UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~December 3031, 2019

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

Commission File Number: 000-52956

QUANTUM MATERIALS CORP.

(Exact name of registrant as specified in its charter)

Nevada

20-8195578

(State or other jurisdiction

of incorporation or organization)

(IRS Employer

Identification No.)

3055 Hunter Road, San Marcos, Texas		78666
(Address of principal executive offices)		(Zip Code)

512-245-6646

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.001 Par Value

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes [ ] No [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [X]
	Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

[ ] Yes [ ] No

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

[ ] Yes [X] No

As of ~~April~~June 2018, 2021, there were 701,569,276 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

	Page
PART I – FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3335
Item 3. Quantitative and Qualitative Disclosures about Market Risk	4448
Item 4. Controls and Procedures	4448
PART II – OTHER INFORMATION	4650
Item 1. Legal Proceedings	4650
Item 1A. Risk Factors	4650
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4750
Item 3. Defaults upon Senior Securities	4750
Item 4. Mine Safety Disclosures	4750
Item 5. Other Information	4750
Item 6. Exhibits	4752
Signatures	4853

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

QUANTUM MATERIALS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			June 30,
	December 31,			June 30,
	2019			2019
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	837,~~735~~473		$	478
Accounts Receivable		-			400
Prepaid expenses and other current assets		2322,~~525~~718			19,191
TOTAL CURRENT ASSETS		3260,~~260~~191			20,069
Property and equipment, net of accumulated depreciation of $467,354 and $446,095		499,670			525,509
Property and equipment, net of accumulated depreciation of $492,533 and $446,095		474,491			525,509
Licenses and patents, net of accumulated amortization of $181,360 and $174,449		11,383			18,294
Licenses and patents, net of accumulated amortization of $188,271 and $174,449		4,472			18,294
Intangibles		650,000			-
TOTAL ASSETS	$	1,~~193~~189,~~313~~154		$	563,872
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable	$	1,~~519~~823,~~106~~296		$	1,629,741
Accrued expenses		3,~~620~~565,~~181~~349			1,573,690
Accrued salaries		1,~~023~~010,~~151~~801			924,957
Contract liabilities		1,197,973			500,000
Notes payable, net of unamortized discount		20,000			20,000
Short term derivative liability		21106,~~810~~410			45,692
Current portion of convertible debentures, net of unamortized discount		2,~~388~~351,~~041~~951			2,467,106
TOTAL CURRENT LIABILITIES		910,~~790~~075,~~262~~780			7,161,186
Convertible debentures, net of current portion, unamortized discount and debt issuance costs		~~128~~325,~~725~~000			135,342
TOTAL LIABILITIES		910,~~918~~400,~~987~~780			7,296,528
Commitments and contingencies (See Note 10)		-			-
STOCKHOLDERS’ DEFICIT
Common stock, $.001 par value, authorized 750,000,000 shares, 630,310,563 and 583,314,787 issued and outstanding at September 30, 2019 and June 30, 2019, respectively		630,311			583,326
Common stock, $.001 par value, authorized 750,000,000 shares, 639,446,926 and 583,314,787 issued and outstanding at December 31, 2019 and June 30, 2019, respectively		639,447			583,326
Common stock issuable		-			707,914
Additional paid-in capital		4950,~~414~~050,~~586~~215			47,777,681
Accumulated deficit		(5859,~~770~~901,~~571~~288	)		(55,801,577	)
TOTAL STOCKHOLDERS’ DEFICIT		(89,~~725~~211,~~674~~626	)		(6,732,656	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	1,~~193~~189,~~313~~154		$	563,872

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

QUANTUM MATERIALS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended						Six Months Ended
	September 30,
	December 31						December 31
	2019			2018			2019			2018
	(unaudited)						(unaudited)
REVENUES	$	-		$	-		$	-		$	-
OPERATING EXPENSES
General and administrative		1,~~043~~047,~~085~~916			1,~~361~~261,~~732~~793			2,090,908			2,623,525
Research and development		2711,~~212~~954			2315,~~087~~449			39,166			38,536
TOTAL OPERATING EXPENSES		1,~~070~~059,~~297~~870			1,~~384~~277,~~819~~242			2,130,074			2,662,061
LOSS FROM OPERATIONS		(1,~~070~~059,~~297~~870	)		(1,~~384~~277,~~819~~242	)		(2,130,074	)		(2,662,061	)
OTHER EXPENSE (INCOME)
Beneficial conversion expense		-77,452			16126,~~870~~908			77,452			143,778
Interest expense, net		~~196~~207,~~915~~004			51441,~~085~~196			403,919			492,281
Change in value of derivative liability		(2823,~~712~~080	)		8223,~~162~~706			(51,792	)		105,868
Accretion of debt discount		237,~~895~~276			9061,~~010~~393			40,261			151,403
Change in value of insufficient shares liability		1(353,~~785,261~~760	)		-			1,431,504			-
Gain on settlement of convertible debentures		(57,662	)		-
Loss on settlement of convertible debentures		125,955			-			68,293			-
TOTAL OTHER EXPENSE		170,~~898,697~~847			~~240~~653,~~127~~203			1,969,637			893,330
NET LOSS	$	(21,~~968~~130,~~994~~717	)	$	(1,~~624~~930,~~946~~445	)	$	(4,099,711	)	$	(3,555,391	)
LOSS PER COMMON SHARE
Basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.01	)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic and diluted		~~606~~633,~~938~~277,~~649~~954			~~471~~499,~~961~~897,~~937~~012			620,108,302			485,929,475

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

QUANTUM MATERIALS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited)

	Common Stock				Common Stock			Additional Paid-in		Accumulated			Total Stockholders’
								Additional					Total
	Common Stock				Common Stock			Paid-in		Accumulated			Stockholders’
	Shares		Amount		Issuable			Capital		Deficit			Deficit
	(unaudited)
Balances at June 30, 2019		583,314,787	$	583,326	$	707,914		$	47,777,681	$	(55,801,577	)	$	(6,732,656	)
Common stock issued for services		15,068,772		15,069		(128,968	)		350,489		-			236,590
Common stock issued for debenture interest		282,348		282		-			8,188		-			8,470
Common stock issued for debenture conversions		21,926,474		21,916		(578,946	)		757,789		-			200,759
Common stock issued for purchase of Capstan		9,718,182		9,718		-			268,221		-			277,939
Stock-based compensation		-		-		-			37,336		-			37,336
Amortization of stock paid for future services		-		-		-			214,882		-			214,882
Net loss		-		-		-			-		(2,968,994	)		(2,968,994	)
Balances at September 30, 2019		630,310,563	$	630,311	$	-		$	49,414,586	$	(58,770,571	)	$	(8,725,674	)
Common stock issued for debenture interest		1,474,000		1,474					56,026					57,500
Common stock issued for debenture conversions		7,662,363		7,662					292,845					300,507
Stock-based compensation									32,387					32,387
Beneficial conversion feature of debenture									77,452					77,452
Amortization of stock paid for future services									176,919					176,919
Net loss											(1,130,717	)		(1,130,717	)
Balances at December 31, 2019		639,446,926	$	639,447	$	-		$	50,050,215	$	(59,901,288	)	$	(9,211,626	)

	Common Stock				Common Stock			Additional Paid-in			Accumulated			Total Stockholders’
								Additional						Total
	Common Stock				Common Stock			Paid-in			Accumulated			Stockholders’
	Shares		Amount		Issuable			Capital			Deficit			Deficit
Balances at June 30, 2018		442,564,332	$	442,564	$	800,131		$	42,030,181		$	(46,844,173	)	$	(3,571,297	)
Common stock issued for cash		-		-		73,900			-			-			73,900
Common stock issued for services		3,031,375		3,032		43,333			118,224			-			164,589
Common stock issued for debenture interest		344,055		344		-			20,997			-			21,341
Issuance of common stock issuable		513,333		513		(30,800	)		30,287			-			-
Stock-based compensation		-		-		-			207,452			-			207,452
Beneficial conversion feature of debenture		-		-		-			16,870			-			16,870
Allocated value of common stock and warrants related to debenture		-0		-		52,765			22,437			-			75,202
Common stock issued in settlement of Derivative liability		4,516,553		4,517		39,652			7,608			-			51,777
Other		-		-		-			(98,645	)		-			(98,645	)
Stock options issued for services		0		-		-			-			-			-
Other		0		-		-			(98,645	)		-			(98,645	)
Net loss		-		-		-			-			(1,624,946	)		(1,624,946	)
Balances at September 30, 2018		450,969,648	$	450,970	$	978,981		$	42,355,411		$	(48,469,119	)	$	(4,683,757	)
Common stock issued for cash		2,083,333		2,087		-			247,917			-			250,004
Common stock issued for warrant and option exercises		-		-		-			-			-			-
Common stock issued for services		12,016,667		12,020		-			469,650			-			481,670
Common stock issued for debenture interest		385,822		390		-			21,069			-			21,459
Issuance of common stock issuable		14,660,000		14,660		(460,305	)		445,645			-			-
Stock-based compensation		-		-		-			327,703			-			327,703
Beneficial conversion feature of debenture		-		-		-			126,908			-			126,908
Allocated value of common stock and warrants related to debenture		-		-		57,366			76,376			-			133,742
Common stock issued in settlement of Derivative liability		12,197,786		12,198		-			417,334			-			429,532
Net loss		-		-		-			-			(1,930,445	)		(1,930,445	)
Balances at December 31, 2018		492,313,256	$	492,325	$	576,042		$	44,488,013		$	(50,399,564	)	$	(4,843,184	)

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

QUANTUM MATERIALS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	Six Months Ended
	September 30,
	December 31
	2019			2018
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(24,~~968~~099,~~994~~711	)	$	(13,~~624~~555,~~946~~391	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		3163,~~745~~835			3163,~~870~~788
Amortization of debt issuance costs, stock paid for interest, and debt discount		84124,~~526~~532			-401,335
Stock-based compensation		3769,~~336~~723			~~207~~535,~~452~~155
Stock issued for services		~~452~~629,~~228~~147			~~670~~1,~~370~~311,192
Stock issued for interest		865,~~470~~970			-
Beneficial conversion feature		-77,452			16143,~~870~~778
Change in fair value of derivative liability		(2851,~~712~~792	)		82105,~~162~~868
Change in value of insufficient shares liability		1,785,261			-
Change in value of insufficient share liability		1,431,504			-
Gain on debt extinguishment		~~(57~~68,~~662~~293	)		-
Loss on disposal of fixed asset		8,064			-
Accretion of debt discount and warrant expense		240,~~850~~261			90151,~~010~~403
Effects of changes in operating assets and liabilities:
Accounts receivable		400			-
Prepaid expenses and other current assets		(4,335	)		(6,~~939~~238	)
Accounts payable and accrued expenses		~~(208~~382,~~834~~738	)		~~335~~305,~~182~~646
Contract liabilities		697,973			-
NET CASH USED IN OPERATING ACTIVITIES		(~~159~~495,~~684~~946	)		(~~184~~530,~~090~~988	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(7,059	)		-
NET CASH USED IN INVESTING ACTIVITIES		(7,059	)		-
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock		-			83333,900
Proceeds from issuance of convertible debentures / promissory note		~~175~~540,000			~~100~~500,~~000~~500
Proceeds from issuance of note payable		-			20,000
NET CASH PROVIDED BY FINANCING ACTIVITIES		~~175~~540,000			~~203~~854,~~900~~400
NET DECREASE IN CASH		836,~~257~~995			19323,~~810~~412
CASH AND CASH EQUIVALENTS, beginning of period		478			2,025
CASH AND CASH EQUIVALENTS, end of period	$	837,~~735~~473		$	21325,~~835~~437

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

QUANTUM MATERIALS CORP.

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~~six months ended ~~September~~December 3031, 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~~December 3031, 2019, and ~~2018~~June 30, 2019 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~~December 3031, 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 3^rd 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~~December 3031, 2019, the Company had a working capital deficit of $910,~~758~~015,~~002~~589 and net cash used in operating activities was $~~159~~495,~~684~~946 for the ~~three~~six months ended December ~~September 30~~31, 2019. The ability of the Company to continue as a going concern is dependent upon its ability to reverse negative ~~operating~~ 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~~December 3031, 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~~six months ended ~~September~~December 3031, 2019 and 2018, ~~our~~we ~~revenue~~had ~~was~~no ~~immaterial~~revenue.

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 $3083,~~350.81~~165 and $27,724 on ~~September~~December 3031, 2019 and June 30, 2019, respectively. Amortization expense for the ~~three~~ six months ended December ~~June 30~~31, 2019 and 2018 was $240,~~895~~261 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 In accordance with ASC 260, the basic and diluted loss per share is computed by dividing net loss available to common stockholders by ~~the~~ the weighted average number of common shares outstanding. Diluted net loss per share is computed similar to basic loss per share except ~~that~~ 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~~six months ended ~~September~~December 3031, 2019 and 2018. There are 750,000,000 shares authorized resulting in approximately 2371,~~756~~473,~~489~~284 of insufficient shares as of ~~September~~December 3031, 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~~ 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~~ evaluating 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 condensed 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.

