Shareholder Meeting Write-Up
The information that has been provided below are the representations of the author and do not express the views of the Company. In no way, does this write-up request the reader to “invest” in QTMM (Quantum Material Corporation.)
Please do your own due diligence & invest at your own risk!
I have tried to capture as much information as I could with regards to the shareholder meeting held at STAR PARK (San Marcos, TX) on 05.01.17 at 12:00 P.M. Central Standard Time (CST). Please do excuse me if there are misrepresentations or misunderstanding made in this write up. It was hard for me to write everything down & pay attention at the same time.
The company did have people Skype into the meeting. I don’t know if there is a recording of this & if we can obtain a recording.
I tried my best to “represent the shareholder” when speaking with management. I have structured this write-up into the following parts:
1.) Synopsis of Meeting (For those who want the 1000 foot view & don’t want to read the niddy giddy)
2.) My Personal Opinion
3.) Comments & Observation (Contains the questions)
Good luck to Everyone!
Synopsis of Meeting:
Despite the fact that a majority of people thought not much would happen at this year’s shareholder meeting, many things came to light. This was accentuated by the fact that Torrey Hills (Clay Chase or his representatives) did not attend the shareholder meeting. Last year, somebody from Clay’s team came to the meeting (even though they were fashionable late; due to their flight being delayed). However, at least they were in attendance even though they missed more than half the meeting. Below are some of the items that were discussed.
Per Steve Squires (SS) CEO & Chairman of the Board of Directors (BOD) Quantum Materials Corporation (QMC) has been recognized by the local business community as a top emerging business. The company has been featured in a reputable technology publication. QMC has been approved by the EPA to produce their 2 metric tons of Quantum Dots (QD’s).
The motion to increase the number of authorized shares from 400 million to 750 million passed by 58%. Despite the motion passing, a consortium of investors voiced their opinion that Management should have indicated what their plans are for these additional shares. The consortium wanted greater detail on how these additional shares might be utilized. They wanted a rough estimate of where shares were going to be spent. After hearing the consortium’s concern, Management agreed that they would try to give greater detail in the prospectus when calling a shareholder meeting.
The consortium wanted to know how many shares are required for a stockholder to put a motion on the ballot. Steve Morse (SM), the company attorney, couldn’t remember whether a specific percentage of shares are required, or if one share would suffice. SM & the consortium were going to converse over email about this issue. SM said he would have to reference the company’s by-laws & Certificate of Incorporation to get an answer.
Management admitted they did not enjoy having to dilute the stock. However, management hinted that they will most likely not have to issue any of the recently authorized shares. They hinted that there might be a deal reached with a private investor or strategic partner. These funds would be used to address any additional working capital needs. Management also admitted the recent $1 million deal with the British company (Freshfield) has reduced the need for working capital.
It was at this point, the consortium requested that if the additional authorized shares were not needed that the authorized shares be reduced. Management seemed open to the idea, but claimed that a special shareholder meeting would have to be called for this action to happen.
SS mentioned that Mr. Andrew Robinson will be running the daily operations at QMC Asia. SS is still the CEO of both QMC & QMC Asia. Mr. Robinson has been known to be a “world traveler.” He was previously living in Bahrain & is now in San Marcos, Texas. He will have to travel/relocate to China to oversee the China operation (QMC-Asia).
During the Question & Answer (Q&A) session with Management they admitted that the bio-initiative that is being pursued is a new bio-initiative & does not relate to the previously scrapped cancer cell initiative. It was also revealed during Q&A that no employees have lost stock options due to a company policy preventing employees from exercising their options.
If you recollect, it was mentioned in the 10-K that employees were prevented from exercising their options to prevent the company from going above the 400 million authorized shares. The former Chief Financial Officer (CFO) mentioned only two QMC employees were in this unique situation. These options were granted in lieu of salary dollars to these two employees. As a result, QMC Management decided to make these employees whole by reissuing their options, so they would not be in the lurch.
