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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2014
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ___
Commission File Number: 0-52956
QUANTUM MATERIALS CORP.
(Exact name of Registrant as specified in its charter)
Nevada 20-8195578
(State of jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
3055 Hunter Road, San Marcos, TX 78666
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (214) 701-8779
(Former address of principal executive offices, if changed since last report) (Zip Code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.001 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes [ ] No [X]
Check whether the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ]
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. Yes X . No ___.
Indicate by check mark whether the Registrant has submitted electronically and posted on it’s 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). Yes [X ] No [ ]
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ].
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company as defined by Rule 12b-2 of the Exchange Act: smaller reporting company [X].
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes [ ] No [X]
As of December 31, 2013, of the 198,875,204 outstanding shares of Common Stock, the number of shares held by non-affiliates was approximately 161,000,000 shares with a market value of approximately $8,050,000 based upon a last sale for our Common Stock of $.05 as of the close of business on December 31, 2013.
As of September 17, 2014, the issuer had 257,459,909 shares of common stock, $0.001 par value per share outstanding.
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FORWARD-LOOKING STATEMENTS
Some of the statements under this Form 10-K contain forward-looking statements. All statements other than statements of historical facts contained in this Form 10-K, including statements regarding our plans, objectives, goals, strategies, future events, capital expenditures, future results, our competitive strengths, our business strategy and the trends in our industry are forward-looking statements. The words “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “appear,” “forecast,” “future,” “likely,” “probably,” “suggest” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements.
Forward-looking statements reflect only our current expectations. We may not update these forward-looking statements, even though our situation may change in the future. In any forward-looking statement, where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements due to a number of uncertainties, many of which are unforeseen, including, without limitation:
• we are a development stage company with no history of profitable operations;
• we will need additional capital to finance our business;
• our products may not gain market acceptance;
• we need to purchase microreactors to produce quantum dots on a larger scale; we need to establish distribution relationships and channels and strategic alliances for market penetration and revenue growth;
• competition within our industry;
• the availability of additional capital on terms acceptable to us.
In addition, you should refer to the “Risk Factors” section of this Form 10-K for a discussion of other factors that may cause our actual results to differ materially from those implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Form 10-K will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, if at all. Accordingly, you should not place undue reliance on these forward-looking statements.
We qualify all the forward-looking statements contained in this Form 10-K by the foregoing cautionary statements.
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PART I
Item 1. Business
Introduction
Quantum Materials Corp. (OTC:QTMM) (“QMC”) is a nanotechnology company specializing in the design, development, production and supply of Nanomaterials including Quantum Dots and tetrapod quantum dots (“TQDs”), a high performance variant of quantum dots, for a range of applications in the life sciences, optoelectronics, photovoltaics, lighting, security ink and sensor sectors of the market. QMC owns 100% of Solterra Renewable Technologies, Inc. (“Solterra”), an operating subsidiary that is focused on the photovoltaic (solar cell) market. For convenience, the term “Company” is used to refer to both QMC and Solterra unless the context otherwise requires.
Nanoparticle are materials with features in the nanoscale, which features can be beneficial in a number of applications. Quantum dots are atomic crystals, tiny nanoparticles which can operate as up converters or down converters, emitting either photons or electrons when excited. The color of light emitted varies depending on the size of the quantum dot so that photonic emissions can be tuned by the creation of quantum dots of different sizes. Their unique properties as highly efficient, next generation semiconductors have led to the use of quantum dots in a range of electronic and other applications, including in the biomedical, display and lighting industries. Quantum dots also have applications in solar cells, where their characteristics enable conversion of light energy into electricity, with the potential for significantly higher efficiencies and lower costs than existing technologies, thereby creating the opportunity for a step change in the solar energy industry through the use of quantum dots in printed photovoltaic cells.
Quantum dots were first discovered in the early 1980’s and the industry has developed to the point where quantum dots are now being used in an increasing range of applications, including the television and display industries, the light emitting diode (“LED”) lighting industry and the biomedical industry. Sony, for example, has recently launched its first televisions using quantum dots to enhance the picture quality and power efficiency of its products, a number of major lighting companies are developing product applications using quantum dots to create a more natural light for LEDs, the biomedical industry is using quantum dots in diagnostic and therapeutic applications, and applications are being developed to “print” highly efficient photovoltaic solar cells in mass quantities at low cost.
According to a recent market research report, “Quantum Dots (QD) Market - Global Forecast & Analysis (2012 - 2022)” published in May 2012 by MarketsandMarkets (http://www.marketsandmarkets.com), the total market for quantum dots is expected to reach $7.48 billion by 2022, at a compound annual growth rate (CAGR) of 55.2% from 2012 to 2022. The key challenge for the quantum dot industry will be its ability to scale up production volumes sufficiently to meet growing demand for quantum dots while maintaining product quality and consistency and reducing the overall costs of supply to stimulate new applications. Quantum dots remain an extremely expensive commodity, with high cost small batch production processes constraining growth.
The Company recently acquired a patent portfolio from Bayer AG that includes 36 patents: 3 domestically and 33 internationally covering the high volume manufacture of quantum dots including heavy metal free, various methods for enhancing quantum dot performance and a quantum dot based solar cell technology. In addition the company has a worldwide exclusive license to a patented chemical process that permits it to produce high performance TQDs using a lower cost and environmentally friendly solvent for greater manufacturing flexibility. The Company has developed a proprietary method that allows it to mass produce consistent quantities of quantum dots and TQDs in a continuous process at lower capital costs than other existing processes. It also has the exclusive license to a patented screen printing technique for manufacture of LED’s and OLED’s which can include quantum dot enhanced electronic displays and other electronic components. The Company believes that these intellectual properties and proprietary technologies position the Company to become a leader in the overall Nanomaterials and quantum dot industry, and a preferred supplier of high performance quantum dots and tetrapod quantum dots to an expanding range of applications.
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History of the Company
QMC was formed in January, 2007, as a Nevada corporation under the name “Hague Corporation” and its shares began trading in the over the counter market in the first quarter of 2008. The original business of Hague Corporation was the exploitation of mineral interests.
Solterra, a Delaware corporation formed in May, 2008, by Mr. Stephen Squires (present Chief Executive Officer of QMC) and other shareholders, was founded to develop quantum dot applications in the solar cell industry. Solterra was acquired by Hague Corporation in November, 2008, pursuant to a merger transaction wherein the shareholders of Solterra exchanged their shares of common stock in Solterra for shares of common stock in Hague Corporation, and Solterra became a wholly-owned operating subsidiary of Hague Corporation. Upon the closing of the merger, Hague Corporation changed its business from the exploitation of minerals to the development of a quantum dots, and subsequently changed its name to “Quantum Materials Corp.” in 2010.
Shortly after formation, Solterra began to develop its solar cell business by licensing technology key to its business. In August 2008, Solterra was granted a license to develop, manufacture and exploit TQDs by William Rice Marsh University (“Rice“) of Houston, Texas, and in September 2011, the license was amended (the “Solterra Rice License”) and a new license was entered into between Rice and QMC (the “QMC Rice License”)(together with the Solterra Rice License, the “Rice Licenses“).The Rice Licenses grant to QMC and Solterra, respectively, the right to exploit a simplified and cost effective synthesis process for the production of TQDs of high quality and uniformity, which was invented in the Rice laboratory of Dr. Michael Wong, currently a director of QMC. Under the Rice Licenses, Solterra and QMC have been granted exclusive rights to develop, manufacture, market and exploit TQDs for photovoltaic applications (in the case of Solterra) and for electronic and medical applications (in the case of QMC). In October, 2008, Solterra also entered into a license agreement (the “UA License”) with the University of Arizona under which Solterra has been granted exclusive rights to use University of Arizona’s patented screen printing techniques in the production and sale of organic light emitting diodes incorporating quantum dots in printed electronic displays and other printed electronic components. This technology was developed at University of Arizona by Dr. Ghassan Jabbour, also a director of QMC, and will be sub-licensed to QMC for utilization in its business.
Also in 2010, Solterra entered into an agreement with a third party provider of industrial process equipment to develop a proprietary process for continuous production of quantum dots under which Solterra retained all ownership and rights to the design and any related intellectual property. The initial development and pilot testing has been completed, a provisional patent application on the process has been filed and is pending, and the Company is in discussions regarding the purchase of two initial equipment units – one lower capacity unit primarily for internal research and development purposes, and one higher capacity unit for initial commercial production of TQDs. In the Company’s opinion, the design of this manufacturing process will uniquely position the Company to scale up and mass produce TQDs for commercial sale, allowing it to readily meet further increases in volume demand by simply adding additional equipment units to its manufacturing line. The Company is in the process of arranging the capital necessary to order the two initial units for its proposed manufacturing facility (as discussed in more detail below).
