The amortization of the principal outstanding on the loans payable is as follows:
A fair market value for the common stock purchase warrants was performed using the Black-Scholes valuation model and a further $2,857 was credited to the value of the preferred stock as a deemed dividend during the six months, see note 11 below.
The Preferred Stock Holders will receive warrants to purchase shares of the Company’s common stock equal to 100% of the number of shares that they would receive upon conversion of the Preferred stock into common stock at an exercise price of $5.70 per share. The Warrants will expire five years after date of issuance. The Warrants are not transferable separately from the Preferred Stock without the consent of the Company and an opinion of Counsel satisfactory to the Company.
The liquidation rights of the Preferred 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” Preferred Stock converted into common stock immediately prior to liquidation.
During the six months ended June 30, 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 preferred stock dividends which were due at January 31, 2012.
The fair value of these warrants is determined using the Black-Scholes model. The following assumptions were used:
A fair market value for these warrants of $2,857 was recorded as a deemed preferred stock dividend during the six months.
At June 30, 2012, outstanding warrants to purchase shares of common stock are as follows:
In October 2005, the Company's Board of Directors adopted the Caldera Pharmaceuticals, Inc. 2005 Stock Option Plan (the "Plan"), which permits awards of incentive and nonqualified stock options and other forms of incentive compensation to employees and non-employees such as directors and consultants. The Board has 3, 000,000 shares of common stock for issuance upon exercise of grants made under the Plan. Options granted under the Plan vest either immediately or over a period of up to two years, and expire 4 years to 10 years from the grant date. At June 30, 2012, 2,444,555 shares were available for future grant under the Incentive Plan.
Stock option based compensation expense for the six months ended June 30, 2012 and 2011 totaled $40,573 and $247,422, respectively. The Company expenses the value of stock options as earned. The fair value of the options granted is determined using the Black-Scholes option-pricing model. The following assumptions were used:
As noted above, the fair value of stock options is determined by using the Black-Scholes option-pricing model. For all options granted since October 1, 2005 the Company has generally used option terms of between 4 to 10 years, with 5 years representing the estimated life of options granted. The volatility of the common stock is estimated using historical data of companies similar in size and in the same industry as Caldera Pharmaceuticals. The risk-free interest rate used in the Black-Scholes option-pricing model is determined by reference to historical U.S. Treasury constant maturity rates with short-term maturities of no more than three months. An expected dividend yield of zero is used in the option valuation model, because the Company does not expect to pay any cash dividends in the foreseeable future. At June 30, 2012, 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.
Stock options outstanding at June 30, 2012 and December 31, 2011 as disclosed in the above table, have $10,500 and $0 intrinsic value, respectively.
The following tables summarize information about stock options outstanding at June 30, 2012:
Options over 37,000 shares were granted during the six months ended June 30, 2012. The weighted-average grant-date fair values of options granted during the six months ended June 30, 2012 was $17,068 ($0.46 per share). As of June 30, 2012 there were unvested options to purchase 35,125 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is $20,165, which is expected to be recognized over the next 18 months.
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 and the conversion of convertible preferred stock into common stock. 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 quarters ended and the six months ended June 30, 2012 and 2011, all stock options, convertible preferred stock and warrants were excluded from the computation of diluted net loss per share.
Dilutive shares which could exist pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because their affect would have been anti-dilutive are as follows:
The Company extended its existing office lease effective November 1, 2010. The monthly rent amounts to $4,928 per month and the lease terminates in October 2013.
Future annual minimum payments required under operating lease obligations at June 30, 2012, are as follows:
In September 2011, the Company filed suit against the Regents and LANS in the Circuit Court of Cook County. LANS removed the case to United States District Court for the Northern District of Illinois Eastern Division, Case # ll-CV-07259. The Company's complaint alleges the following: (i) breach of contract; (ii) breach of the implied covenant of good faith; (iii) fraud; and (iv) fraudulent inducement, in connection with the September 2005 Agreement with the Regents assigned to LANS in April 2006. The Company believes the defendants breached a License Agreement, and made false representations that were critical to the Company's decision to enter into the Agreement. Caldera is seeking relief including compensatory damages, exemplary and punitive damages, and costs. 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.
