UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal period ended December 31, 2013
 
or
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to ________
 
Commission File Number:  000-54748
 
CALDERA PHARMACEUTICALS, INC.
 (Exact name of registrant as specified in its charter)
 
Delaware
 
20-0982060
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
One Kendall Square, Suite B2002
Cambridge, MA, 02139
 (Address of principal executive offices) (Zip Code)
 
(617) 294 - 9697
 (Registrant’s telephone number, including area code)
 
 (Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Name of each exchange on which registered
(Title of Class)
   
None
   
 
Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $0.001 par value
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨ No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨ No x
 
Indicate by check mark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  o No  x
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of issuer’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, a non-accelerated file, or a smaller reporting company.  See the definitions of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
 
 
Large accelerated filer
¨
Accelerated filer
o
 
Non-accelerated filer
¨
Smaller reporting company
x
         
 
(Do not check if a smaller reporting company)     
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ¨ No x
 
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2013, was approximately $402,504 based on $0.55, the price at which the registrant’s common stock was last sold, which was December 30, 2011.
 
As of May 30, 2014, the issuer had 4,039,770 shares of common stock outstanding.
 
Documents incorporated by reference: None
 
 
 
 
 
CALDERA PHARMACEUTICALS, INC.
 
FORM 10-K
 
TABLE OF CONTENTS
 
   
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PART I
 
Forward-Looking Statements
 
Many of the matters discussed within this report include forward-looking statements on our current expectations and projections about future events. In some cases you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements.  Such risks and uncertainties include the risks noted under “Item 1A Risk Factors.”  We do not undertake any obligation to update any forward-looking statements. Unless the context requires otherwise, references to “we,” “us,” “our,” and “Caldera Pharmaceuticals,” refer to Caldera Pharmaceuticals, Inc. and its subsidiaries.
 
Item 1. 
 
Overview
 
The Company uses proprietary x-ray fluorescence technology called XRpro® to deliver ion channel screening, ion channel kinetics and custom screening services to our customers. Our proprietary technology is designed to detect and quantitatively analyze the x-ray signature of each element with an atomic number greater than 10, we combine the flexibility of the analysis with patented sample processing to address a wide range of ion channel and other biological targets. We believe that our technology can reduce the cost of drug discovery by detecting safety and efficacy issues at an early stage of development. To date, substantially all of our revenue has been derived from our analytical services that we have performed for United States governmental agencies. However, we expect that our future revenue will be derived from: (i) provision of our analytical drug discovery services to commercial customers as well as United States governmental agencies; and, (ii) to a lesser extent, sales of new drug candidates that we identify using the XRpro® drug discovery instruments.
 
Since inception, we have financed our operations primarily through private sales of our securities and revenue derived from our analytical services that we have performed for United States governmental agencies. We cannot provide any assurance that we will be able to achieve profitability on a sustained basis, if at all.

Discussions with respect to our operations included herein include the operations of our operating subsidiary, XRpro Corp. We formed XRpro Corp. on July 9, 2010. We have no other operations than those of Caldera Pharmaceuticals, Inc. and XRpro Corp.

To date, we have been granted nineteen (19) contracts from governmental agencies; of which nine (9) were granted from the Department of Defense and ten (10) were granted from the National Institutes of Health. Of such contracts, eighteen (18) have been completed and we received payment in full for all eighteen (18) completed contracts. All the contracts contained standard terms, including termination provisions which allow for the government to terminate the contract, in whole or in part, at any time for convenience. In that event, the government agency concerned will notify us of their intention to terminate, and all costs incurred in our performance of the work terminated will be recoverable and we will have no refund obligations for our research conducted to the date of termination. The contracts also contain Bayh-Dole and related provisions for disposition of intellectual property.  The Bayh-Dole Act allows small businesses, such as ours, to retain title to federally funded inventions if we follow certain procedures, including filing for patent protection and actively pursuing commercialization of the invention, and the U.S. government retains a non-exclusive, non-transferable, paid up irrevocable license, throughout the world, with respect to the invention. In addition, the U.S. government also retains a “march in” right that allows it to license the invention to third parties, without our consent, if it determines that the invention is not being made available to the public on a reasonable basis.  Set forth below are the details of the firm - fixed price contract under which we are continuing to provide services to the National Institutes of Health under which we expect to receive an additional $675,000 for our services.
 
·
Contract 2R44AI079935-03 with the National Institutes of Health; to develop strontium-selective therapies, contract amount:  $3,000,000.00 operative from August 24, 2011 to July 31, 2014, approximately $2,325,000 paid to date, $675,000 remaining in contract. $2,000,000 of the grant was awarded for the period August 24, 2011 to July 31, 2013. An additional $1,000,000 was made available for us to invoice our project time and expenses against on July 9, 2013, expiring on July 31, 2014. To date we have received $325,000 under this contract.
 
 
1
 
 
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. We have recently expanded our customer base and are performing pilot studies on ion channel testing with two major pharmaceutical companies. The Company believes that due to the unique properties of its technology there is the potential to convert these pilot studies into commercial customers and conduct large-scale research and development in collaboration with these customers.

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 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 our equipment supplier and that they will not sell such product to any third party or end user that competes with us.

We have not sold or leased any XRpro® instruments and to date no one other than us has used the XRpro® instruments to perform analytical services. Until such time as we have indications of increased market acceptance of our product and increased financial resources we do not anticipate expending large sums of money on a sales force for our product or marketing efforts. Although we have not shipped XRpro® instruments to the private sector, we believe that use of the XRpro® 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

Often when we conduct our chemical analysis of molecules for safety and efficacy in accordance with government funded research, we discover new drug candidates.   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 and either sell them or license them to third parties who will apply for FDA approval of such drugs. We obtained a $3,000,000 grant in August 2011 from the National Institutes of Health/ National Institute for Allergies and Infectious Diseases to conduct animal trials for one of our drug candidates, which is a therapy for exposure to radioactive strontium. The grant was awarded for the period August 24, 2011 to July 31, 2014, depending on the availability of government funds and satisfactory progress on the project and to date we have received $325,000 under this grant.
 
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 $0.50 or more 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.
 
 
2
 
 
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.
 
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.

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&D 100 Award. Caldera has won multiple Technology Ventures Corporation awards for top technology companies in New Mexico.

LANL is a United States Department of Energy national laboratory. LANL is managed and operated by Los Alamos National Security, LLC (LANS), a private limited liability company formed by the University of California, Bechtel, Babcock & Wilcox Technical Services, and URS Energy and Construction. LANL is one of the largest science and technology institutions in the world. It conducts multidisciplinary research in national security, space exploration, renewable energy, medicine, nanotechnology, supercomputing and other disciplines. LANL’s mission is to develop and apply science and technology to ensure the safety, security, and reliability of the U.S. nuclear deterrent; reduce global threats; and solve other emerging national security challenges. LANL is the largest institution in Northern New Mexico with more than 9,000 employees plus approximately 650 contractor personnel and an annual budget of approximately $2.2 billion.

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:
 
●
Ion Channel Assays, or whether a drug inhibits hERG protein, which is associated with cardiotoxicity.
●
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;
 
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 portion of the molecule that emits light, is large and often expensive.
 
 
3
 
   
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®.

Corporate Information .

We were incorporated in the State of Delaware on November 12, 2003.  Our principal executive offices are located at One Kendall Square, Suite B2002, Cambridge, Massachusetts, 02139 our telephone number is (617) 294-9697.

Recent Events
 
On March 6, 2014, the Company and Dr. Benjamin Warner entered into a confidential settlement  agreement with Los Alamos National Security LLC (“LANS”), The Regents of the University of California, the UChicago Argonne, LLC and certain individuals (“the Parties”) relating to the following:

(i)
a lawsuit, Caldera Pharmaceuticals, Inc. v. The Regents of the University of California, et al. , Case No. CGC-07-470554, brought in the Superior Court of the State of California, County of San Francisco;
(ii)
a lawsuit, Caldera Pharmaceuticals, Inc. v. Los Alamos National Security, LLC, et al. , Case No. 1:10-cv-06347, brought in the United States District Court for the District of New Mexico; and
(iii)
a lawsuit, Caldera Pharmaceuticals, Inc. v. The Regents of the University of California, et al. , Case No. 2011-L-9329, brought in the Circuit Court of Cook County, Illinois, County Department – Law Division and dismissed without prejudice on or about July 26, 2013 (collectively the “ Actions ”).
 
The agreement called for the Parties to:
 
(i)
mutually release each other from all existing, past, present or future claims, counter-claims, demands and causes of action;
(ii)
amend the Company’s license agreement with Los Alamos National Security LLC, to include rights to certain issued and pending patents;
(iii)
return of 157,500 shares of the Company’s Common stock; and
(iv)
pay the Company $7,000,000, which resulted in a net cash settlement of approximately $5,852,000 after the deduction of legal expenses.
 
On July 5, 2013, the Company entered into a fee agreement with Dentons US LLP (“Dentons”), our previous legal counsel, which called for a payment of 50% of any settlement up to $6 million and 5% thereafter.  The agreement also called for Dentons to cooperate with the Company by making its partners and/or employees available to furnish information or reasonable assistance in connection with any future disqualification proceedings, as reasonably requested by the Company. Subsequent to signing the agreement the Company determined that Dentons had egregiously breached this cooperation clause.  As a result, the Company has suffered significant harm.  The Company further believes that due to Dentons breach of its contract with the Company, Dentons is not owed any amount under the breached agreement and the Company is also considering its legal remedies in regard to the harm it has suffered.
 
There is no certainty as to how Dentons will respond to the Company's claims or to the ultimate amount that the Company may collect from or have to pay to Dentons.
 
The proceeds received of $7,000,000 and any additional proceeds we may receive or any additional expenditure incurred on this matter will be recognized as income or expense in future periods. No liability to Dentons has been recorded by the Company.

Employees
 
As of May 30, 2014, we employed eight full time employees. A significant number of our management and professional employees have had prior experience with pharmaceutical, biotechnology or medical product companies. None of our employees are covered by collective bargaining agreements, and management considers relations with our employees to be good.
 
Available Information
 
Additional information about Caldera Pharmaceuticals is contained at our website, www.xrpro.com. Information on our website is not incorporated by reference into this report. We make available on our website, www.calderapharmaceuticals.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as soon as reasonably practicable after those reports are filed with the SEC. Our phone number is (617) 294-9697 and our facsimile number is (302) 347-1326.
 
Item 1A.
 
Investing in our common stock involves a high degree of risk. In addition to the risks related to our business set forth in this Form 10-K and the other information included and incorporated by reference in this Form 10-K, you should carefully consider the risks described below before purchasing our common stock. Additional risks, uncertainties and other factors not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Related to the Company

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

For the year ended December 31, 2013 and 2012, we had a net loss of $(3,694,786) and $(792,061), respectively.  We cannot be certain that our business strategy will ever be successful. Future revenues and profits, if any, will depend upon various factors, including the success, if any, of our expansion plans for the sale of our instruments and services to biotechnical and pharmaceutical customers, 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.
 
 
4
 
 
Substantially all of our net revenue has been generated from services provided to governmental agencies.  If such agencies were to terminate their existing agreement with us or no longer continue to 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, 2013, substantially all of our revenue was derived from two (2) different research projects for the same two governmental agencies. For the year ended December 31, 2012 substantially all of our revenue was derived from three (3) different research projects for the same two governmental agencies. For the year ended December 31, 2011, ninety six percent (96%) of our revenue was derived from six (6) different research projects for the same two governmental agencies. As of the date hereof we have one existing contract with the National Institutes of Health (“NIH”) pursuant to which we are continuing to perform services.  We were awarded a $1,000,000 grant from the NIH on August 24, 2011 which was fully utilized and expired on July 31, 2012. An additional $1,000,000 was made available for us to invoice our project time and expenses against on August 2, 2012 which was fully utilized and expired on July 31, 2013, a further $1,000,000 was made available to us on July 9, 2013 for the period August 1, 2013 to July 2014, depending on availability of government funding and satisfactory progress made on the project and to date we have received $325,000 under the grant.  However, under NIH policies the contracts can be terminated in whole or in part by the government for convenience at any time and in such case we would be entitled to payment of our costs incurred in the performance of the work terminated. 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 fully implement our business plan, 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, 2013 of $( 3,694,786 ) and for the year ended December 31, 2012 of $(792,061). 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 at their current level and in order to fully implement our business plan. We do not have any commitments in place for additional funds. If needed, additional funds may not be available on favorable terms, or at all. As of the date hereof, we expect that our current cash and revenues generated from services, our private placement financings and the settlement of the LANS litigation will provide us with enough funds to continue our operations at our current level for an additional   eighteen months. Unless we raise additional funds or increase revenues we will be forced to curtail our operations, limit our marketing expenditures and concentrate solely on our government contracting services. 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.
 
We may not be able to utilize our tax net operating loss carry-forwards to offset future taxable income.

At December 31, 2013 the Company had approximately $6,565,000 in tax net operating loss carry-forwards available to offset future taxable income, thereby potentially reducing our future tax expense/liabilities.  However, these tax net operating loss carry-forwards may be limited in accordance with IRC Section 382 following a more than fifty (50) percentage point change in ownership, in aggregate during any three (3) year look-back period.  This potential limitation on our ability to use our tax net operating loss carry-forwards to offset future taxable income could result in increased tax expense/liabilities and decreased net earnings.  These loss carry-forwards expire through 2033 if unused.
 
 
5
 
 
There is uncertainty as to market acceptance of our technology and products.

Our business has been solely dependent upon revenue derived from government agencies for services performed by us. We have derived only minimal revenue from the provision of our analyses services to biotech and pharmaceutical companies and there can be no assurance that the future revenue received from these customers will increase. Although our XRpro® instruments is commercially available, we have not yet sold our XRpro® instruments to third parties nor have any drug candidates that we discover while conducting our chemical analyses been approved by the FDA or 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 to manufacture substantial portions of critical hardware that will be used with or included in our XRpro® instruments. We have an agreement with our equipment supplier for an indefinite period of time to develop a product that incorporates our technology with a product already produced by them. Our agreement provides that we will not develop, manufacture, or distribute products that compete directly or indirectly with the product that is supplied by them 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 may be terminated by either party without cause upon six (6) months prior written notice.  Our supplier 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 United 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 the Company’s 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. Although we have no reason to believe that our supplier will be unable to supply us with needed products, if they were to be unable to 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 our equipment supplier 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.

In addition, in the event of a breach of law by our equipment supplier 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.
 
 
6
 
 
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. We commenced development of our XRpro® instruments in the year 2000 and since then have developed four enhanced versions of our original instrument; each enhancement was developed over an approximate two year period of time. Although we do not intend to enhance our XRpro® instruments in the near future, we may be forced to do so if customers request any modifications or enhancements. Our research and development expense for the year ended December 31, 2013 was approximately $194,222, most of which was used to develop assays for commercial applications. In light of the long product development cycles inherent in our industry, any developmental expenditure will typically 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 will be 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 limited marketing capability may limit our ability to gain commercial acceptance of our XRpro® instrument and cause our future operating results to suffer.
 
Our future operating results will suffer if our products do not achieve commercial acceptance. Our ability to gain commercial acceptance of our XRpro® product will be limited by our marketing capability. Until such time as we have increased financial resources, we do not anticipate expending large sums of money on a sales force for our XRpro® products or our marketing efforts. We have not sold or leased any XRpro® instruments and to date no one other than us has used the XRpro® instrument to perform analytical services.
 
Our Chief Scientific Officer beneficially owns 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. Our Chief Scientific Officer beneficially owns 3,445,768 shares of our common stock, representing 80.2% (and 40.8% of the total voting power, based on the Series B entitlement of two for one votes on the number of Series B shares outstanding) of our outstanding shares of common stock on a fully diluted basis. Accordingly, our Chief Scientific Officer would have significant influence over 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 securities, you may have no effective voice in the management of our Company. Such significant influence over control of our Company may adversely affect the price of our common stock. Our principal stockholder may be able to significantly influence matters requiring approval by our stockholders, including the election of directors, as well as mergers or other business combinations which require the vote of a majority of our outstanding shares. Such significant influence 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.
 
 
7
 
 
If we deliver products with defects, our credibility will be harmed and the sales and market acceptance of our products will decrease.

Our products are complex and may at times contain errors, defects and bugs when introduced. If in the future we deliver products with errors, defects or bugs, our credibility and the market acceptance and sales of our products would be harmed. Further, if our products contain errors, defects or bugs, we may be required to expend significant capital and resources to alleviate such problems. Defects could also lead to product liability as a result of product liability lawsuits against us or against our customers. We may agree to indemnify our customers in some circumstances against liability arising from defects in our products. In the event of a successful product liability claim, we could be obligated to pay significant damages.

Most of our potential customers are from the pharmaceutical and biotechnology sector and are subject to risks faced by those industries.

We expect to derive a significant portion of our future revenues from sales to customers in the pharmaceutical and biotechnology sector, which includes the governments and private companies. As a result, we will be subject to risks and uncertainties that affect the pharmaceutical and biotechnology industries, such as availability of capital and reduction and delays in research and development expenditures by companies in these industries, pricing pressures as third-party payers continue challenging the pricing of medical products and services, government regulation, and the uncertainty resulting from technological change.

In addition, our future revenues may be adversely affected by the ongoing consolidation in the pharmaceutical and biotechnology industries, which would reduce the number of our potential customers. Furthermore, we cannot assure you that the pharmaceutical and biotechnology companies that may be our customers will not develop their own competing products or capabilities, or choose our competitors’ technology instead of our technology.

We may need to depend on credit terms and lines of credit from our contract manufacturer.

We do not currently have any credit facilities or lines of credit with our third party contract manufacturer of our XRpro® instruments. In order for us to achieve our business plan, we believe we may require lines of credit and credit terms with such third party contract manufacturer. If we are unable to secure lines of credit and credit terms with our third party contract manufacturer we will have significant difficulties manufacturing and marketing our XRpro® instruments and achieving our business plan.

Many of our current and potential competitors have significantly greater resources than we do, and increased competition could impair sales of our products and services.

We operate in a highly competitive industry and face competition from companies that design, manufacture and market instruments for use in the life sciences research industry, from genomic, pharmaceutical, biotechnology and diagnostic companies and from academic and research institutions and government or other publicly-funded agencies, both in the United States and elsewhere. We may not be able to compete effectively with all of these competitors. Many of these companies and institutions have greater financial, engineering, manufacturing, marketing and customer support resources than we do. As a result, our competitors may be able to respond more quickly to new or emerging technologies or market developments by devoting greater resources to the development, promotion and sale of products, which could impair sales of our products. Moreover, there has been significant merger and acquisition activity among our competitors and potential competitors. These transactions by our competitors and potential competitors may provide them with a competitive advantage over us by enabling them to rapidly expand their product offerings and service capabilities to meet a broader range of customer needs. Many of our potential customers are large companies that require global support and service, which may be easier for our larger competitors to provide.

We believe that competition within the markets we serve is primarily driven by the need for innovative products that address the needs of customers. We attempt to counter competition by seeking to develop new products and provide quality, cost-effective products and services that meet customers’ needs. We cannot assure you, however, that we will be able to successfully develop new products or that our existing or new products and services will adequately meet our potential customers’ needs.

Rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition and frequent new product and service introductions characterize the markets for our products. To remain competitive, we may be required to develop new products and periodically enhance our existing products in a timely manner. We may face increased competition as new companies enter the market with new technologies that compete with our products and future products, and our services and future services. We cannot assure you that one or more of our competitors will not succeed in developing or marketing technologies products or services that are more effective or commercially attractive than our products or future products, or our services or future services, or that would render our technologies and products obsolete or uneconomical. Our future success will depend in large part on our ability to maintain a competitive position with respect to our current and future technologies, which we may not be able to do. In addition, delays in the launch of our new products or the provision of our services may result in loss of market share due to our customers’ purchases of competitors’ products or services during any delay.
 
 
8
 
 
We depend on our key personnel, the loss of whom would impair our ability to compete.

We are highly dependent on the employment services of Dr. Benjamin Warner, our Chief Scientific Officer. The loss of Dr. Warner’s services could adversely affect us. We are also dependent on the other members of our management, engineering and scientific staff. The loss of the service of any of these persons could seriously harm our product development and commercialization efforts. In addition, research, product development and commercialization will require additional skilled personnel in areas such as chemistry and biology, and software and electronic engineering and recruitment and retention of personnel, particularly for employees with technical expertise, is uncertain. If we are unable to hire, train and retain a sufficient number of qualified employees, our ability to conduct and expand our business could be seriously reduced. The inability to retain and hire qualified personnel could also hinder the planned expansion of our business and may result in us relocating some or all of our operations.

We are dependent on our licensed technology from the Los Alamos National Security LLC.

Our success will depend in part upon the use of patents, pending patents, and technology licensed from the managers of the Los Alamos National Laboratory (“LANL”), which is currently managed by Los Alamos National Security LLC (“LANS”) pursuant to an exclusive Patent License Agreement (the “Agreement”). Under this agreement, we have the exclusive rights to a set of issued and pending patents. The agreement imposes royalty payment requirements, reporting requirements, commercialization milestones and other obligations upon us, and there is no assurance that we will be able to operate sufficiently to satisfy these royalty payments, commercialization milestones and other obligations, which could result in loss of license rights to the technology. Our license to the technology is terminable by the managers of LANL upon written notice to us in the event of the failure by us to meet any of our royalty payment or reporting obligations or in the event of any breach by us of any material term of the license agreement.
 
In addition to patents and patent applications that we have licensed from the managers of LANL, we have pending patent applications that have been assigned to us from our current and former employees as inventors. There can be no assurances that the patents will ever be issued for our applications, or that any patents that do get issued will be upheld.
 
 
9
 
 
We have initiated and may in the future need to initiate lawsuits to protect or enforce our patents, which would be expensive and, if we lose, may cause us to lose some of our intellectual property rights, which would reduce our ability to compete in the market.

Our success will depend in part upon protecting our technology from infringement, misappropriation, duplication and discovery, and avoiding infringement and misappropriation of third party rights. We intend to rely, in part, on a combination of patent and contract law to protect our technology in the United States and abroad.

The risks and uncertainties that we face with respect to our patents and other proprietary rights include the following:

●
the pending patent applications we have filed or to which we have exclusive rights may not result in issued patents or may take longer than we expect to result in issued patents;
●
the claims of any patents which are issued may not provide meaningful protection;
●
we may not be able to develop additional proprietary technologies that are patentable;
●
the patents licensed or issued to us or our customers may not provide a competitive advantage;
●
other companies may challenge patents licensed or issued to us or our customers;
●
patents issued to other companies may harm our ability to do business;
●
other companies may independently develop similar or alternative technologies or duplicate our technologies; and
●
other companies may design around the technologies we have licensed or developed.

There can be no assurance that any of our patent applications or licensed patent applications will issue or that any patents that may issue will be valid and enforceable. We may not be successful in securing or maintaining proprietary patent protection for our products and technologies that we develop or license. In addition, our competitors may develop products similar to ours using methods and technologies that are beyond the scope of our intellectual property protection, which could reduce our anticipated sales. While some of our products have proprietary patent protection, a challenge to these patents can subject us to expensive litigation. Litigation concerning patents, other forms of intellectual property, and proprietary technology is becoming more widespread and can be protracted and expensive and distract management and other personnel from performing their duties.

We also rely upon trade secrets, unpatented proprietary know-how, and continuing technological innovation to develop a competitive position.   If these measures do not protect our rights, third parties could use our technology, and our ability to compete in the market would be reduced. In addition, employees, consultants and others who participate in the development of our products may breach their agreements with us regarding our intellectual property, and we may not have adequate remedies for the breach. We also may not be able to effectively protect our intellectual property rights in some foreign countries and our trade secrets may become known through other means not currently foreseen by us. We cannot assure you that others will not independently develop substantially equivalent proprietary technology and techniques or otherwise gain access to our trade secrets and technology, or that we can adequately protect our trade secrets and technology.

There can be no assurance that third parties will not assert infringement or other claims against us with respect to rights to any of our products. Litigation to protect and defend the rights to our licensed technology or to determine the validity of any third party claims could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not such litigation is determined in our favor. If we determine that additional rights are necessary for the development of our product(s) and further determine that a license to additional third party rights is needed, there can be no assurance that we can obtain a license from the relevant party or parties on commercially reasonable terms, if at all. We could be sued for infringing patents or other intellectual property that purportedly cover products and/or methods of using such products held by persons other than us. Litigation arising from an alleged infringement could result in removal from the market, or a substantial delay in, or prevention of, the introduction of our products, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
 
 
10
 
 
Additionally, in order to protect or enforce our patent rights, we may initiate patent litigation against third parties, such as infringement suits or interference proceedings. Litigation may be necessary to:

●
assert claims of infringement;
●
enforce our patents;
●
protect our trade secrets or know-how; or
●
determine the enforceability, scope and validity of the proprietary rights of others.

