Attached files
file | filename |
---|---|
EXCEL - IDEA: XBRL DOCUMENT - Icagen, Inc. | Financial_Report.xls |
EX-32.1 - CERTIFICATION - Icagen, Inc. | f10q0614ex32i_caldera.htm |
EX-32.2 - CERTIFICATION - Icagen, Inc. | f10q0614ex32ii_caldera.htm |
EX-31.2 - CERTIFICATION - Icagen, Inc. | f10q0614ex31ii_caldera.htm |
EX-10.1 - SEVERANCE AGREEMENT AND RELEASE - Icagen, Inc. | f10q0614ex10i_caldera.htm |
EX-31.1 - CERTIFICATION - Icagen, Inc. | f10q0614ex31i_caldera.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 2014
or
o 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: 000-54748
CALDERA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
|
20-0982060
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
One Kendall Square, Building 200, Suite 2
Cambridge, Massachusetts, 02139
(Address of principal executive offices) (Zip Code)
(617) 294-9697
(Registrant’s telephone number, including area code)
(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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
|
¨
|
Accelerated filer
|
¨
|
Non-accelerated filer
|
o
|
Smaller reporting company
|
x
|
(Do not check if a smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Number of shares of common stock outstanding as of August 13, 2014 was 4,039,770.
CALDERA PHARMACEUTICALS, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
|
||
PART I.—FINANCIAL INFORMATION
|
||
Item 1.
|
Financial Statements
|
|
Consolidated Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013
|
F-1
|
|
Consolidated Statements of Operations for the three months and six months ended June 30, 2014 and 2013, respectively (Unaudited)
|
F-2
|
|
Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013, respectively (Unaudited)
|
F-3
|
|
Notes to the Unaudited Consolidated Financial Statements
|
F-4 to F-18
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Information and Results of Operations
|
1
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risks
|
9
|
Item 4.
|
Controls and Procedures
|
9
|
PART II—OTHER INFORMATION
|
||
Item 1.
|
Legal Proceedings
|
10
|
Item 1A.
|
Risk Factors
|
11
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
19
|
Item 3.
|
Defaults Upon Senior Securities
|
19
|
Item 4.
|
Mine Safety Disclosures
|
19
|
Item 5.
|
Other Information
|
19
|
Item 6.
|
Exhibits
|
20
|
SIGNATURE
|
21
|
|
GLOSSARY
|
PART I - FINANCIAL INFORMATION
Item 1.
|
Financial Statements.
|
CONSOLIDATED BALANCE SHEETS
June 30,
2014
|
December 31,
2013
|
|||||||
Unaudited
|
||||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash
|
$
|
4,170,381
|
$
|
519,733
|
||||
Accounts receivable, net
|
48,583
|
106,019
|
||||||
Prepaid expenses
|
97,885
|
34,053
|
||||||
Total current assets
|
4,316,849
|
659,805
|
||||||
Non-current assets:
|
||||||||
Intangible assets, net
|
517,049
|
542,890
|
||||||
Plant and equipment, net
|
442,741
|
453,701
|
||||||
Deposits
|
1,000
|
-
|
||||||
Investment in certificate of deposit
|
25,004
|
25,004
|
||||||
Total non-current assets
|
985,794
|
1,021,595
|
||||||
TOTAL ASSETS
|
$
|
5,302,643
|
$
|
1,681,400
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
612,198
|
$
|
1,710,173
|
||||
Other payables and accrued expenses
|
274,209
|
413,892
|
||||||
Loans payable
|
33,697
|
280,782
|
||||||
Derivative financial liability
|
1,629,123
|
944,121
|
||||||
Dividends payable
|
694,144
|
389,017
|
||||||
Total current liabilities
|
3,243,371
|
3,737,985
|
||||||
Non-current liabilities:
|
||||||||
Loans payable
|
159,978
|
177,053
|
||||||
Total non-current liabilities
|
159,978
|
177,053
|
||||||
TOTAL LIABILITIES
|
3,403,349
|
3,915,038
|
||||||
Convertible Redeemable Preferred Stock
|
||||||||
Series A Cumulative Convertible Redeemable Preferred Stock, $0.001 par value, 400,000 shares designated, 105,000 shares issued and outstanding as of June 30, 2014 and December 31, 2013, liquidation preference is $5.70 per share.
|
133,350
|
133,350
|
||||||
Commitments and contingencies
|
-
|
-
|
||||||
STOCKHOLDERS’ EQUITY (DEFICIT):
|
||||||||
Preferred stock, $0.001 par value, 10,000,000 authorized shares, 6,600,000 shares undesignated and unissued.
|
-
|
-
|
||||||
Series B Cumulative Convertible Preferred Stock, $0.001 par value, 3,000,000 designated shares, and 2,133,947 shares issued and outstanding as of June 30, 2014 and December 31, 2013, liquidation preference is $2.50 per share.
|
2,134
|
2,134
|
||||||
Common stock, $0.001 par value, 50,000,000 authorized shares, 4,693,770 and 4,851,270 shares issued and 4,039,770 and 4,197,270 outstanding as of June 30, 2014 and December 31, 2013, respectively.
|
4,694
|
4,852
|
||||||
Additional paid in capital
|
10,545,152
|
10,475,253
|
||||||
Treasury stock, at cost (654,000 shares of common stock as of June 30, 2014 and December 31, 2013)
|
(473
|
)
|
(473
|
)
|
||||
Accumulated deficit
|
(8,785,563
|
)
|
(12,848,754
|
)
|
||||
Total stockholders’ equity (deficit)
|
1,765,944
|
(2,366,988
|
)
|
|||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
$
|
5,302,643
|
$
|
1,681,400
|
See notes to the unaudited consolidated financial statements
F-1
CALDERA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months
ended
June 30,
2014
|
Three months ended
June 30,
2013
|
Six months
ended
June 30,
2014
|
Six months
ended
June 30,
2013
|
|||||||||||||
Sales
|
$
|
82,662
|
$
|
82,881
|
$
|
336,882
|
$
|
320,295
|
||||||||
Cost of sales
|
165,441
|
99,624
|
342,413
|
271,723
|
||||||||||||
Gross (loss)/profit
|
(82,779
|
)
|
(16,743
|
)
|
(5,531
|
)
|
48,572
|
|||||||||
Operating expenses:
|
||||||||||||||||
Selling, general and administrative expenses
|
794,523
|
926,945
|
2,028,484
|
1,489,991
|
||||||||||||
Depreciation
|
27,821
|
28,044
|
54,780
|
55,650
|
||||||||||||
Amortization
|
12,921
|
12,921
|
25,841
|
25,842
|
||||||||||||
Total operating expenses
|
835,265
|
967,910
|
2,109,105
|
1,571,483
|
||||||||||||
Operating loss
|
(918,044
|
)
|
(984,653
|
)
|
(2,114,636
|
)
|
(1,522,911
|
)
|
||||||||
Other income/(expense)
|
||||||||||||||||
Other income
|
-
|
-
|
7,177,522
|
-
|
||||||||||||
Interest income
|
26
|
564
|
62
|
685
|
||||||||||||
Interest expense
|
(3,065
|
)
|
(119,794
|
)
|
(9,632
|
)
|
(139,701
|
)
|
||||||||
Change in fair value of derivative liabilities
|
(131,582
|
)
|
59,728
|
(685,002
|
)
|
(148,571
|
)
|
|||||||||
Total other income/(expense)
|
(134,621
|
)
|
(59,502
|
)
|
6,482,950
|
(287,587
|
)
|
|||||||||
Net (loss)/income
|
(1,052,665
|
)
|
(1,044,155
|
)
|
4,368,314
|
(1,810,498
|
)
|
|||||||||
Deemed preferred stock dividends
|
-
|
(1,728,912
|
)
|
-
|
(1,728,912
|
)
|
||||||||||
Preferred stock dividends
|
(155,134
|
)
|
(108,838
|
)
|
(305,127
|
)
|
(147,585
|
)
|
||||||||
Net (loss)/income applicable to common stock
|
$
|
(1,207,799
|
)
|
$
|
(2,881,905
|
)
|
$
|
4,063,187
|
$
|
(3,686,995
|
)
|
|||||
Net (loss)/income per common stock: -
|
||||||||||||||||
Basic
|
$
|
(0.30
|
)
|
$
|
(0.68
|
)
|
$
|
0.99
|
$
|
(0.86
|
)
|
|||||
Diluted
|
$
|
(0.30
|
)
|
$
|
(0.68
|
)
|
$
|
0.68
|
$
|
(0.86
|
)
|
|||||
Weighted average number of common stock outstanding: -
|
||||||||||||||||
Basic
|
4,039,770
|
4,254,962
|
4,096,331
|
4,278,485
|
||||||||||||
Diluted
|
4,039,770
|
4,254,962
|
6,404,870
|
4,278,485
|
See notes to the unaudited consolidated financial statements
F-2
CALDERA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months
ended
June 30,
2014
|
Six months
ended
June 30,
2013
|
|||||||
Cash flow from operating activities
|
||||||||
Net income (loss)
|
$
|
4,368,314
|
$
|
(1,810,498
|
)
|
|||
Adjustments for non-cash items:
|
||||||||
Depreciation
|
54,780
|
55,650
|
||||||
Amortization
|
25,841
|
25,842
|
||||||
(Gain)/loss on disposal/scrapping of plant and equipment
|
(462
|
)
|
1,082
|
|||||
Amortization of bridge note discount
|
-
|
111,050
|
||||||
Stock based compensation charge
|
247,263
|
229,259
|
||||||
Loss on change in fair value of derivative financial liability
|
685,002
|
148,571
|
||||||
Increase in receivables provision
|
-
|
14,086
|
||||||
Increase in legal settlement accrual
|
-
|
115,273
|
||||||
Gain on cancellation of shares in legal settlement
|
(177,522
|
)
|
-
|
|||||
Changes in operating assets and liabilities:
|
||||||||
Decrease/(increase) in accounts receivable
|
57,437
|
(10,757
|
)
|
|||||
Increase in prepaid expenses and deposits
|
(63,832
|
)
|
(157,582
|
)
|
||||
(Decrease)/increase in accounts payable
|
(1,097,974
|
)
|
94,647
|
|||||
Decrease in other payables and accrued expenses
|
(140,434
|
)
|
(18,487
|
)
|
||||
Net cash provided by/(used in) operating activities
|
3,958,413
|
(1,201,864
|
)
|
|||||
Cash flow from investing activities
|
||||||||
Purchase of plant and equipment
|
(46,106
|
)
|
(64,717
|
)
|
||||
Proceeds from sale of equipment
|
2,750
|
-
|
||||||
Investment in certificate of deposit
|
-
|
(25,000
|
)
|
|||||
Investment in deposits
|
(1,000
|
)
|
-
|
|||||
Net cash used in investing activities
|
(44,356
|
)
|
(89,717
|
)
|
||||
Cash flow from financing activities
|
||||||||
Repayment of term loan
|
(247,201
|
)
|
-
|
|||||
Repayment of line of credit
|
-
|
(57
|
)
|
|||||
Repayment of commercial equipment loan
|
-
|
(8,946
|
)
|
|||||
Repayment of Los Alamos County loan
|
(16,208
|
)
|
(15,419
|
)
|
||||
Proceeds from Bridge note
|
-
|
250,000
|
||||||
Repayment of Bridge note
|
-
|
(100,000
|
)
|
|||||
Proceeds from Series B stock issued, net of issue expenses
|
-
|
2,477,850
|
||||||
Net cash (used in)/provided by financing activities
|
(263,409
|
)
|
2,603,428
|
|||||
Net increase in cash
|
3,650,648
|
1,311,847
|
||||||
Cash at the beginning of the period
|
519,733
|
378,643
|
||||||
Cash at the end of the period
|
$
|
4,170,381
|
$
|
1,690,490
|
||||
Supplemental disclosure of cash flow information
|
||||||||
Cash paid for:
|
||||||||
Interest
|
$
|
10,314
|
$
|
19,829
|
||||
Income taxes
|
$
|
-
|
$
|
-
|
||||
Non-cash investing and financing activities:
|
||||||||
Discount applied to Bridge notes relating to warrants issued
|
$
|
-
|
$
|
80,367
|
||||
Series B Preferred stock issued in exchange for Series A Preferred stock
|
$
|
-
|
$
|
2,065,392
|
||||
Series B Preferred stock issued in lieu of series A Preferred stock dividends
|
$
|
-
|
$
|
208,558
|
||||
Series B Preferred stock issued upon conversion of Bridge notes and interest thereon
|
$
|
-
|
$
|
384,160
|
||||
Deemed preferred stock dividends relating to warrants issued to preferred stock holders
|
$
|
-
|
$
|
1,728,912
|
||||
Accrued Series A Preferred stock dividends
|
$
|
23,951
|
$
|
57,095
|
||||
Accrued Series B Preferred stock dividends
