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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to ________
Commission File Number 000-52686
QUANTUM SOLAR POWER CORP.
(Exact name of registrant as specified in its charter)
NEVADA 27-1616811
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
300 - 1055 West Hastings Street
Vancouver, British Columbia, Canada V6E 2E9
(Address of principal executive offices) (Zip Code)
(604) 681-7311
(Registrant's telephone number, including area code)
Not Applicable
(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 Securities Exchange Act of 1934 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.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X]
Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
[ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
As of November 3, 2011, the Issuer had 148,961,692 shares of common stock, issued and outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three month period ended September 30, 2011 are not necessarily indicative of the results that can be expected for the year ending June 30, 2012.
As used in this Quarterly Report, the terms "we,” "us,” "our,” and “Quantum” mean Quantum Solar Power Corp., unless otherwise indicated. All dollar amounts in this Quarterly Report are in U.S. dollars unless otherwise stated.
2
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QUANTUM SOLAR POWER CORP.
(A Development Stage Company)
BALANCE SHEETS
Unaudited
(Expressed in United States Dollars)
September 30, June 30,
2011 2011
ASSETS
Current
Cash $ 879,946 $ 343,289
Prepaid expenses 32,295 1,676
Total Current Assets 912,241 344,965
Equipment (Note 3) 960,242 1,668
Patents (Note 4) 1,477,263 1,496,448
Total Assets $ 3,349,746 $ 1,843,081
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 656,627 $ 162,417
Total Liabilities 656,627 162,417
Stockholders' equity
Preferred stock, $0.001 par value
10,000,000 shares authorized - no shares issued and outstanding
Common stock, $0.001 par value 400,000,000 shares authorized and
146,927,692 shares outstanding as of September 30, 2011
(June 30, 2011 – 146,927,692) (Note 5) 146,927 146,927
Commitment to issue shares (Note 5) 88,700 60,000
Subscriptions received in advance (Note 8) 1,814,000 -
Additional paid in capital (Note 5) 8,970,624 8,221,991
Accumulated deficit during development stage (8,327,132 ) (6,748,254 )
Total Stockholders' Equity 2,693,119 1,680,664
Total Liabilities and Stockholders' Equity $ 3,349,746 $ 1,843,081
Nature and continuance of operations (Note 1)
Subsequent events (Note 8)
The accompanying notes are an integral part of these financial statements.
F-1
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QUANTUM SOLAR POWER CORP.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Unaudited
(Expressed in United States Dollars)
For the
period from
For the three For the three For the three April 14, 2004
months ended months ended months ended (Inception) to
September 30, September 30, September 30, September 30,
2011 2010 2009 2011
OPERATING EXPENSES
Amortization of equipment $ 429 $ 278 $ - $ 2,097
Amortization of patents 19,185 19,185 - 134,296
General and administrative 219,724 183,000 8,045 1,209,275
Professional fees 164,736 72,436 - 917,552
Research and development 426,171 402,000 - 3,431,455
Stock-based compensation (Note 5) 748,633 154,924 - 2,154,457
(1,578,878 ) (831,823 ) (8,045 ) (7,849,132 )
OTHER ITEM
Impairment of intangible assets - - - (106,000 )
Loss and comprehensive loss for the period $ (1,578,878 ) $ (831,823 ) $ (8,045 ) $ (7,955,132 )
Basic and diluted loss per common share $ (0.01 ) $ (0.01 ) $ (0.00 )
Weighted average number of common shares outstanding 146,927,692 142,310,376 117,300,000
The accompanying notes are an integral part of these financial statements.
F-2
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QUANTUM SOLAR POWER CORP.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS’ EQUITY
Unaudited
(Expressed in United States Dollars)
Additional Commitment Subscriptions Accumulated Total
Paid in to Issue Received in Deficit During Stockholders'
Shares Amount Capital Shares Advance the Dev. Stage Equity
Balance, April 14, 2004 (Inception) - $ - $ $ - $ - $ - $ -
Common shares issued at par 117,200,000 15 92,485 - - - 92,500
Net loss - - - - - (9,557 ) (9,557 )
Balance, June 30, 2004 117,200,000 15 92,485 - - (9,557 ) 82,943
Net loss - - - - - (40,111 ) (40,111 )
Balance, June 30, 2005 117,200,000 15 92,485 - - (49,668 ) 42,832
Net loss - - - - - (26,654 ) (26,654 )
Balance, June 30, 2006 117,200,000 15 92,485 - - (76,322 ) 16,178
Net loss - - - - - (15,652 ) (15,652 )
Balance, June 30, 2007 117,200,000 15 92,485 - - (91,974 ) 526
Common shares issued at $2.00 per share 100,000 100 199,900 - - - 200,000
Net loss - - - - - (166,032 ) (166,032 )
Balance, June 30, 2008 117,300,000 115 292,385 - - (258,006 ) 34,494
Net loss - - - - - (28,747 ) (28,747 )
Balance, June 30, 2009 117,300,000 115 292,385 - - (286,753 ) 5,747
Private placement 280,000 280 559,720 - - - 560,000
Share issuance costs - - (4,140 ) - - - (4,140 )
Stock-based compensation - - 159,709 - - - 159,709
Commitment to issue shares - - - 112,632 - - 112,632
Acquisition of patents 71,500,000 71,500 1,540,059 - - - 1,611,559
Shares issued for services 50,000 50 99,950 - - - 100,000
Par value reclassification - 117,185 (117,185 ) - - - -
Return to treasury (47,000,000 ) (47,000 ) 47,000 - - - -
Net loss - - - - - (1,360,963 ) (1,360,963 )
Balance, June 30, 2010 142,130,000 142,130 2,577,498 112,632 - (1,647,716 ) 1,184,544
Dividend-warrants - - 372,000 - - (372,000 ) -
Private placement 4,049,560 4,049 4,045,511 - - - 4,049,560
Return to nonqualified investors (8,000 ) (8 ) (15,992 ) - - - (16,000 )
Exercise of warrants 372,000 372 3,348 - - - 3,720
Share issued as finder’s fees 161,500 161 161,339 - - - 161,500
Share issuance costs - - (390,237 ) - - - (390,237 )
Stock-based compensation - - 1,246,115 - - - 1,246,115
Shares issued for services 222,632 223 222,409 (112,632 ) - - 110,000
Commitment to issue shares - - - 60,000 - - 60,000
Net loss - - - - - (4,728,538 ) (4,728,538 )
Balance, June 30, 2011 146,927,692 146,927 8,221,991 60,000 - (6,748,254 ) 1,680,664
Stock-based compensation - - 748,633 - - - 748,633
Commitment to issue shares - - - 28,700 - - 28,700
Subscriptions received in advance - - - - 1,814,000 - 1,814,000
Net loss - - - - - (1,578,878 ) (1,578,878 )
Balance, September 30, 2011 146,927,692 $ 146,927 $ 8,970,624 $ 88,700 $ 1,814,000 $ (8,327,132 ) $ 2,693,119
The accompanying notes are an integral part of these financial statements.
F-3
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QUANTUM SOLAR POWER CORP.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Unaudited
(Expressed in United States Dollars)
For the Period
For the three For the three For the three April 14, 2004
months ended months ended months ended (Inception) to
September 30, September 30, September 30, September 30,
2011 2010 2009 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period $ (1,578,878 ) $ (831,823 ) $ (8,045 ) $ (7,955,132 )
Items not affecting cash:
Amortization of equipment 429 278 - 2,097
Amortization of intangible assets 19,185 19,185 - 134,296
Impairment of intangible assets - - - 106,000
Stock-based compensation 748,633 154,924 - 2,154,457
Shares for management services - - - 100,000
Shares for consulting and management bonuses 28,700 80,000 - 311,332
Changes in non-cash working capital items:
Decrease in receivables - 865 - -
(Increase) decrease in prepaid expenses (30,619 ) 9,700 - (32,295 )
(Decrease) increase in accounts payable and accrued liabilities (34,339 ) (323,994 ) 2,500 137,078
Net cash used in operating activities (846,889 ) (890,865 ) (5,545 ) (5,042,167 )
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment (3,620 ) - - (6,956 )
Scientific equipment (426,834 ) - - (426,834 )
Purchase of technology rights - - - (15,000 )
Purchase of intangible assets - - - (100,000 )
Net cash used in investing activities (430,454 ) - - (548,790 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit and loans payable - - - 43,713
Proceeds from issuance of common stock - 208,560 - 4,902,060
Proceeds from exercise of warrants - - - 3,720
Share issuance costs - (1,020 ) - (232,877 )
Refunds to nonqualified investors - - - (16,000 )
Subscriptions received in advance 1,814,000 1,133,000 - 1,814,000
Cash used to pay line of credit and loans payable - (18,713 ) - (43,713 )
Net cash provided by financing activities 1,814,000 1,321,827 - 6,470,903
Change in cash during the period 536,657 430,962 (5,545 ) 879,946
Cash, beginning of period 343,289 70,230 13,247 -
Cash, end of period $ 879,946 $ 501,192 $ 7,702 $ 879,946
Supplemental disclosures with respect to cash flows
(Note 6)
The accompanying notes are an integral part of these financial statements.