Lawsuits could be expensive, take significant time and divert management’s attention from other business concerns. They would put our licensed patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. We may also provoke third parties to assert claims against us. Patent law relating to the scope of claims in the technology fields in which we operate is still evolving and, consequently, patent positions in our industry are generally uncertain. If initiated, we cannot assure you that we would prevail in any of these suits or that the damages or other remedies awarded, if any, would be commercially valuable. During the course of these suits, there could be public announcements of the results of hearings, motions and other interim proceedings or developments in the litigation. If securities analysts or investors were to perceive any of these results to be negative, our stock price could decline.

We may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits.

We could be the subject of complaints or litigation from customers alleging product quality or operational concerns. Litigation or adverse publicity resulting from these allegations could materially and adversely affect our business, regardless of whether the allegations are valid or whether we are liable. We currently do not have product liability insurance coverage, and even if there was such coverage, there would be no assurance that such coverage would be sufficient to properly protect us. Further, claims of this type, whether substantiated or not, may divert our financial and management resources from revenue generating activities and the business operation.

We may be subject to the risks of doing business internationally.

Although we have not successfully sold any of our products yet, we currently offer our products both in the United States and outside of the United States, and we intend to manufacture products at our equipment suppliers’ facility in Germany once we receive purchase orders. Because we intend to do so, our business is subject to risks associated with doing business internationally, including:

●
trade restrictions and changes in tariffs;
●
the impact of business cycles and downturns in economies outside of the United States;
●
unexpected changes in regulatory requirements that may limit our ability to export our products or sell into particular jurisdictions;
●
import and export license requirements and restrictions;
●
difficulties in maintaining effective communications with employees and customers due to distance, language and cultural barriers;
●
disruptions in international transport or delivery;
●
difficulties in protecting our intellectual property rights, particularly in countries where the laws and practices do not protect proprietary rights to as great an extent as do the laws and practices of the United States;
●
difficulties in enforcing agreements through non-U.S. legal systems;
●
longer payment cycles and difficulties in collecting receivables; and
●
potentially adverse tax consequences.

If any of these risks materialize, our international sales could decrease and our foreign operations could suffer.

We are an “emerging growth company,” and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act enacted in April 2012, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could remain an emerging growth company until the earliest of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii)  the last day of our fiscal year following the fifth anniversary of the date of our first sale of common equity securities pursuant to an effective registration statement which has not yet occurred; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer.  We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.
 
 
11
 

Under Section 107(b) of the Jumpstart Our Business Startups Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

As a result of our being a public company, we are subject to additional reporting and corporate governance requirements that require additional management time, resources and expense.

We are obligated to file with the SEC annual and quarterly information and other reports that are specified in the Securities Exchange Act of 1934. We are also subject to other reporting and corporate governance requirements under the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated thereunder, all of which impose significant compliance and reporting obligations upon us.

Our internal controls over financial reporting are not effective which could have a significant and adverse effect on our business and reputation.

As a public reporting company, we are in a continuing process of developing, establishing, and maintaining internal controls and procedures that allow our management to report on, and our independent registered public accounting firm to attest to, our internal controls over financial reporting if and when required to do so under Section 404 of the Sarbanes-Oxley Act of 2002. Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an emerging growth company. Our management is required to report on our internal controls over financial reporting under Section 404. If we fail to achieve and maintain the adequacy of our internal controls, we would not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Our Management has determined that the adequacy of our internal controls is not as effective as they could be and is therefore unable to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Moreover, our testing, or the subsequent testing by our independent registered public accounting firm, that must be performed may reveal other material weaknesses or that the material weaknesses described above have not been fully remediated. If we do not remediate any material weaknesses identified, or if other material weaknesses are identified or we are not able to comply with the requirements of Section 404 in a timely manner, our reported financial results could be materially misstated or could subsequently require restatement, we could receive an adverse opinion regarding our internal controls over financial reporting from our independent registered public accounting firm and we could be subject to investigations or sanctions by regulatory authorities, which would require additional financial and management resources, and the market price of our stock could decline.
 
Future sales of our common stock by our existing shareholders could cause our stock price to decline.

We currently have 4,039,770 shares of our common stock outstanding. All of such shares are eligible for resale under Rule 144; however, 3,307,945 are held by affiliates and are subject to certain volume limitations.  If our shareholders sell substantial amounts of our common stock in the public market at the same time, the market price of the Common Stock could decrease significantly due to an imbalance in the supply and demand of our common stock. Even if they do not actually sell the stock, the perception in the public market that our shareholders might sell significant shares of the Common Stock could also depress the market price of the Common Stock.
 
A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities, and may cause you to lose part or all of your investment in our shares of common stock.
 
 
12
 
 
We do not expect to pay dividends on our common stock in the foreseeable future.
 
The Company does not expect to pay dividends on its common stock for the foreseeable future, and it may never pay dividends.  Consequently, the only opportunity for common stockholders to achieve a return on their investment may be if a trading market develops and common stockholders are able to sell their shares for a profit or if our business is sold at a price that enables common stockholders to recognize a profit. The Company’s holders of Series B Preferred stockholders are entitled to an annual dividend of 8% if paid in cash or 10% if paid in common stock, at the election of the Company, on January 31 of each year. Our Series A Preferred Stockholders are entitled to an annual dividend of $0.46 for each share of Series A Preferred Stock, payable in cash or common stock, at the election of the holder, on January 31 of each year. The Company currently intends to retain any future earnings other than those paid as dividends to the Series A and Series B Preferred Stock or any other class of preferred stock to support the development and expansion of its business and does not anticipate paying cash dividends for the foreseeable future. The Company’s payment of any future dividends will be at the discretion of its Board of Directors after taking into account various factors, including but not limited to its financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that it may be a party to at the time. In addition, the Company’s ability to pay dividends on its common stock may be limited by state law. Accordingly, the Company cannot assure investors any return on their investment, other than in connection with a sale of their shares or a sale of the Company’s business or dividends on their Series A and Series B Preferred Stock. At the present time there is no trading market for the Company’s shares. Therefore, holders of the Company’s securities may be unable to sell them. The Company cannot assure investors that an active trading market will develop or that any third party will offer to purchase its business on acceptable terms and at a price that would enable its investors to recognize a profit.
 
Limitations on director and officer liability and indemnification of our Company’s officers and directors by us may discourage stockholders from bringing suit against an officer or director.

Our certificate of incorporation and bylaws provide, with certain exceptions as permitted by governing state law, that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director or officer, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders from bringing suit against a director or officer for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on our behalf against a director or officer.

We are responsible for the indemnification of our officers and directors.

Should our officers and/or directors require us to contribute to their defense, we may be required to spend significant amounts of our capital. Our certificate of incorporation and bylaws also provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of our Company. This indemnification policy could result in substantial expenditures, which we may be unable to recoup. If these expenditures are significant, or involve issues which result in significant liability for our key personnel, we may be unable to continue operating as a going concern.
 
 
13
 
 
The rights of our preferred stock could negatively affect holders of common stock and make it more difficult to effect a change of control.

Our board of directors is authorized by our charter to create and issue preferred stock. Certain of the rights of holders of preferred stock take precedence over the rights of holders of common stock. We are authorized to issue 10,000,000 shares of preferred stock, of which 3,000,000 are designated as Series B Preferred Stock and 400,000 are designated as Series A Preferred Stock. We currently have 2,113,947 shares of Series B and 105,000 shares of Series A preferred stock outstanding. The holders of the Series B Preferred Stock are entitled to a dividend of 8%, if paid in cash or 10% if paid on common stock, at the option of the Company. Series A preferred stock are entitled to a dividend of $.46 per share each year payable in cash or stock at the option of the holder and both Series B Preferred stock and Series A Preferred stock are entitled to a preference upon our liquidation, dissolution or winding up.

The Series B shares are convertible voluntarily at the election of the holder. The Series A Preferred shares are convertible voluntarily at the election of the holder or automatically ten trading days after delivery to the holder by us of a notice that the volume-weighted average closing price of our common stock over the ten trading days immediately preceding the date of notice is at least $10.00 per share. The holders of the Series B and Series A Preferred stock are also entitled to registration rights with respect to such shares.   We may issue additional shares of Series B or Series A Preferred Stock in addition to other preferred stock. As future tranches of capital are received by the Company, additional preferred stock may be issued which such terms and preferences as are determined in the sole discretion of our board of directors. The rights of future preferred stockholders could delay, defer or prevent a change of control, even if the holders of common stock are in favor of that change of control, as well as enjoy preferential treatment on matters like distributions, liquidation preferences and voting.
 
Our common stock is not currently traded on any market, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
 
The Common Stock is not currently traded on any market. We cannot predict the extent to which investors’ interests will lead to an active trading market for our common stock once trading commences or whether the market price of our common stock will be volatile following this offering. If an active trading market does not develop, investors may have difficulty selling any of our common stock that they buy. There may be limited market activity in our stock and we are likely to be too small to attract the interest of many brokerage firms and analysts. .If we trade on OTC markets, the trading volume we will develop may be limited by the fact that many major institutional investment funds, including mutual funds as well as individual investors, follow a policy of not investing in OTC stocks and certain major brokerage firms restrict their brokers from recommending OTC stocks because they are considered speculative, volatile, thinly traded and the market price of the common stock may not accurately reflect the underlying value of our Company. The market price of our common stock could be subject to wide fluctuations in response to quarterly variations in our revenues and operating expenses, announcements of new products or services by us, significant sales of our common stock, including “short” sales, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.
 
The application of the “penny stock” rules to our common stock could limit the trading and liquidity of the common stock, adversely affect the market price of our common stock and increase your transaction costs to sell those shares.

As long as the trading price of our common stock is below $5 per share, the open-market trading of our common stock will be subject to the “penny stock” rules, unless we otherwise qualify for an exemption from the “penny stock” definition. The “penny stock” rules impose additional sales practice requirements on certain broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). These regulations, if they apply, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common stock, reducing the liquidity of an investment in our common stock and increasing the transaction costs for sales and purchases of our common stock as compared to other securities. The stock market in general and the market prices for penny stock companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Stockholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include: (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the volatility of our share price.
 
 
14
 
 
We may not be able to attract the attention of major brokerage firms, which could have a material adverse impact on the market value of our common stock. 

If a trading market develops for our common stock it will rely in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. However, security analysts of major brokerage firms may not provide coverage of our common stock since there is no incentive to brokerage firms to recommend the purchase of our common stock, which may adversely affect the market price of our common stock. If equity research analysts do provide research coverage of our common stock, the price of our common stock could decline if one or more of these analysts downgrade our common stock or if they issue other unfavorable commentary about us or our business. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.
 
Item 1B. 
 
Not applicable.

Item 2. 
 
New Mexico
We lease approximately 5,160 square feet at 278 DP Road, Suite D, Los Alamos, New Mexico 87544, where one of our laboratories is located under the terms of two leases. Each lease is on a month to month basis until we determine our future need for these premises. The leases provide for an aggregate annual rent of approximately $60,900 or $5,075 per month excluding utilities and property taxes. We believe these facilities are in good condition and adequate to meet our current requirements.

Cambridge
We lease approximately 2,813 square feet at One Kendall Square, Suite B2002, Cambridge, Massachusetts 02139 where our main laboratory and corporate head office is located. The term of the lease is for a twelve month period terminating on May 31, 2014. The monthly rental amounts to $15,118. The lease has recently been renewed for a period of twenty four months terminating on May 31, 2016.

The Company entered into a corporate apartment lease agreement in Cambridge, Massachusetts effective June 4, 2013. The term of the lease is for a twelve month period terminating on June 3, 2014. The monthly rental amounts to $3,325. The renewal of this lease is currently being negotiated.

The Company entered into a second corporate apartment lease agreement in Cambridge Massachusetts, effective 1 February 2014. The term of the lease is for a fourteen month period terminating on March 31, 2015. The monthly rental amounts to $2,987.
 
 
15
 
 
Suit against the Regents of the University of California, Los Alamos National Security, et al.
 
On March 6, 2014, the Company and Dr. Benjamin Warner entered into a confidential settlement  agreement with Los Alamos National Security LLC (“LANS”), The Regents of the University of California, the UChicago Argonne, LLC and certain individuals (“the Parties”) relating to the following:
 
(i)
a lawsuit, Caldera Pharmaceuticals, Inc. v. The Regents of the University of California, et al. , Case No. CGC-07-470554, brought in the Superior Court of the State of California, County of San Francisco;
(ii)
a lawsuit, Caldera Pharmaceuticals, Inc. v. Los Alamos National Security, LLC, et al. , Case No. 1:10-cv-06347, brought in the United States District Court for the District of New Mexico; and
(iii)
a lawsuit, Caldera Pharmaceuticals, Inc. v. The Regents of the University of California, et al. , Case No. 2011-L-9329, brought in the Circuit Court of Cook County, Illinois, County Department – Law Division and dismissed without prejudice on or about July 26, 2013 (collectively the “ Actions ”).
 
The agreement called for the Parties to:
 
(i)
mutually release each other from all existing, past, present or future claims, counter-claims, demands and causes of action;
(ii)
amend the Company’s license agreement with Los Alamos National Security LLC, to include rights to certain issued and pending patents;
(iii)
return of 157,500 shares of the Company’s Common stock; and
(iv)
pay the Company $7,000,000, which resulted in a net cash settlement of approximately $5,852,000 after the deduction of legal expenses.
 
On July 5, 2013, the Company entered into a fee agreement with Dentons US LLP (“Dentons”), our previous legal counsel, which called for a payment of 50% of any settlement up to $6 million and 5% thereafter.  The agreement also called for Dentons to cooperate with the Company by making its partners and/or employees available to furnish information or reasonable assistance in connection with any future disqualification proceedings, as reasonably requested by the Company. Subsequent to signing the agreement the Company determined that Dentons had egregiously breached this cooperation clause.  As a result, the Company has suffered significant harm.  The Company further believes that due to Dentons breach of its contract with the Company, Dentons is not owed any amount under the breached agreement and the Company is also considering its legal remedies in regard to the harm it has suffered.
 
There is no certainty as to how Dentons will respond to the Company's claims or to the ultimate amount that the Company may collect from or have to pay to Dentons.
 
The proceeds received of $7,000,000 and any additional proceeds we may receive or any additional expenditure incurred on this matter will be recognized as income or expense in future periods. No liability to Dentons has been recorded by the Company.
 
Joel Bellows Suit

In October 2008, Seddie Bastanipour and Joel Bellows filed suit against the Company, 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.
 
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 that resulted in an IRS penalty.

In December 2011, the Company completed an amicable settlement with Bastanipour with respect to the October 2008 and December 2010 suits that is subject to confidentiality restraints and she is no longer party to either suit. The settlement did not have a material impact on our financial position.  

In February 2013 a settlement agreement was entered into between the Company, Joel Bellows and Peter Baltrus, with respect to the above mentioned suits, which requires the exchange of 105,000 common shares for 105,000 shares of Series A Stock or Series B Stock and a cash payment of $240,000, together with interest thereon at 6% per annum, over a three-year period.   On April 30, 2013, these suits were dismissed, with prejudice.  In terms of this settlement agreement, the Company paid the first cash installment of $80,000 during March 2013 and on May 20, 2013, issued 105,000 shares of Series A Stock to Joel Bellows, in exchange for his 105,000 common shares. The Company and Dr. Benjamin Warner had filed post-settlement motions for the Judge in the matter to reconsider his May 16, 2013 ruling wherein the Company and Dr Benjamin Warner were compelled to comply with a disputed version of the settlement agreement which entitled Bellows to a prejudicial conversion formula of his Series A Stock into Series B Stock which is contrary to our settlement intentions. The motion was heard on September 25, 2013 and denied. On October 24, 2013, the Company and Dr. Benjamin Warner filed a notice of appeal.
 
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. On October 4, 2013, this suit was dismissed with prejudice and a settlement agreement was entered into, in terms of this settlement agreement the Company received a net $30,000 cash settlement.
 
Item 4. 
 
Not applicable.
 
16
 
 
PART II
 
Item 5. 
 
Our common stock is not currently trading on any established market.  
 
As of May 15 , 2014, there were 70 holders of our common stock, 79 holders of Series B Preferred Stock and 1 holder of Series A Preferred Stock.
 
Dividend Policy
 
We have never paid any cash dividends on our common stock to date, and do not anticipate paying such cash dividends in the foreseeable future. Whether we declare and pay dividends is determined by our Board of Directors at their discretion, subject to certain limitations imposed under Delaware corporate law. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.
 
Equity Compensation Plan Information
 
See Item 11 – Executive compensation for equity compensation plan information.
 
Recent Sales of Unregistered Securities
 
None.
 
Selected Financial Data
 
Not applicable because we are a smaller reporting company.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated.  The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein. 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.
 
 
17
 
 
Cautionary Note Regarding Forward-Looking Statements
 
This report and other documents that we file with the Securities and Exchange Commission contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management’s assumptions.  Statements that are not historical facts are forward-looking statements.  Words such as “expect,” “outlook,” “forecast,” “would,” “could,” “should,” “project,” “intend,” “plan,” “continue,” “sustain”, “on track”, “believe,” “seek,” “estimate,” “anticipate,” “may,” “assume,” and variations of such words and similar expressions are often used to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, those described in our reports that we file or furnish with the Securities and Exchange Commission.  Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements.  Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made.  Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements after the date they are made, whether as a result of new information, future events, changes in assumptions or otherwise.
 
Overview and Financial Condition
 
The Company uses proprietary x-ray fluorescence technology called XRpro ® to deliver ion channel screening, ion channel kinetics and custom screening services to our customers. Our proprietary technology detects and quantitatively analyzes the x-ray signature of each element with an atomic number greater than 10, we combine the flexibility of the analysis with patented sample processing to address a wide range of ion channel and other biological targets. We believe that our technology can reduce the cost of drug discovery by detecting safety and efficacy issues at an early stage of development. To date, substantially all of our revenue has been derived from our analytical services that we have performed for United States governmental agencies. However, we expect that our future revenue will be derived from: (i) provision of our analytical drug discovery services to commercial customers as well as United States governmental agencies; and, (ii)  to a lesser extent, sales of new drug candidates that we identify using the XRpro® drug discovery instruments.
 
To date, we have financed our operations primarily through private sales of our securities and revenue derived from our analytical services that we have performed for United States governmental agencies and we expect to continue to seek to obtain the required capital in a similar manner. We cannot provide any assurance that we will be able to achieve profitability on a sustained basis, if at all.

Discussions with respect to our Company’s operations included herein include the operations of our operating subsidiary, XRpro Corp. Our Company formed XRpro Corp. on July 9, 2010. We have no other operations than those of Caldera Pharmaceuticals, Inc. and XRpro Corp.
 
 
18
 
 
Results of Operations for the year ended December 31, 2013 and the year ended December 31, 2012.
 
Revenues

We had revenues totaling $708,273 and $1,904,044 for the years ended December 31, 2013 and 2012, respectively, a decrease of $1,195,771 or 62.8%. Substantially all of our revenues have been from federal government contracts. The decrease over the previous year is due to the timing of work performed on our government contracts during the 2012 year where significant work was performed on the NIH contract during the first and second half of 2012, limited work was performed on the NIH contract during the first half of 2013 with an increase in activity in the last quarter of 2013. In the 2012 year, we billed a significantly higher amount of recoverable expenses which we incurred on our government contracts. We have an order backlog in the form of firm fixed price government contracts. We were awarded a $1,000,000 grant from the NIH on August 24, 2011 which was fully utilized and expired on July 31, 2012. An additional $1,000,000 was made available for us to invoice our project time and expenses against on August 2, 2012, which was fully utilized and expired on July 31, 2013 with a further $1,000,000 made available for us to invoice our project time and expenses against on July 9, 2013, expiring on July 31, 2014, of which we have received $325,000 to date, depending on availability of government funding and satisfactory progress made on the project. We believe that these are firm orders as there are no indications that funding will not be available and we believe that we have made satisfactory progress on the project to date. However, we do not know how or if the federal government’s recent spending cuts, known as sequestration, will affect our current contract or our ability to obtain future contracts.  The funds available under this grant are earned by us on a percentage-of-completion basis, based on the costs we incur as a measure of the progress made on the project.
 
Going forward, based on financing, we plan to market our XRpro® equipment and services and educate potential customers concerning the advantages and value propositions of the XRpro® technology. While we are optimistic about our prospects, since this is a relatively new product offering with significantly different characteristics compared with existing equipment on the market (and we have not recognized significant revenues to date), there can be no assurance about whether or when our products will generate sufficient revenues with adequate margins in order for us to be profitable.
 
We are pursuing several leads for the use of our technology by several significant companies within the pharmaceutical and industrial sectors; however there can be no assurance that such leads will be successful and result in revenue.
 
Cost of goods sold
 
Cost of goods sold totaled $507,766 and $656,641 for the years ended December 31, 2013 and 2012, respectively. The decrease of $148,875 or 22.7% is primarily due to the decreased revenue earned in the current year. The percentage reduction in cost of sales is not equal to the percentage reduction in sales as significant revenue from equipment usage was generated in the prior year, the current year cost of sales included proportionately more laboratory supply expense and direct material expense than in the prior year. Cost of sales is primarily comprised of direct expenses related to providing our services under our contracts.  These expenses include salary expenses directly related to research contracts, recoverable expenses incurred on contracts, the cost of outside consultants, and direct materials used on our contracts. The salary expense included in cost of sales for the year ended December 31, 2013 and 2012 respectively was $236,451 and $557,092. For additional information regarding salary expense reference is made to the discussion of total salary expense in Selling, general and administrative expenses below.
 
Gross Profit
 
Gross profit was $200,507 and $1,247,403 for the years ended December 31, 2013 and 2012, respectively. The gross margin percentages were 28.3% and 65.5%, respectively and relate primarily 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 the provision of services and equipment sales or usage arrangements.  The decrease in our gross profit percentage is primarily due to the reduction in billing for equipment usage in the current year which is significantly more profitable than billing of direct materials and labor costs.
 
Selling, general and administrative expenses
 
Selling, general and administrative expenses totaled $4,511,078 and $2,011,212 for the years ended December 31, 2013 and 2012, respectively, an increase of $2,499,866 or 124.3%.
 
 
19
 
 
The major expenses making up selling, general and administrative expenses included the following:
 
   
Year ended
December 31,
   
Increase/
   
Percentage
 
   
2013
   
2012
   
(decrease)
   
change
 
                                 
Marketing and selling expenses 
 
$
24,942
   
$
89,441
   
$
(64,499
)
   
(72.1
)%
  
                               
Salary expenses 
   
740,600
     
211,378
     
529,222
     
250.4
%
  
                               
Research and development salaries 
   
194,222
     
32,403
     
161,819
     
499.4
%
  
                               
Stock option compensation charge 
   
660,468
     
45,769
     
614,699
     
1,343.0
%
  
                               
Legal fees 
   
1,700,668
     
810,040
     
890,628
 
   
109.9
%
                                 
Consulting fees 
   
340,631
     
248,603
     
92,028
     
37.0
%
  
                               
Audit fees 
   
72,160
     
26,700
     
45,460
     
170.3
%
                                 
Rental expense
   
199,070
     
63,609
     
135,461
     
213.0
%
                                 
Legal settlement expense
   
115,273
     
257,972
     
(142,699
)
   
(55.3
)%
   
$
4,048,034
   
$
1,785,915
    $
2,262,119
         
 
Marketing and selling expenses decreased over the prior year due to professional promotional activities that commenced in the third quarter of 2011 and was concluded in the second quarter of 2012 to promote our XRpro equipment. The current year expenditure consisted primarily of website development costs.
 
Total salary expenses are allocated to the various expense categories detailed below depending on the level of activity of our employees on government and commercial projects, internal research and development expenses and administrative activities. An increase in activity on projects will result in an increase in salary expense charged to cost of sales with a corresponding decrease in salary expense charged to selling, general and administrative expenses. A comparison of salary expenses is presented below.
 
 
20
 
 
Total salary expenditure for the year ended December 31, 2013 and 2012, respectively is included in the following expense categories:
 
   
Year ended
December 31,
   
Increase/
   
Percentage
 
   
2013
   
2012
   
(decrease)
   
change
 
Cost of sales
 
$
236,451
   
$
557,092
   
$
(320.641
)
   
(57.6
)%
                                 
Selling, general and administrative expenses
   
740,600
     
211,378
     
529,222
     
250.4
%
                                 
Research and development salaries
   
194,222
     
32,403
     
161,819
     
499.4
%
  
                               
   
$
1,171,273
   
$
800,873
   
$
370,400
     
46.2
%
 
The increase in total salary expenditure for the year ended December 31, 2013 of $370,400 is primarily due to; i) the employment of Mr. Gary Altman as Chief Executive Officer of the company at an annual salary of $300,000 per annum, accounting for $150,000 of the increase in the current year; ii) the employment of an additional senior scientist in our Cambridge laboratory at an annual cost of $125,000 per annum, resulting in an increase of $41,606 for the current year; iii) the increase in salary paid to our Chief Scientific officer of $50,000 per annum, resulting in an additional cost of $41,667 for the current year, as well as a discretionary bonus of $50,000 paid to our Chief Scientific officer during the current year; iv) the employment of a public relations representative, who has subsequently left the Company, for eight months resulting in a salary expense of $31,800, and v) the increase in our leave pay provision of $58,250 for the current year, offset by the resignation of our in house legal counsel during the prior year.
 