In October 2008, Seddie Bastanipour and Joel Bellows filed suit against the Company, our Chief Executive Officer, Dr. Benjamin Warner, and a former consultant to the Company, Sigmund Eisenchenk. Joel Bellows provided legal services to the Company through his legal firm, Bellows and Bellows P.C. The suit was filed in the Circuit Court of Cook County, Illinois and alleged the following: (i) Violation of Illinois Securities Act of 1953; (ii) Violation of Illinois Consumer Fraud Act; and (iii) Common Law Fraud, in connection with aggregate investments of $218,000 in the Company’s common stock claimed by Bastanipour and Bellows. They are seeking compensatory damages, costs and expenses. The Company does not believe Bellows will prevail on any of the alleged complaints. In December 2011, the Company completed an amicable settlement with Bastanipour.
In March, 2010, the Company filed suit against Joel Bellows and Bellows and Bellows P.C. in the United States District Court for the District of New Mexico alleging the following: (i) Breach of Contract; (ii) Negligence; (iii) Breach of Fiduciary Duty; (iv) Fraud; and (v) Tortious Interference with Contract. The aforementioned complaints relate to legal services provided by Bellows and Bellows P.C. for the Company. The Company is seeking compensatory damages, punitive damages, interest, costs and fees.
In December 2010, the Company filed suit against Seddie Bastanipour and Peter Baltrus for breach of contract and negligence when they were performing accounting services on behalf of the Company that resulted in an IRS penalty. In December 2011, the Company completed an amicable settlement with Bastanipour 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. Baltrus claims to have been working for Bellows (see above) at all relevant times; the case against Peter Baltrus continues. The Company has entered into further settlement discussions with Peter Baltrus.
No accrual has been made for this matter because it is not probable that a loss has been incurred and we are unable to estimate what the outcome of the matter would be, accordingly an estimate of the possible loss or range of loss cannot be made.
Other than disclosed above, the Company has evaluated subsequent events through the date the financial statements were issued, and has concluded that no such events or transactions took place that would require disclosure herein.
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.
Overview and Financial Condition
Discussions with respect to our Company’s operations included herein include the operations of our operating subsidiary, XRpro Corp. Our Company formed XRpro Corp. on July 9, 2010. We have no other operations than those of Caldera Pharmaceuticals, Inc. and XRpro Corp.
Results of Operations for the quarter ended June 30, 2012 and the quarter ended June 30, 2011.
Revenues
Our Company had revenues totaling $493,288 and $23,099 for the quarters ended June 30, 2012 and 2011, respectively, an increase of $470,189. Substantially all of our revenues have been from Federal government contracts. The increase is due to a moratorium placed on Government expenditure in the prior year that impacted our ability to invoice for work performed on our Government contracts. The current billings on Government contracts also include a higher amount of recoverable expenses incurred on these contracts. Our Company has an order backlog in the form of firm fixed price government contracts. We were awarded a $1,000,000 grant from the National Institutes of Health on August 24, 2011 expiring 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, expiring on July 31, 2013 with a further $1,000,000 potentially available under the project at expiring on July 31, 2014, depending on availability of government funding and satisfactory progress made on the project. We believe that these are firm orders as there are no indications that funding will not be available and we believe that we have made satisfactory progress on the project to date. The funds available under this grant are earned by us on a percentage-of-completion basis, based on the costs we incur as a measure of the progress made on the project. Going forward, based on financing, we plan to heavily market our XRpro® equipment and services and educate potential customers concerning the advantages and value propositions of the XRpro® technology. While we are optimistic about the prospects for our Company, since this is a relatively new product offering with significantly different characteristics compared with existing equipment on the market (and we have not recognized significant revenues to date), there can be no assurance about whether or when our products will generate sufficient revenues with adequate margins in order for our Company to be profitable.
We have generated several new leads in the pharmaceutical and industrial sectors that we are following up with contracts to deliver test data to prove the viability of our technology to several significant companies within these industries. We believe that these contracts will result in longer-term service contracts.
Cost of goods sold
Cost of goods sold totaled $174,488 and $42,078 for the quarters ended June 30, 2012 and 2011, respectively. The increase of $134,210 was primarily due to the moratorium placed on Government spending in the previous year, resulting in the cessation of substantially all of the salary based research work we performed on Government contracts in that period. Cost of goods sold is primarily comprised of direct expenses related to providing our services under government contracts. These expenses include salary expenses directly related to research contracts, outside consultants, and direct materials used on Government contracts. The salary expense included in cost of goods sold for quarters ended June 30, 2012 and 2011 respectively was $148,979 and $28,222, an increase of $120,757. The lower salary expense charged to cost of goods sold in the prior year resulted in a corresponding increased allocation of salary expense in selling, general and administrative expenses.
