Icagen, Inc. - FORM 10-Q - November 13, 2014

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EX-32.2 - CERTIFICATION PURSUANT TO - Icagen, Inc.	f10q0914ex32ii_caldera.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Icagen, Inc.	f10q0914ex31ii_caldera.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Icagen, Inc.	f10q0914ex31i_caldera.htm
EXCEL - IDEA: XBRL DOCUMENT - Icagen, Inc.	Financial_Report.xls
EX-32.1 - CERTIFICATION PURSUANT TO - Icagen, Inc.	f10q0914ex32i_caldera.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2014

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

For the transition period from _________ to ________

Commission File Number: 000-54748

CALDERA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware		20-0982060
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Kendall Square, Building 200, Suite 2

Cambridge, Massachusetts, 02139

(Address of principal executive offices) (Zip Code)

(617) 631-8825

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
(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 ☒

Number of shares of common stock outstanding as of November 13, 2014 was 4,039,770.

CALDERA PHARMACEUTICALS, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page
	PART I.—FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of September 30, 2014 (Unaudited) and December 31, 2013	3
	Consolidated Statements of Operations for the three months and nine months ended September 30, 2014 and 2013, respectively (Unaudited)	4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013, respectively (Unaudited)	5
	Notes to the Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Information and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	39
Item 4.	Controls and Procedures	39

	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	51
SIGNATURE		52
GLOSSARY

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

	September 30, 2014			December 31, 2013
	Unaudited
ASSETS

Current assets:
Cash	$	2,823,973		$	519,733
Accounts receivable, net		71,506			106,019
Prepaid expenses		78,885			34,053

Total current assets		2,974,364			659,805

Non-current assets:
Intangible assets, net		504,128			542,890
Plant and equipment, net		459,692			453,701
Deposits		1,000			-
Investment in certificate of deposit		25,004			25,004

Total non-current assets		989,824			1,021,595

TOTAL ASSETS	$	3,964,188		$	1,681,400

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:
Accounts payable	$	565,717		$	1,710,173
Other payables and accrued expenses		243,053			413,892
Loans payable		34,120			280,782
Derivative financial liability		1,761,045			944,121
Dividends payable		850,983			389,017

Total current liabilities		3,454,918			3,737,985

Non-current liabilities:
Loans payable		151,288			177,053
Total non-current liabilities		151,288			177,053

TOTAL LIABILITIES		3,606,206			3,915,038

Convertible Redeemable Preferred Stock
Series A Cumulative Convertible Redeemable Preferred Stock, $0.001 par value, 400,000 shares designated, 105,000 shares issued and outstanding as of September 30, 2014 and December 31, 2013, liquidation preference is $5.70 per share.		133,350			133,350

Commitments and contingencies		-			-

STOCKHOLDERS’ EQUITY (DEFICIT):
Preferred stock, $0.001 par value, 10,000,000 authorized shares, 6,600,000 shares undesignated and unissued.		-			-
Series B Cumulative Convertible Preferred Stock, $0.001 par value, 3,000,000 designated shares, 2,133,947 shares issued and outstanding as of September 30, 2014 and December 31, 2013, liquidation preference is $2.50 per share.		2,134			2,134
Common stock, $0.001 par value, 50,000,000 authorized shares, 4,693,770 and 4,851,270 shares issued and 4,039,770 and 4,197,270 outstanding as of September 30, 2014 and December 31, 2013, respectively.		4,694			4,852
Additional paid in capital		10,969,237			10,475,253
Treasury stock, at cost (654,000 shares of common stock as of September 30, 2014 and December 31, 2013)		(473	)		(473	)
Accumulated deficit		(10,750,960	)		(12,848,754	)

Total stockholders’ equity (deficit)		224,632			(2,366,988	)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	3,964,188		$	1,681,400

See notes to the unaudited consolidated financial statements

CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended September 30, 2014			Three months ended September 30, 2013			Nine months ended September 30, 2014			Nine months ended September 30, 2013

Sales	$	71,508		$	60,628		$	408,390		$	380,923

Cost of sales		126,035			101,119			468,447			372,843

Gross (loss)/profit		(54,527	)		(40,491	)		(60,057	)		8,080

Operating expenses:
Selling, general and administrative expenses		1,577,822			976,848			3,606,305			2,466,838
Depreciation		28,820			30,704			83,599			86,353
Amortization		12,921			12,921			38,764			38,763
Total operating expenses		1,619,563			1,020,473			3,728,668			2,591,954

Operating loss		(1,674,090	)		(1,060,964	)		(3,788,725	)		(2,583,874	)

Other income/(expense)
Other income		-			-			7,177,522			-
Interest income		22			458			84			1,142
Interest expense		(2,568	)		(16,267	)		(12,201	)		(155,968	)
Change in fair value of derivative liabilities		(131,922	)		536,665			(816,924	)		388,094

Total other income/(expense)		(134,468	)		520,856			6,348,481			233,268

Net (loss)/income		(1,808,558	)		(540,108	)		2,559,756			(2,350,606	)

Deemed preferred stock dividends		-			(16,925	)		-			(1,745,837	)
Preferred stock dividends		(156,839	)		(146,470	)		(461,966	)		(294,054	)

Net (loss)/income applicable to common stock	$	(1,965,397	)	$	(703,503	)	$	2,097,790		$	(4,390,497	)

Net (loss)/income per common stock: -
Basic	$	(0.49	)	$	(0.17	)	$	0.51		$	(1.03	)
Diluted	$	(0.49	)	$	(0.17	)	$	0.40		$	(1.03	)

Weighted average number of common stock outstanding: -
Basic		4,039,770			4,197,270			4,077,270			4,251,116
Diluted		4,039,770			4,197,270			6,385,809			4,251,116

See notes to the unaudited consolidated financial statements

CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine months ended September 30, 2014			Nine months ended September 30, 2013

Cash flow from operating activities
Net income (loss)	$	2,559,756		$	(2,350,606	)
Adjustments for non-cash items:
Depreciation		83,599			86,353
Amortization		38,764			38,763
(Gain)/loss on disposal/scrapping of plant and equipment		(462	)		1,082
Amortization of bridge note discount		-			117,629
Stock based compensation charge		671,349			441,566
Loss/(gain) on change in fair value of derivative financial liability		816,924			(388,094	)
Increase in receivables provision		-			14,086
Increase in legal settlement accrual		-			115,273
Gain on cancellation of shares in legal settlement		(177,522	)		-
Changes in operating assets and liabilities:
Decrease/(increase) in accounts receivable		34,513			(20,949	)
Increase in prepaid expenses and deposits		(44,832	)		(50,619	)
(Decrease)/increase in accounts payable		(1,144,456	)		154,382
(Decrease)/increase in other payables and accrued expenses		(171,599	)		33,190

Net cash provided by/(used in) operating activities		2,666,034			(1,807,944	)

Cash flow from investing activities
Purchase of plant and equipment		(91,878	)		(106,984	)
Proceeds from sale of equipment		2,750			-
Investment in certificate of deposit		-			(25,000	)
Investment in deposits		(1,000	)		-

Net cash used in investing activities		(90,128	)		(131,984	)

Cash flow from financing activities
Advance on term loan		-			267,392
Repayment of term loan		(247,201	)		-
Repayment of line of credit		-			(168,000	)
Repayment of commercial equipment loan		-			(139,832	)
Repayment of Los Alamos County loan		(24,465	)		(23,274	)
Proceeds from Bridge note		-			250,000
Repayment of Bridge note		-			(125,000	)
Proceeds from Series B stock issued, net of issue expenses		-			2,509,700

Net cash (used in)/provided by financing activities		(271,666	)		2,570,986

Net increase in cash		2,304,240			631,058

Cash at the beginning of the period		519,733			378,643

Cash at the end of the period	$	2,823,973		$	1,009,701

Supplemental disclosure of cash flow information
Cash paid for:
Interest	$	12,211		$	30,752
Income taxes	$	-		$	-

Non-cash investing and financing activities:
Series B Preferred stock issued in exchange for Series A Preferred stock	$	-		$	2,065,392
Series B Preferred stock issued in lieu of series A Preferred stock dividends	$	-		$	208,558
Series B Preferred stock issued upon conversion of Bridge notes and interest thereon	$	-		$	384,160
Deemed preferred stock dividends relating to warrants issued to preferred stock holders	$	-		$	1,745,837
Accrued Series A Preferred stock dividends	$	36,125		$	17,600
Accrued Series B Preferred stock dividends	$	425,841		$	224,774

See notes to the unaudited consolidated financial statements

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	GENERAL INFORMATION

Caldera Pharmaceuticals, Inc. (“the Company”, “we”, “us”, “our”) is a Delaware corporation. The principal office is located in Cambridge, Massachusetts. The Company was incorporated in November 2003.

The Company has generated the majority of its revenues to date through Government research contracts and Government grants utilizing its proprietary x-ray fluorescence technology.

2.	ACCOUNTING POLICIES AND ESTIMATES

General

The following (a) consolidated balance sheets as of September 30, 2014 (unaudited) and December 31, 2013, which have been derived from audited consolidated financial statements, and (b) the unaudited interim statements of operations and cash flows of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months and the nine months ended September 30, 2014 are not necessarily indicative of results that may be expected for the year ending December 31, 2014. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2013 included in the Company’s Form 10-K, filed with the Securities and Exchange Commission (“SEC”).

Basis of Presentation

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

In the opinion of management, all adjustments necessary to fairly present the results for the interim periods presented have been made. All adjustments made are of a normal and recurring nature and no non-recurring adjustments have been made in the presentation of these interim financial statements.

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

Consolidation

The unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries in which it has a majority voting interest. Investments in affiliates are accounted for under the cost method of accounting, where appropriate. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements. The entities included in these consolidated financial statements are as follows:

Caldera Pharmaceuticals, Inc. - Parent Company

XRpro Corp. – Wholly owned subsidiary

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Estimates

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

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against and by the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Fair value of financial instruments

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

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the balance sheets for cash, accounts receivable, loans payable, accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments. The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with the accounting guidance.