1011

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,
	December 31,		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~~492,~~354~~533		446,095
Total property and equipment, net	$	~~499~~474,~~670~~491	$	525,509

Depreciation expense for the ~~three~~six months ended ~~September~~December 3031, 2019 and 2018 was $2450,~~834~~012 and $2550,~~006~~007, respectively.

NOTE 3 – INTANGIBLES

Internally Developed Software

In ~~July~~August 2019, the Company acquired certain intellectual property, consisting of in-process research and development software and ~~recorded~~ recorded $650,000 to Intangibles on the condensed consolidated balance sheets as of ~~September~~December 3031, 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~~ common stock. Subsequent to the closing, the Company issued 3,527,337 common shares in March 2021 ~~and~~ and 6,095,535 remain issuable at the date of this filing. The software consists of ~~costs~~ 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~~six months ended ~~September~~December 3031, 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~~six months ended ~~September~~December 3031, 2019 and 2018 $613,~~911~~ 823 and $613,~~864~~775, respectively. The table below sets forth our license and patents as of ~~September~~December 3031, 2019 and June 30, 2019.

	September 30, 2019		June 30, 2019
	December 31,		June 30,
	(unaudited)
	2019		2019
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~~188,~~360~~271		174,449
Total licenses and patents, net	$	114,~~383~~472	$	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~~December 3031, 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~~December 3031, 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)
	Balance at December 31, 2019		Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Derivative liability	$	21,810	$	-	$	-	$	21,810
Derivative Liability	$	106,410	$	-	$	-	$	106,410
Liability for insufficient shares		-		2,~~497~~145,~~955~~199		-		2,~~497~~145,~~955~~199
	$	21106,~~810~~410	$	2,~~497~~145,~~955~~199	$	-	$	2,~~519~~251,~~765~~609

	Balance at June 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	$	45,692	$	-	$	-	$	45,692
	$	45,692	$	-	$	-	$	45,692

Level Three Roll-forward

	Derivative Liability			Total
Balance June 30, 2019	$	45,692		$	45,692
Addition of derivative liabilities		50158,~~522~~202			50158,~~522~~202
Settlement of derivative liabilities		(45,692	)		(45,692	)
Change in fair value		(2851,~~712~~792	)		(2851,~~712~~792	)
Balance September 30, 2019	$	21,810		$	21,810
Balance December 31, 2019	$	106,410		$	106,410

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
	December 31,		June 30,		Debenture
	2019		2019		Reference
	~~(unaudited)~~	(unaudited)
Convertible debentures issued in September 2014	$	25,050	$	25,050	A	A
Convertible debentures issued in April - June 2016		1,060,716		1,218,772	B	B
Convertible debenture issued in August 2016		200,000		200,000	B	B
Convertible debentures issued in January - March 2017		60,000		60,000	C	C
Convertible promissory notes issued in March 2017		222,350		222,350	D	D
Convertible debenture issued in June 2017		-		100,000	E	E
Convertible debenture issued in July 2017		~~100,000~~-		100,000	F	F
Convertible debenture issued in September 2017		~~150~~98,000		150,000	G	G
Convertible debenture issued in November 2017		27,000		27,000	H	H
Convertible debenture issued in December 2017		75,000		75,000	I	I
Convertible debenture issued in February 2018		45,000		45,000	J	J
Convertible debentures issued in March 2018		65,000		65,000	K	K
Convertible debentures issued in April 2018		~~100~~60,000		60,000	L	L
Convertible debentures issued in April 2018		70,000		70,000	M	M
Convertible debentures issued in April 2018		20,000		20,000	N	N
Convertible debentures issued in June 2018		-40,000		40,000	O	O
Convertible debentures issued in July 2018		45,000		45,000	P	P
Convertible debentures issued in August 2018		30,000		30,000	Q	Q
Convertible debentures issued in September 2018		25,000		25,000	R	R
Convertible debentures issued in December 2018		52,000		52,000	S	S
Non-convertible debentures issued in July 2019		175,000		-	T	T
		2,547,116		2,630,172
Convertible debentures issued in October 2019		75,000		-		U
Less: unamortized discount		30,351		27,724
Convertible debentures issued in November 2019		100,000		-		V
		2,516,765		2,602,448
Convertible debentures issued in December 2019		110,000		-		W
Less: current portion		2,388,041		2,467,106
Non-convertible debentures issued in December 2019		80,000		-		X
Total convertible debentures, net of current portion	$	128,725	$	135,342
		2,760,116		2,630,172
Less: unamortized discount		83,165		27,724
		2,676,951		2,602,448
Less: current portion		2,351,951		2,467,106
Total debentures, net of current portion	$	325,000	$	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~~six months ended ~~September~~December 3031, 2019. ~~As of the date of this filing the notes are past due.~~

Interest expense for the ~~three~~six months ended ~~September~~December 3031, 2019 and 2018 was $~~384~~768 and $~~384~~768, respectively.

As of ~~September~~December 3031, 2019 and June 30, ~~2018~~2019, $25,050 of principal was outstanding. As of the date of this filing the notes are past due.

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~~six months ended ~~September~~December 3031, 2019, and 2018, of $2,~~564~~ 595 and $2,564, respectively.

Interest expense for the ~~three~~six months ended ~~September~~December 3031, 2019, and 2018, of $2495,~~881~~839 and $2652,~~067~~133, 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~~December 3031, 2019 and June 30, 2019, $1,260,716 and $1,418,~~772~~716 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.15

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 six months ended December 31, 2019 and 2018 of $0 and $3,125, 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~~six months ended ~~September~~December 3031, 2019 and 2018 of $2,~~085~~454 and $12,~~210~~420, respectively.

As of ~~September~~December 3031, 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~~six months ended ~~September~~December 3031, 2019 and ~~June~~2018 ~~30, 2019~~ of $0.

Interest expense for the ~~three~~six months ended ~~September~~December 3031, 2019 and 2018 of $335,~~811~~867 and $0, respectively.

As of ~~September~~December 3031, 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.16

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 six months ended December 31, 2019 and 2018 of $0. The Company recognized accretion of debt discount expense for the six months ended December 31, 2019 and 2018 of $0. Interest expense for the six months ended December 31, 2019 and 2018 was $5,800 and $0, respectively. 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.

16In 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 six months ended December 3, 2019 and 2018 of $0. As of December 31, 2019, and June 30, 2019, $100,000 of principal was outstanding. In May 2018 the maturity date was extended to February 1, 2019. In November 2019, the debenture and interest payable were converted to 6,136,363 shares of common stock.

~~QUANTUM~~Interest ~~MATERIALS~~expense ~~CORP~~for the six months ended December 31, 2019 and 2018 was $13,000 and $0, respectively.

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~~six months ended ~~September~~ 30December 31, 2019 and 2018 of $0. In May 2018 the maturity date was extended to February 1, 2019. As of ~~September~~December 3031, 2019, and June 30, 2019, $~~150~~98,000 of principal was outstanding. In ~~May~~October ~~2018~~2019, $52,000 of the ~~maturity~~ ~~date~~outstanding principal of the debenture was ~~extended~~converted to ~~February 1~~3,000,000 shares ~~2019~~of common stock. As of the date of this filing, the ~~note~~remaining principal of $98,000 is past due.

~~Interest expense for the three months ended September 30, 2019 and 2018 was $21,100 and $0.~~17

Interest expense for the six months ended December 31, 2019 and 2018 was $18,300 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~~six months ended ~~September~~December 3031, 2019 and 2018 of $~~845~~1,131 and $~~780~~1,576, respectively. Interest expense for the ~~three~~six months ended ~~September~~December 3031, 2019 and 2018 of $~~552~~1,464 and $~~552~~1,104, respectively. As of ~~September~~December 3031, 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~~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~~six months ended ~~September~~December 3031, 2019 and 2018 of $0. Interest expense for the ~~three~~six months ended ~~September~~December 3031, 2019 and 2018 of $1618,~~924 and~~300 and $0, respectively. As of ~~September~~December 3031, 2019 and June 30, 2019, $75,000 of principal was outstanding. As of the date of this filing ~~the~~ 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.18

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 six months ended December 31, 2019 and 2018 of $0 and $6,761, respectively. Interest expense for the six months ended December 31, 2019 and 2018 of $18,300 and $0, respectively. As of December 31, 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.

18In 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 six months ended December 31, 2019 and 2018 of $0 and $8,677, respectively. Interest expense for the six months ended December 31, 2019 and 2018 of $23,374 and $0, respectively was recognized. As of December 31, 2019 and June 30, 2018, $30,000 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)

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~~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~~six months ended ~~September~~December 3031, 2019 and 2018 of $0 and $12,254, respectively. Interest expense for the ~~three~~six months ended ~~September 30~~December 31, 2019 and 2018 of $1218,~~562~~300 and $0. As of ~~September~~December 3031, 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~~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~~six months ended ~~September~~December 3031, 2019 and 2018 of $0 and $2026,~~673~~720, respectively. Interest expense for the ~~three~~six months ended ~~September 30~~December 31, 2019 and 2018 of $1618,~~673~~300 and $0, respectively was recognized. As of ~~September~~December 3031, 2019 and June 30, 2019, $~~100~~60,000 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.

19In 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 six months ended December 31, 2019 and 2018 of $8,061 and $7,444, respectively. Interest expense for the six months ended December 31, 2019 and 2018 of $2,862 and $2,862 was recognized, respectively. As of December 31, 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.

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.~~

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 six months ended December 31, 2019 and 2018 of $3,739 and $3,542, respectively. Interest expense for the six months ended December 31, 2019 and 2018 of $818 and $818 was recognized, respectively. As of December 31, 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~~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~~six months ended ~~September~~December 3031, 2019 and 2018 of $0 and $1327,~~583~~440, respectively. Interest expense for the ~~three~~six months ended ~~September 30~~December 31, 2019 and 2018 ~~of $0~~ was ~~recognized. In July 2019~~$18,300 ~~the debenture~~ and ~~interest payable were converted into 3~~$0,~~287,458~~ ~~of common shares~~respectively.

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~~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~~six months ended ~~September~~December 3031, 2019 and 2019 of $0 and $1226,~~260~~667, respectively. Interest expense for the ~~three~~six months ended ~~September 30~~December 31, 2019 and 2018 of $123,~~615~~238 and $3,600, respectively was recognized. As of ~~September~~December 3031, 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~~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~~six months ended ~~September~~December 3031, 2019 and 2018 of $0 and $414,~~450~~122. Interest expense for the ~~three~~six months ended ~~September~~December 3031, 2019 and 2018 of of $1222,~~170~~226 and $2,400, respectively was recognized. As of ~~September~~December 3031, 2019 and June 30, 2018, $30,000 of principal was outstanding. As 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.

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 six months ended December 31, 2019 and 2018 of $0 and $1,067, respectively. Interest expense for the six months ended December 31, 2019 and 2018 of $21,967 and $2,000, respectively was recognized. As of December 31, 2019 and June 30, 2019, $25,000 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)

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.22

~~Interest~~In ~~expense~~accounting for the ~~three~~convertible ~~months~~debentures, ~~ended~~the ~~September~~Company ~~30,~~allocated ~~2019~~the ~~and~~fair ~~2018,~~value ~~was~~of the warrants to the proceeds received in the amount of $16,~~063~~835, recorded as debt discount and ~~$300,~~is ~~respectively.~~amortized Asusing ofthe ~~September~~effective ~~30,~~interest ~~2019~~rate ~~and~~method ~~June 30,~~over ~~2019,~~the ~~$52,000~~life of ~~principal~~the ~~was~~loan, ~~outstanding~~two years. The AsCompany recognized accretion of debt discount expense for the ~~date~~six ofmonths ~~this~~ended ~~filing~~December ~~the~~31, ~~notes~~2019 ~~are~~and ~~past~~2018, ~~due~~of $1,685 and $264, respectively.

Interest expense for the six months ended December 31, 2019 and 2018, was $2,126 and $300, respectively. As of December 31, 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~~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~~six months ended ~~September~~December 3031, 2019 of $37,~~883~~635. Interest ~~expense~~ expense for the ~~three~~six months ended ~~September~~December 3031, 2019 of $28,~~700~~382 was recognized. As of ~~September~~December 3031, 2019 $175,000 of principal was outstanding. In 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~~ July 2021.

22U) October 2019 Convertible Debentures

~~QUANTUM~~In ~~MATERIALS~~October ~~CORP~~2019, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $50,000 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 $50,000. The Note Holder received 404,313 common stock warrants exercisable at $0.0371 per share through October 18, 2024. The promissory note had a term of 12 months maturing on October 18, 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 $0.0371 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.

~~NOTES~~In TOaccounting ~~CONDENSED~~for ~~CONSOLIDATED~~the ~~FINANCIAL~~convertible ~~STATEMENTS~~promissory note, the Company recorded no beneficial conversion expense, and the Company allocated the fair value of the warrants to the proceeds received in the amount of $8,410 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan. The Company recognized accretion of debt discount expense for the six months ended December 31, 2019 of $1,248. Interest expense for the six months ended December 31, 2019 of $822 was recognized. As of December 31, 2019 $50,000 of principal was outstanding. As of the date of this filing the note is past due.