The salary expense included in cost of sales for the year ended December 31, 2013 decreased by $320,641 or 57.6% The lower salary expense charged to cost of sales in the current year was primarily due to the lower level of activity on our government contracts in the current year, primarily due to the timing of when work is performed on these contracts. The decrease in salary expense charged to cost of sales for the year ended December 31, 2013 resulted in a corresponding increase in salary expense charged to Selling, general and administrative expenses and research and development salaries for the year ended December 31, 2013.

The salary expense charged to Selling, general and administrative expenses for the year ended December 31, 2013 increased by $529,222 or 250.4% due to the decreased salary expense charged to cost of sales and the increase in total salary expense as discussed above.

Research and development salaries for the year ended December 31, 2013 increased due to employees allocating their time to research work done on the development of commercial assays for two significant pharmaceutical companies.
 
The stock option compensation charge increased by $614,699 over the prior year due to the issue of 1,184,900 options during the current year, primarily to members of management and certain key consultants. These options were valued at $1,296,119 at the time of issue and are being amortized over their vesting periods which range from one to four years.
 
Legal fees increased by $890,628 over the prior year due to an increase in the legal activity on the LANS matter as we prepared for settlement negotiations during the current year. The legal fees on the Bellows matter decreased as the matter has for the most part been settled, other than a minor dispute on the settlement agreement wording enforced by the judge. The LANS matter is in the process of being settled, the details of which are confidential. For additional information on our legal matters, see Item 3- Legal Proceedings. The legal expenses incurred on the LANS and Bellows matters are not connected with our regular business activities and while still ongoing should be viewed as non-operating expenses. Based on our recent settlement of the LANS matter, we do not anticipate legal expenses of this magnitude in future.
 
21
 
 
The increase in consulting fees of $92,028 is primarily due to consulting fees paid to Gary Altman, our CEO during the months of May and June of $46,402, prior to his appointment as CEO, Public relations fees of approximately $40,500 paid during the current year, partially offset by the reduction in management consulting fees of $36,000 during the current year, and consulting fees of $13,165 incurred on the LANS legal matter discussed above.
 
The increase in audit fees of $45,460 is primarily due to an accrual of $27,500 made for the 2013 audit and the review fees of our quarterly SEC filings of $4,200 per quarter.
 
The increase in our rental expense is primarily due to the establishment of a second laboratory and the relocation of our main operating office to Cambridge, Massachusetts during June 2013. In addition to this we leased a corporate apartment in Cambridge, Massachusetts for our executive officers.
 
The legal settlement expense represents the net charge for the settlement arrangements entered into with Joe Bellows in our Illinois legal actions. This expense is not expected to recur in the future.
 
Depreciation and Amortization
 
We recognized depreciation expenses of $118,227 and $94,280 for the years ended December 31, 2013 and 2012, respectively, this depreciation is primarily depreciation on our laboratory equipment, which makes up the vast majority of our capital equipment. 
 
Amortization expenses were $51,684 for each of the years ended December 31, 2013 and 2012.  Amortization expenses relates to the amortization of license fees paid to Los Alamos National Laboratories for the use of certain patents.
 
Other income
 
Other income for the year ended December 31, 2013 of $30,120 consists primarily of net proceeds of $30,000 received on a settlement agreement entered into on the Joel Bellows matter in the New Mexico legal jurisdiction. The other income of $140,880 in the prior year consisted primarily of insurance proceeds of $10,000 received to fund our legal expenses incurred on the LANS matter and a further $130,880 from an agreement entered into with one of our suppliers of legal services whereby they agreed to reduce the amount of liability owing to them by 50% of the original invoiced amount.
 
Interest expense
 
Interest expense totaled $165,635 and $23,949 for the years ended December 31, 2013 and 2012, respectively. The increase of $141,686 is primarily made up of bridge note discount of $117,629, bridge note interest of $11,193 and interest on the legal settlement due to Joel Bellows of $8,000.
 
Net loss
 
Net loss totaled $(3,694,786) and $(792,061), representing a net loss per share (applicable to common stock) of $(1.39) and $(0.22) per share for the years ended December 31, 2013 and 2012, respectively. The increase in loss is primarily due to the decrease in revenues and gross margins and the increased level of expenditure as discussed above.
 
Liquidity and Capital Resources
 
We have a history of annual losses from operations since inception and we have primarily funded our operations through sales of our unregistered equity securities and cash flows generated from government contracts and grants. As of December 31, 2013 our Company had cash totaling $519,733, other current assets totaling $140,072, and total assets of $1,681,400. We had total current liabilities of $3,737,185, including a non-cash derivative financial liability of $944,121, and a net working capital deficit of $3,077,380. Total liabilities were $3,915,038 and the Series A convertible redeemable preferred stock totaled $133,350 resulting in a stockholders’ deficit of $(2,366,988).
   
During April 2013 we received $600,000 from certain note holders to provide temporary funding to the business; $100,000 in the form of temporary notes payable and $500,000 in Bridge notes payable. The temporary notes together with interest thereon were repaid in April 2013. We received $500,000 in gross proceeds from the issuance of ten convertible bridge notes in the aggregate principal amount of $500,000, of which $100,000 of these proceeds were used to repay the $100,000 temporary notes on April 4, 2013. The bridge notes were issued as part of a unit that included warrants to purchase 600 shares of our common stock for each $1,000 of note principal. During April 2013, $375,000, together with interest thereon of $9,160, of the $500,000 bridge notes outstanding, converted their notes into 153,664 Series B Preferred units, at $2.50 per unit. Each unit consists of a Series B Stock and a warrant to purchase a share of common stock at $2.50 per share. During May and August 2013, $125,000 of the bridge Notes, together with interest thereon, was repaid to the bridge note holders.
 
During the period April to July 2013, we issued 1,118,000 Series B preferred units to investors for gross proceeds of $2,795,000 at $2.50 per unit, to fund future operations.  In addition to this, we paid the placement agent, Taglich Brothers, a fee of $285,300 out of the gross proceeds realized, representing 9% of the gross proceeds raised, including the proceeds of any Bridge notes which converted into Series B Preferred units.
 
Subsequent to year end, on March 6, 2014, we settled the litigation with LANS resulting in a net cash inflow to the Company of $5,852,000, this amount may be reduced substantially based on discussions with our previous attorneys on this matter.
 
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. We cannot provide any assurances as to whether we will be able to secure any additional financing, or the terms of any such financing transaction if one were to occur.
 
 
22
 
 
The terms of the commercial loan facility and the revolving funding facility from Los Alamos National Bank were renegotiated and on September 16, 2013 the Company concluded a new term loan agreement with LANB to replace the revolving draw loan and the commercial loan. The Company paid a combined $26,886 against the revolving draw line and the commercial loan and LANB advanced a new term loan to the Company of $267,392, the proceeds of which were used to settle the remaining balance, inclusive of interest, of the revolving draw line and the commercial loan. This loan bears interest at the Wall Street Journal Prime rate plus 2.0% with a floor of 7.00% per annum. This loan expires on September 16, 2016. The loan is repayable in 36 monthly installments of $8,256, inclusive of interest, which installment may vary depending on the variable interest rate mentioned above. The loan is secured by accounts receivable and other rights to payments, instruments, documents and other chattel paper, general intangibles and fixed assets. The loan is personally guaranteed by Benjamin Warner, our Chief Scientific Officer and majority common shareholder. The loan agreement provides that we cannot incur, permit or assume (i) any debt except: existing debt as of the date the loan agreements were executed, debts subordinate to the loan or accounts payable incurred in the ordinary course of business or (ii) any liens other than inconsequential liens incurred in the ordinary course of business. These restrictions may limit our ability to raise debt financing in the future. The lender can demand payment in full upon an event of default which includes an insolvency or bankruptcy, business termination through merger dissolution or reorganization, a default under any of the loan documents with the bank or any other agreement with the bank. As of December 31, 2013 we owed $247,912 in accordance with the term loan agreement.
 
Subsequent to year end on April 11, 2014, the term loan, together with interest thereon was repaid for a consideration totaling $227,717. There are no further obligations under this term loan and the guarantees provided by Dr. Benjamin Warner and his wife has been released.
 
As of December 31, 2013, we owed $209,923 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 thirteen year term, with monthly repayments of $3,547 that commenced on September 21, 2009.
 
An analysis of our cash flows from operating, investing and financing activities for the years ended December 31, 2013 and 2012 is provided below:
 
   
Year ended
December 31,
 2013
 
Year ended
December 31,
 2012
 
             
Net cash used by operating activities
 
$
(2,195,268
)
 
$
(615,035
)
                 
Net cash used in investing activities
   
(206,483
)
   
(243,484
)
                 
Net cash provided by financing activities
   
2,542,841
     
558,862
 
                 
Net increase/(decrease) in cash and cash equivalents
 
$
141,090
   
$
(299,657
)
 
 
23
 
 
Net cash used in operating activities was $2,195,268 and $615,035 for the year ended December 31, 2013 and 2012, respectively. The decrease in cash used in operating activities was primarily due to the following:
 
   
Year ended
December 31,
   
Increase/
   
Percentage
 
   
2013
   
2012
   
(decrease)
   
change
 
                         
Net loss
 
$
(3,694,786
)
 
$
(792,061
)
 
$
(2,902,725
)
   
(366.5
)%
                                 
Adjustments for non-cash items
   
172,664
     
193,787
     
(21,123
)
   
(10.9
)%
                                 
Changes in operating assets and liabilities
   
1,326,854
     
(16,761
)
   
1,343,615
     
*
%
                                 
Net cash used in operating activities
 
$
(2,195,268
)
 
$
(615,035
)
 
$
(1,580,233
)
   
(256.9
)%
 
* Greater than 1,000%
   
The increase in net loss is discussed under net loss in the results of operations for the year ended December 31, 2013 and the year ended December 31, 2012.
 
The adjustments for non-cash items was primarily due to a non-cash stock based compensation charges of $660,468 due to 1,184,900 options issued primarily to management and certain key consultants during the current year, the non-cash movement in the derivative financial liability of $(919,948) which arose on the issue of Bridge notes and warrants issued to series B shareholders during the current year, the amortization of bridge loan discount of $117,025 which arose on bridge loans granted to the Company during the current year and the non-cash increase in the legal settlement accrual of $115,273 incurred on the Bellows settlement, and an increase in the depreciation expense of $23,947 over the prior year.
 
The changes in operating assets and liabilities included: (i) an increase in accounts receivable of $(65,254) which is primarily due to the timing of receipts before or after month end from our primarily government customers; (ii) an increase in our accounts payable balances of $1,336,125 which is primarily due to the increase in our legal bills incurred on the LANS legal matter; and (iii) an increase in other payables of 72,982, primarily due to an increase in the vacation pay accrual, payroll liabilities at year end and an increase in other payables including an audit fee provision of $27,500.
 
Net cash used in investing activities was $206,483 for the year ended December 31, 2013 compared to $243,484 for the prior year and consists primarily of laboratory equipment purchased for our new Cambridge laboratory.  
 
 
24
 
 
Net cash provided by financing activities was $2,542,841 and $558,862 for the years ended December 31, 2013 and 2012, respectively and is made up as follows:
 
   
Year ended
December 31,
   
Increase/
   
Percentage
 
   
2013
   
2012
   
(decrease)
   
change
 
                         
Movement in borrowings from banks and third parties
 
$
(91,859
) 
 
$
278,114
   
$
(369,973
)
   
(133.0
)%
                                 
Movements in bridge note borrowings
   
125,000
     
250,000
     
(125,000
)
   
50.0
%
                                 
Net proceeds from stock issues and repurchases
   
2,509,700
     
57,500
     
2,452,200
     
4,264.7
%
                                 
Dividends paid
   
-
     
(26,752
)
   
26,752
     
100
%
                                 
Net cash provided by financing activities
 
$
2,542,841
   
$
558,862
   
$
1,983,979
     
355.0
%
 
The movement in borrowings from banks and third parties in the current year included a restructure of our borrowings from Los Alamos National Bank. The Commercial loan and the revolving draw line advanced by Los Alamos National bank were settled during the current year for $307,832 and a new term loan of $267,392 was advanced to the Company, repayments of $20,191 were made against the term loan during the current year. In the prior year a cash advance of $168,000 on the revolving letter of credit and an advance on the commercial loan of $148,500 were made by Los Alamos National Bank.

A further net, $125,000 was advanced under Bridge notes during the current year; the bridge note proceeds, net of bridge note repurchases, received during 2012 and 2013 were converted into Series B shares during the current year and were not repaid.
  
The proceeds from Series B Preferred stock issuances in the current year was from the issuance of 1,118,000 Series B units to new investors at an issue price of $2.50 per unit, net of transaction costs of $285,300. The prior year stock issuances was made up of 10,088 series A units at $5.70 per share.

The dividend paid in the prior year represents the payment of dividends due to those preferred stockholders who elected to receive cash dividends at $0.46 per share instead of shares of common stock at $5.70 per share.
 
Capital Expenditures
 
Our current plans, dependent on the successful outcome of a fund raising or proceeds from litigation settlements is to improve the efficiency of our laboratory operations by employing additional scientific personnel and equipment to further automate the processes required in our Assay workflows to meet our customer requirements.
 
 
25
 
 
Critical Accounting Policies
 
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 and recovery of long-lived assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the allowance for doubtful accounts, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets and the assumptions used in determining percentage of completion on our long-term contracts.
 
Revenue recognition

Revenue sources consist of government contracts and commercial development contracts.

We account for our long-term Firm Fixed Price Government contracts associated with the delivery of feasible research on drug candidates and the development of drug candidates using the percentage-of-completion accounting method. Under this method, revenue is recognized based on the extent of progress towards completion of the long-term contract.
 
We generally use the cost-to-cost measure of progress for all of our long-term contracts, unless we believe another measure will produce a more reliable result. We believe that the cost-to-cost measure is the best and most reliable performance indicator of progress on our long-term contracts as all our contract estimates are based on costs that we expect to incur in performing our long-term contracts and we have not experienced any significant variations on estimated to actual costs to date. Under the cost-to-cost measure of progress, the extent of progress towards completion is based on the ratio of costs incurred-to-date to the total estimated costs at the completion of the long-term contract. Revenues, including estimated fees or profits are recorded as costs are incurred.
 
When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recorded in the period the loss is determined.
 
To a much lesser extent, we enter into fixed fee commercial development contracts that are not associated with the delivery of feasible research on drug candidates and the development of drug candidates. Revenue under such contracts is generally recognized upon delivery or as the development is performed.

Research and Development
 
The remuneration of our 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  we make 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.

 
26
 
 
 
Share-Based Compensation
 
Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee's requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of operations for the years ended December 31, 2013 and 2012 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.
 
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 loss per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net loss 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).
 
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.
 
Intangible assets
 
All of our intangible assets are subject to amortization. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Where intangibles are deemed to be impaired we recognize an impairment loss measured as the difference between the estimated fair value of the intangible and its book value.
 

a) 
License Agreements
 
License agreements acquired by the Company are reported at acquisition value less accumulated amortization and impairments.
 
b)
Amortization
 
Amortization is reported in the income statement 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
 
 
27
 
 
Plant and equipment
 
Plant and equipment is stated at cost less accumulated depreciation.  Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:
 
Leasehold improvements
5 Years
   
Laboratory equipment
7 Years
   
Furniture and fixtures
10 Years
   
Computer equipment
3 Years
   
Motor Vehicles (Used)
2 Years
 
The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.
 
We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
 
Derivative Liabilities
 
The Company assessed the classification of its derivative financial instruments as of December 31, 2013, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.
 
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
 
Convertible Instruments
 
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.
 
Professional standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.  Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of “Conventional Convertible Debt Instrument”.
 
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
 
ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
 
 
28
 
 
Recent accounting pronouncements
 
For discussion of recently issued and adopted accounting pronouncements, please see Note 2 to the Caldera Pharmaceuticals financial statements included herein.
 
Off Balance Sheet Arrangements

None.

Contractual Obligations

None.

Inflation

The effect of inflation on the Company's operating results was not significant.
 
Quantitative and Qualitative Disclosures About Market Risk
 
Not applicable because we are a smaller reporting company.
 
 
29
 
 
Financial Statements and Supplemental Data
 
 
 
F-1
 
 
 
To the Board of Directors and shareholders
 
Caldera Pharmaceuticals, Inc.
 
We have audited the accompanying consolidated balance sheet of Caldera Pharmaceutical, Inc. (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
 
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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Caldera Pharmaceuticals, Inc. at December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
 
/s/ RBSM LLP
 
May 30 , 201 4
 
New York, New York
 
 
F-2
 
 
CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS
 
   
December 31,
2013
   
December 31,
2012
 
ASSETS
           
             
Current assets:
           
Cash
 
$
519,733
   
$
378,643
 
Accounts receivable, net
   
106,019
     
59,849
 
Prepaid expenses
   
34,053
     
17,055
 
                 
Total current assets
   
659,805
     
455,547
 
                 
Non-current assets:
               
Intangible assets, net
   
542,890
     
594,574
 
Plant and equipment, net
   
453,701
     
391,530
 
Investment in certificate of deposit
   
25,004
     
-
 
                 
Total non-current assets
   
1,021,595
     
986,104
 
                 
TOTAL ASSETS
 
$
1,681,400
   
$
1,441,651
 
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
                 
Current liabilities:
               
Accounts payable
 
$
1,710,173
   
$
374,048
 
Other payables and accrued expenses
   
413,892
     
197,307
 
Loans payable
   
280,782
     
218,324
 
Bridge notes payable, net of debt discount
   
-
     
233,955
 
Derivative financial liability
   
944,121
     
17,539
 
Dividends payable
   
389,017
     
156,873
 
                 
Total current liabilities
   
3,737,985
     
1,198,046
 
                 
Non-current liabilities:
               
Loans payable
   
177,053
     
332,055
 
Other payables and accrued expenses
   
-
     
160,000
 
Total non-current liabilities
   
177,053
     
492,055
 
                 
TOTAL LIABILITIES
   
3,915,038
     
1,690,101
 
                 
Convertible Redeemable Preferred Stock
               
Series A Cumulative Convertible Redeemable Preferred Stock, $0.001 par value, 400,000 shares designated, 105,000 and 341,607 shares issued and outstanding as of December 31, 2013 and 2012, respectively, liquidation preference is $5.70 per share.
   
133,350
     
  2,065,392
 
                 
Commitments and contingencies
               
                 
STOCKHOLDERS DEFICIT:
               
Preferred stock, $0.001 par value, 10,000,000 authorized shares, 6,600,000 shares undesignated and unissued.
   
-
     
-
 
Series B Cumulative Convertible Preferred Stock, $0.001 par value, 3,000,000 designated shares, and 2,133,947 shares issued and outstanding as of December 31, 2013, liquidation preference is $2.50 per share.
   
2,134
     
-
 
Common stock, $0.001 par value, 50,000,000 authorized shares, 4,851,270 and 4,956,270 shares issued and, 4,197,270 and 4,302,270 outstanding as of December 31, 2013 and 2012, respectively.
   
4,852
     
  4,957
 
Additional paid in capital
   
10,475,253
     
4,649,109
 
Treasury stock, at cost (654,000 shares of common stock as of December 31, 2013 and 2012)
   
(473
)
   
(473
)
Accumulated deficit
   
(12,848,754
)
   
(6,967,435
)
                 
Total stockholder’s deficit
   
(2,366,988
)
   
(2,313,842
)
                 
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
 
$
1,681,400
   
$
1,441,651
 
 
See notes to the consolidated financial statements

 
F-3
 
 
CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

   
Year ended
December 31,
2013
   
Year ended
December 31,
2012
 
             
Sales
 
$
708,273
   
$
1,904,044
 
                 
Cost of sales
   
507,766
     
656,641
 
                 
Gross profit
   
200,507
     
1,247,403
 
                 
Operating expenses:
               
Selling, general and administrative expenses
   
4,511,078
     
2,011,212
 
Depreciation
   
118,227
     
94,280
 
Amortization
   
51,684
     
51,684
 
Total operating expenses
   
4,680,989
     
2,157,176
 
                 
Operating loss
   
(4,480,482
)
   
(909,773
)
                 
Other income/(expense)
               
Other income
   
30,120
     
140,880
 
Interest income
   
1,263
     
781
 
Interest expense
   
(165,635
)
   
(23,949
)
Change in fair value of derivative financial liabilities
   
919,948
     
-
 
                 
Total other income
   
785,696
     
117,712
 
                 
Net loss
   
(3,694,786
)
   
(792,061
)
                 
Deemed preferred stock dividends
   
(1,745,837
)
   
(2,857
)
Preferred stock dividends
   
(440,696
)
   
(156,873
)
                 
Net loss applicable to common stock
 
$
(5,881,319
)
 
$
(951,791
)
                 
Net loss per common stock: -
               
Basic and diluted
 
$
(1.39
)
 
$
(0.22
)
                 
Weighted average number of common stock outstanding: -
               
Basic and diluted
   
4,237,544
     
4,298,642
 

See notes to the consolidated financial statements
 
 
F-4
 
 
CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S (DEFICIT)
 
   
Common Stock
    Series B Preferred Stock     Treasury     Additional           Total  
   
Number of
shares
   
 
Amount
   
Number of
shares
   
Amount
   
stock
Amount
   
Paid-in
capital
   
Accumulated
deficit
   
Stockholder’s
(deficit)
 
Balance at December 31, 2011
    4,291,620     $ 4,946           -     $ -     $ (473 )   $ 4,542,646     $ (6,015,644 )   $ (1,468,525 )
                                                                 
Common stock issued in lieu of cash for preferred stock dividend
    10,650       11               -       -       -       60,694       -       60,705  
                                                                 
Fair value of stock options issued to employees
    -       -             -       -       -       45,769       -       45,769  
                                                                 
Net loss
    -       -       -       -       -       -       (792,061 )     (792,061 )
                                                                 
Deemed preferred stock dividend
    -       -         -       -       -       -       (2,857 )     (2,857 )
                                                                 
Preferred stock dividend
    -       -       -       -       -       -       (156,873 )     (156,873 )
                                                                 
Balance at December 31, 2012
    4,302,270       4,957         -       -       (473 )     4,649,109       (6,967,435 )     (2,313,842 )
                                                                 
Series B Preferred stock issued for cash
    -       -         1,118,000       1,118       -       2,793,882       -       2,795,000  
                                                                 
Conversion of Bridge notes and accrued interest into Series B Preferred stock
    -       -           153,664       154       -       384,006       -       384,160  
                                                                 
Series B Preferred stock issued to Series A stockholders in lieu of dividends
        -           -           83,423           83           -           208,475           -           208,558  
                                                                 
Conversion of Series A Preferred stock to Series B Preferred stock
    -       -             778,860       779       -       2,064,613       -       2,065,392  
                                                                 
Share issue expenses related to Series B Preferred stock issuance
    -       -           -       -       -       (285,300 )     -       (285,300 )
                                                                 
Common stock exchanged for Series A preferred shares
    (105,000 )     (105 )         -       -       -       -       -       (105 )
                                                                 
Fair value of stock options issued to employees
    -       -           -       -       -       660,468       -       660,468  
                                                                 
Net loss
    -       -       -       -       -       -       (3,694,786 )     (3,694,786 )
                                                                 
Deemed preferred stock dividend
    -       -         -       -       -       -       (1,745,837 )     (1,745,837 )
                                                                 
Preferred stock dividend
    -       -       -       -       -       -       (440,696 )     (440,696 )
                                                                 
Balance at December 31, 2013
    4,197,270     $ 4,852         2,133,947     $ 2,134     $ (473 )   $ 10,475,253     $ (12,848,754 )   $ (2,366,988 )
 
See notes to the consolidated financial statements
 
 
F-5
 
 
CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Year ended
December 31,
2013
   
Year ended
December 31,
2012
 
             
Cash flow from operating activities
           
Net loss
 
$
(3,694,786
)
 
$
(792,061
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation
   
118,227
     
94,280
 
Amortization
   
51,684
     
51,684
 
Amortization of bridge loan discount
   
117,629
     
604
 
Stock based compensation
   
660,468
     
45,769
 
Loss on plant and equipment scrapped
   
1,082
     
1,450
 
Series B Preferred stock issued for interest expense on Bridge loan
   
9,165
     
-
 
Gain on change in fair value of derivative financial liability
   
(919,948
)
   
-
 
Increase in legal settlement accrual
   
115,273
     
-
 
Increase in bad debt provision
   
19,084
     
-
 
Changes in operating assets and liabilities:
               
Increase in accounts receivable
   
(65,254
)
   
(29,344
) 
Increase in prepaid expenses
   
(16,999
)
   
(1,439
)
Increase/(decrease) in accounts payable
   
1,336,125
     
(198,667
) 
Increase in other payables and accrued expenses
   
72,982
     
212,689
 
Net cash used in operating activities
   
(2,195,268
)
   
(615,035
)
                 
Cash flow from investing activities
               
Purchase of plant and equipment
   
(181,479
)
   
(243,484
)
Investment in certificates of deposit
   
(25,004
)
   
-
 
Net cash used in investing activities
   
(206,483
)
   
(243,484
)
                 
Cash flow from financing activities
               
Advance on term loan
   
267,392
     
-
 
Proceeds of bridge loan
   
250,000
     
250,000
 
Advance on line of credit
   
-
     
218,000
 
Advance of commercial equipment loan
   
-
     
148,500
 
Repayment of term loan
   
(20,191
)
   
-
 
Repayment of bridge loan
   
(125,000
)
   
-
 
Repayment of line of credit
   
(168,000
)
   
(50,000
)
Repayment of commercial equipment loan
   
(139,832
)
   
(8,668
)
Repayment of Los Alamos County loan
   
(31,228
)
   
(29,718
)
Proceeds of Series A Preferred stock issued
   
-
     
57,500
 
Proceeds of Series B Preferred stock issued
   
2,795,000
     
-
 
Share issue expenses
   
(285,300
)
   
-
 
Series A Preferred stock dividend paid
   
-
     
(26,752
)
Net cash provided by financing activities
   
2,542,841
     
558,862
 
                 
Net increase/(decrease) in cash
   
141,090
     
(299,657
 )
                 
Cash at the beginning of the period
   
378,643
     
678,300
 
                 
Cash at the end of the period
 
$
519,733
   
$
378,643
 
                 
Supplemental disclosure of cash flow information
               
Cash paid for:
               
Interest
 
$
54,430
   
$
20,463
 
Income taxes
 
$
-
   
$
-
 
                 
Non cash investing and financing activities:
               
Deemed preferred stock dividend relating to warrants issued to preferred stockholders
 
$
1,745,837
   
$
2,857
 
Discount applied to Bridge notes relating to warrants issued
 
$
100,693
   
$
17,539
 
Series A dividends paid in common stock
 
$
-
   
$
60,705
 
Series A dividends paid in preferred stock
 
$
208,558
   
$
-
 
Accrued Preferred stock dividends
 
$
440,696
   
$
156,873
 
Conversion of Bridge notes and accrued interest into Series B Preferred stock
 
$
384,160
   
$
-
 
Conversion of Series A Preferred stock into Series B Preferred stock
 
$
2,065,392
   
$
-
 
Common stock exchanged for Series A Preferred stock
 
$
133,350
   
$
-
 
 
See notes to the consolidated financial statements
 
 
F-6
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. 
GENERAL INFORMATION

Caldera Pharmaceuticals, Inc. (“the Company”, “we”, “us”, “our”) is a Delaware corporation. The principal office was relocated from Los Alamos, New Mexico to Cambridge, Massachusetts during June 2013. The Company was incorporated in November 2003.
 
