Riot Platforms, Inc. - Quarter Report: 2010 March (Form 10-Q)
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 March 31, 2010
OR
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from _________ to __________
Commission
file number: 001-33675
|
ASPENBIO PHARMA, INC.
|
|
(Exact
name of registrant as specified in its
charter)
|
|
Colorado
|
84-1553387
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
|
1585 South Perry Street, Castle Rock, Colorado
80104
|
|
(Address
of principal executive offices) (Zip
Code)
|
|
(303) 794-2000
|
|
(Registrant's
telephone number, including area
code)
|
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 Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes o 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 the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one)
|
Large
accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
|
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
The
number of shares of no par value common stock outstanding as of May 5, 2010 was
40,078,324.
ASPENBIO
PHARMA, INC.
|
Page
|
||||||||
|
PART
I — Financial Information
|
||||||||
|
Item
1.
|
Condensed
Financial Statements
|
|||||||
|
Balance
Sheets as of March 31, 2010 (unaudited) and December 31,
2009
|
3
|
|||||||
|
Statements
of Operations for the Three Months Ended March 31, 2010 and 2009
(unaudited)
|
4
|
|||||||
|
Statements
of Cash Flows for the Three Months Ended March 31, 2010 and 2009
(unaudited)
|
5
|
|||||||
|
Notes
to Condensed Financial Statements (unaudited)
|
6
|
|||||||
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
13
|
||||||
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
18
|
||||||
|
Item
4.
|
Controls
and Procedures
|
18
|
||||||
|
PART
II - Other Information
|
||||||||
|
Item
1.
|
Legal
Proceedings
|
18
|
||||||
|
Item
1A.
|
Risk
Factors
|
18
|
||||||
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
18
|
||||||
|
Item
3.
|
Defaults
Upon Senior Securities
|
**
|
||||||
|
Item
5.
|
Other
Information
|
**
|
||||||
|
Item
6.
|
Exhibits
|
19
|
||||||
|
Signatures
|
19
|
|||||||
|
**
- Item is none or not applicable
|
2
Item I.
Condensed Financial Statements
AspenBio
Pharma, Inc.
Balance
Sheets
|
March
31, 2010
|
December
31, 2009
|
|||||||
|
(Unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$
|
10,769,909
|
$
|
13,366,777
|
||||
|
Short-term
investments
|
—
|
510,120
|
||||||
|
Accounts
receivable, net (Note 8)
|
38,826
|
47,959
|
||||||
|
Inventories
(Note 2)
|
295,362
|
339,546
|
||||||
|
Prepaid
expenses and other current assets
|
134,638
|
163,029
|
||||||
|
Total
current assets
|
11,238,735
|
14,427,431
|
||||||
|
Property
and equipment, net (Note 3)
|
3,265,782
|
3,310,844
|
||||||
|
Other
long term assets, net (Note 4)
|
1,677,789
|
1,639,836
|
||||||
|
Total
assets
|
$
|
16,182,306
|
$
|
19,378,111
|
||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
|
|||||||
|
Accounts
payable
|
$
|
1,562,059
|
$
|
1,545,549
|
||||
|
Accrued
expenses
|
743,695
|
807,907
|
||||||
|
Current
portion of notes and other obligations (Note 5)
|
106,545
|
107,417
|
||||||
|
Deferred
revenue, current portion (Note 8)
|
813,947
|
813,947
|
||||||
|
Total
current liabilities
|
3,226,246
|
3,274,820
|
||||||
|
Notes
and other obligations, less current portion (Note 5)
|
2,628,830
|
2,655,418
|
||||||
|
Deferred
revenue, less current portion (Note 8)
|
618,158
|
634,145
|
||||||
|
Total
liabilities
|
6,473,234
|
6,564,383
|
||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity (Notes 6, 7 and 9):
|
||||||||
|
Common
stock, no par value, 60,000,000 shares authorized;
|
||||||||
|
37,668,685
and 37,467,642 shares issued and outstanding
|
55,049,906
|
54,283,126
|
||||||
|
Accumulated
deficit
|
(45,340,834
|
)
|
(41,469,398
|
)
|
||||
|
Total
stockholders' equity
|
9,709,072
|
12,813,728
|
||||||
|
Total
liabilities and stockholders' equity
|
$
|
16,182,306
|
$
|
19,378,111
|
||||
Statements
of Operations
Three
Months Ended March 31
(Unaudited)
|
2010
|
2009
|
|||||||
|
Sales
(Note 8)
|
$
|
142,133
|
$
|
82,147
|
||||
|
Cost
of sales
|
65,566
|
116,226
|
||||||
|
Gross
profit (loss)
|
76,567
