f10q0913_caldera.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2013

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

For the transition period from _________ to ________

Commission File Number: 000-54748

CALDERA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

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

One Kendall Square, Building 200, Suite 2

Cambridge, Massachusetts, 02139

(Address of principal executive offices) (Zip Code)

(617) 294-9697

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	o	Smaller reporting company	x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Number of shares of common stock outstanding as of November 14, 2013 was 4,197,270.

CALDERA PHARMACEUTICALS, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page
	PART I.—FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012		F-1
	Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012, respectively (Unaudited)		F-2
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012, respectively (Unaudited)		F-3
	Notes to the unaudited Consolidated Financial Statements		F-4 to F-20
Item 2.	Management’s Discussion and Analysis of Financial Information and Results of Operations		1
Item 3.	Quantitative and Qualitative Disclosures About Market Risks		9
Item 4.	Controls and Procedures		9

	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		10
Item 1A.	Risk Factors		11
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		19
Item 3.	Defaults Upon Senior Securities		19
Item 4.	Mine Safety Disclosures		19
Item 5.	Other Information		19
Item 6.	Exhibits		20
SIGNATURE			21
GLOSSARY

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

	September 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Current assets:
Cash	$	1,009,701		$	378,643
Accounts receivable, net		66,712			59,849
Prepaid expenses		67,674			17,055

Total current assets		1,144,087			455,547

Non-current assets:
Intangible assets, net		555,811			594,574
Plant and equipment, net		411,079			391,530
Investment in certificate of deposit		25,000			-
		991,890			986,104

TOTAL ASSETS	$	2,135,977		$	1,441,651

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Accounts payable	$	528,430		$	374,048
Other payables and accrued expenses		282,140			197,307
Loans payable		115,671			218,324
Bridge notes payable, net of debt discount		-			233,955
Derivative financial liability		1,475,975			17,539
Dividends payable		242,374			156,873

Total current liabilities		2,644,590			1,198,046

Non-current liabilities:
Loans payable		370,306			332,055
Other payables and accrued expenses		82,800			160,000

		453,106			492,055

TOTAL LIABILITIES		3,097,696			1,690,101

Convertible Redeemable Preferred Stock
Series A Cumulative Convertible Redeemable Preferred Stock, $0.001 par value, 400,000 shares designated, 105,000 and 341,607 shares issued and outstanding as of September 30, 2013 and December 31, 2012, respectively, liquidation preference is $5.70 per share.		133,350			2,065,392

Commitments and contingencies

STOCKHOLDERS’ DEFICIT:
Preferred stock, $0.001 par value, 10,000,000 authorized shares, 6,600,000 shares undesignated and unissued.		-			-
Series B Cumulative Convertible Preferred Stock, $0.001 par value, 3,000,000 designated shares, and 2,133,947 shares issued and outstanding as of September 30, 2013, liquidation preference is $2.50 per share.		5,167,810			-
Common stock, $0.001 par value, 50,000,000 authorized shares, 4,851,270 and 4,956,270 shares issued and, 4,197,270 and 4,302,270 outstanding as of September 30, 2013 and December 31, 2012, respectively.		4,851			4,957
Additional paid in capital		5,090,675			4,649,109
Treasury stock, at cost, 654,000 shares of common stock as of September 30, 2013 and December 31, 2012		(473	)		(473	)
Accumulated deficit		(11,357,932	)		(6,967,435	)

Total stockholders’ deficit		(1,095,069	)		(2,313,842	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	2,135,977		$	1,441,651

See notes to the unaudited consolidated financial statements

F-1

CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three months ended September 30, 2013			Three months ended September 30, 2012			Nine months ended September 30, 2013			Nine months ended September 30, 2012

Sales	$	60,628		$	582,925		$	380,923		$	1,453,950

Cost of sales		101,119			151,968			372,843			504,092

Gross (loss)/profit		(40,491	)		430,957			8,080			949,858

Operating expenses:
Selling, general and administrative expenses		976,848			308,934			2,466,838			1,384,972
Depreciation		30,704			27,009			86,353			66,033
Amortization		12,921			12,921			38,763			38,763
Total operating expenses		1,020,473			348,864			2,591,954			1,489,768

Operating (loss)/profit		(1,060,964	)		82,093			(2,583,874	)		(539,910	)

Other income/(expense)
Other income		-			140,880			-			140,880
Interest income		458			141			1,142			635
Interest expense		(16,267	)		(7,306	)		(155,968	)		(15,144	)
Change in fair value of derivative liabilities		536,665			-			388,094			-

Total other income		520,856			133,715			233,268			126,371

Net (loss)/profit		(540,108	)		215,808			(2,350,606	)		(413,539	)

Deemed preferred stock dividends		(16,925	)		-			(1,745,837	)		(2,857	)
Preferred stock dividends		(146,470	)		(39,499	)		(294,054	)		(117,373	)

Net (loss)/profit applicable to common stock	$	(703,503	)	$	176,309		$	(4,390,497	)	$	(533,769	)

Net loss per common stock: -
Basic	$	(0.17	)	$	0.04		$	(1.03	)	$	(0.12	)
Diluted	$	(0.17	)	$	0.04		$	(1.03	)	$	(0.12	)

Weighted average number of common stock outstanding: -
Basic		4,197,270			4,302,270			4,251,116			4,297,848
Diluted		4,197,270			4,310,225			4,251,116			4,297,848

See notes to the unaudited consolidated financial statements

F-2

CALDERA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine months ended September 30, 2013			Nine months ended September 30, 2012

Cash flow from operating activities
Net loss	$	(2,350,606	)	$	(413,539	)
Adjustments for non-cash items:
Depreciation		86,353			66,033
Amortization		38,763			38,763
Amortization of bridge note discount		117,629			-
Stock based compensation payments		441,566			48,852
Loss on plant and equipment scrapped		1,082			-
Increase in receivables provision		14,086			-
Decrease in fair value of derivative financial liability		(388,094	)		-
Increase in legal settlement accrual		115,273			-
Gain on settlement reached with supplier		-			(130,880	)
Changes in operating assets and liabilities:
Increase in accounts receivable		(20,949	)		(72,043	)
Increase in prepaid expenses		(50,619	)		(21,154	)
Increase/(decrease) in accounts payable		154,382			(89,332	)
Increase in other payables and accrued expenses		33,190			8,143

Net cash used in operating activities		(1,807,944	)		(565,157	)

Cash flow from investing activities
Purchase of plant and equipment		(106,984	)		(238,360	)
Investment in certificate of deposit		(25,000	)		-

Net cash used in investing activities		(131,984	)		(238,360	)

Cash flow from financing activities
Advance on term loan		267,392			-
Advance on line of credit		-			168,000
Advance on commercial loans		-			148,500
Advance on Bridge loans		250,000			-
Repayment of Los Alamos County loan		(23,274	)		(22,152	)
Repayment of line of credit		(168,000	)		-
Repayment of commercial loan		(139,832	)		(4,331	)
Repayment of Bridge loans		(125,000	)		-
Proceeds on Series A Preferred stock issued		-			57,500
Proceeds on Series B Preferred stock issued, net of issue expenses		2,509,700			-
Preferred stock dividends paid		-			(26,752	)

Net cash provided by financing activities		2,570,986			320,765

Net increase/(decrease) in cash		631,058			(482,752	)

Cash at the beginning of the period		378,643			678,300

Cash at the end of the period	$	1,009,701		$	195,548

Supplemental disclosure of cash flow information
Cash paid for:
Interest	$	30,752		$	13,800
Income taxes	$	-		$	-

Non-cash investing and financing activities:
Common stock issued in lieu of preferred stock dividends	$	-		$	60,705
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		$	2,857

See notes to the unaudited consolidated financial statements

F-3

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	GENERAL INFORMATION

Caldera Pharmaceuticals, Inc. (“the Company”, “we”, “us”, “our”) is a Delaware corporation. The principal office was relocated from Los Alamos, New Mexico to Cambridge, Massachusetts during June 2013. 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

Basis of Presentation

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

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 financial statements are in United States Dollars ($) unless stated otherwise.

Consolidation

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

Caldera Pharmaceuticals, Inc. - Parent Company

XRpro Corp. – Wholly owned subsidiary

Estimates

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

Contingencies

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

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

F-4

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Fair value of financial instruments

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

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

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

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

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

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

Reporting by segment

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

Intangible assets

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

a) License Agreements

License agreements acquired by the Company are reported at acquisition value less accumulated amortization and impairments.

b) Amortization

Amortization is reported in the income statement on a straight-line basis over the estimated useful life of the intangible assets, unless the useful life is indefinite. Amortizable intangible assets are amortized from the date that they are available for use. The estimated useful life of the license agreement is twenty years which is the term of the patent supporting the underlying license agreements

Plant and equipment

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

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

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

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

Concentrations of credit risk

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

F-5

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Concentration of major customers

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

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

Total revenues by customer type are as follows:

	Three months ended September 30, 2013		Three months ended September 30, 2012		Nine months ended September 30, 2013		Nine months ended September 30, 2012

National Institutes of Health	$	60,628	$	552,708	$	313,805	$	1,423,733
Department of Defense		-		16,925		67,118		16,925
Commercial customers		-		13,292		-		13,292
	$	60,628	$	582,925	$	380,923	$	1,453,950

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, 2013 and December 31, 2012 was $14,086 and $0, respectively. The amount charged to bad debt provision for the nine months ended September 30, 2013 and 2012 was $14,086 and $0, respectively.

Cash and cash equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash and cash equivalents with two financial institutions in the USA.

Revenue recognition

Revenue sources consist of government 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 three months and the nine months ended September 30, 2013 was $46,944 and $122,347, respectively.

F-6

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2.	ACCOUNTING POLICIES AND ESTIMATES (continued)

Patent Costs

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

Share-Based Compensation

Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee's requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of operations for the nine months ended September 30, 2013 and 2012 is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from those estimates. We have no awards with market or performance conditions.

Income Taxes

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

Net loss per Share

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

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

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

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

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 related party.

Reclassification

Certain reclassifications have been made to conform the prior period data to the current presentation. These reclassifications have no effect on reported net loss.

Recent accounting pronouncements

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

F-7

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3.	GOING CONCERN

As shown in the accompanying unaudited consolidated financial statements, the Company incurred a net loss of $2,350,606 and $413,539 during the nine months ended September 30, 2013 and 2012, respectively. As of September 30, 2013, the Company had an accumulated deficit of $11,357,932. The Company had a working capital deficiency of $1,500,503, including a non-cash derivative liability of $1,475,975 as of September 30, 2013. These operating losses and working capital deficiency create an uncertainty about the Company’s ability to continue as a going concern. Although no assurances can be given, management of the Company believes that potential additional issuances of equity or other potential financing will provide the necessary funding for the Company to continue as a going concern. The unaudited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company is economically dependent upon future capital contributions or financing to fund ongoing operations.