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

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

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) Patents and License Agreements

Patents and 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 patents and license agreement is twenty years which is the term of the patents and patents supporting the underlying license agreements

Plant and equipment

Plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:

Leasehold improvements			5 Years
Laboratory equipment			7 Years
Furniture and fixtures			10 Years
Computer equipment			3 Years
Motor vehicles (used)			2 Years

The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.

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

Concentrations of credit risk

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

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Concentration of major customers

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

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

Total revenues by customer type are as follows:

	Three months ended September 30, 2014		Three months ended September 30, 2013		Nine months ended September 30, 2014		Nine months ended September 30, 2013

National Institutes of Health	$	71,508	$	60,628	$	408,390	$	313,805
Department of Defense		-		-		-		67,118

	$	71,508	$	60,628	$	408,390	$	380,923

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 September 30, 2014 and December 31, 2013 was $19,084. The amount charged to bad debt provision for the nine months ended September 30, 2014 and 2013 was $0 and $14,806, 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.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Revenue recognition

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

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

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

When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recorded in the period the loss is determined.

To a much lesser extent, we enter into fixed fee commercial development contracts that are not associated with the delivery of feasible research on drug candidates and the development of drug candidates. Revenue under such contracts is generally recognized upon delivery or as the development is performed.

Sales and Marketing

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

Research and Development

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

The amount expensed for unrecovered research costs, included in Selling, general and administrative expenses during the nine months ended September 30, 2014 and 2013 was $236,475 and $122,347 respectively. The amount expensed for unrecovered research costs, included in Selling, general and administrative expenses during the three months ended September 30, 2014 and 2013 was $78,910 and $46,944 respectively.

Patent Costs

Legal costs in connection with approved patents and patent applications are expensed as incurred and classified as Selling, general and administrative expense in our consolidated statements of operations.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Share-Based Compensation

Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee's requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of operations for the nine months ended September 30, 2014 and 2013 is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from those estimates. We have no awards with market or performance conditions.

Income Taxes

The Company utilizes ASC 740, Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Net income/(loss) per Share

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

Diluted net income/(loss) per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net income/(loss) per share are excluded from the calculation.

Dilution is computed by applying the treasury stock method for options and warrants. Under this method, “in-the money” options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

Dilution is computed by applying the if-converted method for convertible preferred stocks. Under this method, convertible preferred stock is assumed to be converted at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine income applicable to common stock. The shares issuable upon conversion will be added to weighted average number of common stock outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share).

Comprehensive income

Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. For the Company, comprehensive income for the periods presented includes net income/(loss).

Related parties

Parties are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company shall disclose all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to the related party.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Derivative Liabilities

The Company assessed the classification of its derivative financial instruments as of September 30, 2014, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

Convertible Instruments

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.

Professional standards generally provide three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of “Conventional Convertible Debt Instrument”.

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.

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 FASB has issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.

The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Recent accounting pronouncements (continued)

In August 2014, the FASB issued a new accounting standard which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2014 and the Company will continue to assess the impact on its consolidated financial statements.

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements to have a significant impact on the results of operations, financial condition or cash flow.

3.	LIQUIDITY

On March 6, 2014, the Company received a substantial cash infusion from the proceeds of litigation (See note 16 below) providing the Company with sufficient capital resources to meet its projected cash flow requirements in conducting its operations for at least the next twelve month period commencing on March 31, 2014. However there can be no assurance that additional and unforeseen non-recurring expenses will not arise during the next twelve month period or that the Company will be successful in completing its business development plan.

4.	INTANGIBLE ASSETS

Licenses

In terms of an Exclusive Patent License agreement (“License”) covering national and international patents entered into with the Los Alamos National Security LLC (“the Licensor”) dated September 8, 2005, the Company has the exclusive right to the use of certain patents.

In terms of the agreement, the Company had issued shares to the Licensor equal to 3% of the issued equity of the Company and had an obligation to issue further shares based on anti-dilutive provisions and future fund raisings. In terms of the settlement agreement entered into on March 6, 2014, as disclosed under litigation in note 16 below, the 157,500 Common shares issued to the Licensor were returned to Caldera and all future claims against the equity of Caldera were extinguished.

The License agreement provided for the payment of royalties at a rate of 2% per annum on net sales, excluding sales to Government Agencies. The Company had not paid any royalties on a percentage basis, and have only paid the minimum fee of $50,000 per annum since entering into the agreement.

Subsequent to the nine months ended September 30, 2014 on October 15, 2014, the following national and international patents owned by Los Alamos National Security and previously licensed to the Company were assigned to the Company.

The recently assigned patents consist of 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.

●	Advanced Drug Development and Manufacturing (The Licensor assigned its rights to this application to the Company, which already owned rights to this patent assigned to the Company by inventors currently and previously employed by the Company).

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.

●	Advanced Drug Development and Manufacturing.

The Company has various other 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.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4.	INTANGIBLE ASSETS (continued)

Patents and licenses consist of the following:

	September 30, 2014			December 31, 2013
	(Unaudited)
Patents and Licenses, at cost	$	972,000		$	972,000
Less: Accumulated amortization		(467,872	)		(429,110	)

	$	504,128		$	542,890

The aggregate amortization expense charged to operations was $38,764 and $38,763 for the nine months ended September 30, 2014 and 2013, respectively. The aggregate amortization expense charged to operations was $12,921 for the three months ended September 30, 2014 and 2013. The amortization policies followed by the Company are described in Note 2.

Amortization expense for future periods is summarized as follows:

	Amount

Remainder of 2014	$	12,921
2015		51,684
2016		51,684
2017		51,684
2018 and thereafter		336,155
Total	$	504,128

5.	PLANT AND EQUIPMENT

Plant and equipment consists of the following:

	September 30, 2014			December 31, 2013
	(Unaudited)
Leasehold improvements	$	6,393		$	6,393
Furniture and fittings		25,346			23,099
Laboratory equipment		920,689			837,882
Computer equipment		25,868			19,044
Vehicles		-			17,658
Total		978,296			904,076
Accumulated depreciation		(518,604	)		(450,375	)
	$	459,692		$	453,701

The aggregate depreciation charge to operations was $83,599 and $86,353 for the nine months ended September 30, 2014 and 2013, respectively. The aggregate depreciation charge to operations was $28,820 and $30,704 for the three months ended September 30, 2014 and 2013, respectively. The depreciation policies followed by the Company are described in Note 2.

6.	OTHER PAYABLES AND ACCRUED EXPENSES

	September 30, 2014		December 31, 2013
	(Unaudited)
Short-term portion
Credit card liabilities	$	38,664	$	11,670
Vacation and Sick Pay accrual		117,421		147,980
Other payables		-		168,000
Payroll liabilities		42,290		47,192
Other		44,678		39,050
	$	243,053	$	413,892

The other payables relates to the settlement liability owing to Bellows disclosed under Litigation in note 16 below.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7.	LOANS PAYABLE

	September 30, 2014		December 31, 2013
	(Unaudited)
Short term portion
Los Alamos County project participation loan	$	34,120	$	32,870
Los Alamos Bank term loan		-		247,912
		34,120		280,782
Long term portion
Los Alamos County project participation loan		151,288		177,053
Total	$	185,408	$	457,835

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

	Amount

Within 1 year	$	34,120
1 to 2 years		35,866
2 to 3 years		37,701
3 to 4 years		39,629
Thereafter		38,092
Total	$	185,408

Los Alamos County project participation loan

The Company entered into a Project Participation Agreement (as Amended) and a Loan Agreement with the Incorporated County of Los Alamos as of September 21, 2006. The Agreement provided for funding up to a maximum of $2,200,000 for the construction of a building and purchase of equipment. The maximum amount of equipment to be funded out of the total available loan of $2,200,000 was $625,000. The term of the loan is 13 years. The loan agreement provided for no repayments for 36 months with 120 equal monthly repayments commencing on September 21, 2009. The interest rate on the loan is 5% per annum. The assets funded in terms of the Project Participation Agreement and the Loan Agreement is to be used as security for the balance of the loan outstanding. The Company made use of the loan to purchase assets amounting to $302,009 during the 2007 financial year. Repayments of the loan commenced on September 21, 2009 at an interest rate of 5% per annum with equal monthly repayments of $3,547, inclusive of interest. The Company owed $185,408 and $209,923 as of September 30, 2014 and December 31, 2013, respectively.

Los Alamos National Bank (“LANB”)

On September 16, 2013 the Company executed a term loan agreement for $267,392 with LANB to replace a previous revolving draw loan and a previous commercial loan. The loan carried interest at the Wall Street Journal Prime rate plus 2.0% with a floor of 7.0% per annum. The loan was due to mature on September 16, 2016 and was repayable in 36 monthly installments of $8,256, inclusive of interest, which installment may vary depending on the variable interest rate mentioned above. This loan was secured by accounts receivable and other rights to payments, instruments, documents and other chattel paper, general intangibles and fixed assets. This loan had been advanced to both the Company and XRpro Corp., a wholly owned subsidiary, jointly and severally, and had been guaranteed by Dr. Benjamin Warner and his wife. On April 11, 2014, the remaining balance on the term loan together with interest thereon, totaling $227,717 was repaid. The guarantees provided by Dr. Benjamin Warner and his wife have also been cancelled. The Company owed $247,912 as of December 31, 2013.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8.	DERIVATIVE FINANCIAL LIABILITY

The warrants arising from the previous issue of Bridge notes (“Bridge Warrants”) have anti-dilution protection, whereby the exercise price of the warrant will re-price, based on a pre-determined formula, if any securities are sold, exercisable or convertible at a price less than the exercise price of the Bridge Warrants. This gives rise to a derivative financial liability, which was originally valued at $118,232 using a Black-Scholes valuation model.

The warrants arising from the previous issue of series B preferred units (“Series B Stock”), together with the placement agent warrants directly related to that issue, have anti-dilution protection, whereby the exercise price of the warrant will re-price, based on a pre-determined formula, if any securities are sold, exercisable or convertible at a price less than the exercise price of the series B warrants. This gives rise to a derivative financial liability, which was originally valued at $1,745,836 and recorded as a deemed dividend expense, as of the date of issuance of the series B stock using a Black-Scholes valuation model.