The recently acquired Bayer AG patent portfolio, Rice Licenses and the UA License, together with the proprietary manufacturing process, comprise the fundamental asset platform of the Company. The Company believes that this technology platform positions it to compete effectively in the global nanomaterials and quantum dot production and supply market.
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Business Accomplishments
The following is an outline of the business accomplishments of the Company over the last few years:
• Acquired a foundational patent portfolio from Bayer AG covering high volume production of quantum dots, including heavy metal free quantum dots, nanoparticles, quantum dot enhancement technologies and quantum dot solar cell technologies;
• Implemented high volume production of quantum dots using patented continuous flow technology;
• Achieved process for the creation of high quantum yield quantum dots with quantum yield above 90%;
• Developed nanoparticle based solution for novel biotech application to aid in device R&D and calibration;
• Reduced debt and enhanced working capital position;
• Increased market capitalization;
• Developed a process and produced sample quantities of dual emission and extremely narrow emission Tetrapod Quantum Dots (TQDs);
• Established a new laboratory facility for research, development and initial production (“Wet Lab”) in Texas and negotiated a collaboration with Texas State University;
• Developed and produced sample quantities of heavy metal-free TQDs;
• Completed pilot testing of the design of the proprietary manufacturing process to produce TQDs;
• Filed a provisional patent application for the proprietary process;
• Completed pilot testing of the manufacturing process’ ability to achieve a run-rate production of 30 grams per week of TQDs;
• Successfully developed a production process and shelling techniques that produce extremely high quantum yield TQDs for potential applications in the life science, display and lighting markets;
• Developed and produced samples for a variety of potential customers covering a range of applications;
• Negotiated rights to sub-license technologies licensed from Rice University;
• Re-negotiated the Rice License to modify minimum royalty payment dates and extend certain milestone dates;
• Developed a technique for the controlled growth of the arms and legs of the TQDs in order to ensure consistency of length, width and aspect ratio between length and width (Management believes this size control can provide superior charge transfer in electronic applications);
• Achieved measurable improvement in conversion efficiency of the Company’s TQD based solar cell;
• Recognized by Frost & Sullivan and awarded 2012 North American Advanced Quantum Dot Manufacturing Enabling Technology Award; and
• Identified and initiated negotiations with several national laboratories and universities to license additional intellectual property relating to a range of quantum dot processes and applications;
The Company can provide no assurances that its accomplishments to date will result in the grant of patents for proprietary processes or result in future sales and/or profitable operations. See "Risk Factors."
Previously, the Company’s principal business emphasis was on the development of TQDs for solar cell applications through Solterra. The solar cell market has become increasingly volatile, with prices eroding due to the influx of subsidized products from abroad. Although the Company still intends to complete the development of its quantum dot solar cell technology and attempt to bring a competitive product to market, it has decided not do so in the current environment. The Company intends to wait until it can produce solar cells with sufficiently high conversion efficiency that, when combined with its low cost proprietary manufacturing process, will result in a product capable of producing energy at a cost per watt significantly below existing solar cell technology and competitive with non-renewable energy sources such as natural gas. In the meantime the Company has experienced a significant increase in interest in its materials and technologies for other applications such as life sciences, displays and lighting. Management believes that these markets present the best near term opportunities for the Company’s exploitation of its TQDs on a commercial scale. The Company will continue to pursue the solar cell market along with other energy uses for TQDs, but as indicated above, it has implemented a more balanced approach that addresses the potential demand for high performance TQDs in the other emerging markets. See “Major Market Segments” below.
Industry Overview
The Product: Nanomaterials including Quantum Dots
Quantum dots are nanoparticles of a semiconductor material, typically between 2 and 10 nanometers (a billionth of a meter) in diameter or mean dimension, which emit light fluorescence or electrons when excited with energy. Emission or absorption wavelength can be tuned by the creation of quantum dots of different sizes. The smaller the quantum dot, the closer it is to the blue end of the spectrum, and the larger the quantum dot, the closer it is to the red end of the spectrum. The unique physical properties of quantum dots exist as electrons within the quantum dot are confined to a very small space which makes them subject to certain “quantum” effects. These qualities are driving demand for quantum dots as a performance and efficiency enhancing next generation engineered material, and have led to the use of quantum dots in a range of electronic and other applications, including in the optoelectronic (display), lighting and life sciences industries.
Quantum dots also have applications in solar cells, where their characteristics enable conversion of light energy into electricity, with the potential for significantly higher efficiency (up to 2X) resulting in a lower cost per watt of energy produced when compared with existing technologies. Use of quantum dots in solar cells creates the opportunity for a step change in efficiency and performance in printed photovoltaic cells.
Quantum dots were first discovered in the early 1980’s, by Alexei Ekimov and independently by Louis E. Brus. Following their discovery, other scientists and researchers have developed a deeper understanding of quantum dots and their potential uses, and the industry has continued to develop. Due to their high cost and limited availability, quantum dots have primarily found applications in the life sciences field where they are used to enhance the optical and targeting performance in diagnostic assays. Improved manufacturing techniques are expected to lower costs and increase the availability of quantum dots for applications across a broader range of industries, including solar cells, displays, lighting, security inks and sensors.
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A high performance variant of quantum dots is tetrapod quantum dots (TQDs) that have material advantages over standard spherical quantum dots (“SQDs”), including brighter color emissions, greater purity, emissions in more than one color (“dual emissions”) and the need to employ less volume of quantum dot material in most applications. TQDs have a molecular configuration consisting of a center portion and four arms extending from the center that are equally spaced in three dimensions. TQDs can be used in virtually every application in which SQDs have been applied, and their unique architecture and shape promote more uniform distances between the dots, eliminating the problem of aggregation (the tendency of SQDs to clump together and in effect “short out”) which degrades the SQD emissions and effectiveness. But TQDs are more costly and difficult to produce in quantity using known methods, with the exception of the Company’s proprietary chemical process technology licensed exclusively to it under the Rice Licenses. The Company’s proprietary chemical process for creating TQDs uses lower cost and environmentally benign solvents (which are not toxic, corrosive or volatile) that nevertheless permit greater control for enhanced materials uniformity (>98% acceptable product per batch vs. <50% under other methods), reducing post-production reprocessing costs to attain requisite quality levels. The Company can manufacture cadmium-free TQDs as easily as cadmium based TQDs, so its TQDs are readily adaptable to applications that specify the absence of heavy metals. Thus both the Company’s heavy metal-free TQDs and its unique manufacturing process are the most environmentally responsible in the industry.
How Quantum Dots are Produced
Quantum dots are produced using four basic methods:
Colloidal synthesis: Growth of quantum dots from precursor compounds dissolved in solutions, much like traditional chemical processes. This manual batch process requires careful control of temperature, mixing and concentration levels of precursor materials. Precise control must be maintained uniformly throughout the solution otherwise non-uniform, irregular quantum dots are produced. Due to their very small size it is extremely difficult if not impossible to segregate the quantum dots by size once they have been produced and a conglomeration of varied size quantum dots are not capable of producing the unique features that are required in most applications.
Prefabricated seed growth: Quantum dots are created from chemical precursors in the presence of a molecular cluster compound under conditions whereby the integrity of the molecular cluster is maintained and acts as a prefabricated seed template. This manual batch method can produce reasonable quantities of quantum dots, but can take significant capital resources to achieve significant volume and still results in low yields, typically less than 50%.
Bacterial or viral synthesis: Formation of quantum dots from specific organisms that recognize specific semiconductor base materials and through uptake and process can produce highly uniform quantum dots. This batch method has certain limits on quantum dot shape and composition and remains very labor intensive thus difficult to scale.
Company’s proprietary continuous process method: Unlike the three processes above, the Company has developed a proprietary (patent pending) continuous process manufacturing technique to produce QD’s & TQDs that has the potential to overcome the cost and performance challenges presented by other manufacturing methods. The patented chemistry of the Company’s process eliminates conventional solvents and substitutes cheaper solvents that are not toxic, corrosive or volatile, thus enabling a significant reduction in the overall temperature required for manufacturing and eliminating any gassing of the solvents. The significant reduction in the manufacturing temperature and elimination of gassing enabled the Company to develop a proprietary manufacturing technology that also eliminates the creation of hazardous wastes in the production process. By using these solvents, the Company was also able to improve the manufacturing yield of its QD’d & TQDs significantly. The Company believes that these increases in the quantum dot yields and the use of cost-efficient continuous manufacturing techniques will enable the Company to scale production more readily (by simply adding more equipment units to its manufacturing line), thus reducing the produced cost of the QD’s & TQDs significantly compared to current quantum dot manufacturing methods. Note that the Company can also produce small quantities of its QD’s & TQDs using a batch process employing the chemistry and other techniques under the Rice Licenses, and has done so for sample development purposes.