4.	INTANGIBLE ASSETS

Licenses

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

●	Method for Detecting Binding Events Using Micro X-Ray Fluorescence Spectrometry;

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

●	Method and Apparatus for Detecting Chemical Binding;

●	Drug Development and Manufacturing.

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

In terms of the agreement, the Company issued shares to the Licensor equal to 3% of the issued equity of the Company. The agreement contains anti-dilutive clauses that will ensure that the Licensor maintains at least a 3% shareholding in the Company until the Company achieves equity financing of at least $20 million. The anti-dilutive clauses do not result in a freestanding instrument as they are directly linked to the shareholding that the Licensor currently holds in the Company. Should any percentage of that shareholding be sold to third parties, prior to the triggering of any anti-dilution event, the anti-dilution clause will be void for that percentage of the shareholding sold to third parties. As of September 30, 2013, the Company has not yet raised the requisite amount of financing. The Licensor continued to hold, at a minimum 3% of the Company’s common stock.

The agreement has termination provisions as follows; i) at the option of the Licensor; if the Company fails to deliver any reports that are due, fails to pay any royalties or fees due, breaches any material clause of the agreement, or failure to inform the Licensor of a petition to file for voluntary or involuntary bankruptcy; ii) at the option of the Licensee by giving 90 days written notice to the Licensor.

The agreement further provides for an annual royalty to be paid to the Licensee at a rate of 2% per annum on net sales, excluding any sales to Government agencies. The agreement provides for a minimum fee of $50,000 per annum up until December 31, 2022. The fee will be deducted from any royalties due in excess of the fee due for that financial year. The Company has not paid any royalties on a percentage basis, and has only paid the minimum fee since entering into the agreement.

Future annual minimum payments required under license agreement obligations at September 30, 2013, are as follows:

	Amount

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

Total	$	450,000

Licenses consist of the following:

	September 30, 2013			December 31, 2012
	(Unaudited)
Licenses, at cost	$	972,000		$	972,000
Less: Accumulated amortization		(416,189	)		(377,426	)

	$	555,811		$	594,574

The aggregate amortization expense charged to operations was $12,921 for the three months ended September 30, 2013 and 2012, respectively and $38,763 for the nine months ended September 30, 2013 and 2012, respectively. The amortization policies followed by the Company are described in Note 2.

F-8

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4.	INTANGIBLE ASSETS (continued)

Amortization expense for future periods is summarized as follows:

	Amount

Remainder of 2013	$	12,921
2014		51,684
2015		51,684
2016		51,684
2017 and thereafter		387,838
Total	$	555,811

Patents

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

The patents assigned to Caldera are as follows:

●	Well Plate – apparatus for preparing samples for measurement by x-ray fluorescence spectrometry. Patent filed August 15, 2008

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

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

5.	PLANT AND EQUIPMENT

Plant and equipment consists of the following:

	September 30, 2013			December 31, 2012
	(Unaudited)
Leasehold improvements	$	6,393		$	6,393
Furniture and fittings		15,635			9,979
Laboratory equipment		770,851			679,310
Computer equipment		19,044			29,327
Vehicles		17,658			17,658
Total		829,581			742,667
Accumulated depreciation		(418,502	)		(351,137	)
	$	411,079		$	391,530

The aggregate depreciation charge to operations was $30,704 and $27,009 for the three months ended September 30, 2013 and 2012, respectively and $86,353 and $66,033 for the nine months ended September 30, 2013 and 2012 respectively. The depreciation policies followed by the Company are described in Note 2.

F-9

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6.	OTHER PAYABLES AND ACCRUED EXPENSES

	September 30, 2013		December 31, 2012
	(Unaudited)
Short-term portion
Credit card liabilities	$	20,038	$	7,505
Vacation and Sick Pay accrual		117,018		89,730
Other payables		82,800		97,972
Payroll liabilities		60,184		-
Other		2,100		2,100
		282,140		197,307
Long-term portion
Other payables		82,800		160,000
	$	364,940	$	357,307

The repayment schedule of other payables is as follows:

	Amount

Within 1 year	$	82,800
1 to 2 years		82,800
Total	$	165,600

The other payables relates to the Bellows matter disclosed under Litigation in note 18 below.

7.	LOANS PAYABLE

	September 30, 2013		December 31, 2012
	(Unaudited)
Short term portion
Los Alamos County project participation loan	$	32,459	$	31,270
Los Alamos National Bank term loan		83,212		-
Los Alamos National Bank revolving draw loan		-		168,827
Los Alamos National Bank commercial loan		-		18,227
		115,671		218,324
Long term portion
Los Alamos County project participation loan		185,408		209,923
Los Alamos National Bank term loan		184,898		-
Los Alamos National Bank commercial loan		-		122,132
		370,306		332,055

Total	$	485,977	$	550,379

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

	Amount

Within 1 year	$	115,671
1 to 2 years		122,097
2 to 3 years		128,954
3 to 4 years		37,233
Thereafter		82,022
Total	$	485,977

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 $217,867 and $241,193 as of September 30, 2013 and December 31, 2012, respectively.

F-10

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7.	LOANS PAYABLE (continued)

Los Alamos National Bank (“LANB”)

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

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

On September 16, 2013 the Company concluded a term loan agreement with LANB to replace the revolving draw loan and the commercial loan disclosed above. The Company paid a combined $26,886 against the revolving draw line and the commercial loan and LANB advanced a new term loan to the Company of $267,392, the proceeds of which were used to settle the remaining balance, inclusive of interest, of the revolving draw line and the commercial loan. This loan bears interest at the Wall Street Journal Prime rate plus 2.0% with a floor of 7.0% per annum. This loan expires on September 16, 2016. The loan is repayable in 36 monthly installments of $8,256, inclusive of interest, which installment may vary depending on the variable interest rate mentioned above. This loan is secured by accounts receivable and other rights to payments, instruments, documents and other chattel paper, general intangibles and fixed assets. This loan has been advanced to both the Company and XRpro Corp., a wholly owned subsidiary, jointly and severally, and has been guaranteed by Dr. Benjamin Warner and his wife.

8.	BRIDGE NOTES PAYABLE

The Company entered into a 10% Bridge Note (the “Bridge Notes”) agreement with nine principals for $500,000 between December 18, 2012 and April 2, 2013. The Bridge Notes are issued as part of a unit that includes warrants to purchase 600 shares of the Company’s common stock for each $1,000 of Bridge Note principal, at an exercise price of $3.00 per share, see note 13 below. The Bridge Notes bear interest at 10% per annum compounded and payable quarterly at the Company’s option, until the maturity date which is defined as the earliest of December 31, 2013, or the closing of any subsequent financing transactions, or an event of default as defined in the agreement. The Bridge note agreement also provides for a default interest rate of 15% per annum should any amounts due to the note holders in terms of the agreement be in default.

The Bridge Notes together with any interest due on the Bridge Notes will, at the option of the note holder, convert into securities of the Company’s subsequent financing. The Bridge Note holder also has the option to convert some or all of the principal and interest due on this note into shares of the Company’s common stock at a conversion price of $2.50 per share, unless a default has occurred and is continuing, at which instance the conversion price during the default period shall be $1.50 per share. The option to convert the Bridge Note into common stock has anti-dilutive provisions that will allow the note holder to be placed in the same position as it is prior to a dilution event occurring.

On April 19, 2013, six principals converted their Bridge Notes in the aggregate principal amount of $375,000 together with accrued and unpaid interest thereon of $9,160 into 153,664 units of series B preferred units of the Company at a conversion price of $2.50 per unit, each unit consist of one share of series B preferred stock and one seven-year warrant exercisable at a price of $2.50 per share, which price is subject to anti-dilution protection, see note 11 and 13 below.

On May 31, 2013 and August 30, 2013, the Bridge notes due to three principals of $100,000 and $25,000, together with accrued and unpaid interest thereon of $1,541 and $1,073, respectively, were repaid and cancelled.

The Bridge Notes included a total discount of $118,232 relating to the fair value of the warrants issued together with those notes. The conversion of the $375,000 and the repayment of $125,000 of the Bridge Notes mentioned above resulted in the immediate amortization of $90,487 of this discount. The Bridge note discount amortized over the three months ended September 30, 2013 was $1,096.

	September 30, 2013		December 31, 2012
	(Unaudited)
Bridge notes payable	$	-	$	250,890
Unamortized bridge note discount		-		(16,935)
	$	-	$	233,955

9.	NOTES PAYABLE

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

F-11

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10.	DERIVATIVE FINANCIAL LIABILITY

The warrants arising from the issue of the Bridge notes (“Bridge Warrants”) disclosed under note 8 above have anti-dilution protection, whereby the exercise price of the warrant will re-price, based on a pre-determined formula, if any securities are sold, exercisable or convertible at a price less than the exercise price of the Bridge Warrants. This gives rise to a derivative financial liability, which was valued at $118,232 as of September 30, 2013 using a Black-Scholes valuation model. The value of this derivative financial liability will be re-assessed at each financial reporting period, with any movement thereon recorded in the statement of income in the period in which it is incurred.

The warrants arising from the issue of the series B preferred units (“Series B Shares”), together with the placement agent warrants directly related to that issue, disclosed under note 13 below have anti-dilution protection, whereby the exercise price of the warrant will re-price, based on a pre-determined formula, if any securities are sold, exercisable or convertible at a price less than the exercise price of the series B warrants. This gives rise to a derivative financial liability, which was valued at $1,745,836 and recorded as a deemed dividend expense, as of the date of issuance of the series B shares using a Black-Scholes valuation model. The value of this derivative financial liability will be re-assessed at each financial reporting period, with any movement thereon recorded in the statement of income in the period in which it is incurred.

The value of the derivative financial liability was re-assessed as of September 30, 2013 resulting in a net credit to the unaudited consolidated statement of operations of $388,093 for the nine months ended September 30, 2013.

	September 30, 2013			December 31, 2012
	(Unaudited)
Opening balance	$	17,539		$	-
Derivative financial liability arising on bridge warrants with re-pricing terms		100,693			17,539
Derivative financial liability arising on the issue of warrants relating to Series B shares		1,745,836			-
Fair value adjustments		(388,093	)		-
	$	1,475,975		$	17,539

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

		Nine months ended September 30, 2013

Calculated stock price		$1.13- $1.27
Risk-free interest rate		0.02% to 0.07%
Expected life of warrants		5 Years
Expected volatility of the underlying stock		100% -164%
Expected dividend rate		0%

F-12

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11.	PREFERRED STOCK

Preferred Stock consists of 10,000,000 authorized preferred shares of $0.001 par value each. The articles of Incorporation were amended on April 10, 2012 to change the designation of all of the 10,000,000 preferred shares of $0.001 each, from Series A 8% convertible redeemable preferred shares to 400,000 Series A 8% convertible redeemable preferred shares of $0.001 each. On April 19, 2013, the articles of incorporation were again amended to change the designation of the remaining 9,600,000 preferred shares to 3,000,000 Series B convertible preferred shares of $0.001 each, with the remaining 6,600,000 preferred shares remaining undesignated.