The value of the derivative financial liability will be re-assessed at each financial reporting period, with any movement thereon recorded in the statement of operations in the period in which it is incurred.

The value of the derivative financial liability was re-assessed as of September 30, 2014 resulting in a net charge to the unaudited consolidated statement of operations of $816,924 for the nine months ended September 30, 2014.

	September 30, 2014		December 31, 2013
	(Unaudited)
Opening balance	$	944,121	$	17,539
Derivative financial liability arising on bridge warrants with re-pricing terms		-		100,693
Derivative financial liability arising on the issue of warrants relating to Series B shares		-		1,745,837
Fair value adjustments		816,924		(919,948	)
	$	1,761,045	$	944,121

The following assumptions were used in the Black-Scholes valuation model:

	Nine months ended September 30, 2014

Calculated stock price	$	1.13
Risk-free interest rate		1.78	%
Expected life of warrants		3.25 to 5.75 Years
Expected volatility of the underlying stock		135.4	%
Expected dividend rate		0	%

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9.	PREFERRED STOCK

Preferred Stock consists of 10,000,000 authorized preferred shares of $0.001 par value each of which 400,000 are designated as Series A 8% convertible redeemable preferred shares of $0.001 each and 3,000,000 are designated as Series B convertible preferred shares of $0.001 each, with the remaining 6,600,000 preferred shares remaining undesignated.

Series A 8% Convertible, Redeemable Preferred Stock (“Series A Stock”)

Series A Stock consists of 400,000 designated shares of $0.001 par value each, 105,000 shares issued and outstanding as of September 30, 2014 and December 31, 2013.

Conversion

The Series A Stock will convert to common stock of the Company at a price of $5.70 per share of Common Stock subject to adjustment for stock splits, stock dividends and any further recapitalizations. The Series A Stock is subject to voluntary conversion at the option of the stockholder at any time and is mandatory convertible at the option of the Company provided the Company’s common stock is trading on a recognized stock exchange or Over the Counter Bulletin Board and the volume weighted average price of the Company’s common stock is at least $10 per share, subject to stock splits, stock dividends and recapitalizations.

Warrants

The original holders of Series A Stock had received warrants to purchase 341,607 shares of the Company’s common stock at an exercise price of $5.70 per share. The warrants expire five years after date of issuance. In terms of the exchange agreement entered into with the Company on April 30, 2013, these warrants remain in place. These warrants are not transferable without the consent of the Company and an opinion of counsel satisfactory to the Company.

Redemption

Should the Company receive net proceeds of at least $3 million from litigation proceedings against the Regents of the University of California and Los Alamos National Security (see note 16); the remaining Series A stockholders will have the option to redeem the Series A Stock equal to 130% of the initial investment in the Company by the stockholder, which amounted to $210,000. This value differs from the carrying value of the Series A Stock of $133,350 which was valued using the Black-Scholes valuation model at the time of exchanging common stock for Series A Stock. The Company also has the option to redeem the Series A Stock at a price equal to 130% of the initial investment in the Company by the stockholder at any time after giving the investors notice and allowing them to exercise their conversion rights into common stock 30 days after notice has been received.

Liquidation

The liquidation rights of the Series A Stock is the greater of $5.70 per share plus any unpaid dividends or an amount that would have been payable had all shares of Series A Stock converted into common stock immediately prior to liquidation.

Dividends

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

An accrual for Series A Stock dividends of $36,125 and $69,268 was made for the nine months ended September 30, 2014, and 2013, respectively. An accrual for Series A Stock dividends of $12,175 and $12,174 was made for the three months ended September 30, 2014, and 2013, respectively.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9.	PREFERRED STOCK (continued)

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

Series B Stock consists of 3,000,000 designated shares of $0.001 par value each and 2,133,947 shares issued and outstanding as of September 30, 2014 and December 31, 2013.

The following is a summary of material provisions of the Series B Stock as set forth in the Certificate of Designations.

Conversion

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

Liquidation

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

Anti-Dilution

If the Company issues Common Stock or securities convertible, exercisable or exchangeable into Common Stock for a purchase price of less than $2.50 per share then the holders of the Series B Stock will be entitled to a weighted-average” adjustment in the number of common shares that their Series B Stock can be converted into; provided, however, that there will be no adjustment to the number of shares of Common Stock that the Series B Stock can be converted into for (i) issuance or sale of Common Stock or options or other awards under the Corporation’s equity incentive plans or programs not to exceed 2,000,000 shares of Common Stock; (ii) issuance or sale of preferred stock or Common Stock issuable upon conversion, exchange or exercise of the Series A Stock or Series B Stock, the Bridge Notes, the Warrants issued in connection with the exchange of the Bridge Notes, the Warrants issued in connection with the issuance of the Series B Stock to the holders thereof, any Warrants issued to the Placement Agent or its designees in connection with the issuance of the Series B Stock or as an advisory fee or any other convertible securities or warrants outstanding on the date hereof; (iii) issuance of equity securities or rights to purchase equity securities issued in connection with commercial property or lease transactions that are approved by the Board of Directors; (iv) issuance of equity securities or rights to purchase equity securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination approved by the Board of Directors; (v) issuance of securities to an entity as a component of any business relationship with such entity primarily for the purpose of (A) joint venture, technology or licensing development activities; (B) distribution, supply or manufacture of the Company’s products or services; or (C) any other arrangements involving corporate partners primarily for purposes other than raising capital, the terms of which business relationship with such entity are approved by the Board of Directors; and (vi) issuance of stock pursuant to a stock dividend or stock split.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9.	PREFERRED STOCK (continued)

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 are entitled to receive, upon request, a consolidated balance sheet of the Company, if any, as of the end of such fiscal year or quarter, and consolidated statements of operations and consolidated statements of cash flows and stockholders’ equity of the Company, if any, for such year or quarter, prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail.

Dividends

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

An accrual for Series B Stock dividends of $425,841 and $224,774 was made for the nine months ended September 30, 2014 and 2013, respectively. An accrual for Series B Stock dividends of $144,665 and $134,295 was made for the three months ended September 30, 2014 and 2013, respectively.

10.

COMMON STOCK

Common stock consists of 50,000,000 authorized shares of $0.001 each, 4,693,770 and 4,851,270 shares issued and 4,039,770 and 4,197,270 shares outstanding as of September 30, 2014 and December 31, 2013, respectively.

On March 6, 2014, in terms of a settlement agreement into, as disclosed under litigation in note 16 below, the 157,500 Common shares issued to Los Alamos National Security LLC were returned to Caldera and all future claims against the equity of Caldera were extinguished. These shares were cancelled and are available for reissue.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11.

WARRANTS

The following table summarizes warrants outstanding and exercisable as of September 30, 2014:

		Warrants Outstanding						Warrants Exercisable
Exercise Price		Number of shares		Weighted average remaining contractual years		Weighted Average Exercise Price		Number of Shares		Weighted Average exercise Price

$	0.01		40,000		5.75				40,000
$	2.00		15,000		2.09				15,000
$	2.50		1,271,664		5.58				1,271,664
$	2.75		286,800		5.75				286,800
$	3.00		300,000		3.36				300,000
$	5.70		384,407		1.69				384,407

			2,297,871		4.64	$	3.09		2,297,871	$	3.09

12.

STOCK BASED COMPENSATION

In October 2005, the Company's Board of Directors adopted the Caldera Pharmaceuticals, Inc. 2005 Stock Option Plan (the "Plan"), which permits awards of incentive and nonqualified stock options and other forms of incentive compensation to employees and non-employees such as directors and consultants. The Board has set aside 3,000,000 shares of common stock for issuance upon exercise of grants made under the Plan. Options granted under the Plan vest either immediately or over a period of up to two years, and expire 1 year to 10 years from the grant date. At September 30, 2014, 1,058,196 shares were available for future grant under the Incentive Plan.

Stock option based compensation expense totaled $671,349 and $441,566 for the nine months ended September 30, 2014 and 2013, respectively and $424,085 and $212,307 for the three months ended September 30, 2014 and 2013, respectively. The Company expenses the value of stock options on a straight line basis over the life of the options. The fair value of the options granted is determined using the Black-Scholes option-pricing model.

The following weighted average assumptions were used for the nine months ended September 30, 2014:

	Nine months ended September 30, 2014

Calculated stock price	$	1.13
Risk-free interest rate		1.59% to 2.6	%
Expected life of options		5- 10 Years
Expected volatility of the underlying stock		118.1	%
Expected dividend rate		0	%

As noted above, the fair value of stock options is determined by using the Black-Scholes option-pricing model. For all options granted since October 1, 2005 the Company has generally used option terms of between 1 to 10 years. The volatility of the common stock is estimated using historical data of companies similar in size and in the same industry as Caldera Pharmaceuticals. The risk-free interest rate used in the Black-Scholes option-pricing model is determined by reference to historical U.S. Treasury constant maturity rates with maturities approximate to the life of the options granted. An expected dividend yield of zero is used in the option valuation model, because the Company does not expect to pay any cash dividends in the foreseeable future. As of September 30, 2014, the Company does not anticipate any awards will be forfeited in the calculation of compensation expense due to the limited number of employees that receive stock option grants.

No options were exercised for the nine months ended September 30, 2014 and the year ended December 31, 2013.

We canceled options exercisable for 20,625 and 40,625 shares of common stock for the nine months ended September 30, 2014 and the year ended December 31, 2013, respectively, held by employees whose service to our company terminated during those respective periods. The shares underlying such options were returned to and are available for re-issuance under the 2005 Plan pursuant to the terms described above.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12.

