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REGISTRATION NO. 333-_________

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

CALDERA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		3826		20-0982060
(State or jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered		Amount to be Registered (1)				Proposed Maximum Offering Price Per Share  (2)				Proposed Maximum Aggregate Offering Price				Amount of Registration Fee
Shares of common stock, par value $0.001			765,120			$	$5.00			$	3,825,600			$	438.42
Shares of common stock, par value $0.001 to be issued upon the exercise of outstanding warrants and convertible preferred stock			633,144			$	$5.00			$	3,165,750			$	362.79
Total shares being registered			1,398,264							$	6,991,350			$	801.21

 

(1) In accordance with Rule 416(a), the registrant is also registering hereunder an indeterminate number of shares that may be issued and resold resulting from stock splits, stock dividends or similar transactions.

 

(2) Estimated in accordance with Rule 457(c) of the Securities Act of 1933 solely for the purpose of computing the amount of the registration fee based on the recent sales of unregistered securities on February 13, 2012.

 

(3) Calculated under Section 6(b) of the Securities Act of 1933 as .00011460 of the aggregate offering price.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

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THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2012

 

PRELIMINARY PROSPECTUS

 

CALDERA PHARMACEUTICALS, INC.

 

1,398,264 SHARES OF COMMON STOCK

 

This prospectus relates to the resale and other disposition from time to time of up to 1,398,264 shares of our common stock by the selling stockholders identified under the section entitled “Selling Stockholders” on page 27. The shares of common stock offered consist of: (i) 765,120 shares of our common stock and (ii) 633,144 shares of our common stock issuable upon exercise of outstanding warrants to purchase common stock or conversion of Series A preferred shares into common stock. We issued all of the issued securities described above in private placement transactions completed prior to the filing of this registration statement.

 

The shares included in this prospectus may be reoffered and sold directly by the selling shareholders in accordance with one or more of the methods described in the plan of distribution, which begins on page 31 of this prospectus. We are not selling any shares of our common stock in this offering and therefore we will not receive any proceeds from the sales by the selling stockholders. Instead the shares may be offered and sold from time to time by the selling shareholders at a fixed price of $5.00 per share until the shares are quoted, if ever, on the OTC Bulletin Board or another exchange and thereafter at prevailing market prices or privately negotiated prices. We may receive proceeds from any exercise of outstanding warrants if and when such warrants are exercised for cash.

 

Our common stock does not presently trade on any exchange or electronic medium. Although we hope to be quoted on the OTC Bulletin Board, which is maintained by NASDAQ, no assurance can be given that our common stock will be quoted on the OTC Bulletin Board or any other quotation service.

 

Investing in the Company’s securities involves a high degree of risk. You should carefully consider the risks and uncertainties described under the heading “Risk Factors” which begin on page 7 of this prospectus before making a decision whether to purchase our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is ____________, 2012.

 

 

 

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	Pa ge
PROSPECTUS SUMMARY	1
RISK FACTORS	3
USE OF PROCEEDS	12
BUSINESS	12
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION	18
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS	23
EXECUTIVE COMPENSATION	24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	26
SELLING SECURITY HOLDERS	27
PLAN OF DISTRIBUTION	30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	31
DESCRIPTION OF SECURITIES	31
EXPERTS	33
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES	33
LEGAL MATTERS	33
WHERE YOU CAN FIND MORE INFORMATION	34
PART II	II-1

 

 

 

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You should rely only on the information that we have provided in this prospectus. We have not authorized anyone to provide you with different information and you must not rely on any unauthorized information or representation. We are not making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. This document may only be used where it is legal to sell these securities. You should assume that the information appearing in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus, or any sale of our common stock. Our business, financial condition and results of operations may have changed since the date on the front of this prospectus. We urge you to carefully read this prospectus before deciding whether to invest in any of the common stock being offered.

PROSPEC TUS SUMMARY

 

The following summary highlights material contained in this prospectus. This summary does not contain all the information you should consider before investing in our securities. Before making an investment decision, you should read the entire prospectus carefully, including the "Risk Factors" section, the financial statements and the notes to the financial statements that appear elsewhere in this prospectus.

Business Overview

Our Company, Caldera Pharmaceuticals, Inc. (“Caldera,” “Company,” Our”, “we”), is a research and development company engaged in various aspects of drug discovery. The cornerstone of our business is our unique technology based on direct chemical analysis of protein-drug combinations by means of micro X-ray fluorescence spectroscopy. We currently offer our customers analytical services using our technology to evaluate drug candidates for safety and efficacy. 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 three lines of business: (i) provision of our analytical drug discovery services to both the government sector and private sector; (ii) sale or lease of new drug candidates that we may identify using the XRpro® drug discovery instruments that we are currently developing and commercialization; and (iii) sale of our drug discovery instruments. We intend to expand our customer base by offering our analytical services to biotechnical and pharmaceutical customers in addition to the government sector.  In an effort to increase revenue, we are currently developing  stand- alone units, our XRpro® drug discovery instruments, that can be licensed or sold to customers to allow them to use our technology to conduct the same analytical services that we provide.  We also anticipate deriving revenue from the development of drugs that are presented to us when conducting our chemical analysis.

 

We were incorporated in the State of Delaware on November 12, 2003.  On March 14, 2011, the Company filed a First Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware increasing the authorized common shares from 10,000,000 to 50,000,000 and the issuance of up to 10,000,000 preferred shares. Subsequently, we filed a Certificate of Designations on March 14, 2011, which designated all of our 10,000,000 shares of preferred stock as Series A preferred stock.   The Company has reserved up to 3,000,000 shares for issuance to employees, directors and others in accordance with the terms of our 2005 Stock Option Plan.

 

Our principal executive offices are located at 278 DP Road Suite D Los Alamos, New Mexico 87544 our telephone number is (505) 661-2420.  We maintain a corporate website at www.cpsci.com .  Information found on our website is not part of this prospectus.

 

 

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The Offering

Shares of our common stock offered for re-sale by the selling stockholders pursuant to this prospectus		1,398,264
Common stock currently outstanding		4,291,620
Proceeds to the Company		We will not receive any proceeds from the resale or other disposition of the shares covered by this prospectus by any selling shareholder.  We will receive net proceeds from the exercise of the warrants to purchase shares of our common stock covered by this prospectus which would total $1,834,460 if all the warrants were exercised for cash payment.
Risk Factors		There are significant risks involved in investing in our Company.  For a discussion of risk factors you should consider before buying our common stock see “Risk Factors” beginning on page 7

 

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RISK FA CT ORS

 

Investment in our common stock involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included herein before making an investment decision.  If any of the following risks actually occur, our business, financial condition or results of operations could suffer. In that case, the market price of our common stock could decline, and you may lose all or part of your investment.  

RISKS RELATED TO OUR BUSINESS

We have a history of losses and there can be no assurance that we will generate or sustain positive earnings.

For the years ended December 31, 2010 and December 31, 2009, we had a net loss of ($864,881) and ($144,549), respectively, and for the nine months ended September 30, 2011 and September 30, 2010, we had a net loss of ($1,358,791) and ($683,613), respectively.  We cannot be certain that our business strategy will ever be successful. Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with any emerging business operations. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Future revenues and profits, if any, will depend upon various factors, including the success, if any, of our expansion plans, marketability of our instruments and services, our ability to maintain favorable relations with manufacturers and customers, and general economic conditions. There is no assurance that we can operate profitably or that we will successfully implement our plans. There can be no assurance that we will ever generate positive earnings.

Substantially all of our net revenue has been generated from services provided to governmental agencies.  If such agencies were to no longer use our services, our net revenue and results of operations would be adversely affected.

 

To date we have derived substantially all of our revenue from services we performed for two governmental agencies.  For the year ended December 31, 2010 all of our revenue was derived from nine (9) different research projects for two governmental agencies and for the year ended December 31, 2009 all of our revenue was derived from ten (10) different research projects for the same two governmental agencies.  For the nine months ended September 30, 2011 ninety six percent (96%) of our revenue was derived from six (6) different research projects for the same two governmental agencies and for the nine months ended September 30, 2010 all of our revenue was derived from nine (9) different research projects for the same two governmental agencies. If there were to be a decline in the demand for our services from governmental agencies,  or the two governmental agencies from which we have received funding were required to reduce spending, our net revenue would be significantly impacted, which would negatively affect our business, financial condition and results of operations and may affect our ability to continue operations.

If we cannot establish profitable operations, we will need to raise additional capital to continue our operations, which may not be available on commercially reasonable terms, or at all, and which may dilute your investment.

We incurred a net loss for the year ended December 31, 2010 of ($864,881). Achieving and sustaining profitability will require us to increase our revenues and manage our product, operating and administrative expenses. We cannot guarantee that we will be successful in achieving profitability. If we are unable to generate sufficient revenues to pay our expenses and our existing sources of cash and cash flows are otherwise insufficient to fund our activities, we will need to raise additional funds to continue our operations. Other than our $750,000 funding facility, we do not have any arrangements in place for additional funds. If needed, additional funds may not be available on favorable terms, or at all. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we are unsuccessful in achieving profitability and we cannot obtain additional funds on commercially reasonable terms or at all, we may be required to curtail significantly or cease our operations, which could result in the loss of all of your investment in our stock.

Our financial statements had been prepared assuming that the Company will continue as a going concern.

 

We have generated losses to date and have limited working capital. We incurred a net loss of ($864,881) and ($144,549) for the years ended December 31, 2010 and 2009, respectively. At December 31, 2010 we had an accumulated deficit of ($3,659,878) and a working capital deficiency of ($224,771). These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from this uncertainty. The report of our independent registered public accounting firm for the years ended December 31, 2010 and 2009 when originally issued included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern in their audit report included herein. If we cannot generate the required revenues and gross margin to achieve profitability or obtain additional capital on acceptable terms, we will need to substantially revise our business plan or cease operations and an investor could suffer the loss of a significant portion or all of his investment in our Company.

 

 

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We may not receive the benefit of the use of our net operating loss carryforward.

Although our financial statements reflect a net operating loss carryforward, we may not receive benefit of its use.  Internal Revenue Code Section 382, and similar state rules, place a limitation on the amount of taxable income that can be offset by carry-forwards after a change in control (generally greater than a 50% change in ownership.

There is uncertainty as to market acceptance of our technology and products.

Until recently, our business has been solely dependent upon revenue derived from government agencies for services performed by us. We have not yet sold our XRpro® instruments to third parties nor have any drug candidates been commercialized from our technology. There can be no assurance that our XRpro® instruments will be accepted in the market or that our commercialization efforts will be successful.

 

The life sciences research instrumentation market is characterized by rapid technological change and frequent new product introductions. Our future success may depend on our ability to enhance our current products and to develop and introduce, on a timely basis, new products that address the evolving needs of our customers. We may experience difficulties or delays in our development efforts with respect to new products and the provision of our services, and we may not ultimately be successful in developing or commercializing them, which would harm our business. Any significant delay in releasing products or providing services could cause our revenues to suffer, adversely affect our reputation, give a competitor a first-to-market advantage or cause a competitor to achieve greater market share. In addition, our future success depends on our continued ability to develop new applications for our existing products and continuing to provide our current services. If we are not able to complete the development of these applications, or if we experience difficulties or delays, we may lose our current customers and may not be able to attract new customers, which could seriously harm our business and our future growth prospects.

 

We rely heavily on a single source for a major part of our product, and the partial or complete loss of this supplier could cause customer supply or production delays and a substantial loss of revenues.

We rely on one outside vendor, Bruker Nano GmbH, to manufacture substantial portions of critical hardware that will be used with or included in our XRpro® instruments. We have an agreement with Bruker Nano GmbH for an indefinite period of time to develop a product that incorporates our technology with a product already produced by Bruker. Our agreement with Bruker provides that we will not develop, manufacture, or distribute products that compete directly or indirectly with the product that is supplied by Bruker and incorporated into the XRPro® instruments during the term of the agreement and for a period of three years subsequent to the termination of the agreement if we should terminate the agreement for any reason. Our agreement with Bruker may be terminated by either party without cause upon six (6) months prior written notice.  Bruker is located in Berlin, Germany and its ability to perform the agreement will be affected by the quality controls in Germany, which may be different than those in the Unites States, as well as the regional or worldwide economic, political or governmental conditions.  Disruptions in international trade and finance or in transportation may have a material adverse effect on our business, financial condition and results of operation.  Any significant disruption in those operations for any reason, such as regulatory requirements, scheduling delays, quality control problems, loss of certifications, power interruptions, fires, hurricanes, war or threats of terrorism, labor strikes, contract disputes, could adversely affect our sales and customer relationships. There can be no assurances that a third party contract manufacturer will be able to meet the design specifications of our technology.

Our reliance on one manufacturer is expected to continue and involve several other risks including limited control over the availability of components, delivery schedules, pricing and product quality. We may experience delays, additional expenses and lost sales because of our dependency upon a single manufacturer. If Bruker cannot supply us with adequate equipment in a timely manner, or if we are unable to locate a suitable alternative supplier or at favorable terms, our business could be materially adversely impacted.  While we believe alternative manufacturers exist, we have not specifically identified any alternative manufacturer and may not be able to replace Bruker if we need to in a timely fashion.

Our reliance on a sole supplier involves several risks, including the following:

·	our supplier of required parts may cease or interrupt production or otherwise fail to supply us with an adequate supply of required parts for a number of reasons, including contractual disputes with our supplier or adverse financial developments at or affecting the supplier;

·	we have reduced control over the pricing of third party-supplied materials, and our supplier may be unable or unwilling to supply us with required materials on commercially acceptable terms, or at all;

·	we have reduced control over the timely delivery of third party-supplied materials; and

·	our supplier may be unable to develop technologically advanced products to support our growth and development of new systems.

 

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In addition, i n the event of a breach of law by us or a breach of a contractual obligation that has an adverse effect upon our operations, we will have little or no recourse because all of our manufacturer’s assets are located in Germany. In addition, it may not be possible to effect service of process in Germany and uncertainty exists as to whether the courts in Germany would recognize or enforce judgments of U.S. courts obtained against a German company.

We must expend a significant amount of time and resources to develop new products, and if these products do not achieve commercial acceptance, our operating results may suffer.

We expect to spend a significant amount of time and resources to develop new products and refine existing products, and have spent significant time and money developing our XRpro® instruments . In light of the long product development cycles inherent in our industry, these expenditures will be made well in advance of the prospect of deriving revenues from the sale of new products. Our ability to commercially introduce and successfully market new products is subject to a wide variety of challenges during this development cycle that could delay introduction of these products. In addition, since our potential customers are not expected to be obligated by long-term contracts to purchase our products, our anticipated product orders may not materialize, or orders that do materialize may be canceled. As a result, if we do not achieve market acceptance of new products, our operating results will suffer. Our products may also be priced higher than competitive products, which may impair commercial acceptance. We cannot predict whether new products that we expect to introduce will achieve commercial acceptance.

 

Our Chief Executive Officer  beneficially owns and  controls a substantial portion of our outstanding common stock, which may limit your ability and the ability of our other stockholders, whether acting alone or together, to propose or direct the management or overall direction of our Company.

 

The concentration of ownership of our stock could discourage or prevent a potential takeover of our Company that might otherwise result in an investor receiving a premium over the market price for his shares. A substantial portion of our outstanding shares of common stock is beneficially owned and controlled by our Chief Executive Officer a. Accordingly, our Chief Executive Officer would have the power to control the election of our directors and the approval of actions for which the approval of our stockholders is required. If you acquire shares of our common stock, you may have no effective voice in the management of our Company. Such concentrated control of our Company may adversely affect the price of our common stock. Our principal stockholders may be able to control matters requiring approval by our stockholders, including the election of directors, mergers or other business combinations. Such concentrated control may also make it difficult for our stockholders to receive a premium for their shares of our common stock in the event we merge with a third party or enter into different transactions which require stockholder approval. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.

USE OF PR O CEEDS

We will not receive any proceeds from the sale of the common stock by the selling security holders pursuant to this prospectus. All proceeds from the sale of the shares will be for the account of the selling security holders.

BUSIN ES S

 

We were incorporated in the State of Delaware on November 12, 2003.  On March 14, 2011, the Company filed a First Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware increasing the authorized common shares from 10,000,000 to 50,000,000 and the issuance of up to 10,000,000 preferred shares. Subsequently, we filed a Certificate of Designations on March 14, 2011, which designated all of our 10,000,000 shares of preferred stock as Series A preferred stock.   See “Risk Factors – Issuance of preferred stock could hurt holders of common stock ” on page 15.   The Company has reserved up to 3,000,000 shares for issuance to employees, directors and others in accordance with the terms of our 2005 Stock Option Plan.

 

History

Caldera was founded by Dr. Benjamin Warner in 2003 at the request of the then director of Los Alamos National Laboratory (“LANL”) for the purpose of commercializing previous work done by Dr. Warner at LANL regarding the use of x-ray fluorescence to measure the chemical composition of pharmaceuticals. Dr. Warner earned his PhD in Chemistry from the Massachusetts Institute of Technology (“MIT”) in 1995. After MIT, Dr. Warner joined LANL where he held various positions including the position of Project Leader for National Security Programs from 2000 until 2004.

 

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While at LANL, Dr. Warner patented through the auspices of the University of California (then the manager of LANL) his improvement to x-ray fluorescence technology that allowed it to be used to measure nanograms of material. This improvement made x-ray fluorescence economically feasible to measure the chemical composition of pharmaceuticals.

Dr. Warner has won numerous awards from Los Alamos National Laboratory for his commercialization and patenting work, including the Distinguished Licensing Award, the Distinguished Entrepreneurial Award, the Distinguished Patent Award, and the Federal Laboratory Consortium Distinguished Service Award. Jointly with LANL, Caldera Pharmaceuticals won the 2007 Federal Laboratory Consortium Award for Excellence in Technology Transfer and an R&D100 Award. Caldera has won multiple Technology Ventures Corporation awards for top technology companies in New Mexico.

Our Current and Future Business

We are a research and development firm engaged in various aspects of drug discovery. The cornerstone of our business is our unique technology that is based on direct chemical analysis of protein-drug combinations by means of micro X-ray fluorescence spectroscopy. We currently offer our customers analytical services using our technology to evaluate drug candidates for safety and efficacy. 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 three lines of business: (i) provision of our analytical drug discovery services; (ii) sale of our drug discovery instruments; and (iii) sale of new drug candidates that we identify using the XRpro® drug discovery instruments that we are currently developing and commercialization. We intend to expand our customer base to begin providing our analytical services to biotechnical and pharmaceutical customers in addition to the government sector.   We have developed a stand-alone unit, of our XRpro® drug discovery instrument that can be sold to customers, such as pharmaceutical and biotech companies that would allow them to use our technology to conduct the same analytical services that we provide for the United States government.  We also anticipate deriving revenue from the development of drugs that are presented to us when conducting our chemical analysis.

XRpro® Drug Discovery Services

We currently derive substantially all of our revenue from the provision of our analytical drug discovery services to the federal government. The Company believes that due to the unique properties of its technology there is the potential to expand its customer base to include private enterprises, such as pharmaceutical companies which conduct large-scale research and development of new drug candidates.  As a result, the Company plans to expand its outsourced drug discovery and screening services to include a larger customer base, primarily targeting pharmaceutical companies.

XRpro® Drug Discovery Instruments

The   XRpro® instrument is a high-throughput x-ray fluorescence microscope. In July 2011, we entered into an exclusive contract with Bruker Nano GmbH, a German company engaged in the manufacture and sale of components and systems for micro and nanoanalysis of electron microscopes, to customize its desk top analyzer by incorporating our improvements and intellectual property into its already existing product. The agreement is for an indefinite term but may be terminated by either party without cause upon six months notice or immediately upon the happening of certain events, including bankruptcy, violation of export laws and nonpayment of commitments of $100,000 or more.  The agreement includes a non-competition provision specifying that we cannot copy the product manufactured by Bruker and that Bruker will not sell such product to any third party or end user that competes with us.