F-4
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QUANTUM SOLAR POWER CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
Unaudited
SEPTEMBER 30, 2011
1. NATURE AND CONTINUANCE OF OPERATIONS
Quantum Solar Power Corp. (the “Company”) was incorporated in Nevada on April 14, 2004. The Company is a development stage company engaged in the business of developing and commercializing next generation solar power technology under the name Next Generation Device™ abbreviated NGD™. Quantum’s NGD™ is a patent pending, functioning, laboratory model that demonstrates its utility in solar power conversion.
The Company operates in one reportable segment being the research and development of solar power technology in Canada and the United States of America. Revenues will be substantially derived from royalty based licensing arrangements in this reporting segment.
Going Concern
These financial statements have been prepared consistent with accounting policies generally accepted in the United States (“U.S. GAAP”) assuming the Company will continue as a going concern. Currently, the Company has no sales and has incurred a net loss of $1,578,878 for the three months ended September 30, 2011 and an accumulated loss of $7,955,132 for the period from April 14, 2004 (inception) to September 30, 2011. The Company also relies on patents and contractual restrictions to protect intellectual property. The existing provisional and future patents could be challenged. The future of the Company is dependent upon its ability to obtain financing and protect its proprietary process upon future profitable operations from development and commercialization of an NGD™. Management has plans to seek additional capital through private placements and public offerings of its common stock. These factors raise substantial doubt that the Company will be able to continue as a going concern.
Management's plans for the continuation of the Company as a going concern include financing the Company's operations through issuance of its common stock. If the Company is unable to complete its financing requirements or achieve revenue as projected, it will then modify its expenditures and plan of operations to coincide with the actual financing completed and actual operating revenues. There are no assurances, however, with respect to the future success of these plans.
The accompanying financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company fail in any of the above objectives and is unable to operate for the coming year.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. GAAP and are expressed in U.S. dollars. The financial statements have been prepared under the guidelines of Accounting and Reporting by Development Stage Enterprises. A development stage enterprise is one in which planned principal operations have not commenced, or if its operations have commenced, there have been no significant revenues therefrom. As of September 30, 2011, the Company had not commenced its planned principal operations. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended June 30, 2011, included in the Company’s Annual Report on Form 10-K, filed September 13, 2011, with the Securities Exchange Commission.
F-5
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QUANTUM SOLAR POWER CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
Unaudited
SEPTEMBER 30, 2011
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
Equipment
Equipment is recorded at cost less accumulated amortization. Amortization is provided annually on assets placed in use on a straight-line basis over 3 years for computer equipment and 5 years for scientific equipment.
Recent accounting pronouncements
Recent accounting pronouncements that the Company has adopted or will be required to adopt in the future are summarized below.
In September 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance regarding multiple-deliverable revenue arrangements. This guidance addresses how to separate deliverables and how to measure and allocate consideration to one or more units of accounting. Specifically, the guidance requires that consideration be allocated among multiple deliverables based on relative selling prices. The guidance establishes a selling price hierarchy of (1) vendor-specific objective evidence, (2) third-party evidence and (3) estimated selling price. This guidance is effective for annual periods beginning after June 15, 2010 but may be early adopted as of the beginning of an annual period. The Company adopted the standard and it has no impact on the financial statements.
In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements,” which amends ASC 820, “Fair Value Measures and Disclosures.” ASU 2010-06 requires disclosure of transfers into and out of Level 1 and Level 2 fair value measurements, and also requires more detailed disclosure about the activity within Level 3 fair value measurements. The changes to the ASC as a result of this update are effective for annual and interim reporting periods beginning after December 15, 2009 (adopted July 1, 2010), except for requirements related to Level 3 disclosures, which are effective for annual and interim reporting periods beginning after December 15, 2010 (July 1, 2011 for the Company). This guidance requires new disclosures only, and had no impact on the financial statements.
In April 2010, the FASB issued ASU 2010-13, Compensation – Stock Compensation (Topic 718), amending ASC 718. ASU 2010-13 clarifies that a share-based payment award with an exercise price denominated in the currency of a market in which the entity’s equity securities trade should not be classified as a liability if it otherwise qualifies as equity. ASU 2010-13 also improves GAAP by improving consistency in financial reporting by eliminating diversity in practice. ASU 2010-13 is effective for interim and annual reporting periods beginning after December 15, 2010 (July 1, 2011 for the Company). The Company has adopted this standard and it had no impact on the Company’s financial reporting and disclosures.
In December 2010, the FASB issued ASU No. 2010-28—When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This update provides amendments to Accounting Standards Codification (“ASC”) Topic 350—Intangibles, Goodwill and Other that requires an entity to perform Step 2 impairment test even if a reporting unit has zero or negative carrying amount. The first step is to identify potential impairments by comparing the estimated fair value of a reporting unit to its carrying value, including goodwill. If the carrying value of a reporting unit exceeds the estimated fair value, a second step is performed to measure the amount of impairment, if any. The second step is to determine the implied fair value of the reporting unit’s goodwill, measured in the same manner as goodwill is recognized in a business combination, and compare that amount with the carrying amount of the goodwill. If the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. ASU No. 2010-28 is effective beginning January 1, 2011. As a result of this standard, goodwill impairments may be reported sooner than under current practice. The Company does not expect ASU No. 2010-28 to have a material impact on the financial statements.
F-6
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QUANTUM SOLAR POWER CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
Unaudited
SEPTEMBER 30, 2011
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
Recent accounting pronouncements (cont’d)
In December 2010, the FASB issued ASU 2010-29, which contains updated accounting guidance to clarify the acquisition date that should be used for reporting pro forma financial information when comparative financial statements are issued. This update requires that a company should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This update also requires disclosure of the nature and amount of material, nonrecurring pro forma adjustments. The provisions of this update, which are to be applied prospectively, are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The impact of this update on the Company’s financial statements will depend on the size and nature of future business combinations.
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which is intended to improve comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. generally accepted accounting principles and International Financial Reporting Standards. This standard clarifies the application of existing fair value measurement requirements including (1) the application of the highest and best use valuation premise, (2) the methodology to measure the fair value of an instrument classified in a reporting entity’s shareholders’ equity, (3) disclosure requirements for quantitative information on Level 3 fair value measurements and (4) guidance on measuring the fair value of financial instruments managed within a portfolio. In addition, the standard requires additional disclosures of the sensitivity of fair value to changes in unobservable inputs for Level 3 securities. This standard is effective for interim and annual reporting periods ending on or after December 15, 2011. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”, which requires that comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The standard also requires entities to disclose on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net earnings. This standard no longer allows companies to present components of other comprehensive income only in the statement of equity. This standard is effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements other than the prescribed change in presentation.
In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”). ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely- than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Although early adoption is permitted, the Company will adopt ASU 2011-08 as of January 1, 2012. Based on the Company’s evaluation of this ASU, the adoption of ASU 2011-08 will not have a material impact on the Company’s financial statements.
F-7
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QUANTUM SOLAR POWER CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
Unaudited
SEPTEMBER 30, 2011
3. EQUIPMENT
Three months ended Year ended
September 30, 2011 June 30, 2011
Accumulated Net Accumulated Net
Cost Amortization Book Value Cost Amortization Book Value
Computer equipment $ 6,956 $ 2,097 $ 4,859 $ 3,336 $ 1,668 $ 1,668
Scientific equipment 955,383 - 955,383 - - -
Total $ 962,339 $ 2,097 $ 960,242 $ 3,336 $ 1,668 $ 1,668
During the three months ended September 30, 2011, the Company purchased $940,343 of scientific equipment through the agreement with CIOI (Note 4) and $15,040 of scientific equipment through another vendor. The Company has recorded $Nil in accumulated amortization as at September 30, 2011 and will begin amortizing the equipment on October 1, 2011 with an estimated useful life of 5 years.
4. TECHNOLOGY PURCHASE AGREEMENT
On April 15, 2008, the Company entered into a License agreement (“The Agreement”) with Canadian Integrated Optics International Ltd. of Douglas, Isle of Man (“CIOI”), to manufacture and market CIOI’s patent pending solar technology based on a new approach for the generation of solar power. On May 7, 2008 the Agreement was subsequently amended and executed by CIOI and on May 16, 2008 the agreement was executed by the Company and is subject to certain terms and conditions. The purchase price paid in cash for the License was $100,000. These costs were later written-off and charged to operations in fiscal 2008.
In December 2009, the Company executed an agreement with CIOI to purchase technology and associated provisional patents related to the development of certain solar technology in exchange for 71,500,000 common stock of the Company valued at $1,611,559. The two provisional patents and the pending patent application have an estimated useful life of 21 years. The Company has recorded $134,296 in accumulated amortization as at September 30, 2011.
5. STOCKHOLDERS’ EQUITY
On May 7, 2004, the Company issued 69,200,000 of its common shares for cash of $86,500.