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Market for Quantum Dots
According to a recent market research report, “Quantum Dots (QD) Market - Global Forecast & Analysis (2012 - 2022)” published in August 2012 by MarketsandMarkets (http://www.marketsandmarkets.com), the total market for quantum dots is expected to reach $7.48 billion by 2022, at a CAGR of 55.2% from 2012 to 2022. The global market for quantum dots, which in 2010 was estimated to be $67 million in revenues, is projected to grow over the next 5 years at a CAGR of 58.3%, reaching almost $670 million by 2015, a tenfold increase. Following the initially modest revenues generated by standalone colloidal quantum dots—primarily serving the life sciences, academic, and other industrial research and development (R&D) communities—within the next 2 years several significant product launches are expected. The biggest growth sectors are forecast to be in optoelectronics, solar energy, optics and electronics, adding to the growth already established in the life sciences sector. Specific quantum dot-based products are expected to include lasers, sensors, flash memory, lighting and displays, second and third-generation solar panels, security deterrents, and several enhancements to portable devices.
Quantum dots remain an extremely expensive commodity, with costs in the range of $3,000-$10,000 per gram. The price of quantum dots is directly affected by the high cost of producing quantum dots in relatively small batch quantities. As with other nanomaterials, these relatively high prices have been supported by favorable performance of the quantum dots at very low concentrations. Prices for quantum dots are expected to moderate over time as greater production efficiencies are discovered and implemented, resulting in higher volumes. This is expected to support greater adoption of quantum dots for use in end products and further support the growth of the quantum dot market. Under current production methods, rigorous processing has been required from batch method synthesis to produce a consistently pure and tightly size-controlled quantum dot product. To significantly grow the market, the industry will need to achieve much lower production costs for quantum dots, while maintaining strict control over quality and uniformity.
Major Market Segments
Life Sciences. The life sciences industry is one of the early areas for adoption of quantum dot technology, especially for “stand-alone” quantum dots used in fluorescent markers in diagnostic and therapeutic applications. This includes the use of quantum dots for marking (illuminating) particular cell types or metabolic processes for understanding diseases and conditions as well as the use of quantum dots to act as delivery agents for drug treatments or therapy for a wide range of ailments. The fluorescent qualities of quantum dots provide an attractive alternative to traditional organic dyes in bio-imaging procedures and are able to image a number of different color wavelengths simultaneously. Quantum dots are able to withstand irradiation from high powered microscopes for longer periods than organic dyes, and have been widely adopted in the bio-imaging sector. Applications in the life sciences field are expected to further increase as quantum dot performance vs. conventional fluorescing material and organic dyes continues to be proven. Quantum dots offer a host of benefits when compared to organic fluorophores such as biological dyes, including:
Increased photo-stability
Longer shelf life
Resilience to photo bleaching
Increased sensitivity
Narrow emission peaks
Broad excitation profile
Multiplexing capability
QMC is currently the only company capable of producing highly uniform tetrapod quantum dots. In addition QMC has developed the technology required to produce TQDs with very narrow emission peaks as well as TQDs with dual emissions. Both of these features are highly desirable for a broad range of life science applications. Management believes its licensed patented chemistry and patented continuous production process will enable QMC to produce TQDs in volume and at a price point that will make them a very compelling choice for these applications.
Optoelectronics. This market is comprised principally of quantum dot displays (QDD) for televisions, computers, cell phones, PDAs and various other applications. A QDD provides better optical performance when compared to cathode ray tubes (CRT) and conventional liquid crystal displays (LCDs):
50 to 100 times more brightness in comparison with CRTs and LCDs
pure colors due to size tunability and narrow color-band frequency emission of the quantum dots
significant energy savings, with power consumption being 1/5th to 1/10th that of an OLED or LCD displays
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Sony, for example, has recently launched its first televisions using quantum dots to enhance the picture quality and power efficiency of its products. It is expected that quantum dots may also be used to improve the performance of other optoelectronic devices and lasers and optical components used in telecommunications.
QMC is currently the only company capable of producing highly uniform tetrapod quantum dots. In addition, QMC has developed the technology required to produce TQDs with very narrow emission peaks as well as TQDs with high quantum yield (high brightness). Both of these features are highly desirable for a broad range of display applications. In Management’s experience, TQDs are far less likely to aggregate due to their unique shape. Aggregation typically leads to self-extinguishing of the quantum dots, resulting in loss of emissions. This resistance to aggregation by TQDs results in the need to use fewer quantum dots in optoelectronic applications to achieve the same performance levels. It also allows TQDs to achieve higher optical densities. Management believes its licensed patented chemistry and patented continuous production process will enable it to produce quantum dots and TQDs in volume and at a price point that will make them a very compelling choice for these applications.
Lighting. In the lighting market, quantum dot LEDs have begun to be commercialized in 2013, with significant R&D occurring among manufacturers of solid-state lighting. While companies have launched quantum dot LED lamps, the current market for quantum dot LED lamps and the other lighting products is still very small. The Company believes quantum dot based lighting will be the best replacement for currently available compact florescent lighting (CFL) and LED lighting, as quantum dot technology provides better efficiency and high power intensity, and the ability to tune the light spectrum to emit light that is the most pleasing and/or appropriate for the application.
As stated above, QMC is currently the only company capable of producing highly uniform tetrapod quantum dots. In addition, QMC has developed the technology required to produce TQDs with very narrow emission peaks as well as TQDs with high quantum yield (high brightness). Both of these features are highly desirable for a broad range of lighting applications. For lighting applications, narrow emission peaks is a key feature that is necessary in order to produce a highly tuned light source. In Management’s experience, TQDs are far less likely to aggregate due to their unique shape. Aggregation typically leads to self-extinguishing of the quantum dots resulting in loss of emissions. This resistance to aggregation by TQDs results in the need to use fewer quantum dots in lighting applications to achieve the same performance levels. It also allows TQDs to achieve higher optical densities. Management believes its licensed patented chemistry and patented continuous production process will enable it to produce quantum dots and TQDs in volume and at a price point that will make them a very compelling choice for these applications.
Solar Energy. Quantum dots are capable of producing energy from a broad spectrum of solar and radiant energy, including ultraviolet and infrared frequencies. They have conversion potentials of approximately twice that of conventional solar cells, and can be developed out of a variety of materials. Applications are being developed to “print” highly efficient photovoltaic solar cells in mass quantities at low cost. Management believes that quantum dot solar cells and panels will be the next evolutionary development in the field of solar energy, and that commercialization will begin in 2016.
Management further believes that the increased conversion efficiencies of TQDs, its low cost continuous production method and the screen print technology obtained under the UA License will permit QMC’s subsidiary Solterra to offer solar electricity solutions that can compete on a non-subsidized basis with the price of retail electricity in key markets in North America, Europe, the Middle East and Asia.
Other applications. Current and future applications of quantum dots may impact a broad range of other industrial markets. These potentially include computing and memory, improved thermoelectric components, security applications such as covert identification tagging, biohazard detection sensors and other uses. Quantum dots have the theoretical potential to enable batteries to increase charge capacity up to ten fold, reduce re-charge cycle time by half and double usable life by replacing the current graphite anodes with silicon quantum dots.
The Company intends to position itself to provide lower cost, higher volume, higher quality QD’s & TQDs that will benefit from one or more of these potential market trends.
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Business Development Overview
In the past year, the Company has entered into an increased number of non-disclosure agreements (“NDAs”) and sample supply agreements with a several product manufacturers in different industries as well as universities and independent research laboratories. In most cases, the NDAs with manufacturers are for exploring joint development of specific products in the liquid crystal display (LCD) and light-emitting diode (LED) industries, solid state lighting industry, life sciences and for quantum dot adaptable printing equipment and other new technologies. The focus of the Company is on those sectors of the market in which utilization of quantum dots will have a transformational effect on the quality of end use products and their performance. The Company believes that its advantages in delivery of high quality, high performance quantum dots and TQDs (utilizing the chemistry under the Rice Licenses), patented continuous production techniques and screen printing techniques (to which it has exclusive rights under UA License) make it an attractive supplier to these markets.
Current Position
For Quantum Materials Corporation, our recent achievements are bringing us closer to our goals. In July 2013 we moved into new offices and wet labs at STAR Park, in San Marcos, Texas. Shortly after that we began production of tetrapod quantum dots and shipped TQD samples to some waiting potential clients.
In Summer 2014, we welcomed our first automated production system and have scaled its original 2 gms/hr to 25gms/hr with expectation we can subsequently further scale this system type to 100gms/hr in the early part of calendar 2015.
The advantages and benefits of our automated production are:
Large scale production from one workspace;
Less manpower and time needed for cost savings;
Economies of scale leading to lower costs;
95% production yield for less defects: less processing;
Improved quality control for higher uniformity; and
Assurance of backup systems for continuous supply.
Shipping Samples to Potential Clients
As a result of our automated production system, we have increased our rate of shipping samples to potential customers and we have delivered more than two dozen shipments.
