Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - Q Therapeutics, Inc.Financial_Report.xls
EX-3.1 - Q Therapeutics, Inc.ex3-1.htm
EX-3.2 - Q Therapeutics, Inc.ex3-2.htm
EX-32.1 - Q Therapeutics, Inc.ex32-1.htm
EX-32.2 - Q Therapeutics, Inc.ex32-2.htm
EX-14.1 - Q Therapeutics, Inc.ex14-1.htm
EX-31.2 - Q Therapeutics, Inc.ex31-2.htm
EX-31.1 - Q Therapeutics, Inc.ex31-1.htm

  

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

OR

 

[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________________________ to ___________________________

 

Commission file number: 000-52062

 

Q HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)

 

 Delaware   20-3708500

(State or Other Jurisdiction of Incorporation or

Organization)

  (I.R.S. Employer Identification Number)
     

615 Arapeen Drive, Suite 102

Salt Lake City, UT

  84108
(Address of Principal Executive Offices)   (Zip Code)

 

(801) 582-5400

(Registrant’s Telephone Number, Including Area Code)

 

N/A

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

  Large accelerated filer [  ] Accelerated filer [  ]
         
  Non-accelerated filer [  ] (Do not check if a smaller reporting company)  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 November 12, 2012, there were 24,686,832 shares of Common Stock, $0.0001 par value per share, issued and outstanding.

 

 

 

 
 

 

 TABLE OF CONTENTS

 

        Page 
PART I - FINANCIAL INFORMATION    
Item 1.   Financial Statements (Unaudited)   2
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   18
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   24
Item 4.   Controls and Procedures   24
         
PART II - OTHER INFORMATION    
Item 1.   Legal Proceedings   24
Item 5.   Other Information   24
Item 6.   Exhibits   25
         
SIGNATURES       26

 

1
 

 

PART I - Financial Information

 

Item 1. Financial Statements

 

Q Holdings, Inc. and Subsidiaries

(A Development Stage Company)

 

Condensed Consolidated Balance Sheets (Unaudited)

 

   September 30, 2012   December 31, 2011 
Assets          
           
Current assets:          
Cash  $1,296,149   $2,741,519 
Receivable, net of allowance of $0 and $2,282, as of September 30, 2012 and December 31, 2011, respectively   29,238    53,796 
Prepaid expenses and other   5,465    - 
           
Total current assets   1,330,852    2,795,315 
           
Property and equipment, net   20,199    31,923 
Other assets   7,513    7,513 
           
Total assets  $1,358,564   $2,834,751 
           
Liabilities and Stockholders’ Equity          
           
Current liabilities:          
Accounts payable  $15,986   $77,181 
Accrued liabilities   12,297    24,212 
Accrued compensation   188,320    177,401 
Note payable   -    15,000 
           
Total current liabilities   216,603    293,794 
           
Note payable   110,360    - 
           
Total liabilities   326,963    293,794 
           
Commitments and contingencies          
           
Stockholders’ equity:          
Common stock, $0.0001 par value: 100,000,000 shares authorized; 24,665,083 and 24,582,632 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively   2,467    2,458 
Additional paid-in capital   20,270,640    19,972,937 
Accumulated deficit   (19,241,506)   (17,434,438)
           
Total stockholders’ equity   1,031,601    2,540,957 
           
Total liabilities and stockholders’ equity  $1,358,564   $2,834,751 

 

See accompanying notes to condensed consolidated financial statements.

 

2
 

 

Q Holdings, Inc. and Subsidiaries

(A Development Stage Company)

 

Condensed Consolidated Statements of Operations (Unaudited)

  

   For the Three Months
Ended September 30,
   For the Nine Months
Ended September 30,
   From 
March 28, 2002
(date of inception) through
 
   2012   2011   2012   2011   September 30, 2012 
                     
Grant revenue  $-   $-   $7,229   $10,173   $612,457 
License fee and other revenues   -    -    -    14,400    282,900 
                          
Total revenues   -    -    7,229    24,573    895,357 
                          
Operating expenses:                         
Research and development   283,141    9,309    764,810    286,739    9,648,382 
General and administrative   317,961    257,530    1,049,249    598,203    8,710,396 
                          
Total operating expenses   601,102    266,839    1,814,059    884,942    18,358,778 
                          
Operating loss   (601,102)   (266,839)   (1,806,830)   (860,369)   (17,463,421)
                          
Other income (expense):                         
Interest income   1,023    -    3,212    -    186,554 
Interest expense   (2,136)   (542,648)   (5,580)   (544,339)   (2,114,757)
Other income (expense)   769    -   2,130    1,588    150,118 
                          
Total other expense, net   (344)   (542,648)   (238)   (542,751)   (1,778,085)
                          
Loss before provision for income taxes   (601,446)   (809,487)   (1,807,068)   (1,403,120)   (19,241,506)
                          
Provision for income taxes   -    -    -    -    - 
                          
Net loss  $(601,446)  $(809,487)  $(1,807,068)  $(1,403,120)  $(19,241,506)
                          
                          
Weighted average number common shares outstanding - basic and diluted   24,685,193    4,193,203    24,679,417    4,193,203      
                          
Net loss per common share - basic and diluted  $(0.02)  $(0.19)  $(0.07)  $(0.33)     

 

See accompanying notes to condensed consolidated financial statements.

 

3
 

 

Q HOLDINGS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

 

           Additional       Total 
   Common Stock   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Deficit   Equity (Deficit) 
                          
Balance as of January 1, 2012   24,582,632   $2,458   $19,972,937   $(17,434,438)  $2,540,957 
                          
Stock-based compensation expense   -    -    95,912    -    95,912 
                          
Common stock issued for cash ($1 per share)   190,000    19    189,981    -    190,000 
Common stock issued for services ($1 per share)   10,000    1    9,999    -    10,000 
Common stock forfeited   (150,000)   (15)   15    -    - 
Exercise of stock options for cash   32,451    4    1,796    -    1,800 
                          
Net loss   -    -    -    (1,807,068)   (1,807,068)
                          
Balance as of September 30, 2012   24,665,083   $2,467   $20,270,640   $(19,241,506)  $1,031,601 

 

See accompanying notes to condensed consolidated financial statements.