The subject of the 10-Q came up during the discussion. The Interim CFO David Schloss was not present as he was apparently working on compiling the 10-Q. Management admitted that filing the 10-Q on-time was a “top priority.” They agreed the company didn’t want to be subject to fines, penalties, & a potential delisting from the Over The Counter (OTC). Management is currently not looking to fill the CFO position with a “permanent CFO.”
In the Q&A session it was revealed that Freshfield is traded on the British equivalent of the OTC market. Per SS Freshfield have 3 buildings in Asia where they have implemented their ground breaking technology.
A concerned shareholder, asked management about the recent attempt to uplist to NASDAQ; The shareholder was curious to know how much money was spent in the uplisting effort. To the shareholder’s surprise, Management claimed that no funds were spent.
It was also revealed during Q&A that QMC currently employs 15 employees. The majority of employees on staff are considered “technical.” I take this to mean they are engaged in Research & Development (R&D) of QD’s. The job recruitment for a patent attorney is still open. Management has not filled the position to date. When speaking with a technical employee, it was revealed that they are working “herculean hours” to ensure the delivery of a quality QD product to potential customers.
At the end of Q&A a demonstration was given by QMC of their QD’s. This was definitely the most interesting part of the meeting. Lights were turned off & a flash light was used to elicit the myriad of colors that QD’s emit. The colors ranged from red to green to blue. The green was recently developed in the last two-weeks.
In a side conversation, I had mentioned to SM how hard it is to find a broker that would accept QMC’s physical shares. Ameritrade use to accept them, but due to a change in company policy they no longer accept deposit of these shares. Some brokerage firms do accept these shares, but they charge a heavy commission for doing so. The standard rate seems to be 4%-6%. I wanted to alert everyone that Fidelity Investments does accept deposit of QMC shares & you don’t have to pay the outrageous 4%-6% commission! However, there is a couple of caveat.
If you decide to use Fidelity, you have to sell your shares within 30-90 days (sorry can’t remember the exact number of day; someone should double check) of the deposit. If you don’t sell your shares within this window they require another opinion from SM lifting the restrictive legend off the stock. This can become quite expensive as SM charges ~$350.00 to lift the restrictive legend. The other caveat with the physical shares is Fidelity requires you to use a broker to trade the shares. One cannot “trade on-line.” This cost to use a broker is ~$50.00 & Fidelity charges another ~$300.00 for back office administration charges to have the legend cleared. This fee is in addition to SM’s fee. As can be seen, purchasing the physical shares of stock can be quite expensive. If anybody knows of a cheaper alternative, please let me know. I am curious to hear what other’s inputs are regarding this subject.
My Personal Opinion:
Despite the recent management & board shake-up I.E. The forced resignation of previous CEO Sri, departure of Craig Lindberg from the CFO position, & departure of other board members (Daniel Carlson, Ray Martin), the company is in good shape. Employees & Management seem to be committed to the core goal of enhancing QMC’s technology & satisfying customers’ needs for QD’s. Employees are working “around the clock” to make this thing happen! R&D staff is working 16-18 hours a day seven days a week! The team really believes in the product, mission, & vision that the founders have set from day one.
These efforts are starting to come to fruition. I think this is underscored by the fact they were able to land a deal with the British company. Don’t’ get me wrong there is still a long way to go, but being recognized as a top start-up in the Austin area (when San Marcos isn’t really Austin) along with being featured in a reputable technology magazine speaks volumes. If anybody can provide a link to the article, I would be interested in perusing through it.
Further, it was encouraging to know that with the Freshfield contract that QMC will be “at capacity” with their existing microreactors. It will not be too long before they will have to start thinking about the purchase of another reactor when they land a deal.
The company is still pursuing new avenues of development. This has been emphasized by two facts: 1.) The development of a green quantum dot, 2.) A second Bio-Initiative. This came to light by the 2nd QD Bio initiative. I asked if they were licensing or buying another patent for this initiative. I was not happy that management couldn’t speak more about it. They claimed commenting any further would be considered “insider information.” As the saying goes, we will find out in “due time.”