On June 30, 2004, the Company issued 48,000,000 of its common shares for cash of $6,000.
The Company has completed a private placement on April 15, 2008 to issue 100,000 common shares at a price of $2.00 per share. The net proceeds received were $200,000. No commissions were paid and no registration rights have been granted.
On December 16, 2009, the Company entered into an agreement with CIOI as amended, wherein the Company agreed to purchase all of their solar cell technology in consideration of 71,500,000 restricted shares of common stock. As part the transaction, the Company’s President returned and cancelled 47,000,000 shares of the Company’s common stock.
In April 2010, 50,000 shares valued at $100,000 were issued as compensation for a performance bonus to a director of the Company.
F-8
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QUANTUM SOLAR POWER CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
Unaudited
SEPTEMBER 30, 2011
5. STOCKHOLDERS’ EQUITY (cont’d)
In April 2010, the Company completed a private placement to issue 280,000 shares at a price of $2.00 per share. The net proceeds received were $560,000.
In February 2011, 10,000 shares were issued through a private placement at $1 per share for proceeds of $10,000. A total of 161,500 shares valued at $161,500 were issued as finders’ fees.
During the year ended June 30, 2011, 274,060 shares were issued through a private placement at a stock price of $1.00 per share; net proceeds were $274,060 of which $76,500 was received during the year ended June 30, 2010. The Board granted 372,000 warrants to those shareholders who had purchased shares at $2.00 per share to allow them to purchase a matching number of shares at $0.01 in order to make them whole as a result of the change in the share sale price.
During the year ended June 30, 2011, 62,632 shares were issued for consulting services and 50,000 for a management performance bonus relating to services performed.
During the year ended June 30, 2011, a further 3,765,500 shares were issued through two private placements and a total of $228,737 in share issue costs were paid. In addition, 372,000 shares were issued when the warrants described above were exercised. Net proceeds were $3,769,220, all of which were received during the year. A refund of $16,000 was paid to several investors who previously paid for 8,000 shares and were found not to be qualified.
During the year ended June 30, 2011, 60,000 shares valued at $60,000 for consulting services and 50,000 shares valued at $50,000 for a management performance bonus relating to services provided were issued during the year.
Commitment to issue shares
According to the terms of a contract entered into during the year ended June 30, 2010, the Company agreed to issue 10,000 shares per month to a consultant. As at September 30, 2011, the Company has a commitment to issue 90,000 common shares at a value of $88,700 of which 60,000 common shares were issued subsequent to September 30, 2011.
Stock options and warrants
On February 28, 2011, the Company implemented a formal stock option plan under which it is authorized to grant options to directors, officers, employees and eligible consultants of the Company enabling them to acquire up to 14,650,000 shares of the Company. Under the plan, the exercise price of each option equals the market price of the Company’s stock, less applicable discount, as calculated on the date of grant. The options can be granted for a maximum term of 5 years. Vesting provisions are set at the discretion of the Company. The Plan has not been approved by the Company’s stockholders.
F-9
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QUANTUM SOLAR POWER CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
Unaudited
SEPTEMBER 30, 2011
5. STOCKHOLDERS’ EQUITY (cont’d)
Stock options and warrants (cont’d)
Stock options and warrants are summarized as follows:
Warrants Stock Options
Weighted Weighted
Average Number of Average
Number of Exercise Stock Exercise
Warrants Price Options Price
Balance outstanding at
April 14, 2004 (inception) to June 30, 2009 - $ - - $ -
Granted - - 500,000 0.50
Balance outstanding at June 30, 2010 - - 500,000 0.50
Granted 372,000 0.01 - -
Granted 50,000 1.90 - -
Exercised (372,000 ) (0.01 ) - -
Granted - - 1,300,000 1.50
Balance outstanding at June 30, 2011 50,000 1.90 1,800,000 1.22
Expired/cancelled - - (125,000 ) (0.62 )
Granted - - 1,666,668 1.00
Balance outstanding at September 30, 2011 50,000 $ 1.90 3,341,668 $ 1.13
Exercisable at September 30, 2011 50,000 $ 1.90 2,100,001 $ 1.23
The following table summarizes information about stock options and warrants outstanding at September 30, 2011:
Number outstanding Exercise Price Expiry Date
Options 250,000 $ 1.60 February 28, 2012
500,000 $ 0.50 January 1, 2013
25,000 $ 1.10 June 19, 2014
666,668 $ 1.00 July 7, 2014*
1,000,000 $ 1.00 August 31, 2014
900,000 $ 1.60 March 16, 2016
Warrants 50,000 $ 1.90 January 14, 2012
*Cancelled subsequent to September 30, 2011
F-10
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QUANTUM SOLAR POWER CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
Unaudited
SEPTEMBER 30, 2011
5. STOCKHOLDERS’ EQUITY (cont’d)
Stock-based compensation
During the three months ended September 30, 2011, the Company granted 1,666,668 options (2010 – 100,000) to employees and consultants of the Company, with a weighted average fair value of $0.86 (2010 - $0.75) per option, which are being recognized over the vesting periods of the options.
Total stock-based compensation for the three months ended September 30, 2011 was $748,633 (2010 - $154,924).
The Company used the Black-Scholes option pricing model to determine the fair value of options granted.
The fair value of stock options has been estimated with the following assumptions:
2011 2010 2009
Dividend yield 0.00% 0.00% -
Expected volatility 171.49% 229% -
Risk free interest rate 1.32% 1.93% -
Expected life of options 3.00 years 1.83 years -
6. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
For the period
For the three For the three For the three from April 14,
months ended months ended months ended 2004 (inception)
September 30, September 30, September 30, to September 30,
2011 2010 2009 2011
Cash paid for interest $ - $ - $ - $ -
Cash paid for income taxes $ - $ - $ - $ -
Significant non-cash transaction for the three months ended September 30, 2011 included:
a) Included in scientific equipment is $528,549 which relates to accounts payable and accrued liabilities.
There were no significant non-cash transactions for the three months ended September 30, 2010.
7. RELATED PARTY TRANSACTIONS
During the three months ended September 30, 2011, the Company:
a) paid or accrued $33,438 (2010 - $Nil) for management fees to a director and officer of the Company;
b) paid or accrued $384,769 (2010 - $402,000) in research and development costs and $940,343 (2010 - $Nil) in scientific equipment with CIOI, a former significant shareholder, of which $528,549 (2010 – $38,891) is included in accounts payable and accrued liabilities as at September 30, 2011.
These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the parties.
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QUANTUM SOLAR POWER CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
Unaudited
SEPTEMBER 30, 2011
8. SUBSEQUENT EVENTS
On October 5, 2011, the Company mutually agreed to terminate the consulting agreement with Quorum Capital Corporation (“Quorum”) entered into on July 8, 2011. In consideration for the termination of the agreement and the cancellation of 666,668 stock options, the Company paid Quorum $25,000 CDN.
On October 10, 2011, the Company closed a private placement offering of 1,974,000 shares at a price of $1.00 per share for total proceeds of $1,974,000 of which $1,814,000 was received at September 30, 2011.
F-12
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report constitute "forward-looking statements". These statements, identified by words such as “plan,” "anticipate," "believe," "estimate," "should," "expect" and similar expressions, include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth under this caption "Management's Discussion and Analysis of Financial Condition and Results of Operation" and elsewhere in this Quarterly Report. We intend to discuss in our Quarterly and Annual Reports any events and circumstances that occurred during the period to which such document relates that are reasonably likely to cause actual events or circumstances to differ materially from those disclosed in this Quarterly Report. We advise you to carefully review the reports and documents we file from time to time with the United States Securities and Exchange Commission (the “SEC”).
OVERVIEW
We were incorporated on April 14, 2004 under the laws of the State of Nevada. Our principal executive offices are located at Suite 300, 1055 West Hastings Street, Vancouver, BC, Canada V6E 2E9.
We are currently engaged in the research, development and marketing of next generation solar power generation devices utilizing our patent pending technology (the “Next Generation Device™ or NGD™ Technology”) for photovoltaic devices that do not use silicon or other, rare earth elements. Once we have completed development, we expect to derive substantially all revenues from royalty based licensing arrangements.
The NGD™ Technology, which is covered by two provisional U.S. patents, differs from conventional solar technology as it does not require expensive silicon based absorber components or rare earth elements. Our researchers at Simon Fraser University in British Columbia, Canada have developed and built a proof of concept prototype of a next generation device utilizing the NGD™ Technology (see “Technology Acquisition” and “NGD TM Technology” below).
We are a development stage company. We have not earned any revenue to date nor have we entered into any licensing agreements to date. We do not anticipate earning revenue until we have completed the development and testing of our NGD™ Technology. We are presently in the development stage of our business and we can provide no assurance that we will be able to complete commercial development or successfully sell or license products incorporating our solar power generation devices, once development and testing is complete. We have limited operations. We conduct all of our research and development on a contractual basis with Simon Fraser University. We have relied on the sale of our securities and loans or capital infusions from our officers and directors to fund our operations to date.