We have not sold any XRpro® instruments; however, we have begun initial marketing of the XRpro® instrument. Although the Company has not shipped XRpro® instruments to the private sector, we believe that use of the XRopro instrument can demonstrate significant cost savings by allowing pharmaceutical companies to combine multiple safety and efficacy tests in the drug discovery process at a price substantially lower than current industry standards without the need to modify the drug, protein, or cell, or use expensive reagents.

New Drug Candidates

We are developing new drug candidates, primarily paid for by Federal contracts. We have developed new molecules including new MRI contrast agents, radiopharmaceuticals, anti-infectives, and therapies for heavy metal toxicity. These chemicals have been developed using our XRpro® technology and have been tested using in vitro safety and efficacy models. We plan to further develop these molecules as far as possible using Federal contracts and grants that pay for substantially all the research and development costs. We obtained a $3,000,000 grant in August 2011 to conduct animal trials for one of our drug candidates.

 

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Our Analysis Technology

Our XRpro® technology quantifies drug/protein interactions without the need to modify the drug, protein, or cell, or use expensive reagents.  Many technologies require that expensive reagents (substances that are added to a system in order to bring about a  chemical reaction  or is added to see if a reaction occurs) or “labels” be used to measure the properties of drug candidates during the drug discovery process. These reagents are expensive, and can introduce experimental errors, wasting billions of dollars each year. Label-free technologies are particularly sought by the pharmaceutical industry because it is believed that they provide superior data at lower cost. Our high-throughput XRpro® technology measures approximately 2,000,000 compounds per month. Our technology measures multiple parameters for both drugs and proteins. This allows, for example, the ability to measure multiple interactions between a single drug and multiple proteins in a single measurement.  We therefore measure on-target (i.e., efficacy) and off-target ( i.e. side effects/toxicity) properties simultaneously.

Our high-throughput XRpro® technology does not require the use of expensive reagents, chemical dyes or radiological labels, which are commonly required for competing techniques. The use of a reagent in the analysis process, for a typical high-throughput campaign, can typically cost up to $0.50 per compound. Based on such costs, we believe that our XRpro® technology saves the customer approximately $500,000 per month for a typical high-throughput screening rate of 1,000,000 compounds per month.

We believe that our ability to provide our services in a cost and time efficient manner will allow us to profitably offer and expand our XRpro® drug discovery services to biotech and pharmaceutical companies as well as to cost-effectively continue our development of new drug candidates.

Scientific Advantages of XRpro ®

The pharmaceutical industry uses assays to measure the properties of experimental medicines. XRpro® allows multiple assays to be conducted at significantly lower costs than existing techniques.  XRpro® assays include:

•	Functional Assays, or to what extent a drug inhibits a protein target;

•	Binding Assays, or whether a drug binds to a protein;

•	Cell Assays, such as whether a drug acts upon a cell model for a disease;

•	Ion Channel Assays, or whether a drug inhibits hERG protein, which is associated with cardiotoxicity;

Some of the key features of XRpro® are the following:

•	Price of the instrument - XRpro® is priced similar to other instruments that have large monthly reagent or label costs;

•	Monthly costs - XRpro® dramatically reduces costs by eliminating the need for reagents, antibodies and labels, allowing savings of approximately $500K per month;

•	Fast -. XRpro® currently runs at a rate of 2,000,000 measurements per month;

•	Sensitive - XRpro® measures nanograms of material, which has allowed us to reduce protein consumption tenfold in some cases;

•	Precise - XRpro® has demonstrated Z-Factors, which are a common measurement of assay precision, above 0.8. This is roughly equivalent to 12 standard deviations between an assay and a blank;

•	Durable - XRpro® allows samples to be read dry, months after assay, in contrast to most competing assays which must be read wet, and shortly after the assay was run; and

•	Data Rich - XRpro® allows simultaneous on-target and cross-target functional assays, which gives an estimate of both safety and toxicity.

The underlying science of XRpro® is similar to the more commonly used optical fluorescence. In optical fluorescence, light having energy of 2-3 electron volts (eV) is shone on a sample, which then emits another wavelength of light. The amount of light that is emitted and its wavelength provide information about what chemicals are present, and in what quantities.  In optical fluorescence, the fluorophore, or potion of the molecule that emits light, is large and often expensive.

XRpro®, on the other hand, uses x-rays, which have different properties than the light used in optical fluorescence. The most important of these properties is that the portion of the molecule that emits photons is an atom. XRpro® directly quantifies atoms that are present in many drugs, proteins, and functional assays. This feature is what produces the huge cost savings of XRpro®.

Market

According to a March 16, 2010 article published by www.phrma.org , analyses performed by the Pharmaceutical Research and Manufacturers of America (PhRMA), which represents many pharmaceutical research and biotechnology companies, and Burrill & Company, a global financial services firm focused on the life sciences industry, US pharmaceutical companies invested $67.4 billion in 2010 in the research and development of medicines and vaccines.  Further, global R&D spending is expected to grow by about 5.2% to more than $1.4 trillion in 2012, according to the 2012 Global R&D Funding Forecast published by Battelle, an independent research and development organization.  According to Battelle, most of the global funding growth is being driven by Asian economies, which are expected to increase nearly 9% in 2012, while European R&D will grow by about 3.5% and North American R&D by 2.8%. U.S. R&D is forecast to grow 2.1% in 2012 to $436 billion.

According to PhRMA, only one of every 10,000 potential medicines investigated by America's research-based pharmaceutical companies makes it through the research and development pipeline and is approved for patient use by the Food and Drug Administration (FDA). On average, according to PhRMA, approval requires 15 years of R&D and costs more than $1 billion. Potential new medicines pass through several crucial stages on their way from research laboratories to the pharmacy shelf. These stages begin with discovery , which includes determining the biological mechanism to treat an illness, and creating and testing chemicals to counteract that mechanism of the illness. The next stage is preclinical development , which includes creating and testing hundreds of chemical analogs of the chemicals identified in discovery to identify those chemicals that are both safe and effective enough to test in human volunteers. The final stage before approval is clinical trials , which includes testing the medicine on volunteers for safety and then efficacy.  Our proprietary XRpro® technology focuses on the preclinical stage. We believe that the XRpro® will significantly reduce the costs of preclinical tests, and allow multiple tests to be performed simultaneously, reducing the time and costs required to evaluate drug candidates for safety and efficacy.

 

 

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According to research data collected by Frost & Sullivan, an international marketing and growth consulting firm, worldwide revenue for all laboratory products reached $36.2 billion in 2010, and the US laboratory products market was approximately $13.7 billion in 2010. Instruments and equipment comprise about one-third of this market, and chemicals and reagents comprise about one quarter of this market. The overall marketplace in which the Company’s XRPro® drug discovery instruments and XRpro® drug discovery services competes is therefore approximately $8 billion per year in the US alone.

Competition

The life sciences research market is very competitive and includes a number of companies, such as Affymetrix ,Agilent Technologies Inc., Bio-Tek Instruments, Inc., Danaher, ForteBio (acquired by Pall), GE Healthcare, Illumina, PerkinElmer, Spectris, Tecan Group Ltd. and Thermo Fisher Scientific, that offer, or may in the future offer, products with performance capabilities generally similar to those offered by our products. We expect that competition is likely to increase in the future, as several current and potential competitors who have the technological and financial ability to enter the markets that we serve enter the markets. Many of our life sciences research products are priced at a premium; in these markets, we compete primarily on the basis of performance and productivity. Many companies, research institutions and government organizations that might otherwise be customers for our products employ methods for analysis that are internally developed.

Many of our competitors have significantly greater financial, technical, marketing, sales and other resources than we do. In addition to competing with us with respect to product sales, these companies and institutions compete with us in recruiting and retaining highly qualified scientific and management personnel.

We offer what we believe to be a superior technology to measure the properties of drug candidates. Our major competing technology is drug labeling which is currently the most used technique for measuring the binding of drugs to proteins. While commonly used, it produces results of inconsistent reliability because of the added reagents that can bias the test results, thereby diminishing the value of test. Companies providing these technologies include DiscoveRx, PerkinElmer and Promega.

Another competing technology is surface plasmon resonance. This technology moves the label from the drug to the protein, which partially – but not completely – mitigates the reliability problems. The label on the protein often interferes with protein function. It is also expensive and currently not very high-throughput. Companies providing SPR include GE Healthcare, SRU, Graffinity and Corning.

A final group of potential competitors may be companies that manufacture X-Ray fluorescence equipment based upon similar technology to ours that also does not require the use of any reagents. These include EDAX, Horiba and PANalytical. We believe that our intellectual property portfolio and our partnership with Bruker place us in a favorable position in relation to these potential competitors.

Intellectual Property Rights

 

In September 2005, we entered into an agreement with The Regents of the University of California which was subsequently assigned to the Los Alamos National Security, LLC. The license grants to us the exclusive right to hold, use and sell inventions under a portfolio of issued patents and pending patents for our current technology, a method for detecting binding constants using micro x-ray fluorescence. The University retained the right to use the technology for noncommercial purposes and the United States government has a nonexclusive license to have practiced the technology.  We also agreed to allow the University to use all improvements on the technology developed by us. The agreement was effective upon execution and terminates after the expiration of the last patent unless terminated earlier.  The agreement provides that the University can terminate the agreement if, after a 60 day cure period, we fail to deliver any required reports, make any required payments or if we breach any material terms of the agreement.  It also provides for immediate termination upon receipt of a notice of our filing of a bankruptcy petition. We have the right to terminate the agreement upon 90 days notice; however a termination does not relieve us of any payment or other obligations that were already due.  Upon execution of the agreement we paid a $40,000 upfront nonrefundable fee, in addition to our issuance of shares of our common stock representing three percent (3%) of our outstanding equity, which was later assigned by the University to Los Alamos National Security LLC.  Such stock is nondilutable and the holder has the right to publicly sell shares if we complete an initial public offering.  We are also obligated to make annual payments to the University of $25,000 each year until 2011 and then $50,000 until 2020, and  royalty payments of 2% of Net Sales (as defined in the agreement), additional fees on sublicensed revenue and $20,000 per each United States patent that is issued. Under the license, Caldera has the exclusive commercial rights to the following patents, patent applications, and any divisional and continuation patents:

 

 

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·	Patent Application 09/859,701, Method for Detecting Binding Events Using Micro X-Ray Fluorescence Spectrometry;

·	Patent Application 10/206,524, Flow Method and Apparatus for Screening Chemicals Using Micro X-Ray Fluorescence;

·	Patent Application 10/621,825, Method and Apparatus for Detecting Chemical Binding; and

·	Patent Application 10/880,388, Drug Development and Manufacturing..

 We have filed the following published patent applications to further buttress our intellectual property position:

·	Patent application 20100003697, Method and Apparatus for Measuring Analyte Transport Across Barriers;

·	Patent application 20090087919, Method and Apparatus for Measuring Protein Post- Translational Modification;

·	Patent application 20090046832, Well Plate; and

·	Patent application 20080220441, Advanced drug development and manufacturing (held jointly with the manager of Los Alamos National Laboratory)

We continue to file additional patent applications periodically.

Employees  

As of February 1, 2012, the Company employs seven full-time employees and two part-time employees. None of our employees are subject to collective bargaining agreements.

Backlog

We do not have any material order backlog as of the date of this registration statement.   

Seasonality

We do not expect that our business will experience significant seasonality.  

Property

We lease approximately 5,100 square feet at 278 DP Road, Suite D, Los Alamos, New Mexico 87544, where our corporate offices and laboratory are located. This lease is for a term of 36 months with a six month termination clause, which commenced in November 2010. The current monthly rental payment including utilities and operating expenses for the facility is approximately $6,000 per month. The Company also has an office at 175 West Jackson Blvd. Suite 2230, Chicago, Illinois 60604.We believe these facilities are in good condition and adequate to meet our current and anticipated requirements.

Legal Proceedings

Los Alamos National Security Suit

In October 2010, the Company filed suit against Los Alamos National Security LLC (“LANS”) and seven other co-defendants in the United States District Court For the Northern District of Illinois Eastern Division alleging the following: (i) Breach of Contract; (ii) Fraud; (iii) Intentional Interference with Contractual Relations; (iii) Legal Malpractice; and other related claims in connection with an exclusive Patent Licensing Agreement (the “Agreement”) originally entered into between the Company and the Regents of the University of California (the “Regents”) in September 2005. In April 2006, the Regents assigned the Agreement to LANS. The Company believes the defendants made false representations that were critical to its decision to enter into the Agreement including: (i) the Regents was the lawful owner of the patent rights covered by the Agreement; and (ii) the Regents would prosecute and maintain these patent rights and notify the Company if it decided to abandon them. The Company also believes that LANS and other co-defendants improperly competed with the Company. In addition, the Company believes that two of the co-defendants, both in-house patent attorneys for LANS, breached their professional duties. The Company believes it has suffered substantial damages from the defendants’ actions. The Company also filed suit against the Regents and LANS in California Superior Court in San Francisco in December 2007. This suit was dismissed for reason of lack of subject matter jurisdiction by the Court. We believe that this dismissal was made incorrectly, and are appealing this ruling. The defendants filed countersuits, which were also dismissed. Should LANS or other defendants file or re-file countersuits, the Company intends to vigorously defend itself. In January 2012, this case was ordered to be transferred to Federal Court in New Mexico.

 

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In September 2011, the Company filed suit against the Regents of the University of California and LANS in the Circuit Court of Cook County. LANS removed the case to federal court, Case # ll-CV-07259. The Company's complaint alleges the following: (i) Breach of Contract; (ii) Breach of the Implied Covenant of Good Faith; (iii) Fraud; and (iv) Fraudulent Inducement, in connection with an exclusive Patent Licensing Agreement (the "Agreement") originally entered into between the Company and the Regents of the University of California (the "Regents") in September 2005 and assigned to LANS in April 2006. The Company believes the defendants breached a License Agreement, and made false representations that were critical to the Company's decision to enter into the Agreement. The Company believes it has suffered substantial damages from the Defendants' actions.

Seddie Bastanipour and Joel Bellows Suit

In October 2008, Seddie Bastanipour and Joel Bellows filed suit against the Company, our Chief Executive Officer, Dr. Benjamin Warner, and a former consultant to the Company, Sigmund Eisenchenk. Joel Bellows provided legal services to the Company through his legal firm, Bellows and Bellows P.C. The suit was filed in the Circuit Court of Cook County, Illinois and alleged the following: (i) Violation of Illinois Securities Act of 1953; (ii) Violation of Illinois Consumer Fraud Act; and (iii) Common Law Fraud, in connection with aggregate investments of $218,000 in the Company’s common stock claimed by Bastanipour and Bellows. They are seeking compensatory damages, costs and expenses. The Company does not believe Bellows will prevail on any of the alleged complaints. In December 2011, the Company completed an amicable settlement with Bastanipour.

In March, 2010, the Company filed suit against Joel Bellows and Bellows and Bellows P.C. in the United States District Court for the District of New Mexico alleging the following: (i) Breach of Contract; (ii) Negligence; (iii) Breach of Fiduciary Duty; (iv) Fraud; and (v) Tortious Interference with Contract. The aforementioned complaints relate to legal services provided by Bellows and Bellows P.C. for the Company. The Company is seeking compensatory damages, punitive damages, interest, costs and fees.

In December 2010, the Company filed suit against Seddie Bastanipour and Peter Baltrus for breach of contract and negligence when they were performing accounting services on behalf of the Company which resulted in an IRS penalty. In December, 2011, the Company completed an amicable settlement with Bastanipour and she is no longer party to either suit. Baltrus claims to have been working for Bellows (see above) at all relevant times; the case against Peter Baltrus continues. The Company has entered into further settlement discussions with Peter Baltrus.

Holders

As of February 1, 2012, there were approximately 63 stockholders of record of our common stock.

Dividends

 

We have never declared or paid a cash dividend for common stock. Any future decisions regarding dividends will be made by our board of directors. However, our Series A preferred stockholders are entitled to an annual dividend of $.46 per share of preferred stock payable in cash or stock at the option of the holder. We currently intend to retain and use any future earnings other than those paid to Series A preferred holders as dividends for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends on our common stock.  Even if our board of directors decides to pay dividends on our common stock , the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.  

Equity Compensation Plans

In 2005 our board of directors adopted the 2005 Stock Option/Stock Issuance Plan (the “Plan”) that was approved by a vote of the majority of our shareholders. The Plan is intended to promote the interests of our Company by providing eligible person with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Company as an incentive for them to be employed by or remain in the service of the Company.  The Plan provides for issuance of incentive stock options or nonqualified stock options.  The maximum number of shares available to be issued under the Plan is currently 3,000,000 shares, subject to adjustments for any stock splits, stock dividends or other specified adjustments which may take place in the future and there are currently 518,445 options issued and outstanding.  The Plan continues until the earlier of termination by the board of directors or when all shares of common stock available for issuance has been issued and all restrictions on such shares under the terms of the Plan have lapsed.

 

 

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The Plan is administered by our Company’s board of directors.  Persons eligible to participate in the Plan are: employees; officers, directors, consultants, investors, and service providers to our Company.  All grants under the Plan are intended to comply with the requirements under Internal Revenue Code and activities under the Plan will be administered accordingly.  Options granted under the Plan are evidenced by agreement between the recipient and our Company, subject to the following general provisions: (i) the exercise price shall not be less than 100% of the fair market value per share of our Company’s common stock on the date of grant (110% in the case of 10% or greater shareholders); and (ii) the term of stock options shall be limited to a maximum of ten years.  A complete description of the Plan is included as an exhibit to this registration statement.  

 

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table provides information regarding the status of our existing equity compensation plans at February 1, 2012.

		Number of securities to be issued upon exercise of outstanding options, warrants and rights				Weighted-average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders			518,445				3.54				2,481,555
Equity compensation plans not approved by security holders			0				0				0
Total			518,445				3.54				2,481,555

The number of securities remaining available for future issuance under equity compensation plans approved by security holders totaled 2,481,555 shares at February 8, 2012.

MANAGEMENT'S DISCUSSION AND AN ALYS IS 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. 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.

Overview and Financial Condition

 

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.

 

Results of Operations for the year ended December 31, 2010 and the year ended December 31, 2009.

Revenues

Our Company had revenues totaling $1,641,582 and $1,600,906 for the years ended December 31, 2010 and 2009, respectively, an increase of approximately 2.5%. Substantially all of our revenues to date have been from Federal government contracts.  Going forward, we plan to heavily market our XRPRO® equipment and services and educate potential customers concerning the advantages and value propositions of the XRPRO® technology.  While we are optimistic about the prospects for our Company, 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 our Company to be profitable.

 

 

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Cost of goods sold

Cost of goods sold were relatively stable and totaled $760,728 and $755,992 for the years ended December 31, 2010 and 2009, respectively. Cost of goods sold is comprised primarily of direct expenses related to providing our services under government contracts.  These expenses include salary expenses directly related to research contracts, outside consultants and direct materials used on Government contracts.

Gross Profit

Gross margin was $880,854 and $844,914 for the years ended December 31, 2010 and 2009, respectively.   The gross margin percentages of 53.6% and 52.8% for the years ended December 31, 2010 and 2009, respectively, relate to our Federal government contracts and may not be indicative of anticipated future results due to the Company’s plan to diversify its source of revenues into equipment sales and services.  

General and administrative expenses

 

General and administrative expenses totaled $1,609,846 and $858,477 for the years ended December 31, 2010 and 2009, respectively, an increase of 87.5%.  Payroll expenses totaled $337,579 and $348,743 in 2010 and 2009, respectively, Stock based compensation costs, primarily related to stock options amounted to $500,503 and $199,662 in 2010 and 2009, respectively. The increase in our stock based compensation charge was primarily due to stock issued to consultants for services performed to raise equity funding and an increase in the number of options outstanding to employees. Legal expenses totaled $539,786 and $156,512 in 2010 and 2009, respectively. The increase in our legal expenses was primarily due to our funding of expenses related to our suits against Los Alamos National Security LLC. (LANS) and the Regents of the University of California as well as the Bellows litigation (see Business- Legal Proceedings).  While the Company has negotiated a partial contingency fee agreement in the LANS case, the Company will still face significant continuing legal expenses should it continue to pursue its actions. Our legal expenses are not connected with our regular business activities and while still ongoing should be viewed as non operating expenses.  We are plaintiffs in two lawsuits and therefore to some extent we have some degree of control as to whether we will continue to fund this litigation.  At present it is our judgment that the potential for recovery of damages outweighs the costs we are expending on these cases.   We therefore intend to continue pursuing this litigation but there is no assurance we will continue to do so or ultimately prevail should these cases go to trial.

