QUANTUM SOLAR POWER CORP. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(Edgar Glimpses Via Acquire Media NewsEdge) CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report constitute
"forward-looking statements". These statements, identified by words such as
"plan," "anticipate," "believe," "estimate," "should," "expect" and similar
expressions, include our expectations and objectives regarding our future
financial position, operating results and business strategy. These statements
reflect the current views of management with respect to future events and are
subject to risks, uncertainties and other factors that may cause our actual
results, performance or achievements, or industry results, to be materially
different from those described in the forward-looking statements. Such risks and
uncertainties include those set forth under this caption "Management's
Discussion and Analysis of Financial Condition and Results of Operation" and
elsewhere in this Quarterly Report. We intend to discuss in our Quarterly and
Annual Reports any events and circumstances that occurred during the period to
which such document relates that are reasonably likely to cause actual events or
circumstances to differ materially from those disclosed in this Quarterly
Report. We advise you to carefully review the reports and documents we file from
time to time with the United States Securities and Exchange Commission (the
We were incorporated on April 14, 2004 under the laws of the State of Nevada.
Our principal executive offices are located at Suite 300, 1055 West Hastings
Street, Vancouver, BC, Canada V6E 2E9.
We are currently engaged in research, development and marketing of next
generation solar power generation devices utilizing our patent pending
technology (the "Next Generation Device™ or NGD™ Technology") for photovoltaic
devices that do not use silicon or other, rare earth elements. Once we have
completed development, we expect to derive substantially all revenues from
royalty based licensing arrangements.
The NGD™ Technology, which is covered by two provisional U.S. patents and one
Patent Cooperation Treaty Application, differs from conventional solar
technology as it does not require expensive silicon based absorber components or
rare earth elements. We have developed and built a proof of concept prototype of
a next generation device utilizing the NGD™ Technology (see "Technology
Acquisition" and "NGDTM Technology" below).
We are a development stage company. We have not earned any revenue to date nor
have we engaged in any licensing agreements to date. We do not anticipate
earning revenue until we have completed the development and testing of our NGD™
Technology. We are presently in the development stage of our business and we can
provide no assurance that we will be able to complete commercial development or
successfully sell or license products incorporating our solar power generation
devices, once development and testing is complete. We have limited operations.
Our research activities are currently suspended until we can pay outstanding
creditors and fund continued research activities of which there is no assurance.
We acquired the NGDTM Technology on December 16, 2009 by an agreement (the
"Technology Acquisition Agreement") with Canadian Integrated Optics (IOM)
Limited, ("CIO"). In consideration of the NGD™ Technology, we issued 71,500,000
shares of our common stock to CIO (of which CIO transferred over 99% pursuant to
the terms of a takeover bid, under Canadian Securities Laws) and Desmond Ross,
our former director and executive officer, returned 47,000,000 shares to the
treasury. Under the Technology Acquisition Agreement, we also agreed to pay CIO,
or such other parties designated by CIO, including Canadian Integrated Optics
(BC) Ltd. ("CIO-BC"), for ongoing development and research costs under CIO-BC's
existing research agreement (the "CIO-BC Research Agreement) with Simon Fraser
University ("SFU"). The initial term of the CIO-BC Research Agreement was until
July 30, 2010.
Subsequent to entering into the Technology Acquisition Agreement, CIO-BC entered
into an amendment agreement to the CIO-BC Research Agreement, whereby SFU agreed
to extend the term until December 31, 2010. On December 23, 2010, CIO-BC entered
into another amendment agreement dated January 1, 2011, whereby SFU agreed to
further extend the term until July 31, 2011. On July 28, 2011, CIO-BC entered
into another amendment agreement dated July 2, 2011, whereby SFU agreed to
further extend the term until December 31, 2011. CIO-BC entered into another
amendment agreement dated January 2, 2012, whereby SFU agreed to further extend
the term until June 29, 2012 and in consideration of which we will pay $594,401
CDN plus expenses, during the term. During our fiscal year ended June 30, 2012,
we entered into another amendment to the research agreement (the "Amended
Research Agreement") dated effective April 15, 2012. Under the terms of the
Agreement, CIO-BC issued SFU a promissory note (the "Promissory Note") in the
amount of CDN $452,749 in respect of previous research activities conducted on
our behalf. The Promissory Note bears interest at a rate of 9% per annum. We,
along with our wholly owned subsidiary 0935493 B.C. Ltd, guaranteed the
Promissory Note with three of our PVD 75 Deposition Tools.