In October 2019, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $25,000 in gross proceeds from a non-affiliated party (~~Unaudited~~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 188,822 common stock warrants exercisable at $0.03 per share through October 24, 2024. The promissory note had a term of 12 months maturing on October 24, 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 $0.0331 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 $9,971 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $5,800 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan. The Company recognized accretion of debt discount expense for the six months ended December 31, 2019 of $820. Interest expense for the six months ended December 31, 2019 of $378 was recognized. As of December 31, 2019 $25,000 of principal was outstanding. As of the date of this filing the note is past due.

V) November 2019 Convertible Debentures

In November 2019, the Company entered into 3 similar Securities Purchase Agreement and Convertible Promissory Note to obtain $50,000 in gross proceeds from non-affiliated parties (collectively hereinafter referred to as the “Note Holders”) in exchange for 3 convertible promissory notes totaling $50,000. The Note Holders received 392,670 common stock warrants exercisable at $0.0382 per share through November 1, 2024. The promissory notes have a term of 24 months maturing on November 1, 2021 and stipulate 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 Holders have the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.0382 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 $11,851 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $11,530 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan. The Company recognized accretion of debt discount expense for the six months ended December 31, 2019 of $1,669. Interest expense for the six months ended December 31, 2019 of $631 was recognized. As of December 31, 2019 $50,000 of principal was outstanding.

In November 2019, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $50,000 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 $50,000. The Note Holder received 323,860 common stock warrants exercisable at $0.03836 per share through November 18, 2024. The promissory note had a term of 12 months maturing on November 6, 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 $0.03836 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 $25,166 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $9,994 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan. The Company recognized accretion of debt discount expense for the six months ended December 31, 2019 of $1,826. Interest expense for the six months ended December 31, 2019 of $1,011was recognized. As of December 31, 2019 $50,000 of principal was outstanding. As of the date of this filing the note is past due.

W) December 2019 Convertible Debentures

In December 2019, the Company entered into a Securities Purchase Agreement and Convertible Promissory Note to obtain $110,000 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 $110,000. The Note Holder received 2,000,000 common stock warrants exercisable at $0.04 per share through December 6, 2022. The promissory note had a term of 6 months maturing on June 30, 2020 and stipulates an interest charge of eight percent (8%) shall be applied to the principal. The promissory note is pre-payable by the Company at any time without penalty. The Note Holder has the right of conversion into unregistered and restricted shares of Common Stock at a conversion price of $0.03 per share at any date. The promissory note includes piggyback registration rights and the Company shall include on the next registration statement it files with the SEC all shares issuable upon conversion of the note.

In accounting for the convertible promissory note, the Company recorded a beneficial conversion expense of $30,463 and the Company allocated the fair value of the warrants to the proceeds received in the amount of $40,880 recorded as debt discount and is amortized using the effective interest rate method over the life of the loan. The Company recognized accretion of debt discount expense for the six months ended December 31, 2019 of $20,440. Interest expense for the six months ended December 31, 2019 of $1,063 was recognized. As of December 31, 2019 $110,000 of principal was outstanding. As of the date of this filing the note is past due.

X) December 2019 Non-Convertible Debentures

In December 2019, the Company entered into two Non- Convertible Promissory Notes to obtain $80,000 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 $80,000. The Note Holders received warrants to purchase 240,000 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 24 months maturing in December 2022 and stipulates an interest charge of ten percent (12%) 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 $5,410 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 six months ended December 31, 2019 of $451. Interest expense for the six months ended December 31, 2019 of $373 was recognized. As of December 31, 2019 $80,000 of principal was outstanding.

Warrant Liability

The Company issued warrants to purchase ~~700~~3,~~000~~549,665 shares of its common stock in connection with the ~~non-convertible~~ debentures in ~~note~~ notes T, U, V, W and X above during the ~~three~~six months ended ~~September~~December 3031, 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~~six months ended ~~September~~December 3031, 2019 are presented below (unaudited).

	September 30, 2019
	December 31, 2019
Expected volatility		~~126~~115.7087	%
Expected dividend yield		0.0	%
Risk-free interest rates		1.6360	%
Expected term (in years)		2.78 53- 2.7954

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~~six months ended ~~September~~December 3031, 2019 and 2018 was $237,~~895~~366 and $90151,~~010~~403, 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~~six months ended ~~September~~December 3031, 2019 and 2018 was $0590 and $69318, respectively. As of ~~September~~December 3031, 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 common shares 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~~six months ending ~~September~~December 3031, 2019 the aggregate fair ~~value~~ value of the 9,718,182 commons shares issued in such period was $277,940. The remaining amount due to the seller as of ~~September~~December 3031, 2019 of $372,060 has been recorded in accrued expenses. See Note 1 – “Basis of Presentation” for additional information.

During the ~~three~~six months ended ~~September~~December 3031, 2019, the Company issued 15,068,772 shares of common stock for $365,558 in consulting services, $128,968 of which was accrued at June 30, 2019.

During the ~~three~~six months ended ~~September~~December 3031, 2019, the Company issued ~~282~~1,756,348 shares of common stock at the fair market value of $865,~~470~~970 for payment of debenture interest.

During the ~~three~~six months ended ~~September~~December 3031, 2019, the Company issued 2129,~~926~~588,~~474~~837 shares of common stock at the fair market value of $~~779~~1,~~705 for~~080,212 for payment of debenture conversions of which $578,946 was accrued at June 30, 2019.

During the ~~three~~six months ended ~~September~~December 3031, 2019, the Company amortized a market value of $~~214~~391,~~882~~801 of stock paid for future services.

In total, the Company has recorded a fair market value of $~~457~~603,~~792~~031 for common stock payable to accrued expenses as of ~~September~~December 3031, 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~~six months ended ~~September~~December 3031, 2019 is presented below (unaudited):

								~~Weighted~~	Weighted
	~~Weighted~~	Weighted						~~Average~~	Average		~~Weighted~~	Weighted
	~~Average~~	Average						~~Remaining~~	Remaining		~~Average~~	Average		~~Aggregate~~	Aggregate
	~~Exercise~~	Exercise		~~Number of~~	Number of			~~Contractual~~	Contractual		~~Grant Date~~	Grant Date		~~Intrinsic~~	Intrinsic
	~~Price~~	Price		~~Warrants~~	Warrants			~~Term in Years~~	Term in Years		~~Fair Value~~	Fair Value		~~Value~~	Value
Balance as of June 30, 2019		~~0.10~~	0.10		~~44,913,101~~	44,913,101			~~1.83~~	1.83		~~0.08~~	0.08	$	-$	-
Expired		-	0.29		-	(3,416,667	)		-	-		-	0.20		-	-
Granted		~~0.030~~	0.030		~~700,000~~	4,249,665			~~2.79~~	2.79		~~0.030~~	0.03		-	-
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		$	-
Balance as of December 31, 2019		$	0.08			45,746,099				1.72		$	0.07		$	-
Vested and exercisable as of December 31, 2019		$	0.08			45,746,099				1.72		$	0.07		$	-

Outstanding warrants at ~~September~~December 3031, 2019 expire during the period from October 2019 to December 2023 and have exercise prices ranging from $0.03 to $0.30, valued at $43,~~696~~880,~~468~~320. These warrants are issued for salary conversions of employees and consultants, and the origination ~~warrants~~ 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~~ 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~~ issuance of common stock and the grant of incentive and non-incentive stock options. As of ~~September~~June 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~~ During the ~~three~~six months ended ~~September~~December 3031, ~~2019~~2018, 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 stock options 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~~December 3031, 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~~December 3031, 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.

24A summary of the activity of the Company’s stock options for the six months ended December 31, 2019 is presented below (unaudited):

QUANTUM MATERIALS CORP.

						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		0.05		350,000			4.77		0.05		-
Exercised		-		-			-		-		-
Cancelled		0.05		(500,000	)		-		0.12		-

Balance as of December 31, 2019	$	0.07		109,758,433			3.25	$	0.09	$	-

Vested and exercisable as of December 31, 2019	$	0.07		109,758,433			3.25	$	0.09	$	-

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~27

~~(Unaudited)~~Outstanding options at December 31, 2019, expire during the period from January 2020 to June 2026 and have exercise prices ranging from $0.02 to $0.17.

ACompensation ~~summary~~expense ofassociated ~~the~~with ~~activity of the Company’s~~ stock options for the ~~three~~six months ended ~~September~~December 3031, 2019 isand ~~presented~~2018 ~~below~~was ~~(unaudited):~~$87,223 and $535,155 respectively, and was included in general and administrative expenses in the condensed consolidated statements of operations.

					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	$	-

At December 31, 2019, there was no unvested stock option awards.

~~Outstanding~~Stock ~~options~~Option ~~at September 30, 2019, expire during the period October 2019 to June 2026 and have exercise prices ranging from $0.02 to $0.17.~~Liability

~~Compensation~~The ~~expense~~Company ~~associated~~issued ~~with~~ stock options ~~for~~to purchase 350,000 shares of its common stock to certain employees during the ~~three~~six months ended ~~September 30~~December 31, 2019, and ~~2018~~recorded ~~was~~these ~~$37,366~~outstanding ~~and~~stock ~~$207,452~~options ~~respectively~~as ~~and~~a liability at fair value utilizing a Black-Scholes-Merton model. This ~~was~~liability ~~included~~is insubject ~~general~~to re-measurement at each balance sheet date, and ~~administrative~~any ~~expenses~~change in fair value is recognized in the Company’s condensed consolidated statements of operations. The assumptions utilized in this model for stock options issued during the six months ended December 31, 2019 are presented below (unaudited).

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.

	December 31,
	2019			2018
Expected volatility		109.70	%		-
Expected dividend yield		0.0	%		-
Risk-free interest rates		1.41	%		-
Expected term (in years)		5.0			-

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						Six Months Ended
	September 30,
	December 31						December 31
	2019			2018			2019				2018
Net loss	$	(2,968,994	)	$	(1,624,946	)
	(unaudited)
Weighted average common shares outstanding:
Net loss	$	(1,130,717	)	$	(1,930,445	)	$	(4,099,711	)	$	(3,555,391)
Basic and diluted		606,938,649			471,961,937
Weighted average common shares outstanding:
Basic and diluted loss per share	$	(0.00	)	$	(0.00	)
Basic and diluted		633,277,954			499,897,012			620,108,302			485,929,475
Basic and diluted loss per share	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.01)

2628

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~~December 3031, 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~~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~~six months ended ~~September~~December 3031, 2019 and 2018 was $2441,~~407~~487 and $1863,~~864~~572, 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-KQ, 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 13^th, 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.

28On 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 was scheduled in Kansas for April 2019.

~~QUANTUM~~The ~~MATERIALS~~Company ~~CORP~~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 December 31, 2019.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~30

(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

In July 2020, Edward James Schloss ~~file~~filed 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~~ 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~~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~~December 3031, 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~~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~~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~~and the ~~balance~~final judgement is ~~set to be tried in Kansas in October~~pending. (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:

	Six Months Ended
	December 31
	2019		2018
	(unaudited)

Cash paid for interest	$	184,933	$	-

Cash paid for income taxes	$	-	$	-

The following is supplemental disclosure of non-cash investing and financing activities (unaudited):

	Three Months Ended
	Six Months Ended
	September 30,
	December 31
	2019		2018
Cash paid for interest	$	179,109	$	-
Conversion of debentures, and accrued interest into shares of common stock	$	567,236	$	42,800
Cash paid for income taxes	$	-	$	-
Allocated value of common stock and warrants issued with convertible debentures	$	-	$	208,945
Derivative liability issued with convertible debentures	$	105,710	$	-
Stock issued for purchase of intangible assets	$	277,939	$	-
Accured expenses for intangible assets	$	372,061
Stock issued for amounts in accounts payable	$	-	$	61,255
Prepaid expense paid in shares of common stock	$	-	$	585,000

	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~~December 3031, 2019 and ~~2018~~June 30, 2019, the Company had accrued salaries payable to executives in the amount of $~~793~~780,~~151~~801 and $~~593~~536,~~075~~825, respectively.

NOTE 14 - SUBSEQUENT EVENTS

Debentures Issuances

During ~~November~~the ~~2019~~three months ended March 31, 2020, the ~~company~~Company issued five convertible debentures for $~~175~~ 2,145,000 with a one-year ~~term~~to two-year term at 8% annual interest accompanied by warrants to purchase 1,~~309~~838,~~665~~964 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~~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~~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~~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~~single convertible ~~notes~~note payable in ~~March~~January 2021 for a total of $7,500,000 as part of the Pasaca Capital investment transactions.

During February 2020, the ~~company~~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~~ 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.

3133

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~~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~~December 3031, 2019, the ~~company~~Company issued 5950,~~728~~591,~~063~~700 shares related to the conversion of ~~eleven~~nine outstanding debentures totaling $~~680~~528,000 in principal and $~~320~~262,~~000~~500 interest common shares. In addition, the Company issued 422,297 shares in exchange for ~~exercise~~the exercise of warrants.