Gross Profit
Gross profit was $318,800 and a loss of $(18,979) for the quarters ended June 30, 2012 and 2011, respectively. The gross margin percentage was 64.6% for the quarter ended June 30, 2012. This is not comparable to the gross loss percentage of (82.2)% in the prior period due to the moratorium placed on government spending in the prior year. The gross profit percentage earned for the quarter ended June 30, 2012 relates 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 services and equipment sales.
Selling, general and administrative expenses
Selling, general and administrative expenses totaled $597,547 and $512,536 for the quarters ended June 30, 2012 and 2011, respectively, an increase of $85,011 or 16.6%.
The major components making up Selling, General and administrative expenses included the following:
| | | Quarter ended June 30, | | | | | | | |
| | | 2012 | | | 2011 | | | Increase/ (decrease) | | | Percentage change | |
| | | | | | | | | | | | | |
| Marketing and selling expenses | | $ | 27,669 | | | $ | - | | | $ | 27,669 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | |
| Salary expenses | | $ | 52,396 | | | $ | 183,538 | | | $ | (131,142 | ) | | | (71.5 | )% |
| | | | | | | | | | | | | | | | | |
| Stock option compensation charge | | $ | 20,279 | | | $ | 63,491 | | | $ | (43,212 | ) | | | (68.1 | )% |
| | | | | | | | | | | | | | | | | |
| Legal fees | | $ | 338,656 | | | $ | 190,561 | | | $ | 148,095 | | | | 77.7 | % |
| | | | | | | | | | | | | | | | | |
| Consulting fees | | $ | 69,544 | | | $ | 12,700 | | | $ | 56,844 | | | | 447.6 | % |
| | | | | | | | | | | | | | | | | |
| Audit fees | | $ | 9,200 | | | $ | - | | | $ | 9,200 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | |
| Research and development expenses (Salaries) | | $ | 5,184 | | | | - | | | $ | 5,184 | | | | 100.0 | % |
Marketing and selling expenses increased over the prior quarter due to professional promotional activities undertaken to promote our XRpro equipment.
Salary expenses included in selling, general and administrative expenses decreased by $131,142 over the prior year. This is primarily due to the moratorium placed on Government expenditure in the prior years quarter, resulting in a substantial amount of unrecoverable salary expenditure in that quarter. Total salary expenditure, including research and development expenses, for Caldera Pharmaceuticals amounted to $206,559 and $211,760 for the quarters ended June 30, 2012 and 2011 respectively. This slight decrease in expenditure of $5,201 is due to the termination of employment of our in-house legal counsel during the 2012 quarter.
The stock option compensation charge decreased over the prior year due to the majority of the options being fully vested prior to the 2012 quarter. The majority of the 2012 stock option compensation charge relates to new options issued during the 2012 quarter.
Legal fees increased by $148,095 over the prior year due to increased activity on the Bellows legal matter and legal expenses spent on the preparation of the S-1 filing recently completed by the Company during the quarter ended June 2012. For additional information on our legal matters, see Legal Proceedings. While the Company has negotiated a partial contingency fee agreement in the LANS case, the Company will still face significant continuing legal expenses should it continue to pursue its actions. Our legal expenses are not connected with our regular business activities and while still ongoing should be viewed as non operating expenses. We are plaintiffs in two lawsuits and therefore to some extent we have some degree of control as to whether we will continue to fund this litigation. At present it is our judgment that the potential for recovery of damages outweighs the costs we are expending on these cases. We therefore intend to continue pursuing this litigation but there is no assurance we will continue to do so or ultimately prevail should these cases go to trial.
The increase in consulting fees is primarily due to financial support provided to Caldera Pharmaceuticals to meet the ongoing public reporting requirements and for capital raising expertise.
The increase in audit fees is directly related to preparing the company for public reporting purposes. This expense was not necessary and was not incurred in the prior year.
Research and development expenses increased due to employee time spent on developing consumables used in our XRpro equipment during the current quarter.
Depreciation and Amortization
We recognized depreciation expenses of $19,932 and $16,386 for the quarters ended June 30, 2012 and 2011, respectively, which relate primarily to the depreciation of our laboratory equipment, which makes up the vast majority of our capital equipment and spending. The increase in depreciation relates to additional equipment acquired since the prior year. Amortization expenses were $12,921 for each of the quarters ended June 30, 2012 and 2011. Amortization expenses relates to the amortization of license fees paid to Los Alamos National Laboratories for the use of certain patents.