RECENT CORPORATE DEVELOPMENTS
Since the filing of our Annual Report for the fiscal year ended June 30, 2011 with the SEC, we experienced the following significant corporate developments:
Changes to Executive Officers
On September 21, 2011, we appointed Steven Pleging as our President and Chief Executive Officer. Mr. Pleging is also the Chairman of our Board of Directors. Daryl J. Ehrmantraut resigned as our President and Chief Executive Officer in order to make room for Mr. Pleging's appointment. Also on September 21, 2011, Mr. Ehrmantraut was appointed as our Chief Operating Officer. Mr. Ehrmantraut will continue to serve as a member of our board of directors.
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There were no disagreements between Mr. Ehrmantraut and the Company regarding any matter relating to our operations, policies or practices, nor were there any changes to the compensation currently being paid to Messrs. Pleging or Ehrmantraut.
Release Agreement
On October 5, 2011, we entered into a release agreement (the “Release Agreement”) with Quorum Capital Corporation (“QCC”). Under the terms of the Release Agreement, each party mutually agreed to release the other party from their obligations under a consulting agreement dated July 8, 2011 whereby QCC was retained by us to provide consulting services. In consideration of the release, we paid QCC $25,000 and QCC surrendered the stock options issued to them under the consulting agreement for termination.
Foreign Private Placement
On October 10, 2011, we issued 1,974,000 shares of our common stock at a price of $1.00 per share for total proceeds of $1,974,000. The issuance was completed pursuant to the provisions of Regulation S of the Securities Act of 1933 (the “Act”). We did not engage in a distribution in the United States. Each subscriber represented that they were not a "U.S. Person" as defined under Regulation S of the Act and were not acquiring the shares for the account or benefit of a U.S. Person.
The issuance represents a portion of our previously announced $3,000,000 foreign private placement offering. Following the issuance of the shares, our board of directors elected to terminate the balance of the foreign private placement offering.
TECHNOLOGY ACQUISITION
We acquired the NGD TM Technology on December 16, 2009 by an agreement (the “Technology Acquisition Agreement”) with Canadian Integrated Optics (IOM) Limited, (“CIO”). In consideration of the NGD™ Technology, we issued 71,500,000 shares of our common stock to CIO (of which CIO transferred over 99% pursuant to the terms of a takeover bid, under Canadian Securities Laws) and Desmond Ross, our former director and executive officer, returned 47,000,000 shares to the treasury. Under the Technology Acquisition Agreement, we also agreed to pay CIO, or such other parties designated by CIO, for ongoing development and research costs under CIO’s existing research agreement (the “CIO Research Agreement) with Simon Fraser University (“SFU”). The initial term of the CIO Research Agreement was until July 30, 2010.
Subsequent to entering into the Technology Acquisition Agreement, CIO entered into an amendment agreement to the CIO Research Agreement, whereby SFU agreed to extend the term until December 31, 2010 and in consideration of which we paid $310,076 CDN. On December 23, 2010, CIO entered into another amendment agreement dated January 1, 2011, whereby SFU agreed to further extend the term until July 31, 2011 and in consideration of which we will pay $476,482 CDN plus expenses, during the term. On July 28, 2011, CIO entered into another amendment agreement dated July 2, 2011, whereby SFU agreed to further extend the term until December 31, 2011 and in consideration of which we will pay $599,593 CDN plus expenses, during the term.
During the three months ended September 30, 2011, we incurred $1,325,112 USD under the CIO Research Agreement.
NGD™ TECHNOLOGY
Our NGD™ Technology is a patent pending, technology and proof of concept prototype for producing solar power without the necessity of utilizing expensive silicon based absorber components or other rare earth elements.
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Solar cells based on the NGD™ Technology can reach a regime of cost and efficiency not obtainable with conventional solar cells. As a result, we believe our NGD™ Technology has the potential to enable the manufacture of solar cells at significantly less cost per Watt than current producers.
Thin Film solar cell technologies have proven inexpensive to manufacture but are at present only capable of efficiencies in the 10% power conversion efficient (“PCE”) range. Crystalline silicon solar cells are in the 15% to 20% PCE range but are very expensive to manufacture due to the cost of silicon processing. The reason for both these shortfalls is directly linked with the semiconductors used in the fabrication process.
All currently available solar cell technologies rely on a photovoltaic effect in which an incoming solar photon knocks loose a negative charge, leaving behind a positive charge, in a semiconducting material such as silicon. The positive and negative charges are then collected through separate conducting layers to be delivered as current to a load. Defects within the semiconductor layer can affect the power conversion efficiency by reducing the voltage and the current delivered to the load. Elimination of these defects can only occur through expensive purification and processing.
The NGD™ Technology’s principle of operation avoids the detrimental effects of defects within the semiconductor absorber layers by disposing of it altogether, and thus has the potential to simultaneously satisfy the requirements of high power conversion efficiencies and low costs. In addition, by eliminating expensive and exotic materials and manufacturing in a continuous rather than batch or wafer based process, we believe module costs can be reduced well below $1 per Watt-peak (W p ), the nominal price of a solar module widely recognized as the standard of solar commercial enablement.
The market for solar energy has been limited by the costs of panels and by their low efficiencies. Quantum expects that with its low cost, high efficiency NGD™ Technology that the economics of solar power will prove to be superior to alternatives and that new and unforeseen markets will open for solar devices.
The solar panel business has been in a high growth phase over the past years however it is not sustainable since the growth has been fundamentally based on the availability of tax incentives, subsidies and other inducements. The economics of unsubsidized solar power are not attractive except in certain niche applications where choices are limited and the high costs can be justified.
An average crystalline silicon cell solar module has an efficiency of 15%, an average thin film cell solar module has an efficiency of 6%. Thin film manufacturing costs potentially are lower, though. Crystalline silicon cell technology forms about 90% of solar cell demand. The balance comes from thin film technologies. Approximately 45% of the cost of a silicon cell solar module is driven by the cost of the silicon wafer, a further 35% is driven by the materials required to assemble the solar module.
Thin film manufacturer First Solar is reported in some publications to have approximately $6 billion in contracts between 2010 and 2013. If First Solar were to have the opportunity to accept contracts worth $1 trillion and had the manufacturing capability to fulfill these contracts they would still be inhibited and negatively governed by material availability. According to the U.S. Geological Survey, there is enough tellurium available in global reserves to meet only 0.02 Terawatts (“TRW”) of energy provision using existing thin film technology. The same applies to San Jose, California-based Nanosolar’s Indium supply. Both companies current material choices (according to the Andrea Feltrin, Alex Freundlich Report, Photovoltaics and Nanostructures Laboratories, Center for Advanced Materials and Physics Department, University of Houston, Texas) limits these companies forever to sub-Gigawatt energy production (maximum 0.02 TRW per year).
Current Thin Film companies are coming close to competing commercially with coal but the materials they use such as tellurium and indium are very rare and capable of meeting only 0.13% of the worldwide energy demand even if they accessed the entire worldwide reserves of these materials.
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PLAN OF OPERATION
The following discussion and analysis summarizes our plan of operation for the next twelve months, our results of operations for the three month period ended September 30, 2011 and changes in our financial condition from June 30, 2011. This discussion should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operation included in our Annual Report on Form 10-K for the year ended June 30, 2011 filed with the SEC on September 13, 2011.
If we can obtain sufficient financing we intend to continue the final development of our NGD™ Technology, and identify and engage original equipment manufacturers (“OEM’s”) interested in licensing our technology. We anticipate that the licensing agreements will be between us and OEM’s with the expertise and facilities required to mass manufacture solar cells based on our NGD™ Technology and that the OEM’s will distribute the solar cells worldwide using their existing sales and marketing channels and at their expense. The cost of manufacture will be solely the responsibility of the OEM’s. We expect to receive revenue on royalties based on the number of cells produced by the OEM’s. This business model should allow us to maximize capital resources available at startup and through our OEM licensees positively address the demand for high efficiency solar cell devices. This business model should enable us to increase revenues and create brand recognition without the time, capital and risk associated with manufacturing plant construction.
There is no assurance that we will be able to obtain sufficient financing to proceed with our plan of operation.
RESULTS OF OPERATIONS
For the period from inception on April 14, 2004 to September 30, 2011, we have not earned any operating revenue. We had an accumulated net loss of $7,955,132 since inception and have incurred total operating expenses of $7,849,132 since inception.
We have not earned any revenues since inception. We do not anticipate earning revenues until such time as we complete further development of, and enter into licensing agreements for our NGD™ Technology. We are presently in the development stage of our business and we can provide no assurance that we will be able to generate revenues from sales of our product or that the revenues generated will exceed the operating costs of our business.