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

Series A Stock consists of 400,000 designated shares of $0.001 par value each, 105,000 and 341,607 shares issued and outstanding as of September 30, 2013 and December 31, 2012, respectively.

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

On May 20, 2013, in terms of a legal settlement agreement entered into with Joel Bellows (Refer note 18 below), 105,000 Series A Stock was issued in exchange for his 105,000 common shares held in the Company. The Series A Stock issued to Joel Bellows was valued at $133,350 using a Black Scholes valuation model, the assumptions which are disclosed under note 10 above.

Conversion

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

Warrants

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

Redemption

Should the Company receive net proceeds of at least $3 million from litigation proceedings against the Regents of the University of California and Los Alamos National Security (see note 18); the remaining Series A stockholders will have the option to redeem the Series A Stock equal to 130% of the initial investment in the Company by the stockholder, which amounted to $210,000. This value differs from the carrying value of the Series A Stock of $133,350 which was valued using the Black-Scholes valuation model at the time of exchanging common stock for Series A Stock (Refer note 18 below). The Company also has the option to redeem the Series A Stock at a price equal to 130% of the initial investment in the Company by the stockholder at any time after giving the investors notice and allowing them to exercise their conversion rights into common stock 30 days after notice has been received. The Company is not obligated to pursue the litigation against Los Alamos National Laboratory but is doing so based on its belief that it will have a successful outcome.

Liquidation

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

Dividends

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

An accrual for Series A Stock dividends of $69,268 and $117,373 was made for the nine months ended September 30, 2013 and 2012, respectively.

F-13

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11.	PREFERRED STOCK (continued)

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

Series B Stock consists of 3,000,000 designated shares of $0.001 par value each and 2,133,947 and nil shares issued and outstanding as of September 30, 2013 and December 31, 2012, respectively.

In connection with the terms of the recent private placement:

●

Six principals converted their Bridge Notes of $375,000 together with accrued and unpaid interest thereon of $9,160 into 153,664 Series B preferred units of the Company at a conversion price of $2.50 per unit, each unit consists of one share of Series B Stock and one seven-year common stock purchase warrant exercisable at a price of $2.50 per share, see note 13 below.

●

New, qualified investors, acquired 1,118,000 Series B preferred units of the Company at a price of $2.50 per unit, each unit consisting of one share of Series B Stock and one seven-year common stock purchase warrant at an exercise price of $2.50 per share, for net proceeds of $2,509,700 after deducting placement agent fees of $285,300 based on the Series B preferred units issued to new investors and the conversion of the Bridge Notes mentioned above.

●

In terms of exchange agreements entered into with the holders of 341,607 Series A shares, 778,860 shares of Series B Stock of $2.50 each were issued to the Series A stockholders by dividing their initial dollar investment in the Series A Stock by $2.50. In addition to this a further 83,423 shares of Series B Stock of $2.50 each was issued to the Series A shareholders in lieu of dividends accrued and due to the Series A shareholders as of April 30, 2013.

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

Dividends

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

An accrual for Series B Stock dividends of $224,786 was made for the nine months ended September 30, 2013.

Conversion

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

Liquidation

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

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.

F-14

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11.	PREFERRED STOCK (continued)

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

12.	COMMON STOCK

Common stock consists of 50,000,000 authorized shares of $0.001 each, 4,851,270 and 4,956,270 shares issued and 4,197,270 and 4,302,270 shares outstanding as of September 30, 2013 and December 31, 2012, respectively.

On May 20, 2013, in terms of a legal settlement agreement entered into with Joel Bellows (See note 18 below), 105,000 common shares were exchanged for 105,000 Series A Stock. The common shares exchanged were cancelled and are available for reissue.

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

13.

WARRANTS

In connection with the terms of the recent private placement:

●

Warrants to purchase 153,664 shares of common stock at a purchase price of $2.50 per shares were issued to Bridge Note holders upon conversion of their Bridge Notes into series B units as disclosed in note 11 above. These warrants have a seven-year term and are exercisable at the option of the holder. These warrants may be exercised for shares of common stock in lieu of cash by applying the number of warrants to the formula whereby the exercise price of the warrants is deducted from the closing price of the common stock on a quoted market divided by the closing price of the common stock on a quoted market. These warrants also have dilution protection in certain instances.

●

Warrants to purchase 1,118,000 shares of common stock at a purchase price of $2.50 per shares were issued to new qualified investors in series B units as disclosed in note 11 above. These warrants have a seven-year term and are exercisable at the option of the holder. These warrants may be exercised for shares of common stock in lieu of cash by applying the number of warrants to the formula whereby the exercise price of the warrants is deducted from the closing price of the common stock on a quoted market divided by the closing price of the common stock on a quoted market. These warrants also have dilution protection in certain instances.

●

Warrants to purchase 286,800 shares of common stock at a purchase price of $2.75 per share and a further 40,000 warrants to purchase shares of common stock at $0.01 per share were issued to the placement agent as placement agent fees and advisory fees. These warrants have a seven-year term and are exercisable at the option of the holder. These warrants may be exercised for shares of common stock in lieu of cash by applying the number of warrants to the formula whereby the exercise price of the warrants is deducted from the closing price of the common stock on a quoted market divided by the closing price of the common stock on a quoted market. These warrants also have dilution protection in certain instances.

In terms of Bridge Note agreements entered into with certain principals during the nine months ended September 30, 2013 and the year ended December 31, 2012 warrants for the purchase of 300,000 shares of common stock at an exercise price of $3.00 per share were issued to Bridge Note holders in conjunction with the Bridge notes disclosed in note 8 above. These warrants have a five-year term and are exercisable at the option of the holder. These warrants may be exercised for shares of common stock in lieu of cash by applying the number of warrants to the formula whereby the exercise price of the warrants is deducted from the closing price of the common stock on a quoted market divided by the closing price of the common stock on a quoted market. These warrants also have dilution protection in certain instances.

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

F-15

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13.	WARRANTS (continued)

The fair value of these warrants was determined using the Black-Scholes valuation model. The following assumptions were used:

	Nine months ended September 30, 2013		Year ended December 31, 2012

Calculated stock price		$1.13- $1.27		$0.55
Risk-free interest rate	0.02% to 0.07%		0.01% to 0.15%
Expected life of warrants	5 - 7 Years		5 Years
Expected volatility of the underlying stock		100% - 164%		157%
Expected dividend rate		0%		0%

A fair market value of $1,745,836, determined using the Black-Scholes valuation model with the assumptions listed above, for the 1,271,664 warrants issued in conjunction with the Series B Stock offering and the 326,800 warrants issued as placement agent and advisory fees for that offering, was recorded as a deemed preferred stock dividend during the nine months ended September 30, 2013.

The additional 300,000 warrants issued during the nine months ended September 30, 2013 and December 2012 in conjunction with the Bridge notes were valued using the Black-Scholes model with the assumptions listed above and a discount of $100,693 and $17,539, respectively was applied to the Bridge Notes and has been fully amortized, see note 8 above.

A fair market value for the 10,088 warrants issued in conjunction with the Series A Stock of $2,857 was recorded as a deemed preferred stock dividend during the 2012 year.

The following table summarizes warrants outstanding and exercisable as of September 30, 2013:

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

$	0.01	40,000		6.75				40,000
$	2.00	15,000		3.07				15,000
$	2.50	1,271,664		6.58				1,271,664
$	2.75	286,800		6.75				286,800
$	3.00	300,000		4.36				300,000
$	5.70	384,407		2.69				384,407

		2,297,871		5.64	$	3.09		2,297,871	$	3.09

F-16

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

14. 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, 2013, 1,365,946 shares were available for future grant under the Incentive Plan.

Stock option based compensation expense totaled $441,566 and $48,852 for the nine months ended September 30, 2013 and 2012, respectively. The Company expenses the value of stock options on a straight line basis over the life of the options. The fair value of the options granted is determined using the Black-Scholes option-pricing model.

The following weighted average assumptions were used:

	Nine months ended September 30, 2013	Year ended December 31, 2012

Calculated stock price	$1.13 to $1.27	$0.55
Risk-free interest rate	0.02% to 0.07%	0.01% to 0.15%
Expected life of options	5 Years	5 Years
Expected volatility of the underlying stock	100 - 164%	128%
Expected dividend rate	0%	0%

As noted above, the fair value of stock options is determined by using the Black-Scholes option-pricing model. For all options granted since October 1, 2005 the Company has generally used option terms of between 1 to 10 years. The volatility of the common stock is estimated using historical data of companies similar in size and in the same industry as Caldera Pharmaceuticals. The risk-free interest rate used in the Black-Scholes option-pricing model is determined by reference to historical U.S. Treasury constant maturity rates with short-term maturities of no more than three months. An expected dividend yield of zero is used in the option valuation model, because the Company does not expect to pay any cash dividends in the foreseeable future. As of September 30, 2013, the Company does not anticipate any awards will be forfeited in the calculation of compensation expense due to the limited number of employees that receive stock option grants.

No options were exercised for the nine months ended September 30, 2013 and the year ended December 31, 2012.

We canceled options exercisable for 37,000 and 59,291 shares of common stock for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, held by employees whose service to our company terminated during those respective periods. The shares underlying such options were returned to and are available for re-issuance under the 2005 Plan pursuant to the terms described above.

During the nine months ended September 30, 2013 and the year ended December 31, 2012, all awards granted under the Plan were incentive stock options. A summary of all of our option activity during the period January 1, 2012 to September 30, 2013 is as follows:

	Shares			Exercise price per share		Weighted average exercise price

Outstanding January 1, 2012		518,445		$	2.00 - 5.71	$	3.54
Granted		47,000			0.20 - 5.71		1.97
Forfeited/Cancelled		(59,291	)		1.10 - 5.71		5.71
Exercised		-			-		-
Outstanding December 31, 2012		506,154		$	0.20 - 5.71	$	3.14
Granted		1,164,900			1.50 – 5.71		1.99
Forfeited/Cancelled		(37,000	)		2.00 -5.71		3.93
Exercised		-			-		-
Outstanding September 30, 2013		1,634,054		$	0.20 - 5.71	$	2.31

Stock options outstanding as of September 30, 2013 and December 31, 2012, as disclosed in the above table, have an intrinsic value of $33,325 and $0, respectively.

F-17

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

14. STOCK BASED COMPENSATION (continued)

The following tables summarize information about stock options outstanding as of September 30, 2013:

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

$	0.20	30,000		8.59				27,500
$	1.10	220,000		7.42				220,000
$	1.50	625,000		9.46				312,504
$	2.00	15,000		2.12				15,000
$	2.50	524,900		6.81				-
$	5.71	219,154		5.10				219,154

		1,634,054		7.67	$	2.31		794,158	$	2.52

The weighted-average grant-date fair values of options granted during the nine months ended September 30, 2013 and the year ended December 31, 2012 was $1,282,147 ($1.10 per option) and $17,068 ($0.46 per option), respectively. As of September 30, 2013 there were unvested options to purchase 839,896 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is $833,356, which is expected to be recognized over a period of 45 months.