 

Depreciation and Amortization

We recognized depreciation expenses of $64,012 and $60,921 for the years ended December 31, 2010 and 2009, respectively, which relate primarily to the depreciation of our laboratory equipment, which makes up the vast majority of our capital equipment and spending.  Amortization expenses were $51,683 in each of 2010 and 2009.  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 $20,203 and $21,878 for the years ended December 31, 2010 and 2009, respectively. Interest expense was primarily paid on loans from the Los Alamos County and the revolving draw loan with Los Alamos National Bank.

Other Income

Other Income was $0 and $3,460 for the years ended December 31, 2010 and 2009, respectively. Other income was derived primarily from refunds received from Government agencies.

Net loss

Net loss totaled ($864,881) and ($144,549), representing a net loss per share of ($0.19) and ($.03) per share for the years ended December 31, 2010 and 2009, respectively.   Included in the net loss for the years ended December 31, 2010 and December 31, 2009 were stock based compensation payments of $500,503 and $199,662, respectively.  If such non cash payments had not been incurred our net loss for the years ended December 31, 2010 would have been ($364,377) and we would have had a profit of $55,113 for the year ended December 31, 2009.

 

Results of Operations for the Nine Months ended September 30, 2011 and 2010

Revenues

Our Company had revenues totaling $416,164 and $1,016,906 for the nine months ended September 30, 2011 and 2010, respectively,   a 59.1% decrease. The decline in our revenues is primarily attributable to the fact that a number of our government contracts ended in early 2011 and were only replaced with new ones in the last quarter of 2011. Due to our current back log of government contracts, we expect that our revenues will increase in 2012.  Our revenues to date have been primarily from Federal government contracts.  Going forward, we plan to heavily market our XRpro® equipment and services and educate potential customers concerning the advantages and value propositions of the XRpro® technology.  While we are optimistic about the prospects for our Company, 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 our Company to be profitable.

 

 

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Cost of goods sold

Cost of goods sold decreased 65.6% to $206,167 from $600,144 for the nine months ended September 30, 2011 and 2010, respectively. Cost of goods sold is comprised primarily of direct expenses related to providing our services under government contracts.  These expenses include salary expenses directly related to research contracts, outside consultants and direct materials used on Government contracts.

Gross Profit

Gross profit was $209,997 and $416,762 and gross margin was 50.5% and 41.0% for the nine months ended September 30, 2011 and 2010, respectively.  This increase in gross margin is primarily attributable to lower payroll costs incurred in performing the government contracts in 2011.  The gross margin percentages relate to our Federal government contracts and may not be indicative of anticipated future results due to the Company’s plan to diversify its source of revenues into equipment sales and services.  

General and administrative expenses

General and administrative expenses increased 47.8% and totaled $1,475,735 and $998,569 for the nine months ended September 30, 2011 and 2010, respectively.  Payroll expenses totaled $449,216 and $250,517 in 2011 and 2010 respectively. The increase in payroll expenses is directly related to the decrease in payroll costs charged to cost of sales as there were fewer Government contracts during 2011. Stock based compensation costs, primarily related to stock options amounts to $300,128 and $240,182 in 2011 and 2010 respectively. The increase in our stock based compensation charge is primarily due to an increase in the number of options outstanding to employees. Legal expenses totaled $478,164 and $142,546 in 2011 and 2010 respectively. The increase in our legal expenses was primarily due to our funding of expenses related to our suits against Los Alamos National Security LLC. (LANS) and the Regents of the University of California as well as the Bellow litigation (see Legal Proceedings).  While the Company has negotiated a partial contingency fee agreement in the LANS case, the Company will still face significant continuing legal expenses should it continue to pursue its actions. Our legal expenses are not connected with our regular business activities and while still ongoing should be viewed as non operating expenses.  We are plaintiffs in two lawsuits and therefore to some extent we have some degree of control as to whether we will continue to fund this litigation.  At present it is our judgment that the potential for recovery of damages outweighs the costs we are expending on these cases.   We therefore intend to continue pursuing this litigation but there is no assurance we will continue to do so or ultimately prevail should these cases go to trial

Depreciation and Amortization

We recognized depreciation expenses of $49,783 and $47,994 for the nine months ended September 30, 2011 and 2010 respectively.  Depreciation expenses relate primarily to the depreciation of our laboratory equipment, which makes up the vast majority of our capital equipment and spending.  Amortization expenses were $38,763 and $38,763 for the nine months ended September 30, 2011 and 2010 respectively. 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 $12,918 and $15,058 in for the nine months ended September 30, 2011 and 2010 respectively.  Interest expense was primarily paid on loans from the Los Alamos County and the revolving draw loan with Los Alamos National Bank that was repaid in full in 2011. The reduction in interest expense was primarily due to the repayment of the revolving draw line in 2011 without drawing down on additional facilities available to us

 

Other Income

Other Income was $7,988 and $0 for the nine months ended September 30, 2011 and 2010 respectively.  Other income was derived primarily from refunds from Government agencies.

Net loss

Net loss totaled ($1,358,791) and ($683,613) or ($0.29) and ($0.15) per share for the nine months ended September 30, 2011 and 2010 respectively.  Included in the net loss for the nine months ended September 30, 2011 and September 30, 2010 were stock based compensation payments of $300,128 and $240,182, respectively.  If such non cash payments had not been incurred our net loss for the nine months ended September 30, 2011 and September 30, 2010 would have been ($1,058,663) and ($443,431), respectively.

 

 

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Liquidity and Capital Resources

We have primarily financed our operations from our inception in 2003 through the sale of unregistered equity and the cash flow generated by operations.  As of September 30, 2011, our Company had cash totaling $916,653 and other current assets totaling $65,055, and total assets of $1,894,621.  We had total current liabilities of $601,875 and net working capital of $379,833. Total liabilities were $850,322 resulting in a stockholders’ equity of $1,044,299 at September 30, 2011.  

 
 

Net cash flows consumed by operating activities totaled $661,052 for the nine months ended September 30, 2011. Net cash flows used in investing activities for the same period was $48,412.  Cash flows received from financing activities totaled $1,508,207 and the overall change in cash was an increase of $798,743, of which $1,640,150 in gross proceeds was raised in a private placement which was used to repay our line of credit, repayment of a loan payable to a third party and a stockholder.

Given estimates of our Company’s future operating results and our expectations regarding the sale of our XRPRO® machines and commercial services, we believe that we have adequate financial resources to achieve cash flow break-even.  We have nevertheless included a discussion concerning the presentation of our financial statements on a going concern basis in the notes to our financial statements and our independent public accountants have included a similar discussion in their opinion on our financial statements through December 31, 2010.  

Should we not achieve our forecasted operating results or should strategic opportunities present themselves such that additional financial resources would present attractive investing opportunities for our Company, we may decide in the future to issue debt or sell our Company’s equity securities in order to raise additional cash.  There are no arrangements in place for any such financing at this time.  We cannot provide any assurances as to whether we will be able to secure any necessary financing, or the terms of any such financing transaction if one were to occur. We currently have a $750,000 funding facility available to us from the Los Alamos National Bank.  The facility expires on May 22, 2012 unless demand for repayment is made earlier and currently bears interest at a coupon of the Wall Street Journal Prime rate plus 1% with a floor of 3.25% per annum.  The loan is secured by inventory, accounts receivable and other rights to payments, instruments, documents and other chattel paper, general intangibles and fixed assets. To date, no funds have been drawn from this facility.  The loan is personally guaranteed by Benjamin Warner, our Chief Executive Officer.  The loan agreement provides that we cannot incur or assume: (i) any debt other than existing debt of the date the loan agreements were executed or accounts payable incurred in the ordinary course of business or (ii) any liens other than inconsequential lines incurred in the ordinary course of business.

As of September 30, 2011, we owed $278,134 in accordance with the terms of a Project Participation Agreement with the Incorporated County of Los Alamos that we entered into in September 2006.  The loan bears interest at a rate of 5% per annum, is for a 13 year term and required no repayments for 36 months with 120 monthly repayments commencing on September 21, 2009.

Capital Expenditures

Our current plans do not call for our Company to expend significant amounts for capital expenditures for the foreseeable future beyond a potential additional XRPRO® X-ray fluorescence microscope as well as office furniture and information technology related equipment as we add employees and sales offices to our Company.  Bruker produces the XRPRO products that we market and our corporate facilities are contracted for with third parties (and therefore do not require us to make capital purchases in this area).  

Critical Accounting Policies

Use of estimates

The preparation of these 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, inventories, recovery of long-lived assets. We base our estimates on historical experience and on various other assumptions that we believed 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 allowance for obsolete inventory, the useful life of property and equipment and intangible assets, and assumptions used in assessing impairment of long-term assets.

 

 

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Revenue recognition

Revenue sources consist of government grants, government contracts and commercial development contracts.

Revenues from government grants and contracts are for research and development purposes and are recognized in accordance with the terms of the award and the government agency. Grant revenue is recognized in one of two different ways depending on the grant. Cost reimbursement grants require us to submit proof of costs incurred that are invoiced by us to the government agency, which then pays the invoice. In this case, grant revenue is recognized during the period that the costs were incurred according to the terms of the government grant. Fixed cost grants require no proof of costs at the time of invoicing, but proof is required for audit purposes and grant revenue is recognized during the period that the costs were incurred according to the terms of the government grant. The grant revenue under these fixed costs grants is recognized using a percentage-of-completion method, which uses assumptions and estimates. These assumptions and estimates are developed in coordination with the principal investigator performing the work under the government fixed-cost grants to determine key milestones, expenses incurred, and deliverables to perform a percentage-of-completion analysis to ensure that revenue is appropriately recognized. Critical estimates involved in this process include total costs incurred and anticipated to be incurred during the remaining life of the grant.

Government contract revenue is recognized as allowable research and development expenses are incurred during the period and according to the terms of the government contract.

Commercial revenue is recognized when the service or development is delivered or upon complying with the relevant terms of the commercial agreement.

Intangible assets

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 straight-line 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

Assessment of an intangible asset’s residual value and useful life is performed annually.

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

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.

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 on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of operations  and 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.

 

 

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Net loss per share

We calculate basic earnings per share (“EPS”) by dividing our net loss by the weighted average number of common shares outstanding for the period, without considering common stock equivalents.  Diluted EPS is computed by dividing net income or net loss by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents, such as options and warrants.  Options and warrants are only included in the calculation of diluted EPS when their effect is dilutive.  

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.

 

Recent accounting pronouncements

 

For discussion of recently issued and adopted accounting pronouncements, please see Note 2 to the Caldera Pharmaceuticals financial statements included herein.  

 

DIRECTORS, EXECUTIVE OFFICERS, PRO MO TERS AND CONTROL PERSONS

Directors and Executive Officers

 

The following table sets forth the name, age and position held by each of our executive officers and directors.

Name	Age	Office(s) Held
Dr. Benjamin Warner	43	President, Chief Executive Officer, Treasurer, Director
Edward Roffman	62	Director
Jeremiel Zimmerman	62	Director

Dr. Benjamin Warner - President, Chief Executive Officer, Treasurer and Director

Since its incorporation in 2003, Dr. Warner has served as our President, Chief Executive Officer, Treasurer and a director. Before founding the Company, Dr. Warner worked in technology development, patenting, and marketing at the Los Alamos National Laboratory and in the development of “dual use” government / commercial technologies. Dr. Warner has co-developed technologies that have led to the formation of several technology companies. Dr. Warner holds a Ph.D. in Chemistry from MIT and a BS from the University of the South. Dr. Warner is the co-inventor on 30+ patents/pending patents.   After MIT, Dr. Warner joined Los Alamos National Laboratory where he held the position of Project Leader for National Security Programs from 2000 until 2004.

Dr. Warner has won numerous awards from Los Alamos National Laboratory for his commercialization and patenting work, including the Distinguished Licensing Award, the Distinguished Entrepreneurial Award, the Distinguished Patent Award, and the Federal Laboratory Consortium Distinguished Service Award. Jointly with LANL, Caldera Pharmaceuticals won the 2007 Federal Laboratory Consortium Award for Excellence in Technology Transfer and an R&D100 Award. Caldera has won multiple Technology Ventures Corporation awards for top technology companies in New Mexico.

Dr. Warner has been associated with the Company since its inception and brings to the board extensive knowledge about our business operations and in particular our licenses and products.     Having developed our technology Dr. Warner brings to the board significant strategic, business and financial experience related to the business and financial issues facing pharmaceutical companies and particularly our company. Dr. Warner has a broad understanding of the operational, financial and strategic issues facing pharmaceutical companies. 

 

 

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Ed Roffman, Director  

Mr. Roffman has been a director since December 2011. Mr. Roffman   served as Chief Financial Officer of Red Mile Entertainment, Inc. from January 2005 until April 2006 and at Fluent Entertainment, Inc. from February 2003 to December 2004. Both companies are consumer software developers and publishers. Mr. Roffman has also been a principal of Creekside, LLC, a consulting firm which specializes in the software, internet and consumer products industries. From August 1995 to January 1999, Mr. Roffman served as Chief Financial Officer and Chief Operating Officer at Palladium Interactive, Inc., a consumer software company. Mr. Roffman served on the board and audit committee of Silverstar Holdings (NASDAQ: SSTR) a publisher and developer of interactive entertainment software and Adex Media (NASDAQ: ADXM) an Internet marketing and lead generation publisher and developer, manufacturer, and marketer of consumer products and Westinghouse Solar, Inc., (formerly Akeena Solar), a designer and distributor of solar modules (NASDAQ).  Mr. Roffman is a CPA with over 30 years of experience in accounting and finance. Mr. Roffman earned a BBA in accounting from Temple University.

 

Mr. Roffman’s achievements in financial and accounting matters, his overall business understanding, as well as his familiarity and knowledge regarding public companies and corporate governance issues that public companies face make him an ideal board candidate.

Jeremiel Zimmerman – Director

Mr. Zimmerman co-founded Caldera and has been a director since August 2005.    Mr. Zimmerman has been a commodity trading advisor and a drafter of newsletter regarding commodities and other securities since 1991.  He currently prepares for AMMO Trading Group a news letter with a daily analysis of the e-Mini S&P in addition to hosting an Internet discussion group regarding commodity futures trading .  He is registered as a Series 3 broker with the NFA

Mr. Zimmerman’s understanding of the financial markets as well as his overall business understanding make him an attractive board member.

 

Two of our directors, Dr. Benjamin Warner and Jeremiel Zimmerman, are first cousins, once removed.

 

Term of Office

 

Our directors hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws.  Our officers are appointed by our board of directors and hold office until removed by the board.

EXECUTIVE COMPENSA TION AND OTHER INFORMATION

 

Executive Compensation

 

The following table sets forth all compensation awarded, earned or paid for services rendered to our principal executive officer, principal financial officer and each executive officer whose compensation exceeded $100,000 during each of the fiscal years ended December 31, 2011 and 2010.

Summary Compensation Table

Name and Principal Position		Year				Salary ($)				Bonus ($)				Option Awards ($)				Non-Equity Incentive Plan Compensation ($)				Nonqualified Deferred Compensation Earnings ($)				All Other Compensation ($)				Total ($)
Dr. Benjamin Warner, President and Chief Executive Officer, Treasurer			2011 2010				199,700 193,442				-				-				-				-				24,196 28,917				223,896 222,359
Lori Peterson Chief Operating Officer*			2011   2010				144,000 119,641				-				-				-				-				12,319 7,933				156,319 127,547

*Lori Peterson resigned as Chief Operating Officer in November 2011.

 

 

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Employment Agreements

 

On October 25, 2006, we entered into an Employment Agreement with Dr. Benjamin Warner pursuant to which Dr. Warner was appointed our Chief Executive Officer to serve in such role until the agreement is terminated.  For such services, the agreement provides that Dr. Warner is to be paid a base salary of $200,000 in addition to certain bonuses and benefits.  If Dr. Warner is terminated for cause (as defined in the agreement), he is only entitled to accrued amounts owed to him; however if he is terminated without cause he is entitled to three months base salary and accrued benefits.

From 2009 through 2011, Lori Peterson served as our Chief Operating Officer.  She currently serves as our Program Manager/ Molecular Epidemiologist.   On August 17, 2006, we entered into an Employment Agreement with Lori Peterson to serve as our Program Manager/ Molecular Epidemiologist until the agreement is terminated.  For such services, the agreement provides that Ms. Peterson is to be paid a base salary of $100,000 in addition to certain bonuses and benefits.

 

Outstanding Equity Awards at Fiscal Year End

 

The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of December 31, 2011.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
		OPTION AWARDS																				STOCK AWARDS
Name		Number of Securities Underlying Unexercised Options (#) Exercisable				Number of Securities Underlying Unexercised Options  (#) Unexercisable				Equity Incentive   Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)				Option Exercise  Price ($)				Option Expiration Date				Number of Shares or Units of Stock That Have  Not Vested (#)				Market Value of Shares or Units of Stock That Have Not Vested ($)				Equity Incentive   Plan Awards:   Number of Unearned   Shares, Units or Other Rights That Have   Not Vested (#)				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not  Vested (#)
Dr. Benjamin Warner			-				-				-				-				-				-				-				-			-
Lori Peterson			50,000				-				-				5.71				8/16				-				-				-			-
			220,000												1.10		2		2/21

 

 

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Director Compensation

 

The table below summarizes all compensation of our directors for the year ended December 31, 2011.

 

DIRECTOR COMPENSATION*
Name		Fees Earned or Paid in Cash ($)				Stock Awards ($)				Option Awards ($)				Non-Equity Incentive Plan Compensation ($)				Non-Qualified Deferred Compensation Earnings ($)			All Other Compensation ($)		Total ($)
Dr. Benjamin Warner			0				0				0				0				0		0			0
Lori Peterson**			0				0				0				0				0		0			0
Jeremiel Zimmerman			0				0				0				0				0		0			0

* Does not include compensation received for services provided as executive officers

**Lori Peterson resigned from the Board of Directors on November 15, 2011, effective upon the election of an outside director to replace her.

Corporate Governance

 

Leadership Structure

 

Our Chief Executive Officer Dr. Benjamin Warner also serves as Chairman of the Board. Our Board of Directors does not have a lead independent director. Our Board of Directors has determined that its leadership structure was appropriate and effective for the Company given its stage of operations.  

 

Board Committees

 

We presently do not have an audit committee, compensation committee or nominating committee or committee performing similar functions, as our management believes that until this point it has been premature at the early stage of our management and business development to form an audit, compensation or nominating committee.

 

Director Independence

 

The Board has determined that Messrs. Zimmerman and Rothman are “independent” in accordance with the requirements of Rule 10A-3 under the Exchange Act.

SECURITY OWNERSHIP OF CERTAIN B ENE FICIAL OWNERS AND MANAGEMENT

 

The following table sets forth, as of February 8, 2012, information with respect to the securities holdings of: (i) our officers and directors; and (ii) all persons (currently none) which, pursuant to filings with the SEC and our stock transfer records, we have reason to believe may be deemed the beneficial owner of more than five percent (5%) of our common stock.  The securities "beneficially owned" by an individual are determined in accordance with the definition of "beneficial ownership" set forth in the regulations promulgated under the Exchange Act and, accordingly, may include securities owned by or for, among others, the spouse and/or minor children of an individual and any other relative who resides in the same home as such individual, as well as other securities as to which the individual has or shares voting or investment power or which each person has the right to acquire within 60 days through the exercise of options or otherwise.  Beneficial ownership may be disclaimed as to certain of the securities.  This table has been prepared based on the number of shares outstanding totaling 4,291,620, adjusted individually as shown below.