I was kind of surprised that there is an 18-month lead time to start production in China. In my humble opinion, this is way too long! It is easier for Management to purchase another microreactor & start production in San Marcos (especially with EPA approval) & have these dots shipped. Why wait for China to come “online” to produce dots?
The recent authorized share increase seems to be “just for show” or “just in case.” I think that when they initially sent the proxy out they were unsure if Fairfield would sign with QMC & the other strategic partner/investor would come through. The last part remains to be seen. It is good to know that the shares are there in case we need it, but most likely will not be touched by QMC management. I try to think of this as a “rainy day fund.”
I am concerned about the lawsuit & the lack of stability of having a reliable & dependable CFO; coupled with a reliable BOD. I feel this is one of the reasons why SS decided to bring the company “in house” by nominating his son to the Board. It was interesting to note, that Shane Squires was not in attendance. Hopefully, this instability is “behind us” and we can get back to business in supplying customers with high quality QD’s.
I think that company is close to signing a deal. I asked SS if the Nitto-Denko Joint Development Agreement (JDA) was still valid. SS indicated that the JDA is “still in the works.” This is a good thing. When shareholders spoke with an R&D member in last year’s meeting the individual had mentioned that if Nitto liked QMC’s dots that they would sign a contract. The fact that the deal is not “kaput” & ongoing is encouraging. I think that QMC is in the process of “tailoring the dots to Nitto-Denko & other customer’s needs. The fact that more then one-year has gone by & Nitto—Denko hasn’t dropped QMC is promising.
All said & done, the company has made & is still making significant progress both on the R&D front, Finance front, & Sales front. However, we still lack a contract to supply dots to an Original Equipment Manufacturer (OEM). As they say “good things come in time.” Patience is a virtue & if you hang in there your efforts will be rewarded. I hope that by next year this stock will be at par ($1.00) or even higher. As Buz Light Year says “To Infinity & Beyond!”
Below you will find t some observations & the actual questions that were asked in the meeting:
Comments & Observations:
As I expected, there weren’t that many shareholders present at this meeting. The Carsons showed up (party of 3) myself, another shareholder named David. The Carsons are the people from the Carson Group. It is my understanding that they own a “significant chunk of shares.” They own so many shares that they are required to file a disclosure statement with the SEC.
To my surprise:
A. The former CFO Craig Lindberg was in attendance. I guess Craig was checking in to see how his “investment was doing.” I remember, he made a remark once that he & his entire family in Quantum, so I guess it makes sense. I personally wouldn’t have come back, considering the way left the company, but to each his own.
B. Steve & Lester Morse came to the meeting. SM ran the legal aspect of the meeting (what else do you expect from a lawyer?), while Lester was very quiet. Lester seems to be an elderly gentleman, while Steve Morse seems to be in his late 40’s or early 50’s. I don’t know if they are brothers or Father & son. It was nice to meet Steve as I have spoken with him a few times, so it is nice to put a face to a name.
SS opened the meeting and made some general comments. He claimed that Quantum was recognized by the Austin Chamber of Commerce (ACC). ACC placed Quantum on their A-List of companies. I guess this is good PR for the company, as it gives recognition. He also mentioned that the company was going to be featured in Gardner Publications. Gardner is a technology magazine. I have never heard of this magazine. Has anybody here heard of it?
SS mentioned that Quantum had filed all the required forms with the EPA to produce the 2 metric tons of QD’s. These forms have been approved, so this is a major hurdle that has been cleared by the company!
One interesting point to note, was the noticeable absence of Clay Chase or a representative from Torrey Hills. They had no plans to attend this meeting. I specifically asked if Clay or a representative from his office would be coming to Quantum Materials. Steve said they were not attending this meeting.
The motion passed to increase the authorized shares from 400 million to 750 million. It is important to note that the shares have been “authorized” but NOT “Issued.”
Below is the tally:
For 199,175,046.00 58.28%
My general impressions about the meeting:
Management seems to be extremely upbeat. It came up in the meeting that most likely QMC will not be using these additional shares that have been authorized. SS and SM both said they couldn’t go into further detail, but that most likely they will have another “funding stream” to address the company’s working capital needs. They had mentioned an investor/deal, so I think they might have some strategic partnership or deal with a “wealthy person.” They felt confident that this would come through.