32Trading Suspension and SEC Administrative Proceeding

On May 12, 2021, the SEC issued an Order of Suspension of Trading (the “Trading Suspension”) in the Company’s common stock due to a lack of current information as a result of the failure of the Company to file certain periodic reports under its reporting obligations with the SEC. The Trading Suspension commenced at 9:30am on May, 13 2021 and terminated at 11:59pm on May 26, 2021. The Trading Suspension resulted in the Company’s shares no longer being quoted or traded on the Pink Tier operated by the OTC Markets Group, Inc. At this time, no firm is making a market in the Company’s common stock on OTC Link, and the OTC Markets Group Inc. has discontinued the display of quotes on the OTC Markets site. The Company’s shares of common stock can now only be located and traded on the Expert Market, which is a private market to serve broker-dealer pricing and best execution needs in securities that are restricted from public quoting or trading.

In addition to the foregoing, on May 12, 2021, the SEC also issued an Order Instituting Administrative Proceedings to determine whether it was necessary to revoke the Company’s registration under the Securities Exchange Act of 1934. The Company had previously received correspondence from the Commission in December 2020 related to the delinquency of it filing obligations and had proposed a plan to regain compliance with its reporting obligations by February 2021. Unfortunately, the Company was unable to meet its proposed plan and currently remains delinquent with respect to its filing obligations. The Company did, however, make the following filings:

●

On March 23, 2021, the Company filed its Annual Report on Form 10-K for the fiscal year ended June 30, 2019; and

●

On April 30, 2021, the Company filed its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2019.

In addition, management has continued to provide investors with current information by filing other current reports on Form 8-K with the SEC and by issuing certain press releases.

Following the filing of this Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2019, the Company will be entering into an Offer of Settlement with the SEC which will result in the revocation of the registration of Company’s securities pursuant to Section 12 of the Exchange Act, thereby terminating the Company Section 12(g) reporting obligations with the SEC .

Following the revocation of registration and termination of its reporting status, the Company intends to once again become a reporting issuer with the SEC and to re-commence its filings with the SEC at the earliest practicable date. In that regard, the Company is diligently working with its auditors and securities counsel to compile, disseminate and review the financial and other current information required to be presented in its public filings, and to prepare and file a registration statement to once again become a reporting issuer. Thereafter, and subject to satisfaction of all regulatory approvals, it will seek to once again have its shares of common stock traded on the OTC Market.

Notwithstanding the Trading Suspension and the revocation of the registration and termination of reporting status, the management continues to be dedicated to working on the development and commercialization of the Company’s QD enabled products and technologies with particular focus on point of care testing solutions, solar and anti-counterfeiting. We are also continuing our efforts on the deployment of our QMC HeathID App while its research and development team are fully engaged pushing the boundaries of our nano-materials.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Form 10-Q contains “forward-looking statements” relating to us which represent our current expectations or beliefs, including statements concerning our operations, performance, financial condition and growth. For this purpose, any statements contained in this report that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “anticipation”, “intend”, “could”, “estimate”, or “continue” or the negative or other comparable terminology are intended to identify forward-looking statements.

Statements contained herein that are not historical facts are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in such forward-looking statements are reasonable, the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and those actual results may differ materially from those in the forward-looking statements. Such risks and uncertainties include, without limitation: well-established competitors who have substantially greater financial resources and longer operating histories, regulatory delays or denials, ability to compete as a start-up company in a highly competitive market, and access to sources of capital.

The following discussion should be read in conjunction with the Company’s risk factors, condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q and our Form 10-K filed March 23, 2021 for the fiscal year ended June 30, 2019. Except for the historical information contained herein, the discussion in this Form 10-Q contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear herein. The Company’s actual results could differ materially from those discussed here.

33The financial information furnished herein has not been audited by an independent accountant; however, in the opinion of management, all adjustments (only consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the three-month period ended December 31, 2019 and 2018 have been included.

The financial information furnished herein has not been audited by an independent accountant; however, in the opinion of management, all adjustments (only consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the three-month period ended September 30, 2019 and 2018 have been included.

Business Overview

QDs are nanoscale semiconductor crystals typically between 10 and 100 atoms in diameter. Approximately 10,000 would fit across the diameter of a human hair. Their small size makes it possible for them to exhibit certain quantum mechanical properties. QDs emit either photons or electrons when excited. In the case of photons, the wavelength (color) of light emitted varies depending on the composition and size of the quantum dot. As such, the photonic emissions can be tuned by the creation of QDs of different types and/or sizes. Their unique properties as highly efficient, next generation semiconductors have led to the use of QDs in a range of electronic and other applications, in the display and lighting industries. QDs also have applications in solar cells, where their characteristics enable conversion of light energy into electricity with the potential for significantly higher efficiencies and lower costs than existing technologies, thereby creating the opportunity for a step change in the solar energy industry through the use of QDs in printed photovoltaic cells.

QDs were first discovered in the early 1980s and the industry has developed to the point where QDs are now being used in an increasing range of applications, including televisions and displays, light emitting diode (“LED”) lighting (also known as solid-state lighting), and in the biomedical industry. LG, Samsung, and other companies have recently launched new televisions using QDs to enhance the picture color quality and power efficiency. A number of major lighting companies are developing product applications using QDs to create a more natural light for LEDs. The biomedical industry is using QDs in diagnostic and therapeutic applications; and applications are being developed to print highly efficient photovoltaic solar cells in mass quantities at a low cost.

QDs also have applications in solar cells, where their characteristics enable conversion of light energy into electricity with the potential for significantly higher efficiency than existing technologies. In traditional solar cells, a photon can only be converted into a fixed amount of energy per photon, regardless of the photon’s total energy. Excess energy is converted to heat which further lowers the efficiency of the panel. QD-based solar cells have the potential to significantly exceed this efficiency because QDs are capable of generating multiple electrons per photon strike rather than converting the extra energy of high energy photons to heat as in the case of traditional solar cells. QD solar cells can also convert the infrared portion of the spectrum that is not absorbed by traditional solar cells. These attributes make the theoretical maximum efficiency of QD solar cells substantially higher that of traditional silicon solar cells. We believe the use of QDs in solar cells will create the opportunity for a step change in efficiency and performance in printed photovoltaic cells.

A key challenge for the quantum dot industry has been and may continue to be its ability to scale up production volumes sufficiently to meet growing demand for QDs while maintaining product quality and consistency and reducing the overall costs of supply to stimulate new applications. QDs remain an expensive product, but we anticipate rapid growth of the QD market.

History of the Company

QMC was formed in January 2007, as a Nevada corporation under the name “Hague Corp.” and its shares began trading in the over-the-counter market in the fourth calendar quarter of 2008. The original business of Hague Corp. was the exploitation of mineral interests. Solterra, a Delaware corporation, was formed in May 2008 by Mr. Stephen Squires, our Chief Executive Officer, and other shareholders to develop quantum dot applications in the solar cell industry. Solterra was acquired by Hague Corp. in November 2008, pursuant to a merger transaction wherein the shareholders of Solterra exchanged their shares of common stock in Solterra for shares of common stock in Hague Corp., and Solterra became a wholly-owned operating subsidiary of Hague Corp. Upon the closing of the merger, Hague Corp. changed its business from the exploitation of minerals to the development of QDs, and subsequently changed its name to “Quantum Materials Corp.” in 2010.

In October 2008, Solterra also entered into a license agreement with the University of Arizona, which was later amended, (the “UA License”) pursuant to which Solterra has been granted exclusive rights to use the University of Arizona’s patented screen-printing techniques in the production and sale of organic light emitting diodes (“OLEDs”) incorporating QDs in printed electronic displays and other printed electronic components. This technology was developed at University of Arizona by Dr. Ghassan Jabbour, a member of the Company’s Board of Directors. In 2020, the Company determined that the U of A patented technology was not optimal for its printed solar cell product and developed its own solution.

In 2010, Solterra entered into an agreement with a third-party provider of industrial process equipment to develop a proprietary process for continuous flow production of QDs and TQDs under which Solterra retained all ownership and rights to the design and any related intellectual property. The development work has since been completed and the first two units have been delivered and placed into operation.

In 2013, the Company opened the Wet Lab in San Marcos, Texas at Star Park, an extension of Texas State University. In 2014, the first piece of manufacturing equipment was delivered to the Wet Lab. The capacity of the initial unit was approximately 250kg of QDs or TQDs per year and was intended to be used for internal research and development purposes although it also can be used for commercial production.

In 2014, the Company acquired a patent portfolio from Bayer AG that included patents and patent applications covering the high-volume ~~manufacture~~ manufacture of QDs, including heavy metal-free compositions, various methods for enhancing quantum dot performance, and a quantum dot based solar cell technology (the “Bayer Patents”). The Bayer Patents, the UA License, organically developed technologies and our proprietary continuous flow manufacturing process comprise our fundamental asset platform.

The Bayer Patents, the UA License, organically developed technologies and our proprietary continuous flow manufacturing process comprise our fundamental asset platform. We believe that the intellectual property and proprietary technologies position the Company to become a leader in the overall nanomaterials and quantum dot industry, and a preferred supplier of high performance QDs and TQDs to an expanding range of applications.

In 2016, Mr. Squires returned as President and CEO and implemented a cost reduction initiative streamlining the G&A overhead and devoting more resources to R&D and commercialization readiness. These efforts have resulted in further optimization of the chemistry and the products. Through this refinement, we have been able to double the through put of our current production equipment from 2000 Kg of QDs per year to 4,000 Kg of QDs per year. All of our discoveries are purposely developed to be compatible with our patented flow manufacturing process. Management believes that this and a number of other material performance enhancement discoveries made by us provide us with the ability to provide industry leading material performance at a very competitive price point.

In 2019 the Company developed the QDX Ledger, which is based on technology acquired the blockchain-based technology assets of Capstan Platform, Inc. to provide an immutable, scalable and shared data store for consistent tracking and visibility among participants in a product supply chain. The identity and access credentials of participants, be they individuals, corporations or machines is also secured on the platform, providing mechanisms to control and restrict the supply of products as might be required by regulatory mandates and socially conscious business practices.

QDX Quantum Dots can be incorporated into almost any physical product so that its authenticity can be verified and tracked from point of manufacture through to sale to an end customer. Unlike existing approaches to establishing product identity, including QR code stickers and RFID tags, we believe that QDX Quantum Dots are more tamper proof, resistant to environmental extremes and low cost. We believe that they may be incorporated into products as diverse as auto parts, consumer electronics, apparel and luxury fashion accessories, industrial IoT devices, bank notes and even liquids, such as gasoline and lubricants.36

InQDX Quantum Dots can be incorporated into almost ~~early~~any ~~2020~~physical product so that its authenticity can be verified and intracked ~~the~~from ~~advent~~point of ~~the~~manufacture ~~Covid~~through 19to ~~pandemic,~~sale ~~the~~to ~~company~~an ~~recognized~~end acustomer. Unlike ~~need~~existing ~~for~~approaches ato ~~secure~~establishing ~~method~~product ~~for~~identity, ~~the~~including ~~validation~~QR code stickers and ~~reporting~~RFID tags, we believe that QDX Quantum Dots ofare ~~the~~more ~~Covid~~tamper 19proof, ~~testing~~resistant ~~process.~~to ~~The~~environmental ~~Company~~extremes ~~leveraged~~and ~~its~~can ~~existing~~be ~~QDX~~produced ~~Ledger~~at ~~platform~~a ~~technology~~lower tocost ~~launch~~as ~~the~~compared ~~QDX~~to ~~HealthID~~other ~~later~~methods. ~~rebranded~~We believe that they have the ~~QMC~~potential ~~HealthID~~to ~~and~~be isincorporated ~~operated~~into products as adiverse ~~wholly~~as ~~owned~~auto ~~subsidiary~~parts, ofconsumer ~~Quantum~~electronics, ~~Materials~~apparel and ~~Corp~~luxury fashion accessories, industrial IoT devices, bank notes and even liquids, such as gasoline and lubricants.

35In early 2020 and in the advent of the Covid 19 pandemic, the Company recognized a need for a secure method for the validation and reporting of the Covid 19 testing process. The Company leveraged its existing QDX Ledger platform technology to launch the QDX HealthID later rebranded the QMC HealthID and is operated as a wholly owned subsidiary of Quantum Materials Corp.

Business Opportunities

The following outlines the business opportunities that the Company has pursued over the last few years:

● Expanded range of quantum dot base materials to include carbon quantum dots, water soluble quantum dots, food grade quantum dots and IR emitting quantum dots. ● Initiated collaborations with a number of LED and Micro LED companies, and have MTA’s in place to provide samples to collaborate in commercially viable solutions; ● Developed stabilized cadmium free QDs and encapsulation process for remote phosphor LED applications and surpassed 8,000 hours continuous on time without measurable degradation; ● Reduced QD process cost by more than 45% and doubled annual production throughput capacity using existing process equipment and expanded capability to include Pervoskite quantum dots; ● Significantly improved emission color purity by narrowing the color wavelength, tuning the emission wavelength and increasing the quantum yield (brightness) of our cadmium-free QD optical materials focused on display applications. These improvements have resulted in Rec. 2020 coverage in excess of 90%; ● Developed blue cadmium-free high-performance QDs; ● Develop the first 100% quantum yield cadmium-free red QDs; ● ~~Obtained~~Acquired and/or developed an intellectual property portfolio of over 50+ patents and applications granted, filed, or in preparation, including issued patents acquired from third parties, ~~including those~~ covering high volume production of QDs, ~~including~~ cadmium-free ~~quantum dots~~QD’s, ~~quantum~~QD ~~dot~~ enhancement technologies and ~~quantum~~QD ~~dot~~ solar cell technologies; ● Expanded the number of display optical film companies that we are now in collaboration with and increased sample deliveries; ● Continued product development with leading global optical film manufacturers; ● Established a nanomaterials laboratory facility for research, development and production in Texas.