STOCK BASED COMPENSATION (continued)

A summary of all of our option activity during the period January 1, 2013 to September 30, 2014 is as follows:

	Shares			Exercise Price per Share		Weighted Average Exercise Price

Outstanding January 1, 2013		506,154		$	0.20 - 5.71	$	3.14
Granted		1,184,900			1.50 - 5.71		2.00
Forfeited/Cancelled		(40,625	)		2.00 - 5.71		4.09
Exercised		-			-		-
Outstanding December 31, 2013		1,650,429		$	0.20 - 5.71	$	2.31
Granted		312,000			2.50		2.50
Forfeited/Cancelled		(20,625	)		5.71		5.71
Exercised		-			-		-
Outstanding September 30, 2014		1,941,804		$	0.20 - 5.71	$	2.30

Stock options outstanding as of September 30, 2014 and December 31, 2013, as disclosed in the above table, have an intrinsic value of $33,750 and $33,325, respectively.

The following tables summarize information about stock options outstanding as of September 30, 2014:

		Options Outstanding						Options Exercisable
Exercise Price		Number of shares		Weighted average remaining contractual years		Weighted Average Exercise Price		Number of Shares		Weighted Average exercise Price

$	0.20		30,000		7.59				30,000
$	1.10		220,000		6.42				220,000
$	1.50		625,000		8.46				625,000
$	2.00		15,000		1.12				15,000
$	2.50		856,900		3.03				581,002
$	5.71		194,904		3.96				194,904

			1,941,804		5.31	$	2.30		1,665,906	$	2.27

The weighted-average grant-date fair values of options granted during the nine months ended September 30, 2014 and the year ended December 31, 2013 was $302,080 ($0.97 per option) and was $1,296,119 ($1.09 per option), respectively. As of September 30, 2014 there were unvested options to purchase 275,898 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is $259,158, which is expected to be recognized over a period of 42 months.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13.

NET INCOME/(LOSS) PER COMMON SHARE

Basic income/(loss) per share is based on the weighted-average number of common shares outstanding during each period. Diluted income/(loss) per share is based on basic shares as determined above plus the incremental shares that would be issued upon the assumed exercise of “in-the-money” stock options and warrants using the treasury stock method and the inclusion of all convertible securities, including preferred stock and convertible notes, assuming these securities were converted at the beginning of the period or at the time of issuance, if later. The computation of diluted net income/(loss) per share does not assume the issuance of common shares that have an anti-dilutive effect on net income/(loss) per share.

The computation of basic and diluted earnings per share is as follows:

	For the nine months ended September 30, 2014
	Income			Shares		Per share amount

Net income	$	2,559,756
Preferred stock dividends		(461,966	)

Basic Earnings per share
Income available to common stockholders		2,097,790			4,077,270	$	0.51

Effect of dilutive securities
Warrants		-			39,645
Options		-			29,947
Series A Preferred stock		36,125			105,000
Series B Preferred stock		425,841			2,133,947

Diluted Earnings per share
Income available to common stockholders and assumed conversions	$	2,559,756			6,385,809	$	0.40

For the nine months ended September 30, 2014 options to purchase 1,030,042 shares of common stock and warrants to purchase 2,257,871 shares of common stock were excluded from the computation of diluted earnings per share as the option and warrant exercise prices was greater than the average market price of the common shares. These options and warrants were still outstanding as of September 30, 2014.

For the three months ended September 30, 2014 and the three and nine months ended September 30, 2013 the following options, warrants and convertible preferred stock were excluded from the computation of diluted net loss per shares as the result of the computation was anti-dilutive:

	Three months ended September 30, 2014 (Shares)		Three and nine months ended September 30, 2013 (Shares)

Options to purchase shares of common stock		1,941,804		1,634,054
Warrants		2,297,871		2,297,871
Series A convertible, redeemable preferred stock		105,000		105,000
Series B convertible preferred stock		2,133,947		2,133,947
		6,478,622		6,170,872

14.

RELATED PARTY TRANSACTIONS

The majority of the common shares in the Company are owned by Dr. Benjamin Warner, the Chief Scientific Officer. As of September 30, 2014 and December 31, 2013, Dr. Benjamin Warner owned 78.9% and 76.0%, respectively of the issued and outstanding shares of common stock on an un-diluted basis.

Effective April 1, 2014, the Company appointed Mr. Timothy Tyson as Non Executive Chairman of the Board. Mr. Tyson has been a director of the Company from October 1, 2013. Mr. Warner who had served as our Chairman of the Board from inception to March 31, 2014, relinquished this position.

Mr. Tyson entered into an agreement with the Company whereby he is entitled to fees of $120,000 per annum and options to purchase 132,000 shares of common stock at an exercise price of $2.50 per share were granted to Mr. Tyson. These options will vest equally over a twenty four month period. The agreement also includes confidentiality obligations and inventions assignments by Mr. Tyson.

Effective August 11, 2014, the Company entered into a Severance Agreement and Release (“the Agreements”) whereby Gary Altman, the Company’s Chief Executive Officer who resigned, effective August 29, 2014.

Set forth below is a description of the terms of the Agreements that the Company deems to be material; however, the description is qualified in its entirety by the complete description of all of the terms of the Agreement:

	●	Mr. Altman has irrevocably and voluntarily resigned from his position as Chief Executive Officer of Caldera and from the Board of Directors of the Company and all of its subsidiaries or affiliates as of August 29, 2014.

	●	As of August 29, 2014 Mr. Altman had no further obligation or authority to perform duties and functions on behalf of the Company and/or its subsidiaries or affiliates and refrained from performing such duties or functions; however, Mr. Altman agreed to cooperate with the Company as necessary for the business of the Company when requested by the President, Chief Executive Officer and/or Chairperson of the Board.

	●	In addition to accrued and unpaid base salary and expense reimbursement, the Company paid Mr. Altman Three Hundred Twenty Five Thousand Dollars ($325,000) as well as reimbursement for certain legal fees and moving expenses, provided that Mr. Altman did not violate the terms of the Agreement.
	●	The Company will provide Mr. Altman with reimbursement of COBRA premiums (less the amount Mr. Altman was required to pay under the Company’s health plans through the earlier of (i) December 31, 2015; (ii) the date Mr. Altman is no longer eligible to receive COBRA; and (iii) the date Mr. Altman becomes eligible to receive substantially similar coverage from another employer, to the extent permitted under applicable law:

	●	Mr. Altman’s ability to exercise all stock options issued to him vested immediately after the Effective Date of the Agreement and options exercisable for 25,000 shares of common stock shall be exercisable at any time prior to the seven year anniversary of the date of grant and the remainder shall be exercisable for 90 days after August 29, 2014.

	●	For a period commencing on the Effective Date of the Agreement and ending one year after the Effective Date, Mr. Altman agreed not to, directly or indirectly, either for himself or any other person, own, manage, control, materially participate in, invest in, permit his name to be used by, act as consultant or advisor to, render material services for (alone or in association with any person, firm, corporation or other business organization) or otherwise assist in any manner any business which is a competitor of the Company and/or its subsidiaries or affiliates.

15.

OPERATING LEASES

The Company entered into a laboratory and office lease agreement for 2,813 square feet in Cambridge, Massachusetts effective June 1, 2013. The term of the lease was for a twelve month period which terminated on May 31, 2014. The lease agreement was renewed for a further two year period, expiring on May 31, 2016 for a monthly rental of $16,291. The rental charge for the nine months ended September 30, 2014 amounted to $144,897.

The Company entered into a corporate apartment lease agreement in Cambridge, Massachusetts effective June 4, 2013. The term of the lease was for a twelve month period and terminated on June 3, 2014. The monthly rental amounts to $3,325. Rental expense for the nine months ended September 30, 2014 amounted to $16,625. This lease was not renewed.

The Company entered into a new corporate apartment lease commencing on August 1, 2014 for a period of one year for a monthly rental of $2,500 per month. Rental expense for the nine months ended September 30, 2014 amounted to $10,000.

The Company’s office lease in New Mexico terminated in October 2013 and has not been renewed. This lease is ongoing as a month to month lease for $5,075 per month. Rental expense for the nine months ended September 30, 2014 was $45,678.

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.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

15.

OPERATING LEASES (continued)

Rental expense for the nine months ended September 30, 2014 amounted to $21,275. Subsequent to the nine months ended September 30, 2014, this lease was terminated early by the payment of an early settlement penalty of $4,346.

Subsequent to the nine months ended September 30, 2014, the Company entered into a third corporate apartment lease in Cambridge, Massachusetts. The term of the lease is for nine months terminating on July 6, 2015. The monthly rental amounts to $3,351.

Future annual minimum payments required under operating lease obligations as of September 30, 2014, are as follows:

	Amount

2014	$	66,337
2015		233,942
2016		83,384
	$	383,663

16.

LITIGATION

Suit against The Regents of the University of California, Los Alamos National Security, et al.

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

(i)	a lawsuit, Caldera Pharmaceuticals, Inc. v. The Regents of the University of California, et al., Case No. CGC-07-470554, brought in the Superior Court of the State of California, County of San Francisco;
(ii)	a lawsuit, Caldera Pharmaceuticals, Inc. v. Los Alamos National Security, LLC, et al., Case No. 1:10-cv-06347, brought in the United States District Court for the District of New Mexico; and
(iii)	a lawsuit, Caldera Pharmaceuticals, Inc. v. The Regents of the University of California, et al., Case No. 2011-L-9329, brought in the Circuit Court of Cook County, Illinois, County Department – Law Division and dismissed without prejudice on or about July 26, 2013 (collectively the “Actions”).

