10K take aways
Business Accomplishments
The following outlines the business accomplishments of the Company over the last few years:
? entered into Technology Development Agreement for design and manufacture of fluid tracking nanoparticles;
? implemented Quality Management System (QMS) for QD production to establish ISO readiness;
? hired pioneering scientific and engineering personnel to create world-class technical team;
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entered into a minority-owned joint venture, Quantum Materials Asia Co., Ltd. with Chinese partner Guanghui Technology Group (“GTG”);
? entered into a funded product development agreement with leading global optical film manufacturer Nitto Denko Corporation;
? entered a joint development agreement with an industry-leading display manufacturer;
? developed and introduced QDX™ Quantum Dots;
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took delivery and placed into service our second manufacturing unit bringing the Company’s total capacity up to approximately 2,250kg of QDs and other nanoparticles per year;
? developed and began producing both red and green cadmium-free QDs; ( Lets put this one to bed once and for all! )
? implemented high volume production of QDs using patented chemistry and process and proprietary equipment;
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? established and subsequently twice expanded a laboratory facility for research, development and production in Texas and negotiated a collaboration with Texas State University;
? acquired a foundational patent portfolio from Bayer AG covering high volume production of QDs, including heavy metal free quantum dots, quantum dot enhancement technologies and quantum dot solar cell technologies; and
? licensed key patents from Rice and UA.
In the meantime, we have experienced a significant increase in interest from potential customers in our materials and technologies for other applications such as televisions, displays, and lighting. Management believes that these markets present the best near term opportunities for our exploitation of QDs on a commercial scale. We will continue to pursue the solar cell market along with other uses for QDs and TQDs, but as indicated above, we have implemented a more balanced approach that addresses the potential demand for high performance TQDs in the other emerging markets. See “Major Market Segments” section below.
QMC’s automated continuous process : Unlike the more labor-intensive batch processes described above, we use a continuous manufacturing process to produce QDs and TQDs. This patented process and chemistry provides advantages to other methods such as more precise control of process variables which leads to improved quality control. We believe that by using this method yields are higher and manufacturing costs are lower as compared to other methods. We also believe that we are the only company to successfully deploy continuous flow technology in the large-scale manufacturing of highly uniform QDs of both cadmium-based and cadmium-free chemistry.
Raw materials for the commercial production of QD are purchased in bulk from chemical supply companies. Indium, a component of our cadmium-free QD is considered a “rare metal.” Indium is primarily found in South America, Canada, Australia, China and the Commonwealth of Independent States. There is also a mature and efficient indium recycling process. While our management does not believe that a supply disruption of the indium-containing compounds used in the manufacturing of QDs represents a significant risk, no assurances can be given in this regard.
Current Position
In September 2016, we completed a second expansion of its laboratory space at STAR Park, in San Marcos, Texas in preparation for qualification of production runs of quantum dots for display applications. As part of a broader Quality Management System, the Company has delineated production and research work flows to meet client demands as well as to prepare for optimization or customization of QD compositions. The expansion also allows for additional production capacity to meet expected QD demand.
Widespread, rapid adoption of quantum dots by the display or other markets may cause supply pressure that can only be met with significant increases in available production capability. While we believe our current manufacturing capacity of approximately 2 metric tons per year is about the same as our largest competitors, we also have established plans to be able to increase our manufacturing capacity with very short lead times and minimized facilities requirements. This is anticipated to be a key advantage to the Company to meet market demand and drive increased revenue.
The advantages and benefits of our automated production are:
? large scale production with a compact footprint;
? less manpower and time needed for cost savings;
? economies of scale leading to lower costs;
? high production yield with little post-processing;
? improved quality control for higher uniformity; and
? assurance of backup systems for continuous supply.
Sales and Marketing Overview
During the past year, we have made progress in the development of QDs for use in electronic display applications, in particular for LCD TV applications. With a focus on cadmium free QDs, we have been developing technologies aimed at meeting key customer requirements, and we have been shipping samples of products to customers for evaluation and testing.
Our discussions with current and potential new customers in the display industry confirm that the market opportunity is substantial and our business plan is aligned with the customers’ product specification needs. Beyond electronic displays, we see opportunities for applications in oil & natural gas production, solar, life sciences, and anti-counterfeiting sectors. In addition to customers in the electronic components industry, we have recently shipped sample products to a customer in the oil & natural gas industry.
We believe that our advantages in delivery of high quality, high performance QDs and other nanomaterials, its patented continuous production techniques, and its licensed screen printing techniques, make it an attractive supplier to these markets.