The Company uses proprietary x-ray fluorescence technology called XRpro ® to deliver ion channel screening, ion channel kinetics and custom screening services to our customers. Our proprietary technology detects and quantitatively analyzes the x-ray signature of each element with an atomic number greater than 10, we combine the flexibility of the analysis with patented sample processing to address a wide range of ion channel and other biological targets.
 
The Company has generated the majority of its revenues to date through Government research contracts and Government grants utilizing its proprietary x-ray fluorescence technology.
 
2. 
ACCOUNTING POLICIES AND ESTIMATES

Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).
 
All amounts referred to in the notes to the consolidated financial statements are in United States Dollars ($) unless stated otherwise.
 
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. – Wholly owned subsidiary

Estimates
The preparation of these consolidated financial statements in accordance with US GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts and recovery of long-lived assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the allowance for doubtful accounts, the useful life of plant and equipment and intangible assets, and assumptions used in assessing impairment of long-term assets and the assumptions used in determining percentage of completion on our long-term contracts.

Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against and by the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
 
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
 
 
F-7
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
2. 
ACCOUNTING POLICIES AND ESTIMATES (continued)

Fair value of financial instruments
The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
 
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other 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 consolidated balance sheets for cash, accounts receivable, loans payable, accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments. The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with the accounting guidance.

ASC 825-10 “ Financial Instruments ” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

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

Intangible assets
All of our intangible assets are subject to amortization. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Where intangibles are deemed to be impaired we recognize an impairment loss measured as the difference between the estimated fair value of the intangible and its book value.
 
 
a) 
License Agreements

License agreements acquired by the Company are reported at acquisition value less accumulated amortization and impairments.
 
 
b) 
Amortization
 
Amortization is reported in the income statement on a straight-line basis over the estimated useful life of the intangible assets, unless the useful life is indefinite. Amortizable intangible assets are amortized from the date that they are available for use. The estimated useful life of the license agreement is twenty years which is the term of the patent supporting the underlying license agreements
 
 
F-8
 
 
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
Motor vehicles (used)
2 Years
 
The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.

We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

Concentrations of credit risk
The Company’s operations are carried out in the USA. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the USA and by the general state of the economy. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.

The Company maintains cash with major financial institutions. The Federal Deposit Insurance Corporation (“FDIC”) provides insurance coverage for deposits of corporations, the current limit of coverage is $250,000. As a result of this coverage the Company has cash balances of $101,648 that are not covered by the FDIC as of December 31, 2013.
 
Concentration of major customers
The Company currently derives substantially all of its revenues from Government research contracts.

These Government research contracts are primarily from two government agencies: The Department of Defense and the National Institutes of Health. The granting of research contracts from Government agencies is a competitive process and there is no certainty that we will be awarded future contracts, which may cause our revenue to fluctuate from year to year. Furthermore, Government grants are subject to audits by the granting agency. If such audits were to determine that expenditures of the grant funds did not meet the applicable criteria, these amounts could be subject to retroactive adjustment and refunded to the granting agency.

Total revenues by customer type are as follows:

   
Year ended
December 31,
2013
   
Year ended
December 31,
2012
 
             
National Institutes of Health
 
$
611,155
   
$
1,804,523
 
Department of Defense
   
67,118
     
83,440
 
Commercial customers
   
30,000
     
16,081
 
                 
      Total revenues  
$
708,273
   
$
1,904,044
 
 
 
F-9
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
2. 
ACCOUNTING POLICIES AND ESTIMATES (continued)

Accounts receivable and other receivables
We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. As a basis for accurately estimating the likelihood of collection of our accounts receivable, we consider a number of factors when determining reserves for uncollectable accounts. We believe that we use a reasonably reliable methodology to estimate the collectability of our accounts receivable. We review our allowances for doubtful accounts on a regular basis. We also consider whether the historical economic conditions are comparable to current economic conditions. If the financial condition of our customers or other parties that we have business relations with were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
 
The balance of the receivables provision as at December 31, 2013 and 2012 was $19,084 and $0, respectively. The amount charged to bad debt provision for the year ended December 31, 2013 and 2012 was $19,084 and $0, respectively.

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 contracts and commercial development contracts.
 
We account for our long-term Firm Fixed Price Government contracts and grants associated with the delivery of research on drug candidates and the development of drug candidates using the percentage-of-completion accounting method. Under this method, revenue is recognized based on the extent of progress towards completion of the long-term contract.

We generally use the cost-to-cost measure of progress for all of our long-term contracts, unless we believe another measure will produce a more reliable result. We believe that the cost-to-cost measure is the best and most reliable performance indicator of progress on our long-term contracts as all our contract estimates are based on costs that we expect to incur in performing our long-term contracts and we have not experienced any significant variations on estimated to actual costs to date. Under the cost-to-cost measure of progress, the extent of progress towards completion is based on the ratio of costs incurred-to-date to the total estimated costs at the completion of the long-term contract. Revenues, including estimated fees or profits are recorded as costs are incurred.

When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recorded in the period the loss is determined.
 
To a much lesser extent, we enter into fixed fee commercial development contracts that are not associated with the delivery of feasible research on drug candidates and the development of drug candidates. Revenue under such contracts is generally recognized upon delivery or as the development is performed.

Sales and Marketing
Sales and marketing expenses are minimal at present. These costs, if any, are expensed as incurred and included in Selling, general and administrative expenses. The Company expects to incur sales and marketing expenses in future periods to promote its services to drug discovery enterprises.

Research and Development
The remuneration of the Company’s research and development staff, materials used in internal research and development activities, and payments made to third parties in connection with collaborative research and development arrangements, are all expensed as incurred.  Where the Company makes a payment to a third party to acquire the right to use a product formula which has received regulatory approval, the payment is accounted for as the acquisition of a license or patent and is capitalized as an intangible asset and amortized over the shorter of the license period or the patent life.

The amount expensed for unrecovered research costs, included in Selling, general and administrative expenses during the years ended December 31, 2013 and 2012 was $194,222 and $32,403, respectively.
 
 
F-10
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
2. 
ACCOUNTING POLICIES AND ESTIMATES (continued)

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.

Share-Based Compensation
Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee's requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of operations for the years ended December 31, 2013 and 2012 is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from those estimates. We have no awards with market or performance conditions.
 
Income Taxes
The Company utilizes ASC 740, Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Net 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 loss per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net loss 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).
 
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.
 
 
F-11
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
2. 
ACCOUNTING POLICIES AND ESTIMATES (continued)

Derivative Liabilities
 
The Company assessed the classification of its derivative financial instruments as of December 31, 2013, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.
 
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
 
Convertible Instruments
 
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.
 
Professional standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.  Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of “Conventional Convertible Debt Instrument”.
 
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
 
ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
 
Recent accounting pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements to have a significant impact on the results of operations, financial condition or cash flow.
 
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.

 
F-12
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
3. 
LIQUIDITY
 
Subsequent to year end the Company received a substantial cash infusion (See note 19 and 20 below) providing the Company with sufficient capital resources to meet its projected cash flow requirements in conducting its operations for at least the next twelve month period. However there can be no assurance that additional and unforeseen non-recurring expenses will not arise during the next twelve month period or that the Company will be successful in completing its business development plan.
 
4. 
INTANGIBLE ASSETS

Licenses
In connection with an Exclusive Patent License agreement covering national and international patents entered into with the Los Alamos National Security LLC (“Licensor”), dated September 8, 2005, the Company has the exclusive right to the use of certain patents covering the following:
 
●         Method for Detecting Binding Events Using Micro X-Ray Fluorescence Spectrometry;

●         Flow Method and Apparatus for Screening Chemicals Using Micro X-Ray Fluorescence;

●         Method and Apparatus for Detecting Chemical Binding;

●         Drug Development and Manufacturing.
 
The agreement provides for a term as long as the last surviving patent which is generally a twenty year period from the date of first application.

In terms of the agreement, the Company issued shares to the Licensor equal to 3% of the issued equity of the Company. The agreement contains anti-dilutive clauses that 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. The anti-dilutive clauses do not result in a freestanding instrument as they are directly linked to the shareholding that the Licensor currently holds in the Company. Should any percentage of that shareholding be sold to third parties, prior to the triggering of any anti-dilution event, the anti-dilution clause will be void for that percentage of the shareholding sold to third parties.  As of December 31, 2013, 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 has termination provisions as follows; i) at the option of the Licensor; If the Company fails to deliver any reports that are due, fails to pay any royalties or fees due, breaches any material clause of the agreement, or failure to inform the Licensor of a petition to file for voluntary or involuntary bankruptcy; ii) at the option of the Licensee by giving 90 days written notice to the Licensor.

The agreement further provides for an annual royalty to be paid to the Licensor at a rate of 2% per annum on net sales, excluding any sales to Government agencies. The agreement provided for a minimum fee payment of $50,000 per annum up until December 31, 2022. The fee will be deducted from any royalties due in excess of the fee due for that financial year. See footnote 20, subsequent events.
 
 
F-13
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
4. 
INTANGIBLE ASSETS (continued)

Future annual minimum payments required under license agreement obligations at December 31, 2013, are as follows:

   
Amount
 
       
2014
 
$
50,000
 
2015
   
50,000
 
2016
   
50,000
 
2017
   
50,000
 
2018 and thereafter
   
250,000
 
         
Total
 
$
450,000
 

Licenses consist of the following at December 31, 2013 and 2012:

   
December 31,
2013
   
December 31,
2012
 
             
Licenses, at cost
 
$
972,000
   
$
972,000
 
Less: Accumulated amortization
   
(429,110
)
   
(377,426
)
                 
   
$
542,890
   
$
594,574
 

The aggregate amortization expense charged to operations was $51,684 for the years ended December 31, 2013 and 2012. The amortization policies followed by the company are described in Note 2.

Amortization expense for the future years is summarized as follows:

   
Amount
 
       
2014
 
$
51,684
 
2015
   
51,684
 
2016
   
51,684
 
2017
   
51,684
 
2018 and thereafter
   
336,154
 
Total
 
$
542,890
 
 
 
F-14
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
4. 
INTANGIBLE ASSETS (continued)

Patents
The Company has various patents pending or registered in its name. These patents have been internally generated and all costs associated with the research and development of these patents has been expensed.

The patents assigned to Caldera are as follows:
 
 
●
Well Plate – apparatus for preparing samples for measurement by x-ray fluorescence spectrometry. Patent filed August 15, 2008

 
●
Method and Apparatus for measuring Protein Post Translational Modification. Patent filed September 26, 2008.

 
●
Method and Apparatus for Measuring Analyte Transport across barriers. Patent filed July 1, 2009.

5. 
PLANT AND EQUIPMENT

Plant and equipment consists of the following at December 31, 2013 and 2012.

   
December 31,
2013
   
December 31,
2012
 
             
Leasehold improvements
 
$
6,393
   
$
6,393
 
Furniture and fittings
   
23,099
     
9,979
 
Laboratory equipment
   
837,882
     
679,310
 
Computer equipment
   
19,044
     
29,327
 
Vehicles
   
17,658
     
17,658
 
                 
Total
   
904,076
     
742,667
 
Accumulated depreciation
   
(450,375
)
   
(351,137
)
Plant and equipment, net
 
$
453,701
   
$
391,530
 

The aggregate depreciation charge to operations was $118,227 and $94,280 for the years ended December 31, 2013 and 2012 respectively. The depreciation policies followed by the company are described in Note 2.

 
F-15
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
6. 
OTHER PAYABLES AND ACCRUED EXPENSES
 
   
December 31,
2013
   
December 31,
2012
 
Short term portion
           
Credit card liabilities
 
$
11,670
   
$
7,505
 
Vacation and Sick Pay accrual
   
147,980
     
89,730
 
Other payables and accrued expenses
   
168,000
     
97,972
 
Payroll liabilities
   
47,192
     
-
 
Other
   
39,050
     
2,100
 
     
413,892
     
197,307
 
Long term portion
               
Other payables
   
-
     
160,000
 
                 
Total other payables and accrued expenses
 
$
413,892
   
$
357,307
 
 
Subsequent to year end, on March 31, 2014, the other payable and accrued expenses consisting of a legal settlement accrual relating to the Bellows matter (see note 19 below) was settled in full by the payment of $167,616, including accrued interest thereon.
 
7. 
INCOME TAXES

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, 2013 and 2012 are as follows:

   
Year
ended
December 31,
2013
   
Year
ended
December 31,
2012
 
             
Income tax benefit at federal statutory rate
  $ (1,293,000 )   $ (277,000 )
State taxes, net of federal benefit
    (185,000 )     (40,000 )
Derivative financial liability     (321,000 )     -  
Stock based compensation
    264,000       -  
Accrual to cash adjustments
    492,000       -  
Prior year under provision     83,000       -  
Other     20,000       -  
      (940,000 )     (317,000 )
Valuation allowances
    940,000       317,000  
    $ -     $ -  
 
 
F-16
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
7. 
INCOME TAXES (continued)

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, 2013 and 2012 are as follows:

   
December 31,
2013
   
December 31,
2012
 
Deferred tax assets
           
Accrual to cash adjustments
  $ 789,000     $ 198,000  
Options based compensation
    422,000       158,000  
Plant and equipment
    -       -  
Capital loss
    50,000       50,000  
Net operating loss
    2,626,000       1,686,000  
      3,887,000       2,092,000  
Valuation allowance
    (3,804,000 )     (2,053,000 )
      83,000       39,000  
Deferred tax liabilities
               
Amortization of licenses
    (83,000 )     (39,000 )
    $ -     $ -  

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. The valuation allowance increased by $1,751,000 during 2013, which included a true-up of prior year’s deferred taxes of $22,000.
 
At December 31, 2013, we had tax loss carry forwards of approximately $6,565,000. These net operating loss carry forwards expire in 2033, if unused. The Company files its tax returns on a cash basis.

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.

 
F-17
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
8. 
LOANS PAYABLE
 
   
December 31,
2013
   
December 31,
2012
 
Short term portion
           
Los Alamos County project participation loan
 
$
32,870
   
$
31,270
 
Los Alamos Bank Term loan
   
247,912
     
-
 
Los Alamos National Bank revolving draw loan
   
-
     
168,827
 
Los Alamos National Bank commercial loan
   
-
     
18,227
 
     
280,782
     
218,324
 
Long term portion
               
Los Alamos County project participation loan
   
177,053
     
209,923
 
Los Alamos National Bank commercial loan
   
-
     
122,132
 
     
177,053
     
332,055
 
   
$
457,835
   
$
550,379
 

The amortization of the principal outstanding of loans payable is as follows:

   
Amount
 
       
2014
 
$
280,782
 
2015
   
34,552
 
2016
   
36,319
 
2017
   
38,177
 
2018 and thereafter
   
68,005
 
Total
 
$
457,835
 

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 $3,547. The Company owed $209,923 and $241,193 as of December 31, 2013 and 2012, respectively.

 
F-18
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
8. 
LOANS PAYABLE (continued)

Los Alamos National Bank (“LANB”)
The Company entered into a one year revolving draw loan with LANB for up to a maximum of $750,000 as of May 23, 2012. The loan bears interest at a coupon of the Wall Street Journal Prime rate plus 1.5% with a floor of 4.75% per annum. This loan was secured by accounts receivable and other rights to payments, instruments, documents and other chattel paper, general intangibles and fixed assets. Interest was payable quarterly. The Company drew $50,000 under this facility on May 23, 2012 to repay a previous and similar facility. An additional $118,000 was drawn down on this facility on July 11, 2012 to settle a liability owing to a supplier. On May 23, 2013, the revolving draw loan agreement was extended to August 23, 2013 and the availability under the facility was reduced to $167,943, the capital balance outstanding as of May 23, 2013. On September 16, 2013 the Company concluded a new term loan agreement, see below, with LANB and settled the outstanding balance, on this loan, inclusive of unpaid interest, totaling $168,472.  The Company owed $168,827 as of December 31, 2012.

The Company entered into a single advance commercial loan agreement with LANB for $148,500 on June 8, 2012. The purpose of this loan was to acquire an XRpro instrument. This loan bears interest at the Wall Street Journal Prime rate plus 1.5% with a floor of 6.00% per annum. This loan was due to expire on June 8, 2019. The loan was repayable in 84 monthly installments of $2,169, inclusive of interest, which installment may vary depending on the variable interest rate mentioned above. This loan is secured by accounts receivable and other rights to payments, instruments, documents and other chattel paper, general intangibles and fixed assets. This loan had been advanced to both the Company and XRpro Corp., a wholly owned subsidiary, jointly and severally, and was guaranteed by Dr. Benjamin Warner and his wife. On September 16, 2013 the Company concluded a new term loan agreement, see below, with LANB and settled the outstanding balance, on this loan, inclusive of unpaid interest, totaling $126,501. The Company owed $140,359 as of December 31, 2012.

On September 16, 2013 the Company executed a term loan agreement with LANB to replace the revolving draw loan and the commercial loan disclosed above. The Company paid a combined $26,886 against the revolving draw line and the commercial loan and LANB advanced a new term loan to the Company of $267,392, the proceeds of which were used to settle the remaining balance, inclusive of interest, of the revolving draw line and the commercial loan. This loan bears interest at the Wall Street Journal Prime rate plus 2.0% with a floor of 7.0% per annum. This loan expires on September 16, 2016. The loan is repayable in 36 monthly installments of $8,256, inclusive of interest, which installment may vary depending on the variable interest rate mentioned above. This loan is secured by accounts receivable and other rights to payments, instruments, documents and other chattel paper, general intangibles and fixed assets. This loan has been advanced to both the Company and XRpro Corp., a wholly owned subsidiary, jointly and severally, and was guaranteed by Dr. Benjamin Warner and his wife. The Company owed $247,912 s of December 31, 2013.
 
Subsequent to year end, on April 11, 2014, the remaining balance on the term loan together with interest thereon, totaling $227,716.93 was repaid. The guarantees provided by Dr. Benjamin Warner and his wife have also been cancelled.
 
9. 
BRIDGE NOTES PAYABLE

The Company entered into a 10% Bridge Note (the “Bridge Notes”) agreement with nine principals for $500,000 between December 18, 2012 and April 2, 2013. The Bridge Notes were issued as part of a unit that included warrants to purchase 600 shares of the Company’s common stock for each $1,000 of Bridge Note principal, at an exercise price of $3.00 per share, see note 14 below. The Bridge Notes bear interest at 10% per annum compounded and payable quarterly at the Company’s option, until the maturity date which is defined as the earliest of December 31, 2013, or the closing of any subsequent financing transactions, or an event of default as defined in the agreement. The Bridge note agreement also provides for a default interest rate of 15% per annum should any amounts due to the note holders in terms of the agreement be in default.

The Bridge Notes together with any interest due on the Bridge Notes had, at the option of the note holder, conversion rights into securities of the Company’s subsequent financing. The Bridge Note holder also had the option to convert some or all of the principal and interest due on this note into shares of the Company’s common stock at a conversion price of $2.50 per share, unless a default has occurred and is continuing, at which instance the conversion price during the default period would be $1.50 per share. The option to convert the Bridge Note into common stock had anti-dilutive provisions that would allow the note holder to be placed in the same position as it was prior to a dilution event occurring.
 
On April 19, 2013, six principals converted their Bridge Notes in the aggregate principal amount of $375,000 together with accrued and unpaid interest thereon of $9,160 into 153,664 units of series B preferred units of the Company at a conversion price of $2.50 per unit, each unit consist of one share of series B preferred stock and one seven-year warrant exercisable at a price of $2.50 per share, which price is subject to anti-dilution protection, see note 12 and 14 below.
 
On May 31, 2013 and August 30, 2013, the Bridge notes due to three principals of $100,000 and $25,000, together with accrued and unpaid interest thereon of $1,541 and $1,073, respectively, were repaid and cancelled.
 
The Bridge Notes included a total discount of $118,232 relating to the fair value of the warrants issued together with those notes. The conversion of the $375,000 and the repayment of $125,000 of the Bridge Notes mentioned above resulted in the immediate amortization of $90,487 of this discount. The balance of the discount was amortized over the period that the bridge notes were in existence.
 
 
F-19
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
9. 
BRIDGE NOTES PAYABLE (continued)
 
   
December 31,
2013
   
December 31,
2012
 
             
Bridge notes payable
 
$
-
   
 $
250,890
 
Unamortized bridge note discount
   
-
     
(16,935
)
Total bridge notes payable
 
$
-
   
$
233,955
 

10. 
NOTES PAYABLE

The Company entered into a 10% Note (the “Notes”) agreement with two principals for $100,000 on March 25, 2013. The Notes bear interest at 10% per annum compounded and payable quarterly at the Company’s option, until the notes are repaid. These notes were utilized to provide temporary funding and were repaid, together with accrued interest on April 4, 2013.

11. 
DERIVATIVE FINANCIAL LIABILITY
 
The warrants arising from the issue of the Bridge notes (“Bridge Warrants”) disclosed under note 9 above have anti-dilution protection, whereby the exercise price of the warrant will re-price, based on a pre-determined formula, if any securities are sold, exercisable or convertible at a price less than the exercise price of the Bridge Warrants. This gives rise to a derivative financial liability, which was valued at $118,232 as of the date of issuance using a Black-Scholes valuation model. The value of this derivative financial liability will be re-assessed at each financial reporting period, with any movement thereon recorded in the statement of income in the period in which it is incurred.
 