Operating Expenses
Our operating expenses for the three months ended September 30, 2011 and 2010 consisted of the following:
Percentage
Three Months Ended Three Months Ended Increase /
September 30, 2011 September 30, 2010 (Decrease)
Amortization of equipment $ 429 $ 278 54.32%
Amortization of patents 19,185 19,185 0%
General and administrative 219,724 183,000 20.07%
Professional fees 164,736 72,436 127.42%
Research and Development 426,171 402,000 6.01%
Stock Based Compensation 748,633 154,924 383.23%
Total Operating Expenses $ 1,578,878 $ 831,823 89.81%
Our operating expenses increased from $831,823, during the three months ended September 30, 2010, to $1,578,878, during the three months ended September 30, 2011. This increase is a result of increased operations in the development of our NGD TM Technology, which resulted in increased research and development activities and general and administrative expenses.
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General and administrative expenses primarily relate to fees paid to our: (i) officers, directors, consultants and employees; and (ii) amounts incurred in connection with investor relations activities.
Professional fees relate to legal and accounting fees in connection with meeting our ongoing reporting obligations under the Exchange Act.
Research and development expenses primarily relate to amounts paid under the CIO Research Agreement as other consulting expenses incurred in connection with the development of our NGD™ Technology.
Stock based compensation relates to recorded expenses for stock options granted to our directors, officers and consultants.
We anticipate our operating expenses will increase as we undertake our plan of operation. The increase will be attributable to our development, of our NGD™ Technology. We also anticipate our ongoing operating expenses will also increase as a result of our ongoing reporting requirements under the Exchange Act.
Net Loss
We incurred a loss in the amount of $7,955,132 for the period from inception to September 30, 2011. Our loss was attributable to the costs of operating expenses which primarily consisted of research and development costs, general and administrative expenses and professional fees paid in connection with preparing and filing our Current, Quarterly and Annual Reports.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
At September 30, Percentage
2011 At June 30, 2011 Increase / Decrease
Current Assets $ 912,241 $ 344,965 164.4%
Current Liabilities (656,627 ) (162,417 ) 304.3%
Working Capital Surplus $ 255,614 $ 182,548 40.0%
Cash Flows
Three Months Ended Three Months Ended
September 30, 2011 September 30, 2010
Cash Used in Operating Activities $ (846,889 ) $ (890,865 )
Cash Provided by Investing Activities (430,454 ) -
Cash Provided by Financing Activities 1,814,000 1,321,827
Net Increase (Decrease) in Cash During Period $ 536,657 $ 430,962
As at September 30, 2011, we had cash of $879,946 and a working capital surplus of $255,614, compared to cash of $343,289 and a working capital surplus of $182,548 as at June 30, 2011.
The change in our working capital at September 30, 2011 from our year ended June 30, 2011 is primarily a result of increased cash from subscriptions received of $1,814,000 for our private placement that closed subsequent to the end of the fiscal quarter less expenses incurred for the purchase of scientific equipment and for general operating activities.
Subsequent to the three months ended September 30, 2011, we raised proceeds of $1,974,000 in connection with the sale of 1,974,000 shares of our common stock pursuant to Regulation S.
Future Financings
Since our inception, we have used proceeds from the sales of our common stock to raise money for our operations and for our technology acquisition. We have not attained profitable operations and are dependent upon obtaining financing to pursue our plan of operation. For these reasons, our auditors stated in their report to our audited financial statements for the year ended June 30, 2011, that there is substantial doubt that we will be able to continue as a going concern.
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We have no revenues to date from our inception. We anticipate continuing to rely on equity sales of our common stock in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. We believe that we have obtained sufficient financing to cover our anticipated expenses over the next four months. However, there is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing for to fund our planned business activities.
Significant Trends, Uncertainties and Challenges
We believe that the significant trends, uncertainties and challenges that directly or indirectly affect our financial performance and results of operations include:
• Our ability to achieve module efficiencies and other performance targets through our partners, and to obtain necessary or desired certifications for our photovoltaic modules based on our technology, in a timely manner;
• Our ability to license the technology to effective manufacturers and/or distributers;
• Our ability to achieve projected operational performance and cost metrics;
• Our ability to consummate strategic relationships with key partners, including original equipment manufacturer (OEM) customers, system integrators, value added resellers and distributors who deal directly with manufacturers and end-users.
• Changes in the supply and demand for photovoltaic modules as well as fluctuations in selling prices for photovoltaic modules worldwide;
• Our ability to raise additional capital on terms favorable to us;
• Our future strategic partners’ expansion of their manufacturing facilities, operations and personnel; and
• Our ability and the ability of our distributors, suppliers and customers to manage operations and orders during financial crisis and financial downturn.
Contractual Obligations
Contractual
Obligations Payments Due By Period
Total Less than 1
Year
1-3 Years
3-5 Years More Than 5
Years
CIO Research Agreement $599,593 CDN $599,593 CDN - - -
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are disclosed in Note 2 to our audited financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2011.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Currency Exchange Risk
The Company is actively engaged in research and development activities internationally and is exposed to foreign currency risk. We currently conduct significant research and development operations on a contractual basis at Simon Fraser University in British Columbia, Canada.
We do not hold any derivative instruments and do not engage in any hedging activities. Because most of our purchases and sales will made in Canadian dollars, any exchange rate change affecting the value of the in Canadian dollar relative to the U.S. dollar could have an effect on our financial results as reported in U.S. dollars. If the Canadian dollar were to depreciate against the U.S. dollar, amounts reported in U.S. dollars would be correspondingly reduced. If the in Canadian dollar were to appreciate against the U.S. dollar, amounts reported in U.S. dollars would be correspondingly increased.
Although our reporting currency is the U.S. dollar, we may conduct business and incur costs in the local currencies of other countries in which we may operate, make sales and buy materials. As a result, we are subject to currency translation risk. Further, changes in exchange rates between foreign currencies and the U.S. dollar could affect our future net sales and cost of sales and could result in exchange losses.
We cannot accurately predict future exchange rates or the overall impact of future exchange rate fluctuations on our business, results of operations and financial condition.
Interest Rate Risk
Our exposure to market risks for changes in interest rates relates primarily to our cash equivalents. This can also have an effect on the ability of manufacturers and consumers to obtain sufficient financing to license, manufacture, distribute or purchase a device using our technology.
Commodity and Component Risk
Failure to receive timely delivery of production tools by our future licensee’s equipment suppliers could delay manufacturing capacity and materially and adversely affect our results of operations and financial condition in future periods. The failure of any suppliers to perform could disrupt our future licensee’s supply chain and impair our operations.
If delivery of production tools or raw materials are not made on schedule or at all, then our licensees might be unable to carry out our commercialization and manufacturing plans, produce photovoltaic modules in the volumes and at the times that we expect or generate sufficient revenue from operations, and our business, results of operations and financial condition could be materially and adversely affected.
Credit Risk
We currently do not hold financial instruments that subject us to credit risk.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2011 (the “Evaluation Date”). This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the Evaluation Date as a result of the material weaknesses in internal control over financial reporting discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011 (the “2011 Annual Report”).
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Notwithstanding the assessment that our internal control over financial reporting was not effective and that there were material weaknesses as identified in the 2011 Annual Report, we believe that our financial statements contained in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2011 fairly present our financial condition, results of operations and cash flows in all material respects.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2011 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
If photovoltaic technology is not suitable for widespread adoption, or if sufficient demand for solar modules does not develop or takes longer to develop than we anticipate, we may never earn revenues or become profitable.
The solar energy market is at a relatively early stage of development and the extent to which solar modules will be widely adopted is uncertain. If photovoltaic technology proves unsuitable for widespread adoption or if demand for solar modules fails to develop sufficiently, we may be unable to grow our business or generate sufficient net sales to sustain profitability. In addition, demand for solar modules in our targeted may not develop or may develop to a lesser extent than we anticipate. Many factors may affect the viability of widespread adoption of photovoltaic technology and demand for solar modules, including the following:
1. cost-effectiveness of the electricity generated by photovoltaic power systems compared to conventional energy sources and products, including conventional energy sources, such as natural gas, and other non-solar renewable energy sources, such as wind;
2. availability and substance of government subsidies, incentives and renewable portfolio standards to support the development of the solar energy industry;
3. performance and reliability of photovoltaic systems compared to conventional and other non-solar renewable energy sources and products;
4. success of other renewable energy generation technologies, such as hydroelectric, tidal, wind, geothermal, solar thermal, concentrated photovoltaic, and biomass;
5. fluctuations in economic and market conditions that affect the price of, and demand for, conventional and non-solar renewable energy sources, such as increases or decreases in the price of oil, natural gas and other fossil fuels; and
6. fluctuations in capital expenditures by end-users of solar modules, which tend to decrease when the economy slows and interest rates increase.
An increase in interest rates or lending rates or tightening of the supply of capital in the global financial markets (including a reduction in total tax equity availability) could make it difficult for end-users to finance the cost of a photovoltaic system and could reduce the demand for solar modules utilizing our NGD™ Technology and/or lead to a reduction in the average selling price for photovoltaic modules.