To our knowledge this represents the first shipments of automated production, not manual “batch” production. Our volume production process assures our clients that we can deliver high volumes of quantum dots for industrial use.
Industries or uses intended include – Displays, Lighting, Biotech, Anti-counterfeiting, Sensors, Solar, Paint, and Coatings.
For the most part, our shipments of samples are to client’s specifications, and for others, these samples are preliminary shipments for evaluation for secondary purposes as we collaborate toward the development of their specific quantum dot enabled product.
Today we have a very active pipeline of potential clients that grows daily. These potential clients require a broad range of nanomaterials from relatively simple Red emitting quantum dots to both near and far Infrared emitting Quantum Dots, Thick-Shell Quantum Dots and/or Non-Heavy Metal Quantum Dots. Industries or uses intended include – Solid-State Lighting, Hydrogen Conversion, Displays, Solar, Automotive Glass and BIPV films, Batteries, Lasers, Biotech and Inks.
Eleven of the twenty-four potential clients have already had one or more face-to-face meetings with company management.
To maintain control of quantum dot production and quality, the Company’s preferred business relationship is a joint venture that evolves from a collaborative development effort where the parties agree to cooperate in the design and production of a range of new end products utilizing the Company’s Nanomaterials and/or screen printing processes, with the other party contributing industry expertise and substantial marketing, distribution and sales capabilities. In most cases, the Company envisions that the industry joint venture party would provide the financial resources to underwrite the project. In some cases, the joint venture may need to seek outside financing for the commercialization phase of the project. In either case, the Company would continue to control the production of the nanomaterials for incorporation into the end products.
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Alternatively, the Company may choose to license a manufacturer of end products to incorporate the Company’s Nanomaterials into one or more specific products on an exclusive or non-exclusive basis. In some cases, it may be appropriate to dedicate an equipment unit to a single product line (for example, silicon nanocrystals for energy storage) for a single licensee, whether sited at the Company’s facilities or at the facilities of the licensee. In all cases, the license would contain provisions restricting the use of the Company’s technology and protecting its intellectual property.
In advancing these development activities, the Company follows a disciplined process to protect its intellectual property and foster collaborative arrangements. First, NDAs are entered into, followed by sample agreements. The Company then formulates, manufactures and supplies product samples to the counterparty’s specifications for evaluation and testing. If successful, this then leads to discussions on the form of a possible commercial relationship. Each step takes time, and the Company is increasing its sample production capacity to satisfy the backlog of requests for its materials of different compositions. Sample production is currently accommodated through use of the lab facilities at the Company’s Wet Lab described below.
In seeking to expand its customer base, the Company’s marketing strategy will be to engage in joint ventures or other strategic arrangements with manufacturers and others to jointly develop applications using its patented continuous production process and licensed screen printing technology to maximum effect. Such joint collaborations will involve the Company working closely with the industry counterpart to optimize the performance of the Company’s materials in each application or device, and to use the results from product development and testing to further enhance product specifications to meet the requirements of the market. These collaborations will support the Company’s internal research and development activities, which will continue to be a primary part of the Company’s business. The principal revenue streams for the Company are expected to be from (i) sales of Nanomaterials, (ii) royalties from sales of products and components by third parties incorporating the Company’s Nanomaterials, (iii) milestone payments under joint development arrangements with product developers and manufacturers, and (iv) sub-licensing fees where the Company engages in sub-licensing arrangements for its technology.
As of this date, the Company has not entered into any formal commercial joint ventures or licensing agreements, but has executed the following array of agreements and taken the following steps toward commercialization of its Nanomaterials in various market sectors:
Product Manufacturers
Universities,
Researchers, Other
NDAs 26 13
Sample Agreements 8 2
Initial Samples Delivered 8 2
Commercial Discussions Underway 21 5
However, there can be no assurance that the above activities will result in sales of the Company’s products or that such sales will result in profits to the Company. See “Risk Factors.”
The Company’s existing business development team is led by its director of marketing, who handles the North American, U.K. and European Union markets, supported by two staff employees responsible for Asia and the Middle East, respectively. The Company’s marketing and sales capabilities, considered to be critical to the success of the business, will also be expanded with the recruitment of one additional full time person during the next twelve months.
Operational Overview
The Company has recently entered the commercialization stage of its business with the launch of the Wet Lab in July, 2013, its first permanent facility. The Wet Lab is located in San Marcos, Texas, approximately 30 miles south of Austin, Texas. This facility is part of the Star Park Technology Center, an extension of Texas State University, the fifth largest university in Texas and one of eight Texas Emerging Research Universities. This arrangement provides the Company with the opportunity to expand its operations within this 30 acre technology park. The Company has a year to year lease agreement and the option to add additional lab and office space on an as-needed basis. This location provides the Company with convenient access to an experienced faculty and specialized laboratory facilities that can support joint research and development efforts with Texas State University, and is in proximity to a number of leading companies in the life sciences, lighting, solar and electronics markets.
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The Wet Lab will be the center of operations of the Company and will be used by the Company to produce small sample quantities of Nanomaterials as well as larger quantities of Nanomaterials via its patented process for supply to research facilities, customers and potential customers, and potential development joint ventures. The facility is used to support test production runs, to fine tune the characteristics of the materials for optimized performance in the customer's specific application, and for continued R&D activities. The Wet Lab was established through funds raised in a private placement of common shares of the Company completed in early June 2013.
The Company has established its first continuous manufacturing process at the Wet Lab and can now produce kilogram volumes of Nanomaterials for supply to customers on a commercial scale. This first unit is being used to validate synthesis protocols for customized materials development to meet customer specification and is also being used to produce samples and is capable of fulfilling small to medium-size orders. The Company has also negotiated an agreement with the equipment provider for the delivery of a production scale equipment unit capable of producing up to 4000 kilograms per year. This unit is intended to be used to fulfill large commercial orders. Subject to the Company obtaining financing for this larger equipment acquisition, the sample size and production size equipment units are expected to be delivered to the Wet Lab during the first quarter of 2015. The second unit will be commissioned and tested upon delivery, with a view towards commencing initial production runs of materials within 30-60 days after installation. While the Company plans to work extensively with this provider of equipment units, the Company owns 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 if that became necessary.
The Company is preparing to enter the next phase of its development – production and supply of commercial scale volumes of materials to potential customers and joint ventures in order to develop a platform of initial customers in various industries. In order to finance the development of its business, including the establishment of its continuous process manufacturing facility, purchase of the second equipment unit and the expansion of its marketing and sales capabilities. The Company expects to commence generating limited revenues from the production of materials at the Wet Lab in the third quarter of 2014. Such revenues are expected to be modest at first and will be dependent upon the Company generating purchase orders from potential customers currently under NDAs and evaluating the Company’s technology. As part of this strategy, the Company has engaged in discussions with numerous target customers and has signed a number of NDAs and Sample Agreements to increase the probability of receiving firm orders from one or more of these entities.
The Company’s ongoing research and development functions are considered key to maintaining and enhancing its competitive position in the growing nanomaterials and quantum dot market. Nanomaterials and Quantum dot technology continue to evolve, with new discoveries and refinements being made on an ongoing basis. The Company intends to be at the forefront of technological development, and will focus a significant part of its efforts on this, as it has done historically. Continuing R&D activities at the Wet Lab will be an important aspect of the Company’s strategy, as will the Company’s collaboration with Rice University, University of Arizona, Texas State University and the numerous research centers and departments with which the Company has relationships.
The key assets of the Company are its patents, high volume process equipment, licenses and other intellectual property rights, its knowhow and the expertise, capabilities and relationships brought to the Company by its management team. The Company will continue to develop its intellectual property portfolio and licensing rights. The Company is also working closely with numerous universities and public and private labs to develop and expand its intellectual property portfolio. As the business progresses, the Company will continually build out its portfolio of owned and licensed intellectual property, and take all appropriate steps to protect these rights.
The Licenses with Rice and University of Arizona include provisions for milestones and milestone payments. To date, these have been paid as agreed, waived and/or extended by both Rice and University of Arizona, respectively, illustrating the support each university has given to the Company as it has attempted to advance its business with measured resources. As the Company moves forward, it expects to be able to meet all payment and other obligations under the Licenses, and the Company’s funding strategy takes account of these requirements.
The business of the Company is subject to various types of government regulations, including restrictions on the chemical composition of nanomaterials used in life sciences and other sensitive applications, and regulation of hazardous materials used in or produced by the manufacture or use of quantum dots. Management believes that its patented technology, licensed patented chemistry and proprietary manufacturing process allow the Company to comply with current regulations by producing nanomaterials and by using environmentally friendly solvents, which are nevertheless contained and recycled in the production process. However, new regulations or requirements may develop that could adversely affect the Company or its products in the future. See “Risk Factors.”