Subsequent to the nine months ended September 30, 2013, options over 20,000 shares were issued to a newly appointed board member, see note 19 below.

15. NET LOSS PER COMMON SHARE

Basic loss per share is based on the weighted-average number of common shares outstanding during each period. Diluted loss per share is based on basic shares as determined above plus the incremental shares that would be issued upon the assumed exercise of in-the-money stock options and warrants using the treasury stock method. The computation of diluted net loss per share does not assume the issuance of common shares that have an anti-dilutive effect on net loss per share. For the three months and nine months ended September 30, 2013 and 2012 all stock options, warrants and convertible preferred stock were excluded from the computation of diluted net loss per share. Dilutive shares which could exist pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because their affect would have been anti-dilutive are as follows:

	Nine months ended September 30, 2013 (Shares)		Nine months ended September 30, 2012 (Shares)

Options to purchase shares of common stock		1,634,054		477,967
Series A convertible, redeemable preferred stock		105,000		341,607
Series B convertible preferred stock		2,133,947		-
Warrants		2,297,871		399,407
		6,170,872		1,218,981

16. 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, 2013 and December 31, 2012, Dr. Benjamin Warner owned 76.0% and 74.1%, respectively of the issued and outstanding shares of common stock on an un-diluted basis.

Effective March 15, 2013 the Company entered into a five year employment agreement with Dr. Warner to continue to serve as the Company’s Chief Executive Officer (“CEO”) and President (the “Employment Agreement”). The Employment Agreement replaces his prior agreement. Pursuant to the Employment Agreement, Dr. Warner will be entitled to an annual base salary of $250,000 and will be eligible for discretionary performance and transactional bonus payments as well as certain other specified benefits. Additionally, Dr. Warner was granted options to purchase 185,000 shares of the Company’s common stock with an exercise price equal to $1.50 per share. These options will vest pro rata, on a monthly basis over twelve months, with 15,417 vesting each month commencing April 1, 2013. The Employment Agreement also includes confidentiality obligations and inventions assignments by Dr. Warner.

Effective April 30, 2013, Dr. Benjamin Warner entered into an Exchange Agreement whereby 25,035 shares of Series A Stock and accrued and unpaid dividends up until April 30, 2013 of $15,300 were converted into 63,201 shares of Series B Stock, see note 11 above.

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

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

F-18

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

17. OPERATING LEASES

The Company entered into a laboratory and office lease agreement for 2,813 square feet in Cambridge, Massachusetts effective June 1, 2013. The term of the lease is for a twelve month period terminating on May 31, 2014. The monthly rental amounts to $15,118. Rental expense for the nine months ended September 30, 2013 amounted to $61,795.

The Company entered into a corporate apartment lease agreement in Cambridge, Massachusetts effective June 4, 2013. The term of the lease is for a twelve month period terminating on June 3, 2014. The monthly rental amounts to $3,325. Rental expense for the nine months ended September 30, 2013 amounted to $14,243.

The Company extended its existing office lease in New Mexico effective November 1, 2010. The monthly rent amounts to $5,075 per month and the lease terminates in October 2013. Rental expense for the nine months ended September 30, 2013 and 2012 was $45,678 and $44,348, respectively.

Future annual minimum payments required under operating lease obligations as of September 30, 2013, are as follows:

	Amount

2013	$	60,404
2014		92,214
	$	152,618

18. LITIGATION

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

The Company filed suit against the Regents of the University of California (the “Regents”) and Los Alamos National Security LLC (“LANS”) in California Superior Court in San Francisco in December 2007. This suit alleges (i) breach of contract and (ii) fraud in connection with an exclusive Patent Licensing Agreement (the “Agreement”) originally entered into between the Company and the Regents in September 2005, and assigned to LANS in April 2006. The Company alleges the defendants made false representations that were critical to its decision to enter into the Agreement including: (i) the Regents was the lawful owner of the patent rights covered by the Agreement; and (ii) the Regents would prosecute and maintain these patent rights and notify the Company if it decided to abandon them. The Company also alleges that the Regents and LANS improperly competed with the Company in violation of the exclusivity provision of the Agreement. The Company is seeking relief for compensatory damages potentially in excess of $600 million, as well as exemplary and punitive damages, interest, and costs. This suit was dismissed for reason of lack of subject matter jurisdiction by the California Superior Court in 2010. On April 24, 2012, the trial Court’s dismissal for lack of subject matter jurisdiction was reversed in full by the California Court of Appeal. The defendants unsuccessfully attempted to appeal this decisions to the California Supreme Court and, subsequently, to the Supreme Court of the United States. On February 25, 2013, the Supreme Court denied defendants’ petition for certiorari and the matter was remitted to California Superior Court. On March 22, 2013, The Regents and LANS moved to re-file certain counterclaims against the Company and Benjamin Warner that had been dismissed voluntarily without prejudice after the matter was dismissed for lack of subject matter jurisdiction in 2010. The motion was granted in May 2013 and, shortly thereafter, the Regents and LANS filed cross- and counter-claims against the Company and Dr. Warner. The Company believes these counterclaims to be wholly without merit, and intends to vigorously defend against them. No assurance can be given as to the ultimate outcome of these actions or their effect on the Company. If the Company is not successful in its defense of these counterclaims it would have a material adverse effect on the pending litigation, the Company and its operations. On August 5, 2013, the Company filed a demurrer against certain of the causes of action against the Company. Dr. Warner filed a motion to quash service for a lack of personal jurisdiction. The court set a trial date for July 14, 2014. Merits discovery in the California matter has re-commenced.

In October 2010, the Company filed suit against LANS and seven other co-defendants in the United States District Court For the Northern District of Illinois Eastern Division alleging the following: (i) breach of contract; (ii) fraud; (iii) intentional interference with contractual relations; and (iv) conspiracy and other related claims in connection with the September 2005 Agreement that was assigned to LANS in April 2006. The Company alleges the defendants made false representations that were critical to its decision to enter into the Agreement including: (i) the Regents was the lawful owner of the patent rights covered by the Agreement and (ii) the Regents would prosecute and maintain these patent rights and notify the Company if it decided to abandon them. The Company also alleges that LANS and other co-defendants improperly competed with the Company. The Company is seeking relief including compensatory damages in excess of $600 million, as well as exemplary and punitive damages, interest, and costs. In January 2012, this case was ordered to be transferred to Federal Court in New Mexico. In February 2012, the case was transferred to Federal Court in New Mexico. On May 4, 2012 LANS filed counterclaims in New Mexico Federal Court against the Company and Dr. Warner making various claims of ownership to the Company’s existing intellectual property and seeking unspecified damages. The Company believes these counterclaims to be wholly without merit, and intends to vigorously defend against them. No assurance can be given as to the ultimate outcome of these actions or their effect on the Company. If the Company is not successful in its defense of these counterclaims it would have a material adverse effect on the pending litigation, the Company and its operations. This matter is currently stayed. After the Regents and LANS exhausted their appeal in the California action, and the California action was remitted to California state court, on July 24, 2013, the Company moved to have the New Mexico district court action, including cross- and counter-claims, dismissed for lack of subject matter. The court has not yet ruled on the Company’s motion.

F-19

CALDERA PHARMACEUTICALS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

18. LITIGATION (continued)

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

In September 2011, the Company filed suit against the Regents and LANS in the Circuit Court of Cook County, Illinois (“Cook County Action”). The Company's complaint alleges the following: (i) breach of contract; (ii) breach of the implied covenant of good faith; (iii) fraud; and (iv) fraudulent inducement, in connection with the September 2005 Agreement with the Regents assigned to LANS in April 2006. The Company alleges the defendants breached a License Agreement, and made false representations that were critical to the Company's decision to enter into the Agreement. The Company also alleges that the Regents and LANS improperly competed with the Company in violation of the exclusivity provision of the Agreement. The Company is seeking relief for compensatory damages in excess of $600 million, as well as exemplary and punitive damage, interest, and costs. LANS removed the case to the United States District Court for the Northern District of Illinois Eastern Division, Case # 11-CV-07259. In March 2012, the Company filed a motion to remand the case to the Circuit Court of Cook County, and on May 11, 2012 the case was remanded to the Circuit Court of Cook County. The Company then amended the complaint in October 2012 to include claims against UChicago Argonne and Liaohai Chen, a manager and scientist at Argonne, for intentional interference with contractual relations and related claims. The Company also added conspiracy claims against all defendants. Argonne removed the case to United States District Court for the Northern District of Illinois Eastern Division on October 22, 2012. The Company moved to remand the action back to the Circuit Court of Cook County and on February 1, 2013, the matter was remanded. On April 24, 2013, the Company filed a Second Amended Complaint alleging essentially the same causes of action. After the Regents and LANS exhausted their appeal in the California action, and the Californai action was remitted to California state court, the Company moved to have the Cook County matter dismissed. On July 26, 2013, the court entered an order dismissing the action, in its entirety, without prejudice.

The Company has a contingency fee arrangement for legal expenses in connection with the litigation against the Regents of the University of California and Los Alamos National Security, LLC, et al. The fees involved are contingent upon the successful outcome of this litigation and will not be due if we are unsuccessful. A small percentage of the fees are currently subject to a negotiation with the law firm in question. The maximum estimated contingency fee arrangement is dependent on the successful outcome of the matters and the negotiation with the law firm, as of September 30, 2013, amounts to $2,177,463.

Joel Bellows Suit

In October 2008, Seddie Bastanipour and Joel Bellows filed suit against the Company, Dr. Benjamin Warner, and a former consultant to the Company, Sigmund Eisenchenk. Joel Bellows provided legal services to the Company through his legal firm, Bellows and Bellows P.C. The suit was filed in the Circuit Court of Cook County, Illinois and alleged the following: (i) Violation of Illinois Securities Act of 1953; (ii) Violation of Illinois Consumer Fraud Act; and (iii) Common Law Fraud, in connection with aggregate investments of $218,000 in the Company’s common stock claimed by Bastanipour and Bellows. They are seeking compensatory damages, costs and expenses.

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

In December 2010, the Company filed suit against Seddie Bastanipour and Peter Baltrus for breach of contract and negligence when they were performing accounting services on behalf of the Company that resulted in an IRS penalty.

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

In February 2013 a settlement agreement was entered into between the Company, Joel Bellows and Peter Baltrus, with respect to the October 2008 and December 2010 suits, which requires the exchange of 105,000 common shares for 105,000 shares of Series A Stock or Series B Stock and a cash payment of $240,000, together with interest thereon at 6% per annum, over a three-year period. An accrual of $257,972 had been recorded to deal with this matter as of December 31, 2012. A further legal settlement expense of $115,273 was recorded to reflect the fair market value of the Series A Stock issued to Mr. Bellows during the nine months ended September 30, 2013.