We have had insufficient funds to make our payments to CIO-BC for ongoing
research and development activities conducted at SFU. As a result, CIO-BC has
fallen behind with its payments under the Amended Research Agreement and the
Amended Research Agreement has been suspended by SFU. We are currently
evaluating our research options going forward. We have focused our activities on
arranging financing to pay outstanding liabilities and fund continued research
and development activities. There is no assurance that we will be able to secure
sufficient financing on acceptable terms or at all.
Our NGD™ Technology is a patent pending, technology and proof of concept
prototype for producing solar power without the necessity of utilizing expensive
silicon based absorber components or other rare earth elements.
Solar cells based on the NGD™ Technology can reach a regime of cost and
efficiency not obtainable with conventional solar cells. As a result, we believe
our NGD™ Technology has the potential to enable the manufacture of solar cells
at significantly less cost per Watt than current producers.
Thin Film solar cell technologies have proven inexpensive to manufacture but are
at present only capable of efficiencies in the 10% power conversion efficient
("PCE") range. Crystalline silicon solar cells are in the 15% to 20% PCE range
but are very expensive to manufacture due to the cost of silicon processing. The
reason for both these shortfalls is directly linked with the semiconductors used
in the fabrication process.
All currently available solar cell technologies rely on a photovoltaic effect in
which an incoming solar photon knocks loose a negative charge, leaving behind a
positive charge, in a semiconducting material such as silicon. The positive and
negative charges are then collected through separate conducting layers to be
delivered as current to a load. Defects within the semiconductor layer can
affect the power conversion efficiency by reducing the voltage and the current
delivered to the load. Elimination of these defects can only occur through
expensive purification and processing.
The NGD™ Technology's principle of operation avoids the detrimental effects of
defects within the semiconductor absorber layers by disposing of it altogether,
and thus has the potential to simultaneously satisfy the requirements of high
power conversion efficiencies and low costs. In addition, by eliminating
expensive and exotic materials and manufacturing in a continuous rather than
batch or wafer based process, we believe module costs can be reduced well below
$1 per Watt-peak (Wp), the nominal price of a solar module widely recognized as
the standard of solar commercial enablement.
The market for solar energy has been limited by the costs of panels and by their
low efficiencies. Quantum expects that with its low cost, high efficiency NGD™
Technology that the economics of solar power will prove to be superior to
alternatives and that new and unforeseen markets will open for solar devices.
The solar panel business has been in a high growth phase over the past years
however it is not sustainable since the growth has been fundamentally based on
the availability of tax incentives, subsidies and other inducements. The
economics of unsubsidized solar power are not attractive except in certain niche
applications where choices are limited and the high costs can be justified.
An average crystalline silicon cell solar module has an efficiency of 15%, an
average thin film cell solar module has an efficiency of 6%. Thin film
manufacturing costs potentially are lower, though. Crystalline silicon cell
technology forms about 90% of solar cell demand. The balance comes from thin
film technologies. Approximately 45% of the cost of a silicon cell solar module
is driven by the cost of the silicon wafer, a further 35% is driven by the
materials required to assemble the solar module.
Thin film manufacturer First Solar is reported in some publications to have
approximately $6 billion in contracts between 2010 and 2013. If First Solar were
to have the opportunity to accept contracts worth $1 trillion and had the
manufacturing capability to fulfill these contracts they would still be
inhibited and negatively governed by material availability. According to the
U.S. Geological Survey, there is enough tellurium available in global reserves
to meet only 0.02 Terawatts ("TRW") of energy provision using existing thin film
technology. The same applies to San Jose, California-based Nanosolar's Indium
supply. Both companies current material choices (according to the Andrea
Feltrin, Alex Freundlich Report, Photovoltaics and Nanostructures Laboratories,
Center for Advanced Materials and Physics Department, University of Houston,
Texas) limits these companies forever to sub-Gigawatt energy production (maximum
0.02 TRW per year).
Current Thin Film companies are coming close to competing commercially with coal
but the materials they use such as tellurium and indium are very rare and
capable of meeting only 0.13% of the worldwide energy demand even if they
accessed the entire worldwide reserves of these materials.