 

 

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Name and Address of Beneficial Owner		Amount and Nature of Beneficial Ownership				Percentage of Class Beneficially Owned  (1)
Ed Roffman			20,000				*
Dr. Benjamin Warner(2)			3,236,570				74.5	%
Jeremiel Zimmerman			104,000				2.4	%
All directors and executive officers as a group (3 persons)			3,360,570				77.4	%

 

* Less than 1%

 

(1)	Percentage of class beneficially owned is calculated by dividing the amount and nature of beneficial ownership by the total shares of common stock outstanding plus the shares subject to warrants and options that are currently exercisable or exercisable within 60 days of February 1, 2012.

(2)	Includes 25,035 shares of Series A preferred stock which is convertible into 25,035 shares of common stock.  Also includes warrants to purchase 25,035 shares of common stock. The Series A preferred stock and the warrants are held by jointly by Dr. Warner and his wife, Ellen McBee.

SELLING ST OC KHOLDERS

 

The shares to be offered by the selling security holders were issued in private placement transactions by us, each of which was exempt from the registration requirements of the Securities Act. The shares offered hereby are “restricted” securities under applicable federal and state securities laws and are being registered under the Securities Act, to give the selling security holders the opportunity to publicly sell these shares. This prospectus is part of a registration statement on Form S-1 filed by us with the Securities and Exchange Commission under the Securities Act covering the resale of such shares of our common stock from time to time by the selling security holders. No estimate can be given as to the amount or percentage of our common stock that will be held by the selling security holders after any sales made pursuant to this prospectus because the selling security holders are not required to sell any of the shares being registered under this prospectus. The following table assumes that the selling security holders will sell all of the shares listed in this prospectus.

  

The following table sets forth the name of each person who is offering for resale shares of common stock covered by this prospectus, the beneficial ownership of each selling security holder, the number of shares of common stock that may be sold in this offering and the number of shares of common stock each will own after the offering, assuming they sell all of the shares offered. The term “selling security holder” or “selling security holders” includes the stockholders listed below and their respective successors. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities.

 

 

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Shareholder and Name of Person Controlling		Number of Shares Before Offering				Number of Shares Offered				Date Acquired				Amount of Shares Owned After Offering				Percent of Shares Held After Offering
Eight Family Trust			27,000	(1)			27,000			3/22/2011					0				0
Chang-Tai Hsieh			19,756	(2)			19,756			3/24/2011					0				0
Joseph Amato Revocable Trust			52,632	(3)			52,632			4/7/2011					0				0
Sin Fa Wang and Mei Wang			17,544	(4)			17,544			4/11/2011					0				0
S/L Trilling Trust			35,088	(5)			35,088			4/14/2011					0				0
Douglas Jensen			27,500	(6)			27,500			4/18/2011					0				0
Mark Litwin			35,088	(7)			35,088			4/26/2011					0				0
Robert S. Colman			17,544	(8)			17,544			4/27/2011					0				0
2030 Investors LLC/401K Plan			50,000	(9)			50,000			5/12/2011					0				0
Sarah Abrams			42,544	(10)			42,544			5/12/2011					0				0
Matthew Abrams			92,544	(11)			92,544			5/12/2011					0				0
Joseph W. and Patricia G. Family Trust			158,220	(12)			158,220			5/16/2011					0				0
James Jensen			70,000	(13)			70,000			6/7/2011					0				0
Chan Kei Blu			52,632	(14)			52,632			9/8/2011					0				0
Louitt & V. Hannan, Inc. Salary Deferral Plan FBO J. Thomas Hannan			17,544	(15)			17,544			9/13/2011					0				0
George Mainas			17,544	(16)			17,544			10/13/2011					0				0
Saunders and Diane Kohn			70,000	(17)			70,000			10/17/2011					0				0
David Steinhardt and Tobi B Richman Steinhardt Trust			20,176	(18)			20,176			1/22/2012					0				0
Los Alamos National Security, LLC			157,500	(19)			157,500				(19	)			0				0
Richard Scott Lane			73,571	(20)			73,571				(20	)			0				0
Aldermon Holdings			17,500	(21)			17,500				(21	)			0				0
TRV, LLC			8,750				8,750			4/6/2006					0				0
David Clark			8,750				8,750			5/9/2006					0				0
CO 51 AIC Holdings LLC			87,565				87,565			9/22/2006					0				0
Jack Warner			10,000				10,000			10/10/2006					0				0
Cirrus Advisors, Inc.			26,250	(22)			26,250				(22	)			0				0
Michael Lyon Profit Sharing Plan			25,715	(22)			25,715				(22	)			0				0
Susan Gerard			26,250	(22)			26,250				(22	)			0				0
Susan Gerard IRA			25,714	(22)			25,714				(22	)			0				0
Nathan H. Zahler			2,418	(23)			2,418				(23	)			0				0
Gregg Rzepczynski			2,459	(24)			2,459				(24	)			0				0
Emelia A. Solomon			1,830	(25)			1,830				(25	)			0				0
Pratima Bharti			636	(26)			636				(26	)			0				0
First South Africa Management			100,000	(27)			100,000				(27	)			0				0
Total			1,398,264				1,398,264								0				0

(1)	Includes 13,500 shares of common stock which are convertible upon conversion of the Series A Preferred Stock and 13,500 shares of common stock which are issuable upon exercise of the warrant

(2)

Includes (i) 8,772 shares of common stock which are convertible upon conversion of the Series A Preferred Stock; (ii) 8,772 shares of common stock which are issuable upon exercise of the warrant; (iii) 324 shares of common stock issued upon exercise stock options that were exercised on March 3, 2011; (iv) 420 shares of common stock issued upon exercise stock options that were exercised on March 17, 2011; (v) 420  shares of common stock issued upon exercise stock options that were exercised on March 31, 2011; (vi) 419  shares of common stock issued upon exercise stock options that were exercised on April 14, 2011; (vii) 420  shares of common stock issued upon exercise stock options that were exercised on April 28, 2011; and (viii) 209 stock options that were exercised on May 26, 2011.

(3)	Includes 26,316 shares of common stock which are convertible upon conversion of the Series A Preferred Stock and 26,316 shares of common stock which are issuable upon exercise of the warrant

(4)	Includes 8,772 shares of common stock which are convertible upon conversion of the Series A Preferred Stock and 8,772 shares of common stock which are issuable upon exercise of the warrant

(5)	Includes 17,544 shares of common stock which are convertible upon conversion of the Series A Preferred Stock and 17,544 shares of common stock which are issuable upon exercise of the warrant

(6)

Includes (i) 5,000 shares of common stock which are convertible upon conversion of the Series A Preferred Stock; (ii) 5,000 shares of common stock which are issuable upon exercise of the warrant; (iii) 10,500 shares of common stock that were issued on February 6, 2006; and (iv) 7,000 shares of common stock that were issued on July 19, 2006.

(7)	Includes 17,544 shares of common stock which are convertible upon conversion of the Series A Preferred Stock and 17,544 shares of common stock which are issuable upon exercise of the warrant

(8)	Includes 8,772 shares of common stock which are convertible upon conversion of the Series A Preferred Stock and 8,772 shares of common stock which are issuable upon exercise of the warrant

(9)	Includes 25,000 shares of common stock which are convertible upon conversion of the Series A Preferred Stock and 25,000 shares of common stock which are issuable upon exercise of the warrant

 

 

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(10)	Includes: (i) 8,772 shares of common stock which are convertible upon conversion of the Series A Preferred Stock; (ii) 8,772 shares of common stock which are issuable upon exercise of the warrant; and (iii) 25,000 shares of common stock that were issued on October 26, 2010 for services rendered..

(11)	Includes (i) 8,772 shares of common stock which are convertible upon conversion of the Series A Preferred Stock;  (ii) 8,772 shares of common stock which are issuable upon exercise of the warrant; (iii) 75,000 shares of common stock that were issued on October 26, 2010 for services rendered.

(12)	Includes (i) 43,860 shares of common stock which are convertible upon conversion of the Series A Preferred Stock; (ii) 43,860 shares of common stock which are issuable upon exercise of the warrant; and (ii) 70,500 shares of common stock that were issued on October 26, 2010 for services rendered.

(13)	Includes (i) 35,000 shares of common stock which are convertible upon conversion of the Series A Preferred Stock; (ii) 35,000 shares of common stock which are issuable upon exercise of the warrant.

(14)	Includes 26,316 shares of common stock which are convertible upon conversion of the Series A Preferred Stock and 26,316 shares of common stock which are issuable upon exercise of the warrant

(15)	Includes 8,772 shares of common stock which are convertible upon conversion of the Series A Preferred Stock and 8,772 shares of common stock which are issuable upon exercise of the warrant

(16)	Includes 8,772 shares of common stock which are convertible upon conversion of the Series A Preferred Stock and 8,772 shares of common stock which are issuable upon exercise of the warrant

(17)	Includes 35,000 shares of common stock which are convertible upon conversion of the Series A Preferred Stock and 35,000 shares of common stock which are issuable upon exercise of the warrant

(18)	Includes 10,088 shares of common stock which are convertible upon conversion of the Series A Preferred Stock and 10,088 shares of common stock which are issuable upon exercise of the warrant.

(19)	Shares issued on June 15, 2006 in connection with a license agreement.

(20)	Includes (i) 35,000 shares of common stock that were issued on January 23, 2006; and (ii) 38,571 shares of common stock that were issued on October 22, 2010 in connection with a settlement agreement.

(21)	Includes (i) 8,750 shares of common stock that were issued on March 27, 2006; and (ii) 8,750 shares of common stock that were issued on May 19, 2006.

(22)

Includes (i) 52,500 shares of common stock that were issued on August 1, 2006 for services rendered of which 26,250 shares were transferred to Cirrus Advisors, Inc. a company which Mr. Lyons has a controlling interest and 26,250 were transferred on August 3, 2011 to Susan Gerard as part of a divorce settlement; and (ii) 51,429 shares of common stock that were issued on October 22, 2010 of which 25,715 shares were transferred to the Michael T. Lyon Profit Sharing Plan and 25,714 shares were transferred on August 3, 2011 to the Susan Gerard IRA as part of a divorce settlement between Lyon and Gerard.

(23)

Includes (i) 381 shares of common stock issued upon exercise stock options that were exercised on March 3, 2011; (ii) 453 shares of common stock issued upon exercise stock options that were exercised on March 17, 2011; (iii) 453 shares of common stock issued upon exercise stock options that were exercised on March 31, 2011; (iv) 452 shares of common stock issued upon exercise stock options that were exercised on April 14, 2011; (v) 453 shares of common stock issued upon exercise stock options that were exercised on April 28, 2011; and (vi) 226 shares of common stock issued upon exercise stock options that were exercised on May 26, 2011.

(24)

Includes (i) 326 shares of common stock issued upon exercise stock options that were exercised on March 3, 2011; (ii) 474 shares of common stock issued upon exercise stock options that were exercised on March 17, 2011; (iii) 474 shares of common stock issued upon exercise stock options that were exercised on March 31, 2011; (iv) 474 shares of common stock issued upon exercise stock options that were exercised on April 14, 2011; (v) 474 shares of common stock issued upon exercise stock options that were exercised on April 28, 2011; and (vi) 237 shares of common stock issued upon exercise stock options that were exercised on May 26, 2011.

(25)

Includes (i) 333 shares of common stock issued upon exercise stock options that were exercised on March 3, 2011; (ii) 333 shares of common stock issued upon exercise stock options that were exercised on March 17, 2011; (iii) 333 shares of common stock issued upon exercise stock options that were exercised on March 31, 2011; (iv) 332 shares of common stock issued upon exercise stock options that were exercised on April 14, 2011; (v) 333 shares of common stock issued upon exercise stock options that were exercised on April 28, 2011; and (vi) 166 shares of common stock issued upon exercise stock options that were exercised on May 26, 2011.

(26)

Includes (i) 178 shares of common stock issued upon exercise stock options that were exercised on March 17, 2011; (ii) 154 shares of common stock issued upon exercise stock options that were exercised on March 31, 2011; (iii) 165 shares of common stock issued upon exercise stock options that were exercised on April 14, 2011; and (iv) 139 shares of common stock issued upon exercise stock options that were exercised on April 28, 2011.

(27)	Shares issued on December 2011 and February 2012  for services rendered.

 

 

 

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PLAN OF DIS TR IB UTION

Each selling security holder of our common stock and any of their transferees, pledgees, assignees, donees, and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the stock exchange on which they are listed on the OTC Bulletin Board, if quoted on the OTC Bulletin Board, or in private transactions. These sales will be at a fixed price of $5.00 per share until the shares of common stock are listed on the OTC Bulletin Board, after which sales may be at prevailing market prices or privately negotiated prices. Selling security holders may use any one or more of the following methods when selling shares:

 

•	ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
•	block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
•	purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
•	an exchange distribution in accordance with the rules of the applicable exchange;
•	privately negotiated transactions;
•	broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share;
•	a combination of any such methods of sale; or
•	any other method permitted pursuant to applicable law.

 

The selling security holders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

 

Broker-dealers engaged by the selling security holders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. Each selling security holder does not expect these commissions and discounts relating to its sales of shares to exceed what is customary in the types of transactions involved.

 

The selling security holders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Because selling security holders may be deemed to be underwriters within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of common stock will be paid by the selling security holders and/or the purchasers. Each selling security holder has represented and warranted to us that it acquired the securities subject to this registration statement in the ordinary course of such selling security holder’s business and, at the time of its purchase of such securities such selling security holder had no agreements or understandings, directly or indirectly, with any person to distribute any such securities.

 

There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling security holders. We are required to pay certain fees and expenses incurred by us incident to the registration of the shares. We have agreed to indemnify the selling security holders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

The selling securityholders may from time to time pledge or grant a security interest in some or all of the shares owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling securityholders to include the pledgee, transferee or other successors-in-interest as selling security holders under this prospectus. Upon our company being notified in writing by a selling security holder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling securityholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the shares of common stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon our company being notified in writing by a selling securityholder that a donee or pledgee intends to sell more than 500 shares of common stock, a supplement to this prospectus will be filed if then required in accordance with applicable securities law.

 

 

 

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Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to our common stock for a period of two business days prior to the commencement of the distribution. In addition, the selling security holders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our common stock by the selling security holders or any other person. We will make copies of this prospectus available to the selling securityholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Our Chief Executive Officer is a guarantor on our revolving loan from Los Alamos National Bank, pursuant to which there is currently no outstanding amount.

During the year ended December 31, 2010 we had an outstanding loan from our Chief Executive Officer of $77,600.  At April 30, 2011 the loan amount was $102,600.  The loan was not evidenced by a written instrument, did not accrued interest and had no fixed repayment terms.  In April 2011, the amounts owed under the loan were exchanged for 18,000 additional shares of our Series A Preferred Stock and a warrant exercisable for 18,000 shares of our common stock.

DESCRIPTION OF SECURITIES

 

General

Following the consummation of the Offering, assuming that the Offering is fully subscribed, the Company will have 4,291,620 shares of common stock outstanding.  The Company currently has outstanding 4,291,620 shares of Common Stock, 341,607 shares of Series A convertible stock outstanding, warrants exercisable for 399,406 shares of common stock and options exercisable for 518,445 shares of common stock.

Preferred Stock

The Company is authorized to issue 500,000 shares of Series A preferred stock and currently has 341,607 Shares of Series A preferred stock outstanding.

The preferred stock has the following designations, preferences, and rights.

Dividend Rights. Holders of Shares of Series A preferred stock are entitled to receive a dividend of $0.46 for each share of Series A preferred stock on January 1 of each year (subject to pro-rations for any short year) payable in (i) cash; or (ii) fully paid and non-assessable shares of Common Stock of the Company at a price of $5.70 per Common Share, at the option of the holder. Holders shall be entitled to additional dividends only when, as and if declared by the Board of Directors of the Company.

Voting Rights. On any matter presented to the common stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of the stockholders in lieu of a meeting), each holder of outstanding Shares of Series A preferred stock is entitled to cast one vote for each share of Series A preferred stock held by such holder as of the record date for determining Stockholders entitled to vote on such matter. Except as provided by law, holders of Series A preferred stock shall vote together with holders of the Common Stock of the Company as a single class.

Liquidation Rights. In the event of any termination, liquidation, dissolution or winding up of the Company either voluntary or involuntary (a “Liquidation Event”), the holders of Shares of Series A preferred stock are entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the greater of: (i) $5.70 per share, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Series A preferred stock been converted into Common Stock immediately prior to such Liquidation Event.  If upon any such Liquidation Event the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A preferred stock the full amount to which they shall be entitled under their liquidation rights, the holders of shares of Series A preferred stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

Conversion Rights

Voluntary Conversion . Holders of Series A preferred stock may, at its election, convert each share of Series A preferred stock into that number of fully paid and non-assessable shares of Common Stock (or such other equity security of the Company for which all of its Common Stock has been exchanged or into which all of its Common Stock has been converted) equal to $5.70 per share.

 

A utomatic (Mandatory) Conversion . Ten (10) trading days after delivery to the holders of written notice of conversion by the Company, each share of Series A preferred stock then outstanding shall, by virtue of such conditions and without any action on the part of a holder thereof, be deemed automatically converted into one (1) fully paid and non-assessable share of Common Stock (or such other equity security of the Company for which all of its Common Stock has been exchanged or into which all of its Common Stock has been converted), provided that the volume weighted average closing price of the Company’s Common Stock over the ten (10) trading days immediately preceding the date of the Company’s Notice is at least $10.00 per share.

 

 

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Redemption Rights

Voluntary Redemption . At any time after the date that the Company receives net cash proceeds of at least three million ($3,000,000) from litigation proceedings against the Managers of Los Alamos National Laboratory, a holder of Series A preferred stock may, at its election, redeem each share of Series A preferred stock at a price of $7.41 for each share of Series A preferred stock.

Involuntary Redemption . Thirty (30) days after delivery to the holders of written notice of redemption by the Company (the “Company’s Redemption Notice”) each share of Series A preferred stock then outstanding shall, by virtue of such conditions and without any action on the part of a holder thereof, be redeemed at a price of $7.41 for each share of Series A preferred stock.

Registration Rights . Not less than twenty one (21) days before Company files a Registration Statement (the “Company’s Registration Notice”), whether or not for sale for Company’s own account, on a form and in a manner that would permit registration of registrable securities, the Company shall deliver to holder written notice of intent to file such Registration Statement. Holder may, at its election, elect to include the underlying shares of Common Stock from such holder’s shares of Series A preferred stock in such Registration Statement.

Common Stock

We are authorized to issue 50,000,000 shares of common stock, of which 4,291,620 are issued and outstanding.

Dividend Rights . The holders of the Common Stock are entitled to receive such dividends as may be declared from time to time by the Company’s Board of Directors out of funds legally available therefore. The sole source of funds available for the payment of dividends will be from any excess funds of the Company. The Company does not believe that there will be excess funds for the foreseeable future.

Voting Rights . The holders of the Common Stock are entitled to one vote per share on all matters to be voted upon by the Company’s stockholders and do not have cumulative voting rights in the election of directors.

Redemption and No Pre-emptive Rights . The Common Stock is not subject to redemption and stockholders of the Company do not have pre-emptive rights.

Liquidation Rights . Upon any Liquidation Event, after the payment of all debts and preferential amounts required to be paid to the holders of Shares of Series A preferred stock, the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of shares of Common Stock, pro rata based on the number of shares held by each such holder.

Warrants

 

As of the date hereof there are warrants exercisable for 399,406 shares of common stock outstanding.  Of such warrants, warrants exercisable for: (i) 334,571 shares of common stock were issued to investors in private placements in connection with the issuance of our Series A preferred stock; (ii) 42,800 shares of common stock were issued as fees in connection with the private placement; (iii) 15,000 shares of common stock were issued as fees for services and (iv) 25,035 shares of common stock were issued to Benjamin Warner in partial exchange for amounts owed to him.  The warrants, except for the 15,000 warrants issued as fees for services, which are exercisable at $2.00 per share, are exercisable at a price of $5.70 per share for a period of five years from issuance.