|
$
|
281,176
|
$
|
90,490
|
See notes to the unaudited consolidated financial statements
F-3
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
GENERAL INFORMATION
|
Caldera Pharmaceuticals, Inc. (“the Company”, “we”, “us”, “our”) is a Delaware corporation. The principal office is located in Cambridge, Massachusetts. The Company was incorporated in November 2003.
The Company uses proprietary x-ray fluorescence technology called XRpro® to deliver ion channel screening, ion channel kinetics and custom screening services to our customers. Our proprietary technology detects and quantitatively analyzes the x-ray signature of each element with an atomic number greater than 10, we combine the flexibility of the analysis with patented sample processing to address a wide range of ion channel and other biological targets.
The Company has generated the majority of its revenues to date through Government research contracts and Government grants utilizing its proprietary x-ray fluorescence technology.
2.
|
ACCOUNTING POLICIES AND ESTIMATES
|
General
The following (a) consolidated balance sheets as of June 30, 2014 (unaudited) and December 31, 2013, which have been derived from audited consolidated financial statements, and (b) the unaudited interim statements of operations and cash flows of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months and the six months ended June 30, 2014 are not necessarily indicative of results that may be expected for the year ending December 31, 2014. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2013 included in the Company’s Form 10-K, filed with the Securities and Exchange Commission (“SEC”).
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).
In the opinion of management, all adjustments necessary to fairly present the results for the interim periods presented have been made. All adjustments made are of a normal and recurring nature and no non-recurring adjustments have been made in the presentation of these interim financial statements.
All amounts referred to in the notes to the unaudited consolidated financial statements are in United States Dollars ($) unless stated otherwise.
Consolidation
The unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries in which it has a majority voting interest. Investments in affiliates are accounted for under the cost method of accounting, where appropriate. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements. The entities included in these consolidated financial statements are as follows:
Caldera Pharmaceuticals, Inc. - Parent Company
XRpro Corp. – Wholly owned subsidiary
Estimates
The preparation of these unaudited consolidated financial statements in accordance with US GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts and recovery of long-lived assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the allowance for doubtful accounts, the useful life of plant and equipment and intangible assets, and assumptions used in assessing impairment of long-term assets and the assumptions used in determining percentage of completion on our long-term contracts.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against and by the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
F-4
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
Fair value of financial instruments
The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash, accounts receivable, loans payable, accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments. The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with the accounting guidance.
ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
Reporting by segment
No segmental information is presented as the Company only has one significant reporting segment that is Government Revenues.
Intangible assets
All of our intangible assets are subject to amortization. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Where intangibles are deemed to be impaired we recognize an impairment loss measured as the difference between the estimated fair value of the intangible and its book value.
a) License Agreements
License agreements acquired by the Company are reported at acquisition value less accumulated amortization and impairments.
b) Amortization
Amortization is reported in the income statement on a straight-line basis over the estimated useful life of the intangible assets, unless the useful life is indefinite. Amortizable intangible assets are amortized from the date that they are available for use. The estimated useful life of the license agreement is twenty years which is the term of the patent supporting the underlying license agreements
Plant and equipment
Plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:
Leasehold improvements
|
5 Years
|
Laboratory equipment
|
7 Years
|
Furniture and fixtures
|
10 Years
|
Computer equipment
|
3 Years
|
Motor vehicles (used)
|
2 Years
|
The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.
We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
Concentrations of credit risk
The Company’s operations are carried out in the USA. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the USA and by the general state of the economy. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.
F-5
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
Concentration of major customers
The Company currently derives substantially all of its revenues from Government research contracts and Government grants.
These Government research contracts are primarily from two government agencies: The Department of Defense and the National Institutes of Health. The granting of research contracts from Government agencies is a competitive process and there is no certainty that we will be awarded future contracts, which may cause our revenue to fluctuate from year to year. Furthermore, Government grants are subject to audits by the granting agency. If such audits were to determine that expenditures of the grant funds did not meet the applicable criteria, these amounts could be subject to retroactive adjustment and refunded to the granting agency.
Total revenues by customer type are as follows:
Three months
ended
June 30,
2014
|
Three months
ended
June 30,
2013
|
Six months ended
June 30,
2014
|
Six months ended
June 30,
2013
|
|||||||||||||
National Institutes of Health
|
$
|
82,662
|
$
|
50,067
|
$
|
336,882
|
$
|
253,177
|
||||||||
Department of Defense
|
-
|
32,814
|
-
|
67,118
|
||||||||||||
$
|
82,662
|
$
|
82,881
|
$
|
336,882
|
$
|
320,295
|
Accounts receivable and other receivables
We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. As a basis for accurately estimating the likelihood of collection of our accounts receivable, we consider a number of factors when determining reserves for uncollectable accounts. We believe that we use a reasonably reliable methodology to estimate the collectability of our accounts receivable. We review our allowances for doubtful accounts on a regular basis. We also consider whether the historical economic conditions are comparable to current economic conditions. If the financial condition of our customers or other parties that we have business relations with were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
The balance of the receivables provision as at June 30, 2014 and December 31, 2013 was $19,084. The amount charged to bad debt provision for the six months ended June 30, 2014 and 2013 was $0.
Cash and cash equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash and cash equivalents with two financial institutions in the USA.
Revenue recognition
Revenue sources consist of government grants, government contracts and commercial development contracts.
We account for our long-term Firm Fixed Price Government contracts and grants associated with the delivery of research on drug candidates and the development of drug candidates using the percentage-of-completion accounting method. Under this method, revenue is recognized based on the extent of progress towards completion of the long-term contract.
We generally use the cost-to-cost measure of progress for all of our long-term contracts, unless we believe another measure will produce a more reliable result. We believe that the cost-to-cost measure is the best and most reliable performance indicator of progress on our long-term contracts as all our contract estimates are based on costs that we expect to incur in performing our long-term contracts and we have not experienced any significant variations on estimated to actual costs to date. Under the cost-to-cost measure of progress, the extent of progress towards completion is based on the ratio of costs incurred-to-date to the total estimated costs at the completion of the long-term contract. Revenues, including estimated fees or profits are recorded as costs are incurred.
When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recorded in the period the loss is determined.
To a much lesser extent, we enter into fixed fee commercial development contracts that are not associated with the delivery of feasible research on drug candidates and the development of drug candidates. Revenue under such contracts is generally recognized upon delivery or as the development is performed.
Sales and Marketing
Sales and marketing expenses are minimal at present. These costs, if any, are expensed as incurred and included in Selling, general and administrative expenses. The Company expects to incur sales and marketing expenses in future periods to promote its services to drug discovery enterprises.
Research and Development
The remuneration of the Company’s research and development staff, materials used in internal research and development activities, and payments made to third parties in connection with collaborative research and development arrangements, are all expensed as incurred. Where the Company makes a payment to a third party to acquire the right to use a product formula which has received regulatory approval, the payment is accounted for as the acquisition of a license or patent and is capitalized as an intangible asset and amortized over the shorter of the license period or the patent life.
The amount expensed for unrecovered research costs, included in Selling, general and administrative expenses during the six months ended June 30, 2014 and 2013 was $157,565 and $75,403 respectively. The amount expensed for unrecovered research costs, included in Selling, general and administrative expenses during the three months ended June 30, 2014 and 2013 was $85,162 and $39,972 respectively.