Interest expense
Interest expense totaled $4,392 and $4,362 for the quarters ended June 30, 2012 and 2011, respectively. Interest expense was primarily paid on loans from the Los Alamos County and the revolving draw loan with Los Alamos National Bank as well as a minor amount of interest incurred on the new commercial loan facility advanced to Caldera by the Los Alamos National Bank during June 2012 to acquire a new XRpro machine from our exclusive equipment supplier, Bruker.
Other Income
Other Income was $0 and $7,188 the quarter ended June 30, 2012 and 2011, respectively. Other income in the prior year was derived primarily from refunds received from Government agencies.
Net loss
Net loss for the quarters ended June 30, 2012 and 2011, totaled ($315,853) and ($557,996), respectively. This decrease is primarily due to lower revenues generated in the prior year quarter due to the moratorium place on Government expenditure during the prior year, as discussed in revenues above, partially offset by an increase in legal and consulting expenditure in the current quarter discussed in selling, general and administrative expenditure above.
Preferred stock dividends and deemed preferred stock dividends
Dividends on the 8% Series “A” preferred stock of $39,070 and $19,349 were accrued for the quarters ended June30, 2012 and 2011, respectively. The increase in the preferred stock dividend is due to an increase in the number of preferred shares in issue over the prior period.
Deemed preferred stock dividends of $0 and $71,517 for the quarters ended June 30, 2012 and 2011, respectively, relate to the Warrants issued to preferred stock holders during the prior year, no preferred stocks were issued during the current quarter.
Net loss applicable to common stock
Net loss applicable to common stock for the quarters ended June 30, 2012 and 2011, totaled ($354,923) and ($648,862), respectively, representing a net loss per share of ($0.08) and ($0.13) per share for the quarters ended June 30, 2012 and 2011, respectively. This decrease is explained under net loss and preferred stock dividends and deemed preferred stock dividends above.
Results of operations for the six months ended June 30, 2012 and the six months ended June 30, 2011.
Revenues
Our Company had revenues totaling $871,025 and $314,743 for the six months ended June 30, 2012 and 2011, respectively, an increase of $556,282 or 176.7%. The increase in our revenues over the prior period is primarily due to a moratorium placed on government spending in the second quarter of the prior year. Substantially all of our revenues to date have been from Federal government contracts. Our Company has an order backlog in the form of firm fixed price government contracts. We were awarded a $1,000,000 grant from the National Institutes of Health on August 24, 2011 expiring 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, expiring on July 31, 2013 with a further $1,000,000 potentially available under the project at expiring on July 31, 2014, depending on availability of government funding and satisfactory progress made on the project. We believe that these are firm orders as there are no indications that funding will not be available and we believe that we have made satisfactory progress on the project to date. The funds available under this grant are earned by us on a percentage-of-completion basis, based on the costs we incur as a measure of the progress made on the project. We expect to earn the maximum revenue under this contract in each year. Going forward, based on financing, we plan to heavily market our XRpro® equipment and services and educate potential customers concerning the advantages and value propositions of the XRpro® technology. While we are optimistic about the prospects for our Company, since this is a relatively new product offering with significantly different characteristics compared with existing equipment on the market (and we have not recognized significant revenues to date), there can be no assurance about whether or when our products will generate sufficient revenues with adequate margins in order for our Company to be profitable.
We have generated several new leads in the pharmaceutical and industrial sectors that we are following up with contracts to deliver test data to prove the viability of our technology to several significant companies within these industries. We believe that these contracts will result in longer-term service contracts.
Cost of goods sold
Cost of goods sold totaled $352,124 and $184,829 for the six months ended June 30, 2012 and 2011, respectively. The increase of $167,295 or 90.5% was primarily due to the moratorium placed on government spending in the second quarter of the prior period, resulting in the cessation of substantially all of the salary based research work we performed on Government contracts in that period. Cost of goods sold is primarily direct expenses related to providing our services under government contracts. These expenses include salary expenses directly related to research contracts, outside consultants and direct materials used on Government contracts. The salary expense included in cost of goods sold for 2012 and 2011 respectively, was $290,202 and $166,653, an increase of $123,549 or 74.1% The lower salary expense charged to cost of goods sold in the prior year resulted in a corresponding increased allocation of salary expense in selling, general and administrative expenses.