 

Options

 

As of the date hereof, there are options exercisable for 518,445 shares of our common stock issued under the 2005 Stock Option Plan..  All of the options were issued in consideration with the performance of services. All of the options have a ten year life with the exception of one option exercisable for 250 shares of common stock issued in August 2008 that has a 4 year life and three options issued in 2011 that have a two year life. All of the options are exercisable at a price of $5.71 per share with the exception of two options granted in 2005 which are exercisable for an aggregate of $30,000 shares of common stock at an exercise price of $2.00 per share and one option issued in February 2011 exercisable for 220,000 shares of common stock of at an exercise price of $1.10 per share. Options exercisable for 478,570 shares of common stock are vested, and the remaining options fully vest at various times throughout 2012 and 2013. In accordance with the terms of the 2005 Stock Option Plan options granted to employees that are not vested at the time of termination of employment shall terminate upon such termination and all options vested at the time of termination are exercisable for an additional one year from the date of termination unless otherwise extended by the Board of Directors.

Transfer Agent and Registrar

 

Our transfer agent and registrar is Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite 430, Denver, Colorado 80209.

 

 

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EXP ERT S

The consolidated financial statements of Caldera Pharmaceuticals, Inc. as of December 31, 2010 and 2009 and for the year ended December 31, 2010 included in this Preliminary Prospectus and in the Registration Statement have been so included in reliance on the reports of Sherb & Co., an independent registered public accounting firm, appearing elsewhere herein and in the Registration Statement, given on the authority of said firm as experts in auditing and accounting.

 

DISCLOSURE OF COMMISSION POSI TION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Pursuant to our Second Amended and Restated Articles of Incorporation, our Board of Directors may issue additional shares of common or preferred stock. Any additional issuance of common stock or the issuance of preferred stock could have the effect of impeding or discouraging the acquisition of control of us by means of a merger, tender offer, proxy contest or otherwise, including a transaction in which our stockholders would receive a premium over the market price for their shares, and thereby protects the continuity of our management.  Specifically, if in the due exercise of its fiduciary obligations, the Board of Directors was to determine that a takeover proposal was not in our best interest, shares could be issued by the Board of Directors without stockholder approval in one or more transactions that might prevent or render more difficult or costly the completion of the takeover by:

·	diluting the voting or other rights of the proposed acquirer or insurgent stockholder group;

·	putting a substantial voting block in institutional or other hands that might undertake to support the incumbent board of directors; or

·	effecting an acquisition that might complicate or preclude the takeover.

 

The Delaware Corporations and Associations Act (“Delaware Corporate Law”), with certain exceptions, permits a Delaware corporation to indemnify a present or former director or officer of the corporation (and certain other persons serving at the request of the corporation in related capacities) for liabilities, including legal expenses, arising by reason of service in such capacity if such person shall have acted in good faith and in a manner he reasonably believed to be in, or not opposed, to the best interests of the corporation, and in any criminal proceeding if such person had no reasonable cause to believe his conduct was unlawful. However, in the case of actions brought by or in the right of the corporation, no indemnification may be made with respect to any matter as to which such director or officer shall have been adjudged liable, except in certain limited circumstances.

 

Our Second Amended and Restated Articles of Incorporation provide that we shall indemnify our directors and executive officers to the fullest extent now or hereafter permitted by Delaware Corporate Law. The indemnification provided by Delaware Corporate Law and our Second Amended and Restated Certificate of Incorporation is not exclusive of any other rights to which a director or officer may be entitled.  The general effect of the foregoing provisions may be to reduce the circumstances under which an officer or director may be required to bear the economic burden of the foregoing liabilities and expense.

 

We may also purchase and maintain insurance for the benefit of any director or officer that may cover claims for which we could not indemnify such person.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Securities Act”) may be permitted to our directors, officers and controlling persons, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to court of appropriate jurisdiction. We will then be governed by the court's decision.

LEGAL MATTERS

 

The validity of our common stock offered hereby will be passed upon for us by Gracin & Marlow, LLP, New York, New York.

 

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WHERE YOU CAN FIN D MORE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act for the common stock offered under this prospectus. It is our intent to become a reporting company under the Exchange Act, upon effectiveness of this prospectus. You may obtain reports, proxy statements and other information filed by Caldera Pharmaceuticals, Inc. with the SEC at the SEC’s Public Reference Room at 100 F Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.

 

The SEC also maintains a website that contains reports, proxy statements, information statements and other information concerning Internal Fixation Systems, Inc. located at http://www.sec.gov. This prospectus does not contain all the information required to be in the registration statement (including the exhibits), which we have filed with the SEC under the Securities Act and to which reference is made in this prospectus.

 

 

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CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

 

		September 30, 2011 (Unaudited)				December 31, 2010
ASSETS
Current assets:
Cash		$	916,653			$	117,910
Accounts receivable, net			64,180				264,488
Prepaid expenses			875				3,010
Total current assets			981,708				385,408
Non-current assets:
Intangible assets, net			659,179				697,942
Plant and equipment, net			253,734				255,105
			912,913				953,047
TOTAL ASSETS		$	1,894,621			$	1,338,455
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	523,117			$	416,495
Preferred stock dividends payable			49,071				-
Loans payable			29,687				116,084
Loans from related parties			-				77,600
Total current liabilities			601,875				610,179
Non-current liabilities:
Loans payable			248,447				270,952
			248,447				270,952
TOTAL LIABILITIES			850,322				881,131
Stockholders’ equity:
Series A Convertible Preferred Stock, $0.001 par value, Authorized: 10,000,000 shares, 287,747 shares issued and outstanding as of September 30, 2011			288				-
Common stock, $0.001 par value, authorized 50,000,000  shares, 4,895,620 and 4,886,065 shares issued and outstanding as of December 31, 2010 and 2009, respectively			4,896				4,886
Additional paid in capital			6,106,855				4,112,316
Accumulated deficit			(5,067,740	)			(3,659,878	)
Total stockholder’s equity			1,044,299				457,324
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY		$	1,894,621			$	1,338,455

 

See notes to the financial statements on pages F-5 through F-24

 

 

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CALDERA PHARMACEUTICALS, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

		Nine months ended September 30, 2011				Nine months ended September 30, 2010
Sales, net		$	416,164			$	1,016,906
Cost of sales			206,167				600,144
Gross profit			209,997				416,762
Operating expenses:
General and administrative expenses			1,475,735				998,569
Depreciation			49,783				47,994
Amortization			38,763				38,763
Total operating expenses			1,564,281				1,085,326
Operating loss			(1,354,284	)			(668,564	)
Other income/(expense)
Other income			7,988				-
Interest income			423				9
Interest expense			(12,918	)			(15,058	)
Total other income/(expense)			(4,507	)			(15,049	)
Loss before income tax			(1,358,791	)			(683,613	)
Provision for income taxes			-				-
Net loss			(1,358,791	)			(683,613	)
Deemed preferred stock dividends			(49,071	)			-
Net loss applicable to common stock		$	(1,407,862	)		$	(683,613	)
Net loss per common stock:-
Basic and diluted		$	(0.29	)		$	(0.15	)
Weighted average number of common stock outstanding:-
Basic and diluted			4,892,692				4,473,565

 

See notes to the financial statements on pages F-5 through F-24

 

 

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CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY

(UNAUDITED)

 

		Preferred Stock								Common Stock
		Number of shares				Amount				Number of shares				Amount				Additional paid in capital				Accumulated deficit				Total Stockholder’s Equity
Balance at December 31, 2010			-			$	-				4,886,065			$	4,886			$	4,112,316			$	(3,659,878	)		$	457,324
Unaudited:
Stock options exercised			-				-				9,555				10				54,549				-				54,559
Issuance of Series A Convertible Preferred Stock and Common stock purchase Warrants			287,747				288				-				-				1,639,862				-				1,640,150
Fair value of stock options issued to employees			-				-				-				-				300,128				-				300,128
Net loss			-				-				-				-				-				(1,358,791	)			(1,358,791	)
Deemed preferred stock dividend			-				-				-				-				-				(49,071	)			(49,071	)
Balance at September 30, 2011 (Unaudited)			287,747			$	288				4,895,620			$	4,896			$	6,106,855			$	(5,067,740	)		$	1,044,299

See notes to the financial statements on pages F-5 through F-24

 

 

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CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Nine months ended September 30, 2011				Nine months ended September 30, 2010
Cash flow from operating activities
Net loss		$	(1,358,791	)		$	(683,613	)
Adjustments for non-cash items:
Depreciation			49,783				47,994
Amortization			38,763				38,763
Stock based compensation payments			300,128				240,182
Changes in operating assets and liabilities:
Decrease in accounts receivable			200,308				177,293
Decrease in prepaid expenses			2,135				45,692
Increase in accounts payable and accrued expenses			106,622				69,869
Net cash used in operating activities			(661,052	)			(63,820	)
Investing activities
Purchase of plant and equipment			(48,412	)			(4,552	)
Net cash used in investing activities			(48,412	)			(4,552	)
Financing activities
(Repayment)/Advance on line of credit			(87,784	)			36,051
Repayment of loan payable			(21,118	)			(23,650	)
Repayment of stockholders loan			(77,600	)			(7,339	)
Loan advanced by stockholder			-				54,000
Stock options exercised			54,559				-
Issuance of series A preferred stock and Warrants			1,640,150				-
Net cash provided by financing activities			1,508,207				59,062
Net increase/(decrease) in cash			798,743				(9,310	)
Cash at the beginning of the period			117,910				45,936
Cash at the end of the period		$	916,653			$	36,626
Supplemental disclosure of cash flow information
Cash paid for:
Interest		$	12,918			$	15,058

 

See notes to the financial statements on pages F-5 through F-24

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.	GENERAL INFORMATION

Caldera Pharmaceuticals, Inc. (“the Company”) is a Delaware corporation with principal offices in Los Alamos, New Mexico and Chicago, Illinois. The Company was incorporated in November 2003.

The Company is a drug discovery and pharmaceutical instrument company which is based on a proprietary x-ray fluorescence technology, called XRpro®. Caldera offers what it believes to be uniquely broad and simple technologies to evaluate drug molecules, which increases the efficiency of analyzing and evaluating drug molecules for safety and efficacy at an early and less expensive stage.

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

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).

Consolidation

The 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.

Estimates

The preparation of these 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, inventories, recovery of long-lived assets. We base our estimates on historical experience and on various other assumptions that we believed 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 allowance for obsolete inventory, the useful life of property and equipment and intangible assets, and assumptions used in assessing impairment of long-term assets.

All amounts referred to in the notes to the financial statements are in United States Dollars ($) unless stated otherwise.

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

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.

 

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 then 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, and advances to suppliers 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.

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Recent accounting pronouncements

In October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements That Include Software Elements.” This ASU changes the accounting model for revenue arrangements that include both tangible products and software elements that are “essential to the functionality,” and scopes these products out of current software revenue guidance. The new guidance will include factors to help companies determine what software elements are considered “essential to the functionality.” The amendments will now subject software-enabled products to other revenue guidance and disclosure requirements, such as guidance surrounding revenue arrangements with multiple-deliverables. The amendments in this ASU are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010. Early application is permitted. The adoption of the new ASU did not have any important impact on the Company’s financial statements.

In January 2010, the FASB issued guidance to amend the disclosure requirements related to fair value measurements. The guidance requires the disclosure of roll forward activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will become effective for us with the reporting period beginning July 1, 2011. Other than requiring additional disclosures, the adoption of this new guidance will not have a material impact on our financial statements.

In January 2010, the FASB issued Accounting Standards Update ("ASU") No. 2010-06 for Fair Value Measurements and Disclosures (Topic 820):  Improving Disclosures about Fair Value Measurements . This Update requires new disclosures for transfers in and out of Level 1 and 2 and activity in Level 3. This Update also clarifies existing disclosures for level of disaggregation and requires additional disclosures about inputs and valuation techniques. The new disclosures are effective for interim and annual periods beginning after December 15, 2009, except for the Level 3 disclosures, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those years. Other than requiring additional disclosures, adoption of this new guidance did not have a material impact on the Company's financial statements and is not expected to have a significant impact on the reporting of the Company's financial condition or results of operations.

In February 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-09 (ASU 2010-09), Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.  This amendment addresses both the interaction of the requirements of this Topic with the SEC’s reporting requirements and the intended breadth of the reissuance disclosure provision related to subsequent events (paragraph 855-10-50-4).  All of the amendments in this Update are effective upon issuance of the final Update, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010.  The adoption of the new ASU did not have any important impact on the Company’s financial statements.

In March 2010, the FASB ratified the milestone method of revenue recognition. Under this standard, an entity can recognize contingent consideration earned from the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity's performance or on the occurrence of a specific outcome resulting from the entity's performance (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to the entity. This guidance is effective for years beginning after June 15, 2010. This guidance did not have any important impact on the Company’s financial statements.

In   March 2010, the FASB issued ASU 2010-11, Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.  The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010.  Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update.  The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Recent accounting pronouncements (continued)

In   April 2010, the FASB issued ASU 2010-13, Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades – a consensus of the FASB Emerging Issues Task Force.  The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.  Earlier application is permitted.  The Company does not expect the provisions of ASU 2010-13 to have a material effect on the financial position, results of operations or cash flows of the Company.

In May 2010, the FASB issued ASU 2010-19, Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates.  The amendments in this Update are effective as of the announcement date of March 18, 2010. The Company does not expect the provisions of ASU 2010-19 to have a material effect on the financial position, results of operations or cash flows of the Company.

 

In May 2011, the FASB issued guidance to amend the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance will be effective for us beginning January 1, 2012. Other than requiring additional disclosures, we do not anticipate material impacts on our financial statements upon adoption.

 

In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance will be effective for us beginning July 1, 2012 and will have presentation changes only.

 

  Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

 

Reporting by segment

No segmental information is presented as the Company only has one significant reporting segment which is Government Revenues.

Intangible assets

c)	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 straight-line 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

Assessment of an intangible asset’s residual value and useful life is performed annually.

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

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

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.

Concentration of major customers

The Company currently derives substantially all of its revenues from Government research contracts.

During the nine months ended September 30, 2011, the Company recorded revenues from six different research projects from Government agencies totaling 96% of its revenues. During the nine months ended September 30, 2009, the Company recorded revenues from nine different research projects from Government agencies totaling 100% of its revenues.

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.  We periodically review our accounts receivable and other receivables to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt.  Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

The amount charged to bad debt provision for the nine months ended September 30, 2011 and 2010 was $nil.

As a basis for accurately estimating the likelihood of collection has been established, 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.

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

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.

 

Revenues from government grants and contracts are for research and development purposes and are recognized in accordance with the terms of the award and the government agency. Grant revenue is recognized in one of two different ways depending on the grant. Cost reimbursement grants require us to submit proof of costs incurred that are invoiced by us to the government agency, which then pays the invoice. In this case, grant revenue is recognized during the period that the costs were incurred according to the terms of the government grant. Fixed cost grants require no proof of costs at the time of invoicing, but proof is required for audit purposes and grant revenue is recognized during the period that the costs were incurred according to the terms of the government grant. The grant revenue under these fixed costs grants is recognized using a percentage-of-completion method, which uses assumptions and estimates. These assumptions and estimates are developed in coordination with the principal investigator performing the work under the government fixed-cost grants to determine key milestones, expenses incurred, and deliverables to perform a percentage-of-completion analysis to ensure that revenue is appropriately recognized. Critical estimates involved in this process include total costs incurred and anticipated to be incurred during the remaining life of the grant.

Government contract revenue is recognized as allowable research and development expenses are incurred during the period and according to the terms of the government contract.

Commercial revenue is recognized when the service or development is delivered or upon complying with the relevant terms of the commercial agreement.

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 substantial sales and marketing expenses in future periods to promote its x-ray florescence equipment 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, that 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 remaining license period or patent life.

The amount expensed for research costs during the nine months ended September 30, 2011 and 2010 is immaterial.

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.

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO 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 on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of operations for the years ended December 31, 2010 and 2009 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 SFAS No. 109, Accounting for Income Taxes, included in the Codification as ASC 740, 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 Loss per Share

Basic net loss per share is computed on the basis of the weighted average number of common stock outstanding during the period.

Diluted net income 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 per share are excluded from the calculation.

Dilution is computed by applying the treasury stock method for options and warrants. Under this method, 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.

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

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 related party.

 

3.	GOING CONCERN

As shown in the accompanying financial statements, the Company incurred a net loss of $1,358,791 and $683,613 during the nine months ended September 30, 2011 and 2010, respectively. As of September 30, 2011, the Company had an accumulated deficit of $5,067,740. The Company had a working capital of $379,833 at September 30, 2011. These operating losses create an uncertainty about the Company’s ability to continue as a going concern. Although no assurances can be given, management of the Company believes that potential additional issuances of equity or other potential financing will provide the necessary funding for the Company to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company is economically dependent upon future capital contributions or financing to fund ongoing operations.

4.	INTANGIBLE ASSETS

Licenses

In terms of an Exclusive Patent License agreement covering national and international patents entered into with the Los Alamos National Security LLC. 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 issued shares to the Licensor equal to 3% of the issued equity of the Company. The agreement contains anti-dilutive clauses which will ensure that the Licensor maintains at least a 3% shareholding in the Company until the Company achieves equity financing of at least $20 million.  As of December 31, 2010, the Company has not yet raised the requisite amount of financing.  The Licensor continued to hold, at a minimum, 3% of the Company’s common stock.

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.	INTANGIBLE ASSETS (continued)

The agreement further provides for an annual royalty to be paid to the Licensee at a rate of 2% per annum on net sales, excluding any sales to Government agencies. The agreement provided for a minimum royalty payment of $25,000 per annum for the financial years ended December 31, 2006 to December 31, 2010. Thereafter the minimum royalty payment increases to $50,000 per annum up until December 31, 2022.

		September 30, 2011				December 31, 2010
Licenses, at cost		$	972,000			$	972,000
Less: Accumulated amortization			(312,821	)			(274,058	)
		$	659,179			$	697,942

The aggregate amortization expense charged to operations was $38,763 and $38,763 for the nine months ended September 30, 2011 and 2010, respectively. The amortization policies followed by the company are described in Note (2).

Amortization expense for the future years is summarized as follows:

		Amount
2011		$	12,921
2012			51,684
2013			51,684
2014			51,684
2015			51,684
2016 and thereafter			439,522
Total		$	659,179

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.

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

5.	PLANT AND EQUIPMENT

Plant and equipment consists of the following at September 30, 2011 and December 31, 2010.

		September 30, 2011				December 31, 2010
Leasehold improvements		$	6,393			$	6,393
Furniture and fittings			7,114				7,114
Laboratory equipment			455,742				413,269
Computer equipment			28,378				22,439
Total			497,627				449,215
Accumulated depreciation			(243,893	)			(194,110	)
		$	253,734			$	255,105

The aggregate depreciation charge to operations was $49,783 and $47,994 for the nine months ended September 30, 2011 and 2010 respectively. The depreciation policies followed by the company are described in Note (2).

6.	ACCOUNTS PAYABLE AND ACCRUED EXPENSES

		September 30, 2011				December 31, 2010
Accounts payable		$	363,536			$	290,891
Credit card liabilities			17,025				2,342
Vacation and Sick Pay accrual			123,255				85,228
Payroll liabilities			12,701				28,489
Other			6,600				9,545
		$	523,117			$	416,495

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

7.	INCOME TAXES

Due to our historical net loss position, and valuation allowance against deferred tax assets, there is no provision or benefit for income taxes recorded for the nine months ended September 30, 2011 and 2010.