On April 30, 2013, the October 2008 and the December 2010 suits were dismissed, with prejudice. In terms of this settlement agreement, the Company paid the first cash installment of $80,000 during March 2013 and on May 20, 2013, issued 105,000 shares of Series A Stock to Joel Bellows, in exchange for his 105,000 common shares. The Company and Dr. Benjamin Warner have filed post-settlement motions for the Judge in the matter to reconsider his May 16, 2013 ruling wherein the Company and Dr Benjamin Warner were compelled to comply with a disputed version of the settlement agreement which entitled Bellows to a prejudicial conversion formula of his Series A Stock into Series B Stock which is contrary to our settlement intentions. The motion was heard on September 25, 2013 and denied. On October 24, 2013, the Company and Dr. Benjamin Warner filed a notice of appeal.

Subsequent to the period end, on October 4, 2013, the March 2010 suit was dismissed with prejudice and a settlement agreement was entered into. In terms of this settlement agreement the Company received a net $30,000 cash settlement.

19. SUBSEQUENT EVENTS

On October 1, 2013 a director with significant industry experience, Timothy C. Tyson was appointed to the board of directors. Mr. Tyson was granted 20,000 options at an exercise price of $2.50 per share vesting over a 36 month period and an annual cash payment of $25,000 payable quarterly in arrears.

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

F-20

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, 2012. 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 detects and quantitatively analyzes the x-ray signature of each element with an atomic number greater than 10, we combine the flexibility of the analysis with patented sample processing to address a wide range of ion channel and other biological targets. We believe that our technology can reduce the cost of drug discovery by detecting safety and efficacy issues at an early stage of development. To date, substantially all of our revenue has been derived from our analytical services that we have performed for United States governmental agencies. However, we expect that our future revenue will be derived from: (i) provision of our analytical drug discovery services to commercial customers as well as United States governmental agencies; and, (ii) to a lesser extent, sales of new drug candidates that we identify using the XRpro® drug discovery instruments.

To date, we have financed our operations primarily through private sales of our securities and revenue derived from our analytical services that we have performed for United States governmental agencies and we expect to continue to seek to obtain the required capital in a similar manner. We cannot provide any assurance that we will be able to achieve profitability on a sustained basis, if at all.

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

Recent Developments

During the period April 23, 2013 to July 18, 2013, we sold an aggregate of 1,118,000 series B preferred units at a per unit price of $2.50 each unit consisting of one share of Series B Preferred Stock (the “Series B Shares”) and a seven-year warrant to acquire one share of the Company’s common stock, par value, $0.001 per share (“Common Stock”) at an exercise price of $2.50 per share, for aggregate cash proceeds of $2,795,000, pursuant to separate purchase agreements entered into with each investor. The Company agreed to use the net proceeds of the above-described offering (the “Offering”) for working capital and general corporate purposes, including without limitation, to repay certain bridge loans and retention of new officers. The sale was part of a private placement offering in which the Company offered for sale on a “best efforts–all or none” basis up to 550,000 units (gross proceeds of $1,375,000, including the principal amount of bridge notes exchanged for Units, and on a “best efforts” basis the remaining 1,450,000 units for a maximum of 2,000,000 units (gross proceeds of $5,000,000). The Offering closed on August 31, 2013.

The Company retained Taglich Brothers, Inc. as the exclusive Placement Agent for the Offering. In connection therewith, the Company agreed to pay the Placement Agent a 9% commission from the gross proceeds of the Offering, to date this commission totaled $285,300, and reimbursed $35,000 in respect of out of pocket expenses, FINRA filing fees and related legal fees incurred by the Placement Agent in connection with the Offering. The Placement Agent received warrants to purchase an aggregate of 126,800 shares of Common Stock, to date, representing 10% of the shares of Common Stock into which the Series B Preferred Shares issued in connection with the Offering are convertible (the “Placement Agent Warrants”), exercisable at $2.75 per share of Common Stock for a period of seven years. The Placement Agent Warrants contain cashless exercise provisions and customary anti-dilution protection and registration rights. In addition, as an advisory fee, the Placement Agent received warrants to purchase 160,000 shares of Common Stock at an exercise price of $2.75 and warrants to purchase 40,000 shares of Common Stock at an exercise price of $.01. In terms of its right to appoint two members to the Board of Directors of the Company, Taglich Brothers have appointed Mr. Michael Taglich and Vincent Palmieri as their representatives. The board member appointments became effective 10 days after the filing of a Schedule 14-F Information Statement on May 16, 2013.

Each holder of Series A Preferred Stock had also been offered the opportunity to exchange all of such holder’s shares of Series A Preferred Stock and any accrued but unpaid dividends up to and including April 30, 2013, for a number of Series B Shares, determined by dividing the amount of such holder’s initial investment in the securities of the Company plus any accrued and unpaid dividends outstanding as of April 30, 2013, by $2.50 per share. All of the Series A shareholders as of April 30, 2013, exercised their rights to conversion and 341,607 shares of Series A Preferred Stock, including accrued and unpaid dividends thereon, exchanged such shares for 862,283 Series B Shares,

On December 18, 2012 and during March and April 2013 we received $500,000 in gross proceeds from the issuance of ten convertible bridge notes in the aggregate principal amount of $500,000, of which notes in the aggregate principal amount of $375,000, together with interest thereon of $9,160 were converted into 153,664 Series B units and notes in the aggregate principal amount of $100,000, together with accrued interest thereon, were repaid on May 31, 2013. The remaining note in the aggregate principal of $25,000, together with accrued interest thereon, was repaid on August 30, 2013. The notes were issued as part of a unit that included warrants to purchase 600 shares of our common stock for each $1,000 of note principal at an exercise price of $3.00. The notes bear interest at 10% per annum compounded and payable quarterly at our option.

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

Results of Operations for the three months ended September 30, 2013 and the three months ended September 30, 2012.

Revenues

We had revenues totaling $60,628 and $582,925 for the three months ended September 30, 2013 and 2012, respectively, a decrease of $522,297 or 89.6%. 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. The final $1,000,000 was made available for us to invoice our project expenses against with effect from August 1, 2013 expiring on July 31, 2014. However, we do not know how or if the federal government’s recent spending cuts, known as sequestration, will affect our ability to obtain future contracts. The funds available under this grant are earned by us on a percentage-of-completion basis, based on the costs we incur as a measure of the progress made on the project.

Going forward, based on financing, we plan to market our analytical 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 sector; 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 $101,119 and $151,968 for the three months ended September 30, 2013 and 2012, respectively, a decrease of $50,849 or 33.5%. Our cost of goods sold is dependent on the progress made on each project to date. Cost of sales is primarily comprised of direct expenses related to providing our services under our contracts. These expenses include salary expenses directly related to research contracts, recoverable expenses incurred on contracts, the cost of outside consultants, and direct materials used on our contracts. The salary expense included in cost of sales for the three months ended September 30, 2013 and 2012 respectively was $28,909 and $132,497, a decrease of $103,588 or 78.2% due to lower activity 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 three months ended September 30, 2013 and 2012, respectively was laboratory supplies of $55,124 and $58,457. The slight decrease in laboratory supplies used was due to the use of consumables on experiments run for prospective customers offset by the significant activity on government contracts in the prior year.

Gross (loss)/profit

Gross (loss)/profit was $(40,491) and $430,957 for the three months ended September 30, 2013 and 2012, respectively. The gross (loss)/margin as a percentage of sales were (66.8)% and 73.9%, respectively. The gross loss for the three months ended September 2013, is primarily due to the cost of laboratory supplies used on experiments run for prospective customers while the gross profit for the three months ended September 30, 2012 relates primarily to our Federal government contracts and may not be indicative of anticipated future results due to the Company’s plan to diversify its source of revenues into the provision of services or usage arrangements. The decrease in our gross profit is primarily due to the labor costs incurred on prospective customers and the increase in our laboratory supply expenses used to run experiments for these prospective customers.

Selling, general and administrative expenses

Selling, general and administrative expenses totaled $976,848 and $308,934 for the three months ended September 30, 2013 and 2012, respectively, an increase of $667,914 or 216.2%.

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

	Three months ended September 30,				Increase/			Percentage
	2013		2012		(decrease)			change

Marketing and selling expenses	$	23,692	$	5,460	$	18,232			333.9	%

Salary expenses		255,672		50,683		204,989			404.5	%

Research and development salaries		46,944		776		46,168			*	%

Stock option compensation charge		212,307		8,279		204,028			*	%

Legal fees		139,360		108,965		30,395			27.9	%

Consulting fees		66,539		70,464		(3,925	)		(5.6	)%

Audit fees and taxation services		7,700		-		7,700			*	%

Rent		77,178		14,783		62,395			422.1	%

	$	829,392	$	259,410	$	569,982			219.7	%

* Increase substantially above 1,000%, percentage number not relevant, see explanation below.

Marketing and selling expenses in the three months ended September 30, 2013, primarily consists of website design and development expenses to increase the relevancy and the clarity of the message we are delivering to prospective customers.

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, 2013 and 2012, respectively is included in the following expense categories:

	Three months ended September 30,				Increase/			Percentage
	2013		2012		(decrease)			change
Cost of sales	$	28,909	$	132,497	$	(103,588	)		(78.2	)%

Selling, general and administrative expenses		255,672		50,683		204,989			404.5	%

Research and development salaries		46,944		8,279		38,665			467.0	%

	$	331,525	$	191,459	$	140,066			73.2	%

The increase in total salary expenditure for the three months ended September 30, 2013 of $140,066 is due to the employment of a new CEO, Gary Altman effective July 1, 2013 at an annual salary of $300,000 per annum, the increase in the salary of our Chief Scientific officer of $50,000 per annum, effective March 2013 the employment of an additional scientist effective September 1, 2013 at a salary of $125,000 per annum, severance pay of $9,500 paid to our controller effective August 30, 2013 and the increase in our sick and vacation pay provision of $27,287 for the three months ended September 30, 2013.

The salary expense included in cost of sales for the three months ended September 30, 2013 decreased by $103,588 or 78.2%. The lower salary expense in the current year was due to a slower than expected start on the additional $1,000,000 contract from the National Institutes of Health, together with a substantial portion of scientific time utilized on development of viable assays for commercial applications. The decrease of salary expense charged to cost of sales for the three months ended September 30, 2013 resulted in a corresponding increase in salary expense charged to Selling, general and administrative expenses and research and development salaries for the three months ended September 30, 2013.

The salary expense charged to Selling, general and administrative expenses for the three months ended September 30, 2013 increased by $204,989 or 404.5% due to the decrease in salary expense charged to cost of sales and the increase in total salary expense as discussed above.

Research and development salaries for the three months ended September 30, 2013 increased due to scientific employees conducting research on viable assays for commercial applications.

The stock option compensation charge increased over the prior year primarily due to the issue of 1,139,900 options to management, including 514,900 options issued to our new CEO, Gary Altman and certain other members of management, consultants and advisors to the Company in connection with a fund raising exercise that was conducted over the prior and current quarters and completed on August 31, 2013.

Legal fees increased by $30,395 over the prior period due to increased activity on the settlement of the Bellows matter. For additional information on our legal matters, see Item 3- Legal Proceedings. The legal expenses incurred on the LANS and Bellows matters are not connected with our regular business activities and while still ongoing should be viewed as non-operating expenses.