Gross Profit
Gross profit was $518,901 and $129,914 for the six months ended June 30, 2012 and 2011, respectively. The gross margin percentages of 59.6% and 41.3% for the six months ended June 30, 2012 and 2011, respectively, relate to our Federal government contracts and may not be indicative of anticipated future results due to the Company’s plan to diversify its source of revenues into services and equipment sales. The increase in our gross profit percentage is primarily due to the moratorium placed on government expenditure during the second quarter of the prior year as discussed above.
Selling, general and administrative expenses
Selling, general and administrative expenses totaled $1,076,038 and $969,269 for the six months ended June 30, 2012 and 2011, respectively, an increase of $106,769 or 11.0%.
The major components making up Selling, General and administrative expenses included the following:
| | | Six months ended June 30, | | | | | | | |
| | | 2012 | | | 2011 | | | Increase/ (decrease) | | | Percentage change | |
| | | | | | | | | | | | | |
| Marketing and selling expenses | | $ | 79,897 | | | $ | - | | | $ | 79,897 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | |
| Salary expenses | | $ | 125,202 | | | $ | 250,357 | | | $ | (125,155 | ) | | | (50 | )% |
| | | | | | | | | | | | | | | | | |
| Stock option compensation charge | | $ | 40,573 | | | $ | 247,422 | | | $ | (206,849 | ) | | | (83.6 | )% |
| | | | | | | | | | | | | | | | | |
| Legal fees | | $ | 521,536 | | | $ | 352,600 | | | $ | 168,936 | | | | 47.98 | % |
| | | | | | | | | | | | | | | | | |
| Consulting fees | | $ | 112,051 | | | $ | 15,715 | | | | 96,336 | | | | 613.0 | % |
| | | | | | | | | | | | | | | | | |
| Audit fees | | $ | 26,700 | | | | - | | | $ | 26,700 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | |
| Research and development expenses (Salaries) | | $ | 23,049 | | | $ | - | | | $ | 23,049 | | | | 100.0 | % |
Marketing and selling expenses increased over the prior six months due to professional promotional activities undertaken during the six months ended June 30, 2012 to promote our XRpro equipment.
Salary expenses included in selling, general and administrative expenses decreased by $125,155 over the prior year. This is primarily due to the moratorium placed on Government expenditure in the second quarter of the prior year, resulting in a substantial amount of unrecoverable salary expenditure in that quarter. Total salary expenditure, including research and development expenses, for Caldera Pharmaceuticals amounted to $438,453 and $417,010 for the six months ended ended June 30, 2012 and 2011 respectively. This increase in expenditure of $21,443 or 5.1% is due to salary increases awarded to employees, partially offset by the termination of our in-house legal counsel in the second quarter of 2012.
The stock option compensation charge decreased over the prior year due to the majority of the options being fully vested prior to the 2012 period. The majority of the 2012 stock option compensation charge relates to new options issued during the second quarter of 2012.
Legal fees increased by $168,936 over the prior year due to increased activity on the LANS and Bellows legal matters and legal expenses spent on the preparation of the S-1 filing recently completed by the Company during the six months ended June 2012. For additional information on our legal matters, see Legal Proceedings. While the Company has negotiated a partial contingency fee agreement in the LANS case, the Company will still face significant continuing legal expenses should it continue to pursue its actions. Our legal expenses are not connected with our regular business activities and while still ongoing should be viewed as non operating expenses. We are plaintiffs in two lawsuits and therefore to some extent we have some degree of control as to whether we will continue to fund this litigation. At present it is our judgment that the potential for recovery of damages outweighs the costs we are expending on these cases. We therefore intend to continue pursuing this litigation but there is no assurance we will continue to do so or ultimately prevail should these cases go to trial.
The increase in consulting fees is primarily due to financial support provided to Caldera Pharmaceuticals to meet the ongoing public reporting requirements and for capital raising expertise.
The increase in audit fees is directly related to preparing the company for public reporting purposes. This expense was not necessary and was not incurred in the prior year.
Research and development expenses increased due to employee time spent on developing consumables used in our XRpro equipment during the current six month period.
Depreciation and Amortization
We recognized depreciation expenses of $39,024 and $32,266 for the six months ended June 30, 2012 and 2011, respectively, which relate primarily to the depreciation of our laboratory equipment, which makes up the vast majority of our capital equipment and spending. Amortization expenses were $25,842 and $25,842 in 2012 and 2011, respectively. Amortization expenses relates to the amortization of license fees paid to Los Alamos National Laboratories for the use of certain patents.