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ___
Commission File Number: 0-52956
QUANTUM MATERIALS CORP.
(Exact name of Registrant as specified in its charter)
Nevada 20-8195578
(State of jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
3055 Hunter Road, San Marcos, TX 78666
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (214) 701-8779
(Former address of principal executive offices, if changed since last report) (Zip Code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.001 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes [ ] No [X]
Check whether the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ]
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. Yes X . No ___.
Indicate by check mark whether the Registrant has submitted electronically and posted on it’s 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). Yes [X ] No [ ]
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ].
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company as defined by Rule 12b-2 of the Exchange Act: smaller reporting company [X].
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes [ ] No [X]
As of December 31, 2013, of the 198,875,204 outstanding shares of Common Stock, the number of shares held by non-affiliates was approximately 161,000,000 shares with a market value of approximately $8,050,000 based upon a last sale for our Common Stock of $.05 as of the close of business on December 31, 2013.
As of September 17, 2014, the issuer had 257,459,909 shares of common stock, $0.001 par value per share outstanding.
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FORWARD-LOOKING STATEMENTS
Some of the statements under this Form 10-K contain forward-looking statements. All statements other than statements of historical facts contained in this Form 10-K, including statements regarding our plans, objectives, goals, strategies, future events, capital expenditures, future results, our competitive strengths, our business strategy and the trends in our industry are forward-looking statements. The words “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “appear,” “forecast,” “future,” “likely,” “probably,” “suggest” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements.
Forward-looking statements reflect only our current expectations. We may not update these forward-looking statements, even though our situation may change in the future. In any forward-looking statement, where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements due to a number of uncertainties, many of which are unforeseen, including, without limitation:
• we are a development stage company with no history of profitable operations;
• we will need additional capital to finance our business;
• our products may not gain market acceptance;
• we need to purchase microreactors to produce quantum dots on a larger scale; we need to establish distribution relationships and channels and strategic alliances for market penetration and revenue growth;
• competition within our industry;
• the availability of additional capital on terms acceptable to us.
In addition, you should refer to the “Risk Factors” section of this Form 10-K for a discussion of other factors that may cause our actual results to differ materially from those implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Form 10-K will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, if at all. Accordingly, you should not place undue reliance on these forward-looking statements.
We qualify all the forward-looking statements contained in this Form 10-K by the foregoing cautionary statements.
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PART I
Item 1. Business
Introduction
Quantum Materials Corp. (OTC:QTMM) (“QMC”) is a nanotechnology company specializing in the design, development, production and supply of Nanomaterials including Quantum Dots and tetrapod quantum dots (“TQDs”), a high performance variant of quantum dots, for a range of applications in the life sciences, optoelectronics, photovoltaics, lighting, security ink and sensor sectors of the market. QMC owns 100% of Solterra Renewable Technologies, Inc. (“Solterra”), an operating subsidiary that is focused on the photovoltaic (solar cell) market. For convenience, the term “Company” is used to refer to both QMC and Solterra unless the context otherwise requires.
Nanoparticle are materials with features in the nanoscale, which features can be beneficial in a number of applications. Quantum dots are atomic crystals, tiny nanoparticles which can operate as up converters or down converters, emitting either photons or electrons when excited. The color of light emitted varies depending on the size of the quantum dot so that photonic emissions can be tuned by the creation of quantum dots of different sizes. Their unique properties as highly efficient, next generation semiconductors have led to the use of quantum dots in a range of electronic and other applications, including in the biomedical, display and lighting industries. Quantum dots also have applications in solar cells, where their characteristics enable conversion of light energy into electricity, with the potential for significantly higher efficiencies and lower costs than existing technologies, thereby creating the opportunity for a step change in the solar energy industry through the use of quantum dots in printed photovoltaic cells.
Quantum dots were first discovered in the early 1980’s and the industry has developed to the point where quantum dots are now being used in an increasing range of applications, including the television and display industries, the light emitting diode (“LED”) lighting industry and the biomedical industry. Sony, for example, has recently launched its first televisions using quantum dots to enhance the picture quality and power efficiency of its products, a number of major lighting companies are developing product applications using quantum dots to create a more natural light for LEDs, the biomedical industry is using quantum dots in diagnostic and therapeutic applications, and applications are being developed to “print” highly efficient photovoltaic solar cells in mass quantities at low cost.
According to a recent market research report, “Quantum Dots (QD) Market - Global Forecast & Analysis (2012 - 2022)” published in May 2012 by MarketsandMarkets (http://www.marketsandmarkets.com), the total market for quantum dots is expected to reach $7.48 billion by 2022, at a compound annual growth rate (CAGR) of 55.2% from 2012 to 2022. The key challenge for the quantum dot industry will be its ability to scale up production volumes sufficiently to meet growing demand for quantum dots while maintaining product quality and consistency and reducing the overall costs of supply to stimulate new applications. Quantum dots remain an extremely expensive commodity, with high cost small batch production processes constraining growth.
The Company recently acquired a patent portfolio from Bayer AG that includes 36 patents: 3 domestically and 33 internationally covering the high volume manufacture of quantum dots including heavy metal free, various methods for enhancing quantum dot performance and a quantum dot based solar cell technology. In addition the company has a worldwide exclusive license to a patented chemical process that permits it to produce high performance TQDs using a lower cost and environmentally friendly solvent for greater manufacturing flexibility. The Company has developed a proprietary method that allows it to mass produce consistent quantities of quantum dots and TQDs in a continuous process at lower capital costs than other existing processes. It also has the exclusive license to a patented screen printing technique for manufacture of LED’s and OLED’s which can include quantum dot enhanced electronic displays and other electronic components. The Company believes that these intellectual properties and proprietary technologies position the Company to become a leader in the overall Nanomaterials and quantum dot industry, and a preferred supplier of high performance quantum dots and tetrapod quantum dots to an expanding range of applications.
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History of the Company
QMC was formed in January, 2007, as a Nevada corporation under the name “Hague Corporation” and its shares began trading in the over the counter market in the first quarter of 2008. The original business of Hague Corporation was the exploitation of mineral interests.
Solterra, a Delaware corporation formed in May, 2008, by Mr. Stephen Squires (present Chief Executive Officer of QMC) and other shareholders, was founded to develop quantum dot applications in the solar cell industry. Solterra was acquired by Hague Corporation in November, 2008, pursuant to a merger transaction wherein the shareholders of Solterra exchanged their shares of common stock in Solterra for shares of common stock in Hague Corporation, and Solterra became a wholly-owned operating subsidiary of Hague Corporation. Upon the closing of the merger, Hague Corporation changed its business from the exploitation of minerals to the development of a quantum dots, and subsequently changed its name to “Quantum Materials Corp.” in 2010.
Shortly after formation, Solterra began to develop its solar cell business by licensing technology key to its business. In August 2008, Solterra was granted a license to develop, manufacture and exploit TQDs by William Rice Marsh University (“Rice“) of Houston, Texas, and in September 2011, the license was amended (the “Solterra Rice License”) and a new license was entered into between Rice and QMC (the “QMC Rice License”)(together with the Solterra Rice License, the “Rice Licenses“).The Rice Licenses grant to QMC and Solterra, respectively, the right to exploit a simplified and cost effective synthesis process for the production of TQDs of high quality and uniformity, which was invented in the Rice laboratory of Dr. Michael Wong, currently a director of QMC. Under the Rice Licenses, Solterra and QMC have been granted exclusive rights to develop, manufacture, market and exploit TQDs for photovoltaic applications (in the case of Solterra) and for electronic and medical applications (in the case of QMC). In October, 2008, Solterra also entered into a license agreement (the “UA License”) with the University of Arizona under which Solterra has been granted exclusive rights to use University of Arizona’s patented screen printing techniques in the production and sale of organic light emitting diodes incorporating quantum dots in printed electronic displays and other printed electronic components. This technology was developed at University of Arizona by Dr. Ghassan Jabbour, also a director of QMC, and will be sub-licensed to QMC for utilization in its business.
Also in 2010, Solterra entered into an agreement with a third party provider of industrial process equipment to develop a proprietary process for continuous production of quantum dots under which Solterra retained all ownership and rights to the design and any related intellectual property. The initial development and pilot testing has been completed, a provisional patent application on the process has been filed and is pending, and the Company is in discussions regarding the purchase of two initial equipment units – one lower capacity unit primarily for internal research and development purposes, and one higher capacity unit for initial commercial production of TQDs. In the Company’s opinion, the design of this manufacturing process will uniquely position the Company to scale up and mass produce TQDs for commercial sale, allowing it to readily meet further increases in volume demand by simply adding additional equipment units to its manufacturing line. The Company is in the process of arranging the capital necessary to order the two initial units for its proposed manufacturing facility (as discussed in more detail below).