Many of potential solar technology customers will depend on debt financing to fund the initial capital expenditure required to develop, build and purchase a photovoltaic system. As a result, an increase in interest rates or lending rates could make it difficult for our potential customers to secure the financing necessary to develop, build, purchase or install a photovoltaic system on favorable terms, or at all, and thus lower demand for our solar modules which could limit our growth or reduce our net sales. Due to the overall economic outlook, our end-users may change their decision or change the timing of their decision to develop, build, purchase or install a photovoltaic system. In addition, we believe that a significant percentage of our end-users install photovoltaic systems as an investment, funding the initial capital expenditure through a combination of equity and debt. An increase in interest rates and/or lending rates could lower an investor’s return on investment in a photovoltaic system, increase equity return requirements or make alternative investments more attractive relative to photovoltaic systems, and, in each case, could cause these end-users to seek alternative investments. A reduction in the supply of project debt financing or tax equity investments could reduce the number of solar projects that receive financing and thus lower demand for solar modules.
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Existing regulations and policies and changes to these regulations and policies may present technical, regulatory and economic barriers to the purchase and use of photovoltaic products, which may significantly reduce demand for our solar modules.
The market for electricity generation products is heavily influenced by foreign, federal, state and local government regulations and policies concerning the electric utility industry, as well as policies promulgated by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. In the United States and in a number of other countries, these regulations and policies have been modified in the past and may be modified again in the future. These regulations and policies could deter end-user purchases of photovoltaic products and investment in the research and development of photovoltaic technology. For example, without a mandated regulatory exception for photovoltaic systems, utility customers are often charged interconnection or standby fees for putting distributed power generation on the electric utility grid. If these interconnection standby fees were applicable to photovoltaic systems, it is likely that they would increase the cost to our end-users of using photovoltaic systems which could make them less desirable, thereby harming our business, prospects, results of operations and financial condition. In addition, electricity generated by photovoltaic systems mostly competes with expensive peak hour electricity, rather than the less expensive average price of electricity. Modifications to the peak hour pricing policies of utilities, such as to a flat rate for all times of the day, would require photovoltaic systems to achieve lower prices in order to compete with the price of electricity from other sources.
We anticipate that solar modules utilizing our technology and their installation will be subject to oversight and regulation in accordance with national and local ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters. It is difficult to track the requirements of individual states and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to our solar modules may result in significant additional expenses to us, our resellers and their customers and, as a result, could cause a significant reduction in demand for our solar modules.
We face intense competition from manufacturers of crystalline silicon solar modules, thin film solar modules and solar thermal and concentrated photovoltaic systems; if global supply exceeds global demand, it could lead to a reduction in the average selling price for photovoltaic modules.
The solar energy and renewable energy industries are both highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with the larger electric power industry. Within the global photovoltaic industry, we face competition from crystalline silicon solar module manufacturers, other thin film solar module manufacturers and companies developing solar thermal and concentrated photovoltaic technologies.
Even if demand for solar modules continues to grow, the rapid expansion plans of many solar cell and module manufacturers could create periods where supply exceeds demand.
During any such period, our competitors could decide to reduce their sales price in response to competition, even below their manufacturing cost, in order to generate sales. As a result our partners may be unable to sell solar modules based on our technology at attractive prices, or for a profit, during any period of excess supply of solar modules, which would reduce our net sales and adversely affect our results of operations. Also, we may decide to lower our average selling price to certain customers in certain markets in response to competition.
Our failure to further refine our technology and develop and introduce improved photovoltaic products could render solar modules based on our technology uncompetitive or obsolete and reduce our net sales and market share.
We will need to invest significant financial resources in research and development to continue to improve our module conversion efficiency and to otherwise keep pace with technological advances in the solar energy industry. However, research and development activities are inherently uncertain and we could encounter practical difficulties in commercializing our research results. We seek to continuously improve our products and processes, and the resulting changes carry potential risks in the form of delays, additional costs or other unintended contingencies. In addition, our significant expenditures on research and development may not produce corresponding benefits. In addition, other companies could potentially develop a highly reliable renewable energy system that mitigates the intermittent power production drawback of many renewable energy systems, or offers other value-added improvements from the perspective of utilities and other system owners, in which case such companies could compete with us even if the levelized cost of electricity associated with such new system is higher than that of our systems. Our solar modules may be rendered obsolete by the technological advances of our competitors, which could reduce our net sales and market share.
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Our failure to protect our intellectual property rights may undermine our competitive position and litigation to protect our intellectual property rights or defend against third-party allegations of infringement may be costly.
Protection of our proprietary processes, methods and other technology is critical to our business. Failure to protect and monitor the use of our existing intellectual property rights could result in the loss of valuable technologies. We rely primarily on patents, trademarks, trade secrets, copyrights and contractual restrictions to protect our intellectual property. Our existing provisional patents and future patents could be challenged, invalidated, circumvented or rendered unenforceable. Our pending patent applications may not result in issued patents, or if patents are issued to us, such patents may not be sufficient to provide meaningful protection against competitors or against competitive technologies.
We also rely upon unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position. While we generally enter into confidentiality agreements with our associates and third parties to protect our intellectual property, such confidentiality agreements are limited in duration and could be breached and may not provide meaningful protection for our trade secrets or proprietary manufacturing expertise. Adequate remedies may not be available in the event of unauthorized use or disclosure of our trade secrets and manufacturing expertise. In addition, others may obtain knowledge of our trade secrets through independent development or legal means. The failure of our patents or confidentiality agreements to protect our processes, equipment, technology, trade secrets and proprietary manufacturing expertise, methods and compounds could have a material adverse effect on our business. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in some foreign countries, especially any developing countries into which we may expand our operations. In some countries we have not applied for patent, trademark or copyright protection.
Third parties may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could have a material adverse effect on our business, financial condition and operating results. Policing unauthorized use of proprietary technology can be difficult and expensive. Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. We cannot assure you that the outcome of such potential litigation will be in our favor. Such litigation may be costly and may divert management attention and other resources away from our business. An adverse determination in any such litigation may impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are unable to recover them from other parties.
We have yet to attain profitable operations and we will need additional financing to fund continued development of solar energy products.
We have incurred a net loss of $7,955,132 for the period from inception to September 30, 2011, and have earned no revenues to date. We expect to spend additional capital in order produce and market solar energy products which we are licensed to do, and establish our infrastructure and organization to support anticipated operations. We cannot be certain whether we will ever earn a significant amount of revenues or profit, or, if we do, that we will be able to continue earning such revenues or profit. Also, any economic weakness may limit our ability to continue development and ultimately market our products and services. Any of these factors could cause our stock price to decline and result in investors losing a portion or all of their investment. These factors raise substantial doubt that we will be able to continue as a going concern. We have cash in the amount of $879,946 as at September 30, 2011.
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We believe that we have obtained sufficient financing to fund our anticipated expenditures for the next four months. However, business activities beyond the next four months will require additional funding in the event that our cash on hand is insufficient for any additional work proposed.
Our financial statements included with this Quarterly Report have been prepared assuming that we will continue as a going concern. If we are not able to earn revenues, then we may not be able to continue as a going concern and our financial condition and business prospects will be adversely affected. These factors raise substantial doubt that we will be able to continue as a going concern and adversely affect our ability to obtain additional financing.
Our short operating history makes our business difficult to evaluate, accordingly, we have a limited operating history upon which to base an evaluation of our business and prospects.
Our business is in the early stage of development and we have not generated any revenues or profit to date. We commenced our operations in April, 2004. Because of our limited operating history, investors may not have adequate information on which they can base an evaluation of our business and prospects. To date, we have done the following:
1. Completed organizational activities;
2. Developed a business plan;
3. Obtained interim funding;
4. Engaged consultants for professional services; and
5. Acquired NGD™ Technology.
In order to establish ourselves as a technology supplier, we are dependent upon continued funding and the successful development of the NGD™ Technology and products. Failure to obtain funding for continued development and marketing would result in us having difficulty establishing licensing agreements for our technology or achieving profitability. Investors should be aware of the increased risks, uncertainties, difficulties and expenses we face as a development stage company and our business may fail and investors may lose their entire investment.
We have a limited operating history upon which to base an evaluation of our business and prospects. Our business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets such as renewable energy. These risks include the initial completion of a developed product, the demand for the company’s product, the company’s ability to adapt to rapid technological change, the level of product and price competition, the company’s success in setting up and expanding distribution channels and whether the company can develop and market new products and control costs.
To address these risks, we must successfully implement our business plan and marketing strategies. We may not successfully implement all or any of our business strategies or successfully address the risks and uncertainties that we encounter. We have no history of earning revenues and there is no assurance that we will be able to generate revenues from sales or that the revenues generated will exceed the operating costs of our business.
Operating results are difficult to predict, with the result that we may not achieve profitability and our business may fail.
Our future financial results are uncertain due to a number of factors, many of which are outside our control. These factors include:
1. Our ability to successfully license our technology to OEM’s and the ability of licensees to attract customers;
2. Our ability to generate revenue through the licensing of the NGD™ Technology;
3. The amount and timing of costs relating to expansion of our operations;
4. The announcement or introduction of competing distributors and products of competitors; and
5. General economic conditions and economic conditions specific to the solar power generation.
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We believe that we can compete favorably on these factors. However, we will have no control over how successful our competitors are in addressing these factors. These factors could negatively impact on our financial results, with the result that we may not achieve profitability and our business may fail.