Patent Costs
Legal costs in connection with approved patents and patent applications are expensed as incurred and classified as Selling, general and administrative expense in our consolidated statement of operations.
F-6
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
Share-Based Compensation
Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee's requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of operations for the six months ended June 30, 2014 and 2013 is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from those estimates. We have no awards with market or performance conditions.
Income Taxes
The Company utilizes ASC 740, Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Net income/(loss) per Share
Basic net income/(loss) per share is computed on the basis of the weighted average number of common stock outstanding during the period.
Diluted net income/(loss) per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net income/(loss) per share are excluded from the calculation.
Dilution is computed by applying the treasury stock method for options and warrants. Under this method, “in-the money” options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
Dilution is computed by applying the if-converted method for convertible preferred stocks. Under this method, convertible preferred stock is assumed to be converted at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine income applicable to common stock. The shares issuable upon conversion will be added to weighted average number of common stock outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share).
Comprehensive income
Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. For the Company, comprehensive income for the periods presented includes net income/(loss).
Related parties
Parties are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company shall disclose all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to the related party.
Derivative Liabilities
The Company assessed the classification of its derivative financial instruments as of June 30, 2014, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.
Professional standards generally provide three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of “Conventional Convertible Debt Instrument”.
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
F-7
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
Recent accounting pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements to have a significant impact on the results of operations, financial condition or cash flow.
3.
|
LIQUIDITY
|
On March 6, 2014, the Company received a substantial cash infusion from the proceeds of litigation (See note 16 below) providing the Company with sufficient capital resources to meet its projected cash flow requirements in conducting its operations for at least the next twelve month period. However there can be no assurance that additional and unforeseen non-recurring expenses will not arise during the next twelve month period or that the Company will be successful in completing its business development plan.
4.
|
INTANGIBLE ASSETS
|
Licenses
In terms of an Exclusive Patent License agreement (“License”) covering national and international patents entered into with the Los Alamos National Security LLC (“the Licensor”) dated September 8, 2005, the Company has the exclusive right to the use of certain patents covering the following:
●
|
Method for Detecting Binding Events Using Micro X-Ray Fluorescence Spectrometry;
|
●
|
Flow Method and Apparatus for Screening Chemicals Using Micro X-Ray Fluorescence;
|
●
|
Method and Apparatus for Detecting Chemical Binding;
|
●
|
Drug Development and Manufacturing.
|
The agreement provides for a term as long as the last surviving patent which is generally a twenty-year period from the date of first application.
In terms of the agreement, the Company had issued shares to the Licensor equal to 3% of the issued equity of the Company and had an obligation to issue further shares based on anti-dilutive provisions and future fund raisings. In terms of the settlement agreement entered into on March 6, 2014, as disclosed under litigation in note 16 below, the 157,500 Common shares issued to the Licensor were returned to Caldera and all future claims against the equity of Caldera were extinguished. The remaining terms of the License remain in full force and effect.
The agreement has termination provisions as follows; i) at the option of the Licensor; if the Company fails to deliver any reports that are due, fails to pay any royalties or fees due, breaches any material clause of the agreement, or failure to inform the Licensor of a petition to file for voluntary or involuntary bankruptcy; ii) at the option of the Licensee by giving 90 days written notice to the Licensor.
The agreement further provides for an annual royalty to be paid to the Licensor at a rate of 2% per annum on net sales, excluding any sales to Government agencies. The agreement provides for a minimum fee of $50,000 per annum up until December 31, 2022. The fee will be deducted from any royalties due in excess of the fee due for that financial year. The Company has not paid any royalties on a percentage basis, and has only paid the minimum fee since entering into the agreement.
Future annual minimum payments required under license agreement obligations at June 30, 2014, are as follows:
Amount
|
||||
2015
|
$
|
50,000
|
||
2016
|
50,000
|
|||
2017
|
50,000
|
|||
2018
|
50,000
|
|||
2019 and thereafter
|
200,000
|
|||
Total
|
$
|
400,000
|
Licenses consist of the following:
June 30,
2014
|
December 31,
2013
|
|||||||
(Unaudited)
|
||||||||
Licenses, at cost
|
$
|
972,000
|
$
|
972,000
|
||||
Less: Accumulated amortization
|
(454,951
|
)
|
(429,110
|
)
|
||||
$
|
517,049
|
$
|
542,890
|
The aggregate amortization expense charged to operations was $25,841 and $25,842 for the six months ended June 30, 2014 and 2013, respectively. The aggregate amortization expense charged to operations was $12,921 for the three months ended June 30, 2014 and 2013. The amortization policies followed by the Company are described in Note 2.
F-8
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4.
|
INTANGIBLE ASSETS (continued)
|
Amortization expense for future periods is summarized as follows:
Amount
|
||||
Remainder of 2014
|
$
|
25,843
|
||
2015
|
51,684
|
|||
2016
|
51,684
|
|||
2017
|
51,684
|
|||
2018 and thereafter
|
336,154
|
|||
Total
|
$
|
517,049
|
Patents
The Company has various patents pending or registered in its name. These patents have been internally generated and all costs associated with the research and development of these patents has been expensed.
The patents assigned to Caldera are as follows:
●
|
Well Plate – apparatus for preparing samples for measurement by x-ray fluorescence spectrometry. Patent filed August 15, 2008
|
●
|
Method and Apparatus for measuring Protein Post Translational Modification. Patent filed September 26, 2008.
|
●
|
Method and Apparatus for Measuring Analyte Transport across barriers. Patent filed July 1, 2009.
|
5.
|
PLANT AND EQUIPMENT
|
Plant and equipment consists of the following:
June 30,
2014
|
December 31,
2013
|
|||||||
(Unaudited)
|
||||||||
Leasehold improvements
|
$
|
6,393
|
$
|
6,393
|
||||
Furniture and fittings
|
25,346
|
23,099
|
||||||
Laboratory equipment
|
876,786
|
837,882
|
||||||
Computer equipment
|
24,000
|
19,044
|
||||||
Vehicles
|
-
|
17,658
|
||||||
Total
|
932,525
|
904,076
|
||||||
Accumulated depreciation
|
(489,784
|
)
|
(450,375
|
)
|
||||
$
|
442,741
|
$
|
453,701
|
The aggregate depreciation charge to operations was $54,780 and $55,650 for the six months ended June 30, 2014 and 2013, respectively. The aggregate depreciation charge to operations was $27,821 and $28,044 for the three months ended June 30, 2014 and 2013, respectively. The depreciation policies followed by the Company are described in Note 2.
6.
|
OTHER PAYABLES AND ACCRUED EXPENSES
|
June 30,
2014
|
December 31,
2013
|
|||||||
(Unaudited)
|
||||||||
Short-term portion
|
||||||||
Credit card liabilities
|
$
|
38,609
|
$
|
11,670
|
||||
Vacation and Sick Pay accrual
|
130,401
|
147,980
|
||||||
Other payables
|
-
|
168,000
|
||||||
Payroll liabilities
|
63,020
|
47,192
|
||||||
Other
|
42,179
|
39,050
|
||||||
$
|
274,209
|
$
|
413,892
|
The other payables relates to the settlement liability owing to Bellows disclosed under Litigation in note 16 below.
F-9
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7.
|
LOANS PAYABLE
|
June 30,
2014
|
December 31,
2013
|
|||||||
(Unaudited)
|
||||||||
Short term portion
|
||||||||
Los Alamos County project participation loan
|
$
|
33,697
|
$
|
32,870
|
||||
Los Alamos Bank term loan
|
-
|
247,912
|
||||||
33,697
|
280,782
|
|||||||
Long term portion
|
||||||||
Los Alamos County project participation loan
|
159,978
|
177,053
|
||||||
Total
|
$
|
193,675
|
$
|
457,835
|
The amortization of the principal outstanding on the loans payable is as follows:
Amount
|
||||
Within 1 year
|
$
|
33,697
|
||
1 to 2 years
|
35,421
|
|||
2 to 3 years
|
37,233
|
|||
3 to 4 years
|
39,138
|
|||
Thereafter
|
48,186
|
|||
Total
|
$
|
Los Alamos County project participation loan
The Company entered into a Project Participation Agreement (as Amended) and a Loan Agreement with the Incorporated County of Los Alamos as of September 21, 2006. The Agreement provided for funding up to a maximum of $2,200,000 for the construction of a building and purchase of equipment. The maximum amount of equipment to be funded out of the total available loan of $2,200,000 was $625,000. The term of the loan is 13 years. The loan agreement provided for no repayments for 36 months with 120 equal monthly repayments commencing on September 21, 2009. The interest rate on the loan is 5% per annum. The assets funded in terms of the Project Participation Agreement and the Loan Agreement is to be used as security for the balance of the loan outstanding. The Company made use of the loan to purchase assets amounting to $302,009 during the 2007 financial year. Repayments of the loan commenced on September 21, 2009 at an interest rate of 5% per annum with equal monthly repayments of $3,547, inclusive of interest. The Company owed $193,675 and $209,923 as of June 30, 2014 and December 31, 2013, respectively.
Los Alamos National Bank (“LANB”)
On September 16, 2013 the Company executed a term loan agreement for $267,392 with LANB to replace a previous revolving draw loan and a previous commercial loan. The loan carried interest at the Wall Street Journal Prime rate plus 2.0% with a floor of 7.0% per annum. The loan was due to mature on September 16, 2016 and was repayable in 36 monthly installments of $8,256, inclusive of interest, which installment may vary depending on the variable interest rate mentioned above. This loan was secured by accounts receivable and other rights to payments, instruments, documents and other chattel paper, general intangibles and fixed assets. This loan had been advanced to both the Company and XRpro Corp., a wholly owned subsidiary, jointly and severally, and had been guaranteed by Dr. Benjamin Warner and his wife. On April 11, 2014, the remaining balance on the term loan together with interest thereon, totaling $227,717 was repaid. The guarantees provided by Dr. Benjamin Warner and his wife have also been cancelled. The Company owed $247,912 as of December 31, 2013.