The warrants arising from the issue of the series B preferred units (“Series B Shares”), together with the placement agent warrants directly related to that issue, disclosed under note 14 below have anti-dilution protection, whereby the exercise price of the warrant will re-price, based on a pre-determined formula, if any securities are sold, exercisable or convertible at a price less than the exercise price of the series B warrants. This gives rise to a derivative financial liability, which was valued at $1,745,837 and recorded as a deemed dividend expense, as of the date of issuance of the series B shares using a Black-Scholes valuation model. The value of this derivative financial liability will be re-assessed at each financial reporting period, with any movement thereon recorded in the statement of income in the period in which it is incurred.
 
The value of the derivative financial liability was re-assessed as of December 31, 2013 resulting in a net credit to the consolidated statement of operations of $919,948 for the year ended December 31, 2013.
 
   
December 31,
2013
   
December 31,
2012
 
Opening balance
 
$
17,539
   
 $
-
 
Derivative financial liability arising on bridge warrants with re-pricing terms
   
100,693
     
17,539
 
Derivative financial liability arising on the issue of warrants relating to Series B shares
   
1,745,837
     
-
 
Fair value adjustments
   
(919,948
) 
   
-
 
Closing balance
 
$
944,121
   
$
17,539
 
 
The following assumptions were used in the Black-Scholes valuation model:
 
   
Year ended
December 31,
2013
   
Year ended
December 31,
2012
 
             
Calculated stock price
  $1.13- $1.27     $0.55  
Risk-free interest rate
 
0.02% to 0.07%
   
0.01% to 0.50%
 
Expected life of warrants
 
5 Years
   
5 Years
 
Expected volatility of the underlying stock
  69% -164%     128%  
Expected dividend rate
  0%     0%  
 
 
F-20
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. 
PREFERRED STOCK

Preferred Stock consists of 10,000,000 authorized preferred shares of $0.001 par value each. The articles of Incorporation were amended on April 10, 2012 to change the designation of all of the 10,000,000 preferred shares of $0.001 each, from Series A 8% convertible redeemable preferred shares to 400,000 Series A 8% convertible redeemable preferred shares of $0.001 each. On April 19, 2013, the articles of incorporation were again amended to change the designation of the remaining 9,600,000 preferred shares to 3,000,000 Series B convertible  preferred shares of $0.001 each, with the remaining 6,600,000 preferred shares remaining undesignated.
 
Series A 8% Convertible, Redeemable Preferred Stock (“Series A Stock”)
Series A Stock consists of 400,000 designated shares of $0.001 par value each, 105,000 and 341,607 shares issued and outstanding as of December 31, 2013 and 2012, respectively.

On April 30, 2013, the holders of 341,607 Series A Stock entered into an agreement to exchange their Series A Stock into 778,860 series B preferred shares of the Company. The number of series B preferred shares issued was derived at by dividing the total dollar investment made in the Company by each Series A stockholder by $2.50. In addition to this a further 83,423 series B preferred shares of $2.50 each were issued to the Series A stockholders in lieu of dividends due as of April 30, 2013.

On May 20, 2013, in terms of a legal settlement agreement entered into with Joel Bellows (Refer note 19 below), 105,000 Series A Stock was issued in exchange for his 105,000 common shares held in the Company. The Series A Stock issued to Joel Bellows was valued at $133,350 using a Black Scholes valuation model, the assumptions which are disclosed under note 11 above.
 
Conversion
The Series A Stock will convert to common stock of the Company at a price of $5.70 per share of Common Stock subject to adjustment for stock splits, stock dividends and any further recapitalizations. The Series A Stock is subject to voluntary conversion at the option of the stockholder at any time and is mandatory convertible at the option of the Company provided the Company’s common stock is trading on a recognized stock exchange or Over the Counter Bulletin Board and the volume weighted average price of the Company’s common stock is at least $10 per share, subject to stock splits, stock dividends and recapitalizations. 

Warrants
The original holders of Series A Stock had received warrants to purchase 341,607 shares of the Company’s common stock at an exercise price of $5.70 per share. The warrants expire five years after date of issuance. In terms of the exchange agreement entered into with the Company on April 30, 2013, these warrants remain in place. These warrants are not transferable without the consent of the Company and an opinion of Counsel satisfactory to the Company.
 
Redemption
Should the Company receive net proceeds of at least $3 million from litigation proceedings against the Regents of the University of California and Los Alamos National Security (see note 19); the remaining Series A stockholders will have the option to redeem the Series A Stock equal to 130% of the initial investment in the Company by the stockholder, which amounted to $210,000. This value differs from the carrying value of the Series A Stock of $133,350 which was valued using the Black-Scholes valuation model at the time of exchanging common stock for Series A Stock (Refer note 19 below). The Company also has the option to redeem the Series A Stock at a price equal to 130% of the initial investment in the Company by the stockholder at any time after giving the investors notice and allowing them to exercise their conversion rights into common stock 30 days after notice has been received. The Company is not obligated to pursue the litigation against Los Alamos National Laboratory but is doing so based on its belief that it will have a successful outcome.
 
Liquidation
The liquidation rights of the Series A Stock is the greater of $5.70 per share plus any unpaid dividends or an amount that would have been payable had all shares of Series A Stock converted into common stock immediately prior to liquidation.

Dividends
The Series A Stock carries an 8% cumulative, non-compounded dividend payable on January 31st, each year in cash or in kind at the option of the Series A stockholder. For any other dividends or distributions, the Series A Stock is treated on an as- converted basis.
 
An accrual for Series A Stock dividends of $81,442 and $156,873 was made for the year ended December 31, 2013 and 2012, respectively.

 
F-21
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. 
PREFERRED STOCK (continued)

Series B Convertible Preferred Stock (“Series B Stock”)
Series B Stock consists of 3,000,000 designated shares of $0.001 par value each and 2,133,947 and nil shares issued and outstanding as of December 31, 2013 and 2012, respectively.
 
In connection with the terms of the recent private placement:

 
●
Six principals converted their Bridge Notes of $375,000 together with accrued and unpaid interest thereon of $9,160 into 153,664 Series B preferred units of the Company at a conversion price of $2.50 per unit, each unit consists of one share of Series B Stock and one seven-year common stock purchase warrant exercisable at a price of $2.50 per share, see note 14 below.
 
 
 
●
New, qualified investors, acquired 1,118,000 Series B preferred units of the Company at a price of $2.50 per unit, each unit consisting of one share of Series B Stock and one seven-year common stock purchase warrant at an exercise price of $2.50 per share, for net proceeds of $2,509,700 after deducting placement agent fees of $285,300 based on the Series B preferred units issued to new investors and the conversion of the Bridge Notes mentioned above.
 
 
 
●
In terms of exchange agreements entered into with the holders of 341,607 Series A shares, 778,860 shares of Series B Stock of $2.50 each were issued to the Series A stockholders by dividing their initial dollar investment in the Series A Stock by $2.50. In addition to this a further 83,423 shares of Series B Stock of $2.50 each was issued to the Series A shareholders in lieu of dividends accrued and due to the Series A shareholders as of April 30, 2013.
 
The following is a summary of material provisions of the Series B Stock as set forth in the Certificate of Designations.

Dividends
Series B Stock accrue dividends at the rate per annum equal to (i) 8% of the sum of (x) the Stated Value and (y) the amount of accrued and unpaid dividends payable, out of funds legally available for payment, on January 31st of each year, if paid in cash, or (ii) 10% of the sum of (x) the Stated Value and (y) the amount of accrued and unpaid dividends payable, out of funds legally available for payment, on January 31st of each year, if paid in shares of Common Stock, based upon a price of $2.50 per share of Common Stock. The Company shall have the option, to pay any such dividends in cash or shares of Common Stock. Such dividends shall be in preference and priority to any payment of any dividend on Common Stock, or any other class of preferred stock. Dividends are cumulative.

An accrual for Series B Stock dividends of $359,243 was made for the year ended December 31, 2013.
 
Conversion
Subject to adjustment as more fully described herein, each Series B Stock is currently convertible at the option of the holder into one share of Common Stock. Each Series B Stock (together with any accrued but unpaid dividends thereon) is convertible into shares of Common Stock at the option of the holder at any time at a conversion price per share equal to the sum of the Stated Value and any accrued but unpaid dividends thereon through the date of notice of conversion divided by the Conversion Price, subject to adjustment as described below. The initial Conversion Price shall be equal to the Stated Value. If the Company merges or sells its assets, holders of Series B Stock will be entitled to receive on conversion the securities or property (including cash) of the successor corporation that they would have received as a result of that merger or sale if they had converted immediately beforehand. At any time after the Common Stock is listed on a national securities exchange as defined in the Securities Exchange Act of 1934, the Company may cause the conversion of the Series B Stock, plus accrued but unpaid dividends into shares of Common Stock, each Series B Stock convertible into such number of shares of Common Stock as shall equal the sum of the Stated Value plus any accrued but unpaid dividends through the date of conversion divided by the lower of the then conversion price and the market price of the Company’s Common Stock. Market Price is defined as the average of the reported closing sales price of the Common Stock for each of the five trading days for which a closing sales price is reported immediately preceding the day prior to the conversion.

Liquidation
In the event of a liquidation, dissolution or winding up of the Company and other Liquidation Events as defined in the Certificate of Designations, holders of Series B Stock are entitled to receive from proceeds remaining after distribution to the Company’s creditors and prior to the distribution holders of Common Stock or any other class of preferred stock the (x) Stated Value (as adjusted for any stock splits, stock dividends, reorganizations, recapitalizations and the like) held by such holder and (y) all accrued but unpaid dividends on such shares.

 
F-22
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. 
PREFERRED STOCK (continued)

Series B Convertible Preferred Stock (“Series B Stock”) (continued)

Anti-Dilution
If the Company issues Common Stock or securities convertible, exercisable or exchangeable into Common Stock for a purchase price of less than $2.50 per share then the holders of the Series B Stock will be entitled to a weighted-average” adjustment in the number of common shares that their Series B Stock can be converted into; provided, however, that there will be no adjustment to the number of shares of Common Stock that the Series B Stock can be converted into for (i) issuance or sale of Common Stock or options or other awards under the Corporation’s equity incentive plans or programs not to exceed 2,000,000 shares of Common Stock; (ii) issuance or sale of preferred stock or Common Stock issuable upon conversion, exchange or exercise of the Series A Stock or Series B Stock, the Bridge Notes, the Warrants issued in connection with the exchange of the Bridge Notes, the Warrants issued in connection with the issuance of the Series B Stock to the holders thereof, any Warrants issued to the Placement Agent or its designees in connection with the issuance of the Series B Stock or as an advisory fee or any other convertible securities or warrants outstanding on the date hereof; (iii) issuance of equity securities or rights to purchase equity securities issued in connection with commercial property or lease transactions that are approved by the Board of Directors; (iv) issuance of equity securities or rights to purchase equity securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination approved by the Board of Directors; (v) issuance of securities to an entity as a component of any business relationship with such entity primarily for the purpose of (A) joint venture, technology or licensing development activities; (B) distribution, supply or manufacture of the Company’s products or services; or (C) any other arrangements involving corporate partners primarily for purposes other than raising capital, the terms of which business relationship with such entity are approved by the Board of Directors; and (vi) issuance of stock pursuant to a stock dividend or stock split.
 
Voting
Except as otherwise required by law and except as set forth below, holders of Series B Stock will, on an as-converted basis, vote together with the Common Stock as a single class. Each holder of Series B Stock is entitled to cast the number of votes equal to two times the number of shares of Common Stock into which such shares of Series B Stock could be converted at the record date for determining stockholders entitled to vote at the meeting. The approval by holders of a majority of the Series B Stock, voting separately as a class, will be required for the creation of any class or series of preferred stock ranking senior to or pari passu with the Series B Stock as to payments of dividends or upon the liquidation of the Company.

Financials
As soon as practicable after the filing of the Company’s Quarterly Report on Form 10-Q and its Annual Report on Form 10-K, the Holders of the Series B Stock shall be entitled to receive, upon request, a consolidated balance sheet of the Company, if any, as of the end of such fiscal year or quarter, and consolidated statements of operations and consolidated statements of cash flows and stockholders’ equity of the Company, if any, for such year or quarter, prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail.
 
 
F-23
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
13. 
COMMON STOCK

Common stock consists of 50,000,000 authorized shares of $0.001 each, 4,851,270 and 4,956,270 shares issued and 4,197,270 and 4,302,270 shares outstanding as of December 31, 2013 and 2012, respectively. 

On May 20, 2013, in terms of a legal settlement agreement entered into with Joel Bellows (See note 19 below), 105,000 common shares were exchanged for 105,000 Series A Stock. The common shares exchanged were cancelled and are available for reissue. 

During the year ended December 31, 2012 a further 10,650 shares of common stock were issued at $5.70 per share for a total of $60,705 in lieu of Series A Stock dividends which were due at January 31, 2012.

14. 
WARRANTS

In connection with the terms of the recent private placement:
 
 
●
Warrants to purchase 153,664 shares of common stock at a purchase price of $2.50 per shares were issued to Bridge Note holders upon conversion of their Bridge Notes into series B units as disclosed in note 9 above. These warrants have a seven-year term and are exercisable at the option of the holder. These warrants may be exercised for shares of common stock in lieu of cash by applying the number of warrants to the formula whereby the exercise price of the warrants is deducted from the closing price of the common stock on a quoted market divided by the closing price of the common stock on a quoted market. These warrants also have dilution protection in certain instances.

 
●
Warrants to purchase 1,118,000 shares of common stock at a purchase price of $2.50 per shares were issued to new qualified investors in series B units as disclosed in note 9 above. These warrants have a seven-year term and are exercisable at the option of the holder. These warrants may be exercised for shares of common stock in lieu of cash by applying the number of warrants to the formula whereby the exercise price of the warrants is deducted from the closing price of the common stock on a quoted market divided by the closing price of the common stock on a quoted market. These warrants also have dilution protection in certain instances.
 
 
 
●
Warrants to purchase 286,800 shares of common stock at a purchase price of $2.75 per share and a further 40,000 warrants to purchase shares of common stock at $0.01 per share were issued to the placement agent as placement agent fees and advisory fees. These warrants have a seven-year term and are exercisable at the option of the holder. These warrants may be exercised for shares of common stock in lieu of cash by applying the number of warrants to the formula whereby the exercise price of the warrants is deducted from the closing price of the common stock on a quoted market divided by the closing price of the common stock on a quoted market. These warrants also have dilution protection in certain instances.
 
In terms of Bridge Note agreements entered into with certain principals during the years ended December 31, 2013 and 2012, warrants for the purchase of 300,000 shares of common stock at an exercise price of $3.00 per share were issued to Bridge Note holders in conjunction with the Bridge notes disclosed in note 9 above. These warrants have a five-year term and are exercisable at the option of the holder. These warrants may be exercised for shares of common stock in lieu of cash by applying the number of warrants to the formula whereby the exercise price of the warrants is deducted from the closing price of the common stock on a quoted market divided by the closing price of the common stock on a quoted market. These warrants also have dilution protection in certain instances.

During the year ended December 31, 2012 warrants for the purchase of 10,088 shares of common stock at an exercise price of $5.70 per share were issued to investors in conjunction with the issuance of 10,088 shares of Series A Stock. These warrants have a five-year term and are exercisable at the option of the holder.
 
 
F-24
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
14. 
WARRANTS (continued)

The fair value of these warrants was determined using the Black-Scholes valuation model. The following assumptions were used:
 
   
Year ended
December 31,
2013
   
Year ended
December 31,
2012
 
             
Calculated stock price
 
$1.13- $1.27
   
$0.55
 
Risk-free interest rate
 
0.02% to 0.07%
   
0.01% to 0.15%
 
Expected life of warrants
 
5 - 7 Years
   
5 Years
 
Expected volatility of the underlying stock
 
69% - 164%
   
157%
 
Expected dividend rate
 
0%
   
0%
 

A fair market value of $1,745,837, determined using the Black-Scholes valuation model with the assumptions listed above, for the 1,271,664 warrants issued in conjunction with the Series B Stock offering and the 326,800 warrants issued as placement agent and advisory fees for that offering, was recorded as a deemed preferred stock dividend during the year ended December 31, 2013.

The additional 300,000 warrants issued during the years ended December 31, 2013 and 2012 in conjunction with the Bridge notes were valued using the Black-Scholes model with the assumptions listed above and a discount of $100,693 and $17,539, respectively was applied to the Bridge Notes and has been fully amortized, see note 9 above.

A fair market value for the 10,088 warrants issued in conjunction with the Series A Stock of $2,857 was recorded as a deemed preferred stock dividend during the 2012 year.
 
The following table summarizes warrants outstanding and exercisable as of December 31, 2013:
 
   
Warrants Outstanding
   
Warrants Exercisable
 
Exercise Price
 
Number of
shares
 
  Weighted
average
remaining
contractual
years
   
Weighted Average
Exercise Price
   
Number of
Shares
   
Weighted Average
exercise Price
 
                                       
$
0.01
 
40,000
   
6.50
             
40,000
         
$
2.00
 
15,000
   
2.84
             
15,000
         
$
2.50
 
1,271,664
   
6.33
             
1,271,664
         
$
2.75
 
286,800
   
6.50
             
286,800
         
$
3.00
 
300,000
   
4.10
             
300,000
         
$
5.70
 
384,407
   
2.44
             
384,407
         
                                       
     
2,297,871
   
5.39
   
$
3.09
     
2,297,871
   
$
3.09
 

 
F-25
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. 
STOCK BASED COMPENSATION

In October 2005, the Company's Board of Directors adopted the Caldera Pharmaceuticals, Inc. 2005 Stock Option Plan (the "Plan"), which permits awards of incentive and nonqualified stock options and other forms of incentive compensation to employees and non-employees such as directors and consultants. The Board has set aside 3,000,000 shares of common stock for issuance upon exercise of grants made under the Plan. Options granted under the Plan vest either immediately or over a period of up to two years, and expire 1 year to 10 years from the grant date. At December 31, 2013, 1,349,571 shares were available for future grant under the Incentive Plan.
 
Stock option based compensation expense totaled $660,468 and $45,769 for the years ended December 31, 2013 and 2012, respectively. The Company expenses the value of stock options on a straight line basis over the life of the options. The fair value of the options granted is determined using the Black-Scholes option-pricing model.

The following weighted average assumptions were used:

   
Year ended
December 31,
2013
   
Year ended
December 31,
2012
 
             
Calculated stock price
  $1.13 to $1.27     $0.55  
Risk-free interest rate
 
0.02% to 0.07%
   
0.01% to 0.15%
 
Expected life of options
 
5 Years
   
5 Years
 
Expected volatility of the underlying stock
  69% - 164%     128%  
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 1 to 10 years. The volatility of the common stock is estimated using historical data of companies similar in size and in the same industry as Caldera Pharmaceuticals.  The risk-free interest rate used in the Black-Scholes option-pricing model is determined by reference to historical U.S. Treasury constant maturity rates with 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. As of December 31, 2013, the Company does not anticipate any awards will be forfeited in the calculation of compensation expense due to the limited number of employees that receive stock option grants.

No options were exercised for the years ended December 31, 2013 and 2012.

We canceled options exercisable for 40,625 and 59,291 shares of common stock for the years ended December 31, 2013 and 2012, 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, 2013 and 2012, all awards granted under the Plan were incentive stock options. A summary of all of our option activity during the period January 1, 2012 to December 31, 2013 is as follows:
 
   
 
Shares
   
Exercise
price per
share
   
Weighted
average
exercise price
 
                   
Outstanding January 1, 2012
   
518,445
   
$
2.00 - 5.71
   
$
3.54
 
Granted
   
47,000
     
0.20 - 5.71
     
1.97
 
Forfeited/Cancelled
   
(59,291
)
   
1.10 - 5.71
     
5.71
 
Exercised
   
-
     
-
     
-
 
Outstanding December 31, 2012
   
506,154
   
$
0.20 - 5.71
   
$
3.14
 
Granted
   
1,184,900
     
1.50 – 5.71
     
2.00
 
Forfeited/Cancelled
   
(40,625
)
   
2.00 -5.71
     
4.09
 
Exercised
   
-
     
-
     
-
 
Outstanding December 31, 2013
   
1,650,429
   
$
0.20 - 5.71
   
$
2.31
 
 
Stock options outstanding as of December 31, 2013 and 2012, as disclosed in the above table, have an intrinsic value of $33,325 and $0, respectively.
 
 
F-26
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
15.
STOCK BASED COMPENSATION (continued)
 
The following tables summarize information about stock options outstanding as of December 31, 2013:
 
       
Options Outstanding
   
Options Exercisable
 
Exercise Price    
Number of
shares
 
Weighted average
remaining
contractual years
   
Weighted Average
Exercise Price
   
Number of
Shares
   
Weighted Average
exercise Price
 
$
0.20
   
30,000
   
8.33
             
30,000
         
$
1.10
   
220,000
   
7.17
             
220,000
         
$
1.50
   
625,000
   
9.21
             
468,756
         
$
2.00
   
15,000
   
1.87
             
15,000
         
$
2.50
   
544,900
   
6.57
             
87,483
         
$
5.71
   
215,529
   
4.93
             
215,529
         
                                         
       
1,650,429
   
7.42
   
$
2.31
     
1,036,768
   
$
2.34
 
 
The weighted-average grant-date fair values of options granted during the year ended December 31, 2013 and  2012, respectively was $1,296,119 ($1.09 per option) and $17,068 ($0.46 per option), respectively. As of December 31, 2013 there were unvested options to purchase 613,661 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is $628,426, which is expected to be recognized over a period of 40 months.

16. 
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, 2013 and 2012 all stock options, warrants and convertible preferred stock 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,
2013
(Shares)
   
Year ended
December 31,
2012
(Shares)
 
             
Options to purchase shares of common stock
   
1,650,429
     
479,154
 
Series A convertible, redeemable preferred stock
   
105,000
     
341,607
 
Series B convertible preferred stock
   
2,133,947
     
-
 
Warrants
   
2,297,871
     
549,407
 
     
6,187,247
     
1,370,168
 

 
F-27
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
17.
RELATED PARTY TRANSACTIONS
 
The majority of the common shares in the Company are owned by Dr. Benjamin Warner, the Chief Scientific Officer. As of December 31, 2013 and 2012, respectively, Dr. Benjamin Warner owned 76.0% and 74.1%, respectively of the issued and outstanding shares of common stock on an un-diluted basis.

Effective March 15, 2013 the Company entered into a five year employment agreement with Dr. Warner to continue to serve as the Company’s Chief Executive Officer (“CEO”) and President (the “Employment Agreement”). The Employment Agreement replaces his prior agreement.  Pursuant to the Employment Agreement, Dr. Warner will be entitled to an annual base salary of $250,000 and will be eligible for discretionary performance and transactional bonus payments as well as certain other specified benefits. Additionally, Dr. Warner was granted options to purchase 185,000 shares of the Company’s common stock with an exercise price equal to $1.50 per share. These options will vest pro rata, on a monthly basis over twelve months, with 15,417 vesting each month commencing April 1, 2013. The Employment Agreement also includes confidentiality obligations and inventions assignments by Dr. Warner.
 
Effective April 30, 2013, Dr. Benjamin Warner entered into an Exchange Agreement whereby 25,035 shares of Series A Stock and accrued and unpaid dividends up until April 30, 2013 of $15,300 were converted into 63,201 shares of Series B Stock, see note 12 above.
 
On December 18, 2012 and March 28, 2013, the Company entered into 10% Bridge Note (the “Bridge Notes”) agreements with Vincent Palmieri, a director, for $50,000 and $25,000 respectively. The Bridge Notes were issued as part of a unit that includes warrants to purchase 600 shares of the Company’s common stock for each $1,000 of Bridge Note principal, at an exercise price of $3.00 per share, giving Mr. Palmieri a total of 45,000 warrants, see note 14 above. These Bridge notes, together with accrued interest thereon were converted into 30,737 Series B Preferred units at a conversion price of $2.50 per unit, each unit consisting of one share of Series B preferred stock and one seven-year warrant exercisable at a price of $2.50 per share, which price is subject to anti-dilution protection, see note 12 and 14 above.

Mr. Palmieri also received an additional 63,788 warrants exercisable at $2.75 per share and an additional 10,000 warrants exercisable at $0.01 per share, which were issued to the placement agent as placement agent fees and advisory fees. These warrants have a seven-year term and are exercisable at the option of the holder.  See note 14 above.