 

4
 

 

Q HOLDINGS, INC. AND SUBSIDIARIES

(A Development Stage Company)

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

   For the Nine Months
Ended September 30,
   From
March 28, 2002
(date of inception)
through
 
   2012   2011   September 30, 2012 
             
Cash flows from operating activities:               
Net loss  $(1,807,068)  $(1,403,120)  $(19,241,506)
Adjustments to reconcile net loss to net cash used in operating activities:               
Depreciation and amortization   14,088    22,481    387,713 
Original debt discount   -    -    450,000 
Accretion of debt costs and beneficial conversion feature   -    530,804    1,237,263 
Stock-based compensation   95,912    35,200    367,476 
Debt issued for services   110,360    90,000    200,360 
Common stock issued for services   10,000    -    10,000 
Preferred stock issued for services   -    44,750    44,750 
Provision for losses on accounts receivable   (2,282)   2,282    14,531 
Decrease (increase) in:              
Accounts receivable   26,839    80,667    (33,770)
Prepaid expenses and other assets   (5,465)   -    (12,978)
Increase (decrease) in:               
Accounts payable   (73,110)   27,738    16,227 
Accrued liabilities   10,919    79,855    617,057 
                
Net cash used in operating activities   (1,619,807)   (489,343)   (15,942,877)
                
Cash flows from investing activities:               
Purchase of property and equipment   (2,363)   (5,626)   (407,691)
                
Cash flows from financing activities:               
Proceeds from issuance of notes payable   -    360,000    5,240,000 
Payments on short-term note payable   (15,000)   -    (90,000)
Issuance of preferred stock for cash   -    -    8,661,747 
Issuance of common stock for cash   190,000    -    3,821,137 
Proceeds from exercise of common stock options   1,800    -    11,600 
Proceeds from exercise of preferred stock warrants   -    -    2,233 
                
Net cash provided by financing activities   176,800    360,000    17,646,717 
                
Net change in cash   (1,445,370)   (134,969)   1,296,149 
                
Cash at beginning of year   2,741,519    422,198    - 
                
Cash at end of year  $1,296,149   $287,229   $1,296,149 
                
Supplemental disclosure of cash flow information:               
                
Cash paid for interest  $-   $1,695   $5,434 

 

See accompanying notes to condensed consolidated financial statements.

 

5
 

 

Supplemental disclosure of noncash i Q HOLDINGS, INC. AND SUBSIDIARIES

(A Development Stage Company)

Condensed Consolidated Statements of Cash Flows (Unaudited)

Continued

 

Supplemental disclosure of noncash investing and financing activities for the period from March 28, 2002 (Date of Inception) to September 30, 2012:

 

The Company issued 219,658 shares of common stock in exchange for technology valued at $220.
 The Company converted $1,050,000 of notes payable and $29,691 of accrued interest to 482,008 shares of Series A2 preferred stock.
The Company converted $3,740,000 of notes payable and $370,346 of accrued interest to 1,787,104 shares of Series B preferred stock.
The Company issued 19,457 shares of Series B preferred stock in exchange for $44,750 of research and development services provided.
The Company issued $360,000 of convertible bridge notes payable with an original debt discount of $360,000. The discount was accreted as interest expense over the term of the note.
The Company issued $90,000 in convertible bridge notes payable for professional services provided, with an original debt discount of $90,000. The discount was accreted as interest expense over the term of the note.
The Company converted $900,000 of bridge notes payable and $16,644 of accrued interest to 916,644 shares of common stock.
The Company converted 250,000 shares of Series A1 preferred stock, 2,022,190 shares of Series A2 preferred stock, and 4,102,654 shares of Series B preferred stock into 13,791,231 shares of common stock.
 The Company issued 10,000 shares of common stock in exchange for licensing $10,000 of research and development assets.

 

6
 

 

Q HOLDINGS, INC. AND SUBSIDIARIES

(A Development Stage Company)

 

Notes to Condensed Consolidated Financial Statements

 

1.    

Organization and Summary of Significant Accounting Policies

 

Organization

Q Holdings, Inc. (the “Company” or “Q Holdings” and formerly known as Grace 2, Inc.) was incorporated on October 27, 2005 as a Delaware corporation under the name Grace 2, Inc.

 

On October 13, 2011, Grace 2, Inc. entered into an Agreement and Plan of Merger (“Agreement”) with Q Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and Q Therapeutics, Inc. Q Therapeutics, Inc. was incorporated on March 28, 2002 as a Delaware corporation. Pursuant to the Agreement, Merger Sub merged with and into Q Therapeutics, Inc. with Q Therapeutics, Inc. being the surviving corporation. Upon the consummation of the merger, the Company acquired 100% of the outstanding voting securities of Q Therapeutics, Inc. by issuing 2.1633835 shares of common stock for each outstanding equity instrument of Q Therapeutics, Inc. and Q Therapeutics, Inc. became a wholly owned subsidiary of the Company. After the effective date of the transaction, the former Q Therapeutics, Inc. stockholders owned 89.7% of the issued and outstanding common shares of Grace 2, Inc. Also, at the time of the transaction Grace 2, Inc. was renamed Q Holdings, Inc. The transaction was accounted for as a reverse acquisition with Q Therapeutics, Inc. as the accounting acquirer. The condensed consolidated financial statements include the activity of Q Therapeutics, Inc. from inception (March 28, 2002) through September 30, 2012, and the activity of Q Holdings, Inc. and Q Therapeutics, Inc. from the date of acquisition (October 13, 2011) forward. 

       
      Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Q Holdings, Inc. and its wholly owned subsidiary, Q Therapeutics, Inc. and Q Therapeutics, Inc.’s majority owned subsidiary, NeuroQ Research, Inc. (collectively, the “Company”). The Company is a development stage company in the process of developing products to treat debilitating and fatal diseases of the central nervous system. All significant intercompany amounts have been eliminated. There has been no activity in NeuroQ Research, Inc. since NeuroQ Research, Inc. was formed; therefore, no non-controlling interest is presented. The unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) on a basis consistent with the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial information set forth therein. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations, although the

 

7
 

 

Q HOLDINGS, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

Continued

 

 

1.

Organization and Summary of Significant Accounting Policies 
Continued

 

Basis of Presentation – continued

Company believes that the following disclosures, when read in conjunction with the annual financial statements and the notes thereto, are adequate to make the information presented not misleading. Operating results for the three and nine months ended September 30, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

   

Development Stage and Liquidity

For the period from March 28, 2002 (date of inception) through September 30, 2012, the Company has not generated significant revenues and has been developing its products. Therefore, the Company is considered to be in the development stage in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 915, Development Stage Entities. Cumulative amounts have been presented for the period from March 28, 2002 (date of inception) through September 30, 2012. Historically, the Company has been dependent on government grants and debt and equity raised from investors to sustain its operations. The Company’s products have not been approved by the FDA for commercial sale; therefore, the Company has not generated revenues from commercial product sales. The Company has incurred losses and used cash in operating activities since inception. As of September 30, 2012, the Company had an accumulated deficit of $19,241,506. From October 13, 2011 through June 30, 2012, the Company raised $4,018,047 in a private placement of the Company’s common stock. No funds were raised in the third quarter of 2012. Although there can be no assurance, management believes that the Company has sufficient resources to fund the Company’s operations through at least the third quarter 2013.