F-10
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8.
|
DERIVATIVE FINANCIAL LIABILITY
|
The warrants arising from the previous issue of Bridge notes (“Bridge Warrants”) have anti-dilution protection, whereby the exercise price of the warrant will re-price, based on a pre-determined formula, if any securities are sold, exercisable or convertible at a price less than the exercise price of the Bridge Warrants. This gives rise to a derivative financial liability, which was originally valued at $118,232 using a Black-Scholes valuation model.
The warrants arising from the previous issue of series B preferred units (“Series B Stock”), together with the placement agent warrants directly related to that issue, have anti-dilution protection, whereby the exercise price of the warrant will re-price, based on a pre-determined formula, if any securities are sold, exercisable or convertible at a price less than the exercise price of the series B warrants. This gives rise to a derivative financial liability, which was originally valued at $1,745,836 and recorded as a deemed dividend expense, as of the date of issuance of the series B stock using a Black-Scholes valuation model.
The value of the derivative financial liability will be re-assessed at each financial reporting period, with any movement thereon recorded in the statement of operations in the period in which it is incurred.
The value of the derivative financial liability was re-assessed as of June 30, 2014 resulting in a net charge to the unaudited consolidated statement of operations of $685,002 for the six months ended June 30, 2014.
June 30,
2014
|
December 31,
2013
|
|||||||
(Unaudited)
|
||||||||
Opening balance
|
$
|
944,121
|
$
|
17,539
|
||||
Derivative financial liability arising on bridge warrants with re-pricing terms
|
-
|
100,693
|
||||||
Derivative financial liability arising on the issue of warrants relating to Series B shares
|
-
|
1,745,837
|
||||||
Fair value adjustments
|
685,002
|
(919,948
|
)
|
|||||
$
|
1,629,123
|
$
|
944,121
|
The following assumptions were used in the Black-Scholes valuation model:
Six months ended
June 30,
2014
|
||||
Calculated stock price
|
$
|
1.13
|
||
Risk-free interest rate
|
1.62
|
%
|
||
Expected life of warrants
|
3.5 to 6 Years
|
|||
Expected volatility of the underlying stock
|
118.1
|
%
|
||
Expected dividend rate
|
0
|
%
|
F-11
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9.
|
PREFERRED STOCK
|
Preferred Stock consists of 10,000,000 authorized preferred shares of $0.001 par value each of which 400,000 are designated as Series A 8% convertible redeemable preferred shares of $0.001 each and 3,000,000 are designated as Series B convertible preferred shares of $0.001 each, with the remaining 6,600,000 preferred shares remaining undesignated.
Series A 8% Convertible, Redeemable Preferred Stock (“Series A Stock”)
Series A Stock consists of 400,000 designated shares of $0.001 par value each, 105,000 shares issued and outstanding as of June 30, 2014 and December 31, 2013.
Conversion
The Series A Stock will convert to common stock of the Company at a price of $5.70 per share of Common Stock subject to adjustment for stock splits, stock dividends and any further recapitalizations. The Series A Stock is subject to voluntary conversion at the option of the stockholder at any time and is mandatory convertible at the option of the Company provided the Company’s common stock is trading on a recognized stock exchange or Over the Counter Bulletin Board and the volume weighted average price of the Company’s common stock is at least $10 per share, subject to stock splits, stock dividends and recapitalizations.
Warrants
The original holders of Series A Stock had received warrants to purchase 341,607 shares of the Company’s common stock at an exercise price of $5.70 per share. The warrants expire five years after date of issuance. In terms of the exchange agreement entered into with the Company on April 30, 2013, these warrants remain in place. These warrants are not transferable without the consent of the Company and an opinion of Counsel satisfactory to the Company.
Redemption
Should the Company receive net proceeds of at least $3 million from litigation proceedings against the Regents of the University of California and Los Alamos National Security (see note 16); the remaining Series A stockholders will have the option to redeem the Series A Stock equal to 130% of the initial investment in the Company by the stockholder, which amounted to $210,000. This value differs from the carrying value of the Series A Stock of $133,350 which was valued using the Black-Scholes valuation model at the time of exchanging common stock for Series A Stock. The Company also has the option to redeem the Series A Stock at a price equal to 130% of the initial investment in the Company by the stockholder at any time after giving the investors notice and allowing them to exercise their conversion rights into common stock 30 days after notice has been received.
Liquidation
The liquidation rights of the Series A Stock is the greater of $5.70 per share plus any unpaid dividends or an amount that would have been payable had all shares of Series A Stock converted into common stock immediately prior to liquidation.
Dividends
The Series A Stock carries an 8% cumulative, non-compounded dividend payable on January 31st, each year in cash or in kind at the option of the Series A stockholder. For any other dividends or distributions, the Series A Stock is treated on an as- converted basis.
An accrual for Series A Stock dividends of $23,951 and $57,095 was made for the six months ended June 30, 2014, and 2013, respectively. An accrual for Series A Stock dividends of $12,042 and $18,341 was made for the three months ended June 30, 2014, and 2013, respectively.
F-12
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9.
|
PREFERRED STOCK (continued)
|
Series B Convertible Preferred Stock (“Series B Stock”)
Series B Stock consists of 3,000,000 designated shares of $0.001 par value each and 2,133,947 shares issued and outstanding as of June 30, 2014 and December 31, 2013.
The following is a summary of material provisions of the Series B Stock as set forth in the Certificate of Designations.
Conversion
Subject to adjustment as more fully described herein, each Series B Stock is currently convertible at the option of the holder into one share of Common Stock. Each Series B Stock (together with any accrued but unpaid dividends thereon) is convertible into shares of Common Stock at the option of the holder at any time at a conversion price per share equal to the sum of the Stated Value and any accrued but unpaid dividends thereon through the date of notice of conversion divided by the Conversion Price, subject to adjustment as described below. The initial Conversion Price shall be equal to the Stated Value. If the Company merges or sells its assets, holders of Series B Stock will be entitled to receive on conversion the securities or property (including cash) of the successor corporation that they would have received as a result of that merger or sale if they had converted immediately beforehand. At any time after the Common Stock is listed on a national securities exchange as defined in the Securities Exchange Act of 1934, the Company may cause the conversion of the Series B Stock, plus accrued but unpaid dividends into shares of Common Stock, each Series B Stock convertible into such number of shares of Common Stock as shall equal the sum of the Stated Value plus any accrued but unpaid dividends through the date of conversion divided by the lower of the then conversion price and the market price of the Company’s Common Stock. Market Price is defined as the average of the reported closing sales price of the Common Stock for each of the five trading days for which a closing sales price is reported immediately preceding the day prior to the conversion.
Liquidation
In the event of a liquidation, dissolution or winding up of the Company and other Liquidation Events as defined in the Certificate of Designations, holders of Series B Stock are entitled to receive from proceeds remaining after distribution to the Company’s creditors and prior to the distribution holders of Common Stock or any other class of preferred stock the (x) Stated Value (as adjusted for any stock splits, stock dividends, reorganizations, recapitalizations and the like) held by such holder and (y) all accrued but unpaid dividends on such shares.
Anti-Dilution
If the Company issues Common Stock or securities convertible, exercisable or exchangeable into Common Stock for a purchase price of less than $2.50 per share then the holders of the Series B Stock will be entitled to a weighted-average” adjustment in the number of common shares that their Series B Stock can be converted into; provided, however, that there will be no adjustment to the number of shares of Common Stock that the Series B Stock can be converted into for (i) issuance or sale of Common Stock or options or other awards under the Corporation’s equity incentive plans or programs not to exceed 2,000,000 shares of Common Stock; (ii) issuance or sale of preferred stock or Common Stock issuable upon conversion, exchange or exercise of the Series A Stock or Series B Stock, the Bridge Notes, the Warrants issued in connection with the exchange of the Bridge Notes, the Warrants issued in connection with the issuance of the Series B Stock to the holders thereof, any Warrants issued to the Placement Agent or its designees in connection with the issuance of the Series B Stock or as an advisory fee or any other convertible securities or warrants outstanding on the date hereof; (iii) issuance of equity securities or rights to purchase equity securities issued in connection with commercial property or lease transactions that are approved by the Board of Directors; (iv) issuance of equity securities or rights to purchase equity securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination approved by the Board of Directors; (v) issuance of securities to an entity as a component of any business relationship with such entity primarily for the purpose of (A) joint venture, technology or licensing development activities; (B) distribution, supply or manufacture of the Company’s products or services; or (C) any other arrangements involving corporate partners primarily for purposes other than raising capital, the terms of which business relationship with such entity are approved by the Board of Directors; and (vi) issuance of stock pursuant to a stock dividend or stock split.
Voting
Except as otherwise required by law and except as set forth below, holders of Series B Stock will, on an as-converted basis, vote together with the Common Stock as a single class. Each holder of Series B Stock is entitled to cast the number of votes equal to two times the number of shares of Common Stock into which such shares of Series B Stock could be converted at the record date for determining stockholders entitled to vote at the meeting. The approval by holders of a majority of the Series B Stock, voting separately as a class, will be required for the creation of any class or series of preferred stock ranking senior to or pari passu with the Series B Stock as to payments of dividends or upon the liquidation of the Company.
Financials
As soon as practicable after the filing of the Company’s Quarterly Report on Form 10-Q and its Annual Report on Form 10-K, the Holders of the Series B Stock shall be entitled to receive, upon request, a consolidated balance sheet of the Company, if any, as of the end of such fiscal year or quarter, and consolidated statements of operations and consolidated statements of cash flows and stockholders’ equity of the Company, if any, for such year or quarter, prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail.
Dividends
Series B Stock accrue dividends at the rate per annum equal to (i) 8% of the sum of (x) the Stated Value and (y) the amount of accrued and unpaid dividends payable, out of funds legally available for payment, on January 31st of each year, if paid in cash, or (ii) 10% of the sum of (x) the Stated Value and (y) the amount of accrued and unpaid dividends payable, out of funds legally available for payment, on January 31st of each year, if paid in shares of Common Stock, based upon a price of $2.50 per share of Common Stock. The Company shall have the option, to pay any such dividends in cash or shares of Common Stock. Such dividends shall be in preference and priority to any payment of any dividend on Common Stock, or any other class of preferred stock. Dividends are cumulative.