The recently acquired Bayer AG patent portfolio, Rice Licenses and the UA License, together with the proprietary manufacturing process, comprise the fundamental asset platform of the Company. The Company believes that this technology platform positions it to compete effectively in the global nanomaterials and quantum dot production and supply market.
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Business Accomplishments
The following is an outline of the business accomplishments of the Company over the last few years:
• Acquired a foundational patent portfolio from Bayer AG covering high volume production of quantum dots, including heavy metal free quantum dots, nanoparticles, quantum dot enhancement technologies and quantum dot solar cell technologies;
• Implemented high volume production of quantum dots using patented continuous flow technology;
• Achieved process for the creation of high quantum yield quantum dots with quantum yield above 90%;
• Developed nanoparticle based solution for novel biotech application to aid in device R&D and calibration;
• Reduced debt and enhanced working capital position;
• Increased market capitalization;
• Developed a process and produced sample quantities of dual emission and extremely narrow emission Tetrapod Quantum Dots (TQDs);
• Established a new laboratory facility for research, development and initial production (“Wet Lab”) in Texas and negotiated a collaboration with Texas State University;
• Developed and produced sample quantities of heavy metal-free TQDs;
• Completed pilot testing of the design of the proprietary manufacturing process to produce TQDs;
• Filed a provisional patent application for the proprietary process;
• Completed pilot testing of the manufacturing process’ ability to achieve a run-rate production of 30 grams per week of TQDs;
• Successfully developed a production process and shelling techniques that produce extremely high quantum yield TQDs for potential applications in the life science, display and lighting markets;
• Developed and produced samples for a variety of potential customers covering a range of applications;
• Negotiated rights to sub-license technologies licensed from Rice University;
• Re-negotiated the Rice License to modify minimum royalty payment dates and extend certain milestone dates;
• Developed a technique for the controlled growth of the arms and legs of the TQDs in order to ensure consistency of length, width and aspect ratio between length and width (Management believes this size control can provide superior charge transfer in electronic applications);
• Achieved measurable improvement in conversion efficiency of the Company’s TQD based solar cell;
• Recognized by Frost & Sullivan and awarded 2012 North American Advanced Quantum Dot Manufacturing Enabling Technology Award; and
• Identified and initiated negotiations with several national laboratories and universities to license additional intellectual property relating to a range of quantum dot processes and applications;
The Company can provide no assurances that its accomplishments to date will result in the grant of patents for proprietary processes or result in future sales and/or profitable operations. See "Risk Factors."
Previously, the Company’s principal business emphasis was on the development of TQDs for solar cell applications through Solterra. The solar cell market has become increasingly volatile, with prices eroding due to the influx of subsidized products from abroad. Although the Company still intends to complete the development of its quantum dot solar cell technology and attempt to bring a competitive product to market, it has decided not do so in the current environment. The Company intends to wait until it can produce solar cells with sufficiently high conversion efficiency that, when combined with its low cost proprietary manufacturing process, will result in a product capable of producing energy at a cost per watt significantly below existing solar cell technology and competitive with non-renewable energy sources such as natural gas. In the meantime the Company has experienced a significant increase in interest in its materials and technologies for other applications such as life sciences, displays and lighting. Management believes that these markets present the best near term opportunities for the Company’s exploitation of its TQDs on a commercial scale. The Company will continue to pursue the solar cell market along with other energy uses for TQDs, but as indicated above, it has implemented a more balanced approach that addresses the potential demand for high performance TQDs in the other emerging markets. See “Major Market Segments” below.
Industry Overview
The Product: Nanomaterials including Quantum Dots
Quantum dots are nanoparticles of a semiconductor material, typically between 2 and 10 nanometers (a billionth of a meter) in diameter or mean dimension, which emit light fluorescence or electrons when excited with energy. Emission or absorption wavelength can be tuned by the creation of quantum dots of different sizes. The smaller the quantum dot, the closer it is to the blue end of the spectrum, and the larger the quantum dot, the closer it is to the red end of the spectrum. The unique physical properties of quantum dots exist as electrons within the quantum dot are confined to a very small space which makes them subject to certain “quantum” effects. These qualities are driving demand for quantum dots as a performance and efficiency enhancing next generation engineered material, and have led to the use of quantum dots in a range of electronic and other applications, including in the optoelectronic (display), lighting and life sciences industries.
Quantum dots also have applications in solar cells, where their characteristics enable conversion of light energy into electricity, with the potential for significantly higher efficiency (up to 2X) resulting in a lower cost per watt of energy produced when compared with existing technologies. Use of quantum dots in solar cells creates the opportunity for a step change in efficiency and performance in printed photovoltaic cells.
Quantum dots were first discovered in the early 1980’s, by Alexei Ekimov and independently by Louis E. Brus. Following their discovery, other scientists and researchers have developed a deeper understanding of quantum dots and their potential uses, and the industry has continued to develop. Due to their high cost and limited availability, quantum dots have primarily found applications in the life sciences field where they are used to enhance the optical and targeting performance in diagnostic assays. Improved manufacturing techniques are expected to lower costs and increase the availability of quantum dots for applications across a broader range of industries, including solar cells, displays, lighting, security inks and sensors.
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A high performance variant of quantum dots is tetrapod quantum dots (TQDs) that have material advantages over standard spherical quantum dots (“SQDs”), including brighter color emissions, greater purity, emissions in more than one color (“dual emissions”) and the need to employ less volume of quantum dot material in most applications. TQDs have a molecular configuration consisting of a center portion and four arms extending from the center that are equally spaced in three dimensions. TQDs can be used in virtually every application in which SQDs have been applied, and their unique architecture and shape promote more uniform distances between the dots, eliminating the problem of aggregation (the tendency of SQDs to clump together and in effect “short out”) which degrades the SQD emissions and effectiveness. But TQDs are more costly and difficult to produce in quantity using known methods, with the exception of the Company’s proprietary chemical process technology licensed exclusively to it under the Rice Licenses. The Company’s proprietary chemical process for creating TQDs uses lower cost and environmentally benign solvents (which are not toxic, corrosive or volatile) that nevertheless permit greater control for enhanced materials uniformity (>98% acceptable product per batch vs. <50% under other methods), reducing post-production reprocessing costs to attain requisite quality levels. The Company can manufacture cadmium-free TQDs as easily as cadmium based TQDs, so its TQDs are readily adaptable to applications that specify the absence of heavy metals. Thus both the Company’s heavy metal-free TQDs and its unique manufacturing process are the most environmentally responsible in the industry.
How Quantum Dots are Produced
Quantum dots are produced using four basic methods:
Colloidal synthesis: Growth of quantum dots from precursor compounds dissolved in solutions, much like traditional chemical processes. This manual batch process requires careful control of temperature, mixing and concentration levels of precursor materials. Precise control must be maintained uniformly throughout the solution otherwise non-uniform, irregular quantum dots are produced. Due to their very small size it is extremely difficult if not impossible to segregate the quantum dots by size once they have been produced and a conglomeration of varied size quantum dots are not capable of producing the unique features that are required in most applications.
Prefabricated seed growth: Quantum dots are created from chemical precursors in the presence of a molecular cluster compound under conditions whereby the integrity of the molecular cluster is maintained and acts as a prefabricated seed template. This manual batch method can produce reasonable quantities of quantum dots, but can take significant capital resources to achieve significant volume and still results in low yields, typically less than 50%.
Bacterial or viral synthesis: Formation of quantum dots from specific organisms that recognize specific semiconductor base materials and through uptake and process can produce highly uniform quantum dots. This batch method has certain limits on quantum dot shape and composition and remains very labor intensive thus difficult to scale.
Company’s proprietary continuous process method: Unlike the three processes above, the Company has developed a proprietary (patent pending) continuous process manufacturing technique to produce QD’s & TQDs that has the potential to overcome the cost and performance challenges presented by other manufacturing methods. The patented chemistry of the Company’s process eliminates conventional solvents and substitutes cheaper solvents that are not toxic, corrosive or volatile, thus enabling a significant reduction in the overall temperature required for manufacturing and eliminating any gassing of the solvents. The significant reduction in the manufacturing temperature and elimination of gassing enabled the Company to develop a proprietary manufacturing technology that also eliminates the creation of hazardous wastes in the production process. By using these solvents, the Company was also able to improve the manufacturing yield of its QD’d & TQDs significantly. The Company believes that these increases in the quantum dot yields and the use of cost-efficient continuous manufacturing techniques will enable the Company to scale production more readily (by simply adding more equipment units to its manufacturing line), thus reducing the produced cost of the QD’s & TQDs significantly compared to current quantum dot manufacturing methods. Note that the Company can also produce small quantities of its QD’s & TQDs using a batch process employing the chemistry and other techniques under the Rice Licenses, and has done so for sample development purposes.