 

     

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Key estimates include useful lives for property and equipment, valuation allowances for net deferred income tax assets, and values of stock-based compensation awards. 

 

8
 

   

Q HOLDINGS, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

Continued

 

1.

Organization and Summary of Significant Accounting Policies 
Continued

 

Stock-Based Compensation

The Company calculates the estimated fair value of its stock options and warrants on the grant date using the Black-Scholes option-pricing model and recognizes the estimated fair value as compensation expense on a straight-line basis over the vesting period. The volatility assumption used in the Black-Scholes option-pricing model is based on the volatility of comparable publicly traded companies in the same industry as the Company. The expected terms of the options and warrants granted represent the period of time that the options granted are expected to be outstanding. The risk free rate used in the Black-Scholes calculation for periods within the contractual lives of the option and warrant is based on the U.S. treasury securities constant maturity rate that corresponds to the expected terms in effect at the time of grant.

 

     

Net Loss Per Common Share

Basic net income or loss per common share (“Basic EPS”) is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net income or loss per common share (“Diluted EPS”) is computed by dividing net income or loss by the sum of the weighted average number of common shares outstanding and the dilutive potential common share equivalents then outstanding. Potential dilutive common share equivalents consist of shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock.

 

     

Due to the fact that for all periods presented, the Company has incurred net losses, potential dilutive common share equivalents of 15,072,509 and 8,379,779 for the three and nine months ended September 30, 2012 and 2011, respectively, are not included in the calculation of Diluted EPS because they are anti-dilutive. Therefore, Basic EPS is the same as Diluted EPS for the three and nine months ended September 30, 2012 and 2011.

 

2.

Private Placement Memorandum

 

  Between October 13, 2011 and June 30, 2012, the Company conducted a private placement offering of its securities solely to accredited investors. The offering was conducted on a best efforts basis, whereby the Company offered for sale a minimum of 3,000,000 and a maximum of 6,000,000 Units, each Unit consisting of one share of common stock, one 7-year common stock purchase warrant exercisable at $1.00 per share, and one 7-year common stock purchase warrant exercisable at $2.00 per share. Units sold totaled 4,018,047 through June 30, 2012. The Company raised an aggregate of $3,820,318 after paying issuance costs of $197,729. The private placement closed May 31, 2012.

 

9
 

 

Q HOLDINGS, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

Continued

 

3.

Stock Options and Warrants

 

 

  Stock Options  

2002 Stock Option Plan

In April 2002, the Q Therapeutics’ Board of Directors approved the “Q Therapeutics 2002 Stock Incentive Plan” (the “2002 Plan”) and in February 2003, the holders of a majority of the outstanding voting capital stock of Q Therapeutics approved of the 2002 Plan. The 2002 Plan permits the grant of Incentive Stock Options, Non-Qualified Stock Options and Restricted Stock. Subject to the provisions of the Plan, a designated committee “Committee” of the Board of Directors (or if none, the Board) may from time to time, in its sole discretion select from among eligible employees, non-employee directors, consultants and advisors, those to whom awards shall be granted under the 2002 Plan, and shall determine in its discretion the nature, terms, conditions, and amount of each award, subject to the terms of the 2002 Plan. The term of the 2002 Plan commenced on April 10, 2002 (the “Effective Date”) and shall remain in effect, subject to the right of the Committee or the Board to amend or terminate the Plan at any time pursuant to the 2002 Plan, until the earlier of (i) the tenth anniversary date of the Effective Date, or (ii) all shares subject to the 2002 Plan have been purchased or acquired according to the 2002 Plan’s provisions.  

The 2002 Plan initially provided for a reservation pool of up to 1,100,000 shares of common stock reserved for issuance pursuant to the 2002 Plan. The total number of shares reserved for issuance under the 2002 Plan has since been increased to a total of 2,120,000 shares. Upon the consummation of the Merger, each option to purchase shares of common stock of Q Therapeutics was exchanged for 2.1633835 options to purchase shares of common stock of the Company resulting in a total of 4,586,373 of common stock reserved for issuance under the 2002 Plan. All shares available for award under the 2002 Plan have been granted except for potential awards to acquire 228,472 shares of common stock. By Board authorization on December 6, 2011, the Board voted to add the remaining 228,472 shares available but unissued pursuant to the 2002 Option Plan to the authorized/reserved option pool for the 2011 Plan (discussed below), and thus effectively terminating the 2002 Plan.

Q Holdings, Inc. 2011 Equity Incentive Compensation Plan  

In connection with the Merger, on October 13, 2011 the Board of Directors and stockholders approved of the “Q Holdings 2011 Equity Incentive Compensation Plan” (the “2011 Plan”). Subject to the provisions of the 2011 Plan, a designated committee (“Committee”) of the Board of Directors (or if none, the Board) may, from time to time, in its sole discretion select from among eligible employees, non-employee directors and consultants those to whom awards shall be granted under the 2011 Plan, and shall determine in  its discretion the nature, terms, conditions and amount of each award, subject to the terms of the 2011 Plan. The term of the 2011 Plan commenced on October 13, 2011 (the “Effective Date”) and shall remain in effect, subject to the right of the Committee or the Board to amend or terminate the 2011 Plan at any time pursuant to 2011 Plan, until the earlier of (i) the tenth anniversary of the Effective Date, or (ii) all shares subject to the 2011 Plan have been purchased or acquired according to the 2011 Plan’s provisions.

 

10
 

 

Q HOLDINGS, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

Continued

 

3.

Stock Options
and Warrants
Continued

 

 

The 2011 Plan initially provided for a reservation pool of up to 1,500,000 shares of common stock reserved for issuance pursuant to the 2011 Plan. By Board authorization on December 6, 2011, the Board voted to add the remaining 228,472 shares available but unissued pursuant to the 2002 Plan to the authorized/reserved option pool for the 2011 Plan, bringing the 2011 Plan pool to 1,728,472 shares of common stock reserved for issuance pursuant to the 2011 Plan. Additionally, the Board also resolved to roll over all forfeited or expired awards made under the 2002 Plan into the 2011 Plan. As of the date of this report, the Company has issued options to acquire 890,000 shares of common stock pursuant to the 2011 Plan.