~~The Company can provide no assurances that its efforts to date will result in the grant of patents for proprietary processes or result in future sales and/or profitable operations.~~37

AThe ~~uniquely~~Company ~~performing~~can ~~variant~~provide ofno ~~QDs~~assurances ~~are~~that ~~TQDs,~~its ~~which~~efforts ~~have~~to adate ~~molecular~~will ~~configuration~~result ~~consisting of a center portion and four arms extending from the center that are equally spaced~~ in ~~three dimensions. TQDs have material advantages over standard spherical QDs where both absorption of photons and charge transport are enhanced by~~ the ~~legs~~grant of ~~the~~patents ~~tetrapod which effectively serve as trillions of antennae~~ for ~~light. Their~~proprietary ~~unique architecture and shape also promotes more uniform distances between the dots~~processes, ~~which~~or ~~helps to eliminate the problem of aggregation.~~that ~~TQDs~~they ~~are~~will ~~more~~result ~~costly and difficult to produce~~ in ~~quantity~~future ~~using~~sales ~~known~~and/or ~~methods,~~profitable ~~with the exception of our patented flow technology~~operations.

~~Initially,~~A ~~our~~uniquely ~~principal~~performing ~~business~~variant ~~emphasis~~of ~~was~~QDs onare ~~the~~TQDs, ~~development~~which ofhave ~~tetrapod~~a ~~quantum~~molecular ~~dots~~configuration ~~(“TQDs”)~~consisting ~~for~~of ~~solar~~a ~~cell~~center ~~applications~~portion ~~through~~and four arms extending ~~Solterra.~~from ~~TQDs~~the center that are aequally ~~variant~~spaced ofin ~~QDs~~three ~~with~~dimensions. TQDs have material advantages over standard spherical QDs, ~~particularly~~where inboth ~~solar panel applications. The~~absorption ~~solar~~of ~~cell~~photons ~~market~~and ~~became~~charge ~~increasingly~~transport ~~volatile,~~are ~~with~~enhanced ~~prices~~by ~~eroding due to~~ the ~~influx~~legs of ~~subsidized products from outside~~ the ~~United States.~~tetrapod Wewhich ~~believe~~effectively ~~that~~serve weas ~~are~~trillions ~~well-positioned~~of toantennae ~~bring~~for ~~a solar cell to market with sufficiently~~light. ~~high~~Their ~~conversion~~unique ~~efficiency~~architecture ~~that,~~and ~~when~~shape ~~combined~~also ~~with~~promotes ~~our~~more ~~low-~~uniform ~~cost~~distances ~~proprietary~~between ~~manufacturing~~the ~~process~~dots, ~~will~~which ~~result~~helps into aeliminate ~~product~~the ~~capable~~ problem of ~~producing~~aggregation. To ~~energy~~our atknowledge, aTQDs ~~competitive~~are ~~cost~~more ~~per~~costly ~~watt~~and ~~compared~~difficult to ~~existing~~produce ~~solar~~in ~~cell~~quantity ~~technology~~using ~~and~~known atmethods, awith ~~scale~~the ~~that~~exception ~~will~~of ~~meet~~our ~~growing market~~patented ~~demand~~flow ~~for distributed, sustainable energy~~technology.

36Initially, our principal business emphasis was on the development of TQDs for solar cell applications through Solterra. TQDs are a variant of QDs with material advantages over standard spherical QDs, particularly in solar panel applications. The solar cell market became increasingly volatile, with prices eroding due to the influx of subsidized products from outside the United States. We believe that we are well-positioned to bring a solar cell to market with sufficiently high conversion efficiency that, when combined with our low-cost proprietary manufacturing process, will result in a product capable of producing energy at a competitive cost per watt compared to existing solar cell technology and at a scale that will meet growing market demand for distributed, sustainable energy.

How Quantum Dots are Produced

High volume production of QDs is typically accomplished through one of several methods including:

Colloidal synthesis: Growth of QDs from precursor compounds dissolved in solutions, much like traditional chemical processes. This manual batch process requires careful control of temperature, mixing and concentration levels of precursor materials. Precise control must be maintained uniformly throughout the solution otherwise non-uniform, irregular QDs are produced. Due to their very small size it is extremely difficult if not impossible to segregate the QDs by size once they have been produced and a conglomeration of varied size QDs are not capable of producing the unique features that are required in most applications.

Prefabricated seed growth: QDs are created from chemical precursors in the presence of a molecular cluster compound under conditions whereby the integrity of the molecular cluster is maintained and acts as a prefabricated seed template. This manual batch method can produce reasonable quantities of QDs but can take significant capital resources to achieve significant volume and still results in low yields.

QMC’s automated continuous process: Unlike the more labor-intensive batch processes described above, we use a continuous manufacturing process to produce QDs and TQDs. We Believe that this patented process and chemistry provides advantages to other methods such as more precise control of process variables which leads to improved quality control. We believe that by using this method yields are higher and manufacturing costs are lower as compared to other methods. We also believe that we are the only company to successfully deploy continuous flow technology in the large-scale manufacturing of highly uniform QDs of both cadmium-based, cadmium-free and a number of other elemental chemistries.

Raw materials for the commercial production of QD are purchased in bulk from chemical supply companies. Indium, a component of our cadmium-free QD is considered a rare metal. Indium is primarily found in South America, Canada, Australia, China and the ~~Commonwealth~~Eurasia Commonwealth of Independent States. There is also a mature and efficient indium recycling process. While our management does not believe that a supply ~~disruption~~ disruption of the indium-containing compounds used in the manufacturing of QDs represents a significant risk, no assurances can be given in this regard.

Major Market Segments

Life Sciences. The life sciences industry was one of the early areas of adoption of QD technology, especially for QDs used in fluorescent markers in diagnostic applications. This includes both the in vitro use of QDs for marking (illuminating) particular cell types or metabolic processes for understanding diseases, and in vivo imaging made possible by QD fluorescence in near infrared that can be detected in deep tissues. The fluorescent qualities of QDs provide an attractive alternative to traditional organic dyes in bio-imaging. It is estimated that QDs are 20 times brighter and 100 times more stable than standard fluorescent indicators. QD technology is also being used in place of colloidal gold nanoparticles in lateral flow test kits such as those used in the rapid Covid 19 antigen test. QDs have been reported in literature to exponential improve the sensitivity of these test enabling earlier detection.

The Federal Drug Administration (“FDA”) has issued emergency use authorization (“EUA”) for medical tests that diagnose Covid-19. The FDA is responsible for protecting the public health by ensuring safety, efficacy, and security of all human and veterinary drugs, biological products, and medical devices. With regards to medical tests, the FDA usually does this by making manufacturers meet rigorous guidelines in an approval process that can take many months. During an emergency, such as a pandemic, it may not be possible to have all the evidence that the FDA would usually have before approving a medical test. If there’s evidence that strongly suggests that patients have benefited from a test, the agency can issue an EUA to make it available. One of the minimum requirements for granting EUA is that the known and potential benefits of the test outweigh the known potential risks. However, this is a minimum requirement and not the standard. The minimum standard can be met and EUA is still not given; there may be additional requirements, such as the test meeting reasonable thresholds for safety and effectiveness and/or people in urgent need of care based on a diagnosis. EUAs are only given during a declared emergency; outside of this, an EUA is never given.

Once the pandemic is over and should FDA EUA of Covid-19 tests be revoked., ~~The~~the 510K approval process would apply. This process, which requires validation and submission of the test for FDA 510(k) clearance, ~~which~~ is ~~one of~~ the ~~normally~~most commonly used medical device regulatory pathways for FDA approval ~~would~~of medical devised, and would be required to continue to sell the test kits in the ~~USA~~United States.

~~It is~~The ~~important~~Company ~~to note that QMC~~ is also collaborating with a leading university in the medical field and intends to initially pursue the FDA EUA regulatory pathway while also pursuing the FDA 510(k) clearance of its test platform for non-~~covid~~Covid related testing. ~~QMC~~The Company also intends to pursue regulatory approvals in one or more foreign jurisdictions.

The time required to complete either the FDA EUA or the FDA 510(k) approval process can vary widely, and approval is not guaranteed the same holds true for regulatory approvals outside the USA.

37TVs, Displays, and Other Optoelectronics. This market is comprised principally of quantum dot LCD displays (“QDLCDs”) for televisions, computers, cell phones, tablets and various other applications. In QDLCDs, QDs are used to down convert some of the blue light from the LED backlight directly to green and red light allowing for the creation of more vibrant colors and energy savings as compared to a traditional LCD TV/display. Unlike OLEDs which are extremely expensive to produce and require massive manufacturing capital expenditures, QD films are a drop-in solution for LCD manufacturers using existing infrastructure allowing for OLED-like color performance at significantly lower capital investment. LCD TVs currently make up the vast majority of new TV shipments, and we expect this proportion to change. Samsung and several other OEMs are currently shipping televisions using QDs to enhance the color quality and power efficiency.

TVs, Displays, and Other Optoelectronics. This market is comprised principally of quantum dot LCD displays (“QDLCDs”) for televisions, computers, cell phones, tablets and various other applications. In QDLCDs, QDs are used to down convert some of the blue light from the LED backlight directly to green and red light allowing for the creation of more vibrant colors and energy savings as compared to a traditional LCD TV/display. Unlike OLEDs which are extremely expensive to produce and require massive manufacturing capital expenditures, QD films are a drop-in solution for LCD manufacturers using existing infrastructure allowing for OLED-like color performance at significantly lower capital investment. LCD TVs make up the vast majority of new TV shipments, and we expect this proportion to grow. Samsung and several other OEMs are currently shipping televisions using QDs to enhance the color quality and power efficiency.

Lighting. In the lighting market, companies began to commercialize quantum dot LEDs in 2013 with significant R&D occurring among manufacturers of solid-state lighting. While companies have launched quantum dot LED lamps, the market for quantum dot LED lamps and the other lighting products is still relatively small. We believe QD-based LED lighting will be a highly competitive replacement for currently available compact florescent and LED lighting, as QD technology provides greater power efficiency and the ability to tune the light spectrum to emit light that is the most pleasing and/or appropriate for the application.

Solar Energy. QDs are capable of producing energy from a broad spectrum of solar and radiant energy, including the ultraviolet and infrared frequencies conventional silicon solar cells generally do not convert to electricity. QD solar cells have theoretical conversion potentials of approximately twice that of conventional solar cells, and applications are being developed to “print” highly efficient photovoltaic solar cells in mass quantities at low cost. Management believes that QD solar cells and panels will be the next evolutionary development in the field of solar energy. Management also believes that increased conversion efficiencies will be realized with the use of TQDs resulting from their unique shape and that our low-cost proprietary continuous production process and printing technology will permit Solterra to offer solar electricity solutions that can compete on a non-subsidized basis with the price of retail electricity in key markets around the world. We believe that global energy consumption trends that include the need for distributed energy generation (non-grid and especially in developing markets) and the desire for non-fossil fuel generated energy even at increased costs will drive market demand for solar. Management believes this will be especially true if existing generation by nuclear and coal is decommissioned due to age-related, safety, or environmental concerns or global governmental policy.39

Solar Energy. QDs are capable of producing energy from a broad spectrum of solar and radiant energy, including the ultraviolet and infrared frequencies conventional silicon solar cells generally do not convert to electricity. QD solar cells have theoretical conversion potentials of approximately twice that of conventional solar cells, and applications are being developed to “print” highly efficient photovoltaic solar cells in mass quantities at low cost. Management believes that QD solar cells and panels will be the next evolutionary development in the field of solar energy. Management also believes that increased conversion efficiencies will be realized with the use of TQDs resulting from their unique shape and that our low-cost proprietary continuous production process and printing technology will permit Solterra to offer solar electricity solutions that can compete on a non-subsidized basis with the price of retail electricity in key markets around the world. We believe that global energy consumption trends that include the need for distributed energy generation (non-grid and especially in developing markets) and the desire for non-fossil fuel generated energy even at increased costs will drive market demand for solar. We also believe this will be especially true if existing energy generation from nuclear and coal sources is decommissioned due to age-related, safety, or environmental concerns or global governmental policy.

Other applications. Current and future applications of QDs and other nanoparticles may impact a broad range of other industrial markets. These potentially include batteries and energy storage, commercial glass, water purification, improved thermoelectric components, biohazard detection sensors, diode lasers, and others. We intend to monitor these uses as they mature from basic research and plan for specific compositions as market opportunities develop.

We anticipate that the biggest growth sectors for QDs will be in Life Science, anti-counterfeiting, and photovoltaics. Other current and potential applications for QD include nano-bio, commercial glass, batteries, sensors, lasers, and paints. QDs remain an expensive product. Although the high cost has slowed market growth, we believe the recent growth of mass manufacturing is quickly easing the cost constraints.