|
(34,079
|
)
|
|||||
|
Other
revenue - fee (Note 8)
|
15,987
|
15,987
|
||||||
|
Operating
expenses:
|
||||||||
|
Selling, general and administrative
(includes
non-cash compensation
of $594,752 and $388,127)
|
1,883,677
|
1,321,589
|
||||||
|
|
||||||||
|
Research
and development
|
2,044,197
|
1,416,480
|
||||||
|
Total
operating expenses
|
3,927,874
|
2,738,069
|
||||||
|
Operating
loss
|
(3,835,320
|
)
|
(2,756,161
|
)
|
||||
|
Other
income (expense):
|
||||||||
|
Interest
income
|
12,309
|
76,294
|
||||||
|
Interest
expense
|
(48,425
|
)
|
(53,891
|
)
|
||||
|
Other,
net
|
—
|
13,000
|
||||||
|
Total
other income (expense)
|
(36,116
|
)
|
35,403
|
|||||
|
Net
loss
|
$
|
(3,871,436
|
)
|
$
|
(2,720,758
|
)
|
||
|
Basic
and diluted net loss per share
|
$
|
(.10
|
)
|
$
|
(.09
|
)
|
||
|
Basic
and diluted weighted average number
|
||||||||
|
of
shares outstanding
|
37,500,486
|
31,609,736
|
||||||
See
Accompanying Notes to Unaudited Condensed Financial Statements
Statements
of Cash Flows
Three
Months Ended March 31
(Unaudited)
|
2010
|
2009
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
loss
|
$
|
(3,871,436
|
)
|
$
|
(2,720,758
|
)
|
||
|
Adjustments
to reconcile net loss to
|
||||||||
|
net
cash used in operating activities
|
||||||||
|
Stock based compensation for services
|
594,752
|
388,127
|
||||||
|
Depreciation and amortization
|
108,887
|
95,602
|
||||||
|
Amortization of license fee
|
(15,987
|
)
|
(15,987
|
)
|
||||
|
Impairment charges
|
13,899
|
—
|
||||||
|
(Increase) decrease in:
|
||||||||
|
Accounts receivable
|
9,133
|
(402
|
)
|
|||||
|
Inventories
|
44,184
|
(128,913
|
)
|
|||||
|
Prepaid expenses and other current assets
|
28,391
|
178,806
|
||||||
|
Increase
(decrease) in:
|
||||||||
|
Accounts payable
|
16,510
|
164,820
|
||||||
|
Accrued expenses
|
(64,212
|
)
|
(91,172
|
)
|
||||
|
Net
cash used in operating activities
|
(3,135,879
|
)
|
(2,129,877
|
)
|
||||
|
Cash
flows from investing activities:
|
||||||||
|
Purchases
of short-term investments
|
—
|
(500,642
|
)
|
|||||
|
Sales
of short-term investments
|
510,120
|
4,484,070
|
||||||
|
Purchases
of property and equipment
|
(48,912
|
)
|
(27,047
|
)
|
||||
|
Purchases
of patent and trademark application costs
|
(66,765
|
)
|
(104,773
|
)
|
||||
|
Net
cash provided by investing activities
|
394,443
|
3,851,608
|
||||||
|
Cash
flows from financing activities:
|
||||||||
|
Repayment
of notes payable
|
(27,460
|
)
|
(104,821
|
)
|
||||
|
Proceeds
from exercise of stock warrants and options
|
172,028
|
29,940
|
||||||
|
Net
cash provided by (used in) financing activities
|
144,568
|
(74,881
|
)
|
|||||
|
Net
increase (decrease) in cash and cash equivalents
|
(2,596,868
|
)
|
1,646,850
|
|||||
|
Cash
and cash equivalents at beginning of period
|
13,366,777
|
11,819,505
|
||||||
|
Cash
and cash equivalents at end of period
|
$
|
10,769,909
|
$
|
13,466,355
|
||||
|
Supplemental
disclosure of cash flow information:
|
||||||||
|
Cash
paid during the period for interest
|
$
|
48,238
|
$
|
52,224
|
||||
See
Accompanying Notes to Unaudited Condensed Financial Statements
Notes
to Condensed Financial Statements
(Unaudited)
The
accompanying financial statements of AspenBio Pharma, Inc. (the “Company,”
“AspenBio” or “AspenBio Pharma”) have been prepared in accordance with the
instructions to quarterly reports on Form 10-Q. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and changes in
financial position at March 31, 2010, and for all periods presented have been
made. Certain information and footnote data necessary for fair presentation of
financial position and results of operations in conformity with accounting
principles generally accepted in the United States of America have been
condensed or omitted. It is therefore suggested that these financial statements
be read in conjunction with the summary of significant accounting policies and
notes to financial statements included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2009, as amended. The results of operations
for the period ended March 31, 2010 are not necessarily an indication of
operating results for the full year.