Interest expense
Interest expense totaled $7,838 and $9,350 for the six months ended June 30, 2012 and 2011, respectively. Interest expense was primarily paid on loans from the Los Alamos County and the revolving draw loan with Los Alamos National Bank.
Other Income
Other Income was $0 and $7,188 the six months ended June 30, 2012 and 2011, respectively. Other income in the prior year was derived primarily from refunds received from Government agencies.
Net loss
Net loss totaled ($629,347) and ($899,625) for the six months ended June 30, 2012 and 2011, respectively. The decrease in loss is primarily due to the lower level of revenues generated on Government contracts in the prior year, partially offset by increases in selling, general and administrative expenses discussed above.
Preferred stock dividends and deemed preferred stock dividends
Dividends on the 8% Series “A” preferred stock of $77,874 and $19,608 were accrued for the six months ended June30, 2012 and 2011, respectively. The increase in the preferred stock dividend is due to an increase in the number of preferred shares outstanding over the prior period.
Deemed preferred stock dividends of $2,857 and $78,430 for the six months ended ended June 30, 2012 and 2011, respectively, relate to the Warrants issued to preferred stock holders during the prior year. 10,088 preferred shares were issued during the first quarter of the current year resulting in the charge of $2,857 for the six months ended June 30, 2012.
Net loss applicable to common stock
Net loss applicable to common stock for the six months ended June 30, 2012 and 2011, totaled ($710,078) and ($997,663.), respectively, representing a net loss per share of ($0.17) and ($0.20) per share for the six months ended June 30, 2012 and 2011, respectively. This decrease is explained under net loss and preferred stock dividends and deemed preferred stock dividends 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 June 30, 2012 our Company had cash totaling $149,064 and other current assets totaling $314,701, and total assets of $1,315,133. We had total current liabilities of $970,107, and a net working capital deficit of $504,342. Total liabilities were $1,327,066 and the convertible redeemable preferred stock totaled $2,065,392 resulting in a stockholders’ deficit of ($2,077,325) at June 30, 2012.
We may receive net proceeds from the exercise of the warrants to purchase shares of our common stock covered by this prospectus that would total $2,221,120 if all the warrants were exercised for cash. See Note 11, “Warrants” in the Notes to the Consolidated Financial Statements (Unaudited) for a list of warrants outstanding as of June 30, 2012 and their associated exercise price and expiration dates.
An analysis of our cash flows from operating, investing and financing activities for the six months ended June 30, 2012 and 2011 is provided below:
| | | Six months ended June 30, 2012 | | | Six months ended June 30, 2011 | |
| | | | | | | |
| Net cash used in operating activities | | $ | (717,607 | ) | | $ | (208,986 | ) |
| | | | | | | | | |
| Net cash used in investing activities | | | (26,198 | ) | | | (36,628 | ) |
| | | | | | | | | |
| Net cash provided by financing activities | | | 214,569 | | | | 1,317,318 | |
| | | | | | | | | |
| Net (decrease)/increase in cash and cash equivalents | | $ | (529,236 | ) | | $ | 1,071,704 | |
Net cash used in operating activities was $717,607 for the six months ended June 30, 2012 compared to $208,986 for the same period in 2011. The increase in cash used in operating activities was primarily due to the following:
| | | Six months ended June 30, | | | | | | | |
| | | 2012 | | | 2011 | | | Increase/ (decrease) | | | Percentage change | |
| | | | | | | | | | | | | |
| Net loss | | $ | (629,347 | ) | | $ | (899,625 | ) | | $ | 270,278 | | | | 30.0 | % |
| | | | | | | | | | | | | | | | | |
| Adjustments for non-cash items | | | 105,976 | | | | 307,083 | | | | (201,107 | ) | | | (65.5 | )% |
| | | | | | | | | | | | | | | | | |
| Changes in operating assets and liabilities | | | (194,236 | ) | | | 383,556 | | | | (577,792 | ) | | | (150.6 | )% |
| | | | | | | | | | | | | | | | | |
| | | $ | (717,607 | ) | | $ | (208,986 | ) | | $ | (508,621 | ) | | | | |
The reduction in the net loss is discussed under net loss in the results of operations for the six months ended June 30, 2012 and the six months ended June 30, 2011.
The adjustments for non-cash items was primarily due to a decrease in non-cash compensation charges relating to stock options of $206,849.
The changes in operating assets and liabilities included (i) an increase in accounts receivable of $(340,519) which is primarily due to the timing of receipts before or after month end from our primarily government customers, and (ii) a decrease in our accounts payable balances of $(196,805) which is primarily due to a substantial increase in legal expenses in the prior year six month period.