The slight decrease in consulting fees of $3,925 over the prior period is primarily due to the termination of the consulting arrangement with a management consultant, partially offset by an investor relations consulting arrangement entered into during the current year.

The increase in audit fees is due to the payment of fees on the completion of the second quarter review and the payment for the preparation of the 2012 federal and state tax returns.

Depreciation and Amortization

We recognized depreciation expenses of $30,704 and $27,009 for the three months ended September 30, 2013 and 2012, respectively, the increase in the depreciation charge is primarily due to the addition of laboratory equipment for the newly established Boston 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 $12,921 for each of the three months ended September 30, 2013 and 2012. Amortization expenses relates to the amortization of license fees paid to Los Alamos National Laboratories for the use of certain patents.

Other income

Other income of $140,880 recognized in the prior year related to insurance proceeds of $10,000 received to fund our legal expenses incurred on the LANS matter and a further $130,880 from an agreement entered into with one of our suppliers of legal services whereby they agreed to reduce the amount of liability owing to them by 50% of the original invoiced amount.

Interest expense

Interest expense totaled $16,267 and $7,306 for the three months ended September 30, 2013 and 2012, respectively. The increase in interest expense is primarily due to the following; interest incurred and the non-cash amortization of discount on the Bridge notes issued to investors during the last quarter of the prior year and the nine months of the current year amounting to $7,009 and iv) interest accrued on the legal settlement reached with Joel Bellows in February 2013 amounted to $2,400.

Change in derivative liabilities

The fair value of derivative liabilities was re-assessed at September 30, 2013 using a Black Scholes valuation model resulting in the reduction of the liability by $536,665 due to a change in the underlying valuation assumptions.

Net loss

Net (loss)/profit totaled ($540,108) and $215,808 for the three months ended September 30, 2013 and 2012, respectively. The increased loss is primarily due to the lower revenues and lower margins earned, increased expenditure and the increase in interest expense and the other income generated in the prior year, as discussed above.

Results of Operations for the nine months ended September 30, 2013 and the nine months ended September 30, 2012.

Revenues

We had revenues totaling $380,923 and $1,453,950 for the nine months ended September 30, 2013 and 2012, respectively, a decrease of $1,073,027 or 73.8%. 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. The final $1,000,000 was made available for us to invoice our project expenses against with effect from August 1, 2013 expiring on July 31, 2014. However, we do not know how or if the federal government’s recent spending cuts, known as sequestration, will affect our ability to obtain future contracts. The funds available under this grant are earned by us on a percentage-of-completion basis, based on the costs we incur as a measure of the progress made on the project.

Cost of goods sold

Cost of goods sold totaled $372,843 and $504,092 for the nine months ended September 30, 2013 and 2012, respectively, a decrease of $131,249 or 26.0%. Our cost of goods sold is dependent on the progress made on each project to date. Cost of goods sold for the nine months ended September 30, 2013 includes $62,500 paid to third parties to fund animal trials on the NIH contract mentioned above. Cost of sales is primarily comprised of direct expenses related to providing our services under our contracts. These expenses include salary expenses directly related to research contracts, recoverable expenses incurred on contracts, the cost of outside consultants, and direct materials used on our contracts. The salary expense included in cost of sales for the nine months ended September 30, 2013 and 2012 respectively was $146,653 and $422,699, a decrease of $276,046 or 65.3% due to lower activity 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, 2013 and 2012, respectively was laboratory supplies of $140,128 and $58,969. The increase in laboratory supplies used during the current period was due to experiments run on developing assays for prospective commercial customers partially offset by lower activity on government contracts.

Gross profit

Gross profit was $8,080 and $949,858 for the nine months ended September 30, 2013 and 2012, respectively. The gross margin as a percentage of sales were 2.1% and 65.3%, respectively and relate primarily to our Federal government contracts and may not be indicative of anticipated future results due to the Company’s plan to diversify its source of revenues into the provision of services or usage arrangements. The decrease in our gross profit is primarily due to the labor costs incurred on running experiments on developing assays for prospective commercial customers, the increase in our laboratory supply expenses used to run experiments for these prospective customers and the cost of third parties used to conduct animal trials on our NIH contract, as discussed above.

Selling, general and administrative expenses

Selling, general and administrative expenses totaled $2,466,838 and $1,384,972 for the nine months ended September 30, 2013 and 2012, respectively, an increase of $1,081,866 or 78.1%.

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

	Nine months ended September 30,				Increase/			Percentage
	2013		2012		(decrease)			change

Marketing and selling expenses	$	23,692	$	85,358	$	(61,666	)		(72.2	)%

Salary expenses		516,957		175,885		341,072			193.9	%

Research and development salaries		122,347		23,826		98,521			413.5	%

Stock option compensation charge		441,566		48,852		392,714			803.9	%

Legal fees		544,609		630,502		(85,893	)		(13.6	)%

Consulting fees		227,416		182,515		44,901			24.6	%

Audit fees		44,460		26,700		17,760			66.5	%

Legal settlement accrual		115,273		-		115,273			-	%

Rent		126,515		48,531		77,984			160.7	%

	$	2,162,835	$	1,222,169	$	940,666			77.0	%

Marketing and selling expenses, in the current period primarily consists of website design and development expenses to increase the relevancy and the clarity of the message we are delivering to prospective customers. In the prior period, marketing and selling expenses included professional promotional activities to promote our XRpro equipment and services. This expense was a once-off expense.

Total salary expenditure for the nine months ended September 30, 2013 and 2012, respectively is included in the following expense categories:

	Nine months ended September 30,				Increase/			Percentage
	2013		2012		(decrease)			change
Cost of sales	$	146,653	$	422,699	$	(276,046	)		(65.3	)%

Selling, general and administrative expenses		516,997		175,885		341,112			193.9	%

Research and development salaries		122,347		23,826		98,521			413.5	%

	$	785,997	$	622,410	$	163,587			26.3	%

The increase in total salary expenditure for the three months ended September 30, 2013 of $163,587 is due to the employment of a new CEO, Gary Altman effective July 1, 2013 at an annual salary of $300,000 per annum, the increase in the salary of our Chief Scientific officer of $50,000 per annum, effective March 2013 the employment of two additional scientists, one who has subsequently resigned and the other effective September 1, 2013 at a salary of $125,000 per annum, severance pay of $9,500 paid to our controller effective August 30, 2013 and the increase in our leave pay provision of $27,287 for the nine months ended September 30, 2013.

The salary expense included in cost of sales for the nine months ended September 30, 2013 decreased by $276,046 or 65.3%. The lower salary expense in the current year was due to a slower than expected start on the additional $1,000,000 contract from the National Institutes of Health, together with a substantial portion of scientific time utilized on development of viable assays for commercial applications. The decrease of salary expense charged to cost of sales for the nine months ended September 30, 2013 resulted in a corresponding increase in salary expense charged to Selling, general and administrative expenses and research and development salaries for the nine months ended September 30, 2013.

The salary expense charged to Selling, general and administrative expenses for the nine months ended September 30, 2013 increased by $341,112 or 193.9% due to the decrease in salary expense charged to cost of sales and the increase in total salary expense as discussed above.

Research and development salaries for the nine months ended September 30, 2013 increased due to scientific employees conducting research on viable assays for commercial applications.

Legal fees decreased by $85,893 over the prior period due to lower activity on the LANS matter in the current year and increased legal expenses incurred on the S-1 filing by the Company in the prior year. For additional information on our legal matters, see Item 3-Legal Proceedings. The legal expenses incurred on the LANS and Bellows matters are not connected with our regular business activities and while still ongoing should be viewed as non-operating expenses.

The increase in consulting fees over the prior period is primarily due to the employment of Gary Altman as a consultant to the Company during the months of May and June 2013. Mr. Altman has subsequently been appointed as the CEO and President of the Company during July 2013.

The increase in audit fees is due to the completion of the 2012 year-end audit during the current nine month period.

Depreciation and Amortization

We recognized depreciation expenses of $86,353 and $66,033 for the nine months ended September 30, 2013 and 2012, respectively, the increase in the depreciation charge is primarily due to the addition of an XRpro® instrument in the third quarter of the prior year and additional laboratory equipment purchased for the establishment of the Boston 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 $38,763 for each of the nine months ended September 30, 2013 and 2012. Amortization expenses relates to the amortization of license fees paid to Los Alamos National Laboratories for the use of certain patents.

Other income

Interest expense

Interest expense totaled $155,968 and $15,144 for the nine months ended September 30, 2013 and 2012, respectively. The increase in interest expense is primarily due to the following; i) interest incurred and the amortization of discount on the Bridge notes issued to investors during the last quarter of the prior and the current year amounting to $128,822, ii) increase in interest expense incurred on the commercial loan entered into in June 2012 of $2,968, iii) interest incurred on the LANB line of credit increased by $2,924 over the prior period due to the increase in the balance outstanding from $50,000 to $168,000, and iv) interest accrued on the legal settlement reached with Joel Bellows in February 2013 amounted to $5,600.

Change in derivative liabilities

The fair value of derivative liabilities was re-assessed at September 30, 2013 using a Black-Scholes valuation model resulting in a net reduction of the liability by $388,094 due to a change in the underlying valuation assumptions.

Net loss

Net loss totaled ($2,350,606) and ($413,539) for the nine months ended September 30, 2013 and 2012, respectively. The increased loss is primarily due to the lower revenues and lower margins earned, increased expenditure, other income earned in the prior year, increased interest expense and the change in the fair value of derivative liabilities as discussed above.

Liquidity and Capital Resources

We have a history of annual losses from operations since inception and we have primarily funded our operations through sales of our unregistered equity securities and cash flows generated from government contracts and grants. As of September 30, 2013 our Company had cash totaling $1,009,701, other current assets totaling $134,386, and total assets of $2,135,977. We had total current liabilities of $2,644,590, including a derivative financial liability of $1,475,975, and a net working capital deficit of $1,500,503. Total liabilities were $3,097,696 and the Series A convertible redeemable preferred stock totaled $133,350 resulting in a stockholders’ deficit of ($1,095,069).

During April 2013 we received $100,000 from certain note holders to provide temporary funding to the business; these funds together with interest thereon were repaid in April 2013. We received $250,000 in gross proceeds from the issuance of seven convertible bridge notes in the aggregate principal amount of $250,000, of which $100,000 of these proceeds were used to repay the $100,000 notes on April 4, 2013. The bridge notes were issued as part of a unit that included warrants to purchase 600 shares of our common stock for each $1,000 of note principal. During April 2013, $375,000, together with interest thereon of $9,160, of the $500,000 bridge notes outstanding, converted their notes into 153,664 Series B Preferred units, at $2.50 per unit. Each unit consists of a Series B Stock and a warrant to purchase a share of common stock at $2.50 per share. During May and August 2013, $125,000 of the bridge Notes, together with interest thereon, was repaid to the bridge note holders.

