inc. (“Pasaca”) entered
into a Securities Purchase and Financing Agreement (the “Purchase Agreement”). Pursuant to the terms of the
Purchase Agreement, at the first closing, Pasaca will convert three previously issued promissory notes made by the Company
payable to Pasaca and loan to the Company an additional $1,500,000 pursuant to a certain Secured Convertible Promissory Note
(the “Convertible Note”) made by the Company payable to Pasaca in the principal amount of $4,500,000 (the
“Senior Note”). The Senior Note is convertible into 154,228,625 shares of the Company’s common stock (the
“Note Shares”). At the second closing, Pasaca will purchase common stock of the Company (“Common
Stock”) in an amount such that, after such purchase and the conversion of the Senior Note into the Note Shares, Pasaca
will own fifty-one percent (51.0%) of the fully diluted common stock of the Company. The purchase price for the Common Stock
to be sold in the second closing is $10,500,000. Pasaca will also have the right to appoint three members to the
Company’s Board of Directors. Both the first and second closing are subject to numerous contingencies, as set forth in
the Purchase Agreement. In March 2021, the Purchase Agreement was amended and the original
notes were revised into two notes. The first Convertible Note dated March 8, 2021 made by the Company payable to Pasaca in the
principal amount of $3,450,000. The note is convertible into 118,241,945 shares of the Company’s common stock with a conditional
maturity date of June 8, 2021. The second Convertible Note dated March 9, 2021 made by the Company payable to Pasaca in the principal
amount of $2,750,000 The note is convertible into 94,250,826 shares of the Company’s common stock with a conditional maturity
date of June 9, 2021.
Also
as set forth on January 26, 2021, the Company and Pasaca entered into a Registration Rights Agreement (the “Registration Rights
Agreement”). Pursuant to the terms of the Registration Rights Agreement, holders of twenty percent of the total shares of Note
Shares and Common Stock issued pursuant to the Purchase Agreement (the “Registrable Shares”) shall have the right to require
the Company to register at least thirty percent of such shares for sale on Form S-1 of Form S-3 under the Securities Act of 1933, as
amended (the “33 Act”). In addition, holders of ten percent of the Registrable Securities shall have the right to require
the Company to register such shares for sale on Form S-3 under the 33 Act. The Registration Rights Agreement also provides for piggy-back
registration rights. Pursuant to the Registration Rights Agreement, should the Company determine to issue new equity securities of the
Company, or securities convertible into equity securities of the Company, it must offer such new securities to Pasaca and/or its assigns.
Also, on
January 26, 2021, the Company and Pasaca entered into a Distribution Agreement (the “Distribution Agreement”). Pursuant to
the terms of the Distribution Agreement, the Company appointed Pasaca to act as an independent distributor to resell and distribute the
Company’s Quantum Dots and QMC HealthID products. Under the Distribution Agreement, Pasaca guaranteed that the Company would receive
cumulative gross royalties and/or gross sales, licensing or other revenues under the Distribution Agreement of no less than $15,000,000,
over the period including 2020 and continuing until twelve months after the Company has completed development of a functioning product
integrating the QMC HealthID IP and Innova Medical Group’s products. Pasaca has the right to extend the revenue period by up to
twenty-four months upon payment of advance royalties. At the date of this report, we have drawn $7,250,000 in advance draws, and these
accrued interest at 8% until the date of conversion.
Common
Share Issuances
During
the first three months of calendar year 2021, the company issued 3,333,333 shares due from a subscription agreement entered into during
2019, 2,133,333 in exchange for legal fees payable, 3,527,337 shares in exchange for asset purchase and 2,081,017 shares in exchange for exercise of warrants.
Also,
subsequent to September 30, 2019, the company issued 59,728,063 shares related to the conversion of eleven outstanding
debentures totaling $680,000 in principal and $320,000 interest common shares. In addition, the Company issued 422,297 shares
in exchange for exercise of warrants.