The
Company considers all highly liquid investments with an original maturity of
three months or less at the date of acquisition to be cash equivalents. From
time to time, the Company’s cash account balances exceed the balances as covered
by the Federal Deposit Insurance System. The Company has never suffered a loss
due to such excess balances.
The
Company invests excess cash from time to time in highly liquid debt and equity
investments of highly rated entities which are classified as trading securities.
The purpose of the investments is to fund research and development, product
development, FDA approval related activities and general corporate purposes.
Such amounts are recorded at market values using Level 1 inputs in determining
fair value and are classified as current, as the Company does not intend to hold
the investments beyond twelve months. Investment securities classified as
trading are those securities that are bought and held principally for the
purpose of selling them in the near term with the objective of preserving
principal and generating profits. These securities are reported at fair value
with unrealized gains and losses reported as an element of other income
(expense) in current period earnings. The Company’s Board has approved an
investment policy covering the investment parameters to be followed with the
primary goals being the safety of principal amounts and maintaining liquidity of
the fund. The policy provides for minimum investment rating requirements as well
as limitations on investment duration and concentrations. During late 2008,
based upon market conditions, the investment guidelines were temporarily
tightened to raise the minimum acceptable investment ratings required for
investments and shorten the maximum investment term, which criteria remain in
effect. As of March 31, 2010, 100% of the investment portfolio was in cash
equivalents, which is included with cash on the accompanying balance sheet. To
date the Company’s cumulative market loss from the investments has not been
significant.
The
Company accounts for financial instruments under Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification Topic (“ASC”) 820 (formerly -
Statement of Financial Accounting Standard (“SFAS”) No. 157), Fair Value
Measurements. This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. To increase
consistency and comparability in fair value measurements, ASC 820 establishes a
fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value into three levels as follows:
|
Level
1 — quoted prices (unadjusted) in active markets for identical assets or
liabilities;
|
|
Level
2 — observable inputs other than Level 1, quoted prices for similar assets
or liabilities in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active, and model-derived
prices whose inputs are observable or whose significant value drivers are
observable; and
|
|
Level
3 — assets and liabilities whose significant value drivers are
unobservable.
|
6
Observable
inputs are based on market data obtained from independent sources, while
unobservable inputs are based on the Company’s market assumptions.
Unobservable inputs require significant management judgment or estimation.
In some cases, the inputs used to measure an asset or liability may fall into
different levels of the fair value hierarchy. In those instances, the fair
value measurement is required to be classified using the lowest level of input
that is significant to the fair value measurement. Such determination
requires significant management judgment. There were no financial assets or
liabilities measured at fair value, with the exception of cash, cash
equivalents, short-term investments and accounts payable as of March 31, 2010
and December 31, 2009.
The
carrying amounts of the Company’s financial instruments (other than cash, cash
equivalents and investments as discussed above) approximate fair value because
of their variable interest rates and \ or short maturities combined with the
recent historical interest rate levels.
Basic
earnings (loss) per share includes no dilution and is computed by dividing net
earnings (loss) available to stockholders by the weighted number of common
shares outstanding for the period. Diluted earnings per share reflect the
potential dilution of securities that could share in the Company’s earnings. The
effect of the inclusion of the dilutive shares would have resulted in a decrease
in loss per share. Accordingly, the weighted average shares outstanding have not
been adjusted for dilutive shares. Outstanding stock options and warrants are
not considered in the calculation, as the impact of the potential common shares
(totaling approximately 5,857,000 shares for the three months ended March 31,
2010, and approximately 5,222,000 shares for the three months ended March 31,
2009) would be to decrease loss per share.