On December 18, 2012, the Company entered into a 10% Bridge Note (the “Bridge Notes”) agreement with Michael Taglich, a director, for $100,000. The Bridge Notes were issued as part of a unit that includes warrants to purchase 600 shares of the Company’s common stock for each $1,000 of Bridge Note principal, at an exercise price of $3.00 per share, giving Mr. Taglich a total of 60,000 warrants, see note 14 above. These Bridge notes, together with accrued interest thereon were converted into 41,354 Series B Preferred units at a conversion price of $2.50 per unit, each unit consisting of one share of Series B preferred stock and one seven-year warrant exercisable at a price of $2.50 per share, which price is subject to anti-dilution protection, see note 12 and 14 above.

Mr. Taglich also received an additional 67,857 warrants exercisable at $2.75 per share and an additional 12,500 warrants exercisable at $0.01 per share, which were issued to the placement agent as placement agent fees and advisory fees. These warrants have a seven-year term and are exercisable at the option of the holder.  See note 14 above.

On March 25, 2013, the Company entered into a 10% Bridge Note (the “Bridge Notes”) agreement with Clive Kabatznik, a director, for $50,000. The Bridge Notes were issued as part of a unit that includes warrants to purchase 600 shares of the Company’s common stock for each $1,000 of Bridge Note principal, at an exercise price of $3.00 per share, giving Mr. Kabatznik a total of 30,000 warrants, see note 14 above. These Bridge notes, together with accrued interest thereon were redeemed by the Company on May 31, 2013. In addition to this, options to purchase 150,000 shares of our common stock at $1.50 per share were issued to First South Africa Management, of which Mr. Kabatznik is the managing member.

During July 2013, a new CEO and President of the Company was appointed, and Dr. Benjamin Warner relinquished his position as CEO and President and accepted the appointment as Chief Scientific Officer. The terms of his Employment Agreement remain unchanged.

During July 2013, the Company entered into an employment agreement to appoint Mr. Gary Altman as the Chief Executive Officer and President of the Company. The employment agreement is for a term of four years, pursuant to which Mr. Altman will be entitled to an annual base salary of $300,000, increasing to $325,000 on the first anniversary of the employment agreement and will also entitle Mr. Altman to discretionary performance and transactional bonus payments as well as certain other specified benefits. Additionally, Mr. Altman was granted options to purchase 514,900 shares of the Company’s common stock at an exercise price of $2.50 per share. These options will vest as to 64,360 six months after May 1, 2013 and the remaining options will vest equally over the following forty-two month period. The Employment Agreement also includes confidentiality obligations and inventions assignments by Mr. Altman.
 
 
F-28
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

18. 
OPERATING LEASES

The Company entered into a laboratory and office lease agreement for 2,813 square feet in Cambridge, Massachusetts effective June 1, 2013. The term of the lease is for a twelve month period terminating on May 31, 2014. The monthly rental amounts to $15,118. Rental expense for the year ended December 31, 2013 amounted to $109,148.

The Company entered into a corporate apartment lease agreement in Cambridge, Massachusetts effective June 4, 2013. The term of the lease is for a twelve month period terminating on June 3, 2014. The monthly rental amounts to $3,325. Rental expense for the year ended December 31, 2013 amounted to $24,218.
 
The Company extended its existing office lease in New Mexico effective November 1, 2010. The monthly rent amounts to $5,075 per month and the lease terminated in October 2013. This lease is now ongoing as a month to month lease. Rental expense for the year ended December 31, 2013 and 2012 was $60,904 and $63,609, respectively.

Subsequent to year end, on February 4, 2014, the Company entered into a second corporate apartment lease in Cambridge Massachusetts. The term of the lease is for fourteen months, terminating on April 30, 2015. The monthly rental amounts to $2,897.

Future annual minimum payments required under operating lease obligations at December 31, 2013, are as follows:

   
Amount
 
       
2014
 
$
124,081
 
2015
   
8,691
 
   
$
132,772
 
 
19.
LITIGATION
 
Suit against the Regents of the University of California, Los Alamos National Security, et al.
 
The Company filed suit against the Regents of the University of California (the “Regents”) and Los Alamos National Security LLC (“LANS”) in California Superior Court in San Francisco in December 2007. This suit alleges (i) breach of contract and (ii) fraud in connection with an exclusive Patent Licensing Agreement (the “Agreement”) originally entered into between the Company and the Regents in September 2005, and assigned to LANS in April 2006. The Company alleges 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 alleges that the Regents and LANS improperly competed with the Company in violation of the exclusivity provision of the Agreement.  The Company is seeking relief for compensatory damages potentially in excess of $600 million, as well as exemplary and punitive damages, interest, and costs. This suit was dismissed for reason of lack of subject matter jurisdiction by the California Superior Court in 2010.  On April 24, 2012, the trial Court’s dismissal for lack of subject matter jurisdiction was reversed in full by the California Court of Appeal. The defendants unsuccessfully attempted to appeal this decisions to the California Supreme Court and, subsequently, to the Supreme Court of the United States. On February 25, 2013, the Supreme Court denied defendants’ petition for certiorari and the matter was remitted to California Superior Court.  On March 22, 2013, The Regents and LANS moved to re-file certain counterclaims against the Company and Benjamin Warner that had been dismissed voluntarily without prejudice after the matter was dismissed for lack of subject matter jurisdiction in 2010.   The motion was granted in May 2013 and, shortly thereafter, the Regents and LANS filed cross- and counter-claims against the Company and Dr. Warner.  The Company believes these counterclaims to be wholly without merit, and intends to vigorously defend against them.  No assurance can be given as to the ultimate outcome of these actions or their effect on the Company.  If the Company is not successful in its defense of these counterclaims it would have a material adverse effect on the pending litigation, the Company and its operations. On August 5, 2013, the Company filed a demurrer against certain of the causes of action against the Company. Dr. Warner filed a motion to quash service for a lack of personal jurisdiction. The court set a trial date for July 14, 2014. Merits discovery in the California matter has re-commenced.
 
In October 2010, the Company filed suit against 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; and (iv) conspiracy and other related claims in connection with the September 2005 Agreement that was assigned to LANS in April 2006.  The Company alleges 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 alleges that LANS and other co-defendants improperly competed with the Company.  The Company is seeking relief including compensatory damages in excess of $600 million, as well as exemplary and punitive damages, interest, and costs.  In January 2012, this case was ordered to be transferred to Federal Court in New Mexico.  In February 2012, the case was transferred to Federal Court in New Mexico.  On May 4, 2012 LANS filed counterclaims in New Mexico Federal Court against the Company and Dr. Warner making various claims of ownership to the Company’s existing intellectual property and seeking unspecified damages.  The Company believes these counterclaims to be wholly without merit, and intends to vigorously defend against them.  No assurance can be given as to the ultimate outcome of these actions or their effect on the Company.  If the Company is not successful in its defense of these counterclaims it would have a material adverse effect on the pending litigation, the Company and its operations.  This matter is currently stayed. After the Regents and LANS exhausted their appeal in the California action, and the California action was remitted to California state court, on July 24, 2013, the Company moved to have the New Mexico district court action, including cross- and counter-claims, dismissed for lack of subject matter. The court has not yet ruled on the Company’s motion.

 
F-29
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
19.
LITIGATION (continued)

Suit against The Regents of the University of California, Los Alamos National Security, et al. (continued)
 
In September 2011, the Company filed suit against the Regents and LANS in the Circuit Court of Cook County, Illinois (“Cook County Action”).   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 the September 2005 Agreement with the Regents assigned to LANS in April 2006.  The Company alleges 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 also alleges that the Regents and LANS improperly competed with the Company in violation of the exclusivity provision of the Agreement.  The Company is seeking relief for compensatory damages in excess of $600 million, as well as exemplary and punitive damage, interest, and costs. LANS removed the case to the United States District Court for the Northern District of Illinois Eastern Division, Case # 11-CV-07259.  In March 2012, the Company filed a motion to remand the case to the Circuit Court of Cook County, and on May 11, 2012 the case was remanded to the Circuit Court of Cook County.  The Company then amended the complaint in October 2012 to include claims against UChicago Argonne and Liaohai Chen, a manager and scientist at Argonne, for intentional interference with contractual relations and related claims.  The Company also added conspiracy claims against all defendants.  Argonne removed the case to United States District Court for the Northern District of Illinois Eastern Division on October 22, 2012.  The Company moved to remand the action back to the Circuit Court of Cook County and on February 1, 2013, the matter was remanded.  On April 24, 2013, the Company filed a Second Amended Complaint alleging essentially the same causes of action.  After the Regents and LANS exhausted their appeal in the California action, and the California action was remitted to California state court, the Company moved to have the Cook County matter dismissed. On July 26, 2013, the court entered an order dismissing the action, in its entirety, without prejudice.
 
On March 6, 2014, the Company and Dr. Benjamin Warner entered into a confidential settlement  agreement with Los Alamos National Security LLC (“LANS”), The Regents of the University of California, the UChicago Argonne, LLC and certain individuals (“the Parties”) relating to the following:
 
(i)
a lawsuit, Caldera Pharmaceuticals, Inc. v. The Regents of the University of California, et al. , Case No. CGC-07-470554, brought in the Superior Court of the State of California, County of San Francisco;
(ii)
a lawsuit, Caldera Pharmaceuticals, Inc. v. Los Alamos National Security, LLC, et al. , Case No. 1:10-cv-06347, brought in the United States District Court for the District of New Mexico; and
(iii)
a lawsuit, Caldera Pharmaceuticals, Inc. v. The Regents of the University of California, et al. , Case No. 2011-L-9329, brought in the Circuit Court of Cook County, Illinois, County Department – Law Division and dismissed without prejudice on or about July 26, 2013 (collectively the “ Actions ”).
 
The agreement called for the Parties to:
 
(i)
mutually release each other from all existing, past, present or future claims, counter-claims, demands and causes of action;
(ii)
amend the Company’s license agreement with Los Alamos National Security LLC, to include rights to certain issued and pending patents;
(iii)
return of 157,500 shares of the Company’s Common stock; and
(iv)
pay the Company $7,000,000, which resulted in a net cash settlement of approximately $5,852,000 after the deduction of legal expenses.
 
On July 5, 2013, the Company entered into a fee agreement with Dentons US LLP (“Dentons”), our previous legal counsel, which called for a payment of 50% of any settlement up to $6 million and 5% thereafter.  The agreement also called for Dentons to cooperate with the Company by making its partners and/or employees available to furnish information or reasonable assistance in connection with any future disqualification proceedings, as reasonably requested by the Company. Subsequent to signing the agreement the Company determined that Dentons had egregiously breached this cooperation clause.  As a result, the Company has suffered significant harm.  The Company further believes that due to Dentons breach of its contract with the Company, Dentons is not owed any amount under the breached agreement and the Company is also considering its legal remedies in regard to the harm it has suffered.
 
There is no certainty as to how Dentons will respond to the Company's claims or to the ultimate amount that the Company may collect from or have to pay to Dentons.
 
The proceeds received of $7,000,000 and any additional proceeds we may receive or any additional expenditure incurred on this matter will be recognized as income or expense in future periods. No liability to Dentons has been recorded by the Company.
 
Joel Bellows Suit
 
In February 2013 a settlement agreement was entered into between the Company, Joel Bellows and Peter Baltrus, with respect to two of three unresolved lawsuits, which required the exchange of 105,000 common shares for 105,000 shares of Series A Stock or Series B Stock and a cash payment of $240,000, together with interest thereon at 6% per annum, over a three-year period.  An accrual of $257,972 had been recorded to deal with this matter as of December 31, 2012. A further legal settlement expense of $115,273 was recorded to reflect the fair market value of the Series A Stock issued to Mr. Bellows during the year ended December 31, 2013.
 
On April 30, 2013, the lawsuits were dismissed, with prejudice.  In terms of the settlement agreement above, the Company paid the first cash installment of $80,000 during March 2013 and on May 20, 2013, issued 105,000 shares of Series A Stock to Joel Bellows, in exchange for his 105,000 common shares. The Company and Dr. Benjamin Warner have filed post-settlement motions for the Judge in the matter to reconsider his May 16, 2013 ruling wherein the Company and Dr Benjamin Warner were compelled to comply with a disputed version of the settlement agreement which entitled Bellows to a prejudicial conversion formula of his Series A Stock into Series B Stock which is contrary to our settlement intentions. The motion was heard on September 25, 2013 and denied. On October 24, 2013, the Company and Dr. Benjamin Warner filed a notice of appeal.
 
On October 4, 2013, the remaining unresolved lawsuit was dismissed with prejudice and a settlement agreement was entered into. In terms of the settlement agreement, the Company received a net cash settlement of $30,000.
 
 
F-30
 
 
CALDERA PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
20. 
SUBSEQUENT EVENTS
 
On March 6, 2014, the Company and Dr. Benjamin Warner entered into a confidential settlement  agreement with Los Alamos National Security LLC (“LANS”), The Regents of the University of California, the UChicago Argonne, LLC and certain individuals (“the Parties”) fully disclosed under note 19 above.
 
On March 31, 2014, the Company settled the outstanding balance owing on the Bellows legal settlement for a cash payment of $167,616.

On April 11, 2014, the Company settled the outstanding balance of the Los Alamos National Bank term loan, inclusive of interest thereon for a total consideration of $227,717. There are no further obligations under this term loan and Dr. Benjamin Warner and his wife have been released from their guarantee.
 
Other than disclosed above, the Company has evaluated subsequent events through the date the consolidated financial statements were issued, and has concluded that no such events or transactions took place that would require disclosure herein.
 
 
F-31
 
 
Changes In and Discussions with Accountants on Accounting and Financial Disclosures
 
None.
 
Controls and Procedures
 
Disclosure Controls and Procedures
 
The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Form 10-K, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, the Company’s management, including the Chief Executive Officer and the Company’s Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that due to a lack of segregation of duties that the Company’s disclosure controls and procedures are ineffective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Subject to receipt of additional financing or revenue generated from operations, the Company intends to retain additional individuals to remedy the ineffective controls.
 
Management’s Report on Internal Control over Financial Reporting
 
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.  Management conducted an assessment of the Company’s internal control over financial reporting based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (“COSO”).  The COSO framework requires rigid adherence to control principles that require sufficient and adequately trained personnel to operate the control system.   The Company has insufficient accounting personnel for it to be able to segregate duties as required by COSO or to maintain all reference material required to ensure Company personnel are properly advised or trained to operate the control system.  Based on the assessment, management concluded that, as of December 31, 2013, the Company’s internal control over financial reporting is ineffective based on those criteria.
 
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures and its internal control processes will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that the breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
 
Changes in Internal Control
 
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our year ended December 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
 
Other Information
 
None.
 
 
30
 
 
 
Directors, Executive Officers and Corporate Governance
 
Below is certain information regarding our current directors and executive officers.
 
Name
 
Age
 
Position
Gary Altman
 
67
 
President, Chief Executive Officer and director , member of the compensation committee
Dr. Benjamin Warner
 
45
 
Chief Scientific Officer, member of nominating committee and director
Mark Korb
  46  
Chief Financial Officer
Edward Roffman
 
64
 
Director, chairman of the audit committee
Clive Kabatznik
 
56
 
Director, member of audit committee
Vincent Palmieri
 
42
 
Director, chairman of the compensation committee, member of audit committee
Michael Taglich
 
48
 
Director, chairman of the nominating committee
Timothy C Tyson
 
61
 
Director, Non-Executive Chairman of the Board, member of the compensation committee, member of the nominating committee
 
Gary Altman
 
Gary Altman has been a director since July 25, 2013 and has served as our Chief Executive Officer and President since that date.  From May 2013 until July 25, 2013, Mr. Altman served as a consultant to our company. 
 
Mr. Altman has a background in leading public and private technical businesses in drug discovery and in vitro diagnostics. Since April 2001, Mr. Altman has served as the managing director of G. Altman & Associates, LLC, a pharmaceutical company consulting firm.  From 2008 until 2011, Mr. Altman held various positions at Beckman Coulter, including Vice President Global Strategy, Market & Business Development.  He successfully led a $200 Million global business at Beckman Coulter as VP of Global Strategy, Market & Business Development for the $1 Billion Coulter business unit of Beckman Coulter until its acquisition by Danaher.  In addition, Gary was co-founder of Sequoia Pharmaceuticals of Gaithersburg, MD. 
 
Mr. Altman’s experience, specifically with pharmaceutical companies, we believe provide him with the attributes that make him a valuable member of the Company’s Board of Directors. His service on other public company board’s we believe brings to us important knowledge regarding corporate governance.
 
Dr. Benjamin Warner
 
Dr. Warner currently serves as our Chief Scientific Officer and since our incorporation in 2003 until July 2013; Dr. Warner served as our President, Chief Executive Officer, Treasurer and Chief Financial Officer and was our Chairman of the Board until April 1, 2014. 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.
 
 
31
 
 
Effective March 15, 2013 the Company entered into a five year employment agreement with Dr. Warner to continue to serve as the Company’s Chief Executive Officer (“CEO”) and President (the “Employment Agreement”). The Employment Agreement replaces his prior agreement.  Pursuant to the Employment Agreement, Dr. Warner is entitled to an annual base salary of $250,000 and will be eligible for discretionary performance and transactional bonus payments as well as certain other specified benefits. Additionally, Dr. Warner was granted options to purchase 185,000 shares of the Company’s common stock with an exercise price equal to $1.50 per share. These options will vest pro rata, on a monthly basis over twelve months, with 15,417 vesting each month commencing April 1, 2013. The Employment Agreement also includes confidentiality obligations and inventions assignments by Dr. Warner.
 
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.
 
Mark Korb

Mark Korb has served as our Chief Financial Officer since August 14, 2013.  Mr. Korb has over 20-years experience with high-growth companies and experience taking startup operations to the next level.  Since July 2011, First South Africa Management, a company for which Mr. Korb has served as the Chief Financial Officer since January 2010 has been providing consulting services to us, including the financial expertise required of public companies. First South Africa Management provides financial management and strategic management services to various companies.

From 2007 to 2009 Mr. Korb was the group chief financial officer and director of Foodcorp (Proprietary) Limited (“Fodcorp”), a multimillion dollar consumer goods company based in South Africa. In his role as chief financial officer, Mr. Korb delivered operational and strategic leadership for the full group financial function during a period of change including mergers, acquisitions and organic growth. As a board director he cultivated relationships with shareholders, bond holders, financial institutions, rating agencies, and auditors. Mr. Korb was also responsible for leading the group IT strategy and implementation and supervised 16 direct reports including 10 divisional financial directors.  From 2001 to 2007 Mr. Korb was the group Chief Financial Officer of First Lifestyle, initially a publicly traded company on the Johannesburg Stock Exchange in South Africa which was then purchased by management which included Mr. Korb. He anchored the full group financial function with responsibility for mergers and acquisitions activity, successfully leading the process whereby the Company was sold to Foodcorp mentioned above. Upon completion of the merger, Mr. Korb was appointed as the group Chief Financial Officer of Foodcorp.
 
Ed Roffman
 
Mr. Roffman has been a director since December 2011. Since April 2006, Mr. Roffman has consulted with various early stage high technology companies. During this time, consulting projects have included the part-time Chief Financial Officer of Emerge Digital, Inc. (since January 2012) (Emerge Digital is in the online video advertising business), the part-time Chief Financial Officer of Public Media Works, Inc. (October 2010 to October 2011) (Public Media Works was in the video rental business) and from January 2008 to December 2009, Mr. Roffman was the part-time Chief Financial Officer of Cryptic Studios, a developer of massively multiplayer video games.  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 were 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. 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 Andalay Solar, Inc., (formerly Westinghouse Solar), a designer and distributor of solar modules (OTCQB).  Mr. Roffman is a CPA with over 40 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.

 
32
 
 
Clive Kabatznik

Mr. Kabatznik, age 56, currently serves as the President of First South Africa Management, a company that he founded that has been engaged in management consultancy services since January 2006. From 2005 until the present, Mr. Kabatznik has served as a director of Strategy First, Inc.; a Montreal based digital publisher and distributor of video games. From 2009 until 2010, he was the operating manager of New Bedford Media LLC, a company he co-founded which focuses on the acquisition and operation of digital media companies. Mr. Kabatznik also currently serves as a member of the board of directors of Code and Theory LLC, a New York based digital advertising company focusing on strategic brand building campaigns in the consumer goods, fashion and publishing industries. From 1995 until 2009, he served as Chief Executive Officer of Silverstar Holdings, a United States publicly listed company that he founded that was established to acquire, own and operate companies, with an emphasis on businesses which stand to benefit from new Internet and technology-based platforms. Prior to 1995, Mr. Kabatznik was engaged in investment banking. Mr. Kabatznik has served as President of Colonial Capital, Inc., a Miami-based investment banking company that specializes in advising middle market companies in areas concerning mergers, acquisitions, private and public agency funding and debt placements.

Mr. Kabatznik’s business experience with small public companies, his achievements in the financial industry and his overall business understanding make him a desirable board candidate.

Vincent Palmieri

Mr. Palmieri, age 42, is a Vice President of Taglich Brothers, Inc. and specializes in sourcing, evaluating, and executing new investments as well as monitoring existing investments in small public and private companies. Mr. Palmieri received a Bachelor of Science in Accounting from the Pennsylvania State University and an MBA from the Stern School of Business at New York University. Mr. Palmieri’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.

Michael Taglich

Mr. Taglich, age 48, is Chairman of the Board and President of Taglich Brothers, Inc., a New York City based securities firm. From 1987 to 1992, Mr. Taglich served as a Vice President at Weatherly Securities. He brings a broad depth and breadth of capital and business background to the Board of Directors of the Company, with extensive experience in exit strategies. Mr. Taglich is also currently Chairman of the Board of SCOLR Pharma Inc, a publicly traded pharmaceutical company, and Air Industries, Inc., a manufacturer of precision aerospace components. He also serves as a Director of Autonet Mobile, Inc. Mr. Taglich holds a B.S. degree in General and International Business from New York University and holds Series 27 and Series 7 security licenses. Mr. Taglich’s capital and business background, his overall business understanding, as well as his familiarity and his service on public company boards provide him with the knowledge regarding public companies and corporate governance issues that public companies face make him an attractive board candidate.

Timothy C Tyson

Mr. Tyson has served as our Non-Executive Chairman of the Board since April 1, 2014 and has been a director since October 1, 2012.   Since 2008, Mr. Tyson has served as the Chairman of the Board of Directors of Aptuit LLC, a global, private equity owned, pharmaceutical services company, headquartered in Greenwich, CT and he served as the Chief Executive Officer of Aptuit LLC from 2008 until March 2012.  Mr. Tyson served as President and CEO of Valeant Pharmaceuticals International from 2003-2008. Prior to joining Valeant, Mr. Tyson ran multiple divisions for GlaxoSmithKline (“GSK”) and was a member of the Corporate Executive Team, reporting to the CEO. During his 14-year tenure at GSK, he was President, Global Manufacturing and Supply and ran Glaxo Dermatology and Cerenex Pharmaceuticals. Mr. Tyson was also responsible for managing all sales and marketing for GlaxoWellcome's U.S. operations, where he launched 32 new products, eight of which reached sales of greater than $1 billion. From 1980-1988, Mr. Tyson held executive positions in technical operations and R & D, at Bristol-Myers. Prior to his tenure at Bristol-Myers, he was an operations manager for Procter & Gamble. Mr. Tyson is a 1974 graduate of the United States Military Academy at West Point. While on active duty at Ft. McClellan, AL, he earned a Masters of Public Administration, in 1976, and a Masters of Business Administration, in 1979, from Jacksonville State University. In 2002, Mr. Tyson received the Bicentennial Leadership Award from the United States Military Academy at West Point and was named 2007 Alumnus of the Year at Jacksonville State University.  He was inducted into the Six Sigma Hall of Fame in 2011 and was honored in 2012 at West Point by the Thayer Hotel Room Dedication program. He was recognized as a President's Club awardee for four years at GSK and his GSK organization was recognized as Marketer of the Year for two consecutive years by MedAdNews.

Mr. Tyson’s business experience in the pharmaceutical industry and his overall understanding of the industry in which we operate make him a desirable board candidate.
 
 
33
 
 
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.

Leadership Structure
 
We currently have two separate individuals serving as our Chairman of the Board and as our Chief Executive Officer and we do not have a formal policy on whether the same person should (or should not) serve as both the Chief Executive Officer and Chairman of the Board. Due to the size of our Company, we believe that this structure is appropriate in recognition of the time commitment and activities required to function effectively as a Chairman and as a Chief Executive Officer.  Mr. Tyson was appointed as our Non-Executive Chairman of the Board in April 2014. Mr. Altman has served as our Chief Executive Officer since July 2013. Our Board of Directors has determined that this leadership structure is appropriate and effective for the Company given its stage of operations. In serving as Non-Executive Chairman of the Board, Mr. Tyson serves as a significant resource for our Chief Executive Officer, other members of management and the Board of Directors. We believe that the division of duties and additional avenues of communication between the Board and management with Mr. Tyson serving as Non-Executive Chairman of the Board provides a basis for the proper functioning of our Board and oversight of management.
 