License Agreement

In November 2018, the Company entered into a license and development agreement (the “License Agreement”) with Amtronics India LLC (“Amtronics”) related to the volume ~~production~~ 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 initially delayed due to historic flooding in the region during 2019 and 2020. ~~The~~In addition, the project was and continues to be further 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~~assist in the development and scale up of the 3rd generation solar, display and SSL products, ~~training~~train and ~~providing~~provide a broad range of consulting services at additional cost,. ~~representing~~Management believe that this represents a potential ongoing revenue opportunity for the Company, although no assurance can be given as to when or if any such revenues will be realized.

38The Company received advanced payments from Amtronics related to the License Agreement, which have been recorded as contract liabilities and will be recognized as revenue in accordance with ASC Topic 606 once the performance obligations are met. As of December 31, 2019 and June 30, 2019, 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 December 31, 2019 and 2019, no revenue was recorded related to the License Agreement.

The Company received advanced payments from 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 and will be recognized as revenue in accordance with ASC Topic 606 once the performance obligations are met. 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 2019, no revenue was recorded related to the License Agreement.40

InRecent ~~addition~~Developments to– ~~Company’s efforts to commercialize its QD~~Covid-~~LED~~19 remote phosphor technology for displays, the Company plans for its core focus in the first half of 2019 to be research and development for the optimization of its 3rd generation perovskite QD based solar technology in preparation of scaling up to commercial production levels in Assam, India.pandemic

WeThe ~~have~~recent ~~continued~~Covid-19 topandemic ~~maintain~~and ~~aggressive~~the ~~cost~~measures ~~control~~being ~~measures,~~taken ~~never~~to ~~forgetting~~address ~~this~~and islimit athe ~~marathon~~spread ~~and~~of ~~not~~the avirus ~~sprint.~~have Weadversely ~~are~~affected ~~continuing~~the toeconomies ~~focus~~and ~~more~~financial ~~resources~~markets onof ~~developing~~many ~~our~~countries, ~~continuous~~resulting ~~flow~~in ~~technology.~~an Weeconomic ~~also~~downturn ~~have~~that ~~utilized~~has ~~investment~~negatively ~~funds~~impacted, and may continue to negatively ~~further~~impact, ~~develop~~global ~~our~~demand ~~QDX Ledger~~for ~~anti-counterfeiting~~our ~~technology~~products asand ~~well~~services. asSee ~~related~~part ~~HeathID~~Item ~~platform~~1A, ~~for~~“Risk ~~pandemic~~Factors” ~~and~~of ~~other~~our ~~diagnostic~~Annual ~~testing~~Report ~~analysis,~~on ~~tracking~~Form ~~and~~10-K ~~reporting.~~for Tothe ~~further~~fiscal ~~streamline~~year ~~our~~ended ~~operations~~June 30, we2019 ~~have~~filed ~~continued~~with tothe ~~analyze~~SEC ~~our~~on ~~operating~~March ~~costs~~23, ~~and~~2021, ~~make~~for ~~reductions~~further ~~whenever and wherever possible~~discussion.

Recent Developments – COVID-19 pandemic

The recent COVID-19 pandemic and the measures being taken to address and limit the spread of the virus have adversely affected the economies and financial markets of many countries, resulting in an economic downturn that has negatively impacted, and may continue to negatively impact, global demand for our products and services. See part Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 filed with the SEC on March 23, 2021, for further discussion.

Cybersecurity

Cybersecurity refers to a set of practices and techniques used to protect the integrity of networks, applications and data from attack, damage, loss or unauthorized access. The use of cybersecurity measures can help prevent cyber-attacks, data breaches, and identity theft and can aid in risk management.

Confidentiality, integrity and availability, also known as the CIA triad, is a model designed to guide policies for information security within an organization.

Confidentiality: Protecting confidentiality is dependent on being able to define and enforce certain access levels for information.

Integrity: Integrity is defined as protecting data from deletion or modification from any unauthorized party, and it ensures that when an authorized person makes a change that should not have been made the damage can be reversed.

Availability: Authentication systems, access vectors and systems functionality are all paramount for the information they protect and ensure it’s available when it is needed.

The following is a brief representation of QMC HealthID™ and QDX Platform ~~Cybersecurity~~cybersecurity measures currently in place.

●

Penetration testing: simulates a malicious attack in order to perform in-depth business logic testing and determine the feasibility and impact of an attack. The testing is performed internally and externally to the system.

● Tested development, testing and production environments when typically, only production environments are tested. ● Cold test results were very good with only one critical and one high vulnerability, and very few medium and low vulnerabilities.

●

Application security testing:

●

Currently, a relatively manual process of assuring our applications are more resistant to security threats, by identifying security weaknesses and vulnerabilities in source code.

●

Code static analysis

●

Sonarqube is an open-source platform developed by SonarSource for continuous inspection of code quality to perform automatic reviews with static analysis of code to detect bugs, code smells, and security vulnerabilities on 20+ programming languages.

●

Library vulnerability reporting

●

Partially automated process of researching and scanning third-party software components in use.

●

Container vulnerability scanning (ECR)

●

Amazon Elastic Container Registry (ECR) is a fully managed container registry that makes it easy to store, manage, share, and deploy verified container images and artifacts anywhere.

●

Virtual machine vulnerability scanning (AlertLogic)

●

Alert Logic service is MDR (Managed Detection & Response), which is an always-on always-aware breach detection/response system

●

Containers always get security updates when they are built

●

All Kubernetes containers automatically notify the team when there are new security updates to be completed.

●

Encryption

	●	All data is encrypted at rest and in transit.
	●	No PII or PHI data is stored on any end-user device.

●

Segregation/Isolation

	●	Production environment is logically and physically isolated from dev/test
	●	Each element is contained within a separate VPC (virtual private cloud)
	●	Each separate VPC requires a VPN (virtual private network) connection in order to access.

●

Access

	●	Complex password policies are enforced
	●	Role based access control within dev/text/production environments
	●	Multi-Factor Authentication is enforced within systems requiring higher levels of access control

●

Healthcare data security and availability standards in use within appropriate deployed platforms

●

FHIR

●

Rapidly exchange data in the HL7 FHIR standard format with a single, simplified data management solution for protected health information (PHI). Azure API for FHIR lets you quickly connect existing data sources, such as electronic health record systems and research database

●

HITRUST

●

The Health Information Trust Alliance Common Security Framework (HITRUST CSF) leverages nationally and internationally accepted standards and regulations such as GDPR, ISO, NIST, PCI, and HIPAA to create a comprehensive set of baseline security and privacy controls

Liquidity and Capital Resources

Going Concern

The Company recorded losses from continuing operations in the period presented and has a history of losses. 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.

40Until such time as the Company realizes any of its revenue streams, management will seek to secure equity and debt financing, the proceeds from which would be used to settle outstanding debts, to finance operations, and for general corporate purposes. However, there can be no assurance that the Company will be able to raise capital, obtain debt financing, or improve operating results sufficiently to continue as a going concern, if at all.

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. However, there can be no assurance that the Company will be able to raise capital, obtain debt financing, or improve operating results sufficiently to continue as a going concern, if at all.42

The Company has continued to maintain aggressive cost control measures, although we plan onto increasingly to focus more resources on ~~research~~ research and development as we did during the last half of fiscal year 2019 and fiscal year 2020. To further streamline operations, the Company has continued to analyze its operating costs and to make reductions where management believes prudent. To that end, we ~~changed~~ changed transfer agents during June 2019 in order to further reduce overhead cost and has made additional cost cutting measures.

The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

As of ~~September~~December 3031, 2019, we had a working capital deficit of $910,~~758~~015,~~002~~589, with total current assets and liabilities of $321,~~260~~ 189,154 and $910,~~790~~075,~~262~~ 780, respectively. Included in the liabilities are $~~793~~780,~~151~~801 owed to our officers, directors and employees for services rendered and accrued through ~~September~~December 3031, 2019, $2,~~516~~435,~~766~~116 of debentures, net of unamortized discount, and $20,000 of notes payable that are due within one year. As a result, we have relied on financing through the issuance of common stock and convertible debentures.

As of ~~September~~December 3031, 2019, we had cash and cash equivalent assets of $837,~~735~~473. We continue to incur losses in operations. Over the past five years we have primarily relied on sales of common stock and debt instruments to support operations as well as employees and consultants agreeing to defer payment of wages and fees owed to them and/or converting such wages and fees into securities of the Company. Management believes it may be necessary for the Company to rely on external financing to supplement working capital to meet the Company’s liquidity needs in the fiscal years ended 2020 and 2021; the success of securing such financing on terms acceptable to the Company, if or at all, cannot be assured. If we are unable to achieve the financing necessary to continue our plan of operations, our stockholders may lose their entire investment in the Company.

The following table summarizes the net cash provided by (used in) operating, investing and financing activities for the periods indicated:

	Three Months Ended
	Six Months Ended
	September 30,
	December 31
	2019			2018
Operating activities	$	(~~159~~495,~~684~~946	)	$	(~~184~~530,~~090~~988	)
Investing activities		(7,059	)		-
Financing activities	$	~~175~~540,000		$	~~203~~854,~~900~~400

Operating Activities. Net cash used in operating activities was $~~159~~495,~~684~~946 for the ~~three~~six months ended ~~September~~December 3031, 2019 compared to $~~184~~530,~~090 for~~988 for the same period of 2018, a decrease in cash used of $2435,~~406~~042. The decrease was primarily attributable to an increase in the cash provided by working capital accounts of $~~156~~764,~~961~~892 offset in part by an increase in cash used of $~~135~~729,~~278~~850 from an increase in net loss and non-cash reconciling items.

Investing Activities. Net cash used in investing activities was primarily related to purchases of equipment. Purchases of capital equipment were $7,059 and $0, respectively in the ~~three~~six months ended ~~September~~December 3031, 2019 orand 2018. During the ~~three~~six months ended ~~September~~December 3031, 2019, purchases primarily relate to computers and lab equipment whereas there were no purchases of capital equipment during the ~~three months~~six months ended ~~September~~December 3031, 2018.

Financing Activities. Net cash provided by financing activities was $~~175~~540,000 for the ~~three~~six months ended ~~September~~December 3031, 2019 compared to $~~203~~854,~~900~~ 400 for the same period of 2018, a decrease of $28314,~~900~~400. The decrease is primarily due to a decrease in proceeds from the issuance of stock ~~and notes payable~~ of $~~109~~333,900 ~~offset~~which inresulted ~~part~~from bymanagements anreduced ~~increase~~focus inon ~~proceeds~~stock ~~from~~issuances ~~convertible~~as ~~debentures~~a source of funding and more reliance on the issuance of ~~$75,000~~debt instruments.

Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes we will be able to meet our obligations and continue our operations for the next fiscal year. Realization values may be substantially different from carrying values as shown and these condensed consolidated financial statements do not give effect to adjustments that would be necessary to reflect the carrying value and classification of assets and liabilities should we be unable to continue as a going concern.

Our primary sources of liquidity have historically been the issuance of common stock and debentures. The Company may raise additional capital through future equity raises or debt. Until the Company generates positive cash flow from operations, the Company anticipates that its primary sources of liquidity will continue be cash on hand and the issuance of additional debentures. Additional financing may not be available on acceptable terms or at all. If the Company issues additional equity securities to raise funds, the ownership percentage of its existing stockholders would be reduced. New investors may demand rights, preferences, or privileges senior to those of existing holders of common stock. The Company believes that it has sufficient cash and capital resources to operate its business for at least the next twelve months.43

41Our primary sources of liquidity have historically been the issuance of common stock and debentures. The Company may raise additional capital through future equity raises or debt. Until the Company generates positive cash flow from operations, the Company anticipates that its primary sources of liquidity will continue be cash on hand and the issuance of additional debentures. Additional financing may not be available on acceptable terms or at all. If the Company issues additional equity securities to raise funds, the ownership percentage of its existing stockholders would be reduced. New investors may demand rights, preferences, or privileges senior to those of existing holders of common stock.

Financing Arrangements

Over the course of meeting our capital needs, we have entered into various debentures and debt instruments, which generally have short maturity terms, typically 6 to 24 months. Many of these instruments were accompanied by shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock. The outstanding principal amount of these instruments at ~~September~~December 3031, 2019 was $2,~~547~~760,116. The terms of the instruments are set forth in the following table.