The agreement called for the Parties to:

(i)	mutually release each other from all existing, past, present or future claims, counter-claims, demands and causes of action;
(ii)	amend the Company’s license agreement with Los Alamos National Security LLC, to include rights to certain issued and pending patents;
(iii)	return of 157,500 shares of the Company’s Common stock; and
(iv)	pay the Company $7,000,000, which resulted in a cash settlement of approximately $5,852,000 after the deduction of initial legal expenses with total expenses still pending. On July 5, 2013, the Company entered into a fee agreement with Dentons US LLP (“Dentons”), our previous legal counsel, which called for a payment of 50% of any settlement up to $6 million and 5% thereafter. The agreement also called for Dentons to cooperate with the Company by making its partners and/or employees available to furnish information or reasonable assistance in connection with any future disqualification proceedings, as reasonably requested by the Company. Subsequent to signing the agreement the Company determined that Dentons had egregiously breached this cooperation clause. As a result, the Company has suffered significant harm. The Company further believes that due to Dentons breach of its contract with the Company, Dentons is not owed any amount under the breached agreement and the Company is also considering its legal remedies in regard to the harm it has suffered. There is no certainty as to how Dentons will respond to the Company's claims or to the ultimate amount that the Company may collect from or have to pay to Dentons. The proceeds received of $7,000,000 and any additional proceeds we may receive or any additional expenditure incurred on this matter was and will be recognized as income or expense in future periods. No liability to Dentons has been recorded by the Company.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

16.

LITIGATION (continued)

Joel Bellows Suit

On January 18, 2014, the Company reached a settlement agreement with Bellows during a pre-trial settlement conference. Subsequent to the pre-trial settlement conference, the parties were unable to agree to terms relating to the conversion of preferred A shares to yet-to-be issued preferred B shares. On April 30, 2013, the Circuit Court of Cook County, Illinois, compelled the Company to execute a version of the settlement agreement proposed by Bellows incorporating a conversion formula that the Company expressly rejected. The Circuit Court also dismissed Bellows’ lawsuit against the Company pursuant to the settlement agreement. The Company has, thus far, performed the terms of the Court ordered settlement agreement under protest and reservation of rights. The Company has paid Bellows $240,000 pursuant to the disputed settlement agreement, together with interest thereon. The Company has also issued 105,000 shares of Series A Stock to Joel Bellows, in exchange for his 105,000 common shares under protest and reservation of rights. The Company’s motion for reconsideration of the April 30, 2013, order was heard on September 25, 2013 and denied. On December 5, 2013, the Company and Dr. Benjamin Warner filed a notice of appeal. The Company’s appeal is pending in the First District Appellate Court of Illinois.

Dividend Litigation

On July 15, 2014, Joel Bellows filed a complaint against the Company and its Board of Directors in the Law Division of the Circuit Court of Cook County, Illinois. In the complaint, Bellows alleges that the Company is obligated, pursuant to the terms of a private placement memorandum, to pay him a dividend of $0.46 for each share of Series A preferred stock on January 1 of each year (subject to pro rations for any short year) in (i) cash; or (ii) fully paid and non-assessable shares of common stock of the corporation at a price of $5.70 per common share, at his option. Bellows alleges that the Company violated his rights under the private placement memorandum by willfully refusing to pay him his dividend. Bellows also alleges that the Company has a continuing obligation to pay him an annual dividend under the terms of the court ordered settlement that is the subject of a pending appeal in the First District Appellate Court of Illinois. Bellows alleges that the Company’s refusal to pay his dividends is also a breach of the settlement agreement.

Bellows also alleges that members of the Board of Directors breached their duties of loyalty, good faith and fair dealing to Bellows by knowingly refusing to distribute dividends to Bellows to which he was entitled. Bellows contends that he has been injured in his business and property and irreparably harmed in that he has not received the true value of his equity ownership in the Company.

Bellows seeks the following relief against the company: (1) an award of compensatory damages in the amount of $48,300.00; (2) prejudgment interest; (3) all costs and reasonable attorneys’ fees incurred by Bellows; (4) such other relief as may be just and proper. Bellows seeks the following relief against the Board of Directors: (1) an award of compensatory damages exceeding $48,300.00; (2) an award of punitive damages in an amount not less than $50,000.00; (3) costs and expenses; (4) attorneys’ fees; and (5) such other relief as may be just and equitable.

On October 3, 2014, the Company and the Board of Directors filed a motion to disqualify Bellows Law Group, P.C. pursuant to Rules 1.9 and 1.10 of the Illinois Code of Professional Conduct. A hearing date is not yet scheduled. The Company believes that the litigation is entirely without merit as the declaration of any cash dividends was not permissible under Delaware law due to the financial condition of the Company at the time. Due the improvement in the financial condition of the Company subsequent to March 6, 2014, the dividend owing to the Series A shareholders has subsequently been declared and the amount due to Mr. Bellows has been tendered to him.

Redemption Litigation

On August 25, 2014, Joel Bellows filed a complaint against the Company and Benjamin Warner in the Chancery Division of the Circuit Court of Cook County, Illinois. In the complaint, Bellows alleges that he is entitled to redeem his Series A cumulative preferred stock at a price of $7.41 pursuant to the terms of the Company’s June 24, 2011, private placement memorandum. Bellows alleges that the Company violated his rights under the private placement memorandum by unreasonably and vexatiously denying his request for redemption.

In the complaint, Bellows alleges that an actual controversy exists between the parties whether Bellows is entitled to immediate redemption of his Series A cumulative preferred stock. Bellows seeks a declaration and order that the Company is immediately obligated to redeem all 105,000 shares of his Series A cumulative preferred stock for a total price of $778,050.00. Bellows alleges that the Company’s refusal to redeem his Series A cumulative preferred stock is a breach of the court ordered settlement that is the subject of a pending appeal in the First District Appellate Court of Illinois. Bellows also alleges that the Company’s refusal to redeem his Series A cumulative preferred stock is a breach of the June 24, 2011 private placement memorandum. Bellows also asserts that Benjamin Warner, as an officer and director of the Company, breached his duties of loyalty, care, independence, and good faith and fair dealing to Bellows by knowingly failing to have the Company redeem his Series A shares, failing to provide him with information concerning his redemption rights, and putting his interests ahead of Bellows’ rights. Bellows alleges that he suffered damages, as a result, of at least $778,050.00.

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

16.

LITIGATION (continued)

Bellows seeks the following relief against the company: (1) a declaration that the Company is immediately obligated to redeem all 105,000 Series A shares for $778,050.00; (2) actual damages of $778,050.00; (3) prejudgment interest; (4) reasonable attorneys’ fees and costs; (5) such other relief as may be just and equitable. Bellows seeks the following relief against Benjamin Warner: (1) actual damages of $778,050.00; (2) an award of punitive damages of at least $2,000,000.00; (3) reasonable attorney’s fees and costs; (4) such other relief as may be just and equitable.

On October 7, 2014, the Company and Benjamin Warner filed a motion to disqualify Bellows Law Group, P.C. and Bellows & Bellows, PC, pursuant to Rules 1.9 and 1.10 of the Illinois Code of Professional Conduct. A hearing date is not yet scheduled. On November 4, 2014, Bellows sought, and was granted, a substitution of judges as of right. The Company believes that this litigation is without merit as net proceeds received on the settlement of the LANS matter has not been finalized due to the uncertainty regarding the fee agreement entered into with Dentons LLP. The resolution of the Company’s fee agreement with Dentons LLP could substantially reduce the net settlement proceeds received and thereby affect Bellows right to redemption at this time.

Citation to Recover Property filed against the Company and others

On June 14, 2014, in a proceeding to probate the estate of Sigmund Eisenschenk (“Estate”) pending in the Circuit Court of Cook County, Illinois, a claimant, QTM Ventures, LLC (“Claimant”) was granted leave to file a Petition for Citation to Recover Property against the Company, Aaron Crane and Gregg Ryzepcynski.

In the Petition for Citation to Recover Property, the Claimant alleges that the Company; i) breached its fiduciary duties to the deceased by wrongfully repurchasing 472,500 shares of Company’s common stock held by the deceased in the Company at a nominal value based upon the false assertion that the deceased breached a financing agreement; ii) conspired with Aaron Crane to divest the Estate of assets, and not protect the Estates assets; iii) committed fraud by failing to properly notify the deceased of the Company’s repurchase of the 472,500 shares of the Company’s common stock, at a nominal value, held by the deceased in the Company; and iv) converted the deceased’s shares by repurchasing the shares to prevent them from being acquired by the creditors to the Estate.

The Claimant seeks the following relief:

i.	An award for damages plus interest for any and all losses suffered by the Estate and the Claimant;

ii.	Punitive damages against the Company;

iii.	Attorney’s fees and costs for the claimant;

iv.	Any further relief deemed fit by the court.

On July 11, 2014, the Company removed the Petition for Citation to Recover to the Northern District of Illinois. On August 12, 2014, QTM filed a motion to remand the petition to the state court. The motion was briefed and is under consideration by the Court. The Company believes that the Citation to recover Property is entirely without merit and intends to aggressively defend against the claims.

17.

SUBSEQUENT EVENTS

On September 23, 2014, the Board voted to authorize and seek approval of our shareholders of an amendment to our Certificate of Incorporation to change our name to XRpro Sciences, Inc. In the absence of a meeting, the affirmative consent of holders of a majority of the vote represented by our outstanding shares of stock was required to approve the change the name of the Company. Because holders of approximately 50.3% of our voting power signed a written consent in favor of the amendment to the Certificate of Incorporation, we are authorized to amend the Certificate of Incorporation to change the name of the Company to XRpro Sciences, Inc., subject to the passing of the waiting period as set forth below. The Name Change will be effective upon the filing of an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware, which is expected to occur as soon as reasonably practicable on or after the 20th day following the mailing of the Information Statement to shareholders.

Subsequent to the nine months ended September 30, 2014 on October 15, 2014, the national and international patents owned by Los Alamos National Security and previously licensed to the Company, were assigned to the Company.

The recently assigned patents consist of 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.

●	Advanced Drug Development and Manufacturing (The Licensor assigned its rights to this application to the Company, which already owned rights to this patent assigned to the Company by inventors currently and previously employed by the Company).

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

Item 2.

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

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein and the risk factors and the financial statements and the other information set forth in our Annual Report on Form 10-K for the year ended December 31, 2013. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission.

Cautionary Note Regarding Forward-Looking Statements

This report and other documents that we file with the Securities and Exchange Commission contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management’s assumptions. Statements that are not historical facts are forward-looking statements. Words such as “expect,” “outlook,” “forecast,” “would,” “could,” “should,” “project,” “intend,” “plan,” “continue,” “sustain”, “on track”, “believe,” “seek,” “estimate,” “anticipate,” “may,” “assume,” and variations of such words and similar expressions are often used to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, those described in our reports that we file or furnish with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements after the date they are made, whether as a result of new information, future events, changes in assumptions or otherwise.