 

      Stock-based compensation for the three months ended September 30, 2012 and 2011 was $40,445 and $20,658, respectively. Stock-based compensation for the nine months ended September 30, 2012 and 2011 was $95,912 and $35,200, respectively. As of September 30, 2012, the Company had $335,698 of unrecognized stock-based compensation expense related to non-vested awards that will be recognized over a weighted-average period of 3.0 years.

 

11
 

 

Q HOLDINGS, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

Continued

 

3.

Stock Options
and Warrants
Continued

  The following sets forth the outstanding common stock options and related activity for the nine months ended September 30, 2012:

 

       Weighted 
       Average 
   Number of   Exercise 
   Options   Price Per Share 
         
Outstanding as of December 31, 2011   3,156,948   $0.14 
Granted   850,000    1.00 
Exercised   -    - 
Forfeited   -    - 
           
Outstanding as of March 31, 2012   4,006,948    0.32 
Granted   -    - 
Exercised   -    - 
Forfeited   (149,057)   0.08 
           
Outstanding as of June 30, 2012   3,857,891    0.33 
Granted   40,000    1.00 
Exercised   (32,451)   0.06 
Forfeited   -    - 
           
Outstanding as of September 30, 2012   3,865,440    0.34 

 

      The aggregate intrinsic value of outstanding stock options as of September 30, 2012 was $2,549,625. The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2012 was $30,651.
       
      The fair value of each stock-based compensation award granted during the nine months ended September 30, 2012, was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 

Risk-free interest rate 1.40%  
Expected stock price volatility 63.73%  
Expected dividend yield 0%  
Expected life of options 5.6 years  

 

12
 

 

Q HOLDINGS, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

Continued

 

3.

Stock Options and Warrants

Continued

 

The following summarizes information about stock options outstanding as of September 30, 2012:

 

 

Exercise
Price
   Number of Options Outstanding   Weighted
Average
Remaining
Contractual
Life (Years)
   Weighted
Average
Exercise
Price
   Number
of Options
Exercisable
   Weighted Average Exercise
Price
 
                      
 $ 0.06 – 0.08    902,600    6.66   $0.08    902,600   $0.08 
  0.15 – 0.19    2,072,840    6.53    0.17    1,988,709    0.17 
 1.00    890,000    9.34    1.00    187,500    1.00 
                            
      3,865,440    7.21    0.34    3,078,809    0.19 

 

     

Warrants

In connection with certain stock offerings and debt issuances, the Company has issued warrants to purchase common stock. The following summarizes information about stock warrants as of September 30, 2012, all of which are exercisable:

 

Warrants  Year of
Expiration
   Number of Shares   Exercise
Price
 
             
Common stock warrants issued for previously issued Series A2 warrants   2015    132,797   $0.046 
                
Common stock warrants issued for previously issued Series B warrants   2015    823,347    1.035 
                
Common stock warrants issued for previously issued Series B warrants   2017    192,242    0.532 
                
Warrants issued in conjunction with bridge notes (August 31, 2011)   2018    1,816,644    1.00 

 

13
 

 

Q HOLDINGS, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

Continued

 

3. Stock Options                
  and Warrants      Year of   Number   Exercise 
  Continued   Warrants  Expiration   of Shares   Price 
         Continued 
      Warrants issued in conjunction with bridge notes (August 31, 2011)   2018    916,644   $2.00 
                      
      Warrants issued in conjunction with private placement (October 13 and December 30, 2011)   2018    3,828,047    1.00 
                      
      Warrants issued in conjunction with private placement (October 13 and December 30, 2011)   2018    3,828,047    2.00 
                      
      Warrants issued for fees in conjunction with reverse merger (October 13 and December 30, 2011)   2018    22,750    1.20 
                      
      Warrants issued in conjunction with private placement (February 2 and March 30, 2012)   2019    190,000    1.00 
                      
      Warrants issued in conjunction with private placement (February 2 and March 30, 2012)   2019    190,000    2.00 
                      
      Warrants issued for fees in conjunction with private placement (February 2 and March 30, 2012)   2019    19,000    1.20 

 

14
 

 

Q HOLDINGS, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

Continued

 

3. Stock Options                
  and Warrants      Year of    Number of   Exercise 
  Continued   Warrants  Expiration   Shares   Price 
         Continued 
      Warrants issued in conjunction with asset purchase agreement (April 9, 2012)   2019    10,000   $1.00 
                      
      Warrants issued in conjunction with asset purchase agreement (April 9, 2012)   2019    10,000    2.00 
                      
               11,979,518      

 

      Each warrant with an exercise price of $1.00 or $2.00 per share may be redeemed by the Company at a price of $0.001 per share in the event (i) the closing sales price of the Company’s common stock is at least $1.50 for the $1.00 warrants or $3.00 for the $2.00 warrants for ten consecutive trading days and (ii) there is an effective public registration statement covering the resale of the common stock issuable upon the exercise of the warrants.
       
4.

Commitments and Contingencies

 

License and Royalty Agreements

In September 2012, the Company entered into two separate license agreements with one company (the “licensor”) whereby the Company has been granted two non-exclusive sub-licenses to make, have made and use the licensor’s intellectual technology. Each license agreement required an initial payment of $85,000, as well as an annual license fee of $5,000 per year. Additionally, the agreement allows the Company to purchase product on a per unit basis. No purchase commitments have been entered into at this time. The term of the license agreements is consistent with the term of the patents.

 

15
 

 

Q HOLDINGS, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

Continued

 

4.

Commitments and Contingencies

Continued

 

Asset Purchase Agreement

On March 26, 2012, Q Holdings, Inc., Q Therapeutics, Inc. and NeuroQ Research, Inc. executed an agreement to acquire certain intellectual property and technology. The agreement is milestone based and, if the milestones are achieved in 2012, it will provide the Company with manufacturing protocols for several types of neural cells. Upon achieving certain milestones, the Company will issue up to 400,000 shares of common stock, 400,000 common stock warrants with an exercise price of $1 per share and 400,000 common stock warrants with an exercise price of $2 per share to be issued as intellectual property and technology are delivered to the Company. In April 2012, the Company issued 10,000 shares of common stock, 10,000 common stock warrants with an exercise price of $1 per share, and 10,000 common stock warrants with an exercise price of $2 per share as initial payment for transfer of intellectual property.