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Market for Quantum Dots
According to a recent market research report, “Quantum Dots (QD) Market - Global Forecast & Analysis (2012 - 2022)” published in August 2012 by MarketsandMarkets (http://www.marketsandmarkets.com), the total market for quantum dots is expected to reach $7.48 billion by 2022, at a CAGR of 55.2% from 2012 to 2022. The global market for quantum dots, which in 2010 was estimated to be $67 million in revenues, is projected to grow over the next 5 years at a CAGR of 58.3%, reaching almost $670 million by 2015, a tenfold increase. Following the initially modest revenues generated by standalone colloidal quantum dots—primarily serving the life sciences, academic, and other industrial research and development (R&D) communities—within the next 2 years several significant product launches are expected. The biggest growth sectors are forecast to be in optoelectronics, solar energy, optics and electronics, adding to the growth already established in the life sciences sector. Specific quantum dot-based products are expected to include lasers, sensors, flash memory, lighting and displays, second and third-generation solar panels, security deterrents, and several enhancements to portable devices.
Quantum dots remain an extremely expensive commodity, with costs in the range of $3,000-$10,000 per gram. The price of quantum dots is directly affected by the high cost of producing quantum dots in relatively small batch quantities. As with other nanomaterials, these relatively high prices have been supported by favorable performance of the quantum dots at very low concentrations. Prices for quantum dots are expected to moderate over time as greater production efficiencies are discovered and implemented, resulting in higher volumes. This is expected to support greater adoption of quantum dots for use in end products and further support the growth of the quantum dot market. Under current production methods, rigorous processing has been required from batch method synthesis to produce a consistently pure and tightly size-controlled quantum dot product. To significantly grow the market, the industry will need to achieve much lower production costs for quantum dots, while maintaining strict control over quality and uniformity.
Major Market Segments
Life Sciences. The life sciences industry is one of the early areas for adoption of quantum dot technology, especially for “stand-alone” quantum dots used in fluorescent markers in diagnostic and therapeutic applications. This includes the use of quantum dots for marking (illuminating) particular cell types or metabolic processes for understanding diseases and conditions as well as the use of quantum dots to act as delivery agents for drug treatments or therapy for a wide range of ailments. The fluorescent qualities of quantum dots provide an attractive alternative to traditional organic dyes in bio-imaging procedures and are able to image a number of different color wavelengths simultaneously. Quantum dots are able to withstand irradiation from high powered microscopes for longer periods than organic dyes, and have been widely adopted in the bio-imaging sector. Applications in the life sciences field are expected to further increase as quantum dot performance vs. conventional fluorescing material and organic dyes continues to be proven. Quantum dots offer a host of benefits when compared to organic fluorophores such as biological dyes, including:
Increased photo-stability
Longer shelf life
Resilience to photo bleaching
Increased sensitivity
Narrow emission peaks
Broad excitation profile
Multiplexing capability
QMC is currently the only company capable of producing highly uniform tetrapod quantum dots. In addition QMC has developed the technology required to produce TQDs with very narrow emission peaks as well as TQDs with dual emissions. Both of these features are highly desirable for a broad range of life science applications. Management believes its licensed patented chemistry and patented continuous production process will enable QMC to produce TQDs in volume and at a price point that will make them a very compelling choice for these applications.
Optoelectronics. This market is comprised principally of quantum dot displays (QDD) for televisions, computers, cell phones, PDAs and various other applications. A QDD provides better optical performance when compared to cathode ray tubes (CRT) and conventional liquid crystal displays (LCDs):
50 to 100 times more brightness in comparison with CRTs and LCDs
pure colors due to size tunability and narrow color-band frequency emission of the quantum dots
significant energy savings, with power consumption being 1/5th to 1/10th that of an OLED or LCD displays
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Sony, for example, has recently launched its first televisions using quantum dots to enhance the picture quality and power efficiency of its products. It is expected that quantum dots may also be used to improve the performance of other optoelectronic devices and lasers and optical components used in telecommunications.
QMC is currently the only company capable of producing highly uniform tetrapod quantum dots. In addition, QMC has developed the technology required to produce TQDs with very narrow emission peaks as well as TQDs with high quantum yield (high brightness). Both of these features are highly desirable for a broad range of display applications. In Management’s experience, TQDs are far less likely to aggregate due to their unique shape. Aggregation typically leads to self-extinguishing of the quantum dots, resulting in loss of emissions. This resistance to aggregation by TQDs results in the need to use fewer quantum dots in optoelectronic applications to achieve the same performance levels. It also allows TQDs to achieve higher optical densities. Management believes its licensed patented chemistry and patented continuous production process will enable it to produce quantum dots and TQDs in volume and at a price point that will make them a very compelling choice for these applications.
Lighting. In the lighting market, quantum dot LEDs have begun to be commercialized in 2013, with significant R&D occurring among manufacturers of solid-state lighting. While companies have launched quantum dot LED lamps, the current market for quantum dot LED lamps and the other lighting products is still very small. The Company believes quantum dot based lighting will be the best replacement for currently available compact florescent lighting (CFL) and LED lighting, as quantum dot technology provides better efficiency and high power intensity, and the ability to tune the light spectrum to emit light that is the most pleasing and/or appropriate for the application.
As stated above, QMC is currently the only company capable of producing highly uniform tetrapod quantum dots. In addition, QMC has developed the technology required to produce TQDs with very narrow emission peaks as well as TQDs with high quantum yield (high brightness). Both of these features are highly desirable for a broad range of lighting applications. For lighting applications, narrow emission peaks is a key feature that is necessary in order to produce a highly tuned light source. In Management’s experience, TQDs are far less likely to aggregate due to their unique shape. Aggregation typically leads to self-extinguishing of the quantum dots resulting in loss of emissions. This resistance to aggregation by TQDs results in the need to use fewer quantum dots in lighting applications to achieve the same performance levels. It also allows TQDs to achieve higher optical densities. Management believes its licensed patented chemistry and patented continuous production process will enable it to produce quantum dots and TQDs in volume and at a price point that will make them a very compelling choice for these applications.
Solar Energy. Quantum dots are capable of producing energy from a broad spectrum of solar and radiant energy, including ultraviolet and infrared frequencies. They have conversion potentials of approximately twice that of conventional solar cells, and can be developed out of a variety of materials. Applications are being developed to “print” highly efficient photovoltaic solar cells in mass quantities at low cost. Management believes that quantum dot solar cells and panels will be the next evolutionary development in the field of solar energy, and that commercialization will begin in 2016.
Management further believes that the increased conversion efficiencies of TQDs, its low cost continuous production method and the screen print technology obtained under the UA License will permit QMC’s subsidiary Solterra to offer solar electricity solutions that can compete on a non-subsidized basis with the price of retail electricity in key markets in North America, Europe, the Middle East and Asia.
Other applications. Current and future applications of quantum dots may impact a broad range of other industrial markets. These potentially include computing and memory, improved thermoelectric components, security applications such as covert identification tagging, biohazard detection sensors and other uses. Quantum dots have the theoretical potential to enable batteries to increase charge capacity up to ten fold, reduce re-charge cycle time by half and double usable life by replacing the current graphite anodes with silicon quantum dots.
The Company intends to position itself to provide lower cost, higher volume, higher quality QD’s & TQDs that will benefit from one or more of these potential market trends.
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Business Development Overview
In the past year, the Company has entered into an increased number of non-disclosure agreements (“NDAs”) and sample supply agreements with a several product manufacturers in different industries as well as universities and independent research laboratories. In most cases, the NDAs with manufacturers are for exploring joint development of specific products in the liquid crystal display (LCD) and light-emitting diode (LED) industries, solid state lighting industry, life sciences and for quantum dot adaptable printing equipment and other new technologies. The focus of the Company is on those sectors of the market in which utilization of quantum dots will have a transformational effect on the quality of end use products and their performance. The Company believes that its advantages in delivery of high quality, high performance quantum dots and TQDs (utilizing the chemistry under the Rice Licenses), patented continuous production techniques and screen printing techniques (to which it has exclusive rights under UA License) make it an attractive supplier to these markets.
Current Position
For Quantum Materials Corporation, our recent achievements are bringing us closer to our goals. In July 2013 we moved into new offices and wet labs at STAR Park, in San Marcos, Texas. Shortly after that we began production of tetrapod quantum dots and shipped TQD samples to some waiting potential clients.
In Summer 2014, we welcomed our first automated production system and have scaled its original 2 gms/hr to 25gms/hr with expectation we can subsequently further scale this system type to 100gms/hr in the early part of calendar 2015.
The advantages and benefits of our automated production are:
Large scale production from one workspace;
Less manpower and time needed for cost savings;
Economies of scale leading to lower costs;
95% production yield for less defects: less processing;
Improved quality control for higher uniformity; and
Assurance of backup systems for continuous supply.
Shipping Samples to Potential Clients
As a result of our automated production system, we have increased our rate of shipping samples to potential customers and we have delivered more than two dozen shipments.