The income tax provision/ (benefit) is different from that which would be obtained by applying the statutory Federal income tax rate of 35% to income before income tax expense. The items causing this difference for the nine months ended September 30, 2011 and 2010 are as follows:

		September 30, 2011				September 30, 2010
Income tax benefit at federal statutory rate		$	(475,577	)		$	(239,265	)
State taxes, net of federal benefit			(67,949	)			(34,181	)
Other			13,775				-
Stock based compensation			120,051				96,073
			(409,700	)			(177,373	)
Valuation allowances			409,700				177,373
		$	-			$	-

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities at September 30, 2011 and December 31, 2010 are as follows:

 

		September 30, 2011				December 31, 2010
Deferred tax assets
Accrual to cash adjustments		$	168,700			$	60,000
Plant and equipment			10,500				10,500
Net operating loss			1,001,000				697,000
			1,180,200				767,500
Valuation allowances			(1,105,200	)			(695,500	)
			75,000				72,000
Amortization accrual to cash basis			(75,000	)			(72,000	)
Total deferred tax assets, net of valuation allowances		$	-			$	-

We have established a valuation allowance against our gross deferred tax assets sufficient to bring our net deferred tax assets to zero due to the uncertainty surrounding the realization of such assets. Management has determined it is more likely than not that the deferred tax assets are not realizable due to our historical loss position. The valuation allowance at September 30, 2011 and December 31, 2010 was $1,105,500 and $695,500, respectively. The valuation allowance increased by $409,700 during the nine months ended September 30, 2011

At September 30, 2011, we had tax loss carry forwards of approximately $2,503,000. These net operating loss carry forwards begin to expire in 2023, if unused.

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

7.	INCOME TAXES (continued)

Pursuant to the Internal Revenue Code of 1986, as amended, ("IRC") §382, our ability to use net operating loss  carry forwards to offset future taxable income is limited if we experience a cumulative change in ownership of more than 50% within a three-year period.

The Company’s 2009 and 2010 Federal income tax returns have been examined by the Internal Revenue Service (“IRS”) and the adjustments proposed by the IRS were agreed to by the Company. The Company’s tax provision reflects the IRS’ audit adjustments and the Company believes that there are no remaining uncertain tax positions requiring recognition.

8.	LOANS PAYABLE

		September 30, 2011				December 31, 2010
Short term  portion
Los Alamos County Loan		$	29,687			$	28,300
Los Alamos National Bank			-				87,784
			29,687				116,084
Long term portion
Los Alamos County Loan			248,447				270,952
		$	278,134			$	387,036

Los Alamos County 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 $3,546.87.

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8.	LOANS PAYABLE (continued)

Los Alamos National Bank

The Company entered into a one year revolving draw loan with Los Alamos National Bank as of April 23, 2010 with a principal available of $300,000. The Company drew $86,800 on the loan on April 23, 2010, utilizing $50,000 to repay the balance outstanding on loan 1 above. The loan bears interest at a coupon of the Wall Street Journal Prime rate plus 1% with a floor of 6% per annum. This loan is secured by inventory, accounts receivable and other rights to payments, instruments, documents and other Chattel paper, general intangibles and fixed assets. Interest is payable quarterly. The loan was repaid in full on May 23, 2011.

The Los Alamos National Bank has provided a further facility to Caldera Pharmaceuticals of $750,000 as of May 23, 2011 for a period of one year. The loan bears interest at a coupon of the Wall Street Journal Prime rate plus 1% with a floor of 4.75% per annum. This loan is secured by inventory, Accounts and other rights to payments, instruments, documents and other Chattel paper, general intangibles and fixed assets. Interest is payable quarterly. No funds have been drawn under this facility during the current year.

9.	COMMON STOCK

Common stock consists of 50,000,000 authorized shares of $0.001 each.

 

The Company has raised funding through debt and equity financings. The following provides a description of the Company's equity financings in connection with such equity financings.

 

In terms of  settlement agreement entered into between three existing shareholders of the Company and a further settlement agreement entered into between the Company and these shareholders, a further 90,000 shares were issued to two existing shareholders in exchange for their judgment and settlement agreement obtained against the third shareholder. The agreement entitles the Company to redeem 177,500 shares of common stock of the third shareholder and a forgiveness of a debt owing to the third shareholder of $34,040. The cancellation of the 177,500 shares will only take place in 2011 once a Stay and Collection Judgment obtained against Caldera Pharmaceuticals by our previous legal counsel has been dismissed. This dismissal was obtained in November 2011.

 

A further 324,500 shares of common stock were issued for $178,475 for consulting services rendered by a third party. The consulting agreement includes business development and capital raising to fund the future expansion of the Company.

During the nine months ended September 30, 2011, certain employees of the Company exercised options over 9,555 shares of common stock at an exercise price of $5.71 per share, thereby receiving 9,555 shares of common stock.

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

10.	SERIES A 8% CONVERTIBLE PREFERRED STOCK AND COMMON STOCK PURCHASE WARRANTS

In terms of a private placement memorandum dated June 24, 2011, 287,746 units of series A convertible preferred stock (“Preferred Stock”) and common stock purchase warrants were issued to Series A preferred stockholders at a par value of $0.001 per share for a total consideration of $1,640,150. A further 40,000 warrants were issued to advisors to acquire shares of common stock at a price of $5.71 per share in conjunction with the private placement. The Preferred Stock will convert to common stock of the Company at a price of $5.70 per Common Stock subject to adjustment for stock splits, stock dividends and any further recapitalizations. The Preferred 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.

The Preferred Stock Holders will receive warrants to purchase shares of the Company’s common stock equal to 100% of the number of shares that they would receive upon conversion of the Preferred stock into common stock at an exercise price of $5.70 per share. The Warrants will expire five years after date of issuance. The Warrants are not transferable separately from the Preferred Stock without the consent of the Company and an opinion of Counsel satisfactory to the Company.

Should the Company receive net proceeds of at least $3 million from litigation proceedings against the managers of Los Alamos National Laboratory; the Preferred Stock holder will have the option to redeem the Preferred Stock equal to 130% of the price per share of $5.70. The Company also has the option to redeem the Preferred Stock at a price equal to 130% of the price per share of $5.70 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.

The Preferred stock carries an 8% cumulative, non-compounded dividend payable on January 31, each year. In cash or in kind at the option of the Preferred Stock holder. For any other dividends or distributions, the Preferred Stock is treated on an as converted basis.

 

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

11.

WARRANTS

During the current year, warrants were issued to investors in conjunction with the Series A Preferred Stock. In addition, warrants were also issued to the placement agent in the Preferred Stock financing. See details of the equity financings above.

At September 30, 2011, outstanding warrants to purchase shares of common stock are as follows:

Warrants				Exercise Price			Expiration Date
	22,272			$	5.70		March 2016
	108,982			$	5.70		April 2016
	86,404			$	5.70		May 2016
	35,000			$	5.70		June 2016
	40,000			$	5.70		July 2016
	35,088			$	5.70		September 2016
	327,746

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 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 4 years to 10 years from the grant date. At September 30, 2011, 466,555 shares were available for future grant under the Incentive Plan.

 

Stock-based compensation expense totaled $300,128 and $240,182 for the nine months ended September 30, 2011 and 2010 respectively. The Company expenses the value of stock options as earned. The fair value of the options granted is determined using the Black-Scholes option-pricing model. The following weighted average assumptions were used:

 

		Nine months ended September 30, 2011				Nine months ended September 30, 2010
Risk-free interest rate		0.01% to 0.15%					0.15% - 0.14%
Expected life of the options		5 Years				5 Years
Expected volatility of the underlying stock			128%				128%
Expected dividend rate			0%				0%

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.	STOCK BASED COMPENSATION (continued)

 

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 4 to 10 years, with 5 years representing the estimated life of options granted. 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 short term maturities of no more than three months. 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. At December 31, 2010, 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.

 

During the nine months ended September 30, 2011, 9,555 options were exercised at an exercise price of $5.71 per share of common stock at a value of $54,559.

 

During the nine months ended September 30, 2011 we cancelled options over 220,000 shares of common stock. These options were issued during the year with expiry dates of three months after termination of employment by the company. No options were cancelled for the nine months ended September 30, 2010 The shares underlying such options were returned to and are available for re-issuance under the 2005 Plan pursuant to the terms described above.

 

During the nine months ended  September 30, 2011 and the year ended December 31, 2010, all awards granted under the Plan were incentive stock options. A summary of all of our option activity as of September 30, 2011 and December 31, 2010 and of changes in options outstanding under the plans during the nine months ended September 30, 2011 are as follows:

 

		Shares				Exercise price per share				Weighted average exercise price
Outstanding January 1, 2010			277,688			$	2.00 - $5.71			$	4.77
Granted			65,000			$	5.71			$	5.71
Forfeited/Cancelled			(57,188	)		$	2.00 - $5.71			$	4.09
Exercised			-				-				-
Outstanding December 31, 2010			285,500			$	2.00 - $5.71			$	5.13
Granted			477,500			$	1.10 - $5.71				1.77
Forfeited/Cancelled			(220,000	)		$	1.10				1.10
Exercised			(9,555	)		$	5.71			$	5.71
Outstanding September 30, 2011			533,445			$	1.10 - $5.71			$	3.50

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

12.	STOCK BASED COMPENSATION (continued)

The following tables summarize information about stock options outstanding at September 30, 2011:

 

				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
$	1.10				220,000				9.42			$	1.10				220,000			$	1.10
$	2.00				45,000				4.11			$	2.00				45,000			$	2.00
$	5.71				268,445				7.24			$	5.71				214,445			$	5.71
					533,445				7.88			$	3.50				479,445			$	3.25

The weighted-average grant-date fair values of options granted during the nine months ended September 2011 and the year ended December 31, 2010 were $0.43 and $4.84 respectively. As of September 30, 2011 there were unvested options to purchase 54,000 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is $85,884 which is expected to be recognized over a weighted–average period of 8 months.

13.	NET LOSS PER COMMON SHARE

 

Basic loss per share is based on the weighted-average number of common shares outstanding during each period. Diluted 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. The computation of diluted net loss per share does not assume the issuance of common shares that have an anti-dilutive effect on net loss per share. For the nine months ended September 30, 2011 and 2010, all stock options, Series A Preferred Stock and Warrants were excluded from the computation of diluted net loss per share. Dilutive shares which could exist pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because their affect would have been anti-dilutive are as follows:

 

		Nine months ended September 30, 2011 (Shares)				Nine months ended September 30, 2010 (Shares)
Series A Convertible Preferred stock			287,746				-
Warrants			327,746				-
Options to purchase shares of common stock			533,445				285,500
			1,148,937				285,500

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

14.	RELATED PARTY TRANSACTIONS

The majority of the share in the Company is owned by Benjamin Warner, the Chief Executive Officer. As at September 30, 2011 and December 31, 2010, Benjamin Warner owned 65.6% and 65.7% respectively.

Loans from related parties

		September 30, 2011				December 31, 2010
Benjamin P Warner			-				77,600
		$	-			$	77,600

The loan from Benjamin Warner is interest free and has no fixed repayment terms.

15.	OPERATING LEASES

The Company extended its existing office lease effective November 1, 2010. The monthly rent amounts to $4,784 per month and the lease terminates in October 2013.

The Company entered into an office sub-lease agreement with Greg Rzepczynski & Associates, LTD effective September1, 2011. The monthly rent amounts to $4,000 per month and the lease expires in September 2012.

Future annual minimum payments required under operating lease obligations at September 30, 2011, are as follows:

		Amount
2011		$	26,639
2012			95,426
2013			50,753
Total		$	172,818

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

16.	LITIGATION

Los Alamos National Security Suit

In October 2010, the Company filed suit against Los Alamos National Security LLC (“LANS”) and seven other co-defendants in the United States District Court For the Northern District of Illinois Eastern Division alleging the following: (i) Breach of Contract; (ii) Fraud; (iii) Intentional Interference with Contractual Relations; (iii) Legal Malpractice; and other related claims in connection with an exclusive Patent Licensing Agreement (the “Agreement”) originally entered into between the Company and the Regents of the University of California (the “Regents”) in September 2005. In April 2006, the Regents assigned the Agreement to LANS. The Company believes the defendants made false representations that were critical to its decision to enter into the Agreement including: (i) the Regents was the lawful owner of the patent rights covered by the Agreement; and (ii) the Regents would prosecute and maintain these patent rights and notify the Company if it decided to abandon them. The Company also believes that LANS and other co-defendants improperly competed with the Company. In addition, the Company believes that two of the co-defendants, both in-house patent attorneys for LANS, breached their professional duties. The Company believes it has suffered substantial damages from the defendants’ actions. The Company also filed suit against the Regents and LANS in California Superior Court in San Francisco in December 2007. This suit was dismissed for reason of lack of subject matter jurisdiction by the Court. We believe that this dismissal was made incorrectly, and are appealing this ruling. The defendants filed countersuits, which were also dismissed. Should LANS or other defendants file or re-file countersuits, the Company intends to vigorously defend itself.

In September 2011, the Company filed suit against the Regents of the University of California and Los Alamos National Security LLC ("LANS") in the Circuit Court of Cook County. LANS removed the case to federal court, Case # ll-CV-07259. The Company's complaint alleges the following: (i) Breach of Contract; (ii) Breach of the Implied Covenant of Good Faith; (iii) Fraud; and (iv) Fraudulent Inducement, in connection with an exclusive Patent Licensing Agreement (the "Agreement") originally entered into between the Company and the Regents of the University of California (the "Regents") in September 2005 and assigned to LANS in April 2006. The Company believes the defendants breached a License Agreement, and made false representations that were critical to the Company's decision to enter into the Agreement. The Company believes it has suffered substantial damages from the Defendants' actions.

Seddie Bastanipour and Joel Bellows Suit

In October 2008, Seddie Bastanipour and Joel Bellows filed suit against the Company, our Chief Executive Officer, Dr. Benjamin Warner, and a former consultant to the Company, Sigmund Eisenchenk. Joel Bellows provided legal services to the Company through his legal firm, Bellows and Bellows P.C. The suit was filed in the Circuit Court of Cook County, Illinois and alleged the following: (i) Violation of Illinois Securities Act of 1953; (ii) Violation of Illinois Consumer Fraud Act; and (iii) Common Law Fraud, in connection with aggregate investments of $218,000 in the Company’s common stock claimed by Bastanipour and Bellows. They are seeking compensatory damages, costs and expenses. The Company does not believe Bastanipour and Bellows will prevail on any of the alleged complaints.

In March, 2010, the Company filed suit against Joel Bellows and Bellows and Bellows P.C. in the United States District Court for the District of New Mexico alleging the following: (i) Breach of Contract; (ii) Negligence; (iii) Breach of Fiduciary Duty; (iv) Fraud; and (v) Tortious Interference with Contract. The aforementioned complaints relate to legal services provided by Bellows and Bellows P.C. for the Company. The Company is seeking compensatory damages, punitive damages, interest, costs and fees.

 

 

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CALDERA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.	LITIGATION (continued)

Seddie Bastanipour and Joel Bellows Suit (continued)

In December 2010, the Company filed suit against Seddie Bastanipour and Peter Baltrus for breach of contract and negligence when they were performing accounting services on behalf of the Company which resulted in an IRS penalty. In December, 2011, the Company completed an amicable settlement with Bastanipour and she is no longer party to either suit. Baltrus claims to have been working for Bellows (see above) at all relevant times; the case against Peter Baltrus continues. The Company has entered into further settlement discussions with Peter Baltrus .

17.	SUBSEQUENT EVENTS

Series A 8% Convertible Preferred Stock and Common Stock Purchase Warrants

Subsequent to year end and in terms of a private placement memorandum dated June 24, 2011, a further  53,860 units of series A convertible preferred stock (“Preferred Stock”) and common stock purchase warrants were issued to Series A preferred stockholders at a par value of $0.001 per share for a total consideration of $307,000. A further 17,800 warrants were issued to advisors to acquire shares of common stock at a price of $5.70 per share in conjunction with the private placement.

Other than disclosed above, the Company has evaluated subsequent events through the date the financial statements were issued, and has concluded that no such events or transactions took place which would require disclosure herein.

 

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Caldera Pharmaceuticals, Inc.

We have audited the accompanying balance sheets of Caldera Pharmaceuticals, Inc. as of December 31, 2010 and 2009 and the related statements of operations and changes in stockholders’ equity, and cash flows for the years then ended.  These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Caldera Pharmaceuticals, Inc. as of December 31, 2010 and 2009 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/Sherb & Co., LLP   Certified Public Accountants

 

                                                   

Boca Raton, Florida

February 13, 2012

 

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CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

		December 31, 2010				December 31, 2009
ASSETS
Current assets:
Cash		$	117,910			$	45,936
Accounts receivable, net			264,488				234,120
Prepaid expenses			3,010				46,728
Total current assets			385,408				326,784
Non-current assets:
Intangible assets, net			697,942				749,625
Plant and equipment, net			255,105				312,973
			953,047				1,062,598
TOTAL ASSETS		$	1,338,455			$	1,389,382
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	416,495			$	167,833
Loans payable			116,084				82,257
Loans from related parties			77,600				-
Total current liabilities			610,179				250,090
Non-current liabilities:
Loans payable			270,952				299,251
Loans from related parties			-				11,000
Loans from stockholders			-				41,379
			270,952				351,630
TOTAL LIABILITIES			881,131				601,720
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value, authorized 10,000,000  shares, 4,886,065 and 4,471,565 shares issued and outstanding as of December 31, 2010 and 2009, respectively.			4,886				4,472
Additional paid in capital			4,112,316				3,578,187
Accumulated deficit			(3,659,878	)			(2,794,997	)
Total stockholder’s equity			457,324				787,662
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY		$	1,338,455			$	1,389,382

See notes to the financial statements on pages F-5 through F-23

 

 

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CALDERA PHARMACEUTICALS, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year ended December 31, 2010				Year ended December 31, 2009
Sales, net		$	1,641,582			$	1,600,906
Cost of sales			760,728				755,992
Gross profit			880,854				844,914
Operating expenses:
General and administrative expenses			1,609,846				858,477
Depreciation			64,012				60,921
Amortization			51,683				51,683
Total operating expenses			1,725,541				971,081
Operating loss			(844,687	)			(126,167	)
Other income/(expense)
Other income			-				3,460
Interest income			9				36
Interest expense			(20,203	)			(21,878	)
Total other income/(expense)			(20,194	)			(18,382	)
Loss before income tax			(864,881	)			(144,549	)
Provision for income taxes			-				-
Net loss		$	(864,881	)		$	(144,549	)
Net loss per common stock:-
Basic and diluted		$	(0.19	)		$	(0.03	)
Weighted average number of common stock outstanding:-
Basic and diluted			4,549,502				4,471,565

See notes to the financial statements on pages F-5 through F-23

 

 

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CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY

 

 

						Common Stock
		Number of shares				Amount				Additional paid in capital				Accumulated deficit				Total Stockholder’s Equity
Balance at January 1, 2009			4,471,565			$	4,472			$	3,378,525			$	(2650,448	)		$	732,549
Fair value of stock options issued to employees			-				-				199,662				-				199,662
Net loss							-				-				(144,549	)			(144,549	)
Balance at December 31, 2009			4,471,565				4,472				3,578,187				(2,794,997	)			787,662
Stock issued in terms of settlement agreement between shareholders  during October 2010			90,000				90				33,950				-				34,040
Issuance of common stock as compensation for consulting fees			324,500				324				178,151				-				178,475
Fair value of stock options issued to employees			-				-				322,028				-				322,028
Net loss			-				-				-				(864,881	)			(864,881	)
Balance at December 31, 2010			4,886,065			$	4,886			$	4,112,316			$	(3,659,878	)		$	457,324

 

See notes to the financial statements on pages F-5 through F-23

 

 

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CALDERA PHARMACEUTICALS, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Year ended December 31, 2010				Year ended December 31, 2009
Cash flow from operating activities
Net loss		$	(864,881	)		$	(144,549	)
Adjustments for non-cash items:
Depreciation			64,012				60,921
Amortization			51,683				51,683
Stock based compensation payments			500,503				199,662
Changes in operating assets and liabilities:
Increase in accounts receivable			(30,368	)			(130,926	)
Decrease in prepaid expenses			43,718				15,087
Increase in accounts payable and accrued expenses			248,662				54,438
Net cash provided by operating activities			13,329				106,316
Investing activities
Purchase of plant and equipment			(6,144	)			(205,188	)
Net cash used in investing activities			(6,144	)			(205,188	)
Financing activities
Advance on line of credit, net			35,997				51,787
Advance on loan payable			-				4,956
Repayment of loan payable			(30,469	)			-
Repayment of stockholders loan			(7,339	)			(13,611	)
Loan advanced by stockholder			66,600				-
Net cash provided by financing activities			64,789				43,132
Net increase/(decrease) in cash			71,974				(55,740	)
Cash at the beginning of the period			45,936				101,676
Cash at the end of the period		$	117,910			$	45,936
Supplemental disclosure of cash flow information
Cash paid for:
Interest		$	20,203			$	21,878

 

See notes to the financial statements on pages F-5 through F-23

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

1.	GENERAL INFORMATION

Caldera Pharmaceuticals, Inc. (“the Company”) is a Delaware corporation with principal offices in Los Alamos, New Mexico and Chicago, Illinois. The Company was incorporated in November 2003.