Note
2. Inventories:
Inventories
consisted of the following:
|
March
31,
2010
(Unaudited)
|
December
31, 2009
|
|||||||
|
Finished
goods
|
$
|
102,228
|
$
|
146,412
|
||||
|
Work
in process
|
11,375
|
11,375
|
||||||
|
Raw
materials
|
181,759
|
181,759
|
||||||
|
$
|
295,362
|
$
|
339,546
|
|||||
Property
and equipment consisted of the following:
|
March
31,
2010
(Unaudited)
|
December
31, 2009
|
|||||||
|
Land
and improvements
|
$
|
1,107,508
|
$
|
1,107,508
|
||||
|
Building
|
2,589,231
|
2,589,231
|
||||||
|
Building
improvements
|
235,946
|
234,942
|
||||||
|
Laboratory
equipment
|
1,129,361
|
1,111,570
|
||||||
|
Office
and computer equipment
|
313,714
|
283,597
|
||||||
|
Total
cost
|
5,375,760
|
5,326,848
|
||||||
|
Less
accumulated depreciation
|
2,109,978
|
2,016,004
|
||||||
|
$
|
3,265,782
|
$
|
3,310,844
|
|||||
7
Note
4. Other Long Term Assets:
Other
long term assets consisted of the following:
|
March
31,
2010
(Unaudited)
|
December
31, 2009
|
|||||||
|
Patents
and trademarks and applications, net of
|
||||||||
|
accumulated
amortization of $113,083 and $99,597
|
$
|
1,270,894
|
$
|
1,231,514
|
||||
|
Goodwill
|
387,239
|
387,239
|
||||||
|
Other
|
19,656
|
21,083
|
||||||
|
$
|
1,677,789
|
$
|
1,639,836
|
|||||
The
Company capitalizes legal costs and filing fees associated with obtaining
patents on its new discoveries. Once the patents have been issued, the Company
amortizes these costs over the shorter of the legal life of the patent or its
estimated economic life using the straight-line method. Based upon the current
status of the above intangible assets the aggregate amortization expense is
estimated to be approximately $50,000 in each of the five succeeding fiscal
years.
Notes
payable and other obligations consisted of the following:
|
March
31,
2010
(Unaudited)
|
December
31, 2009
|
|||||||
|
Mortgage
notes
|
$
|
2,729,031
|
$
|
2,754,176
|
||||
|
Other
installment obligation
|
6,344
|
8,659
|
||||||
|
2,735,375
|
2,762,835
|
|||||||
|
Less
current portion
|
106,545
|
107,417
|
||||||
|
$
|
2,628,830
|
$
|
2,655,418
|
|||||
Mortgage
Notes:
The
Company has a permanent mortgage facility on its land and building. The mortgage
is held by a commercial bank and includes approximately 39% that is guaranteed
by the U. S. Small Business Administration (“SBA”). The loan is collateralized
by the real property and is also personally guaranteed by a stockholder of the
Company. The interest rate on the bank portion is one percentage over the Wall
Street Journal Prime Rate (minimum 7%), with 7% being the approximate effective
rate for 2010 and 2009. The SBA portion bears interest at the rate of 5.86%. The
commercial bank portion of the loan requires total monthly payments of
approximately $14,300 through June 2013 when the then remaining principal
balance is due. The SBA portion of the loan requires total monthly
payments of approximately $9,400 through August 2023.
The
Company has capitalized certain obligations under leases that meet the
requirements of capital lease obligations. At March 31, 2010, such obligations
totaled $6,344, which is due in 2010.
Future
Maturities:
The
Company’s debt obligations require minimum annual principal payments of
approximately $108,000 in 2011, $114,000 in 2012, $1,670,000 in 2013, $ 65,000
in 2014 and $698,000 thereafter, through the term of the
agreements.
8
During
the three months ended March 31, 2010, former advisors exercised options
outstanding under the Company’s 2002 Stock Incentive Plan (“Plan”) to purchase
201,043 shares of common stock generating $172,028 in cash proceeds to the
Company.