Overview and Financial Condition

The Company uses proprietary x-ray fluorescence technology called XRpro® to deliver ion channel screening, ion channel kinetics and custom screening services to our customers. Our proprietary technology is designed to detect and quantitatively analyze the x-ray signature of each element with an atomic number greater than 10, we combine the flexibility of the analysis with patented sample processing to address a wide range of ion channel and other biological targets. We believe that our technology can reduce the cost of drug discovery by detecting safety and efficacy issues at an early stage of development. To date, substantially all of our revenue has been derived from our analytical services that we have performed for United States governmental agencies. However, we expect that our future revenue will be derived from: (i) provision of our analytical drug discovery services to commercial customers as well as United States governmental agencies; and, (ii) to a lesser extent, sales of new drug candidates that we identify using the XRpro® drug discovery instruments.

To date, we have financed our operations primarily through private sales of our securities, revenue derived from our analytical services that we have performed for United States governmental agencies and settlement of legal matters. We expect to continue to seek to obtain the required capital through the private sale of our securities and revenue derived from United States Governmental Agencies.

We have recently employed a vice president of business development and are actively pursuing the commercialization of our products and services. We cannot provide any assurance that we will be able to commercialize our products and services or that we will achieve profitability on a sustained basis, if at all.

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

Recent Developments

On September 23, 2014, the Board voted to authorize and seek approval of our shareholders of an amendment to our Certificate of Incorporation to change our name to XRpro Sciences, Inc. In the absence of a meeting, the affirmative consent of holders of a majority of the vote represented by our outstanding shares of stock was required to approve the change the name of the Company. Because holders of approximately 50.3% of our voting power signed a written consent in favor of the amendment to the Certificate of Incorporation, we are authorized to amend the Certificate of Incorporation to change the name of the Company to XRpro Sciences, Inc., subject to the passing of the waiting period set forth below. The Name Change will be effective upon the filing of an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware, which is expected to occur as soon as reasonably practicable on or after the 20th day following the mailing of the Information Statement to shareholders.

Results of Operations for the three months ended September 30, 2014 and the three months ended September 30, 2013.

Revenues

We had revenues totaling $71,508 and $60,628 for the three months ended September 30, 2014 and 2013, respectively, an increase of $10,880 or 17.9%. Substantially all of our revenues have been derived from federal government contracts. Our revenue is dependent on the number of contracts we have in operation and the progress we have made on these contracts to date. We have an order backlog in the form of firm fixed price government contracts. We were awarded a $1,000,000 grant from the NIH on August 24, 2011 which was fully utilized and expired on July 31, 2012. An additional $1,000,000 was made available for us to invoice our project time and expenses against on August 2, 2012, which was fully utilized and expired on July 31, 2013 with a further $1,000,000 (of which we have received $677,000 to date) made available for us to invoice our project time and expenses against on July 9, 2013, initially expiring on July 31, 2014, and recently extended to July 31, 2015, depending on availability of government funding and satisfactory progress made on the project. We believe that these are firm orders as there are no indications that funding will not be available and we believe that we have made satisfactory progress on the project to date. The funds available under this grant are earned by us on a percentage-of-completion basis, based on the costs we incur as a measure of the progress made on the project.

Going forward, based on financing, we plan to market our XRpro® services and educate potential customers concerning the advantages and value propositions of the XRpro® technology. While we are optimistic about our prospects, since this is a relatively new product offering with significantly different characteristics compared with existing equipment on the market (and we have not recognized significant revenues to date), there can be no assurance about whether or when our products will generate sufficient revenues with adequate margins in order for us to be profitable.

We are pursuing several leads for the use of our technology by several significant companies within the pharmaceutical and industrial sectors; however there can be no assurance that such leads will be successful and result in revenue.

Cost of goods sold

Cost of goods sold totaled $126,035 and $101,119 for the three months ended September 30, 2014 and 2013, respectively, an increase of $24,916 or 24.6%. Our cost of goods sold is dependent on the progress made on each project to date. Cost of goods sold is primarily comprised of direct expenses related to providing our services under our contracts. These expenses include salary expenses directly related to research contracts, recoverable expenses incurred on contracts, the cost of outside consultants, and direct materials used on our contracts. The salary expense included in cost of sales for the three months ended September 30, 2014 and 2013 respectively was $50,126 and $28,909, an increase of $21,217 or 73.4% due to man hours spent on the NIH contract mentioned above. For additional information regarding salary expense reference is made to the discussion of total salary expense in selling, general and administrative expenses below. Included in cost of sales for the three months ended September 30, 2014 and 2013, respectively was laboratory supplies and direct materials of $43,003 and $65,123, a decrease of $22,120 or 34.0%, the increase is primarily due to the increase in the level of activity in developing new assays to meet potential customer requirements. During the three months ended September 30, 2014 and 2013, respectively, outside contractors costs amounted to $31,248 and $7,087, the increase represents the increase in the number of technical consultants hired during the current year to improve our skills in the laboratory.

Gross loss

Gross loss was $54,527 and $40,491 for the three months ended September 30, 2014 and 2013, respectively, an increase of $14,036, an increase in loss of 34.7%. The increase in gross loss is directly related to more man hours spent on the government contracts as opposed to recoverable machine time which is at significantly higher margins. The gross profit percentage earned may not be indicative of anticipated future results due to the Company’s plan to diversify its source of revenues into the provision of services or usage arrangements.

Selling, general and administrative expenses

Selling, general and administrative expenses totaled $1,577,822 and $976,848 for the three months ended September 30, 2014 and 2013, respectively, an increase of $600,974 or 61.5%.

The major expenses making up selling, general and administrative expenses included the following:

	Three months ended September 30,				Increase/			Percentage
	2014		2013		(decrease)			change

Marketing and selling expenses	$	20,876	$	23,692	$	(2,816	)		(11.9	)%

Salary expenses		209,674		246,672		(36,998	)		(15.0	)%

Severance pay		325,000		9,000		316,000			*

Research and development salaries		78,910		46,944		31,966			68.1	%

Directors fees		48,750		-		48,750			100.0	%

Stock option compensation charge		424,085		212,307		211,778			99.8	%

Legal fees		171,963		139,360		32,603			23.4	%

Consulting fees		96,913		66,539		30,374			45.6	%

Audit fees and taxation services		8,500		7,700		800			10.4	%

Repairs and maintenance		6,827		28,230		(21,403	)		(75.8	)%

Recruiting fees		-		21,260		(21,260	)		(100	)%

Rent		89,408		77,178		12,230			15.8	%

Travel expenditure		24,855		19,621		5,234			26.7	%

	$	1,505,761	$	898,503	$	607,258			67.6	%

* In excess of 1,000%

Marketing and selling expenses for the three months ended September 30, 2014, primarily consists of website and trade show costs. Marketing and selling expenses for the three months ended September 30, 2013 were primarily website design and development expenses.

Total salary expenses are allocated to the various expense categories detailed below depending on the level of activity of our employees on government and commercial projects, internal research and development expenses and administrative activities. An increase in activity on projects will result in an increase in salary expense charged to cost of sales with a corresponding decrease in salary expense charged to selling, general and administrative expenses. A comparison of salary expenses is presented below.

Total salary expenditure for the three months ended September 30, 2014 and 2013, respectively was included in the following expense categories:

	Three months ended September 30,				Increase/			Percentage
	2014		2013		(decrease)			change
Cost of sales	$	50,126	$	28,909	$	21,217			73.4	%

Selling, general and administrative expenses		209,674		246,672		(36,998	)		(15.0	)%

Severance pay		325,000		9,000		316,000			*

Research and development salaries		78,910		46,944		31,966			68.1	%

	$	663,710	$	331,525	$	332,185			100.2	%

* In excess of 1,000%

The increase in total salary expenditure for the three months ended September 30, 2014 of $332,185 is primarily due to the severance pay paid to Gary Altman during the current quarter.

The salary expense included in cost of sales for the three months ended September 30, 2014 increased by $21,217 or 73.4%. The increased salary expense in the current period was due to scientist time spent on the NIH contract mentioned above.

The salary expense charged to Selling, general and administrative expenses for the three months ended September 30, 2014 decreased by $36,998 or 15.0% due to the resignation of our CEO effective August 29, 2014 and the reduction in leave pay provision required.

Research and development salaries for the three months ended September 30, 2014 increased due to the allocation of more scientific time to develop products for commercial applications.

Directors’ fees payable to certain non-executive directors and our non-executive chairman was introduced with effect from April 1, 2014, resulting in a $48,750 charge for the quarter ended September 30, 2014.

The stock option compensation charge increased by $211,778 primarily due to the acceleration of the vesting of stock options due to Gary Altman in terms of his severance agreement, offset by the full amortization of options issued to certain members of management and consultants prior to the current quarter.

Legal fees increased by $32,603, over the prior period due to the assignment of the LANS trademarks to Caldera and Caldera accepting responsibility for all legal fees with effect from March 6, 2014, amounting to $99,410 offset by the conclusion of substantially all of the legal proceedings in the Bellows matter and the LANS mater. For additional information on our legal matters, see Part II, Item 1- Legal Proceedings. The legal expenses incurred on the LANS and Bellows matters are not connected with our regular business activities and should be viewed as non-operating expenses.

The increase in consulting fees of $30,374 is primarily due to the employment of consultants to assist with administrative tasks and patent registration during the current quarter and the resumption of a management consulting arrangement which was originally terminated in the first quarter of the prior year.

Repairs and maintenance expense in the prior year, included the replacement of an x-ray tube in the XRPro instrument, these tubes cost approximately $23,000.

Recruiting fees of $21,260 was incurred in the prior year to source a Senior Scientist for the Cambridge laboratory.

Rent has increased by $12,230 due to the increase in the rental cost of the Cambridge laboratory of approximately 10% per month and the addition of a second corporate apartment at a monthly rental of approximately $2,900.