The Company is a drug discovery and pharmaceutical instrument company which is based on a proprietary x-ray fluorescence technology, called XRpro®. Caldera offers what it believes to be uniquely broad and simple technologies to evaluate drug molecules, which increases the efficiency of analyzing and evaluating drug molecules for safety and efficacy at an early and less expensive stage.

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

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).

Consolidation

The 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.

Estimates

The preparation of these 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, inventories, recovery of long-lived assets. We base our estimates on historical experience and on various other assumptions that we believed 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 allowance for obsolete inventory, the useful life of property and equipment and intangible assets, and assumptions used in assessing impairment of long-term assets.

All amounts referred to in the notes to the financial statements are in United States Dollars ($) unless stated otherwise.

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

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.

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 then 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, and advances to suppliers 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.

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Recent accounting pronouncements

In October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements That Include Software Elements.” This ASU changes the accounting model for revenue arrangements that include both tangible products and software elements that are “essential to the functionality,” and scopes these products out of current software revenue guidance. The new guidance will include factors to help companies determine what software elements are considered “essential to the functionality.” The amendments will now subject software-enabled products to other revenue guidance and disclosure requirements, such as guidance surrounding revenue arrangements with multiple-deliverables. The amendments in this ASU are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010. Early application is permitted. The adoption of the new ASU did not have any important impact on the Company’s financial statements.

In January 2010, the FASB issued guidance to amend the disclosure requirements related to fair value measurements. The guidance requires the disclosure of roll forward activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will become effective for us with the reporting period beginning July 1, 2011. Other than requiring additional disclosures, the adoption of this new guidance will not have a material impact on our financial statements.

In January 2010, the FASB issued Accounting Standards Update ("ASU") No. 2010-06 for Fair Value Measurements and Disclosures (Topic 820):  Improving Disclosures about Fair Value Measurements . This Update requires new disclosures for transfers in and out of Level 1 and 2 and activity in Level 3. This Update also clarifies existing disclosures for level of disaggregation and requires additional disclosures about inputs and valuation techniques. The new disclosures are effective for interim and annual periods beginning after December 15, 2009, except for the Level 3 disclosures, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those years. Other than requiring additional disclosures, adoption of this new guidance did not have a material impact on the Company's financial statements and is not expected to have a significant impact on the reporting of the Company's financial condition or results of operations.

In February 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-09 (ASU 2010-09), Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.  This amendment addresses both the interaction of the requirements of this Topic with the SEC’s reporting requirements and the intended breadth of the reissuance disclosure provision related to subsequent events (paragraph 855-10-50-4).  All of the amendments in this Update are effective upon issuance of the final Update, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010.  The adoption of the new ASU did not have any important impact on the Company’s financial statements.

In March 2010, the FASB ratified the milestone method of revenue recognition. Under this standard, an entity can recognize contingent consideration earned from the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity's performance or on the occurrence of a specific outcome resulting from the entity's performance (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to the entity. This guidance is effective for years beginning after June 15, 2010. This guidance did not have any important impact on the Company’s financial statements.

In   March 2010, the FASB issued ASU 2010-11, Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.  The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010.  Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update.  The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Recent accounting pronouncements (continued)

In   April 2010, the FASB issued ASU 2010-13, Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades – a consensus of the FASB Emerging Issues Task Force.  The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.  Earlier application is permitted.  The Company does not expect the provisions of ASU 2010-13 to have a material effect on the financial position, results of operations or cash flows of the Company.

In May 2010, the FASB issued ASU 2010-19, Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates.  The amendments in this Update are effective as of the announcement date of March 18, 2010. The Company does not expect the provisions of ASU 2010-19 to have a material effect on the financial position, results of operations or cash flows of the Company.

In May 2011, the FASB issued guidance to amend the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance will be effective for us beginning January 1, 2012. Other than requiring additional disclosures, we do not anticipate material impacts on our financial statements upon adoption.

 

In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance will be effective for us beginning July 1, 2012 and will have presentation changes only.

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

 

Reporting by segment

No segmental information is presented as the Company only has one significant reporting segment which is Government Revenues.

Intangible assets

d)	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 straight-line 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

Assessment of an intangible asset’s residual value and useful life is performed annually.

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

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

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.

Concentration of major customers

The Company currently derives substantially all of its revenues from Government research contracts.

During the year ended December 31, 2010, the Company recorded revenues from nine different research projects from Government agencies totaling 100% of its revenues. During the year ended December 31, 2009, the Company recorded revenues from ten different research projects from Government agencies totaling 100% of its revenues.

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.  We periodically review our accounts receivable and other receivables to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt.  Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

The amount charged to bad debt provision for the years ended December 31, 2010 and 2009 was $nil.

As a basis for accurately estimating the likelihood of collection has been established, 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.

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

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.

 

Revenues from government grants and contracts are for research and development purposes and are recognized in accordance with the terms of the award and the government agency. Grant revenue is recognized in one of two different ways depending on the grant. Cost reimbursement grants require us to submit proof of costs incurred that are invoiced by us to the government agency, which then pays the invoice. In this case, grant revenue is recognized during the period that the costs were incurred according to the terms of the government grant. Fixed cost grants require no proof of costs at the time of invoicing, but proof is required for audit purposes and grant revenue is recognized during the period that the costs were incurred according to the terms of the government grant. The grant revenue under these fixed costs grants is recognized using a percentage-of-completion method, which uses assumptions and estimates. These assumptions and estimates are developed in coordination with the principal investigator performing the work under the government fixed-cost grants to determine key milestones, expenses incurred, and deliverables to perform a percentage-of-completion analysis to ensure that revenue is appropriately recognized. Critical estimates involved in this process include total costs incurred and anticipated to be incurred during the remaining life of the grant.

Government contract revenue is recognized as allowable research and development expenses are incurred during the period and according to the terms of the government contract.

Commercial revenue is recognized when the service or development is delivered or upon complying with the relevant terms of the commercial agreement.

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 substantial sales and marketing expenses in future periods to promote its x-ray florescence equipment 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, that 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 remaining license period or patent life.

The amount expensed for research costs during the year and the prior year is immaterial.

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.

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE 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 on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of operations for the years ended December 31, 2010 and 2009 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 SFAS No. 109, Accounting for Income Taxes, included in the Codification as ASC 740, 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 Loss per Share

Basic net loss per share is computed on the basis of the weighted average number of common stock outstanding during the period.

Diluted net income 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 per share are excluded from the calculation.

Dilution is computed by applying the treasury stock method for options and warrants. Under this method, 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.

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

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 related party.

3.	GOING CONCERN

As shown in the accompanying financial statements, the Company incurred a net loss of $864,881 and $144,549 during the years ended December 31, 2010 and 2009, respectively. As of December 31, 2010, the Company had an accumulated deficit of $3,659,878. The Company had a working capital deficiency of $224,771 at December 31, 2010. These operating losses and working capital deficiency create an uncertainty about the Company’s ability to continue as a going concern. Although no assurances can be given, management of the Company believes that potential additional issuances of equity or other potential financing will provide the necessary funding for the Company to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company is economically dependent upon future capital contributions or financing to fund ongoing operations.

4.	INTANGIBLE ASSETS

Licenses

In terms of an Exclusive Patent License agreement covering national and international patents entered into with the Los Alamos National Security LLC. 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.

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

4.	INTANGIBLE ASSETS (continued)

In terms of the agreement, The Company issued shares to the Licensor equal to 3% of the issued equity of the Company. The agreement contains anti-dilutive clauses which will ensure that the Licensor maintains at least a 3% shareholding in the Company until the Company achieves equity financing of at least $20 million.  As of December 31, 2010, the Company has not yet raised the requisite amount of financing.  The Licensor continued to hold, at a minimum, 3% of the Company’s common stock.

 

The agreement further provides for an annual royalty to be paid to the Licensee at a rate of 2% per annum on net sales, excluding any sales to Government agencies. The agreement provided for a minimum royalty payment of $25,000 per annum for the financial years ended December 31, 2006 to December 31, 2010. Thereafter the minimum royalty payment increases to $50,000 per annum up until December 31, 2022.

		December 31, 2010				December 31, 2009
Licenses, at cost		$	972,000			$	972,000
Less: Accumulated amortization			(274,058	)			(222,375	)
		$	697,942			$	749,625

The aggregate amortization expense charged to operations was $51,683 and $51,683 for the years ended December 31, 2010 and 2009, respectively. The amortization policies followed by the company are described in Note (2).

Amortization expense for the future years is summarized as follows:

		Amount
2011		$	51,684
2012			51,684
2013			51,684
2014			51,684
2015			51,684
2016 and thereafter			439,522
Total		$	697,942

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.

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

5.	PLANT AND EQUIPMENT

Plant and equipment consists of the following at December 31, 2010 and 2009.

		December 31, 2010				December 31, 2009
Leasehold improvements		$	6,393			$	6,393
Furniture and fittings			7,114				7,114
Laboratory equipment			413,269				411,676
Computer equipment			22,439				17,888
Total			449,215				443,071
Accumulated depreciation			(194,110	)			(130,098	)
		$	255,105			$	312,973

The aggregate depreciation charge to operations was $64,012 and $60,921 for the years ended December 31, 2010 and 2009 respectively. The depreciation policies followed by the company are described in Note (2).

6.	ACCOUNTS PAYABLE AND ACCRUED EXPENSES

		December 31, 2010				December 31, 2009
Accounts payable		$	290,891			$	57,753
Credit card liabilities			2,342				25,502
Vacation and Sick Pay accrual			85,228				64,339
Payroll liabilities			28,489				20,239
Other			9,545				-
		$	416,495			$	167,833

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7.	INCOME TAXES

Due to our historical net loss position, and  valuation allowance against deferred tax assets, there is no provision or benefit for income taxes recorded for the years ended December 31, 2010 and 2009.

The income tax provision/ (benefit) is different from that which would be obtained by applying the statutory Federal income tax rate of 35% to income before income tax expense. The items causing this difference for the years ended December 31, 2010 and 2009 are as follows:

		December 31, 2010				December 31, 2009
Income tax benefit at federal statutory rate		$	(302,709	)		$	(50,592	)
State taxes, net of federal benefit			(43,244	)			(7,227	)
Other			(53,748	)			-
Stock based compensation			200,201				79,864
			(199,500	)			22,045
Valuation allowances			199,500				(22,045	)
		$	-			$	-

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities at December 31, 2010 and 2009 are as follows:

		December 31, 2010				December 31, 2009
Deferred tax assets
Accrual to cash adjustments		$	60,000			$	-
Plant and equipment			10,500				28,000
Net operating loss			697,000				580,000
			767,500				608,000
Valuation allowance			(695,500	)			(496,000	)
Net Amortization			72,000				112,000
Deferred tax liabilities
Accrual to cash adjustments			(72,000	)			(67,000	)
		$	-			$	-

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

7.	INCOME TAXES (continued)

We have established a valuation allowance against our gross deferred tax assets sufficient to bring our net deferred tax assets to zero due to the uncertainty surrounding the realization of such assets. Management has determined it is more likely than not that the deferred tax assets are not realizable beyond our deferred tax liabilities due to our historical loss position.

At December 31, 2010, we had tax loss carry forwards of approximately $1,743,000. These net operating loss carry forwards begin to expire in 2023, if unused.

Pursuant to the Internal Revenue Code of 1986, as amended, ("IRC") §382, our ability to use net operating loss carry forwards to offset future taxable income is limited if we experience a cumulative change in ownership of more than 50% within a three-year period.

The Company’s 2009 and 2010 Federal income tax returns have been examined by the Internal Revenue Service (“IRS”) and the adjustments proposed by the IRS were agreed to by the Company. The Company’s tax provision reflects the IRS’ audit adjustments and the Com,pany believes that there are no remaining uncertain tax positions requiring recognition.

8.	LOANS PAYABLE

		December 31, 2010				December 31, 2009
Short term  portion
Los Alamos County Loan		$	28,300			$	30,469
Los Alamos National Bank – Loan 1			-				51,788
Los Alamos National Bank – Loan 2			87,784				-
			116,084				82,257
Long term portion
Los Alamos County Loan			270,952				299,251
		$	387,036			$	381,508

 

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8.	LOANS PAYABLE (continued)

Los Alamos County 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 $3,546.87.

Los Alamos National Bank – Loan 1

The Company entered into a one year revolving draw loan with Los Alamos National Bank as of April 23, 2009 with a principal available of $300,000. The Company drew $50,000 on the loan on April 23, 2009, a further $50,000 on May 24, 2009 a further $60,000 on June 29, 2009 and a further $40,000 on July 13, 2009. The Company made repayments on the loan on October 27, 2009 of $50,000 , a further repayment of $100,000 was made on December 31, 2009 and a final repayment of $50, 000 on April 23, 2010. The loan bears interest at a coupon of the Wall Street Journal Prime rate plus 1% with a floor of 6% per annum. This loan is secured by inventory, Accounts receivable and other rights to payments, instruments, documents and other Chattel paper, general intangibles and fixed assets. Interest is payable quarterly.

Los Alamos National Bank – Loan 2

The Company entered into a one year revolving draw loan with Los Alamos National Bank as of April 23, 2010 with a principal available of $300,000. The Company drew $86,800 on the loan on April 23, 2010, utilizing $50,000 to repay the balance outstanding on loan 1 above. The loan bears interest at a coupon of the Wall Street Journal Prime rate plus 1% with a floor of 6% per annum. This loan is secured by inventory, accounts receivable and other rights to payments, instruments, documents and other Chattel paper, general intangibles and fixed assets. Interest is payable quarterly.

9.	LOANS FROM STOCKHOLDERS

The loan from shareholders represents a loan from one shareholder; the loan is interest free and has no fixed terms of repayment.

In terms of a settlement agreement reached between shareholders of the Company and the Company, the remaining balance of the loan of $34,040 in October 2010 was forgiven. (See note 9 below).

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10.	COMMON STOCK

Common stock consists of 10,000,000 authorized shares of $0.001 each.

In terms of  settlement agreement entered into between three existing shareholders of the company and a further settlement agreement entered into between The Company and these shareholders, a further 90,000 shares were issued to two existing shareholders in exchange for their judgment and settlement agreement obtained against the third shareholder. The agreement entitles the company to redeem 177,500 shares of common stock of the third shareholder and a forgiveness of a debt owing to the third shareholder of $34,040. The cancellation of the 177,500 shares will only take place in 2011 once a Stay and Collection Judgment obtained against Caldera Pharmaceuticals by our previous legal counsel has been dismissed. This dismissal was obtained in November 2011.

11.	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 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 4 years to 10 years from the grant date. At December 31, 2010, 2,064,500 shares were available for future grant under the Incentive Plan.

 

Stock-based compensation expense totaled $322,028 and $199,662 in 2010 and 2009, respectively. The Company expenses the value of stock options as earned. The fair value of the options granted is determined using the Black-Scholes option-pricing model. The following weighted average assumptions were used:

		Year ended December 31, 2010				Year ended December 31, 2009
Risk-free interest rate		0.04% to 0.15%					0.15% - 0.17%
Expected life of the options		5 Years				5 Years
Expected volatility of the underlying stock			128%				129%
Expected dividend rate			0%				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 4 to 10 years, with 5 years representing the estimated life of options granted. 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 short term maturities of no more than three months. 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. At December 31, 2010, 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.

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

11.	STOCK BASED COMPENSATION (continued)

No options were exercised during the 2010 or the 2009 periods.

We canceled options exercisable for 57,188 and 10,312 shares of common stock in the years ended December 31, 2010 and 2009, 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.

 

During the years ended December 31, 2010 and 2009, all awards granted under the Plan were incentive stock options. A summary of all of our option activity as of December 31, 2010 and 2009 and of changes in options outstanding under the plans during the year ended December 31, 2010 are as follows:

 

		Shares				Exercise price per share				Weighted average exercise price
Outstanding, January 1, 2009			218,000			$	2.00 – $5.71			$	4.52
Granted			70,000			$	5.71			$	5.71
Forfeited/Cancelled			(10,312	)		$	5.71			$	5.71
Exercised			-				-				-
Outstanding December 31, 2009			277,688			$	2.00 - $5.71			$	4.77
Granted			65,000			$	5.71			$	5.71
Forfeited/Cancelled			(57,188	)		$	2.00 - $5.71			$	4.09
Exercised			-				-				-
Outstanding December 31, 2010			285,500			$	2.00 - $5.71			$	5.13

The following tables summarize information about stock options outstanding at December 31, 2010:

 

				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
$	2.00				45,000				4.86			$	2.00				45,000			$	2.00
$	5.71				240,500				7.67			$	5.71				155,500			$	5.71
					285,500				7.23			$	5.13				200,500			$	4.88

The weighted-average grant-date fair values of options granted during 2010 and 2009 were $4.84 and $4.86, respectively. As of December 31, 2010 there were unvested options to purchase 85,000 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is $333,516, which is expected to be recognized over a weighted–average period of 8 months

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

12.	NET LOSS PER COMMON SHARE

Basic loss per share is based on the weighted-average number of common shares outstanding during each period. Diluted 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. The computation of diluted net loss per share does not assume the issuance of common shares that have an anti-dilutive effect on net loss per share. For the years ended December 31, 2010 and 2009, all stock options were excluded from the computation of diluted net loss per share. Dilutive shares which could exist pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because their affect would have been anti-dilutive are as follows:

 

		Year ended December 31, 2010 (Shares)				Year ended December 31, 2009 (Shares)
Options to purchase shares of common stock			285,500				277,688

13.	RELATED PARTY TRANSACTIONS

The majority of the share in the Company is owned by Benjamin Warner, the Chief Executive Officer. As at December 31, 2010 and 2009 respectively, Benjamin Warner owned 65.7% and 71.8% respectively.

Loans from related parties

		December 31, 2010				December 31, 2009
Short term loans
Benjamin P Warner		$	77,600			$	-
Long term loans
Benjamin P Warner			-				11,000
		$	77,600			$	11,000

The loan from Benjamin Warner is interest free and has no fixed repayment terms. Subsequent to year end, the balance outstanding on the loan was converted to units consisting of Preferred stock and warrants.

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

14.	OPERATING LEASES

The Company extended its existing office lease effective November 1, 2010. The monthly rent amounts to $4,784 per month and the lease terminates in October 2013.

The Company entered into an office sub-lease agreement with Greg Rzepczynski & Assiciates, LTD effective September1, 2011. The monthly rent amounts to $4,000 per month and the lease expires in September 2012.