During
the three months ended March 31, 2009, advisors exercised options to purchase
38,000 shares of common stock generating $29,940 in cash proceeds to the
Company. Also during the three months ended March 31, 2009, the holders of
670,924 warrants that were issued for investor relations services elected to
exercise those warrants on a cashless basis as provided in the agreements (Note
7) and as a result were issued 493,835 common shares in consideration for the
surrender of the 670,924 warrants.
Note
7. Stock Options and Warrants:
Stock
Options:
The
Company currently provides stock-based compensation to employees, directors and
consultants under the Company’s Plan, as amended that has been approved by the
Company’s stockholders under which 6,100,000 common shares have been reserved
under the Plan. The Company estimates the fair value of the share-based awards
on the date of grant using the Black-Scholes option-pricing model
(“Black-Scholes model”). Using the Black-Scholes model, the value of
the award that is ultimately expected to vest is recognized over the requisite
service period in the statement of operations. Option forfeitures are
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. The Company
attributes compensation to expense using the straight-line single option method
for all options granted.
The
Company’s determination of the estimated fair value of share based payment
awards on the date of grant is affected by the following variables and
assumptions:
|
·
|
The
grant date exercise price – the closing market price of the Company’s
common stock on the date of the grant;
|
|
·
|
Estimated
option term – based on historical experience with existing option
holders;
|
|
·
|
Estimated
dividend rates – based on historical and anticipated
dividends over the life of the option;
|
|
·
|
Term
of the option – based on historical experience grants have lives of
approximately 5 years;
|
|
·
|
Risk-free
interest rates – with maturities that approximate the expected life of the
options granted;
|
|
·
|
Calculated
stock price volatility – calculated over the expected life of the options
granted, which is calculated based on the daily closing price of the
Company’s common stock over a period equal to the expected term of the
option; and
|
|
·
|
Option
exercise behaviors – based on actual and projected employee stock option
exercises and forfeitures.
|
The Company utilized the following
assumptions in the estimation of fair value of share based compensation during
the three months ended March 31, 2010 and 2009:
|
2010
|
2009
|
|||||||
|
Dividend
yield
|
0% | 0% | ||||||
|
Expected
price volatility
|
110 to 112% | 118 to 119% | ||||||
|
Risk
free interest rate
|
2.26 to 2.62% | 1.59 to 1.89% | ||||||
|
Expected
term
|
5 years | 5 years | ||||||
The Company recognized stock-based compensation during the three month periods ended March 31, as follows:
|
2010
|
2009
|
|||||||
|
Stock
options to employees and directors
|
$ | 450,158 | $ | 351,687 | ||||
|
Stock
options to advisory board members and contractors (1)
|
122,161 | 13,000 | ||||||
|
Stock
options to consultants
|
22,433 | 23,440 | ||||||
|
Total
stock based compensation
|
$ | 594,752 | $ | 388,127 | ||||
(1) –
Amounts relate to animal health services and activities.
9
A summary
of stock option activity under the Company’s Plan of options to employees,
directors and advisors, for the three months ended March 31, 2010, is presented
below:
|
Shares
Under
Option
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Aggregate
Intrinsic
Value
|
|||||||
|
Outstanding
at January 1, 2010
|
4,425,532
|
$
|
2.06
|
|||||||
|
Granted
|
1,302,500
|
2.22
|
||||||||
|
Exercised
|
(201,043
|
)
|
.86
|
|||||||
|
Forfeited
|
(18,000
|
)
|
2.10
|
|||||||
|
Outstanding
at March 31, 2010
|
5,508,989
|
$
|
2.14
|
7.8
|
$
|
3,001,000
|
||||
|
Exercisable
at March 31, 2010
|
2,726,640
|
$
|
2.01
|
6.2
|
$
|
2,132,000
|
||||
The
aggregate intrinsic value in the table above represents the total intrinsic
value (the difference between the Company’s closing stock price on March 31,
2010 and the exercise price, multiplied by the number of in-the-money options)
that would have been received by the option holders, had all option holders been
able to and in fact, had exercised their options on March 31, 2010.