       
     

Research Agreement

On March 27, 2012, the Company executed an agreement for outside research study services. The total contract price is $237,400 and the Company is required to make certain payments under the agreement as milestones are met. A separate agreement with the services provider allows the Company to pay 25% of the invoiced amount in cash and allows the balance to be financed and recorded as a loan to be paid over the following 36-60 months. The note is secured by a pledge to the Company’s assets, excluding its intellectual property. Interest is being recorded at 8% annually. The total amount invoiced to date is $142,400 and payments of $35,600 were made in May 2012. As of September 30, 2012, the balance outstanding is $110,360, of which $106,800 is principal and $3,560 is accrued interest. In October 2012, the contract price was amended to $337,500. The agreement is expected to conclude in 2013.

       
     

Operating Leases

The Company leases its office and lab facility under a non-cancelable operating lease. The current lease was renewed effective April 1, 2011 and expires in March 2013. The minimum future lease payments under this operating lease as of September 30, 2012 total $27,721 due during the year ending December 31, 2012 and $27,721 due during the year ending December 31, 2013.

       
      Lease expense under operating leases was $27,721 and $26,913 for the three months ended September 30, 2012 and 2011, respectively. Lease expense under operating leases was $82,355 and $79,956 for the nine months ended September 30, 2012 and 2011, respectively.

 

16
 

 

Q HOLDINGS, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

Continued

 

5.

Related-Party Transactions

 

Note From Stockholders

The Company has a note receivable from two minority stockholders that totaled $27,738 on September 30, 2012. For each month of nonpayment, the stockholders forfeit a certain number of shares of Common Stock of the Company, up to 200,000 shares. As of September 30, 2012, 150,000 shares had been forfeited.

       
      On January 9, 2010, the Company entered into an unsecured note payable agreement with a stockholder for $15,000 with an annual interest rate of 6% and a maturity date of December 31, 2010. The note was repaid on February 29, 2012.
       
     

Right of First Negotiation

Pursuant to an agreement (“Agreement”) the Company has irrevocably granted a stockholder a right of first negotiation to license certain technology of the Company related to Q-Cell®. The term of the Agreement is for a period of the later of (i) 3 years from the effective date of the Agreement (October 6, 2011) or (ii) 6 months after the date of completion of certain dosing of the technology.

       
6. Subsequent Events   On October 1, 2012 the Company entered into a services agreement with a public relations and investor relations firm. Under the agreement, the Company will issue 50,000 shares of common stock in lieu of cash for services to be rendered over the next five months. Upon expiration of the initial term, a monthly cash retainer of up to $10,000 will be incurred. Additionally, up to 250,000 warrants may be issued with exercise prices varying between $1.25 and $2.75 over the next twelve months upon the achievement of time based objectives.
       
      On October 9, 2012, the Company filed with the Secretary of State of the State of Delaware an Amendment to the Certificate of Incorporation of Q Therapeutics, Inc. therein changing the name of Q Therapeutics, Inc. to Q Therapeutic Products, Inc., effective immediately.
       
      On October 16, 2012, the Company entered into an agreement with a financial advisor and placement agent in connections with possible capital raising transactions.  Under the agreement, the financial advisor will receive a 7% commission on offering proceeds and five year warrants to purchase common stock valued at 10% of the common stock sold. The agreement is expected to continue for a period of at least six months.
       
      On October 30, 2012, the Company filed with the Secretary of State of the State of Delaware an Amendment to the Certificate of Incorporation of Q Holdings, Inc. therein changing the name of Q Holdings, Inc. to Q Therapeutics, Inc., effective December 10, 2012.

 

17
 

  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Cautionary Statement Regarding Forward-Looking Statements

 

This Quarterly Report contains forward-looking statements, which reflect the views of our management with respect to future events and financial performance. These forward-looking statements are subject to a number of uncertainties and other factors that could cause actual results to differ materially from such statements. Forward-looking statements are identified by words such as “may”, “will”, “should”, “plan”, “expect”, “anticipate”, “estimate”, “predict”, “believe”, “intend”, “potential” or “continue” or the negative of these terms or other words of similar import and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on the information available to management at this time and which speak only as of this date. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a discussion of some of the factors that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information in the “Risk Factors” section in our Form 10-K for the year ended December 31, 2011. The identification in this Quarterly Report of factors that may affect future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

 

Company Overview

 

As discussed throughout this Quarterly Report, Q Holdings, Inc. (hereinafter “Q Holdings” or the “Company”) conducts its business and operations through its wholly owned subsidiary, Q Therapeutics, Inc. (hereinafter “Q Therapeutics” or “Q”). Q Therapeutics is a Salt Lake City, Utah-based biopharmaceutical company that is developing human cell-based therapies intended to treat degenerative diseases of the brain and spinal cord, the primary components of the central nervous system (“CNS”). Q Therapeutics was incorporated in the state of Delaware in March 2002.

 

The technology upon which these therapies are based was developed by Q Therapeutics’ co-founder Mahendra Rao, M.D., Ph.D., a global leader in glial stem cell biology, during Dr. Rao’s tenure as a Professor at the University of Utah and as Head of the Stem Cell Section at the National Institutes of Health. Q Therapeutics is managed by an experienced team of biotechnology executives with demonstrated start-up success and advised by leaders in the neurology and stem cell therapeutics fields.

 

Every year, hundreds of thousands of people suffer with debilitating neurodegenerative diseases such as Amyotrophic Lateral Sclerosis (“ALS” or “Lou Gehrig’s Disease”), Multiple Sclerosis (“MS”), Transverse Myelitis (“TM”) and Spinal Cord Injury (“SCI”). Traditional drugs tend to fail to treat the nerve damage caused by these diseases due to the multifactorial nature of these diseases and the inability of most drugs to address all of these factors. Q Therapeutics is developing a new and nontraditional approach targeted to improve the health of people suffering from neurodegenerative diseases: a human cell-based product called Q-Cells®.

 

Q-Cells® are healthy human glial cells. The role of glial cells in the brain and spine is to support and protect neurons, the signal transmission lines of the nervous system. Glial cells perform many functions including forming an insulating “myelin sheath” around neurons, providing the necessary growth factors needed to maintain a healthy nervous system, and removing compounds that are toxic to neurons. Many neurodegenerative diseases arise when glial cells are damaged or destroyed, causing neurons to malfunction and eventually die. Q-Cells® technology aims to treat neurodegenerative diseases by supplementing the damaged or missing glia in the CNS with new, healthy cells that can help maintain and/or restore neuron function to a more robust state.

 

The diseases targeted by Q Therapeutics’ products are not well treated with current drug therapies. At best, patients suffering from these diseases can, in some cases, only hope to slow their inexorable progression and the associated disabilities. A handful of companies are exploring the possibility of harnessing the power of stem cells to treat these conditions, though no clear leader has emerged. In addition to utilizing its proprietary cellular products as therapeutic products, Q Therapeutics may evaluate novel ways to utilize these cells to screen for new drugs (such as small molecule compounds) that could also provide treatments for neurological diseases.