Future annual minimum payments required under operating lease obligations at December 31, 2010, are as follows:

		Amount
2011		$	73,695
2012			95,426
2013			50,753
Total		$	219,874

15.	LITIGATION

Los Alamos National Security Suit

In October 2010, the Company filed suit against Los Alamos National Security LLC (“LANS”) and seven other co-defendants in the United States District Court For the Northern District of Illinois Eastern Division alleging the following: (i) Breach of Contract; (ii) Fraud; (iii) Intentional Interference with Contractual Relations; (iii) Legal Malpractice; and other related claims in connection with an exclusive Patent Licensing Agreement (the “Agreement”) originally entered into between the Company and the Regents of the University of California (the “Regents”) in September 2005. In April 2006, the Regents assigned the Agreement to LANS. The Company believes the defendants made false representations that were critical to its decision to enter into the Agreement including: (i) the Regents was the lawful owner of the patent rights covered by the Agreement; and (ii) the Regents would prosecute and maintain these patent rights and notify the Company if it decided to abandon them. The Company also believes that LANS and other co-defendants improperly competed with the Company. In addition, the Company believes that two of the co-defendants, both in-house patent attorneys for LANS, breached their professional duties. The Company believes it has suffered substantial damages from the defendants’ actions. The Company also filed suit against the Regents and LANS in California Superior Court in San Francisco in December 2007. This suit was dismissed for reason of lack of subject matter jurisdiction by the Court. We believe that this dismissal was made incorrectly, and are appealing this ruling. The defendants filed countersuits, which were also dismissed. Should LANS or other defendants file or re-file countersuits, the Company intends to vigorously defend itself.

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

15.	LITIGATION (continued)

Los Alamos National Security Suit (continued)

In September 2011, the Company filed suit against the Regents of the University of California and Los Alamos National Security LLC ("LANS") in the Circuit Court of Cook County. LANS removed the case to federal court, Case # ll-CV-07259. The Company's complaint alleges the following: (i) Breach of Contract; (ii) Breach of the Implied Covenant of Good Faith; (iii) Fraud; and (iv) Fraudulent Inducement, in connection with an exclusive Patent Licensing Agreement (the "Agreement") originally entered into between the Company and the Regents of the University of California (the "Regents") in September 2005 and assigned to LANS in April 2006. The Company believes the defendants breached a License Agreement, and made false representations that were critical to the Company's decision to enter into the Agreement. The Company believes it has suffered substantial damages from the Defendants' actions.

Seddie Bastanipour and Joel Bellows Suit

In October 2008, Seddie Bastanipour and Joel Bellows filed suit against the Company, our Chief Executive Officer, Dr. Benjamin Warner, and a former consultant to the Company, Sigmund Eisenchenk. Joel Bellows provided legal services to the Company through his legal firm, Bellows and Bellows P.C. The suit was filed in the Circuit Court of Cook County, Illinois and alleged the following: (i) Violation of Illinois Securities Act of 1953; (ii) Violation of Illinois Consumer Fraud Act; and (iii) Common Law Fraud, in connection with aggregate investments of $218,000 in the Company’s common stock claimed by Bastanipour and Bellows. They are seeking compensatory damages, costs and expenses. The Company does not believe Bastanipour and Bellows will prevail on any of the alleged complaints.

In March, 2010, the Company filed suit against Joel Bellows and Bellows and Bellows P.C. in the United States District Court for the District of New Mexico alleging the following: (i) Breach of Contract; (ii) Negligence; (iii) Breach of Fiduciary Duty; (iv) Fraud; and (v) Tortious Interference with Contract. The aforementioned complaints relate to legal services provided by Bellows and Bellows P.C. for the Company. The Company is seeking compensatory damages, punitive damages, interest, costs and fees.

In December 2010, the Company filed suit against Seddie Bastanipour and Peter Baltrus for breach of contract and negligence when they were performing accounting services on behalf of the Company which resulted in an IRS penalty. In December, 2011, the Company completed an amicable settlement with Bastanipour and she is no longer party to either suit. Baltrus claims to have been working for Bellows (see above) at all relevant times; the case against Peter Baltrus continues. The Company has entered into further settlement discussions with Peter Baltrus .

 

 

 

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CALDERA PHARMACEUTICALS, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16.	SUBSEQUENT EVENTS

Series A 8% Convertible Preferred Stock and Common Stock Purchase Warrants

Subsequent to year end and in terms of a private placement memorandum dated June 24, 2011, 341,607 units of series A convertible preferred stock (“Preferred Stock”) and common stock purchase warrants were issued to Series A preferred stockholders at a par value of $0.001 per share for a total consideration of $1,947,150. A further 57,800 warrants were issued to advisors to acquire shares of common stock at a price of $5.70 per share in conjunction with the private placement. The Preferred Stock will convert to common stock of the company at a price of $5.70 per Common Stock subject to adjustment for stock splits, stock dividends and any further recapitalizations. The Preferred 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.

The Preferred Stock Holders will receive warrants to purchase shares of the Company’s common stock equal to 100% of the number of shares that they would receive upon conversion of the Preferred stock into common stock at an exercise price of $5.70 per share. The Warrants will expire five years after date of issuance. The Warrants are not transferable separately from the Preferred Stock without the consent of the Company and an opinion of Counsel satisfactory to the Company.

Should the Company receive net proceeds of at least $3 million from litigation proceedings against the managers of Los Alamos National Laboratory; the Preferred Stock holder will have the option to redeem the Preferred Stock equal to 130% of the price per share of $5.70. The Company also has the option to redeem the Preferred Stock at a price equal to 130% of the price per share of $5.70 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.

The Preferred stock carries an 8% cumulative, non-compounded dividend payable on January 31, each year. In cash or in kind at the option of the Preferred Stock holder. For any other dividends or distributions, the Preferred Stock is treated on an as converted basis.

Other than disclosed above, the Company has evaluated subsequent events through the date the financial statements were issued, and has concluded that no such events or transactions took place which would require disclosure herein.

 

 

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PA RT II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13.   Other Expenses of Issuance and Distribution.

 

We estimate that expenses in connection with the distribution described in this registration statement (other than brokerage commissions, discounts or other expenses relating to the sale of the shares by the selling security holders) will be as set forth below. We will pay all of the expenses with respect to the distribution, and such amounts, with the exception of the Securities and Exchange Commission (“SEC”) registration fee, are estimates.

 

SEC registration fee		$	772.55
Accounting fees and expenses			10,000
Legal fees and expenses		$	25,000
Printing and related expenses		$	5,000
Transfer agent fees and expenses			2,000
Miscellaneous			2,227.45
Total		$	45,000

 

Item 14.   Indemnification of Directors and Officers.

 

Pursuant to our Second Amended and Restated Articles of Incorporation, our Board of Directors may issue additional shares of common or preferred stock. Any additional issuance of common stock or the issuance of preferred stock could have the effect of impeding or discouraging the acquisition of control of us by means of a merger, tender offer, proxy contest or otherwise, including a transaction in which our stockholders would receive a premium over the market price for their shares, and thereby protects the continuity of our management.  Specifically, if in the due exercise of its fiduciary obligations, the Board of Directors was to determine that a takeover proposal was not in our best interest, shares could be issued by the Board of Directors without stockholder approval in one or more transactions that might prevent or render more difficult or costly the completion of the takeover by:

 

·	diluting the voting or other rights of the proposed acquirer or insurgent stockholder group;
·	putting a substantial voting block in institutional or other hands that might undertake to support the incumbent board of directors; or
·	effecting an acquisition that might complicate or preclude the takeover.

 

The Delaware Corporations and Associations Act (“Delaware Corporate Law”), with certain exceptions, permits a Delaware corporation to indemnify a present or former director or officer of the corporation (and certain other persons serving at the request of the corporation in related capacities) for liabilities, including legal expenses, arising by reason of service in such capacity if such person shall have acted in good faith and in a manner he reasonably believed to be in, or not opposed, to the best interests of the corporation, and in any criminal proceeding if such person had no reasonable cause to believe his conduct was unlawful. However, in the case of actions brought by or in the right of the corporation, no indemnification may be made with respect to any matter as to which such director or officer shall have been adjudged liable, except in certain limited circumstances.

 

Our Second Amended and Restated Articles of Incorporation provide that we shall indemnify our directors and executive officers to the fullest extent now or hereafter permitted by Delaware Corporate Law. The indemnification provided by Delaware Corporate Law and our Second Amended and Restated Certificate of Incorporation is not exclusive of any other rights to which a director or officer may be entitled. The general effect of the foregoing provisions may be to reduce the circumstances under which an officer or director may be required to bear the economic burden of the foregoing liabilities and expense.

 

We may also purchase and maintain insurance for the benefit of any director or officer that may cover claims for which we could not indemnify such person.

 

 

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Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Securities Act”) may be permitted to our directors, officers and controlling persons, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to court of appropriate jurisdiction. We will then be governed by the court's decision.

  

Item 15.   Recent Sales and Issuances of Unregistered Securities.

 

In April 2009 we issued options to one individual (the “April 2009 Options”) for services rendered exercisable for a period of ten years for 50,000 shares of common stock and in October 2009 we issued options (the “October 2009 Options”) to one individual for services rendered exercisable for ten years for 20,000 shares of common stock.  The exercise price of both issuances was $5.71 per share.  The options vested 50% after one year and 12.5% quarterly thereafter, with all options vesting in 2011. The issuance of the options qualified for exemption under Section 4(2) of the Securities Act since the issuance by the Company did not involve a public offering. The issuance was not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, certificates bearing a legend stating that such options and the underlying shares are restricted. This restriction ensured that these securities will not be immediately redistributed into the market and therefore be part of a public offering. This issuance was done with no general solicitation or advertising by the Company. Based on an analysis of the above factors, the Company met the requirements to qualify for exemption under Section 4(2) of the Securities Act for the transactions.

 

In January 2010 we issued options to two individuals (the “January 2010 Options”) for services rendered exercisable for a period of ten years for an aggregate of 40,000 shares of common stock and in July 2010 we issued options(the “July 2010 Options”) to two individuals for services rendered exercisable for ten years for an aggregate of 25,000 shares of common stock. The exercise price of both issuances was $5.71 per share. The options vested 50% after one year and 12.5% quarterly thereafter, with all of the January 2010 Options being fully vested and the July 2010 Options being fully vested in July 2012. The issuance of the options qualified for exemption under Section 4(2) of the Securities Act since the issuance by the Company did not involve a public offering. The issuance was not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, certificates bearing a legend stating that such options and underlying shares are restricted. This restriction ensured that these securities will not be immediately redistributed into the market and therefore be part of a public offering. This issuance was done with no general solicitation or advertising by the Company. Based on an analysis of the above factors, the Company met the requirements to qualify for exemption under Section 4(2) of the Securities Act for the transactions.

 

On October 26, 2010 we issued 324,500 shares of common stock to three related parties in consideration of $178,475 of consulting services rendered by a third party. The issuance of the shares of common stock qualified for exemption under Section 4(2) of the Securities Act since the issuance by the Company did not involve a public offering. The issuance was not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, share certificates bearing a legend stating that such shares are restricted. This restriction ensured that these shares will not be immediately redistributed into the market and therefore be part of a public offering. This issuance was done with no general solicitation or advertising by the Company. Based on an analysis of the above factors, the Company met the requirements to qualify for exemption under Section 4(2) of the Securities Act for the transactions.

 

In February 2011 we issued options to three individuals for 460,000 shares of common stock exercisable for a period of ten years.  The exercise price of options exercisable for 20,000 shares of common stock was $5.71 per share and the exercise price of options exercisable for 440,000 shares of common stock was $1.10 per share.  The options exercisable for 20,000 shares of common stock vested 50% after one year and 12.5% quarterly thereafter, with all of such options being fully vested February 2013 and the 440,000 options vested immediately subject to forfeiture.   Options exercisable for 220,000 shares of common stock expired. The issuance of the options qualified for exemption under Section 4(2) of the Securities Act since the issuance by the Company did not involve a public offering. The issuance was not a public offering as defined in Section 4(2) because the issuance was made to an insubstantial number of persons and because of the manner of the offering. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, certificates bearing a legend stating that such options and the underlying shares are restricted. This restriction ensured that these securities will not be immediately redistributed into the market and therefore be part of a public offering. This issuance was done with no general solicitation or advertising by the Company. Based on an analysis of the above factors, the Company met the requirements to qualify for exemption under Section 4(2) of the Securities Act for the transactions.

 

 

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In May 2011 we issued options to two individuals for services rendered exercisable for a period of ten years for an aggregate of 12,500 shares of common stock.  The exercise price of both issuances was $5.71 per share.  Of such options, 12,000 vested on a monthly basis of 1,000 options per month  and 500 vested 50% after one year and 12.5% quarterly thereafter, with all of the January 2010 Options being fully vested and the July 2010 Options being fully vested in July 2012. The issuance of the options qualified for exemption under Section 4(2) of the Securities Act since the issuance by the Company did not involve a public offering. The issuance was not a public offering as defined in Section 4(2) because the issuance was made to an insubstantial number of persons and because of the manner of the offering. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, certificates bearing a legend stating that such options and underlying shares are restricted. This restriction ensured that these securities will not be immediately redistributed into the market and therefore be part of a public offering. This issuance was done with no general solicitation or advertising by the Company. Based on an analysis of the above factors, the Company met the requirements to qualify for exemption under Section 4(2) of the Securities Act for the transactions.

On October 22, 2010, the Company issued 90,000 shares to two existing shareholders in exchange for their judgment and settlement agreement obtained against the third shareholder.  The issuance of the shares of common stock qualified for exemption under Section 4(2) of the Securities Act since the issuance by the Company did not involve a public offering. The issuance was not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, share certificates bearing a legend stating that such shares are restricted. This restriction ensured that these shares will not be immediately redistributed into the market and therefore be part of a public offering. This issuance was done with no general solicitation or advertising by the Company. Based on an analysis of the above factors, the Company met the requirements to qualify for exemption under Section 4(2) of the Securities Act for the transactions.

From March 2011 through January 2012, the Company raised $1,947,150 from the sale of securities to 19 investors in a private placement in which it sold units at a price of $5.70 per share for an aggregate of 341,607 shares of series A convertible preferred stock (“Preferred Stock”) and five-year warrants to purchase shares of the Company’s common stock equal to 100% of the number of shares that they would receive upon conversion of the Preferred Stock into common stock.  In connection with the private placement, the Company issued warrants exercisable for an aggregate of 42,800 shares of common stock to two different placement agents. The offering and sale of the shares of the securities qualified for exemption under Section 4(2) of the Securities Act and Regulation D promulgated thereunder since the issuance by the Company did not involve a public offering. The offering was not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, certificates bearing a legend stating that such securities are restricted. This restriction ensured that these securities will not be immediately redistributed into the market and therefore be part of a public offering. This offering was done with no general solicitation or advertising by the Company. Based on an analysis of the above factors, the Company met the requirements to qualify for exemption under Section 4(2) of the Securities Act for the transactions.

 

In April 2011 we issued 25,053 shares of Series A Preferred Stock and a warrant exercisable for 25,053 shares of common stock to our Chief Executive Officer in lieu of repayment of loans that he and entities contolled by him had made to the Company. The issuance of the essecurities qualified for exemption under Section 4(2) of the Securities Act and Regulation D promulgated thereunder since the issuance by the Company did not involve a public offering. The issuance was not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. In addition, the investor had the necessary investment intent as required by Section 4(2) since the investor agreed to, and received, share certificates and warrant certificates bearing a legend stating that such shares are restricted. This restriction ensured that these securities will not be immediately redistributed into the market and therefore be part of a public offering. This offering was done with no general solicitation or advertising by the Company. Based on an analysis of the above factors, the Company met the requirements to qualify for exemption under Section 4(2) of the Securities Act for the transactions.

 

On October 31, 2011, the Company issued five-year warrants exercisable for 15,000 shares of common stock to a consultant for services performed. The warrants are exercisable at a price of $2.00 per share. The issuance of the warrants qualified for exemption under Section 4(2) of the Securities Act since the issuance by the Company did not involve a public offering. The issuance was not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, certificates bearing a legend stating that such warrants and the underlying shares are restricted. This restriction ensured that these securities will not be immediately redistributed into the market and therefore be part of a public offering. This issuance was done with no general solicitation or advertising by the Company. Based on an analysis of the above factors, the Company met the requirements to qualify for exemption under Section 4(2) of the Securities Act for the transactions.

From March 2011 through May 2011 we issued 2,459 shares of common stock to one individual upon exercise of the April 2009 Options, 2,212 shares of common stock to another individual  upon exercise of the October 2009 Options, 1,830 shares of common stock to another individual  upon exercise of the January 2010 Options, 2,418   shares of common stock to another individual  upon exercise of the January 2010 Options and 636 shares of common stock to another individual  upon exercise of the July 2010 Options.  The issuances of common stock were exempt from registration under Section 3(a)(9) of the Securities Act.

 

 

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In August and September 2011 we issued options to five individuals for services rendered exercisable for a period of ten years for an aggregate of 5,000 shares of common stock.  The exercise price of both issuances was $5.71 per share.  The options vested 50% after one year and 12.5% quarterly thereafter, with all of the August options being fully vested in August 2013 and all of the September options being fully vested in September 2013. The issuance of the options qualified for exemption under Section 4(2) of the Securities Act since the issuance by the Company did not involve a public offering. The issuance was not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, certificates bearing a legend stating that such options and the underlying shares are restricted. This restriction ensured that these securities will not be immediately redistributed into the market and therefore be part of a public offering. This issuance was done with no general solicitation or advertising by the Company. Based on an analysis of the above factors, the Company met the requirements to qualify for exemption under Section 4(2) of the Securities Act for the transactions.

 

In each of December 2011 and February 2012, we issued 50,000 shares of common stock to one entity in consideration of services rendered. The issuance of the shares of common stock qualified for exemption under Section 4(2) of the Securities Act since the issuance by the Company did not involve a public offering. The issuance was not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, share certificates bearing a legend stating that such shares are restricted. This restriction ensured that these shares will not be immediately redistributed into the market and therefore be part of a public offering. This issuance was done with no general solicitation or advertising by the Company. Based on an analysis of the above factors, the Company met the requirements to qualify for exemption under Section 4(2) of the Securities Act for the transactions.

 

Item 16.   Exhibits.

 

Exhibit No.	Description
3.1	Certificate of Incorporation dated November 12, 2003*
3.2	First Amended and Restated Certificate of Incorporation dated March 8, 2011*
3.3	Certificate of Designations dated March 14, 2011*
3.4	By-Laws *
4.1	Form of Warrant to Purchase Common Stock*
4.2	Promissory Note, dated September 21, 2006, in the principal amount of $2,200,000 payable to the Incorporated County of Los Alamos*
4.3	Stock Option Plan*
4.4	List of Warrant Holders*
5.1	Opinion of Gracin & Marlow, LLP
10.1	Employment Agreement with Dr. Benjamin Warner*
10.2	Employment Agreement with Lori Peterson (nee Court) *
10.3	Exclusive Patent License Agreement, dated September 8, 2005, by and between the Company and The Regents of the University of California*
10.4	Project Participation Agreement, dated as of September 21, 2006, by and between the Company and the Incorporated County of Los Alamos*
10.5	Amendment No. 1 to Participation Agreement, dated as of February 21, 2007, by and between the Company and the Incorporated County of Los Alamos*
10.6	OEM Agreement, dated July 5, 2011, by and between the Company and Bruker Nano GmbH*
21.1	List of subsidiaries*
23.1	Consent of Registered Public Accounting Firm*
23.2	Consent of Gracin & Marlow, LLP (included in Exhibit 5.1)*

*Filed herewith

**To be filed by amendment

 

 

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Item 17.   Undertakings

 

A. Rule 415 Offering

 

The undersigned registrant hereby undertakes:

 

(1)   To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than  20 percent  change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

 

(iii) To include any material information with respect to the plan of distribution not previously disclosed on the registration statement or any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities Act of 1933,  each such post-effective amendment shall be deemed to be  a new registration statement relating to  the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of the securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller and will be considered to offer or sell such securities to such purchaser:

 

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);

 

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

B. Request for Acceleration of Effective Date

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly authorized this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Los Alamos, New Mexico, on February 14, 2012.

 

CALDERA PHARMACEUTICALS, INC.
By:	/s/ Dr. Benjamin Warner
	Dr. Benjamin Warner, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature		Title		Date
/s/ Dr. Benjamin Warner		Chief Executive Officer and Director		February 14, 2012
Dr. Benjamin Warner		(Principal Executive Officer)
/s/ Jeremiel Zimmerman		Director		February 14, 2012
Jeremiel Zimmerman

 

/s/ Edward Roffman		Director		February 14, 2012
Edward Roffman

 

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