Issuance Date	Outstanding Principal Amount ($) (1)		Interest Rate			Conversion Price ($)		Maturity Term (2)	No. of Shares Exercisable Under Related Warrants		Warrants Strike Price ($)		Warrant Exercise Period
September 2014		25,050		6	%		0.15	September 2019 - October 2019		3,333,667		0.30	September 2019
April - June 2016		1,060,716		8	%		0.012	March 2018 - April 2019		2,686,590		0.15	August 2021
August 2016		200,000		8	%		0.012	August 2018		833,200		0.15	August 2021
January - March 2017		60,000		8	%		0.12	January - March 2019		10,831,600		0.15	January 2022 – March 2022
July 2017		100,000		8	%		0.12	February 2019		250,000		0.12	July 2020
September 2017		150,000		8	%		0.12	February 2019		375,000		0.12	September 2020
November 2017		27,000		8	%		0.12	November 2019		416,600		0.15	November 2022
December 2017		75,000		8	%		0.12	March 2019		250,000		0.12	December 2020
February 2018		45,000		8	%		0.12	February 2019		500,000		0.12	December 2020
March 2018		65,000		8	%		0.12	March 2019		500,000		0.12	March 2021
April 2018		100,000		8	%		0.12	March 2019		500,000		0.12	March 2021
April 2018(3)		70,000		8	%		0.12	April 2021		200,000		0.12	April 2021
April 2018		20,000		8	%		0.12	April 2020		1,166,660		0.15	April 2023
July 2018		45,000		8	%		0.12	January 2019		1,000,000		0.12	June 2021
August 2018		30,000		8	%		0.12	March 2019		1,000,000		0.12	August 2021
September 2018		25,000		8	%		0.12	April 2019		1,000,000		0.12	September 2021
December 2018		52,000		8	%		0.08	December 2020		262,458		0.15	December 2023
July 2019(3)		175,000		10	%		-	July 2020		700,000		0.025	July 2022
October 2019		75,000		8	%		0.0331 - 0.0371	October 2020		593,135		0.03	October 2024
November 2019		100,000		8	%		0.04	July 2020		716,530		0.038	July 2022
December 2019		110,000		8	%		0.03	July 2020		2,000,000		0.04	July 2022
December 2019		80,000		12	%		-	December 2022		240,000		0.025	December 2022

(1)	This table does not include $222,350 of promissory notes held by SBI Investments LLC, 2014-1, and L2 Capital, LLC issued as consideration for an equity line of credit that did not close in the form of promissory notes, which bear interest at 8% per annum, matured on December 29, 2017 and are considered past due at the time of this report. The promissory notes are convertible into unregistered and restricted shares of shares of the Company’s common stock only if there is an Event of Default, as defined in the notes. These amounts are subject to ongoing litigation, and the Company does not intend to pay the balances or honor a conversion until the litigation has concluded. See Note 11 to the Notes to Condensed Consolidated Financial Statements.
(2)	As of the date of this report, with the exception of the April 2018 $~~100~~70,000 debt instrument, ~~and~~ the July 2019 $175,000 debt instrument, the October 2019 $75,000 debt instrument and the December 2019 $80,000 debt instrument, the notes are past due.
(3)	As of the date of this report the Company has received executed extension agreements for the following notes. The maturity date for the April 2018 note for $70,000 and the July 2019 note for $175,000 have been extended to April 2022 and July 2021, respectively.

Results of Operations

Three Months Ended ~~September~~December 3031, 2019, Compared to Three Months Ended ~~September~~December 3031, 2018.

Revenue

Revenue for the three months ended December 31, 2019 and 2018 was $0. No revenue was recorded for the license and development agreement in Assam, India for the three months ended December 31, 2019, as our performance obligation has not been fulfilled as of December 31, 2019.

General and administrative expenses

During the three months ended ~~September~~December 31, 2019, the Company incurred $1,~~043~~047,~~085~~916 of general and administrative expenses compared with $1,~~361~~261,~~732~~793 incurred in the three-month period ended ~~September~~December 3031, 2018, a decrease of $~~318~~213,~~647~~877, or 2317.40%. The decrease in general and administrative expenses was primarily due to decreases in ~~professional fees,~~ stock-based compensation, ~~legal~~ and ~~audit~~other ~~expenses~~professional fees offset in part by increases in ~~general~~ corporate expenses and ~~compensation~~legal ~~expense~~and audit expenses.

42Included in general and administrative expenses for the three months ended December 31, 2019 and 2018 are the following:

Included in general and administrative expenses for the three months ended September 30, 2019 and 2018 are the following:

	Three Months Ended December 31
	2019		2018

Compensation	$	205,717	$	122,600	$	83,117		67.8	%
Stock-based compensation		49,887		327,703		(277,816	)	-84.8	%
Legal and audit expenses		115,140		9,961		105,179		1,055.9	%
Travel expenses		5,636		-		5,636		100.0	%
Corporate expenses		430,461		144,045		286,416		198.8	%
Other professional fees		208,985		625,572		(416,587	)	-66.6	%
Depreciation		25,179		25,001		178		0.7	%
Amortization		6,911		6,911		-		0.0	%
Total General and Administrative Expenses	$	1,047,916	$	1,261,793	$	(213,877	)	16.9	%

	Three Months Ended
	September 30,				Increase/
	2019		2018		(Decrease)			%
Compensation	$	197,795	$	155,533	$	42,261			27.2	%
Stock-based compensation		37,336		207,452		(170,116	)		-82.0	%
Legal and audit expenses		55,404		137,748		(82,344	)		-59.8	%
Travel expenses		16,670		5,180		11,491			221.8	%
Corporate expenses		322,977		183,578		139,399			75.9	%
Other professional fees		381,157		640,372		(259,215	)		-40.5	%
Depreciation		24,834		25,006		(172	)		-0.7	%
Amortization		6,911		6,864		47			0.7	%
Total General and Administrative Expenses		1,043,085		1,361,732	$	(318,647	)		-23.4	%

Research and development expenses

During the three months ended ~~September~~December 3031, 2019, the Company incurred $2711,~~212~~954 of research and development expenses, a decrease of $43,~~125~~495, or 1522.26%, from the $2315,~~087~~449 recorded for the three months ended ~~September~~December 3031, 2018. The decrease is primarily due to decreased expenditures for lab equipment, repairs and maintenance, and chemicals and consumables in the San Marcos facility.

Beneficial conversion feature on convertible debenture

During the three months ended ~~September~~December 3031, 2019, the Company incurred no beneficial conversion expense of $77,452 compared to $16126,~~870~~908 recorded for the three months ended ~~September~~December 3031, 2018. The decrease in beneficial conversion expenses of $1649,~~870~~456, or ~~100~~39.0%, was due primarily to a decrease in the issuance of ~~non-~~convertible debentures during the three months ended December 31, 2019 as compared to the three months ended December 31, 2018.

Interest expense, net

Interest expense recorded for the three months ended ~~September~~December 3031, 2019 was $~~196~~207,~~915~~004 compared to $51441,~~085~~196 in the three months ended ~~September~~December 3031, 2018, ana ~~increase~~decrease of $~~145~~234,~~830~~192, or 7453.1%. The ~~increased~~decrease interest expense recorded in the three months ending ~~September~~December 3031, 2019 was primarily related anto ~~increase~~the indecrease ~~charges~~of interest related to derivative liability settlements in the comparative period offset in part by an increase in default interest related to debentures.

Change in value of derivative liability

During the three months ended ~~September~~December 3031, 2019, the Company recorded a benefit of $2823,~~712~~080 related to the change in value of derivative ~~liability.~~ ~~The~~liability ~~benefit~~compared ~~is primarily related~~ to ~~the~~$23,706 ~~change in value at the settlement~~ of aexpense ~~convertible~~during ~~debenture feature issued in March and May of 2017. During~~ the three months ended ~~September~~December 3031, 2018, ~~the~~a ~~Company~~decrease ~~recorded an expense~~ of $8246,~~162~~786, ~~related~~or to197.4%. ~~the~~The change in value of derivative liability. ~~The~~primarily ~~expense~~relates isto ~~related~~changes in our derivative instruments that can vary period to ~~the~~period ~~change~~based inon ~~value~~the fluctuations of the ~~“make-whole”~~inputs ~~provision~~of ~~issued~~the incalculation ~~relation~~model towhich ~~debenture extensions~~occurs during the ~~fourth~~normal ~~quarter~~course of ~~2018~~business.

Accretion of debt discount

During the three months ended ~~September~~December 3031, 2019, the Company recorded $237,~~895~~276 of accretion of debt discount expense, a decrease of $8724,~~115~~117 or 39.3% from the $9061,~~010~~393 recorded for the three months ended ~~September~~December 3031, 2018. The decrease in accretion of debt discount expense is primarily related to the issuance of the debt discount on convertible debentures ~~during~~outstanding being fully recognized and a decrease in the ~~quarter~~issuance of convertible debentures with attached warrants.

Change in value of insufficient shares liability

During the three months ended ~~September~~December 3031, 2019, the ~~company~~Company recorded a benefit of $1353,~~785,261~~760 ~~loss~~ related to the change in value of the insufficient shares liability compared to $0 during the three months ended ~~September~~December 3031, 2018. AsThe recording of ~~September~~a 30benefit during the three months ended December 31, 2019 is due to a decline in the market price of the Company’s common stock as compared to the prior quarter. As of December 31, 2019, the Company has 750,000,000 shares authorized, resulting in approximately 2371,~~756~~473,~~489~~284 of insufficient shares and the recording of a $1,~~785~~431,~~261~~504 year-to-date loss for the ~~fair~~change in value of insufficient shares liability. As of ~~September~~December 3031, 2018, there was no insufficient share liability.

		Three Months Ended
		September 30,						Increase/
		December 31						Increase/
		2019			2018			(Decrease)			%
Statement of Operations Information:
Revenues	$	$	-		$	-		$	-			~~0.0~~N/A	%
General and administrative			1,~~043~~047,~~085~~916			1,~~361~~261,~~732~~793			(~~318~~213,~~647~~877	)		-2317.40	%
Research and development			2711,~~212~~954			2315,~~087~~449			4(3,~~125~~495	)		17-22.96	%
Beneficial conversion expense			-77,452			16126,~~870~~908			(1649,~~870~~456	)		-~~100~~39.0	%
Interest expense, net			~~196~~207,~~915~~004			51441,~~085~~196			~~145~~(234,~~830~~192	)		~~285~~-53.51	%
Change in value of derivative liability			(28,712	)		82,162			(110,874	)		-134.9	%
Change in fair value of derivative liabilities			(23,080	)		23,706			(46,786	)		-197.4	%
Accretion of debt discount			2,895			90,010			(87,115	)		-96.8	%
Loss on settlement of convertible debentures			125,955			-			125,955			100.0	%
Change in value of insufficient shares liability			1,785,261			-			1,785,261			N/A
Accretion of debt discount			37,276			61,393			(24,117	)		-39.3	%
Change in value of insufficient shares liability			(353,760	)			-					100.0	%

Six Months Ended December 31, 2019, Compared to Six Months Ended December 31, 2018.

Revenue

Revenue for the six months ended December 31, 2019 and 2018 was $0. No revenue was recorded for the license and development agreement in Assam, India for the six months ended December 31, 2019, as our performance obligation has not been fulfilled as of December 31, 2019.

General and administrative expenses

During the six months ended December 31, 2019, the Company incurred $2,090,908 of general and administrative expenses compared with $2,623,525 incurred in the six-month period ended December 31, 2018, a decrease of $532,617, or 20.3%. The decrease in general and administrative expenses was primarily due to decreases in stock-based compensation and other professional fees offset in part by increases in corporate expenses and compensation expense.

Included in general and administrative expenses for the six months ended December 31, 2019 and 2018 are the following:

	Six Months Ended
	December 31				Increase/
	2019		2018		(Decrease)			%


Compensation	$	403,512	$	278,133	$	125,379			45.1	%
Stock-based compensation		87,223		535,155		(447,932	)		-83.7	%
Legal and audit expenses		170,544		147,709		22,835			15.5	%
Travel expenses		22,306		-		22,306			100.0	%
Corporate expenses		753,346		332,802		420,544			126.4	%
Other professional fees		590,142		1,265,944		(675,802	)		-53.4	%
Depreciation		50,013		50,007		6			0.0	%
Amortization		13,822		13,775		47			0.3	%
Total General and Administrative Expenses	$	2,090,908	$	2,623,525	$	(532,617	)		-20.3	%

Research and development expenses

During the six months ended December 31, 2019, the Company incurred $39,166 of research and development expenses, a decrease of $630, or 1.6% from the $38,536 recorded for the six months ended December 31, 2018. The decrease is primarily due to decreased expenditures for lab equipment, repairs and maintenance, and chemicals and consumables in the San Marcos facility.

Beneficial conversion feature on convertible debenture

During the six months ended December 31, 2019, the Company incurred $77,452 of beneficial conversion expense compared to $143,778 recorded for the six months ended December 31, 2018. The decrease in beneficial conversion expenses of $66,326, or 46.1%, was due to issuing less convertible debentures.

Interest expense, net

Interest expense recorded for the six months ended December 31, 2019 was $403,919 compared to $492,281 in the six months ended December 31, 2018, a decrease of $88,362, or 17.9%. The decreased interest expense recorded in the six months ending December 31, 2019 was primarily related to amounts charged to interest expense related to derivative liability settlements of approximately $400,000 during the prior six-month period offset in part by an increase in default interest expense related to past due debentures during the six months ended December 31, 2019.

Change in value of derivative liability

During the six months ended December 31, 2019 the Company recorded a benefit of $51,792 related to the change in value of derivative liability compared to $105,868 for the three months ended December 31, 2018. The change in value of derivative liability primarily relates to changes in our derivative instruments which can vary period to period based on the fluctuations of the inputs of the calculation model which occurs during the normal course of business.

Accretion of debt discount

During the six months ended December 31, 2019, the Company recorded $40,261 of accretion of debt discount expense, a decrease of $111,142, or 73.4%, from the $151,403 recorded for the six months ended December 31, 2018. The decrease in accretion of debt discount expense is primarily related to the issuance of the debt discount on convertible debentures outstanding being fully recognized.