An accrual for Series B Stock dividends of $281,176 and $90,490 was made for the six months ended June 30, 2014 and 2013, respectively. An accrual for Series B Stock dividends of $143,092 and $90,490 was made for the three months ended June 30, 2014 and 2013, respectively.
F-13
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
10.
|
COMMON STOCK
|
Common stock consists of 50,000,000 authorized shares of $0.001 each, 4,693,770 and 4,851,270 shares issued and 4,039,770 and 4,197,270 shares outstanding as of June 30, 2014 and December 31, 2013, respectively.
On March 6, 2014, in terms of a settlement agreement into, as disclosed under litigation in note 16 below, the 157,500 Common shares issued to Los Alamos National Security LLC were returned to Caldera and all future claims against the equity of Caldera were extinguished. These shares were cancelled and are available for reissue.
11.
|
WARRANTS
|
The following table summarizes warrants outstanding and exercisable as of June 30, 2014:
Warrants Outstanding
|
Warrants Exercisable
|
|||||||||||||||||||
Exercise Price
|
Number of
shares
|
Weighted
average
remaining
contractual
years
|
Weighted Average
Exercise Price
|
Number of
Shares
|
Weighted Average
exercise Price
|
|||||||||||||||
$
|
0.01
|
40,000
|
6.00
|
40,000
|
||||||||||||||||
$
|
2.00
|
15,000
|
2.34
|
15,000
|
||||||||||||||||
$
|
2.50
|
1,271,664
|
5.83
|
1,271,664
|
||||||||||||||||
$
|
2.75
|
286,800
|
6.00
|
286,800
|
||||||||||||||||
$
|
3.00
|
300,000
|
3.60
|
300,000
|
||||||||||||||||
$
|
5.70
|
384,407
|
1.94
|
384,407
|
||||||||||||||||
2,297,871
|
4.89
|
$
|
3.09
|
2,297,871
|
$
|
3.09
|
12. STOCK BASED COMPENSATION
|
In October 2005, the Company's Board of Directors adopted the Caldera Pharmaceuticals, Inc. 2005 Stock Option Plan (the "Plan"), which permits awards of incentive and nonqualified stock options and other forms of incentive compensation to employees and non-employees such as directors and consultants. The Board has set aside 3,000,000 shares of common stock for issuance upon exercise of grants made under the Plan. Options granted under the Plan vest either immediately or over a period of up to two years, and expire 1 year to 10 years from the grant date. At June 30, 2014, 1,038,196 shares were available for future grant under the Incentive Plan.
Stock option based compensation expense totaled $247,264 and $229,259 for the six months ended June 30, 2014 and 2013, respectively and $60,741 and $185,326 for the three months ended June 30, 2014 and 2013, respectively. The Company expenses the value of stock options on a straight line basis over the life of the options. The fair value of the options granted is determined using the Black-Scholes option-pricing model.
The following weighted average assumptions were used for the six months ended June 30, 2014:
Six months ended
June 30,
2014
|
||||
Calculated stock price
|
$
|
1.13
|
||
Risk-free interest rate
|
1.59% to 2.6
|
%
|
||
Expected life of options
|
5- 10 Years
|
|||
Expected volatility of the underlying stock
|
118.1
|
%
|
||
Expected dividend rate
|
0
|
%
|
As noted above, the fair value of stock options is determined by using the Black-Scholes option-pricing model. For all options granted since October 1, 2005 the Company has generally used option terms of between 1 to 10 years. The volatility of the common stock is estimated using historical data of companies similar in size and in the same industry as Caldera Pharmaceuticals. The risk-free interest rate used in the Black-Scholes option-pricing model is determined by reference to historical U.S. Treasury constant maturity rates with maturities approximate to the life of the options granted. An expected dividend yield of zero is used in the option valuation model, because the Company does not expect to pay any cash dividends in the foreseeable future. As of June 30, 2014, the Company does not anticipate any awards will be forfeited in the calculation of compensation expense due to the limited number of employees that receive stock option grants.
No options were exercised for the six months ended June 30, 2014 and the year ended December 31, 2013.
We canceled options exercisable for 625 and 40,625 shares of common stock for the six months ended June 30, 2014 and the year ended December 31, 2013, respectively, held by employees whose service to our company terminated during those respective periods. The shares underlying such options were returned to and are available for re-issuance under the 2005 Plan pursuant to the terms described above.
F-14
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
12. STOCK BASED COMPENSATION (continued)
|
A summary of all of our option activity during the period January 1, 2013 to June 30, 2014 is as follows:
Shares
|
Exercise
price per
share
|
Weighted
average
exercise price
|
||||||||||
Outstanding January 1, 2013
|
506,154
|
$
|
0.20 - 5.71
|
$
|
3.14
|
|||||||
Granted
|
1,184,900
|
1.50 - 5.71
|
2.00
|
|||||||||
Forfeited/Cancelled
|
(40,625
|
)
|
2.00 - 5.71
|
4.09
|
||||||||
Exercised
|
-
|
-
|
-
|
|||||||||
Outstanding December 31, 2013
|
1,650,429
|
$
|
0.20 - 5.71
|
$
|
2.31
|
|||||||
Granted
|
312,000
|
2.50
|
2.50
|
|||||||||
Forfeited/Cancelled
|
(625
|
)
|
5.71
|
5.71
|
||||||||
Exercised
|
-
|
-
|
-
|
|||||||||
Outstanding June 30, 2014
|
1,961,804
|
$
|
0.20 - 5.71
|
$
|
2.34
|
Stock options outstanding as of June 30, 2014 and December 31, 2013, as disclosed in the above table, have an intrinsic value of $33,750 and $33,325, respectively.
The following tables summarize information about stock options outstanding as of June 30, 2014:
Options Outstanding
|
Options Exercisable
|
|||||||||||||||
Exercise Price
|
Number of
shares
|
Weighted average
remaining
contractual years
|
Weighted Average
Exercise Price
|
Number of
Shares
|
Weighted Average
exercise Price
|
|||||||||||
$
|
0.20
|
30,000
|
7.84
|
30,000
|
||||||||||||
$
|
1.10
|
220,000
|
6.67
|
220,000
|
||||||||||||
$
|
1.50
|
625,000
|
8.71
|
625,000
|
||||||||||||
$
|
2.00
|
15,000
|
1.38
|
15,000
|
||||||||||||
$
|
2.50
|
856,900
|
6.64
|
184,458
|
||||||||||||
$
|
5.71
|
214,904
|
3.84
|
214,904
|
||||||||||||
1,961,804
|
7.18
|
$
|
2.34
|
1,289,362
|
$
|
2.25
|
The weighted-average grant-date fair values of options granted during the six months ended June 30, 2014 and the year ended December 31, 2013 was $302,080 ($0.97 per option) and was $1,296,119 ($1.09 per option), respectively. As of June 30, 2014 there were unvested options to purchase 672,442 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is $683,242, which is expected to be recognized over a period of 45 months.
F-15
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
13. NET INCOME/(LOSS) PER COMMON SHARE
|
Basic income/(loss) per share is based on the weighted-average number of common shares outstanding during each period. Diluted income/(loss) per share is based on basic shares as determined above plus the incremental shares that would be issued upon the assumed exercise of “in-the-money” stock options and warrants using the treasury stock method and the inclusion of all convertible securities, including preferred stock and convertible notes, assuming these securities were converted at the beginning of the period or at the time of issuance, if later. The computation of diluted net income/(loss) per share does not assume the issuance of common shares that have an anti-dilutive effect on net income/(loss) per share.
The computation of basic and diluted earnings per share is as follows:
For the six months ended June 30, 2014
|
||||||||||||
Income
|
Shares
|
Per share amount
|
||||||||||
Net income
|
$
|
4,368,314
|
||||||||||
Preferred stock dividends
|
(305,127
|
)
|
||||||||||
Basic Earnings per share
|
||||||||||||
Income available to common stockholders
|
4,063,187
|
4,096,331
|
$
|
0.99
|
||||||||
Effect of dilutive securities
|
||||||||||||
Warrants
|
-
|
39,645
|
||||||||||
Options
|
-
|
29,947
|
||||||||||
Series A Preferred stock
|
23,951
|
105,000
|
||||||||||
Series B Preferred stock
|
281,176
|
2,133,947
|
||||||||||
Diluted Earnings per share
|
||||||||||||
Income available to common stockholders and assumed conversions
|
$
|
4,368,314
|
6,404,870
|
$
|
0.68
|
For the six months ended June 30, 2014 options to purchase 1,711,804 shares of common stock and warrants to purchase 2,257,871 shares of common stock were excluded from the computation of diluted earnings per share as the option and warrant exercise prices was greater than the average market price of the common shares. These options and warrants were still outstanding as of June 30, 2014.
For the three months ended June 30, 2014 and the three and six months ended June 30, 2013 the following options, warrants and convertible preferred stock were excluded from the computation of diluted net loss per shares as the result of the computation was anti-dilutive:
Three months
ended
June 30,
2014
(Shares)
|
Three and
six months ended
June 30,
2013
(Shares)
|
|||||
Options to purchase shares of common stock
|
1,961,804
|
1,129,404
|
||||
Warrants
|
2,297,871
|
2,282,471
|
||||
Series A convertible, redeemable preferred stock
|
105,000
|
105,000
|
||||
Series B convertible preferred stock
|
2,133,947
|
2,119,947
|
||||
6,498,622
|
5,636,822
|
14. RELATED PARTY TRANSACTIONS
|
The majority of the common shares in the Company are owned by Dr. Benjamin Warner, the Chief Scientific Officer. As of June 30, 2014 and December 31, 2013, Dr. Benjamin Warner owned 78.9% and 76.0%, respectively of the issued and outstanding shares of common stock on an un-diluted basis.