Net cash used in investing activities was $26,198 for the six months ended June 30, 2012 compared to $36,628 for the same period in 2011. These purchases represent minor fixed asset purchases.
Net cash provided by financing activities was $214,569 for the six months ended June 30, 2012 compared to $1,317,318 for the same period in 2011 and is made up as follows:
| | | Six months ended June 30, | | | | | | | |
| | | 2012 | | | 2011 | | | Increase/ (decrease) | | | Percentage change | |
| | | | | | | | | | | | | |
| Movement in borrowings from banks and third parties | | $ | 183,821 | | | $ | (99,790 | ) | | $ | 283,611 | | | | 284.2 | % |
| | | | | | | | | | | | | | | | | |
| Movements in borrowings from related parties | | | - | | | | (77,600 | ) | | | 77,600 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | |
| Proceeds from stock issues | | | 57,500 | | | | 1,494,708 | | | | (1,437,208 | ) | | | (96.2 | )% |
| | | | | | | | | | | | | | | | | |
| Dividends paid | | | (26,752 | ) | | | - | | | | (26,752 | ) | | | (100.0 | )% |
| | | | | | | | | | | | | | | | | |
| | | $ | 214,569 | | | $ | 1,317,318 | | | $ | (1,102,749 | ) | | | | |
The movement in borrowings from banks included a cash advance of $50,000 on the revolving letter of credit and a term loan of $148,500 in the current year. In the prior year no advances were received and the movement represented repayments of borrowing facilities.
The movements in borrowings from related parties in the prior year represented a repayment of loans advanced to the company by Dr. Benjamin Warner; these funds were subsequently reinvested in the preferred stock issued by the Company.
The proceeds from stock issues in the current year represent proceeds from the issuance of 10,088 shares of preferred stock issued during the first quarter at $5.70 per share. The prior year stock issues included the issue of 252,658 shares of preferred stock at $5.70 per share and a further issue of 9,555 shares of common stock for stock options exercised.
The dividend paid represents the payment of dividends due to preferred stock holders in the prior year to those preferred stock holders who elected to receive cash dividends instead of shares of common stock.
Capital Expenditures
Our current plans do not call for our Company to expend significant amounts for capital expenditures for the foreseeable future beyond the addition of an XRpro® X-ray fluorescence microscope, which is expected to be completed in the third quarter of the current year, as well as office furniture and information technology related equipment as we add employees and sales offices to our Company. Bruker produces the XRpro products that we market and our corporate facilities are contracted for with third parties (and therefore do not require us to make capital purchases in this area).
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Not applicable.
| Item 4. | 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-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. 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 Principal Executive Officer who is also its Principal 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 CEO who is also its CFO concluded that the Company’s disclosure controls and procedures are effective 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 CEO who is also its CFO, as appropriate, to allow timely decisions regarding required disclosure.
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 fiscal quarter ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
| Item 1. | Legal Proceedings. |
Los Alamos National Security Suit
The Company filed suit against the Regents of the University of California and Los Alamos National Security LLC in California Superior Court in San Francisco in December 2007. This suit alleged (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. In April 2006, the Regents assigned the Agreement to LANS. The Company alleges that 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 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.
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; (iv) legal malpractice; and other related claims in connection with the September 2005Agreement. In April 2006, the Regents assigned the Agreement to LANS. The Company alleges that the defendants made false representations that were critical to its decision to enter into the Agreement including: (i) the Regents was the lawful owner of the patent rights covered by the Agreement; and (ii) the Regents would prosecute and maintain these patent rights and notify the Company if it decided to abandon them. The Company also believes that LANS and other co-defendants improperly competed with the Company. In addition, the Company believes that two of the co-defendants, both in-house patent attorneys for LANS, breached their professional duties. The Company 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 pending litigation, the Company. If the Company is not successful in its defense of these counterclaims it would have a material adverse effect on the Company and its operations.
In September 2011, the Company filed suit against the Regents and LANS in the Circuit Court of Cook County, Illinois. LANS removed the case to United States District Court for the Northern District of Illinois Eastern Division, Case # 11-CV-07259. The Company's complaint alleges the following: (i) breach of contract; (ii) breach of the implied covenant of good faith; (iii) fraud; and (iv) fraudulent inducement, in connection with the September 2005 Agreement the Regents assigned to LANS in April 2006. The Company alleges that 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 damages, interest, and costs. 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.