During
the three months ended March 31, 2010, 1,302,500 stock options were granted
under the Plan to employees, officers, directors and consultants exercisable at
the then market price which averaged $2.22 per share, a weighted average fair
value at the grant date of $1.78 per option. Existing directors and
officers were granted a total of 675,000 options at $2.20 per share and existing
employees were granted 118,500 options at $2.19 per share, all vesting over a
three-year period annually in arrears and expiring in ten years. The
Company also issued 400,000 options to a newly hired officer exercisable at
$2.28 per share which vest over a three-year period annually in arrears and
expire in ten years. In addition, a consultant was granted 40,000 options at
$2.04 per share vesting in equal amounts after six months, twelve months,
twenty-four months and thirty-six months from the date of grant and expiring in
ten years and a consultant was granted 50,000 options at $2.23 per share vested
at the grant date and expiring in five years. Three newly hired
employees were granted a total of 19,000 options at an average exercise price of
$2.18 per share, all vesting over a three- year period annually in arrears and
expiring in ten years.
During
the three months ended March 31, 2010, advisors exercised 201,043 options
outstanding under the Company’s Plan generating $172,028 in cash which had an
intrinsic value when exercised of $268,330.
During
the three months ended March 31, 2010 a total of 18,000 options were forfeited,
10,000 were vested and 8,000 were unvested. The options were
exercisable at an average of $2.10 per share and were forfeited upon the
employees’ terminations from the Company.
During
the three months ended March 31, 2009, 1,610,500 stock options were granted
under the Plan to employees, officers and directors exercisable at the then
market price which averaged $1.54 per share, with a weighted average fair value
at the grant date of $1.27 per option and all vesting over a three-year period
annually in arrears and expiring in ten years. Existing employees and directors
were granted a total of 698,000 options at $1.33 per share. The Company also
issued a total of 800,000 stock options to two newly hired officers, 500,000 are
exercisable at $1.69 per share and 300,000 are exercisable at $1.80 per share.
In addition, three newly hired employees were granted 112,500 options, 100,000
at $1.47, 7,500 at $1.58, and 5,000 options at $1.32 and all vesting over a
three-year period annually in arrears and expiring in ten
years. During the three months ending March 31, 2009, advisors
exercised 38,000 options outstanding under the Company’s Plan generating $29,940
in cash which had an intrinsic value when exercised of $215,000.
The total
fair value of stock options granted to employees, officers, directors,
consultants and advisors that vested and became exercisable during the three
month periods ended March 31, 2010 and 2009 was $1,661,000 and $763,000,
respectively. Based upon the Company’s experience, approximately 86%
of the outstanding stock options, or approximately 4,738,000 options, are
expected to vest in the future, under their terms.
10
A summary
of the status of non-vested options under the Company’s Plan to acquire common
shares granted to employees, officers, directors, consultants and advisors and
changes during the three months ended March 31, 2010 is presented
below.
|
Nonvested
Shares
|
Nonvested
Shares
Under
Option
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||||||
|
Nonvested
at January 1, 2010
|
2,364,916
|
$
|
2.43
|
$
|
1.78
|
|||||||
|
Granted
|
1,302,500
|
2.22
|
1.78
|
|||||||||
|
Vested
|
(877,067
|
)
|
2.41
|
1.81
|
||||||||
|
Forfeited
|
(8,000
|
)
|
2.27
|
2.59
|
||||||||
|
Nonvested
at March 31, 2010
|
2,782,349
|
$
|
2.28
|
$
|
1.74
|
|||||||
At March
31, 2010, based upon employee, director and advisor options granted to that
point there was approximately $3,698,000 of additional unrecognized compensation
cost related to stock options that will be recorded over a weighted average
future period of less than two years.
Other
common stock purchase options and warrants:
As of
March 31, 2010, in addition to the stock options discussed above, the Company
had outstanding 347,530 non-qualified options and warrants in connection with
consulting services for investor relations and placement agent services.
Following is a summary of such outstanding options and warrants for the three
months ended March 31, 2010:
|
Shares
Under
Options
/ Warrants
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
||||||||
|
Outstanding
at January 1, 2010
|
332,530
|
$
|
6.98
|
||||||||
|
Granted
|
15,000
|
1.80
|
|||||||||
|
Exercised
|
—
|
—
|
|||||||||
|
Outstanding
and exercisable at March 31, 2010
|
347,530
|
$
|
6.75
|
1.2
|
$
|
25,000
|
|||||
At March
31, 2010, there was no unrecognized cost for non-qualified options and warrants.
The total fair value of non-qualified options and warrants that vested during
the three months ended March 31, 2010, was $22,433.