To our knowledge this represents the first shipments of automated production, not manual “batch” production. Our volume production process assures our clients that we can deliver high volumes of quantum dots for industrial use.
Industries or uses intended include – Displays, Lighting, Biotech, Anti-counterfeiting, Sensors, Solar, Paint, and Coatings.
For the most part, our shipments of samples are to client’s specifications, and for others, these samples are preliminary shipments for evaluation for secondary purposes as we collaborate toward the development of their specific quantum dot enabled product.
Today we have a very active pipeline of potential clients that grows daily. These potential clients require a broad range of nanomaterials from relatively simple Red emitting quantum dots to both near and far Infrared emitting Quantum Dots, Thick-Shell Quantum Dots and/or Non-Heavy Metal Quantum Dots. Industries or uses intended include – Solid-State Lighting, Hydrogen Conversion, Displays, Solar, Automotive Glass and BIPV films, Batteries, Lasers, Biotech and Inks.
Eleven of the twenty-four potential clients have already had one or more face-to-face meetings with company management.
To maintain control of quantum dot production and quality, the Company’s preferred business relationship is a joint venture that evolves from a collaborative development effort where the parties agree to cooperate in the design and production of a range of new end products utilizing the Company’s Nanomaterials and/or screen printing processes, with the other party contributing industry expertise and substantial marketing, distribution and sales capabilities. In most cases, the Company envisions that the industry joint venture party would provide the financial resources to underwrite the project. In some cases, the joint venture may need to seek outside financing for the commercialization phase of the project. In either case, the Company would continue to control the production of the nanomaterials for incorporation into the end products.
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Alternatively, the Company may choose to license a manufacturer of end products to incorporate the Company’s Nanomaterials into one or more specific products on an exclusive or non-exclusive basis. In some cases, it may be appropriate to dedicate an equipment unit to a single product line (for example, silicon nanocrystals for energy storage) for a single licensee, whether sited at the Company’s facilities or at the facilities of the licensee. In all cases, the license would contain provisions restricting the use of the Company’s technology and protecting its intellectual property.
In advancing these development activities, the Company follows a disciplined process to protect its intellectual property and foster collaborative arrangements. First, NDAs are entered into, followed by sample agreements. The Company then formulates, manufactures and supplies product samples to the counterparty’s specifications for evaluation and testing. If successful, this then leads to discussions on the form of a possible commercial relationship. Each step takes time, and the Company is increasing its sample production capacity to satisfy the backlog of requests for its materials of different compositions. Sample production is currently accommodated through use of the lab facilities at the Company’s Wet Lab described below.
In seeking to expand its customer base, the Company’s marketing strategy will be to engage in joint ventures or other strategic arrangements with manufacturers and others to jointly develop applications using its patented continuous production process and licensed screen printing technology to maximum effect. Such joint collaborations will involve the Company working closely with the industry counterpart to optimize the performance of the Company’s materials in each application or device, and to use the results from product development and testing to further enhance product specifications to meet the requirements of the market. These collaborations will support the Company’s internal research and development activities, which will continue to be a primary part of the Company’s business. The principal revenue streams for the Company are expected to be from (i) sales of Nanomaterials, (ii) royalties from sales of products and components by third parties incorporating the Company’s Nanomaterials, (iii) milestone payments under joint development arrangements with product developers and manufacturers, and (iv) sub-licensing fees where the Company engages in sub-licensing arrangements for its technology.
As of this date, the Company has not entered into any formal commercial joint ventures or licensing agreements, but has executed the following array of agreements and taken the following steps toward commercialization of its Nanomaterials in various market sectors:
Product Manufacturers
Universities,
Researchers, Other
NDAs 26 13
Sample Agreements 8 2
Initial Samples Delivered 8 2
Commercial Discussions Underway 21 5
However, there can be no assurance that the above activities will result in sales of the Company’s products or that such sales will result in profits to the Company. See “Risk Factors.”
The Company’s existing business development team is led by its director of marketing, who handles the North American, U.K. and European Union markets, supported by two staff employees responsible for Asia and the Middle East, respectively. The Company’s marketing and sales capabilities, considered to be critical to the success of the business, will also be expanded with the recruitment of one additional full time person during the next twelve months.
Operational Overview
The Company has recently entered the commercialization stage of its business with the launch of the Wet Lab in July, 2013, its first permanent facility. The Wet Lab is located in San Marcos, Texas, approximately 30 miles south of Austin, Texas. This facility is part of the Star Park Technology Center, an extension of Texas State University, the fifth largest university in Texas and one of eight Texas Emerging Research Universities. This arrangement provides the Company with the opportunity to expand its operations within this 30 acre technology park. The Company has a year to year lease agreement and the option to add additional lab and office space on an as-needed basis. This location provides the Company with convenient access to an experienced faculty and specialized laboratory facilities that can support joint research and development efforts with Texas State University, and is in proximity to a number of leading companies in the life sciences, lighting, solar and electronics markets.
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The Wet Lab will be the center of operations of the Company and will be used by the Company to produce small sample quantities of Nanomaterials as well as larger quantities of Nanomaterials via its patented process for supply to research facilities, customers and potential customers, and potential development joint ventures. The facility is used to support test production runs, to fine tune the characteristics of the materials for optimized performance in the customer's specific application, and for continued R&D activities. The Wet Lab was established through funds raised in a private placement of common shares of the Company completed in early June 2013.
The Company has established its first continuous manufacturing process at the Wet Lab and can now produce kilogram volumes of Nanomaterials for supply to customers on a commercial scale. This first unit is being used to validate synthesis protocols for customized materials development to meet customer specification and is also being used to produce samples and is capable of fulfilling small to medium-size orders. The Company has also negotiated an agreement with the equipment provider for the delivery of a production scale equipment unit capable of producing up to 4000 kilograms per year. This unit is intended to be used to fulfill large commercial orders. Subject to the Company obtaining financing for this larger equipment acquisition, the sample size and production size equipment units are expected to be delivered to the Wet Lab during the first quarter of 2015. The second unit will be commissioned and tested upon delivery, with a view towards commencing initial production runs of materials within 30-60 days after installation. While the Company plans to work extensively with this provider of equipment units, the Company owns 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 if that became necessary.
The Company is preparing to enter the next phase of its development – production and supply of commercial scale volumes of materials to potential customers and joint ventures in order to develop a platform of initial customers in various industries. In order to finance the development of its business, including the establishment of its continuous process manufacturing facility, purchase of the second equipment unit and the expansion of its marketing and sales capabilities. The Company expects to commence generating limited revenues from the production of materials at the Wet Lab in the third quarter of 2014. Such revenues are expected to be modest at first and will be dependent upon the Company generating purchase orders from potential customers currently under NDAs and evaluating the Company’s technology. As part of this strategy, the Company has engaged in discussions with numerous target customers and has signed a number of NDAs and Sample Agreements to increase the probability of receiving firm orders from one or more of these entities.
The Company’s ongoing research and development functions are considered key to maintaining and enhancing its competitive position in the growing nanomaterials and quantum dot market. Nanomaterials and Quantum dot technology continue to evolve, with new discoveries and refinements being made on an ongoing basis. The Company intends to be at the forefront of technological development, and will focus a significant part of its efforts on this, as it has done historically. Continuing R&D activities at the Wet Lab will be an important aspect of the Company’s strategy, as will the Company’s collaboration with Rice University, University of Arizona, Texas State University and the numerous research centers and departments with which the Company has relationships.
The key assets of the Company are its patents, high volume process equipment, licenses and other intellectual property rights, its knowhow and the expertise, capabilities and relationships brought to the Company by its management team. The Company will continue to develop its intellectual property portfolio and licensing rights. The Company is also working closely with numerous universities and public and private labs to develop and expand its intellectual property portfolio. As the business progresses, the Company will continually build out its portfolio of owned and licensed intellectual property, and take all appropriate steps to protect these rights.
The Licenses with Rice and University of Arizona include provisions for milestones and milestone payments. To date, these have been paid as agreed, waived and/or extended by both Rice and University of Arizona, respectively, illustrating the support each university has given to the Company as it has attempted to advance its business with measured resources. As the Company moves forward, it expects to be able to meet all payment and other obligations under the Licenses, and the Company’s funding strategy takes account of these requirements.
The business of the Company is subject to various types of government regulations, including restrictions on the chemical composition of nanomaterials used in life sciences and other sensitive applications, and regulation of hazardous materials used in or produced by the manufacture or use of quantum dots. Management believes that its patented technology, licensed patented chemistry and proprietary manufacturing process allow the Company to comply with current regulations by producing nanomaterials and by using environmentally friendly solvents, which are nevertheless contained and recycled in the production process. However, new regulations or requirements may develop that could adversely affect the Company or its products in the future. See “Risk Factors.”
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