Operational Overview
Our operations are located in San Marcos, Texas at the Star Park Technology Center, an extension of Texas State University (“TSU”). This location provides us with space for future expansion and with convenient access to TSU faculty and specialized laboratory facilities and equipment that can support joint research and development efforts with Texas State University. Located 30 miles south of Austin, Texas, the San Marcos facility is also in close proximity to a number of leading companies in the electronics, lighting, solar, and life sciences markets.
We have acquired commercial-scale continuous manufacturing equipment at the San Marcos facility and now have the capacity to produce more than two metric tons (2,000kg) per year of nanomaterials for supply to its customers. Management believes that the production capacity of the San Marcos facility is similar to, or greater than its largest competitors’ factories which are much larger and require significantly larger capital expenditures. This efficiency is the direct result of our patented continuous flow process and proprietary manufacturing knowhow and equipment. While we plan to work extensively with its current provider of equipment, we own all rights to the designs and intellectual property resulting from the development project, and could contract with one or more other competent suppliers of equipment or build the manufacturing equipment in-house, if necessary.
We expect to commence generating revenues from the production of materials at the San Marcos facility in early 2017. Such revenues are expected to be modest at first and will be dependent upon our ability to generate purchase orders from development partners.
Our ongoing research and development functions are considered key to maintaining and enhancing our competitive position in the growing nanomaterials and QD market. Nanomaterials and QD technology continue to evolve, with new discoveries and refinements being made on an ongoing basis. We intend to be at the forefront of technological development, and will focus a significant part of our efforts on this, as it has done historically. Continuing R&D activities at the San Marcos facility and our collaboration with Texas State University, Rice, University of Arizona, and the numerous other research centers and departments with which we have relationships will be important aspects of the Company’s strategy.
Our key assets include patents, proprietary high volume process equipment technology, licenses and other intellectual property rights, its knowhow and the expertise, capabilities, and relationships brought to the Company by its management team. We will continue to build out our intellectual property portfolio and licensing rights.
Solar Energy . QDs are capable of producing energy from a broad spectrum of solar and radiant energy, including the ultraviolet and infrared frequencies conventional silicon solar cells generally do not convert to electricity. QD solar cells have conversion potentials of approximately twice that of conventional solar cells, and applications are being developed to “print” highly efficient photovoltaic solar cells in mass quantities at low cost. Management believes that QD solar cells and panels will be the next evolutionary development in the field of solar energy and that commercialization will begin in 2017.
Bayer Patents
In 2014, we acquired several patents and patent applications in five diverse sets of patent families from Bayer Technology Services GmbH, the global technological backbone and major innovation driver for Bayer AG of Leverkusen, Germany (the “Bayer Patents”). The Bayer Patents provide broad intellectual property protection for advances we have achieved in economical high-volume QD manufacturing. In addition, the Bayer Patents cover volume production technology for heavy metal-free QDs and nanoparticles; increasing quantum yields; heavy metal-free QDs; and hybrid organic quantum dot solar cell (“QDSC”) production as well as a surface modification process for increased efficiency of high performance solar cells and printed electronics.
Intellectual Property
The Company also owns additional intellectual property in the form of proprietary equipment designs, trademarks, trade names, copyrights, scientific and technical know-how, and “trade secrets” that it intends to further develop and apply in its business, seeking to protect same with appropriate governmental filings and/or secrecy agreements. See “Risk Factors” section.
Governmental Approvals
Chemical substances manufactured in quantities of 10,000 kilograms or less per year are exempt from full premanufacture notice (“PMN”) review under section 5 of the Toxic Substances Control Act (“TSCA”). Low volume exemption (“LVE”) substances undergo a 30-day review. To date, we have only made small quantities of QDs for research and development. We will file a LVE notice at least 30 days prior to initial commercial manufacture and do not expect any difficulties in receiving an exemption from full PMN review; however no assurances can be given in this regard.
Revenues
During the year ended June 30, 2016, we recognized revenue of $240,835 compared to $0 for the year ended June 30, 2015. Of this amount, $225,000 is a result of the Company entering into a funded product development agreement with a leading global film manufacturer, Nitto Denko Corporation.
Research and Development Expenses
During the year ended June 30, 2016 the Company incurred $305,703 of research and development expenses, an increase of $241,243 from the $64,460 recorded for the year ended June 30, 2015. The primary reasons for the increase are i) costs associated with a sponsored research agreement the Company has in place with Texas State University and ii) expenditures for lab equipment and consumables in the San Marcos facility.