The deal with the British company (Freshfield) came up. The fact that they are investing $1 million in QTMM will reduce the $1.8 million-$2.5 million of working capital deficit.
I spoke with Andrew Robinson, and he had mentioned that the scientists are working extremely hard day & night, burning the mid-night oil. They are working 7 days a week, till 1:00 A.M.-2:00 A.M. to deliver high quality Quantum dots to “the customer.” It seems that the company is working very hard to “bring their product to market.”
As we have been leading up to the shareholder meeting I took the initiative to cut & paste questions that other people from the board wanted to ask management. Below you will see the responses I received from SS & SM.
1. What is the actual status of the Nitto Joint Development agreement? Where are we in the process or is it kaput?
ANS: The Nitto Joint Development Agreement is still alive and kicking. It has not gone kaput.
2. Has Kisco been successful at pushing paying customers towards QMC since they feature QMC on their website?
ANS: Kisco has been referring clients to Quantum. Quantum has been busy shipping samples to these potential customers. Quantum will again be sharing a booth at Display Week with Kisco.
3. What is the status of the production facilities in China? Is Quantum currently shipping anything to China in lieu of producing dots in China? If so, what are the approximate shipping costs? Who is going to use our dots in China? When do you anticipate the full launch of Quantum Dot production in China? What is the final destination of these dots?
ANS: Shipping costs are passed onto the customer, so it’s not our concern. Dots will be used by local display manufactures in China. There is an 18-month window to start producing dots.
4. Who exactly is heading up QMC Asia, now that Steve is back as CEO of QMC? Is Steve doing both roles for now? Are you looking for a replacement to head QMC Asia?
ANS: SS is still the head of QMC Asia, despite coming back to head QMC. Andrew Robinson will be the main point person in QMC Asia. He is going to be the main “workerbee.”
5. How is the gas/oil connection progressing?
ANS: I got the impression from SS, that this was a “one-time deal.” Quantum was supposed to provide Iron Nanoparticles to the client, which they did. The customer has not has asked for further samples or has not had any follow up questions. I personally, would not hold too much hope for this revenue stream to develop.
6. What is the status of the lawsuit that the payroll company filed back in March? Has Quantum settled or working on a settlement?
ANS: SM was quick to jump in on this question. The lawsuit is still in litigation, and it is the company policy not to comment on on-going litigation. It is my opinion, that the lawsuit is a distraction to Quantum.
7. Is the company recruiting someone for the CFO position? James is supposed to be “temporary”? Has the current CFO’s contract been extended? The reason I ask, is because of the 10-Q. Is the company currently “on schedule” for filing the 10-Q? If the company is late in filing what are the ramifications, if any? Will QTTM be delisted from the OTC, fines from the SEC, etc …
ANS: James/David Schloss is the “interim CFO” for Quantum not “temporary.” Management has no plans at this time to seek a permanent CFO. They will be sticking with David Schloss. He was not present at the meeting. SS & SM claimed that he was busy working on the 10-Q. They felt confident they will not be filing the 10-Q late this time. They felt that they were going to be “on-time.”
Does anybody know when the 10-Q is due? SM claimed that the 10-Q is required in order for him to file the S-1. The S-1 is due on April 20th. He cannot file the S-1 without the 10-Q. The 10-Q seems to be a high priority for management. This is a good thing!
I guess the company must file the S-1 (to register the additional authorized shares).
8. In the shareholder letter released in March, it was indicated that the company was looking to raise $1.8 million-$2.5 million to address working capital needs? Has the company found a funder? Has the amount of the funding changed, since the company is receiving an infusion of $1 million from Freshfield? Is the $1 million annually or spread over four quarters I.E. $250 K?
ANS: Addressed in General Comments & Impressions. $1 million over the course of a year; it is not $1 million each quarter (Wish it were $1 million each quarter).