Our Board of Directors has several independent directors. We do not have a separate lead independent director. We believe the combination of Mr. Tyson as our Non-Executive Chairman of the Board and Mr. Altman as our Chief Executive Officer is an effective structure for us. Our current structure is operating effectively to foster productive, timely and efficient communication among the independent directors and management. We do have active participation in our committees by our independent directors, who comprise all of the members of all of our committees. Each committee performs an active role in overseeing our management and there are complete and open lines of communication with the management and independent director
 
Board Committees
 
We have recently appointed an audit committee, compensation committee and nominating committee, each comprised primarily of independent directors.

Audit Committee
 
The Audit Committee is comprised of Mr. Roffman, Mr. Palmieri and Mr. Kabatznik. The Audit Committee is responsible for recommending our independent public accounting firm and reviewing management’s actions in matters relating to audit functions. The Audit Committee reviews with our independent public accountants the scope and results of the audit engagement and the system of internal controls and procedures. The Audit Committee also reviews the effectiveness of procedures intended to prevent violations of laws. The Audit Committee also reviews, prior to publication, our reports on Form 10-K and Form 10-Q. Our Board has determined that all Audit Committee members are independent under applicable SEC regulations. Our Board of Directors has determined that both Mr. Roffman and Mr. Kabatznik qualify as “audit committee financial experts” as that term is used in Section 407 of Regulation S-K.
 
Compensation Committee
 
Our Compensation Committee consists of Mr. Tyson, Mr. Altman and Mr. Palmieri.  This committee performs several functions, including reviewing all forms of compensation provided to our executive officers, directors, consultants and employees, including stock compensation. Our Board has determined that two of the three Compensation Committee members are independent under applicable SEC regulations.
 
Nominating Committee
 
Our Nominating Committee consists of Mr. Taglich, Mr. Tyson and Dr. Warner. This committee performs several functions, including (i) considering and recommending to the Board of Directors, individuals for appointment or election as directors; (ii) recommending to the Board of Directors individuals for appointment to vacancies on any committee of the Board of Directors; (iii) recommending to the Board of Directors regarding any changes to the size of the Board of Directors or any committee.
 
 
34
 
 
Director Independence
 
Although our common stock is not listed on any national securities exchange, for purposes of independence we use the definition of independence applied by The NASDAQ Stock Market.  The Board has determined that Messrs. Roffman, Kabatznik, Palmieri, Taglich and Tyson are “independent” in accordance with such definition.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and persons who beneficially own more than 10 percent of a registered class of the Caldera Pharmaceuticals’ equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock.  Such officers, directors and persons are required by SEC regulation to furnish us with copies of all Section 16(a) forms that they file with the SEC.
 
Based solely on a review of the copies of such forms that were received by us, or written representations from certain reporting persons that no Form 5s were required for those persons, we are not aware of any failures to file reports or report transactions in a timely manner during the year ended December 31, 2013. 2013 other than a late filing of a Form 3 by Mark Korb and Timothy Tyson  upon each of their appointments, a late filing of a Form 4 by Dr. Warner for an option grant and stock exchange and a late filing by Messrs Taglich and Palmieri of a Form 4 with respect to the transfer of warrants.
 
Code of Ethics
 
We maintain a Code of Conduct which is applicable to all of our directors, officers and employees.  In addition, we have adopted a Code of Ethics for Financial Management which applies to our Chief Executive Officer, Chief Financial Officer, Treasurer and Controller. We will send a copy of the Code of Ethics, free of charge, upon our receipt of a written request therefor addressed to us at One Kendall Square, Suite B2002, Cambridge, Massachusetts attention: Gary Altman.
 
Executive Compensation
 
The following table sets forth all compensation awarded, earned or paid for services rendered by our principal executive officer, principal scientific officer and each executive officer whose compensation exceeded $100,000 during each of the fiscal years ended December 31, 2013 and 2012.

Summary Compensation Table

Name and Principal Position
 
Year
 
 
Salary
($)
 
 
Bonus
($)
 
 
Option Awards ($)
 
 
Non-Equity Incentive Plan Compensation
($)
 
 
Nonqualified
Deferred
Compensation
Earnings
($)
 
 
All Other Compensation
($) (1)(2)
 
 
Total
($)
 
Gary Altman,
President and Chief Executive Officer
 
2013
2012
     
150,000
-
     
-
-
     
522,853
-
     
-
-
     
-
-
     
48,577
-
     
721,430
-
 
                                                               
Dr. Benjamin Warner,
Chief Scientific Officer
 
2013
2012
 
 
 
239,521
207,125
 
 
 
50,000
-
 
 
 
217,799
-
 
 
 
-
-
 
 
 
-
-
 
 
 
20,065
18,164
 
 
 
527,385
225,288
 
                                                               
Mark Korb (3)
Chief Financial Officer
 
2013
2012
   
 
 
-
-
   
 
-
-
   
 
-
-
     
-
-
     
-
-
     
-
-
     
-
-
 
 
(1)
All other compensation for Gary Altman for the year ended December 31, 2013 includes, consulting fees earned prior to appointment as CEO of $46,402 and Medicare reimbursements of $2,175.

(2)
All other compensation for Dr. Benjamin Warner includes $12,880 for company contributed health care and $7,185 for company contributions to his 401(k) plan.
 
(3)
Mr. Korb is not compensated directly for his services as our CFO, however he is compensated by First South Africa Management(“FSAM”), Clive Kabatznik, one of our directors, is the managing member of FSAM,  which has a consulting agreement with the Company, the consulting agreement is for a monthly fee of $15,000 per month and expires in May 2015. In addition to this First South Africa Management was awarded options exercisable for 150,000 shares of our common stock on March 15, 2013. These options vest equally over a 12 month period.
 
Commencing April 1, 2014 Messrs. Palmieri, Roffman and Taglich will receive a cash payment of $25,000 per year for their services as committee chairs.  In addition, they were each issued an option exercisable for 20,000 shares of common stock at an exercise price of $2.50 per share vesting monthly on a pro rata basis over 36 months.  Mr. Tyson, receives a cash payment of $10,000 per month for his service as Non-Executive Chairman and was granted an option exercisable for 132,000 shares of our common stock at an exercise price of $2.50 per share vesting monthly on a pro rata basis over 36 months.   We also reimburse directors for travel and other out-of-pocket expenses incurred in attending Board of Director and committee meetings.
 
 
35
 
 
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, 2013.
 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (1)
 
 
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
(#)
 
Gary Altman
   
85,817
     
-
     
429,083
     
2.50
     
6/30/2020
     
-
     
-
     
-
     
-
 
Dr. Benjamin Warner
 
 
138,753
 
 
 
-
 
 
 
46,247
 
 
 
1.50
 
 
 
3/14/2023
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
(1)
Does not include options issued to First South Africa Management of which Mr. Korb is a member.
 
Employment Agreements
 
Effective March 15, 2013, the Company entered into a five year employment agreement with Dr. Warner to continue to serve as the Company’s Chief Executive Officer and President (the “Employment Agreement”). The Employment Agreement replaces his prior agreement.  Pursuant to the Employment Agreement, Dr. Warner will be entitled to an annual base salary of $250,000 and will be eligible for discretionary performance and transactional bonus payments as well as certain other specified benefits. Additionally, Dr. Warner was granted options to purchase 185,000 shares of the Company’s common stock with an exercise price equal to $1.50 per share. These options will vest pro rata, on a monthly basis over twelve months, with 15,417 vesting each month commencing April 1, 2013. The Employment Agreement also includes confidentiality obligations and inventions assignments by Dr. Warner.
 
If Dr. Warner’s employment is terminated for any reason, he or his estate as the case may be, will be entitled to receive the accrued base salary, vacation pay, expense reimbursement and any other entitlements accrued by him to the extent not previously paid (the “Accrued Obligations”);  provided ,  however , that if his employment is terminated: (1) by the Company without Just Cause (as defined in the Employment Agreement) or by Dr. Warner for Good Reason (as defined in the Employment Agreement) then in addition to paying the Accrued Obligations, (x) the Company shall continue to pay his then current base salary and continue to provide benefits at least equal to those which were provided at the time of termination for the longer of the remaining term of the Employment Agreement or one year and (y) he shall have the right to exercise any vested options until the earlier of the expiration of the severance or the expiration of the term of the option, or (2) by reason of his death, then in addition to paying the Accrued Obligations, he would have the right to exercise any vested options until the expiration of the term of the option.

During July 2013, a new CEO and President of the Company was appointed, and Dr. Benjamin Warner relinquished his position as CEO and President and accepted the appointment as Chief Scientific Officer. The terms of his Employment Agreement remain unchanged.

During July 2013, the Company entered into an employment agreement to appoint Mr. Gary Altman as the Chief Executive Officer and President of the Company. The employment agreement is for a term of four years, pursuant to which Mr. Altman will be entitled to an annual base salary of $300,000, increasing to $325,000 on the first anniversary of the employment agreement and will also entitle Mr. Altman to discretionary performance and transactional bonus payments as well as certain other specified benefits. Additionally, Mr. Altman was granted options to purchase 514,900 shares of the Company’s common stock at an exercise price of $2.50 per share. These options will vest as to 64,360 six months after May 1, 2013 and the remaining options will vest equally over the following forty-two month period. The Employment Agreement also includes confidentiality obligations and inventions assignments by Mr. Altman.

 
36
 
 
Compensation of Directors
 
The table below summarizes all compensation of our directors for the year ended December 31, 2013.
 
DIRECTOR COMPENSATION (1)
 
 
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
($)
 
Gary Altman
   
-
     
-
     
-
     
-
     
-
     
-
     
-
 
                                                         
Dr. Benjamin Warner
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Edward Roffman
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Clive Kabatznik (2)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
                                                         
Vincent Palmieri
   
-
     
-
     
-
     
-
     
-
     
-
     
-
 
                                                         
Michael Taglich
   
-
     
-
     
-
     
-
     
-
     
-
     
-
 
                                                         
Timothy Tyson (3)
   
6,250
     
-
     
13,972
     
-
     
-
       
-
   
20,222
 
 
(1) 
Does not include compensation received for services provided as executive officers.
 
(2)
Does not include 150,000 options issued to First South Africa Management, of which Mr. Kabatznik is the managing member.
 
(3)
Mr. Tyson was granted 20,000 options which vest equally over 36 months commencing on October 1, 2013.
 
Commencing April 1, 2014 Messrs. Palmieri, Roffman and Taglich will receive a cash payment of $25,000 per year for their services as committee chairs.  In addition, they were each issued an option exercisable for 20,000 shares of common stock at an exercise price of $2.50 per share vesting monthly on a pro rata basis over 36 months.  Mr. Tyson, receives a cash payment of $10,000 per month for his service as Non-Executive Chairman and was granted an option exercisable for 132,000 shares of our common stock at an exercise price of $2.50 per share vesting monthly on a pro rata basis over 36 months.   We also reimburse directors for travel and other out-of-pocket expenses incurred in attending Board of Director and committee meetings.
 
Equity Compensation Plan Information
 
The following table sets forth information about the securities authorized for issuance under our equity compensation plans for the fiscal year ended December 31, 2013.
 
Plan Category
 
Number of
Securities
to be Issued
Upon
Exercise of
Outstanding
 Options
 
 
Weighted-
Average
Exercise
Price of
Outstanding
Options
 
 
Number of
 Securities
Remaining
Available for
Future
Issuance
 Under
Equity
Compensation
Plans
 
Equity compensation plans approved by stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
2005 Stock Incentive Plan
 
 
 1,650,429
 
 
 $
 2.31
 
 
 
 1,349,571
 
Equity compensation plans not approved by stockholder
 
 
-
 
 
 
-
 
 
 
-
 
Total
 
 
1,650,429
 
 
$
2.31
 
 
 
1,349,571
 
 
 
37
 
 
Security Ownership of Certain Beneficial Owners
 
The following table sets forth information, as of May 15, 2014, or as otherwise set forth below, with respect to the beneficial ownership of our common stock, Series A Preferred Stock and Series B Preferred Stock: (i) all persons know to us to be the beneficial owners of more than 5% of the outstanding shares of our common stock, Series A Preferred Stock and Series B Preferred Stock; (ii) each of our directors and our executive officers named in the Summary Compensation Table; and (iii) all of our directors and our executive officer as a group. The address of each beneficial owner is One Kendall Square, Suite B2002, Cambridge, Massachusetts 02139.
 
SECURITY OWNERSHIP OF CERTAIN B ENEFICIAL OWNERS AND MANAGEMENT
 
Name and Address of
Beneficial Owner
 
Amount and Nature of Beneficial Ownership
Common Stock Included
     
Percentage of
Common Stock
Beneficially
Owned (1)
   
Percentage of
Total Voting Power (2)
 
Amount and Nature of Beneficial
Ownership of Series B
Preferred Stock
 
Percentage of Series B Preferred Stock Beneficially
Owned (3)
 
Gary Altman
 
150,179
(4
)
   
3.6
%
   
1.8
% 
-
   
-
 
Dr. Benjamin Warner
 
3,461,181
(5
)
   
80.2
%
   
40.9
% 
63,201
   
3
%
Edward Roffman
 
51,667
(6
)
   
1.3
%
   
0.6
% 
-
   
-
 
Clive Kabatznik
 
280,000
(7
)
   
6.6
%
   
3.3
% 
-
   
-
 
Vincent Palmieri
 
181,929
(8
)
   
4.3
%
   
2.5
% 
30,737
   
1.4
%
Michael Taglich
 
384,732
(9
)
   
8.7
%
   
5.8
% 
121,354
   
5.7
%
Timothy Tyson
 
21,501
 (10
)
   
0.5
%
   
0.3
% 
-
   
-
 
First South Africa Management
 
250,000
(11
)
   
6.0
%
   
2.9
% 
-
   
-
 
Joseph W and Patricia G Family Trust
 
271,604
(12
)
   
6.4
%
   
5.0
% 
155,014
   
7.3
%
Joseph Abrams
 
376,604
(13
)
   
8.7
%
   
6.2
% 
155,014
   
7.3
%
Joel J Bellows
 
105,000
(14
)
   
2.5
%
   
1.2
%
-
   
-
 
Officers and directors as a group (7 persons)
 
4,531,188
       
87.7
%
   
50.7
% 
215,292
   
10.1
%
 
(1)
Based on 4,039,770 shares of Common Stock outstanding as of May 15, 2014. Each Series B Share has the right to two votes per share and will vote together with the Common Shares.   The percentage ownership reflects the greater voting power of the Series B Shares.
(2)
Based on the voting rights attached to each class of shares, which vote as a single class together with common shareholders. Each share of Common Stock and each share of Series A Preferred Stock (“Series A Shares”) exercise one vote per share outstanding; each share of Series B Preferred Stock exercises two votes per share for each share of Series B Preferred Stock outstanding.
(3)
Based on 2,133,947 shares of Series B Preferred Stock (“Series B Shares”) outstanding as of May 15, 2014. Each Series B Share is entitled to two votes.
(4)
On July 1, 2013, Mr. Altman was issued options exercisable for 514,900 Common Shares of the Company of which 128,725 are vested and 21,454 will vest in the next sixty days.
(5)
The share ownership includes 3,187,945 Common Shares, 63,201 Series B Shares that are convertible into 63,201 Common Shares that are entitled to 126,402 votes. Also includes warrants to purchase 25,035 Common Shares, which were issued with the Series A Shares. The Series B Shares and the warrants are held jointly by Dr. Warner and his wife, Ellen McBee. In February 2013 Dr. Warner was issued options exercisable for 185,000 Common Shares all of which are vested.
(6)
The share ownership includes 20,000 Common Shares.  On May 1, 2012, Mr. Roffman was issued options exercisable for 30,000 Common Shares of which all are vested. In addition, on April 1, 2014, Mr. Roffman was issued options exercisable for 20,000 Common Shares of which 556 are vested and 1,111 will vest in the next 60 days.
(7)
The share ownership includes 100,000 shares owned by First South Africa Management. On March 14, 2013 First South Africa Management was issued options exercisable for 150,000 Common shares of which all are vested. Also includes warrants to purchase 30,000 Common Stock which were issued with Bridge note funding provided to the Company. Mr. Kabatznik has the sole voting and dispositive power with respect to the securities held by First South Africa Management.
(8)
The share ownership includes 30,737 Series B Shares convertible into 30,737 Common shares that are entitled to 61,474 votes and warrants to purchase 149,525 shares of Common stock issued with the Series B shares, bridge notes which were converted into Series B shares and private placement fees earned on that issuance. In addition on April 1, 2014, Mr. Palmieri was issued options exercisable for 20,000 Common Shares of which 556 are vested and 1,111 will vest in the next 60 days.
(9)
The share ownership includes 41,354 Series B Shares convertible into 41,354 Common shares that are entitled to 82,708 votes, 20,000 Series B Shares convertible into 20,000 Common shares that are entitled to 40,000 votes, held jointly with Claudia Taglich and 60,000 Series B Shares convertible into 60,000 Common shares that are entitled to 120,000 votes held in the TAG/Kent Partnership. Also includes warrants to purchase 121,354 shares of Common stock issued with the series B shares discussed above and an additional   140,357 warrants to purchase 140,357 shares of Common Stock issued with bridge notes which were converted into Series B shares and private placement fees earned on that issuance. In addition, on April 1, 2014, Mr. Taglich was issued options exercisable for 20,000 Common Shares of which 556 are vested and 1,111 will vest in the next 60 days.
(10)
On October 1, 2013, Mr. Tyson was issued options exercisable for 20,000 Common shares of which 3,889 have already vested and 1,112 will vest in the next sixty days. In addition on April 1, 2014, Mr. Tyson was issued options exercisable for 132,000 Common Shares of which 5,500 are vested and 11,000 will vest in the next 60 days.
(11)
The share ownership includes 100,000 shares owned by First South Africa Management. On March 14, 2013 First South Africa Management was issued options exercisable for 150,000 Common shares of which all are vested. Mr. Kabatznik has the sole voting and dispositive power with respect to the securities held by First South Africa Management.
(12)
Includes 72,730 Common Shares owned by the Joseph W and Patricia G Family Trust and 155,014 Series B Shares that are convertible into 155,014 Common Shares that are entitled to 310,028 votes.  Also includes warrants to purchase 43,860 Common Shares which were issued with the Series A Shares. Mr. Abrams has the sole voting and dispositive power with respect to these securities.
(13)
Includes 72,730 Common Shares owned by the Joseph W and Patricia G Family Trust and 155,014 Series B Shares that are convertible into 155,014 Common Shares that are entitled to 310,028 votes.  Also includes warrants to purchase 43,860 Common Shares which were issued with the Series A Shares, all included in (11) above. Mr. Abrams has the sole voting and dispositive power with respect to these securities. Mr. Abrams has also been granted options exercisable for 105,000 Common Shares of which all are vested.
(14)
Includes 105,000 Series A shares (100% of all outstanding Series A shares) owned by Mr. Joel Bellows which are convertible into 105,000 Common shares.
 
 
38
 
 
Certain Relationships and Related Transactions, and Director Independence
 
Our Chief Executive Officer is a guarantor on our term loan from Los Alamos National Bank, pursuant to which there is currently $247,913 outstanding.
 
On March 15, 2013, we entered into an Employment Agreement with Dr. Benjamin Warner.  See Item 11-Executive Compensation for additional information regarding this agreement.
 
On December 18, 2012 and March 28, 2013, the Company entered into 10% Bridge Note (the “Bridge Notes”) agreements with Vincent Palmieri, a director, for $50,000 and $25,000 respectively. The Bridge Notes were issued as part of a unit that includes warrants to purchase 600 shares of the Company’s common stock for each $1,000 of Bridge Note principal, at an exercise price of $3.00 per share, giving Mr. Palmieri a total of 45,000 warrants, see note 14 to the financial statements above. These Bridge notes, together with accrued interest thereon were converted into 30,737 Series B Preferred units at a conversion price of $2.50 per unit, each unit consisting of one share of Series B preferred stock and one seven-year warrant exercisable at a price of $2.50 per share, which price is subject to anti-dilution protection, see note 12 and 14 to the financial statements above.

Mr. Palmieri also received an additional 63,788 warrants exercisable at $2.75 per share and an additional 10,000 warrants exercisable at $0.01 per share, which were issued to the placement agent as placement agent fees and advisory fees. These warrants have a seven-year term and are exercisable at the option of the holder.  See note 14 to the financial statements above.

On December 18, 2012, the Company entered into a 10% Bridge Note (the “Bridge Notes”) agreement with Michael Taglich, a director, for $100,000. The Bridge Notes were issued as part of a unit that includes warrants to purchase 600 shares of the Company’s common stock for each $1,000 of Bridge Note principal, at an exercise price of $3.00 per share, giving Mr. Taglich a total of 60,000 warrants, see note 14 to the financial statements above. These Bridge notes, together with accrued interest thereon were converted into 41,354 Series B Preferred units at a conversion price of $2.50 per unit, each unit consisting of one share of Series B preferred stock and one seven-year warrant exercisable at a price of $2.50 per share, which price is subject to anti-dilution protection, see note 12 and 14 to the financial statements above.

Mr. Taglich also received an additional 67,857 warrants exercisable at $2.75 per share and an additional 12,500 warrants exercisable at $0.01 per share, which were issued to the placement agent as placement agent fees and advisory fees. These warrants have a seven-year term and are exercisable at the option of the holder.  See note 14 to the financial statements above.

On March 25, 2013, the Company entered into a 10% Bridge Note (the “Bridge Notes”) agreement with Clive Kabatznik for $50,000. The Bridge Notes were issued as part of a unit that includes warrants to purchase 600 shares of the Company’s common stock for each $1,000 of Bridge Note principal, at an exercise price of $3.00 per share, giving Mr. Kabatznik a total of 30,000 warrants, see note 14 to the financial statements above. These Bridge notes, together with accrued interest thereon were redeemed by the Company on May 31, 2013. In addition to this, options to purchase 150,000 shares of our common stock at $1.50 per share were issued to First South Africa Management, of which Mr. Kabatznik is the managing member.

During July 2013, the Company entered into an employment agreement with  Mr. Gary Altman. See Item 11-Executive Compensation for additional information regarding this agreement.
 
Principal Accountant Fees and Services
 
RBSM LLP serves as our independent registered public accounting firm.
 
Independent Registered Public Accounting Firm Fees and Services
 
The following table sets forth the aggregate fees including expenses billed to us for the years ended December 31, 2013 and 2012 by our auditors.
 
 
 
December 31,
2013
 
 
December 31,
2012
 
Audit fees and expenses(1)
 
$
66,760
 
 
$
26,250
 
Taxation preparation fees(2)
 
 
5,400
 
 
 
2,500
 
Audit related fees (3)     -       -  
Other fees (4)     -       -  
 
 
$
72,160
 
 
$
28,750
 
 
(1)
Audit fees and expenses were for professional services rendered for the audit and reviews of the consolidated financial statements of the Company, professional services rendered for issuance of consents and assistance with review of documents filed with the SEC. The 2013 balance includes a provision for the 2013 audit as well as the expense incurred for the 2012 audit.
(2)
Taxation preparation fees were fees for professional services rendered to file our federal and state tax returns
(3)
We incurred fees to our independent auditors of $-0- for audit related fees during the fiscal years ended December 31, 2013 and 2012.
(4)
We incurred fees to our independent auditors of $-0- for other fees during the fiscal years ended December 31, 2013 and 2012.
 
Audit Committee’s Pre-Approval Practice.
 
Prior to our engagement of our independent auditor, such engagement was approved by our board of directors. The services provided under this engagement may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Pursuant our requirements, the independent auditors and management are required to report to our board of directors at least quarterly regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. Our board of directors may also pre-approve particular services on a case-by-case basis. All audit-related fees, tax fees and other fees incurred by us for the year ended December 31, 2013, were approved by our board of directors.
 
 
39
 
 
 
Exhibits and Financial Statement Schedules and Reports on Form 8-K
 
(a)(1)
The following financial statements are included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
 
 
1.
Independent Auditor’s Report
 
 
 
 
2.
Consolidated Balance Sheets as of December 31, 2013 and 2012
 
 
 
 
3.
Consolidated Statements of Operations for the years ended December 31, 2013 and 2012
 
 
 
 
4.
Consolidated Statements of changes in Stockholders’ Equity for the years ended December 31, 2013 and 2012
 
 
 
 
5.
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012
 
 
 
 
6.
Notes to Consolidated Financial Statements
 
(a)(2)
All financial statement schedules have been omitted as the required information is either inapplicable or included in the Consolidated Financial Statements or related notes.
 