 

Q Therapeutics believes that a worldwide market measured in the tens of billions of dollars exists for those companies whose cell-based treatments become commercial products. Q Therapeutics’ patent protected technology represents an opportunity to build on the recent advancements in the stem cell field and bring to market a therapeutic approach that will change the way medicine is practiced in treating many disabling and fatal conditions of the central nervous system.

 

18
 

 

Q continues to prosecute and expand on its intellectual property portfolio. Q completed a license agreement with Neuralstem, Inc., granting Q non-exclusive rights to two patents, US # 7,833,217 and US # 8,092,495. These patents cover a spinal platform and cannula that Q plans to use for delivery of Q-Cells® to human subjects when it commences clinical trials. This injection device has been used in other clinical trials by Neuralstem to deliver a cellular therapeutic into spinal cord in clinical trials. Q’s patent application “Methods and Compositions for Expanding, Identifying, Characterizing and Enhancing Potency of Mammalian-Derived Glial Restricted Progenitor Cells” was published on September 13, 2012, as US-2012-0230963-A1.

 

Q Therapeutics uses a semi-virtual business model to develop its products. Q believes this type of business model is capital efficient while allowing it to augment its own expertise and capabilities with those of its development partners at the time that outside resources are needed. Q’s semi-virtual business model includes utilizing third parties for certain functions and outsourced services.

 

Results of Operations

 

For the period from March 28, 2002 (date of inception) through September 30, 2012, the Company has not generated significant revenues and has been developing its products for commercial sale. Therefore, the Company is considered to be in the development stage.

 

Since entering the development stage, the Company has not generated revenues in excess of expenses and has been dependent on government grants and debt and equity raised from investors to sustain its operations. The Company’s products have not yet been approved by the FDA for commercial sale; therefore, the Company has not generated any revenues from commercial product sales for the therapeutic markets. The Company has incurred losses and used cash in operating activities since inception. As of September 30, 2012, the Company had a deficit accumulated during the development stage of $19,241,506.

 

Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

 

The following table summarizes selected operating statement data for the three months ended September 30, 2012 and 2011:

 

   For the Three Months Ended September 30,      
   2012  2011  Change  %
                     
Revenues  $-     $-     $-      -   
                     
Operating expenses:                    
Research and development expense   283,141    9,308    273,833    2941.9%
General and administrative expense   317,961    257,530    60,431    23.5%
                     
Total operating expenses   601,102    266,838    334,264    125.3%
                     
Operating loss   (601,102)   (266,838)   (334,264)   125.3%
                     
Other income (expense), net   (344)   (542,647)   542,303    -99.9%
                     
Loss before provision for income taxes   (601,446)   (809,485)   208,039    -25.7%
                     
Provision for income taxes   -      -      -      -   
                     
Net loss  $(601,446)  $(809,485)  $208,039    -25.7%

 

Revenues

 

Historically, the Company has generated minimal revenues through (1) research grants from government agencies such as the National Institutes of Health, (2) granting rights to the Company’s technology to other entities, and (3) sales of its product for research purposes. However, the Company did not generate revenues from any of these sources during the three months ended September 30, 2012 and 2011.

 

19
 

 

Research and Development Expenses

 

The following table details research and development expenses incurred by the Company for the three months ended September 30, 2012 and 2011:

 

   For the Three Months Ended September 30,      
   2012  2011  Change  %
             
Salaries and benefits  $69,654   $39,673   $29,981    75.6%
Lab materials and supplies   20,031    (58,930)   78,961    -134.0%
License fees   170,000    -      170,000    100.0%
Facility related expenses   19,546    22,059    (2,513)   -11.4%
Depreciation   3,910    5,218    (1,308)   -25.1%
Travel and entertainment   -      1,288    (1,288)   -100.0%
                     
Total expenses  $283,141   $9,308   $273,833    2941.9%

 

The increase in research and development expenses was primarily attributable to $170,000 of initial costs for two non-exclusive license agreements that were executed in the third quarter of 2012. Additionally, there was an increase in salaries and benefits of approximately $30,000. Finally, lab materials and supplies increased as a result of the impact of a substantial one-time credit received in 2011 from a vendor as a settlement that did not recur in 2012. Research and development expenses are expected to remain the same or decrease until additional financing can be obtained.

 

General and Administrative Expenses

 

The following table details the general and administrative expenses incurred by the Company for the three months ended September 30, 2012 and 2011:

 

   For the Three Months Ended September 30,      
   2012  2011  Change  %
             
Salaries and benefits  $152,547   $3,534   $149,013    4216.6%
Legal and professional fees   84,583    190,518    (105,935)   -55.6%
Stock-based compensation   40,445    20,658    19,787    95.8%
Facility related expenses   21,222    24,613    (3,391)   -13.8%
General office and administrative   10,101    4,786    5,315    111.1%
Insurance   4,627    5,391    (764)   -14.2%
Travel and entertainment   3,969    7,596    (3,627)   -47.7%
Depreciation   467    434    33    7.6%
                     
Total expenses  $317,961   $257,530   $60,431    23.5%

 

The increase in general and administrative expenses was principally due to the decision to compensate the Company’s executive officers in 2012 who had received limited compensation in 2011 due to cash limitations and an increase in stock-based compensation, offset by a decrease in legal and professional services that were incurred in 2011 as part of the Company’s financing activities. General and administrative expenses are expected to stay the same or decrease until additional financing can be obtained.

 

20
 

 

Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011

 

The following table summarizes selected operating statement data for the nine months ended September 30, 2012 and 2011:

 

   For the Nine Months Ended
September 30,
      
   2012  2011  Change  %
Revenues:                    
Grant revenues  $7,229   $10,173   $(2,944)   -28.9%
License fees and other revenues   -      14,400    (14,400)   -100.0%
                     
Total revenues   7,229    24,573    (17,344)   -70.6%
                     
Operating expenses:                    
Research and development expense   764,810    286,738    478,072    166.7%
General and administrative expense   1,049,249    598,203    451,046    75.4%
                     
Total operating expenses   1,814,059    884,941    929,118    105.0%
                     
Operating loss   (1,806,830)   (860,368)   (946,462)   110.0%
                     
Other income (expense), net   (238)   (542,750)   542,512    -100.0%
                     
Loss before provision for income taxes   (1,807,068)   (1,403,118)   (403,950)   28.8%
                     
Provision for income taxes   -      -      -      -   
                     
Net loss  $(1,807,068)  $(1,403,118)  $(403,950)   28.8%

 

Revenues

 

Grant revenues consist of funds received from research grants where the Company is generally a sub-recipient of a grant with a research university. Grants are typically funded through government agencies, such as the National Institute of Health. Grant revenues for the nine months ended September 30, 2012 were $7,229, a decrease of $2,944, or 28.9%, from $10,173 for the nine months ended September 30, 2011. Grant revenues are expected to increase due to the expectation that funds from a federal grant application that has been awarded will be earned in 2013. The amount of such increase will not be known until the final allocation of the grant proceeds and the grant budget for the year has been finalized.