We will require additional financing and may not be able to continue operations if additional financing is not obtained.
As of September 30, 2011, we had cash in the amount of $879,946. Our total expenditures over the next twelve months are anticipated to be approximately $12,600,000, the majority of which is due to the development and marketing of our products and general, legal, accounting and administrative expenses associated with our reporting obligations under the Exchange Act. Depending on the success of our initial marketing efforts, we estimate that we will require further funding to implement an advertising campaign to establish and enhance awareness of our products.
The accompanying financial statements have been prepared assuming that we will continue as a going concern. As discussed in Note 1 of our September 30, 2011 interim financial statements, we are in the development stage of operations, have had losses from operations since inception, and have insufficient working capital available to meet ongoing financial obligations over the next twelve months. We will require additional capital and financing in order to continue otherwise our business will fail. We have no agreements for additional financing and there can be no assurance that additional funding will be available to us on acceptable terms in order to enable us to complete our plan of operation.
We will depend on recruiting and retaining qualified personnel and the inability to do so would seriously harm our business.
Our success is dependent in part on the services of certain key management personnel, including Steven Pleging, our Chairman, Chief Executive Officer and President, Daryl J. Ehrmantraut, our Chief Operating Officer, Dr. Andras Pattantyus-Abraham, our Chief Technology Officer, Graham R. Hughes, our Chief Financial Officer, Secretary and Treasurer, and Stella Guo, our Vice President of Corporate Development. We have an employment agreement with Mr. Ehrmantraut, Mr. Pleging and Ms. Guo. We do not have employment agreements with Mr. Hughes or Dr. Pattantyus-Abraham. We do not have any employment agreements with any third parties providing services to us. The experience of these individuals is an important factor contributing to our success and growth and the loss of one or more of these individuals could have a material adverse effect on our company. Our future success also depends on our attracting, retaining and motivating highly skilled personnel and we may be unable to retain our key personnel or attract, assimilate or retain other highly qualified personnel in the future.
We may become liable for defects or patent disputes that arise and this could negatively affect our business.
We may become liable for any defects that exist in the NGD™ Technology, or any patent disputes. If we are deemed to be liable for any defects or licensing issues, this will have a material adverse impact on our financial condition and results of operation.
Because we are significantly smaller and less established we may lack the financial resources necessary to compete effectively and sustain profitability.
Our future success depends on our ability to compete effectively with other distributors of other solar technology. Many of these competitors are more established, offer more products, services and features, have a greater number of clients, locations, and employees, and also have significantly greater financial, technical, marketing, public relations, name recognition, and other resources than we have. While our objective is to continue to develop our technology, if we do not compete effectively with current and future competitors, we may not generate enough revenue to be profitable. Any of these factors could cause our stock price to decline and result in investors losing a portion or all of their investment. Increased competition may result in increased operating costs and the inability to generate revenues, any one of which could materially adversely affect our business, results of operations and financial condition. Many of our current and potential competitors have significantly greater financial, marketing, customer support, technical and other resources than us. As a result, such competitors may be able to attract potential customers away from us, and they may be able to devote greater resources to the development and promotion of their products than we can.
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We do not intend to pay dividends in the near future.
We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future. Our board of directors determines whether to pay dividends on our issued and outstanding shares. The declaration of dividends will depend upon our future earnings, our capital requirements, our financial condition and other relevant factors. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
1. We would not be able to pay our debts as they become due in the usual course of business; or
2. Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.
Our board does not intend to declare any dividends on our shares for the foreseeable future.
Our business is exposed to foreign currency fluctuations causing negative changes in exchange rates to result in greater costs.
A portion of our expenses and capital spending will be transacted in Canadian dollars. We do not have a foreign currency hedging program in place. Due to the unpredictable behavior of foreign currency exchange rate fluctuations we cannot assure that this will not have a material adverse impact on our financial condition and results of operation.
Because our stock is a penny stock, stockholders will be more limited in their ability to sell their stock.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system.
Because our securities constitute "penny stocks" within the meaning of the rules, the rules apply to us and to our securities. The rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them. As long as the quotation price of our common stock is less than $5.00 per share, the common stock will be subject to Rule 15g-9 under the Exchange Act. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:
1. contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
2. contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities laws;
3. contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;
4. contains a toll-free telephone number for inquiries on disciplinary actions;
5. defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and
6. contains such other information and is in such form, including language, type, size and format, as the SEC shall require by rule or regulation.
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The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On August 10, 2011, as part consideration for services rendered in accordance with the terms of a business consulting agreement between Caisey Harlingten and us dated April 19, 2010, we issued 60,000 shares of our common stock to Mr. Harlingten. The shares were issued to Mr. Harlingten pursuant to Regulation S under the Act. Mr. Harlingten represented that he is not a “U.S. Person” as defined under Regulation S and not acquiring the shares for the account or benefit of a U.S. Person.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 5. OTHER INFORMATION.
Release Agreement
On October 5, 2011, we entered into a release agreement (the “Release Agreement”) with Quorum Capital Corporation (“QCC”). Under the terms of the Release Agreement, each party mutually agreed to release the other party from their obligations under a consulting agreement dated July 8, 2011 whereby QCC was retained by us to provide consulting services. In consideration of the release, we paid QCC $25,000 and QCC surrendered the stock options issued to them under the consulting agreement for termination.
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ITEM 6. EXHIBITS.
The following exhibits are either provided with this Quarterly Report or are incorporated herein by reference.
Exhibit
Number Description of Exhibits
3.1 Articles of Incorporation. (1)
3.2 Certificate of Change Pursuant to NRS 78.209 increasing the issued and authorized capital of common stock to 350,000,000 shares, par value $0.001 per share. (3)
3.3 Certificate of Change Pursuant to NRS 78.209 increasing the issued and authorized capital of common stock to 400,000,000 shares, par value $0.001 per share. (3)
3.4 Certificate of Amendment to Articles of Incorporation. (3)
3.5 Certificate of Amendment to Articles of Incorporation. (3)
3.6 Bylaws, as amended. (1)
10.1 Technology Acquisition Agreement between Quantum and Canadian Integrated Optics (IOM) Ltd. dated December 16, 2009. (3)
10.2 CEO Employment Agreement between Quantum and Daryl J. Ehrmantraut dated January 1, 2010. (4)
10.3 Investor relations Consulting Services Contract between Quantum and Green Street Capital Partners, LLC dated January 6, 2010. (2)
10.4 Office Space Lease Agreement between Quantum and Santa Fe Business Incubator, Inc. dated January 19, 2010. (2)
10.5 Revolving Line of Credit Agreement between Quantum and Canadian Integrated Optics (IOM) Ltd. dated February 20, 2010. (3)
10.6 Consulting Agreement between Quantum and Caisey Harlingten dated April 19, 2010. (4)
10.7 Office Space Lease Agreement between Quantum and Santa Fe Business Incubator, Inc. dated July 27, 2010. (4)
10.8 Office Space Lease Agreement between Quantum and Guinness Business Center Ltd. dated June 21, 2010 and Addendum dated August 17, 2010. (4)
10.9 Finder’s Fee Agreement between Quantum and 1536476 Alberta Ltd. dated for reference August 30, 2010. (4)
10.10 Investor Relations Consulting Agreement between Quantum and Teatyn Enterprises Inc. dated for reference January 15, 2011. (5)
10.11 2011 Stock Incentive Plan. (6)
10.12 Task Order Agreement between Quantum and SgurrEnergy Ltd. dated April 28, 2011. (7)
10.13 Investor Relations Consulting Agreement between Quantum and John Thornton dated for reference March 1, 2011 (8)
10.14 Public Relations Agreement dated June 21, 2011 between the Company and Vorticom Inc. (9)
10.15 Consulting Agreement dated July 18, 2011 between the Company and Advantag Aktiengesellschaft. (10)
10.16 English translation of the Consulting Agreement dated July 18, 2011 between the Company and Advantag Aktiengesellschaft. (10)
10.17 Consulting Agreement dated for reference July 8, 2011 between the Company and Quorum Capital Corporation. (11)
10.18 Executive Services Agreement dated for reference August 8, 2011 between the Company, Team Solar BV and Steven Pleging (12)
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Exhibit
Number Description of Exhibits
10.19 Employment Agreement dated effective September 1, 2011 between the Company and Stella Guo. (3)
10.20 Release Agreement dated October 5, 2011, between the Company and Quorum Capital Corporation.
14.1 Code of Ethics. (3)
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1 Audit Committee Charter. (3)
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema.
101.CAL XBRL Taxonomy Extension Calculation Linkbase.
101.DEF XBRL Taxonomy Extension Definition Linkbase.
101.LAB XBRL Taxonomy Extension Label Linkbase.
101.PRE XBRL Taxonomy Extension Presentation Linkbase.