9. In the shareholder letter it was indicated that some upgraded were being done to the micro reactors? What kind of upgrades were done to the microreactors? Did the upgrades increase the yield of dots from 2 metric tons? Will similar upgrades be done for the China microreactors? Were the reactors taken down, the shareholders letter indicated that they were “decommissioned”? How long was each reactor taken down for?
ANS: The upgrades that were done were to increase the quality of the QD’s. The upgrades did NOT (unfortunately) increase the 2 metric ton yield. The upgrades that were being done were taking microreactor’s QD’s from “Discovery” to “Production.” Currently, there is no microreactor that is “down.” The Microreactors were “Decommissioned” under Sri, but SS does not want to do this, so the Decommissioning is not longer a concern.
10. How has the Freshfield agreement changed the company’s business needs? Is the company looking to purchase another microreactor? Will China Microreactors be used for the Freshfeild agreement?
ANS: The company is NOT looking to purchase another microreactor. With the Freshfield deal, the existing reactors will be “at capacity.” It will take 18-months to bring the China microreactors “on-line.” Moreover, QMC Asia has to work with the “Chinese EPA” to obtain approval to produce QD’s in China.
In the recent days, it was brought up if Freshfield has any buildings where they have “demonstrated” their technology. SS claimed that Freshfield has 3-buildings in Mongolia where they are currently using their Freshfield technology. Moreover, it seems that Freshfield is in it’s infancy like QTMM. They are apparently listed on the British equivalent of the OTC, I believe it’s called the AIM. Someone, please double check on this.
It is interesting to note that Freshfeild has three building in existence where they are currently using their proprietary technology. I imagine that this is where they will be testing our QD dots. This is encouraging, as this proves that their idea is NOT a “concept” but is indeed reality; despite the fact that it is in Mongolia. This company is trying conquer the world like Gingis Khan!
11. What QD-Bio initiative is the company pursuing? I thought QMC was no longer perusing the cancer cells as the patent expired from Virginia Common Wealth University (VCU)? QMC was no longer leasing these patents. Is the QD Bio initiative referring to something else?
ANS: When I asked this question SS & SM were taken aback. They seemed kind of flustered. They did not really seem to appreciate that they were caught in a conundrum. They had no choice but to admit that this is a separate initiative that is currently being pursued by QTMM. SS said he couldn’t go into details as this was “insider information.” SM also confirmed that this was considered insider information, so they couldn’t go into specifics. I asked them if they were buying or leasing the patents & what type of initiative was being pursued. They refused to go into further details, but they confirmed that this was not the cancer initiative.
It is encouraging to hear of this “new Bio-Initiative.” I can’t wait to hear more about it when it is no longer considered “insider information.”
12. Approximately how much money has been spent in up listing to NASDAQ? Is the money that has been spent a “sunk cost” or can any of these initial efforts be recouped when QMC actually decides to up list? In other words, were the majority of these funds “wasted?”
ANS: Management claimed that a “negligible” amount of money was spent in trying to uplist to NASDAQ. I don’t really agree with their answer, as this was the whole point in bringing outside directors & segregating the Chairman/CEO role. I am sure that SM has spent a considerable amount of time on this issue; as well as asking consultants about the uplisting process. In this case, “talk is not cheap!” Lawyers tend to charge very heavily for their services.
When I pressed further, Management claimed that time records would have to be pulled to obtain an answer to this question.
I guess we shouldn’t worry about the past, but look forward to the future.
13. How many people does the company employ currently? Are these all full-time employees, or are there any part-time employees? What is the break down of the company’s staff? I.E. Scientist, Marketing? Where are these staff placed? QMC or QMC Asia?
ANS: The company employees 15 people in total. 10 out of the 15 are considered “technical” while 4 are considered “admin”, one person is considered marketing. Andrew Robinson will be the “China Man” and so I guess we will have one technical person in China.
I would like to thank you if you read all the way to the end. I would also like to thank you for ruining my evening by spending it in front of the computer.
Again, please do not hold me to all the facts I have written here. I might have heard wrong or misinterpreted or misunderstood something. Hope it was well worth the wait to read this write-up.