 

License fees and other revenues consist of fees generated from the granting of rights of the Company’s technology to another entity and from the sale of product for research purposes. License fees and other revenues for the nine months ended September 30, 2012 were $0, a decrease of $14,400, or 100%, from $14,400 for the nine months ended September 30, 2011. The decrease was attributable to no sales of Q-cells® to product development partners and collaborators during the nine months ended September 30, 2012.

 

Research and Development Expenses

 

The following table details research and development expenses incurred by the Company for the nine months ended September 30, 2012 and 2011:

 

   For the Nine Months Ended
September 30,
      
   2012  2011  Change  %
             
Salaries and benefits  $241,051   $187,017   $54,034    29%
Lab materials and supplies   276,622    16,097    260,525    1618%
License fees   170,000    -      170,000    100.0%
Facility related expenses   64,427    61,645    2,782    4.5%
Depreciation   12,710    20,691    (7,981)   -38.6%
Travel and entertainment   -      1,289    (1,289)   -100.0%
                     
Total expenses  $764,810   $286,739   $478,071    166.7%

 

21
 

 

The increase in research and development expenses was primarily attributable to increases of approximately $261,000 in the Company’s lab materials and supplies required for research activities, which takes into account a substantial one-time credit received in 2011 from a vendor as a settlement that did not recur in 2012. Additionally, the Company incurred an initial $170,000 cost for two non-exclusive license agreements that were executed in the third quarter of 2012. Finally, an increase in salaries and benefits of approximately $54,000 was incurred by the Company. License fees and other revenues are anticipated to increase as the Company advances development of products and enters into licensing agreements in the future.

 

General and Administrative Expenses

 

The following table details the general and administrative expenses incurred by the Company for the nine months ended September 30, 2012 and 2011:

 

   For the Nine Months Ended
September 30,
      
   2012  2011  Change  %
             
Salaries and benefits  $446,850   $153,205   $293,645    191.7%
Legal and professional fees   350,070    266,632    83,438    31.3%
Stock-based compensation   95,912    35,200    60,712    172.5%
Facility related expenses   64,677    70,560    (5,883)   -8.3%
General office and administrative   38,148    24,410    13,738    56.3%
Insurance   27,875    19,889    7,986    40.2%
Travel and entertainment   24,339    26,518    (2,179)   -8.2%
Depreciation   1,378    1,789    (411)   -23.0%
                     
Total expenses  $1,049,249   $598,203   $451,046    75.4%

 

The increase in general and administrative expenses was principally due to the decision to compensate the Company’s executive officers in 2012 who had received limited compensation in 2011 due to cash limitations. Other factors included the increase in legal and professional fees and insurance premiums related to costs associated with being a public reporting company, and increases in stock-based compensation. General and administrative expenses are expected to remain the same or decrease until additional financing can be obtained.

 

Liquidity and Capital Resources

 

As of September 30, 2012, we had $1,296,149 of cash on hand, compared to $2,741,519 as of December 31, 2011. Between October 13, 2011 and December 31, 2011, the Company raised $3,828,047, before issuance costs of $197,729, in a private placement offering of an aggregate of 3,828,047 Units for $1.00 per Unit, each Unit consisting of (i) one share of Common Stock, (ii) one Seven-Year Common Stock Purchase Warrant to purchase one share of the Company’s Common Stock for $1.00, subject to adjustment in certain circumstances (“Series A Warrants”), and (iii) one Seven-Year Common Stock Purchase Warrant to purchase one share of the Company’s Common Stock for $2.00, subject to adjustment in certain circumstances (the “Series B Warrants,” and together with the Series A Warrants, the “Warrants”).

 

During the first half of 2012, the Company sold 190,000 additional Units for aggregate proceeds of $190,000. In total, the Company sold an aggregate of 4,018,047 Units in the offering for gross proceeds of $4,018,047, before deducting $197,729 in expenses. The private placement closed May 31, 2012.

 

The following summarizes the key sources and uses of cash for the nine months ended September 30, 2012 and 2011:

 

   For the Nine Months Ended
   September 30,
   2012  2011
Net cash used in operating activities  $(1,619,807)  $(489,343)
Net cash used in investing activities   (2,363)   (5,626)
Net cash provided by financing activities   176,800    360,000 
           
Net decrease in cash  $(1,445,370)  $(134,969)

 

22
 

 

For the nine months ended September 30, 2012, net cash used in operating activities totaled $1,619,807, compared to $489,343 for the nine months ended September 30, 2011. During the nine months ended September 30, 2012, cash was used in operating activities for research activities, in-licensing technology, outside study fees, salaries and professional fees.

 

For the nine months ended September 30, 2012 and 2011, net cash used in investing activities was $2,363 and $5,626 for purchases of property and equipment.

 

Net cash provided by financing activities was $176,800 for the nine months ended September 30, 2012, compared to $360,000 for the nine months ended September 30, 2011. The Company raised $190,000 from a private placement of its securities and $1,800 from the exercise of stock options during the nine months ended September 30, 2012, which was partially offset by the Company paying off a $15,000 note payable.

 

We believe that our current levels of cash, when combined with expected cash flows from equity financing transactions will be sufficient to meet our liquidity needs through at least the third quarter 2013. However, we will require additional cash resources to continue the development of our technologies. We will need additional cash resources in the future if we pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. To satisfy future cash requirements, we expect to seek funding through the issuance of debt or equity securities and the obtaining of a credit facility. Any future issuance of equity securities would cause dilution for our stockholders. Any incurrence of indebtedness will increase our debt service obligations and may cause us to be subject to restrictive operating and financial covenants. It is possible that financing may be available to us in amounts or on terms that are not favorable to the Company or not available at all.

 

Recent Accounting Pronouncements

 

As of the date of this report, there are no accounting pronouncements that had not yet been adopted by the Company that we believe would have a material impact on our financial statements.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities.”