Operating
expenses for the three months ended March 31, 2010 and 2009 include $22,433 and
$23,440, respectively, for the value of the investor relations consulting
warrants. The fair value of warrants, recorded as a consulting expense related
to investor relations services, at the grant date has been estimated utilizing
the Black-Scholes valuation model, with the following assumptions:
|
2010
|
2009
|
||||||||||
|
Dividend
yield
|
0%
|
0%
|
|||||||||
|
Expected
price volatility
|
128%
|
71
to 119%
|
|||||||||
|
Risk
free interest rate
|
1.34-1.70%
|
1.00-1.40%
|
|||||||||
|
Expected
life
|
3
years
|
3
years
|
|||||||||
11
Subsequent
to March 31, 2010, an investor relations firm has been granted a total of 10,000
warrants to purchase shares of common stock exercisable at $2.14 per share. The
warrants were vested upon grant and expire in three years.
At March
31, 2010, two customers accounted for approximately 81% of total accounts
receivable, accounting for approximately 70% and 11%,
respectively. At December 31, 2009, two customers accounted for 63%
and 20% of total accounts receivable. For the three months ended March 31, 2010,
four customers represented more than 10% of the Company’s sales, accounting for
approximately 23%, 19%, 12% and 11%, respectively, of the sales for the
period. For the three months ended March 31, 2009, four customers
represented more than 10% of the Company’s sales, accounting for approximately
37%, 12%, 11% and 11%, respectively, of the sales for the period.
Commitments:
In April
2008, the Company entered into a long term exclusive license and
commercialization agreement with Novartis Animal Health, Inc. (“Novartis”), to
develop and launch the Company’s novel recombinant single-chain products for use
in bovines, BoviPure LH™ and BoviPure FSH™. The license agreement is a
collaborative arrangement that provides for a sharing of product development
activities, development and registration costs and worldwide product sales. The
Company received an upfront cash payment of $2.0 million, of which 50% was
non-refundable upon signing the agreement, and the balance is subject to certain
conditions, which the Company expects to be substantially achieved in the near
future. Ongoing royalties will be payable to the Company upon product launch
based upon net direct product margins as defined and specified under the
agreement. AspenBio has agreed to fund its share of 35% of the product
development and registration costs during the development period. Under the
terms of the original license agreement that the Company has with The Washington
University in St Louis (“University”), a portion of license fees and royalties
AspenBio receives from sublicensing agreements will be paid to the University.
The obligation for such front end fees, totaling $440,000, was recorded upon
receipt of the license fees; as of March 31, 2010, $190,000 has been paid to the
University and the remaining $250,000 is included with accrued expenses on the
accompanying balance sheet.
For
financial reporting purposes, the up-front license fees received from this
agreement, net of the amounts due to the University, have been recorded as
deferred revenue and will be amortized over the term of the Novartis license
agreement. Milestone revenue will be recognized as such milestones
are achieved. As of March 31, 2010, deferred revenue includes $813,947 which has
been classified as a current liability and $618,158, which has been classified
as a long-term liability. The current liability includes the net front-end fee
amount that is subject to certain conditions. During each of the three month
periods ended March 31, 2010 and 2009, $15,987 was recorded as the amortized
license fee income arising from the Novartis agreement.
In 2004,
the Company entered into an agreement with the University, under which the
Company obtained exclusive proprietary rights to the University’s patent
portfolio for use in the animal health industry. Under the agreement, the
Company is obligated to make certain minimum annual payments totaling $20,000,
plus royalty payments, as defined, based on a percentage of sales of the
products. The Company acquired rights for a total cost of $190,000, of which
$60,000 was paid in cash and $130,000 was paid in Company common shares and the
Company agreed to fund $46,550, which has now been paid for consulting and
research assistance on one of the Company’s products in development. During
January 2008, the Company entered into an amendment of its existing animal
health industry license agreement with the University. The amendment provides
for the human therapeutic use of certain of the University’s products. As
consideration for this amendment, the Company agreed to pay a total of $125,000
in cash which has been paid. The existing royalty rate was extended
to cover these new products and uses.
During
the three months ended March 31, 2010, the Company entered into an employment
agreement with one newly elected officer providing annual compensation of
$275,000 and to two officers, who previously had consulting relationships
with the Company, providing minimum annual compensation of $225,000 to one and
$150,000 to the other for an aggregate annual minimum commitment
totaling $650,000. The agreements are for an initial term
of one year, automatically renew at the end of each year unless terminated by
either party and contain customary confidentiality and benefit provisions. In
connection with the employment agreement with the newly elected officer, a total
of 400,000 stock options were granted under the Company’s Plan.