During the period April to July 2013, we issued 1,118,000 Series B preferred units to investors for gross proceeds of $2,795,000 at $2.50 per unit, to fund future operations. In addition to this, we paid the placement agent, Taglich Brothers, a fee of $285,300 out of the gross proceeds realized, representing 9% of the gross proceeds raised, including the proceeds of any Bridge notes which converted into Series B Preferred units.

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.

The terms of the commercial loan facility and the revolving funding facility from Los Alamos National Bank were renegotiated and on September 16, 2013 the Company concluded a new term loan agreement with LANB to replace the revolving draw loan and the commercial loan. The Company paid a combined $26,886 against the revolving draw line and the commercial loan and LANB advanced a new term loan to the Company of $267,392, the proceeds of which were used to settle the remaining balance, inclusive of interest, of the revolving draw line and the commercial loan. This loan bears interest at the Wall Street Journal Prime rate plus 2.0% with a floor of 7.00% per annum. This loan expires on September 16, 2016. The loan is repayable in 36 monthly installments of $8,256, inclusive of interest, which installment may vary depending on the variable interest rate mentioned above. The loan is secured by accounts receivable and other rights to payments, instruments, documents and other chattel paper, general intangibles and fixed assets. The loan is personally guaranteed by Benjamin Warner, our Chief Scientific Officer and majority common shareholder. The loan agreement provides that we cannot incur, permit or assume (i) any debt except: existing debt as of the date the loan agreements were executed, debts subordinate to the loan or accounts payable incurred in the ordinary course of business or (ii) any liens other than inconsequential liens incurred in the ordinary course of business. These restrictions may limit our ability to raise debt financing in the future. The lender can demand payment in full upon an event of default which includes an insolvency or bankruptcy, business termination through merger dissolution or reorganization, a default under any of the loan documents with the bank or any other agreement with the bank. As of September 30, 2013 we owed $268,110 in accordance with the term loan agreement.

As of September 30, 2013, we owed $217,867 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, 2013 and 2012 is provided below:

	Nine months ended September 30, 2013			Nine months ended September 30, 2012

Net cash used by operating activities	$	(1,807,944	)		$	(565,157	)

Net cash used in investing activities		(131,984	)			(238,360	)

Net cash provided by financing activities		2,570,986				320,765

Net increase/(decrease) in cash and cash equivalents	$	631,058			$	(482,752	)

Net cash used in operating activities was $(1,807,944) and $(565,157) for the nine months ended September 30, 2013 and 2012, respectively. The increase in cash used in operating activities was primarily due to the following:

	Nine months ended September 30,						Increase/			Percentage
	2013			2012			(decrease)			change

Net loss	$	(2,350,606	)	$	(413,539	)	$	(1,937,067	)		(468.4	)%

Adjustments for non-cash items		426,658			22,768			403,890			*	%

Changes in operating assets and liabilities		116,004			(174,386	)		290,390			166.5	%

	$	(1,807,944	)	$	(565,157	)	$	(1,242,787	)		(219.9	)%

* Increase substantially above 1,000%, percentage number not relevant, see explanation below.

The increase in the net loss is discussed under net loss in the results of operations for the nine months ended September 2013 and 2012, respectively.

The change in adjustments for non-cash items is primarily due to the amortization of the bridge note discount of $117,629, the increase in stock based compensation of $392,714 due to the issue of 1,139,900 options to management and consultants, discussed above, the change in the derivative liability of $(388,094), discussed above the increase in the legal settlement accrual of $115,273 discussed above, and the gain on the settlement reached with a supplier of $130,880 in the prior period, discussed under other income above.

The changes in operating assets and liabilities included: (i) an increase in accounts receivable of $(20,949) which is primarily due to the timing of receipts before or after month end from our primarily government customers; (ii) an increase in our prepaid expenses of $29,465 due to the prepayment of a directors and officers insurance policy in the current year and, iii) the increase in the accounts payable balance of $154,382 is primarily due to legal expenses incurred on the Bellows and LANS matter and several smaller payables which were paid after month end.

Net cash used in investing activities was $131,984 for the nine months ended September 30, 2013. This was primarily due to laboratory equipment purchased for the Boston laboratory and an investment in a Certificate of Deposit to secure the Boston office lease.

Net cash provided by financing activities was $2,570,986 and $320,765 for the nine months ended September 30, 2013 and 2012, respectively and is made up as follows:

	Nine months ended September 30,						Increase/			Percentage
	2013			2012			(decrease)			change

Movement in borrowings from banks and third parties	$	(63,714	)	$	290,017		$	(353,731	)		(122.0	)%

Movement in Bridge Loans		125,000			-			125,000			-	%

Net proceeds from stock issues		2,509,700			57,500			2,452,200			-	%

Dividends paid		-			(26,752	)		26,752			100.0	%

	$	2,570,986		$	320,765		$	2,250,221			701.5	%

The movement in borrowings from banks and third parties in the current period included the refinancing of the Los Alamos National Bank commercial loan and revolving loan into a new 36 month term loan. This included a once-off net capital reduction of $26,886. The movement also includes the repayment of the Los Alamos County loan in equal monthly installments. The movement in the prior year represented a cash advance on the LANB letter of credit, a new equipment financing loan advanced by Los Alamos National bank net of repayments of the Los Alamos county loan.

The movement in the bridge loan represents funds that were advanced to the company during the current year, which has subsequently been converted into Series B preferred shares.

The proceeds from stock issued in the current year include the net proceeds realized on the issue of 1,118,000 Series B preferred units discussed under liquidity and capital resources above. The proceeds from stock issued in the prior year represented the issuance of 10,088 Series A Preferred units at an issue price of $5.70 per unit.

The dividend paid in the prior year represents the payment of dividends due to Series A Stockholders who elected to receive cash dividends at $0.46 per share instead of shares of common stock at $5.70 per share.

Capital Expenditures

Our current plan is to restrict our capital expenditure to equipment necessary for the efficient functioning of our laboratory in Boston. 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.

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 , 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings.

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

As of September 30, 2013 we have spent a total of $1,515,999 with respect to these cases, of which $250,427 was spent during the nine months ended September 30, 2013.

Joel Bellows Suit

On April 30, 2013, the October 2008 and the December 2010 suits were dismissed, with prejudice. In terms of this settlement agreement, the Company paid the first cash installment of $80,000 during March 2013 and on May 20, 2013, issued 105,000 shares of Series A Stock to Joel Bellows, in exchange for his 105,000 common shares. The Company and Dr. Benjamin Warner have filed post-settlement motions for the judge in the matter to reconsider his May 16, 2013 ruling wherein the Company and Dr Benjamin Warner were compelled to comply with a disputed version of the settlement agreement which entitled Bellows to a prejudicial conversion formula of his Series A Stock into Series B Stock which is contrary to our settlement intentions. The motion was heard on September 25, 2013 and denied. On October 24, 2013, the Company and Dr. Benjamin Warner filed a notice of appeal.

As of September 30, 2013 we have spent a total of $891,038 with respect to these cases, of which $144,516 was spent during the nine months ended September 30, 2013.

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, 2013 we had a net loss of ($2,350,606). For the year ended December 31, 2012 and December 31, 2011, we had a net loss of ($792,061) and ($2,152,923), 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 quarter ended September 30, 2013 substantially all of our revenue was derived from two 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 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”) and one contract with the Department of Defense pursuant to which we are still performing 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. The final $1,000,000 was made available for us to invoice our project expenses against with effect from August 1, 2013 expiring on July 31, 2014. However, under NIH policies the contracts can be terminated in whole or in part by the government for convenience at any time and in such case we would be entitled to payment of our costs incurred in the performance of the work terminated. If there were to be a decline in the demand for our services from governmental agencies, or the two governmental agencies from which we have received funding were required to reduce spending, our net revenue would be significantly impacted, which would negatively affect our business, financial condition and results of operations and may affect our ability to continue operations.

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

We incurred a net loss for the nine months ended September 30, 2013 of ($2,350,606), for the year ended December 31, 2012 of ($792,061) and for the year ended December 31, 2011 of ($2,152,923). 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 marketing plan. Other than our current debt with the Los Alamos County and with Los Alamos National Bank, all of which is fully utilized, which also has certain restrictions on future incurrence of debt that may limit our ability to raise additional money through the issuance of debt, 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 provided will provide us with enough funds to continue our operations at our current level for an additional eight 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.

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

We have generated losses to date and have limited working capital. We incurred a net loss of for the nine months ended September 30, 2013 of $(2,350,606). At September 30, 2013 we had an accumulated deficit of $(11,357,932) and a working capital deficiency of $(1,500,503). We have generated losses to date and have limited working capital. At December 31, 2012 we had an accumulated deficit of $(6,967,435) and a working capital deficiency of $(742,499). We incurred a net loss of for the year ended December 31, 2012 of $(792,061) and for the year ended December 31, 2011 of $(2,152,923). These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from this uncertainty. The report of our independent registered public accounting firm for the years ended December 31, 2012 and 2011 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern in their audit report included herein. If we cannot generate the required revenues and gross margin to achieve profitability or obtain additional capital on acceptable terms, we will need to substantially revise our business plan or cease operations and an investor could suffer the loss of a significant portion or all of his investment in our company. The going concern opinion may affect our ability to obtain financing because investors may be hesitant to invest in a company if its auditors make such a disclosure.

We may not be able to utilize our tax net operating loss carry-forwards to offset future taxable income.

At December 31, 2012 the Company had approximately $4,216,000 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 2032 if unused.

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

Until recently, our business has been solely dependent upon revenue derived from government agencies for services performed by us. We have 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, 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 commercialization efforts will be successful.

The life sciences research 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 this vendor for an indefinite period of time to develop a product that incorporates our technology with a product already produced by this vendor. Our agreement provides that we will not develop, manufacture, or distribute products that compete directly or indirectly with the product that is supplied and incorporated into the XRPro® instruments during the term of the agreement and for a period of three years subsequent to the termination of the agreement if we should terminate the agreement for any reason. Our agreement with this vendor may be terminated by either party without cause upon six (6) months prior written notice. Our equipment vendor is located in 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 vendor will be unable to supply us with needed products, if our vendor was 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 vendor 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 vendor 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, 2013 was approximately $75,403, most of which was used to develop our XRpro® instruments and product line. In light of the long product development cycles inherent in our industry, any developmental expenditure will be made well in advance of the prospect of deriving revenues from the sale of new products. Our ability to commercially introduce and successfully market new products 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®products and servicest and cause our future operating results to suffer.

Our future operating results will suffer if our products and services do not achieve commercial acceptance. Our ability to gain commercial acceptance of our XRpro® products and services 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 and services or our marketing efforts.

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 3,322,432 shares of our common stock as of September 30, 2013, representing 32% of our outstanding shares of common stock on a fully diluted basis. Accordingly, our Chief Scientific Officer would have significant influence over the election of our directors and the approval of actions for which the approval of our stockholders is required. If you acquire shares of our securities, you may have no effective voice in the management of our Company. Such significant influence over control of our Company may adversely affect the price of our common stock. Our principal stockholder may be able to significantly influence matters requiring approval by our stockholders, including the election of directors, as well as mergers or other business combinations which require the vote of a majority of our outstanding shares. Such significant influence may also make it difficult for our stockholders to receive a premium for their shares of our common stock in the event we merge with a third party or enter into different transactions which require stockholder approval. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.