 

Critical Accounting Policies

 

Our discussion and analysis of financial condition and results of operations are based upon the unaudited condensed consolidated financial statements included herein, which have been prepared in accordance with U.S. generally accepted accounting principles and the requirements and regulations of the Securities and Exchange Commission. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant accounting policies and areas where substantial judgments are made by management include:

 

Stock-Based Compensation - Q Holdings calculates the estimated fair value of its stock options and warrants on the grant date using the Black-Scholes option-pricing model and recognizes the estimated fair value as compensation expense on a straight-line basis over the vesting period. The volatility assumption used in the Black-Scholes option-pricing model is based on the volatility of publicly traded companies in the same industry as Q Holdings. The expected term of the options and warrants granted represent the period of time that the options granted are expected to be outstanding. The risk free rate for periods within the contractual life of the option and warrant is based on the U.S. treasury securities constant maturity rate that corresponds to the expected term in effect on the date of grant.

 

Grants Receivable - Q Holdings applies for research grants generally as a sub-recipient to grants funded by government agencies through research universities. Q Holdings records grants receivable in accordance with the provisions of the grant agreement. A grant receivable is considered past due when payment has not been received within 30 days of the invoice date. The amounts of the specific reserves are estimated by management based on various assumptions including the age of the grant receivable, as well as changes in payment schedules and histories. Grants receivable balances are charged off against the allowance for doubtful accounts when the potential for recovery is remote. Recoveries of receivables previously charged off are recorded when payment is received.

 

23
 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

N/A.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures.

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated and communicated to our executive officers to allow timely decisions regarding required disclosure. As of September 30, 2012, our Chief Executive Officer, who acts in the capacity of principal executive officer and our Vice President, Chief Financial Officer, who acts in the capacity of principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and the Vice President, Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2012, based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

 

Changes in Internal Controls.

 

On September 21, 2012, our Board of Directors approved the Q Holdings Code of Ethics and Conduct. We believe our Code of Ethics and Conduct is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. The Code of Ethics and Conduct can be found on the Company’s website at www.qthera.com.

 

PART II - Other Information

 

Item 1. Legal Proceedings.

 

The Company is not a party to any pending legal proceedings and, to its knowledge, no such action against the Company has been threatened.

 

Item 5. Other Information.

 

On October 15, 2012, stockholders representing approximately 68% of the issued and outstanding voting capital stock of the Company accepted our Board of Directors’ recommendation and voted by written consent to approve the following actions; 1) To authorize the Company to amend its Certificate of Incorporation to change the name of the Company from Q Holdings, Inc. to Q Therapeutics, Inc., 2) To elect the following persons to serve as members of the Company’s Board of Directors: Deborah A. Eppstein, Ph.D., Joydeep Goswami, Ph.D., Peter Grebow, Ph.D., Peter Barton Hutt, Dinesh C. Patel, Ph.D., and Linda F. Powers, 3) To approve the Board of Director’s amendment to the Company’s 2011 Equity Incentive Compensation Plan (the “2011 Plan”) so that as options expire or are forfeited under the Company’s 2002 Stock Incentive Plan (the “2002 Plan”), the shares of the Common Stock of the Company subject to such options will be added to the pool of shares reserved for issuance under the 2011 Plan, and 4) To ratify the Board of Director’s appointment of Tanner, LLC to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2012.

 

On October 9, 2012, we filed with the Secretary of State of the State of Delaware an Amendment to the Certificate of Incorporation of Q Therapeutics, Inc. therein changing the name of the Company’s wholly owned subsidiary from Q Therapeutics, Inc. to Q Therapeutic Products, Inc., effective immediately.

 

On October 30, 2012, the Company filed with the Secretary of State of the State of Delaware an Amendment to the Certificate of Incorporation of Q Holdings, Inc. therein changing the name of Q Holdings, Inc. to Q Therapeutics, Inc., effective December 10, 2012.

 

24
 

 

Item 6. Exhibits.

 

Exhibit
No:
  Description:
     
3.1(1)   Certificate of Amendment to the Certificate of Incorporation of Q Therapeutics, Inc. dated October 9, 2012. 
     
3.2(1)   Certificate of Amendment to the Certificate of Incorporation of Q Holdings, Inc. dated October 30, 2012.
     
14.1(1)   Code of Ethics and Conduct
     
31.2(1)   Certification of the Company’s Principal Financial and Principal Accounting Officer pursuant to 15d-15(e), under the Securities and Exchange Act of 1934, as amended
     
32.1*   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Executive Officer).
     
32.2*   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Financial and Principal Accounting Officer).
     
101.INS(2)   XBRL Instance Document
     
101.SCH(2)   XBRL Taxonomy Extension Schema
     
101.CAL(2)   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF(2)   XBRL Taxonomy Extension Definition Linkbase
     
101.LAB(2)   XBRL Taxonomy Extension Label Linkbase
     
101.PRE(2)   XBRL Taxonomy Presentation Linkbase

 

(1) Filed herewith.

(2) Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.

*Furnished herewith.

 

25
 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: November 12, 2012 By:  /s/ DEBORAH A. EPPSTEIN
  Name: Deborah A. Eppstein, PhD
  Title:Chief Executive Officer, President
  (Principal Executive Officer)

 

Date: November 12, 2012 By: /s/ STEVEN J. BORST
  Name: Steven J. Borst
  Title: Vice President, Chief Financial Officer
 

(Principal Executive Officer

and Principal Accounting Officer)

 

26
 

 

EXHIBIT INDEX

Q HOLDINGS, INC.

FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2012

 

Exhibit 
No:

  Description:
     
3.1(1)   Certificate of Amendment to the Certificate of Incorporation of Q Therapeutics, Inc. dated October 9, 2012. 
     
3.2(1)   Certificate of Amendment to the Certificate of Incorporation of Q Holdings, Inc. dated October 30, 2012.
     
14.1(1)   Code of Ethics and Conduct
     
31.2(1)   Certification of the Company’s Principal Financial and Principal Accounting Officer pursuant to 15d-15(e), under the Securities and Exchange Act of 1934, as amended
     
32.1*   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Executive Officer).
     
32.2*   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Financial and Principal Accounting Officer).
     
101.INS(2)   XBRL Instance Document
     
101.SCH(2)   XBRL Taxonomy Extension Schema
     
101.CAL(2)   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF(2)   XBRL Taxonomy Extension Definition Linkbase
     
101.LAB(2)   XBRL Taxonomy Extension Label Linkbase
     
101.PRE(2)   XBRL Taxonomy Presentation Linkbase

 

(1) Filed herewith.

(2) Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.

*Furnished herewith.

 

27