Effective April 1, 2014, the Company appointed Mr. Timothy Tyson as Non Executive Chairman of the Board. Mr. Tyson has been a director of the Company from October 1, 2013. Mr. Warner who had served as our Chairman of the Board from inception to March 31, 2014, relinquished this position.
Mr. Tyson entered into an agreement with the Company whereby he is entitled to fees of $120,000 per annum and options to purchase 132,000 shares of common stock at an exercise price of $2.50 per share were granted to Mr. Tyson. These options will vest equally over a twenty four month period. The agreement also includes confidentiality obligations and inventions assignments by Mr. Tyson.
F-16
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
15. OPERATING LEASES
|
The Company entered into a laboratory and office lease agreement for 2,813 square feet in Cambridge, Massachusetts effective June 1, 2013. The term of the lease was for a twelve month period which terminated on May 31, 2014. The lease agreement was renewed for a further two year period, expiring on May 31, 2016 for a monthly rental of $16,291. The rental charge for the six months ended June 30, 2014 amounted to $93,887.
The Company entered into a corporate apartment lease agreement in Cambridge, Massachusetts effective June 4, 2013. The term of the lease was for a twelve month period and terminated on June 3, 2014. The monthly rental amounts to $3,325. Rental expense for the six months ended June 30, 2014 amounted to $16,625. Subsequent to the six months ended June 30, 2014, this lease was not renewed and was replaced by another corporate apartment lease commencing on August 1, 2014 for a period of one year for a monthly rental of $2,500 per month.
The Company’s office lease in New Mexico terminated in October 2013 and has not been renewed. This lease is ongoing as a month to month lease for $5,075 per month. Rental expense for the six months ended June 30, 2014 was $30,452.
On February 4, 2014, the Company entered into a second corporate apartment lease in Cambridge Massachusetts. The term of the lease is for fourteen months, terminating on April 30, 2015. The monthly rental amounts to $2,897.
Rental expense for the six months ended June 30, 2014 amounted to $13,465.
Future annual minimum payments required under operating lease obligations as of June 30, 2014, are as follows:
Amount
|
||||
2014
|
$
|
127,622
|
||
2015
|
224,775
|
|||
2016
|
83,384
|
|||
$
|
435,781
|
16. LITIGATION
|
Suit against The Regents of the University of California, Los Alamos National Security, et al.
On March 6, 2014, the Company and Dr. Benjamin Warner entered into a confidential settlement agreement with Los Alamos National Security LLC (“LANS”), The Regents of the University of California, the UChicago Argonne, LLC and certain individuals (“the Parties”) relating to the following:
(i)
|
a lawsuit, Caldera Pharmaceuticals, Inc. v. The Regents of the University of California, et al., Case No. CGC-07-470554, brought in the Superior Court of the State of California, County of San Francisco;
|
(ii)
|
a lawsuit, Caldera Pharmaceuticals, Inc. v. Los Alamos National Security, LLC, et al., Case No. 1:10-cv-06347, brought in the United States District Court for the District of New Mexico; and
|
(iii)
|
a lawsuit, Caldera Pharmaceuticals, Inc. v. The Regents of the University of California, et al., Case No. 2011-L-9329, brought in the Circuit Court of Cook County, Illinois, County Department – Law Division and dismissed without prejudice on or about July 26, 2013 (collectively the “Actions”).
|
The agreement called for the Parties to:
(i)
|
mutually release each other from all existing, past, present or future claims, counter-claims, demands and causes of action;
|
(ii)
|
amend the Company’s license agreement with Los Alamos National Security LLC, to include rights to certain issued and pending patents;
|
(iii)
|
return of 157,500 shares of the Company’s Common stock; and
|
(iv)
|
pay the Company $7,000,000, which resulted in a net cash settlement of approximately $5,852,000 after the deduction of legal expenses.
On July 5, 2013, the Company entered into a fee agreement with Dentons US LLP (“Dentons”), our previous legal counsel, which called for a payment of 50% of any settlement up to $6 million and 5% thereafter. The agreement also called for Dentons to cooperate with the Company by making its partners and/or employees available to furnish information or reasonable assistance in connection with any future disqualification proceedings, as reasonably requested by the Company. Subsequent to signing the agreement the Company determined that Dentons had egregiously breached this cooperation clause. As a result, the Company has suffered significant harm. The Company further believes that due to Dentons breach of its contract with the Company, Dentons is not owed any amount under the breached agreement and the Company is also considering its legal remedies in regard to the harm it has suffered.
There is no certainty as to how Dentons will respond to the Company's claims or to the ultimate amount that the Company may collect from or have to pay to Dentons.
The proceeds received of $7,000,000 and any additional proceeds we may receive or any additional expenditure incurred on this matter was and will be recognized as income or expense in future periods. No liability to Dentons has been recorded by the Company.
|
F-17
CALDERA PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
16. LITIGATION (continued)
|
Joel Bellows Suit
On January 18, 2014, the Company reached a settlement agreement with Bellows during a pre-trial settlement conference. Subsequent to the pre-trial settlement conference, the parties were unable to agree to terms relating to the conversion of preferred A shares to yet-to-be issued preferred B shares. On April 30, 2013, the Circuit Court of Cook County, Illinois, compelled the Company to execute a version of the settlement agreement proposed by Bellows incorporating a conversion formula that the Company expressly rejected. The Circuit Court also dismissed Bellows’ lawsuit against the Company pursuant to the settlement agreement. The Company has, thus far, performed the terms of the Court ordered settlement agreement under protest and reservation of rights. The Company has paid Bellows $240,000 pursuant to the disputed settlement agreement, together with interest thereon. The Company has also issued 105,000 shares of Series A Stock to Joel Bellows, in exchange for his 105,000 common shares under protest and reservation of rights. The Company’s motion for reconsideration of the April 30, 2013, order was heard on September 25, 2013 and denied. On December 5, 2013, the Company and Dr. Benjamin Warner filed a notice of appeal. The Company’s appeal is pending in the First District Appellate Court of Illinois
Citation to Recover Property filed against the Company and others
On June 14, 2014, in a proceeding to probate the estate of Sigmund Eisenschenk (“Estate”) pending in the Circuit Court of Cook County, Illinois, a claimant, QTM Ventures, LLC (“Claimant”) was granted leave to file a Petition for Citation to Recover Property against the Company, Aaron Crane and Gregg Ryzepcynski.
In the Petition for Citation to Recover Property, the Claimant alleges that the Company; i) breached its fiduciary duties to the deceased by wrongfully repurchasing 472,500 shares of Company’s common stock held by the deceased in the Company at a nominal value based upon the false assertion that the deceased breached a financing agreement; ii) conspired with Aaron Crane to divest the Estate of assets, and not protect the Estates assets; iii) committed fraud by failing to properly notify the deceased of the Company’s repurchase of the 472,500 shares of the Company’s common stock, at a nominal value, held by the deceased in the Company; and iv) converted the deceased’s shares by repurchasing the shares to prevent them from being acquired by the creditors to the Estate.
The Claimant seeks the following relief:
i.
|
An award for damages plus interest for any and all losses suffered by the Estate and the Claimant;
|
ii.
|
Punitive damages against the Company;
|
iii.
|
Attorney’s fees and costs for the claimant;
|
iv.
|
Any further relief deemed fit by the court.
|
On July 11, 2014, the Company removed the Petition for Citation to Recover to the Northern District of Illinois. The Company’s response to the Petition for Citation to Recover is due by August 19, 2014. The Company believes that the Citation to recover Property is entirely without merit and intends to aggressively defend against the claims.
17. SUBSEQUENT EVENTS
|
Effective August 11, 2014, the Company entered into a Severance Agreement and Release (“the Agreements”) whereby Gary Altman, the Company’s Chief Executive Officer will be resigning, effective August 29, 2014.
Set forth below is a description of the terms of the Agreements that the Company deems to be material; however, the description is qualified in its entirety by the complete description of all of the terms of the Agreement:
●
|
Mr. Altman has irrevocably and voluntarily resigned from his position as Chief Executive Officer of Caldera and from the Board of Directors of the Company and all of its subsidiaries or affiliates as of August 29, 2014.
|
||
●
|
As of August 29, 2014 Mr. Altman will have no further obligation or authority to perform duties and functions on behalf of the Company and/or its subsidiaries or affiliates and will refrain from performing such duties or functions; however, Mr. Altman agreed to cooperate with the Company as necessary for the business of the Company when requested by the President, Chief Executive Officer and/or Chairperson of the Board.
|
||
●
|
In addition to accrued and unpaid base salary and expense reimbursement, the Company has paid Mr. Altman Five Thousand Dollars ($5,000) and will pay Mr. Altman an additional Three Hundred Twenty Thousand Dollars ($320,000) within seven days after August 29, 2014 as well as reimbursement for certain legal fees and moving expenses, provided that Mr. Altman does not violate the terms of the Agreement.
|
||
●
|
The Company will provide Mr. Altman with reimbursement of COBRA premiums (less the amount Mr. Altman was required to pay under the Company’s health plans through the earlier of (i) December 31, 2015; (ii) the date Mr. Altman is no longer eligible to receive COBRA; and (iii) the date Mr. Altman becomes eligible to receive substantially similar coverage from another employer, to the extent permitted under applicable law:
|
||
●
|
Mr. Altman’s ability to exercise all stock options issued to him will vest immediately after the Effective Date of the Agreement and options exercisable for 25,000 shares of common stock shall be exercisable at any time prior to the seven year anniversary of the date of grant and the remainder shall be exercisable for 90 days after August 29, 2014.
|
||
●
|
For a period commencing on the Effective Date of the Agreement and ending one year after the Effective Date, Mr. Altman agreed not to, directly or indirectly, either for himself or any other person, own, manage, control, materially participate in, invest in, permit his name to be used by, act as consultant or advisor to, render material services for (alone or in association with any person, firm, corporation or other business organization) or otherwise assist in any manner any business which is a competitor of the Company and/or its subsidiaries or affiliates.
|
Other than disclosed above, the Company has evaluated subsequent events through the date the unaudited consolidated financial statements were available to be issued, and has concluded that no such events or transactions took place that would require disclosure herein.