PLAN OF OPERATION
The following discussion and analysis summarizes our plan of operation for the
next twelve months, our results of operations for the three month period ended
September 30, 2012 and changes in our financial condition from June 30, 2012.
This discussion should be read in conjunction with the Management's Discussion
and Analysis of Financial Condition and Results of Operation included in our
Annual Report on Form 10-K for the year ended June 30, 2012 filed with the SEC
on October 15, 2012.
If we can obtain sufficient financing we intend to continue the final
development of our NGD™ Technology, and identify and engage original equipment
manufacturers ("OEM's") interested in licensing our technology. We anticipate
that the licensing agreements will be between us and OEM's with the expertise
and facilities required to mass manufacture solar cells based on our NGD™
Technology and that the OEM's will distribute the solar cells worldwide using
their existing sales and marketing channels and at their expense. The cost of
manufacture will be solely the responsibility of the OEM's. We expect to receive
revenue on royalties based on the number of cells produced by the OEM's. This
business model should allow us to maximize capital resources available at
startup and through our OEM licensees positively address the demand for high
efficiency solar cell devices. This business model should enable us to increase
revenues and create brand recognition without the time, capital and risk
associated with manufacturing plant construction.
Our research activities are currently suspended. We will need to acquire
additional financing to pay outstanding liabilities and to fund additional
research and development activities. There is no assurance that we will be able
to obtain sufficient financing to proceed with our plan of operation.
RESULTS OF OPERATIONS
For the period from inception on April 14, 2004 to September 30, 2012, we have
not earned any operating revenue. We had an accumulated net loss of $14,248,969
since inception and have incurred total operating expenses of $14,142,969 since
We have not earned any revenues since inception. We do not anticipate earning
revenues until such time as we complete further development of, and enter into
licensing agreements for our NGD™ Technology. We are presently in the
development stage of our business and we can provide no assurance that we will
be able to generate revenues from sales of our product or that the revenues
generated will exceed the operating costs of our business.
Our operating expenses for the three months ended September 30, 2012 and 2011
consisted of the following:
Three Months Three Months
Ended Ended Percentage
September 30, September 30, Increase /
2012 2011 (Decrease)
Amortization of equipment $ 580 $ 429 35.2%
Amortization of patents - 19,185 (100.0 )%
General and administrative 95,047 219,724 (56.7 )%
Interest and accretion of convertible 148,517 - 100.0%
Professional fees 123,199 164,736 (25.2 )%
Research and Development 16,421 426,171 (96.1 )%
Stock Based Compensation 110,135 748,633 (85.3 )%
Total Operating Expenses $ 493,899 $ 1,578,878 (68.7 )%
Our operating expenses decreased from $1,578,878, during the three months ended
September 30, 2011, to $493,899, during the three months ended September 30,
2012. With the exception of a slight increase in amortization of equipment and
the recording of interest and accretion of convertible loan, all of our
operating expenses decreased. This decrease is a result of the suspension of the
CIO Research Agreement and decreased operations in the development of our NGDTM
General and administrative expenses primarily relate to fees paid to our: (i)
officers, directors, consultants and employees; and (ii) amounts incurred in
connection with investor relations activities.
Interest and accretion of convertible loan relates to our Loan from Foundation
Professional fees relate to legal and accounting fees in connection with meeting
our ongoing reporting obligations under the Exchange Act.
Research and development expenses primarily relate to amounts paid under the CIO
Research Agreement as other consulting expenses incurred in connection with the
development of our NGD™ Technology.
Stock based compensation relates to recorded expenses for stock options granted
to our directors, officers and consultants.
Subject to obtaining sufficient financing, we anticipate our operating expenses
will increase as we undertake our plan of operation. The increase will be
attributable to our development, of our NGD™ solar cell technology. We also
anticipate our ongoing operating expenses will also increase as a result of our
ongoing reporting requirements under the Exchange Act.