Change in value of insufficient shares liability

During the six months ended December 31, 2019, the Company recorded a $1,431,504 loss related to the change in value of insufficient shares liability compared to $0 during the six months ended December 31, 2018. As of December 31 2020, the Company has 750,000,000 shares authorized resulting in approximately 71,473,284 of insufficient shares and the recording of a $1,431,504 loss for the change in value of insufficient shares liability. As of December 31, 2018, there was no insufficient share liability.

	Six Months Ended
	December 31					Increase/
	2019			2018		(Decrease)			%
Statement of Operations Information:

Revenues				$	-	$	-			$ - N/A
General and administrative		2,090,908			2,623,525		(532,617	)		-20.3	%
Research and development		39,166			38,536		630			1.6	%
Beneficial conversion expense		77,452			143,778		(66,326	)		-46.1	%
Interest expense, net		403,919			492,281		(88,362	)		-17.9	%
Change in value of derivative liability		(51,792	)		105,868		(157,660	)		-148.9	%
Accretion of debt discount		40,261			151,403		(111,142	)		-73.4	%
Loss on settlement of convertible debentures		68,293			-		68,293			100.0	%
Change in value of insufficient shares liability		1,431,504			-		1,431,504			100.0	%

Off-balance sheet arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file under the Exchange Act is accumulated and communicated to our management including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Due to the inherent limitation of controls systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.

44As of June 30, 2019, an evaluation was carried out under the supervision and with the participation of our management, including our interim Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(f) under the Securities Exchange Act of 1934). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2019, because of material weaknesses in our internal control over financial reporting described below.

As of June 30, 2019, an evaluation was carried out under the supervision and with the participation of our management, including our interim Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(f) under the Securities Exchange Act of 1934). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2019, because of material weaknesses in our internal control over financial reporting described below.48

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness, as of June 30, 2019, of our internal control over financial reporting based on the framework in 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under this framework, our management concluded that our internal control over financial reporting was not effective as of ~~September~~December 3031, 2019 due as described below.

Management did not maintain effective procedures in the areas of review of our annual report on Form 10-K, review of third-party valuation reports and income taxes. These material weaknesses resulted from the lack of timely and effective review of the Company’s period-end closing process and adequate personnel and resources. Specifically,

● The Company’s Form 10-Q and other filings need to be reviewed thoroughly by management on a timely basis. Management’s responsibility is to oversee that the Company is capable of developing accurate and timely financial information. The Company must reinforce procedures to ensure the that Form 10-KQ, as well as other required filings are done on a timely and accurate basis. ● The Company is small and does not have sufficient staff to maintain satisfactory separation of duties. ● Management reviewed all information available to them from the outside consultant’s valuation reports, which included all external models, however, all inputs of the consultants’ model were not available to management and were not verified by ~~the~~ management. A more thorough review which includes all inputs of the models used by the consultants will ensure no additional journal entries need to be recorded. ● Management identified a few non-material unauthorized payments and access to internal systems by a former officer that occurred during the past 27 months. We have taken remediation steps including establishing a weekly review and approval of all payables, separation of duties for entry of payables, separate banking account to fund payroll, utilizing a payroll manager to secure control of payroll releases with a separation of duties and now employ a chief security officer to review all system access and password management.

Remediation Plan

Management is committed to remediating each of the material weaknesses identified above. We have recruited an experienced US GAAP/financial ~~reporting~~ reporting professional to augment and upgrade our finance and accounting staff to address issues of accuracy, completeness, adequate ~~segregation~~ segregation of duties, and timeliness in financial statement preparation and reporting. However, we may be unable to remediate this weakness until we have received additional funding that may be necessary to hire additional personnel. Until we have sufficient internal finance and accounting staff, we plan to work closely with external financial advisors to review and monitor our accounting procedures, perform internal audit procedures, and to prepare our consolidated financial statements and reports. In addition, we do not believe we have sufficient documentation with our existing financial processes, risk assessment and internal controls. Until we have sufficient internal finance and accounting staff, we plan to work closely with external financial advisors to document the existing financial processes, risk assessment, and internal controls systematically. We believe our recently hired accounting ~~personnel~~professional, together with and/or through professional engagement of consultants, payroll manager for separation of duties from banking accounts and approvals will improve our documentation and internal control processes and procedures.

Changes in Internal Control over Financial Reporting

During the last fiscal quarter, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except as set forth above.

4549

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

~~Not~~From time to time, we may be subject to litigation ~~applicable~~and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.

Item 1A. Risk Factors

~~There~~Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our Prospectus, the occurrence of any one of which could have a material adverse effect on our actual results. There have been no material changes from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 filed with the SEC on March 23, 2021.

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

From ~~July~~October 1, 2019 to ~~September~~December 3031, 2019, we had the following sales and issuances of unregistered equity securities:

Consideration Received and Description of Underwriting or

If Option, Warrant or

Other Discounts to Market Price or Convertible Security

Convertible Security, Security, Terms

Other Discounts to Market Price or Convertible Security Afforded to

Exemption from Registration

Convertible Security, Security, Terms of Exercise or

Date of Sale

Title of Security

Number Sold

~~Afforded to~~ Purchases

~~Exemption from Registration~~ Claimed

~~of Exercise or~~ Conversion

Security Holder

July 2019

Common Stock

3,287,458

Shares issued for debenture; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Lucas Hoppel

October 2019

Common Stock Warrants

404,313

Issuance of stock warrants

Section 4(2); and/or Rule 506

Warrants exercisable at $0.037 per share through October 23, 2022

John Murphy

July 2019

Common Stock Warrants

100,000

Issuance of stock warrants

Section 4(2); and/or Rule 506

Warrants exercisable at $0.03 per share through July 15, 2022

Mark Jayaram

October 2019

Common Stock Warrants

188,822

Issuance of stock warrants

Section 4(2); and/or Rule 506

Warrants exercisable at $0.03 per share through July 11, 2022

James & Mary Venker

July 2019

Common Stock Warrants

600,000

Issuance of stock warrants

Section 4(2); and/or Rule 506

Warrants exercisable at $0.03 per share through July 11, 2022

Yellesphur Jayaram

October 2019

Common Stock Warrants

78,534

Issuance of stock warrants

Section 4(2); and/or Rule 506

Warrants exercisable at $0.038 per share through July 11, 2022

Stephen Allbee

July 2019

Common Stock

5,000,000

Shares issued for services; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Steve Squires

October 2019

Common Stock Warrants

157,068

Issuance of stock warrants

Section 4(2); and/or Rule 506

Warrants exercisable at $0.038 per share through July 11, 2022

Amina Darby

July 2019

Common Stock

1,031,384

Shares issued for services; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Robert Phillips

October 2019

Common Stock Warrants

157,068

Issuance of stock warrants

Section 4(2); and/or Rule 506

Warrants exercisable at $0.038 per share through July 11, 2022

Saadia Virk

July 2019

Common Stock

1,119,856

Shares issued for services; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Steven Morse

October 2019

Common Stock Warrants

323,860

Issuance of stock warrants

Section 4(2); and/or Rule 506

Warrants exercisable at $0.038 per share through July 11, 2022

Roy Truitt

August 2019

Common Stock

6,250,000

Shares issued for debenture; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Matthew and Kassy W. Ockner Community

November 2019

Common Stock Options

250,000

Issuance of stock options

Section 4(2); and/or Rule 506

Stock options exercisable at $0.05 per share through November 7, 2024

Toshi Ando

August 2019

Common Stock

1,875,000

Shares issued for debenture; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Columus Capital Partners LP

November 2019

Common Stock Options

50,000

Issuance of stock options

Section 4(2); and/or Rule 506

Stock options exercisable at $0.05 per share through November 7, 2024

Stephen Banks

August 2019

Common Stock

625,000

Shares issued for debenture; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Columus QP Partners LP

November 2019

Common Stock Options

50,000

Issuance of stock options

Section 4(2); and/or Rule 506

Stock options exercisable at $0.05 per share through November 7, 2024

Pete Harris

August 2019

Common Stock

2,000,000

Shares issued for debenture; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Lucas Hoppel

November 2019

Common Stock

6,136,363

Shares issued for debenture; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Lucas Hoppel

August 2019

Common Stock

781,250

Shares issued for debenture; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Protek Financial Services, Inc.

December 2019

Common Stock

3,000,000

Shares issued for debenture; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Lucas Hoppel

August 2019

Common Stock

769,231

Shares issued for debenture; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Debenedetto Holdings, Inc.

December 2019

Common Stock Warrants

90,000

Issuance of stock warrants

Section 4(2); and/or Rule 506

Warrants exercisable at $0.025 per share through December 16, 2022

Radha Jayaram,

August 2019

Common Stock

484,520

Shares issued for debenture; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Debenedetto Holdings, Inc.

December 2019

Common Stock Warrants

150,000

Issuance of stock warrants

Section 4(2); and/or Rule 506

Warrants exercisable at $0.025 per share through December 16, 2022

Yelleshpur Jayaram

August 2019

Common Stock

3,263,428

Shares issued for asset purchase; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Elizabeth Wiley

December 2019

Common Stock Warrants

2,000,000

Issuance of stock warrants

Section 4(2); and/or Rule 506

Warrants exercisable at $0.04 per share through July 11, 2022

Lucas Hoppel

August 2019

Common Stock

2,466,439

Shares issued for asset purchase; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Zelma Faye Bragg 2018 Irrevocable Trust

August 2019

Common Stock

2,045,455

Shares issued for asset purchase; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Trusendero Ventures LTD

August 2019

Common Stock

1,433,561

Shares issued for asset purchase; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Kimberly Hatch

August 2019

Common Stock

174,818

Shares issued for asset purchase; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Jihad Elassaad

August 2019

Common Stock

87,407

Shares issued for asset purchase; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Victor Rojas

August 2019

Common Stock

87,407

Shares issued for asset purchase; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Amy Schippers

August 2019

Common Stock

83,909

Shares issued for asset purchase; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Sara Elassaad

August 2019

Common Stock

37,879

Shares issued for asset purchase; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Dr. David Bray

August 2019

Common Stock

37,879

Shares issued for asset purchase; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Pete Harris

August 2019

Common Stock

2,617,194

Shares issued for accounting services; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Robert Phillips

August 2019

Common Stock

1,953,161

Shares issued for accounting services; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Clark Knopik

August 2019

Common Stock

2,969,184

Shares issued for accounting services; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Jay Williams

September 2019

Common Stock

377,993

Shares issued for accounting services; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Celina Morris

September 2019

Common Stock

6,136,363

Shares issued for debenture; no commissions paid

Section 4(2); and/or Rule 506

Not applicable

Lucas Hoppel

~~These~~The ~~transactions~~foregoing issuances were ~~conducted~~exempt ~~in reliance on the exemptions~~ from ~~the~~ registration ~~requirements~~under ofSection ~~the~~4(a)(2) ~~Securities Act~~ of ~~1933, as amended, based on~~ the ~~private~~Securities ~~sale of the securities and the Company’s relationships with the security holders~~Act.

Item 3. Defaults Upon Senior Securities

We issued $2,~~324~~689,766 of convertible and non-convertible debentures between September 2014 and ~~July~~December 2019. The maturities range from March 2018 to December ~~2021~~2022, and $2,~~079~~435,~~766~~116 in principal amount of these debentures is past due at the date of this report. In addition, as of ~~September~~December 3031, 2019, the Company has accrued approximately $~~515~~716,~~288~~468 of past due interest for such debentures. We are currently in discussions with the holders regarding these matters, although we have not obtained a written waiver or entered into an amendment revising these terms. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Arrangements”.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

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~~ 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~~ 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.

Trading Suspension and SEC Administrative Proceeding

On March 23, 2021, the Company filed its Annual Report on Form 10-K for the fiscal year ended June 30, 2019; and

On April 30, 2021, the Company filed its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2019.

In addition, management has continued to provide investors with current information by filing other current reports on Form 8-K with the SEC and by issuing certain press releases.

Item 6. Exhibits

10.1		Asset purchase agreement between Capstan Platform Inc. and Quantum Materials Corp. dated August 6, 2019 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed August 6, 2019)
10.2		Amended Securities Purchase and Financing Agreement *
10.3		Convertible Note *
10.4		Convertible Note *
31(a)		Rule 13a-14(a) Certification — Principal Executive Officer *
31(b)		Rule 13a-14(a) Certification — Principal Financial Officer *
32(a)		Section 1350 Certification — Principal Executive Officer *
32(b)		Section 1350 Certification — Principal Financial Officer *
101.INS		XBRL Instance Document *
101.SCH		Document, XBRL Taxonomy Extension *
101.CAL		Calculation Linkbase, XBRL Taxonomy Extension Definition *
101.DEF		Linkbase, XBRL Taxonomy Extension Labels *
101.LAB		Linkbase, XBRL Taxonomy Extension *
101.PRE		Presentation Linkbase *

*Filed herewith.

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SIGNATURES

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

	QUANTUM MATERIALS CORP.
Date: April 30, 2021	/s/ Stephen Squires
Date: June 24, 2021	/s/ Stephen Squires
	Stephen Squires
	Principal Executive Officer
Date: April 30, 2021	/s/ Robert A. Phillips
Date: June 24, 2021	/s/ Robert A. Phillips
	Robert A. Phillips
	Principal Financial Officer

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Filing Compare · QUANTUM MATERIALS CORP.