F-18
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein and the risk factors and the financial statements and the other information set forth in our Annual Report on Form 10-K for the year ended December 31, 2013. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission.
Cautionary Note Regarding Forward-Looking Statements
This report and other documents that we file with the Securities and Exchange Commission contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management’s assumptions. Statements that are not historical facts are forward-looking statements. Words such as “expect,” “outlook,” “forecast,” “would,” “could,” “should,” “project,” “intend,” “plan,” “continue,” “sustain”, “on track”, “believe,” “seek,” “estimate,” “anticipate,” “may,” “assume,” and variations of such words and similar expressions are often used to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, those described in our reports that we file or furnish with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements after the date they are made, whether as a result of new information, future events, changes in assumptions or otherwise.
Overview and Financial Condition
The Company uses proprietary x-ray fluorescence technology called XRpro® to deliver ion channel screening, ion channel kinetics and custom screening services to our customers. Our proprietary technology is designed to detect and quantitatively analyze the x-ray signature of each element with an atomic number greater than 10, we combine the flexibility of the analysis with patented sample processing to address a wide range of ion channel and other biological targets. We believe that our technology can reduce the cost of drug discovery by detecting safety and efficacy issues at an early stage of development. To date, substantially all of our revenue has been derived from our analytical services that we have performed for United States governmental agencies. However, we expect that our future revenue will be derived from: (i) provision of our analytical drug discovery services to commercial customers as well as United States governmental agencies; and, (ii) to a lesser extent, sales of new drug candidates that we identify using the XRpro® drug discovery instruments.
To date, we have financed our operations primarily through private sales of our securities, revenue derived from our analytical services that we have performed for United States governmental agencies and settlement of legal matters. We expect to continue to seek to obtain the required capital through the private sale of our securities and revenue derived from United States Governmental Agencies.
We have recently employed a vice president of business development and are actively pursuing the commercialization of our products and services. We cannot provide any assurance that we will be able to commercialize our products and services or that we will achieve profitability on a sustained basis, if at all.
Discussions with respect to our Company’s operations included herein include the operations of our operating subsidiary, XRpro Corp. Our Company formed XRpro Corp. on July 9, 2010. We have no other operations than those of Caldera Pharmaceuticals, Inc. and XRpro Corp.
Recent Developments
Effective August 11, 2014, the Company entered into a Severance Agreement and Release (“the Agreements”) whereby Gary Altman, the Company’s Chief Executive Officer will be resigning, effective August 29, 2014.
Set forth below is a description of the terms of the Agreements that the Company deems to be material; however, the description is qualified in its entirety by the complete description of all of the terms of the Agreement:
●
|
Mr. Altman has irrevocably and voluntarily resigned from his position as Chief Executive Officer of Caldera and from the Board of Directors of the Company and all of its subsidiaries or affiliates as of August 29, 2014.
|
||
●
|
As of August 29, 2014 Mr. Altman will have no further obligation or authority to perform duties and functions on behalf of the Company and/or its subsidiaries or affiliates and will refrain from performing such duties or functions; however, Mr. Altman agreed to cooperate with the Company as necessary for the business of the Company when requested by the President, Chief Executive Officer and/or Chairperson of the Board.
|
||
●
|
In addition to accrued and unpaid base salary and expense reimbursement, the Company has paid Mr. Altman Five Thousand Dollars ($5,000) and will pay Mr. Altman an additional Three Hundred Twenty Thousand Dollars ($320,000) within seven days after August 29, 2014 as well as reimbursement for certain legal fees and moving expenses, provided that Mr. Altman does not violate the terms of the Agreement.
|
||
●
|
The Company will provide Mr. Altman with reimbursement of COBRA premiums (less the amount Mr. Altman was required to pay under the Company’s health plans through the earlier of (i) December 31, 2015; (ii) the date Mr. Altman is no longer eligible to receive COBRA; and (iii) the date Mr. Altman becomes eligible to receive substantially similar coverage from another employer, to the extent permitted under applicable law:
|
||
●
|
Mr. Altman’s ability to exercise all stock options issued to him will vest immediately after the Effective Date of the Agreement and options exercisable for 25,000 shares of common stock shall be exercisable at any time prior to the seven year anniversary of the date of grant and the remainder shall be exercisable for 90 days after August 29, 2014.
|
||
●
|
For a period commencing on the Effective Date of the Agreement and ending one year after the Effective Date, Mr. Altman agreed not to, directly or indirectly, either for himself or any other person, own, manage, control, materially participate in, invest in, permit his name to be used by, act as consultant or advisor to, render material services for (alone or in association with any person, firm, corporation or other business organization) or otherwise assist in any manner any business which is a competitor of the Company and/or its subsidiaries or affiliates.
|
1
Results of Operations for the three months ended June 30, 2014 and the three months ended June 30, 2013.
Revenues
We had revenues totaling $82,662 and $82,881 for the three months ended June 30, 2014 and 2013, respectively, a decrease of $219 or 0.3%. Substantially all of our revenues have been derived from federal government contracts. Our revenue is dependent on the number of contracts we have in operation and the progress we have made on these contracts to date. We have an order backlog in the form of firm fixed price government contracts. We were awarded a $1,000,000 grant from the NIH on August 24, 2011 which was fully utilized and expired on July 31, 2012. An additional $1,000,000 was made available for us to invoice our project time and expenses against on August 2, 2012, which was fully utilized and expired on July 31, 2013 with a further $1,000,000 made available for us to invoice our project time and expenses against on July 9, 2013, initially expiring on July 31, 2014, and recently extended to July 31, 2015, of which we have received approximately $662,000 to date, depending on availability of government funding and satisfactory progress made on the project. We believe that these are firm orders as there are no indications that funding will not be available and we believe that we have made satisfactory progress on the project to date. The funds available under this grant are earned by us on a percentage-of-completion basis, based on the costs we incur as a measure of the progress made on the project.
Going forward, based on financing, we plan to market our XRpro® services and educate potential customers concerning the advantages and value propositions of the XRpro® technology. While we are optimistic about our prospects, since this is a relatively new product offering with significantly different characteristics compared with existing equipment on the market (and we have not recognized significant revenues to date), there can be no assurance about whether or when our products will generate sufficient revenues with adequate margins in order for us to be profitable.
We are pursuing several leads for the use of our technology by several significant companies within the pharmaceutical and industrial sectors; however there can be no assurance that such leads will be successful and result in revenue.
Cost of goods sold
Cost of goods sold totaled $165,441 and $99,624 for the three months ended June 30, 2014 and 2013, respectively, an increase of $65,817 or 66.1%. Our cost of goods sold is dependent on the progress made on each project to date. Cost of goods sold is primarily comprised of direct expenses related to providing our services under our contracts. These expenses include salary expenses directly related to research contracts, recoverable expenses incurred on contracts, the cost of outside consultants, and direct materials used on our contracts. The salary expense included in cost of sales for the three months ended June 30, 2014 and 2013 respectively was $60,438 and $36,804, an increase of $23,634 or 64.2% due to man hours spent on the NIH contract mentioned above. For additional information regarding salary expense reference is made to the discussion of total salary expense in selling, general and administrative expenses below. Included in cost of sales for the three months ended June 30, 2014 and 2013, respectively was laboratory supplies and direct materials of $78,476 and $62,821, an increase of $15,655 or 24.9%, the increase is primarily due to the acquisition of a cell line which will be utilized on commercial customer projects amounting to $22,750. During the three months ended June 30, 2014 and 2013, respectively, outside contractors costs amounted to $25,312 to $0, outside contractors have been hired during the current year to improve our technical skills in the laboratory.
Gross loss
Gross loss was $82,779 and $16,743 for the three months ended June 30, 2014 and 2013, respectively, an increase of $66,036, an increase in loss of 394.4%. The increase in gross loss is directly related to more man hours spent on the government contracts as opposed to recoverable machine time which is at significantly higher margins. The gross profit percentage earned may not be indicative of anticipated future results due to the Company’s plan to diversify its source of revenues into the provision of services or usage arrangements.
2
Selling, general and administrative expenses
Selling, general and administrative expenses totaled $794,523 and $926,945 for the three months ended June 30, 2014 and 2013, respectively, a decrease of $132,422 or 14.3%.
The major expenses making up selling, general and administrative expenses included the following:
Three months ended
June 30,
|
Increase/
|
Percentage
|
||||||||||||||
2014
|
2013
|
(decrease)
|
change
|
|||||||||||||
Marketing and selling expenses
|
$
|
14,053
|
$
|
2,150
|
$
|
11,903
|
553.6
|
%
|
||||||||
|
||||||||||||||||
Salary expenses
|
194,040
|
138,525
|
55,515
|
40.1
|
%
|
|||||||||||
|
||||||||||||||||
Research and development salaries
|
85,162
|
39,972
|
45,190
|
113.1
|
%
|
|||||||||||
|
||||||||||||||||
Directors fees
|
48,750
|
-
|
48,750
|
100.0
|
%
|
|||||||||||
|
||||||||||||||||
Stock option compensation charge
|
60,741
|
185,326
|
(124,585
|
)
|
(67.2
|
)%
|
||||||||||
|
||||||||||||||||
Legal fees
|
88,591
|
211,266
|
(122,675
|
)
|
(58.1
|
)%
|
||||||||||
Legal settlement accrual
|
-
|
115,273
|
(115,273
|
)
|
(100.0
|
)%
|
||||||||||
|
||||||||||||||||
Consulting fees
|
88,736
|
101,876
|
(13,140
|
)
|
(12.9
|
)%
|
||||||||||
|
||||||||||||||||
Audit fees and taxation services
|
4,200
|
7,560
|
(3,360
|
)
|
(44.4
|
)%
|
||||||||||
Repairs and maintenance
|
6,850
|
7,497
|
(647
|
)
|
(8.6
|
)%
|
||||||||||
Recruiting fees
|
17,000
|
295
|
16,705
|
*
|
%
|
|||||||||||
Rent
|
77,299
|
34,111
|
43,188
|
126.6
|
%
|
|||||||||||
|
||||||||||||||||
Travel expenditure
|
31,551
|
22,238
|
9,313
|
41.9
|
%
|
|||||||||||
$
|
716,973
|
$
|
866,089
|
$
|
(149,116
|
)
|
(17.2
|
) %
|
* In excess of 1,000%
Marketing and selling expenses for the three months ended June 30, 2014, primarily consists of website design and development expenses incurred to improve our digital message for potential customers. Marketing and selling expenses for the three months ended June 30, 2013 were insignificant.