To date, we have spent a total of $1,088,725 with respect to these cases, of which $389,440 was spent during the year ended December 31, 2011 and $112,403 has been spent to date in 2012.
Seddie Bastanipour and Joel Bellows Suit
In October 2008, Seddie Bastanipour and Joel Bellows filed suit against the Company, our Chief Executive Officer, Dr. Benjamin Warner, and a former consultant to the Company, Sigmund Eisenchenk. Joel Bellows provided legal services to the Company through his legal firm, Bellows and Bellows P.C. The suit was filed in the Circuit Court of Cook County, Illinois and alleged the following: (i) Violation of Illinois Securities Act of 1953; (ii) Violation of Illinois Consumer Fraud Act; and (iii) Common Law Fraud, in connection with aggregate investments of $218,000 in the Company’s common stock claimed by Bastanipour and Bellows. They are seeking compensatory damages, costs and expenses. The Company does not believe Bellows will prevail on any of the alleged complaints. In December 2011, the Company completed an amicable settlement with Bastanipour.
In March, 2010, the Company filed suit against Joel Bellows and Bellows and Bellows P.C. in the United States District Court for the District of New Mexico alleging the following: (i) Breach of Contract; (ii) Negligence; (iii) Breach of Fiduciary Duty; (iv) Fraud; and (v) Tortious Interference with Contract. The aforementioned complaints relate to legal services provided by Bellows and Bellows P.C. for the Company. The Company is seeking compensatory damages, punitive damages, interest, costs and fees. A hearing date was initially set for this proceeding for June 2012 but has since been postponed, and we are engaged in settlement discussions.
In December 2010, the Company filed suit against Seddie Bastanipour and Peter Baltrus for breach of contract and negligence when they were performing accounting services on behalf of the Company which resulted in an IRS penalty. In December 2011, the Company completed an amicable settlement with Bastanipour 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. Baltrus claims to have been working for Bellows (see above) at all relevant times; the case against Peter Baltrus continues.
The Company has entered into further settlement discussions with Peter Baltrus.
To date, we have spent a total of $701,509 with respect to these cases, of which $287,540 was spent during the year ended December 31, 2011 and $296,199 has been spent to date in 2012.
| Unregistered Sales of Equity Securities and Use of Proceeds. |
In May and June 2012 we issued options to four individuals for services rendered exercisable for an aggregate of 37,000 shares of common stock. The exercise price of the issuances ranged from was $.20 per share to $5.71 per share and the options were exercisable between thirteen months and ten years. Of such options, 13,500 have vested 21,250 vest monthly as to 1,250 per month provided the individual is still serving as a director at such time and 1,000 vest on August 31, 2012 provided such individuals are still employed by us. The issuance of the options qualified for exemption under Section 4(2) of the Securities Act since the issuance by the Company did not involve a public offering. The issuance was not a public offering as defined in Section 4(2) because the issuance was made to an insubstantial number of persons and because of the manner of the offering. In addition, the option holder had the necessary investment intent as required by Section 4(2) since they agreed to, and received, certificates bearing a legend stating that such options and underlying shares are restricted. This restriction ensured that these securities will not be immediately redistributed into the market and therefore be part of a public offering. This issuance was done with no general solicitation or advertising by the Company. Based on an analysis of the above factors, the Company met the requirements to qualify for exemption under Section 4(2) of the Securities Act for the transactions.
| Item 3. | Defaults upon Senior Securities. |
None.
| Item 4. | Mine Safety Disclosure. |
Not Applicable
| Item 5. | Other Information. |
None.
| Exhibit | |
| Number | Description |
| | |
| 31.1* | Certification of the Principal Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 31.2* | Certification of the Principal Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32.1* | Certification of the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act |
| | |
| 32.2* | Certification of the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act |
| 101.INS** | XBRL Instance |
| | | |
| 101.XSD** | XBRL Schema |
| | | |
| 101.PRE** | XBRL Presentation |
| | | |
| 101.CAL** | XBRL Calculation |
| | | |
| 101.DEF** | XBRL Definition |
| | | |
| 101.LAB** | XBRL Label |
* Filed herewith
** To be filed by amendment
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | CALDERA PHARMACEUTICALS, INC. |
| | | |
| Date: August 10, 2012 | By: | /s/ Benjamin Warner |
| | | Benjamin Warner |
| | | Chief Executive Officer and Director (Principal Executive Officer) |
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