(a)(3)
The following exhibits are either filed as part of this report or are incorporated herein by reference:
 
1.1
Form of Placement Agreement dated April 19, 2013 between Caldera Pharmaceuticals, Inc. and Taglich Brothers, Inc. (incorporated by reference to Current Report on Form 8-K filed April 29, 2013)
3.1
Certificate of Incorporation dated November 12, 2003(Incorporated by reference to the Registration Statement on Form S-1 filed February 14, 2012)
3.2
First Amended and Restated Certificate of Incorporation dated March 8, 2011(Incorporated by reference to the Registration Statement on Form S-1 filed February 14, 2012)
3.3
Certificate of Designations dated March 14, 2011(Incorporated by reference to the Registration Statement on Form S-1 filed February 14, 2012)
3.4
By-Laws(Incorporated by reference to the Registration Statement on Form S-1 filed February 14, 2012)
3.5
Second Amended and Restated Certificate of Incorporation dated April 10, 2012(Incorporated by reference to the Registration Statement on Form S-1/A filed April 20 2012)
4.1
Form of Warrant to Purchase Common Stock(Incorporated by reference to the Registration Statement on Form S-1 filed February 14, 2012)
4.2
Promissory Note, dated September 21, 2006, in the principal amount of $2,200,000 payable to the Incorporated County of Los Alamos(Incorporated by reference to the Registration Statement on Form S-1 filed February 14, 2012)
4.3
Stock Option Plan (Incorporated by reference to the Registration Statement on Form S-1 filed February 14, 2012)
4.4
List of Warrant Holders(Incorporated by reference to the Registration Statement on Form S-1 filed February 14, 2012)
4.5
Form of Bridge Warrant (Incorporated by reference to the Annual report filed on Form 10-K filed April 1, 2013)
4.6
Form of Bridge Note (Incorporated by reference to the Annual report filed on Form 10-K filed April 1, 2013)
4.7
Promissory Note dated May 23, 2012 in the principal amount of $750,000 payable to Los Alamos National Bank  (Incorporated by reference to the Annual report filed on Form 10-K filed April 1, 2013)
4.8
Promissory Note dated June 8, 2012 in the principal amount of $148,500 payable to Los Alamos National Bank  (Incorporated by reference to the Annual report filed on Form 10-K filed April 1, 2013)
4.9
Promissory Note dated May 23, 2011 in the principal amount of $750,000 payable to Los Alamos National Bank and Commercial Loan Agreement dated May 23, 2011 between Los Alamos National Bank and Caldera Pharmaceuticals, Inc. (Incorporated by reference to the Annual report filed on Form 10-K filed April 1, 2013)
4.10
Commercial Loan Agreement dated June 8, 2012 between Los Alamos National Bank, Caldera Pharmaceuticals, Inc. and XPRO Corp  (Incorporated by reference to the Annual report filed on Form 10-K filed April 1, 2013)
4.11
Certificate of designations for Series B Preferred Stocks (Incorporated by reference to Current Report on Form 8-K filed April 29, 2013)
4.12
Form of Advisor Warrant (Incorporated by reference to Current Report on Form 8-K filed April 29, 2013)
4.13
Form of Placement Agent Warrant (Incorporated by reference to Current Report on Form 8-K filed April 29, 2013)
4.14
Form of Securities Purchase Agreement (Incorporated by reference to Current Report on Form 8-K filed April 29, 2013)
4.15
Form of Investor Warrant (Incorporated by reference to Current Report on Form 8-K filed April 29, 2013)
10.1
2006 Employment Agreement with Dr. Benjamin Warner *(Incorporated by reference to the Registration Statement on Form S-1 filed February 14, 2012)
10.2
Employment Agreement with Lori Peterson (nee Court) *(Incorporated by reference to the Registration Statement on Form S-1 filed February 14, 2012)
10.3
Exclusive Patent License Agreement, dated September 8, 2005, by and between the Company and The Regents of the University of California *(Incorporated by reference to the Registration Statement on Form S-1/A filed June 8 14, 2012)
10.4
Project Participation Agreement, dated as of September 21, 2006, by and between the Company and the Incorporated County of Los Alamos(Incorporated by reference to the Registration Statement on Form S-1 filed February 14, 2012)
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(Incorporated by reference to the Registration Statement on Form S-1 filed February 14, 2012)
10.6
OEM Agreement, dated July 5, 2011, by and between the Company and our equipment supplier  (Incorporated by reference to the Registration Statement on Form S-1/A filed June 8, 2012)
10.7
Assignment of Exclusive License Agreement by The Regents of the University of California to Los Alamos National Security, LLC (Incorporated by reference to the Registration Statement on Form S-1/A filed April 20 2012)
 
 
40
 
 
10.8
Lease Agreement with Reeves & Associates, LLC in connection with Suite C (Incorporated by reference to the Registration Statement on Form S-1/A filed April 20 2012)
10.9
Lease Agreement with Reeves & Associates, LLC in connection with Suite D (Incorporated by reference to the Registration Statement on Form S-1/A filed April 20 2012)
10.10
Extension and Modification of Lease Agreements (Incorporated by reference to the Registration Statement on Form S-1/A filed April 20 2012)
10.11
Contract 2R44AI079935-03 with the National Institutes of Health; to develop strontium-selective therapies, contract amount:  $3,000,000.00, operative from 08/24/2011 - 07/31/2014, $184,954.01. (Incorporated by reference to the Registration Statement on Form S-1/A filed April 20 2012)
10.12
Contract 1R43GM090387-01 with the National Institutes of Health; to develop assays for carcinogens, contract amount:  $200,000.00, operative from 08/06/2010 - 08/05/2012. (Incorporated by reference to the Registration Statement on Form S-1/A filed April 20 2012)
10.13
Employment Agreement with Benjamin Warner
10.14
Security Agreement dated June 8, 2012 between Los Alamos National Bank and XPRO Corp (Incorporated by reference to the Annual Report on Form 10-K filed April 1, 2013)
10.15
Guaranty dated June 8, 2012 by and among Los Alamos National Bank, Caldera Pharmaceuticals, Inc., XPRO Corp and Ellen K. McBee (Incorporated by reference to the Annual Report on Form 10-K filed April 1, 2013)
21.1
List of subsidiaries(Incorporated by reference to the Registration Statement on Form S-1 filed February 14 2012)
31.1
Certification of Gary Altman, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) (1)
31.2
Certification of Mark Korb, Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) (1)
32.1
Certification of Gary Altman, Chief Executive Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002(1)
32.2
Certification Mark Korb, Chief Financial Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002(1)
 
**+101.INS XBRL Instance Document
 
**+101.SCH XBRL Taxonomy Extension Schema Document
 
**+101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
 
**+101.DEF XBRL Taxonomy Extension Definition Linkbase Document
 
**+101.LAB XBRL Taxonomy Extension Label Linkbase Document
 
**+101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
 
(1)
Filed herewith

*    Management contract or compensatory plan or arrangement required to be identified pursuant to Item 15(a) (3) of this report.
** As provided in Rule 406T of Regulation S-T, this information is deemed furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.
 
 
41
 
 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.
 
 
CALDERA PHARMACEUTICALS, INC.
 
Signature
 
Title
 
Date
 
 
 
 
 
/s/ Gary Altman
 
Chief Executive Officer and President
 
June 2, 2014
Gary Altman
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Mark Korb
 
Chief Financial Officer
 
June 2, 2014
Mark Korb
 
 
 
 
 
 
42
 
 
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Date: June 2, 2014
 
By:
/s/ Timothy Tyson
 
   
Timothy Tyson
Non-Executive Chairman 
     
Date: June 2, 2014
 
By:
/s/ Gary Altman
 
   
Chief Executive Officer and President
     
Date: June 2, 2014
 
By:
/s/ Benjamin Warner
 
   
Dr. Benjamin Warner
Director 
 
Date: June 2, 2014
 
By:
/s/ Vincent Palmieri
 
   
Vincent Palmieri
 
   
Director
 
         
Date: June 2, 2014
 
By:
/s/ Michael Taglich
 
   
Michael Taglich
 
   
Director
 
 
Date: June 2, 2014
 
By:
/s/ Edward Roffman
 
   
Edward Roffman
 
   
Director
 
         
Date: June 2, 2014
 
By:
/s/ Clive Kabatznik
 
   
Clive Kabatznik
 
   
Director
 
 
 
 43
Exhibit 10.13
 
EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”), dated March 15, 2013, by and between Caldera Pharmaceuticals, Inc., a corporation organized under the laws of the State of Delaware with offices located at 278 DP Road, Suite D, Los Alamos, New Mexico 87544 (the “Corporation”) and Benjamin Warner, an individual with a residence at 903 Tewa Loop, Los Alamos, NM 87544 (the “Executive”).

1.                EMPLOYMENT; DUTIES

The Corporation hereby engages and employs Executive as the Chairman of the Board of Directors, Chief Executive Officer and President of the Corporation, and Executive hereby accepts such engagement and employment as Chairman of the Board of Directors, Chief Executive Officer and President of the Corporation, for the term of this Agreement as long as Executive desires to serve. It is expected that Executive will perform such duties commensurate with such titles and as the Board of Directors of the Corporation shall reasonably determine, and the employment duties of Executive will include reporting directly to the Board of Directors of the Corporation for the full time high quality performance of directing, supervising and having responsibility for all aspects of the operations and general affairs of the Corporation as directed by the Board of Directors.  Executive further agrees to serve without additional compensation as an officer or director of any subsidiaries of the Corporation upon request of the Board of Directors.

2.                TERM

The term (the “Term”) of Executive’s employment shall be five (5) years from the execution date of this Agreement unless terminated earlier under Section 6 of this Agreement. The parties may extend the Term for an additional five (5) year period upon mutual consent of Executive and the Board of Directors of the Corporation, upon terms to be agreed upon by the parties.

3.                COMPENSATION

(A)             As compensation for the performance of his duties on behalf of the Corporation, Executive shall receive the following:

(i)            Executive shall receive an annual base salary of Two Hundred Fifty Thousand Dollars ($250,000) for the Term (the “Base Salary”), payable semi-monthly.

(ii)          The Executive shall be eligible for an annual bonus payable in cash or equity.  Any bonus that may be awarded will be in the sole and absolute discretion of both the Compensation Committee and the Board of Directors of the Corporation.  The amount of such bonus shall depend on the achievement by the Executive and/or the Corporation of certain objectives to be established by the Board or the Compensation Committee in consultation with the Executive, along with such other factors the Board and Compensation Committee deems relevant.  Any bonus for a given fiscal year shall be payable in one lump sum upon approval by the Board of Directors of the Corporation or the Compensation Committee, which shall be obtained by the Corporation on or about January 31 of the following year.
 
 
1
 
 
(iii)          Executive shall receive 185,000 stock options with a strike price of $1.50, vesting monthly at a rate of 15,417 options per month, starting on April 1, 2013.

(B)              The Corporation shall reimburse Executive for all normal, usual and necessary expenses incurred by Executive, including all travel, lodging and entertainment, against receipt by the Corporation, as the case may be, of appropriate vouchers or other proof of Executive’s expenditures and otherwise in accordance with such Expense Reimbursement Policy as may from time to time be adopted by the Corporation. The Corporation shall provide a computer, cellular phone and office for Executive.

(C)              The Corporation shall provide Executive with full advance indemnification to the extent permitted by Delaware law, including indemnification for activities at all subsidiaries.

(D)              Executive shall be entitled to paid time off in accordance with the Corporation’s policies in effect on March 15, 2013. The Corporation shall provide Executive and his family with healthcare coverage pursuant to the Corporation’s healthcare insurance policy plan, five million dollars in life insurance benefitting his family, as well as any other benefits provided to executive officers.

4.                CONFIDENTIAL INFORMATION

(A)              Executive agrees that during the course of his employment or at any time thereafter, he will not disclose or make accessible to any other person, the Corporation’s products, services and technology, both current and under development, promotion and marketing programs, lists, trade secrets and other confidential and proprietary business information of the Corporation or any affiliates or any of their clients, except in the interest of the Corporation or in the course of the business of the Corporation. Executive agrees: (i) not to use any such information for himself or others except in the interest of the Corporation, and (ii) not to take any such material or reproductions thereof from the Corporation’s facilities at any time during his employment by the Corporation other than to perform his duties hereunder, which may include the use of computers, equipment, and facilities not owned by the Corporation, including those owned by Executive. Executive agrees immediately to return all such material and reproductions thereof in his possession to the Corporation upon request and in any event upon termination of employment.

(B)              In the event that Executive breaches any provisions of this Section 4 or there is a threatened breach, then, in addition to any other rights which the Corporation may have, the Corporation shall be entitled, without the posting of a bond or other security, to injunctive relief to enforce the restrictions contained herein. In the event that an actual proceeding is brought in equity to enforce the provisions of this Section 6, Executive shall not urge as a defense that there is an adequate remedy at law, nor shall the Corporation be prevented from seeking any other remedies which may be available. In addition, Executive agrees that in the event that he breaches the covenants in this Section 4, in addition to any other rights that the Corporation may have, Executive shall be required to pay to the Corporation any amounts he receives in connection with such breach.
 
 
2
 
 
(C)              Executive recognizes that in the course of his duties hereunder, he may receive from the Corporation or others information which may be considered “material, non-public information” concerning a public company that is subject to the reporting requirements of the United States Securities and Exchange Act of 1934, as amended. Executive agrees not to:

(i)           Buy or sell any security, option, bond or warrant while in possession of relevant material, non-public information received from the Corporation or others in connection herewith, and

(ii)          Provide the Corporation with information with respect to any public company that may be considered material, non-public information, unless first specifically agreed to in writing by the Corporation.

5.                INVENTIONS DISCOVERED BY EXECUTIVE

Executive shall promptly disclose to the Corporation any invention, improvement, discovery, process, formula, or method or other intellectual property, whether or not patentable or copyrightable (collectively, "Inventions"), conceived or first reduced to practice by Executive, either alone or jointly with others, while performing services hereunder (or, if based on any Confidential Information, within one (1) year after the Term): (a) which pertain to any line of business activity of the Corporation, whether then conducted or then being actively planned by the Corporation, with which Executive was or is involved; (b) which is developed using time, material or facilities of the Corporation, whether or not during working hours or on the Corporation premises; or (c) which directly relates to any of Executive’s work during the Term, whether or not during normal working hours. Executive hereby assigns to the Corporation all of Executive’s right, title and interest in and to any such Inventions. During and after the Term, Executive shall execute any documents necessary to perfect the assignment of such Inventions to the Corporation and to enable the Corporation to apply for, obtain and enforce patents, trademarks and copyrights in any and all countries on such Inventions, including, without limitation, the execution of any instruments and the giving of evidence and testimony, without further compensation beyond Executive’s agreed compensation during the course of Executive’s employment. All such acts shall be done without cost or expense to Executive. Executive shall be compensated for the giving of evidence or testimony after the term of Executive’s employment at the rate of $2,000/day. Without limiting the foregoing, Executive further acknowledges that all original works of authorship by Executive, whether created alone or jointly with others, related to Executive’s employment with the Corporation and which are protectable by copyright, are "works made for hire" within the meaning of the United States Copyright Act, 17U.S.C.(S)101, as amended, and the copyright of which shall be owned solely, completely and exclusively by the Corporation. If any Invention is considered to be work not included in the categories of work covered by the United States Copyright Act, 17U.S.C.(S)101, as amended, such work is hereby assigned or transferred completely and exclusively to the Corporation. Executive hereby irrevocably designates counsel to the Corporation as Executive's agent and attorney-in-fact to do all lawful acts necessary to apply for and obtain patents and copyrights and to enforce the Corporation's rights under this Section.  This Section 7 shall survive the termination of this Agreement. Any assignment of copyright hereunder includes all rights of paternity, integrity, disclosure and withdrawal and any other rights that may be known as or referred to as "moral rights" (collectively "Moral Rights"). To the extent such Moral Rights cannot be assigned under applicable law and to the extent the following is allowed by the laws in the various countries where Moral Rights exist, Executive hereby waives such Moral Rights and consents to any action of the Corporation that would violate such Moral Rights in the absence of such consent. Executive agrees to confirm any such waivers and consents from time to time as requested by the Corporation.
 
 
3
 
 
6.                TERMINATION

(A)              Executive’s employment hereunder shall continue as set forth in Section 2 hereof unless terminated upon the first to occur of the following events:

(i)                The Executive’s death.

(ii)           Just Cause, as defined below. In the event that the Corporation intends to terminate the employment of Executive by reason of Just Cause, the Corporation shall give the Executive written notice of the Corporation’s intention to terminate Executive’s employment, and such termination may be effective immediately, unless a cure period applies, in which case the termination date may not precede the expiration date of the applicable cure period. “Just Cause”, meaning the Executive’s:
 
(a)           gross insubordination; acts of embezzlement or misappropriation of funds; fraud; dereliction of fiduciary obligations;

(b)           conviction of a felony or other crime involving moral turpitude, dishonesty or theft;

(c)           willful unauthorized disclosure of confidential information belonging to the Corporation or entrusted to the Corporation by a client;

(d)           material violation of any provision of the Agreement, which is not cured by Executive within ninety (90) days of receiving written notice of such violation by the Corporation;

(e)           willful failure to perform his written assigned tasks, where such failure is attributable to the fault of Executive which is not cured by Executive within ninety (90) days of receiving written notice of such violation by the Corporation.

(iii)          “Without Just Cause”, meaning written notice by the Corporation to the Executive of a termination without Just Cause and other than due to death.

(iv)          Good Reason by the Executive. In the event that the Executive intends to terminate his employment for Good Reason, the Executive shall give the Corporation written notice of his intention to terminate his employment, and such termination may be effective immediately, unless a cure period applies, in which case the termination date may not precede the expiration date of the applicable cure period. “Good Reason”, meaning a reasonable determination by the Executive that the following has occurred:

(a)           a material breach by the Corporation of the terms of this Agreement, which breach is not cured within thirty (30) days after notice thereof from Executive; or

(b)           an assignment to Executive of any duties materially inconsistent with Executive’s position(including status, office, title and reporting requirements) authority, duties or responsibilities as contemplated by this Agreement which results in material diminution in such position, authority, duties or responsibilities, specifically excluding for this purpose an isolated and insubstantial action not taken in bad faith which is remedies by the Corporation after receipt of notice thereof given by Executive; or

(c)           a change in control which shall mean (a) any person becomes the beneficial owner (as term is defined in the Securities Exchange Act of 1934) directly or indirectly, of securities representing more than fifty percent (50%) of the total voting power of Company’s shares; or (b) a change in the composition of the Board of Directors as a result of which fewer than a majority of the directors are Incumbent Directors.  Incumbent Directors shall mean directors who are either directors of the Corporation on the date hereof or are elected by the Board of Directors with the affirmative vote of a majority of the Incumbent Directors at the time of election; or (c) the Corporation merges with another corporation after which a majority of the shares of the resulting entity are not held by shareholders of the Corporation prior to the merger.

(v)           “Without Good Reason”, meaning written notice by the Executive to the Corporation of a termination without Good Reason.
 
(B)              If the Executive’s employment hereunder is terminated for any reason, the Executive or his estate as the case may be, will be entitled to receive the accrued base salary, vacation pay, expense reimbursement and any other entitlements accrued by Executive under Section 3, to the extent not previously paid (the sum of the amounts described in this subsection shall be hereinafter referred to as the “Accrued Obligations”);  provided ,  however , that if Executive’s employment is terminated (1) by the Corporation without Just Cause or by the Executive for Good Reason then in addition to paying the Accrued Obligations, the Corporation shall continue to pay the Executive his then-current base salary and continue to provide benefits to the Executive at least equal to those which he had at the time of termination for a period the longer of the remainder of the Term or of one year after termination (“Severance”) and Executive shall have the right to exercise any vested options until the earlier of the expiration of the severance or the expiration of the term of the option, or (2) by reason of death, then in addition to paying the Accrued Obligations, Executive or his heirs shall have the right to exercise any vested options until the expiration of the term of the option. Subject to the provisions of the next sentence, if the Executive is entitled to receive Severance under this Agreement, the Severance will be provided in the form of salary continuation, payable in accordance with the normal payroll practices of the Corporation.
 
 
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7.                NOTICES

Any notice or other communication under this Agreement shall be in person or in writing and shall be deemed to have been given (i) when delivered personally against receipt therefor; (ii) one (1) day after being sent by Federal Express or similar overnight delivery; (iii) three (3) days after being mailed registered or certified mail, postage prepaid, return receipt requested, to either party at the address set forth above, or to such other address as such party shall give by notice hereunder to the other party; or (iv) when sent by facsimile, followed by oral confirmation and with a hard copy sent as in (ii) or (iii) above.

8.                SEVERABILITY OF PROVISIONS

If any provision of this Agreement shall be declared by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part, such provision shall be interpreted so as to remain enforceable to the maximum extent permissible consistent with applicable law and the remaining conditions and provisions or portions thereof shall nevertheless remain in full force and effect and enforceable to the extent they are valid, legal and enforceable, and no provision shall be deemed dependent upon any other covenant or provision unless so expressed herein.

9.                ENTIRE AGREEMENT MODIFICATION

This Agreement contains the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto.

10.              BINDING EFFECT

The rights, benefits, duties and obligations under this Agreement shall inure to, and be binding upon, the Corporation, its successors and assigns, and upon Executive and his legal representatives. This Agreement constitutes a personal service agreement, and the performance of Executive’s obligations hereunder may not be transferred or assigned by Executive.

11.              NON-WAIVER

The failure of either party to insist upon the strict performance of any of the terms, conditions and provisions of this Agreement shall not be construed as a waiver or relinquishment of future compliance therewith, and said terms, conditions and provisions shall remain in full force and effect. No waiver of any term or condition of this Agreement on the part of either party shall be effective for any purpose whatsoever unless such waiver is in writing and signed by such party.

12.              GOVERNING LAW, DISPUTE RESOLUTION

This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New Mexico of the United States of America without regard to principles of conflict of laws.  The State of New Mexico shall be the exclusive jurisdiction for any disputes arising under this Agreement and the Parties hereby consent to such jurisdiction.

13.              HEADINGS

The headings of paragraphs are inserted for convenience and shall not affect any interpretation of this Agreement.
 
 
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IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the day and year first above written.

Corporation:

CALDERA PHARMACEUTICALS, INC.
 
 
 
 
By:
/s/ Edward Roffman, director
 
Title:
Authorized agent
 
 
 
 
Executive:
 
 
 
 
 
/s/ Benjamin Warner
 
 
BENJAMIN WARNER
 
 
 
6
Exhibit 31.1
 
CERTIFICATION PURSUANT TO RULE 13a-14 OR
RULE 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 
 
I, Gary Altman, certify that:
 
 1.  
I have reviewed this Annual Report on Form 10-K of Caldera Pharmaceuticals, Inc.;
   
 2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
 3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
 4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting  (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
   
 a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be  designed under our supervision, to ensure that material information relating to the registrant, including its  consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
   
b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to  be designed under our supervision, to provide reasonable assurance regarding the reliability of financial  reporting and the preparation of financial statements for external purposes in accordance with generally  accepted accounting principles; and
   
c)  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period  covered by this report based on such evaluation; and
   
 d)  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred  during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)  that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over  financial reporting; and
   
 5.
The  registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
   
 a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
   
 b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 Dated: June 2, 2014
 
 
 /s/ Gary Altman
 
 
Chief Executive Officer and President
Exhibit 31.2
 
CERTIFICATION PURSUANT TO RULE 13a-14 OR
  RULE 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 
 
 I, Mark Korb, certify that:
 
1.  
I have reviewed this Annual Report on Form 10-K of Caldera Pharmaceuticals, Inc.;
   
 2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
 3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
 4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting  (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
   
 a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be  designed under our supervision, to ensure that material information relating to the registrant, including its  consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in  which this report is being prepared;
   
b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to  be designed under our supervision, to provide reasonable assurance regarding the reliability of financial  reporting and the preparation of financial statements for external purposes in accordance with generally  accepted accounting principles; and
   
c)  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period  covered by this report based on such evaluation; and
   
 d)  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred  during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)  that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over  financial reporting; and
   
 5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
   
 a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
   
 b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 Dated: June 2, 2014
 
 
 /s/ Mark Korb
 
 
Chief Financial Officer
 
Exhibit 32.1
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Annual Report of Caldera Pharmaceuticals Inc., a Delaware corporation (the “Company”), on Form 10-K for the period ended December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gary Altman, President and Chief Executive Officer of the Company, certify, pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
 
(1)
The Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and
     
 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
/s/ Gary Altman
 
 
President and Chief Executive Officer
 
June 2, 2014
Exhibit 32.2
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Annual Report of Caldera Pharmaceuticals, Inc., a Delaware corporation (the “Company”), on Form 10-K for the period ended December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark Korb, Chief Financial Officer of the Company, certify, pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
 
(1)
The Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and
     
 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
/s/ Mark Korb
 
 
Chief Financial Officer
 
June 2, 2014