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

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

Our success will depend in part upon the use of patents, pending patents, and technology licensed from the managers of the Los Alamos National Laboratory (“LANL”), which is currently managed by Los Alamos National Security LLC (“LANS”) pursuant to an exclusive Patent License Agreement (the “Agreement”). Under this agreement, we have the exclusive rights to a set of issued and pending patents. The agreement imposes royalty payment requirements, reporting requirements, commercialization milestones and other obligations upon us, and there is no assurance that we will be able to operate sufficiently to satisfy these royalty payments, commercialization milestones and other obligations, which could result in loss of license rights to the technology. Our license to the technology is terminable by the managers of LANL upon written notice to us in the event of the failure by us to meet any of our royalty payment or reporting obligations or in the event of any breach by us of any material term of the license agreement.

In addition to patents and patent applications that we have licensed from the managers of LANL, we have pending patent applications that have been assigned to us from our current and former employees as inventors. There can be no assurances that the patents will ever be issued for our applications, or that any patents that do get issued will be upheld.

We currently have spent and may continue to spend significant resources in connection with the litigation with LANS.

As of September 30, 2013, we had spent $1,515,999 with respect to certain litigation with LANS in order to attempt to recover damages for lost opportunities. We believe the managers of LANS have not fully complied with their responsibilities under the Agreement. However there can be no assurance of success in this effort. In addition, there can be no assurance that the managers of LANL will further comply with their responsibilities under the Patent License Agreement.

In September 2011, the Company filed suit against the Regents and LANS in the Circuit Court of Cook County, Illinois (“Cook County Action”). The Company's complaint alleges the following: (i) breach of contract; (ii) breach of the implied covenant of good faith; (iii) fraud; and (iv) fraudulent inducement, in connection with the September 2005 Agreement with the Regents assigned to LANS in April 2006. The Company alleges the defendants breached a License Agreement, and made false representations that were critical to the Company's decision to enter into the Agreement. The Company also alleges that the Regents and LANS improperly competed with the Company in violation of the exclusivity provision of the Agreement. The Company is seeking relief for compensatory damages in excess of $600 million, as well as exemplary and punitive damage, interest, and costs. LANS removed the case to the United States District Court for the Northern District of Illinois Eastern Division, Case # 11-CV-07259. In March 2012, the Company filed a motion to remand the case to the Circuit Court of Cook County, and on May 11, 2012 the case was remanded to the Circuit Court of Cook County. The Company then amended the complaint in October 2012 to include claims against UChicago Argonne and Liaohai Chen, a manager and scientist at Argonne, for intentional interference with contractual relations and related claims. The Company also added conspiracy claims against all defendants. Argonne removed the case to United States District Court for the Northern District of Illinois Eastern Division on October 22, 2012. The Company moved to remand the action back to the Circuit Court of Cook County and on February 1, 2013, the matter was remanded. On April 24, 2013, the Company filed a Second Amended Complaint alleging essentially the same causes of action. After the Regents and LANS exhausted their appeal in the California action, and the Californai action was remitted to California state court, the Company moved to have the Cook County matter dismissed. On July 26, 2013, the court entered entered an order dismissing the action, in its entirety, without prejudice.

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.

In addition to the counterclaims raised by LANS described in the immediately preceding risk factor, 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 vendor’s 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 we failed to maintain the adequacy of our internal controls 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 4,197,270 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.

We do not expect to pay dividends on our common stock for the foreseeable future, and we may never pay dividends. Consequently, the only opportunity for investors to achieve a return on their investment may be if a trading market develops and investors are able to sell their shares for a profit or if our business is sold at a price that enables investors to recognize a profit. Our holders of Series A Preferred Stock are entitled to an annual dividend of $0.46 for each share of Series A Preferred Stock on January 1 of each year. Our holders of Series B Shares are entitled to a dividend at the rate per annum equal to (i) 8% of the sum of (x)the stated value (which initially is $2.50) 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. We currently intend to retain any future earnings other than those paid as dividends to the Series A Preferred Stock, Series B Shares 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. Our 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, we cannot assure investors any return on their investment, other than in connection with a sale of their shares or a sale of our business or dividends on their Series A Preferred Stock or Series B Shares. At the present time there is no trading market for our shares. Therefore, holders of our securities may be unable to sell them. We 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.

Our lack of an independent audit committee and audit committee financial expert at this time may hinder our board of directors’ effectiveness in fulfilling the functions of the audit committee without undue influence from management and until we establish such committee will prevent us from obtaining a listing on a national securities exchange.

Although our common stock is not listed on any national securities exchange, for purposes of independence we use the definition of independence applied by NASDAQ. Currently, we have no independent audit committee nor do we have an audit committee financial expert at this time. Our full board of directors functions as our audit committee and is currently comprised of six directors, four of whom are considered to be "independent" in accordance with the requirements set forth in NASDAQ Listing Rule 5605(a)(2). An independent audit committee plays a crucial role in the corporate governance process, assessing our processes relating to our risks and control environment, overseeing financial reporting, and evaluating internal and independent audit processes. The lack of an independent audit committee may prevent the board of directors from being independent from management in its judgments and decisions and its ability to pursue the responsibilities of an audit committee without undue influence. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified, independent directors, the management of our business could be compromised. An independent audit committee is required for listing on any national securities exchange, therefore until such time as we have an independent audit committee we will be ineligible for listing on any national securities exchange.

Our board of directors acts as our compensation committee, which presents the risk that compensation and benefits paid to those executive officers that are board members and other officers that not be commensurate with our financial performance.

A compensation committee consisting of independent directors is a safeguard against self-dealing by company executives. Our board of directors currently acts as the compensation committee and determines the compensation and benefits of our executive officers, administers our employee stock and benefit plans, and reviews policies relating to the compensation and benefits of our employees. We may have difficulty attracting and retaining such directors. Our lack of an independent compensation committee presents the risk that our executive officer on the board may have influence over his personal compensation and benefits levels that may not be commensurate with our financial performance.

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 400,000 are designated as Series A Preferred Stock and 3,000,000 are designated Series B Shares. We currently have 105,000 shares of Series A preferred stock outstanding and 2,133,947 Series B Shares outstanding. The holders of the 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 are entitled to a preference upon our liquidation, dissolution or winding up. The shares are convertible voluntarily at the election of the holder and 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 are also entitled to registration rights with respect to such shares. Our holders of Series B Shares are entitled to a dividend at the rate per annum equal to (i) 8% of the sum of (x)the stated value (which initially is $2.50) 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 holders of Series B Shares are entitled to a preference upon our liquidation, dissolution or winding up. The shares are convertible voluntarily at the election of the holder and automatically upon the listing of our stock on a national securities exchange. The holders are also entitled to registration rights with respect to such shares and are entitled to two votes for each share held by them. We may issue additional shares of Series A Preferred Stock and Series B Shares in addition to other preferred stock. As future tranches of capital are received by the Company, additional preferred stock may be issued which such terms and preferences as are determined in the sole discretion of our board of directors. The rights of future preferred stockholders could delay, defer or prevent a change of control, even if the holders of common stock are in favor of that change of control, as well as enjoy preferential treatment on matters like distributions, liquidation preferences and voting.

Our common stock is not currently traded on any market, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.

The Common Stock is not currently traded on any market. We cannot predict the extent to which investors’ interests will lead to an active trading market for our common stock once trading commences or whether the market price of our common stock will be volatile following this offering. If an active trading market does not develop, investors may have difficulty selling any of our common stock that they buy. There may be limited market activity in our stock and we are likely to be too small to attract the interest of many brokerage firms and analysts. If we trade on OTC markets, the trading volume we will develop may be limited by the fact that many major institutional investment funds, including mutual funds as well as individual investors, follow a policy of not investing in OTC stocks and certain major brokerage firms restrict their brokers from recommending OTC stocks because they are considered speculative, volatile, thinly traded and the market price of the common stock may not accurately reflect the underlying value of our Company. The market price of our common stock could be subject to wide fluctuations in response to quarterly variations in our revenues and operating expenses, announcements of new products or services by us, significant sales of our common stock, including “short” sales, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.

The application of the “penny stock” rules to our common stock could limit the trading and liquidity of the common stock, adversely affect the market price of our common stock and increase your transaction costs to sell those shares.

As long as the trading price of our common stock is below $5 per share, the open-market trading of our common stock will be subject to the “penny stock” rules, unless we otherwise qualify for an exemption from the “penny stock” definition. The “penny stock” rules impose additional sales practice requirements on certain broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). These regulations, if they apply, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common stock, reducing the liquidity of an investment in our common stock and increasing the transaction costs for sales and purchases of our common stock as compared to other securities. The stock market in general and the market prices for penny stock companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Stockholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include: (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the volatility of our share price.

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 May 20, 2013 , we issued 105,000 shares of Series A Preferred Stock to one investor pursuant to the terms of a legal settlement in exchange for 105,000 shares of our common stock. The issuance was exempt from registration under section 3(a)(9) of the Securities Act.

On July 18, 2013, we sold an aggregate of 14,000 units at a per unit price of $2.50, each unit consisting of one share of Series B Preferred Stock (the “Series B Shares”) and a seven year warrant to acquire one share of our Common Stock at an exercise price of $2.50 per share, to three accredited investors for aggregate cash proceeds of $35,000.

In July 2013, we issued options to Gary Altman, our Chief Executive Officer and President that were exercisable for 514,900 shares of common stock at an exercise price of $2.50 per share, which shares vest as to 64,360 shares six months from the date of issuance and the remainder vest equally over 42 months.

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 (or Regulation D promulgated thereunder). 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
1.1		Form of Placement Agent Agreement (incorporated by reference to Exhibit 1.1 of the Current Report on Form 8-K dated April 29, 2013)
3.1		Form of Certificate of Designations for Series B Preferred Stock (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K dated April 29, 2013)
4.1		Form of Advisor Warrant (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K dated April 29, 2013)
4.2		Form of Placement Agent Warrant between the Company and the Placement Agent (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated April 29, 2013)
4.3		Form of Securities Purchase Agreement between the Company and the Investors (incorporated by reference to Exhibit 4.3 of the Current Report on Form 8-K dated April 29, 2013)
4.4		Form of Investor Warrant (incorporated by reference to Exhibit 4.4 of the Current Report on Form 8-K dated April 29, 2013)
4.5		Form of Bridge Warrant (incorporated by reference to Exhibit 4.5 of the Annual Report on Form 10-K for the year ended December 31, 2012)
4.6		Form of Bridge Note (incorporated by reference to Exhibit 4.6 of the Annual Report on Form 10-K for the year ended December 31, 2012)
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 14, 2013	By:	/s/ Gary Altman
		Gary Altman
		Chief Executive Officer (Principal Executive Officer)