Travel expenditure increased by $5,234 due to presentations held in London during the current year and increased travel expenditure incurred by our VP of business development.

Depreciation and Amortization

We recognized depreciation expenses of $28,820 and $30,704 for the three months ended September 30, 2014 and 2013, respectively, the slight decrease in our depreciation expense is due to the disposal of two vehicles we no longer require and the full depreciation of two significant laboratory equipment assets in the prior year, partially offset by new laboratory equipment assets acquired for the Cambridge laboratory. The depreciation expense is primarily made up of depreciation of our laboratory equipment, which makes up the vast majority of our capital equipment.

Amortization expense was $12,921 for the three months ended September 30, 2014 and 2013. Amortization expenses relates to the amortization of patents and license fees paid to Los Alamos National Laboratories for the use of certain patents.

Interest expense

Interest expense totaled $2,568 and $16,267 for the three months ended September 30, 2014 and 2013, respectively. The interest expense has decreased due to the repayment of a term facility during the current year.

Change in derivative liabilities

The fair value of derivative liabilities was re-assessed as of September 30, 2014 using a Black Scholes valuation model resulting in the increase of the liability by $131,922, the movement in liability is dependent upon external market factors. The liability decreased by $536,665 in the prior year due to lower volatility in our external market companies used in our valuation and the lower interest rates in the prior year.

Net loss

Net loss totaled $(1,808,558) and $(540,108) for the three months ended September 30, 2014 and 2013, respectively. The increase in net loss is discussed above.

Results of Operations for the nine months ended September 30, 2014 and the nine months ended September 30, 2013.

Revenues

We had revenues totaling $408,390 and $380,923 for the nine months ended September 30, 2014 and 2013, respectively, an increase of $27,467 or 7.2%. Substantially all of our revenues have been derived from federal government contracts. Our revenue is dependent on the number of contracts we have in operation and the progress we have made on these contracts to date. We have an order backlog in the form of firm fixed price government contracts. We were awarded a $1,000,000 grant from the NIH on August 24, 2011 which was fully utilized and expired on July 31, 2012. An additional $1,000,000 was made available for us to invoice our project time and expenses against on August 2, 2012, which was fully utilized and expired on July 31, 2013 with a further $1,000,000 (of which we have received $677,000 to date) made available for us to invoice our project time and expenses against on July 9, 2013, initially expiring on July 31, 2014, and recently extended to July 31, 2015, 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.

Cost of goods sold

Cost of goods sold totaled $468,447 and $372,843 for the nine months ended September 30, 2014 and 2013, respectively, an increase of $95,604 or 25.6%. Our cost of goods sold is dependent on the progress made on each project to date. Cost of goods sold is primarily comprised of direct expenses related to providing our services under our contracts. These expenses include salary expenses directly related to research contracts, recoverable expenses incurred on contracts, the cost of outside consultants, and direct materials used on our contracts. The salary expense included in cost of sales for the nine months ended September 30, 2014 and 2013 respectively was $188,664 and $146,653, an increase of $42,011 or 28.6% due to increased man hours spent on Government contracts. For additional information regarding salary expense reference is made to the discussion of total salary expense in selling, general and administrative expenses below. Included in cost of sales for the nine months ended September 30, 2014 and 2013, respectively was laboratory supplies and direct materials of $200,968 and $140,128, the use of laboratory supplies is dependent on the amount of supplies used in developing assays for significant pharmaceutical customers. During the nine months ended September 30, 2014 and 2013, respectively, outside contractors costs amounted to $73,883 and $7,087, outside contractors have been hired during the current period to improve our technical skills in the laboratory.

Gross (loss)/profit

Gross (loss)/profit was $(60,057) and $8,080 for the nine months ended September 30, 2014 and 2013, respectively, a decrease of $68,137, or 843.3%. The decrease in gross profit is directly related to the reduction in higher margin recoverable machine time. The gross profit percentage earned may not be indicative of anticipated future results due to the Company’s plan to diversify its source of revenues into the provision of services or usage arrangements.

Selling, general and administrative expenses

Selling, general and administrative expenses totaled $3,606,305 and $2,466,838 for the nine months ended September 30, 2014 and 2013, respectively, an increase of $1,139,467 or 46.2%.

The major expenses making up selling, general and administrative expenses included the following:

	Nine months ended September 30,				Increase/			Percentage
	2014		2013		(decrease)			change

Marketing and selling expenses	$	34,479	$	23,692	$	10,787			45.5	%

Salary expenses		548,504		507,957		40,547			8.0	%

Severance pay		325,000		9,000		316,000			*

Research and development salaries		236,475		122,347		114,128			93.3	%

Bonus expense		350,000		-		350,000			100.0	%

Directors fees		103,750		-		103,750			100.0	%

Stock option compensation charge		671,349		441,566		229,783			52.0	%

Legal fees		438,857		544,609		(105,752	)		(19.4	)%

Legal settlement accrual		-		115,273		(115,273	)		(100.0	)%

Consulting fees		259,148		227,416		31,732			14.0	%

Audit fees and taxation services		21,100		44,460		(23,360	)		(52.5	)%

Repairs and maintenance		41,553		42,197		(644	)		(1.5	)%

Recruiting fees		48,500		21,555		26,945			125.0	%

Rent		243,836		126,515		117,321			92.7	%

Travel expenditure		66,280		50,526		15,754			31.2	%

	$	3,388,831	$	2,277,113	$	1,111,718			48.8	%

* In excess of 1,000%

Marketing and selling expenses for the nine months ended September 30, 2014, primarily consisted of website design and development expenses to increase the relevancy and the clarity of the message we are delivering to prospective customers. The marketing and selling expenses in the prior year was primarily a once off professional promotional activity.

Total salary expenditure for the nine months ended September 30, 2014 and 2013, respectively was included in the following expense categories:

	Nine months ended September 30,				Increase/		Percentage
	2014		2013		(decrease)		change
Cost of sales	$	188,664	$	146,653	$	42,011		28.6	%

Selling, general and administrative expenses		548,504		507,957		40,547		8.0	%

Severance pay		325,000		9,000		316,000		*

Research and development salaries		236,475		122,347		114,128		93.3	%

	$	1,298,643	$	785,957	$	512,686		65.2	%

* In excess of 1,000%

The increase in total salary expenditure for the nine months ended September 30, 2014 of $512,686 is primarily due to the severance pay paid to Gary Altman of $325,000 in the current period as well as the salary paid to Gary Altman while employed as our CEO, effective July 1, 2013, resulting in an increased expense of $131,250 for the nine months ended September 30, 2014, the employment of a VP of business development at an increased cost of $72,917 for the nine months ended September 30, 2014 offset by the resignation of our controller and a decrease in our sick and vacation pay accrual due to the reduction in the number of days owed to employees for the nine months ended September 30, 2014.

The salary expense included in cost of sales for the nine months ended September 30, 2014 increased by $42,011 or 28.6%. The increased salary expense in the current period was due to the NIH contract requiring more man hours in the current year compared to the prior year.

The salary expense charged to Selling, general and administrative expenses for the nine months ended September 30, 2014 increased by $40,547 or 8.0% due to the employment of a VP of business development whose expense is primarily recorded as administrative expenses, offset by the resignation of our controller.

Research and development salaries for the nine months ended September 30, 2014 increased due to the employment of a new senior scientist and the allocation of more scientific time from existing employees to develop products for commercial applications.

Bonus expense of $350,000 for the nine months ended September 30, 2014, was a once-off discretionary bonus paid to certain consultants and our Chief Scientific Officer for their extraordinary efforts in connection with the settlement of the legal matter disclosed in note 16 to the unaudited consolidated financial statements.

Directors’ fees payable to non-executive directors and our non-executive chairman was introduced with effect from April 1, 2014, resulting in a $103,750 charge for the nine months ended September 30, 2014, prior to this a directors’ fee of $6,250 was paid to a non-executive director per quarter.

The increase in the stock option compensation charge of $229,783 primarily due to the acceleration of the vesting of stock options due to Gary Altman in terms of his severance agreement, offset by the full amortization of options issued to certain members of management and consultants prior to the current quarter.

Legal fees decreased by $105,752 over the prior period due to the conclusion of substantially all of the legal proceedings in the Bellows matter and the LANS mater, partially offset by the increase in legal fees incurred on patents registered both locally and internationally. For additional information on our legal matters, see Part II, Item 1- Legal Proceedings. The legal expenses incurred on the LANS and Bellows matters are not connected with our regular business activities and should be viewed as non-operating expenses.

The legal settlement accrual expense of $115,273 in the prior year relates to the valuation of series A shares issued to Mr. Bellows in terms of a legal settlement agreement reached with him.

The increase in consulting fees of $31,732 is primarily due to an investor relations consulting arrangement entered into during the second quarter of the prior year and the resumption of a management consulting arrangement which was originally terminated in the first quarter of the prior year

The decrease in audit fees and taxation services of $23,360 is due to the timing of payments made in the prior year and the accrual of audit fees of $25,000 relating to the 2013 year.

Repairs and maintenance expense decreased by $644 over the prior year, this movement in expense is immaterial.

Recruiting fees of $48,500 was incurred for the sourcing of our vice president of business development. The position was filled effective from May 1, 2014.

Rent has increased by $117,321 due to the establishment of a second laboratory in Cambridge at a monthly cost of approximately $15,100 from 1 June 2013, which subsequently increased to $16,920 from June, 1, 2014, and in addition to this; we rent two corporate apartments in Cambridge for approximately $5,851 per month.

Depreciation and Amortization

We recognized depreciation expenses of $83,599 and $86,353 for the nine months ended September 30, 2014 and 2013, respectively, the slight decrease in our depreciation expense is due to the disposal of two vehicles we no longer require and the full depreciation of two significant laboratory equipment assets in the prior year, partially offset by new laboratory equipment assets acquired for the Cambridge laboratory. The depreciation expense is primarily made up of depreciation of our laboratory equipment, which makes up the vast majority of our capital equipment.