We incurred a loss in the amount of $14,248,969 for the period from inception to
September 30, 2012. Our loss was attributable to the costs of operating expenses
which primarily consisted of interest and accretion of convertible loan,
research and development costs, general and administrative expenses, stock based
compensation and professional fees paid in connection with preparing and filing
our Current, Quarterly and Annual Reports.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, Percentage
2012 At June 30, 2012 Increase / Decrease
Current Assets $ 27,463 $ 36,934 (25.6 )%
Current Liabilities (1,791,046 ) (1,567,857 ) 14.2%
Working Capital Deficit $ (1,763,583 ) $ (1,530,923 ) 15.2%
Three Months Ended Three Months Ended
September 30, 2012 September 30, 2011
Cash Used in Operating Activities $ (164,899 ) $ (846,889 )
Cash Used in by Investing Activities - (430,454 )
Cash Provided by Financing Activities 150,524 1,814,000
Net Increase (Decrease) in Cash During $ (14,375 ) $ 536,657
As at September 30, 2012, we had cash of $15,057 and a working capital deficit
of $1,763,583, compared to cash of $29,432 and a working capital deficit of
$1,530,923 as at June 30, 2012.
The increase in our working capital deficit at September 30, 2012 from our year
ended June 30, 2012 is primarily a result of decreases in cash and increases in
accounts payable and accrued liabilities and accruals from the convertible loan
from Foundation Freehold Ltd.
Subsequent to the three months ended September 30, 2012, we issued 1,145,000
shares of our common stock at a price of $0.02 per share pursuant to Regulation
S of the United States Securities Act, as amended (the "Securities Act").
Since our inception, we have used proceeds from the sales of our common stock to
raise money for our operations and for our technology acquisition. We have not
attained profitable operations and are dependent upon obtaining financing to
pursue our plan of operation. For these reasons, our auditors stated in their
report to our audited financial statements for the year ended June 30, 2012,
that there is substantial doubt that we will be able to continue as a going
On August 17, 2012, our Board of Directors approved an offering (the "Foreign
Units Offering") of up to 10,000,000 shares (the "Shares") at a price of $0.02
US per Share pursuant to Regulation S of the Securities Act. To date we have
sold 1,145,000 shares under this offering.
We have no revenues to date from our inception. We anticipate continuing to rely
on loans or equity sales of our common stock in order to continue to fund our
business operations. Issuances of additional shares will result in dilution to
our existing stockholders. We do not believe that we have obtained sufficient
financing to cover our anticipated expenses over the next four months. There is
no assurance that we will achieve any additional sales of our equity securities
or arrange for debt or other financing for to fund our planned business
OFF-BALANCE SHEET ARRANGEMENTS
On May 23, 2012, Canadian Integrated Optics (BC) Ltd. ("CIO-BC"), a company that
conducts research and development activities on the NGDTM Technology on our
behalf, entered into its sixth amendment agreement (the "Amended Research
Agreement") to the research agreement (the "CIO-BC Research Agreement") with
SFU. The Amended Research Agreement was dated effective April 15, 2012. Under
the terms of the Agreement, CIO-BC issued SFU a promissory note (the "Promissory
Note") in the amount of CDN $452,749 in respect of previous research activities
conducted on our behalf. The Promissory Note bears interest at a rate of 9% per
To secure payment under the Amended Research Agreement, We, along with 0935493
B.C. Ltd., our wholly owned subsidiary, have agreed to provide a secured
guarantee to SFU of the Promissory Note, charging, in favor of SFU, three of our
PVD 75 Deposition tools.
We entered into this arrangement with SFU in order to ensure that research and
development activities could continue. In the event that CIO defaults on the
Promissory Note, SFU will be able to collect from us. Our research activities
with SFU have been suspended due to non-payment. SFU has made a demand for
payment of the Promissory Note and we are in default. We may lose three of our
PVD 75 Deposition tools if we cannot settle the outstanding indebtedness.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are disclosed in Note 2 to our audited
financial statements included in our Annual Report on Form 10-K for the year
ended June 30, 2012 filed with the SEC on October 15, 2012.
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