(1) Previously filed as an exhibit to our Registration Statement on Form S-1 originally filed with the SEC on September 21, 2004.
(2) Previously filed as an exhibit to our Quarterly Report on Form 10-Q for the period ended December 31, 2009 filed with the SEC on February 17, 2010.
(3) Previously filed as an exhibit to our Quarterly Report of Form 10-Q for the period ended March 31, 2010 filed with the SEC on May 17, 2010.
(4) Previously filed as an exhibit to our Annual Report on Form 10-K for the year ended June 30, 2010 filed with the SEC on September 13, 2010.
(5) Previously filed as an exhibit to our Current Report on Form 8-K filed with the SEC on February 3, 2011.
(6) Previously filed as an exhibit to our Current Report on Form 8-K filed with the SEC on March 4, 2011.
(7) Previously filed as an exhibit to our Current Report on Form 8-K filed with the SEC on May 3, 2011.
(8) Previously filed as an exhibit to our Quarterly Report of Form 10-Q for the period ended March 31, 2011 filed with the SEC on May 10, 2010.
(9) Previously filed as an exhibit to our Current Report on Form 8-K filed with the SEC on June 27, 2011.
(10) Previously filed as an exhibit to our Current Report on Form 8-K filed with the SEC on July 20, 2011.
(11) Previously filed as an exhibit to our Current Report on Form 8-K filed with the SEC on August 11, 2011.
(12) Previously filed as an exhibit to our Current Report on Form 8-K filed with the SEC on September 1, 2011.
(13) Previously filed as an exhibit to our Annual Report on Form 10-K filed with the SEC on September 13, 2011.
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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 SOLAR POWER CORP.
Dated: November 4, 2011 By: /s/ Steven Pleging
STEVEN PLEGING
Chief Executive Officer and President
(Principal Executive Officer)
Dated: November 4, 2011 By: /s/ Graham R. Hughes
GRAHAM R. HUGHES
Chief Financial Officer, Secretary and Treasurer
(Principal Accounting Officer)
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RELEASE AGREEMENT
THIS AGREEMENT is dated as of the 5th day of October, 2011.
BETWEEN:
QUANTUM SOLAR POWER CORP. , of Suite 300, 1055 West Hastings St., Vancouver, BC V6E 2E9
(the "Company")
OF THE FIRST PART
AND:
QUORUM CAPITAL CORPORATION , of Suite 575, 1111 West Hastings St., Vancouver, BC V6E 2J3
(the "Consultant")
OF THE SECOND PART
WHEREAS:
A. The Company and the Consultant (collectively, the “Parties”) entered into a consulting agreement dated July 8, 2011 (the “Consulting Agreement”) whereby the Company retained the consulting services of the Consultant in accordance with the terms of the Consulting Agreement.
B. In connection with the Consulting Agreement, the Company and the Consultant entered into a stock option agreement dated August 8, 2011 (the “Stock Option Agreement”) whereby the Company granted the Consultant an option to purchase 666,668 shares of the Company’s common stock at a price of USD $1.00 per share until July 7, 2014 (the “Stock Options”).
C. The Parties have mutually agreed to terminate the Consulting Agreement and Stock Option Agreement effective immediately, and have negotiated a complete resolution of any and all disputes, claims or potential claims arising between them and the subject matter of the Consulting Agreement and Stock Option Agreement on the terms and conditions set out below.
NOW, THEREFORE , in consideration of the recitals state above, which all Parties agree are accurate and complete, the agreements, promises and warranties set forth below and other good and valuable consideration, receipt of which is hereby acknowledged, the Parties agree as follows:
1. Termination
1.1 The Company and the Consultant agree, as of the date of this Agreement, the Consulting Agreement and the Stock Option Agreement shall be terminated and be of no further force or effect.
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2. Consideration
2.1 In consideration of the Consultant’s Release (hereinafter defined) and termination of the Stock Options, the Company hereby agrees to:
(a) pay CDN $25,000 to the Consultant on execution of this Agreement (the “Payment”); and
(b) completely release and forever discharge the Consultant from any and all past, present or future claims, demands, obligations, actions, causes of action, rights, damages, costs, loss of services, expenses and compensation which the Company has had, now has, or which may hereafter accrue or otherwise be acquired by the Company and/or any of its subsidiaries against the Consultant with respect to any matter relating to the Consulting Agreement and Stock Option Agreement (the “Company Release”).
3. Release and Discharge
3.1 In consideration of the Payment and the Company Release, the Consultant agrees:
(a) the Stock Options shall terminate on execution of this Agreement; and
(b) to completely release and forever discharge the Company from any and all past, present or future claims, demands, obligations, actions, causes of action, rights, damages, costs, loss of services, expenses and compensation which the releaser has had, now has, or which may hereafter accrue or otherwise be acquired by the Consultant against the Company and/or any of its subsidiaries with respect to any matter relating to the Consulting Agreement and Stock Option Agreement (the “Consultant’s Release”).
4. Nondispargement
4.1 The Consultant agrees that neither the Consultant nor any of its directors, officers, employees and consultants will disparage or make negative statements about the Company or any of its officers, directors, agents, employees, successors and assigns.
4.2 The Company agrees that neither the Company nor any of its directors, officers, employees or consultants will disparage or make negative statements about the Consultant or any of its officers, directors, agents, employees, successors and assigns.
5. Non-Disclosure of Confidential Information
5.1 During the term of the Consultant’s engagement, the Consultant had access to certain confidential information of the Company and its affiliates, which are valuable, special and unique assets and property of the Company and its affiliates. The Consultant will not and will ensure that its directors, officers, employees and agents do not disclose any such information to any person, for any reason or purpose whatsoever. The
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Consultant further acknowledges that the breach of the Consultant of this provision will cause the Company irreparable harm.
6. Entire Agreement and Successors in Interest
6.1 This Agreement contains the entire agreement between the Parties with regard to the matters set forth herein and shall be binding upon and inure to the benefit of the executors, administrators, personal representatives, heirs, successors and assigns of each.
7. Independent Legal Advice
7.1 This Agreement has been prepared by O’Neill Law Group PLLC acting solely on behalf of the Company. The Consultant acknowledges that he has been advised to obtain independent legal advice.
8. Governing Law
8.1 This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada and each party hereto adjourns to the jurisdiction of the courts of the State of Nevada.
9. Additional Documents
9.1 All parties agree to cooperate fully and execute any and all supplementary documents and to take all additional actions which may be necessary or appropriate to give full force and effect to the basic terms and intent of this Agreement.
10. Effectiveness
10.1 This Agreement shall become effective on execution.
11. Miscellaneous
11.1 This Agreement supersedes any prior written or oral agreements or understandings between the parties relating to the subject matter hereof.
11.2 No modification or amendment of this Agreement shall be valid unless in writing and signed by or on behalf of the parties hereto.
11.3 A waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition.
11.4 This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provision of this Agreement, or the application thereof to any person or circumstance, shall, for any reason and to any extent, be held invalid or unenforceable, such invalidity and unenforceability shall not affect the remaining provisions hereof and the application of such provisions to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law.
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11.5 The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof.
11.6 This Agreement may be executed in one or more counter-parts, each of which so executed shall constitute an original and all of which together shall constitute one and the same agreement.
IN WITNESS WHEREOF , the parties have duly executed and delivered this Agreement as of the date first written above.
QUANTUM SOLAR POWER CORP.
By: ./s/ Daryl J. Ehrmantraut
Daryl J. Ehrmantraut
QUORUM CAPITAL CORPORATION
By: /s/ Wolf Wiese
Name: Wolf Wiese
Title: President
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CERTIFICATIONS
I, Steven Pleging, certify that;
(1) I have reviewed this Quarterly Report on Form 10-Q of Quantum Solar Power Corp.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 4, 2011
/s/ Steven Pleging
By: Steven Pleging
Title: President and Chief Executive Officer
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CERTIFICATIONS
I, Graham R. Hughes, certify that;
(1) I have reviewed this Quarterly Report on Form 10-Q of Quantum Solar Power Corp.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 4, 2011
/s/ Graham R. Hughes
By: Graham R. Hughes
Title: Chief Financial Officer, Secretary and Treasurer
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven Pleging, the Chief Executive Officer of Quantum Solar Power Corp. (the “Company”), hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(i) the Quarterly Report on Form 10-Q of the Company, for the fiscal quarter ended September 30, 2011, and to which this certification is attached as Exhibit 32.1 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By: /s/ Steven Pleging
Name: STEVEN PLEGING
Title: Chief Executive Officer and President
Date: November 4, 2011
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
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CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Graham R. Hughes, the Chief Financial Officer of Quantum Solar Power Corp. (the “Company”), hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(i) the Quarterly Report on Form 10-Q of the Company, for the fiscal quarter ended September 30, 2011, and to which this certification is attached as Exhibit 32.2 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By: /s/ Graham R. Hughes
Name: GRAHAM R. HUGHES
Title: Chief Financial Officer, Secretary and Treasurer
Date: November 4, 2011
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
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