Amortization expenses were $38,764 and $38,763 for the nine months ended September 30, 2014 and 2013. Amortization expenses relates to the amortization of license fees paid to Los Alamos National Laboratories for the use of certain patents.

Other income

Other income of $7,177,522 relates to the $7,000,000 cash settlement received from the Los Alamos National Security (“LANS”) matter disclosed in note 16 to the unaudited consolidated financial statements and the recognition of fair value income of $177,522 upon the return of 157,500 common shares originally issued to LANS as consideration for the license agreement we had entered into, disclosed under note 4 to the unaudited consolidated financial statements.

Interest expense

Interest expense totaled $12,201 and $155,968 for the nine months ended September 30, 2014 and 2013, respectively. The interest expense in the prior year included interest of $6,491on the Bridge notes issued in the prior year and the amortization of Bridge note discount of $121,840, these Bridge notes were converted to equity or repaid during the prior year.

Change in derivative liabilities

The fair value of derivative liabilities was re-assessed at September 30, 2014 using a Black Scholes valuation model resulting in the increase of the liability by $816,924 for the nine months ended September 30, 2014 , the movement in liability is dependent upon external market factors.

Net income (loss)

Net income totaled $2,559,756 and net loss totaled $(2,350,606) for the nine months ended September 30, 2014 and 2013, respectively. The increase to a net income position during the current period is primarily due to the litigation settlement included in other income and other movements 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. The settlement of the Los Alamos National Security (“LANS”) matter has resulted in a gross cash injection of $7,000,000 (net cash injection of $5,502,000 after legal expenses and discretionary bonus payments, which should be sufficient to fund operations for the next nine months, dependent upon the outcome of settlement discussions we are having with Denton’s, as described in note 16 to our financial statements. Should we be unsuccessful in our discussions or not generate anticipated revenue, we may need to raise additional funding through equity issues to fulfill our commercialization objectives.

As of September 30, 2014 our Company had cash totaling $2,823,973, other current assets totaling $150,391 and total assets of $3,964,188. We had total current liabilities of $3,454,918, including a derivative financial liability of $1,761,045, and a net working capital deficit of $(480,554). Total liabilities were $3,606,206 and the Series A convertible redeemable preferred stock totaled $133,350 resulting in a stockholders’ equity of $224,632.

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.

We repaid in full the term loan provided by Los Alamos National Bank on April 11, 2014 with a payment of $227,717.

As of September 30, 2014, we owed $185,408 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 nine months ended September 30, 2014 and 2013 is provided below:

	Nine months ended September 30, 2014			Nine months ended September 30, 2013

Net cash provided by/(used in) operating activities	$	2,666,034		$	(1,807,944	)

Net cash used in investing activities		(90,128	)		(131,984	)

Net cash (used in)/provided by financing activities		(271,666	)		2,570,986

Net increase in cash and cash equivalents	$	2,304,240		$	631,058

Net cash provided by (used in) operating activities was $2,666,034 and $(1,807,944) for the nine months ended September 30, 2014 and 2013, respectively. The increase in cash provided by operating activities was primarily due to the following:

	Nine months ended September 30,						Increase/			Percentage
	2014			2013			(decrease)			change

Net income (loss)	$	2,559,756		$	(2,350,606	)	$	4,910,362			208.9	%

Adjustments for non-cash items		1,432,652			426,658			1,005,994			235.8	%

Changes in operating assets and liabilities		(1,326,374	)		116,004			(1,442,378	)		*	%

	$	2,666,034		$	(1,807,944	)	$	4,473,978			247.5	%

* In excess of 1,000%

The increase in net income is discussed under net income (loss) in the results of operations for the nine months ended September 30, 2014 and 2013, respectively and includes net legal settlement proceeds of $5,502,000.

The change in adjustments for non-cash items is primarily due to the increase in stock based compensation by $229,783, due to the acceleration of the stock option compensation charge on the resignation of our CEO, Gary Altman, the increase in the fair value of derivative financial liabilities by $1,205,018, which is dependent on market factors affecting the volatility and the underlying assumptions in our valuation methodology, offset by the non-cash gain of $177,522 on the cancellation of the shares issued to LANS as described under other income above, the amortization of the Bridge note discount of $117,629 in the prior year, and the increase in the legal settlement accrual of $115,273 in the prior year.

The decrease in operating assets and liabilities is primarily due to the payment of primarily legal bills accrued on the LANS matter under accounts payable resulting in a reduction in payables balances movement of $1,298,838 and the repayment of promissory notes owing to Joel Bellows of $166,800 during the current period resulting in a decrease in our other payables balance.

Net cash used in investing activities was $90,128 and $131,984 for the nine months ended September 30, 2014 and 2013, respectively. This was primarily due to the purchase of minor laboratory equipment for the Boston laboratory. In the prior year, the capital expenditure was incurred on minor laboratory equipment to set up the Boston laboratory.

Net cash (used in)/provided by financing activities was $(271,666) and $2,570,986 for the nine months ended September 30, 2014 and 2013, respectively. The cash used in financing activities during the current year is primarily made up of the repayment of the term loan in full and the repayment installments on the Los Alamos County loan. The prior year movement included proceeds raised through Bridge loans and the issue of Series B shares to new investors.

Capital Expenditures

Our current plan is to continue purchasing smaller equipment to facilitate efficiencies on our laboratories. Once we have established commercial customers, we will consider the addition of XRpro instruments to enhance our capacity. A third party produces the XRpro products that we market and our corporate facilities are contracted for with third parties and therefore do not require us to make capital purchases in this area.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on 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. Actual results may differ from these estimates.

Please refer Note 2 Significant Accounting Policies in the notes to unaudited consolidated financial statements.

Recently Issued Accounting Pronouncements

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

Management does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have an effect on the accompanying unaudited condensed financial statements.

Off-Balance Sheet Arrangements

We do not maintain off-balance sheet arrangements nor do we participate in non-exchange traded contracts requiring fair value accounting treatment.

Inflation

The effect of inflation on our revenue and operating results was not significant.

Climate Change

We believe that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.

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 and the 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 and CFO concluded that due to a lack of segregation of duties the Company’s disclosure controls and procedures are not 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 and CFO, 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.

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 September 30, 2014 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.

Suit against The Regents of the University of California, Los Alamos National Security, et al.

(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 cash settlement of approximately $5,852,000 after the deduction of initial legal expenses with total expenses still pending. 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.

As of September 30, 2014 we have spent a total of $2,748,864 with respect to these cases, of which $174,949 was spent during the nine months ended September 30, 2014.

Joel Bellows Suit

Dividend Litigation

Redemption Litigation

Eisenschenk Estate citation to recover assets

In the Petition for Citation to Recover Property, the Claimant alleges that the Company; i) breached its fiduciary duties to the deceased by wrongfully repurchasing 472,500 shares of the Company’s common stock held by the deceased in the Company at a nominal value based upon the false assertion that the deceased breached a financing agreement; ii) conspired with Aaron Crane to divest the Estate of assets, and not protect the Estates assets; iii) committed fraud by failing to properly notify the deceased of the Company’s repurchase of the 472,500 shares of the Company’s common stock, at a nominal value, held by the deceased in the Company; and iv) converted the deceased’s shares by repurchasing the shares to prevent them from being acquired by the creditors to the Estate.

The Claimant seeks the following relief:

i.	An award for damages plus interest for any and all losses suffered by the Estate and the Claimant;
ii.	Punitive damages against the Company;
iii.	Attorney’s fees and costs for the claimant;
iv.	Any further relief deemed fit by the court.

Item 1A. Risk Factors.

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 nine months ended September 30, 2014 we had a net income of $2,559,756, primarily due to the settlement of the LANS matter, discussed above, for the three months ended September 30, 2014 we had a net loss of $1,808,558 and 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.

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 nine months ended September 30, 2014 all of our revenue was generated from government contacts and 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 (of which we have received $677,000 to date) was made available to us on July 9, 2013 for the period August 1, 2013 to July 2014, recently extended to July 2015, depending on availability of government funding and satisfactory progress made on the project. 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 generated a net income of $2,559,756 for the nine months ended September 30, 2014 primarily due to the settlement of the LANS matter as discussed above. We incurred a net loss of $(1,808,558) for the three months ended September 30, 2014 and for the year ended December 31, 2013 we incurred a net loss of $(3,694,786) and for the year ended December 31, 2012 we incurred a net loss 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.

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.

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 nine months ended September 30, 2014 was approximately $236,475, 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 78.9% (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. 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.

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.

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 key 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 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.

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.

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.

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.

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. 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.

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 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

On April 1, 2014 we issued options to purchase 132,000 shares of our common stock at an exercise price of $2.50 per share to Timothy Tyson in conjunction with his appointment as our non-executive Chairman of the Board. These options vest equally over a 24 month period commencing on April 1, 2014.

On April 1, 2014 we issued options to purchase 60,000 shares of our common stock at an exercise price of $2.50 per share to certain of our non-executive board directors. These options vest equally over a 24 month period commencing on April 1, 2014.

On April 11, 2014 we issued options to purchase 20,000 shares of our common stock at an exercise price of $2.50 per share to certain consultants for services rendered. These options vest equally over a 24 month period commencing on May 1, 2014.

On May 1, 2014 we issued options to purchase 100,000 shares of our common stock at an exercise price of $2.50 per share to a newly appointed Vice President of Business development. These options vest equally over a 36 month period commencing on May 1, 2014.

Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities act in reliance upon Section 4(a)(2) of the Securities Act. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.

Item 3.

Defaults upon Senior Securities.

None.

Item 4.

Mine Safety Disclosure.

None.

Item 5.

Other Information.

None

Item 6.

Exhibits.

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
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

** Filed herewith electronically

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: November 13, 2014	By:	/s/ Timothy Tyson
		Timothy Tyson
		Acting President and Chief Executive Officer (Acting Principal Executive Officer)

Date: November 13, 2014	By:	/s/ Mark Korb
		Chief Financial Officer
		(Principal Financial Officer)

Attached files

Icagen, Inc. Reports

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