Total salary expenses are allocated to the various expense categories detailed below depending on the level of activity of our employees on government and commercial projects, internal research and development expenses and administrative activities. An increase in activity on projects will result in an increase in salary expense charged to cost of sales with a corresponding decrease in salary expense charged to selling, general and administrative expenses. A comparison of salary expenses is presented below.
Total salary expenditure for the three months ended June 30, 2014 and 2013, respectively was included in the following expense categories:
Three months ended
June 30,
|
Increase/
|
Percentage
|
||||||||||||||
2014
|
2013
|
(decrease)
|
change
|
|||||||||||||
Cost of sales
|
$
|
60,438
|
$
|
36,804
|
$
|
23,634
|
64.2
|
%
|
||||||||
Selling, general and administrative expenses
|
194,040
|
138,525
|
55,515
|
40.1
|
%
|
|||||||||||
Research and development salaries
|
85,162
|
39,972
|
45,190
|
113.1
|
%
|
|||||||||||
|
||||||||||||||||
$
|
339,640
|
$
|
215,301
|
$
|
124,339
|
57.8
|
%
|
The increase in total salary expenditure for the three months ended June 30, 2014 of $124,339 is primarily due to the employment of Gary Altman, as our CEO, effective July 1, 2013, resulting in an increased expense of $79,167 for the three months ended June 30, 2014; the employment of a senior scientist at our Cambridge location resulting in an increased expense of $31,250 for the three months ended June 30, 2014 and the employment of a VP of business development at an increased cost of $29,167, offset by the resignation of our controller, resulting in a saving of $13,500 for the three months ended June 30, 2014 and a decrease in our vacation and sick pay provision based on the number of days due to our employees.
The salary expense included in cost of sales for the three months ended June 30, 2014 increased by $23,634 or 64.2%. The increased salary expense in the current period was due to scientist time spent on the NIH contract mentioned above.
The salary expense charged to Selling, general and administrative expenses for the three months ended June 30, 2014 increased by $55,515 or 40.1% due to the employment of a CEO and a VP of business development resulting in an overall increase in salary expenditure.
Research and development salaries for the three months ended June 30, 2014 increased due to the employment of a new senior scientist and the allocation of more scientific time to develop products for commercial applications.
3
Directors’ fees payable to certain non-executive directors and our non-executive chairman was introduced with effect from April 1, 2014, resulting in a $45,000 charge for the quarter ended June 30, 2014.
The stock option compensation charge in the prior year was primarily due to the issue of 625,000 options to management and certain consultants. These options were fully amortized as of March 31, 2014. The charge for the three months ended June 30, 2014 is primarily due to the 514,900 options issued to our CEO and 312,000 options issued to our non-executive directors and chairman, certain consultants and our VP of business development during the current three month period.
Legal fees decreased by $122,675 over the prior period due to the conclusion of substantially all of the legal proceedings in the Bellows matter and the LANS mater. For additional information on our legal matters, see Item 3- Legal Proceedings. The legal expenses incurred on the LANS and Bellows matters are not connected with our regular business activities and should be viewed as non-operating expenses.
The increase in the legal settlement accrual expense of $115,273 in the prior year relates to the valuation of series A shares issued to Mr. Bellows in terms of a legal settlement agreement reached with him.
The decrease in consulting fees of $13,140 is primarily due to a reduction in consulting expenses of $50,000 paid to our CEO for the two months ended June 30, 2013, offset by an investor relations consulting arrangement entered into during the second quarter of the prior year and the resumption of a management consulting arrangement which was originally terminated in the first quarter of the prior year.
The decrease in audit fees and taxation services of $3,360 is due to the timing of payments made in the prior year, audit fees are accrued for in the current period.
Repairs and maintenance expense represents minor equipment repairs and the amortization of a prepaid maintenance contract on an x-ray fluorescence machine.
Recruiting fees of $17,000 was incurred for the sourcing of our vice president of business development. The position was filled effective from May 1, 2014.
Rent has increased by $43,188 due to the establishment of a second laboratory in Cambridge at a monthly cost of approximately $15,100 from June, 1, 2103, and in addition to this; we rent a corporate apartment in Cambridge for approximately $3,325 per month and recently entered into a second corporate apartment rental for approximately $2,900 per month in February 2014.
Depreciation and Amortization
We recognized depreciation expenses of $27,821 and $28,044 for the three months ended June 30, 2014 and 2013, respectively, the slight decrease in our depreciation expense is due to the disposal of two vehicles we no longer require and the full depreciation of two significant laboratory equipment assets in the prior year, partially offset by new laboratory equipment assets acquired for the Cambridge laboratory. The depreciation expense is primarily made up of depreciation of our laboratory equipment, which makes up the vast majority of our capital equipment.
Amortization expense was $12,921 for the three months ended June 30, 2014 and 2013. Amortization expenses relates to the amortization of license fees paid to Los Alamos National Laboratories for the use of certain patents.
Interest expense
Interest expense totaled $3,065 and $119,794 for the three months ended June 30, 2014 and 2013, respectively. The interest expense in the prior year included amortization of bridge note discount of $109,681 before these Bridge notes were converted into equity. All interest bearing liabilities, with the exception of the Los Alamos County loan were repaid during the current period resulting in a net reduction in interest expense.
Change in derivative liabilities
The fair value of derivative liabilities was re-assessed as of June 30, 2014 using a Black Scholes valuation model resulting in the increase of the liability by $131,582 , the movement in liability is dependent upon external market factors.
Net loss
Net loss totaled $(1,052,665) and $(1,044,155) for the three months ended June 30, 2014 and 2013, respectively. The increase in net loss is discussed above.
4
Results of Operations for the six months ended June 30, 2014 and the six months ended June 30, 2013.
Revenues
We had revenues totaling $336,882 and $320,295 for the six months ended June 30, 2014 and 2013, respectively, an increase of $16,587 or 5.2%. Substantially all of our revenues have been derived from federal government contracts. Our revenue is dependent on the number of contracts we have in operation and the progress we have made on these contracts to date. We have an order backlog in the form of firm fixed price government contracts. We were awarded a $1,000,000 grant from the NIH on August 24, 2011 which was fully utilized and expired on July 31, 2012. An additional $1,000,000 was made available for us to invoice our project time and expenses against on August 2, 2012, which was fully utilized and expired on July 31, 2013 with a further $1,000,000 made available for us to invoice our project time and expenses against on July 9, 2013, initially expiring on July 31, 2014, and recently extended to July 31, 2015, of which we have received $662,000 to date, depending on availability of government funding and satisfactory progress made on the project. We believe that these are firm orders as there are no indications that funding will not be available and we believe that we have made satisfactory progress on the project to date. The funds available under this grant are earned by us on a percentage-of-completion basis, based on the costs we incur as a measure of the progress made on the project.
Going forward, based on financing, we plan to market our XRpro® services and educate potential customers concerning the advantages and value propositions of the XRpro® technology. While we are optimistic about our prospects, since this is a relatively new product offering with significantly different characteristics compared with existing equipment on the market (and we have not recognized significant revenues to date), there can be no assurance about whether or when our products will generate sufficient revenues with adequate margins in order for us to be profitable.
We are pursuing several leads for the use of our technology by several significant companies within the pharmaceutical and industrial sectors; however there can be no assurance that such leads will be successful and result in revenue.
Cost of goods sold
Cost of goods sold totaled $342,413 and $271,723 for the six months ended June 30, 2014 and 2013, respectively, an increase of $70,690 or 26.0%. Our cost of goods sold is dependent on the progress made on each project to date. Cost of goods sold is primarily comprised of direct expenses related to providing our services under our contracts. These expenses include salary expenses directly related to research contracts, recoverable expenses incurred on contracts, the cost of outside consultants, and direct materials used on our contracts. The salary expense included in cost of sales for the six months ended June 30, 2014 and 2013 respectively was $138,538 and $117,744, an increase of $20,794 or 17.7% due to increased man hours spent on Government contracts. For additional information regarding salary expense reference is made to the discussion of total salary expense in selling, general and administrative expenses below. Included in cost of sales for the six months ended June 30, 2014 and 2013, respectively was laboratory supplies and direct materials of $157,965 and $153,980, the use of laboratory supplies is dependent on the amount of supplies used in developing assays for significant pharmaceutical customers. During the six months ended June 30, 2014 and 2013, respectively, outside contractors costs amounted to $42,365 and $0, outside contractors have been hired during the current period to improve our technical skills in the laboratory.
Gross (loss)/profit
Gross (loss)/profit was $(5,531) and $48,572 for the six months ended June 30, 2014 and 2013, respectively, a decrease of $54,103, or 111.4%. The decrease in gross profit is directly related to the reduction in higher margin recoverable machine time. The gross profit percentage earned may not be indicative of anticipated future results due to the Company’s plan to diversify its source of revenues into the provision of services or usage arrangements.
5
Selling, general and administrative expenses
Selling, general and administrative expenses totaled $2,028,482 and $1,489,991 for the six months ended June 30, 2014 and 2013, respectively, an increase of $538,491 or 36.1%.
The major expenses making up selling, general and administrative expenses included the following:
Six months ended
June 30,
|
Increase/
|
Percentage
|
||||||||||||||
2014
|
2013
|
(decrease)
|
change
|
|||||||||||||
Marketing and selling expenses
|
$
|
14,053
|
$
|
10,011
|
$
|
4,042
|
40.4
|
%
|
||||||||
|
||||||||||||||||
Salary expenses
|
338,831
|
261,325
|
77,506
|
29.7
|
%
|
|||||||||||
|
||||||||||||||||
Research and development salaries
|
157,565
|
75,403
|