The
Company periodically enters into generally short term consulting and development
agreements primarily for product development, testing services and in connection
with clinical trials conducted as part of the Company’s FDA clearance process.
Such commitments at any point in time may be significant but the agreements
typically contain cancellation provisions.
12
Contingencies:
In the
ordinary course of business and in the general industry in which the Company is
engaged, it is not atypical to periodically receive a third party communication
which may be in the form of a notice, threat, or ‘cease and desist’ letter
concerning certain activities. For example, this can occur in the context of the
Company’s pursuit of intellectual property rights. This can also occur in the
context of operations such as the using, making, having made, selling, and
offering to sell products and services, and in other contexts. The Company
generally intends to make a rational assessment of each situation on a
case-by-case basis as such may arise. The Company periodically evaluates its
options for trademark positions and considers a full spectrum of alternatives
for trademark protection and product branding.
Note
9. Subsequent Events:
On April
30, 2010, the Company entered into an agreement with a placement agent relating
to a registered direct offering by the Company of up to an aggregate of
2,409,639 units (“Units”). Each Unit consists of one share of the Company’s no
par value common stock and one warrant to purchase 0.285 shares of common
stock. Accordingly, a total of 2,409,639 common shares and warrants
to purchase 686,746 shares of common stock, were issued at closing, which
occurred on May 5, 2010. The per share exercise price of the warrants is
$4.82. The warrants are exercisable at any time on or after the date
of closing and will expire eight months from the date of closing. The sale of
the Units was made pursuant to Subscription Agreements, dated April 30, 2010,
with each of the investors. The investors agreed to purchase the Units for a
negotiated price of $4.15 per Unit, resulting in gross proceeds to the Company
of approximately $10.0 million, before deducting placement agent’s fees and
estimated offering expenses. The net offering proceeds to the Company from the
sale of the Units, after deducting fees and other estimated offering expenses
payable by the Company, are expected to be approximately $9.1
million.
Comparative
Results for the Three Months Ended March 31, 2010 and 2009
Sales for
the three months ended March 31, 2010, totaled $142,000, which is a $60,000 or
73% increase from the 2009 period. The increase in sales is primarily
attributable to the timing of customer orders in the three months ended March
31, 2010 as a result of the Company’s strategic decision to suspend antigen
production and focus available scientific resources on the appendicitis and
single-chain animal product development.
In April
2008, the Company entered into a long term exclusive license and
commercialization agreement to develop and launch the Company’s novel
recombinant single-chain bovine products. The total payments received under this
agreement were recorded as deferred revenue and will be recognized in the
future, with $16,000 of such license fee recognized in the each of the three
month periods ended March 31, 2010 and 2009.
Cost of
sales for the three months ended March 31, 2010 totaled $66,000 which is a
$51,000 or 44% decrease as compared to the 2009 period. As a percentage of
sales, there was a gross profit of 54% in the 2010 period as compared to a gross
loss of 42% in the 2008 period. The improvement in the gross profit percentage
resulted from lower product costs, arising from the write down of antigen
inventories that occurred as of December 31, 2009. In addition, cost
of sales for the three months ended March 31, 2010 did not include the
application of certain fixed overhead costs due to the suspension of the
production of antigen products in 2010.
Selling,
general and administrative expenses in the three months ended March 31, 2010,
totaled $1,884,000, which is a $562,000 or 43% increase as compared to the 2009
period. The advancing of the AppyScore product in clinical trials and 510(k)
activities with the FDA has resulted in the hiring of additional personnel
resulted in approximately $255,000 of additional expenses in the 2010 period,
which included approximately $95,000 in additional employee related stock based
compensation expense in 2010 over 2009 amounts. During the three
months ended March 31, 2010 stock based compensation increased by $207,000 of
which $139,000 related to options granted to animal health
advisors. Selling, general and administrative expenses also increased
in the three months ended March 31, 2010 by an additional $51,000 in insurance
related costs primarily due to increased staff and an increase in the coverage
on the Company’s insurance limits.
13
Research
and development expenses in the 2010 period totaled $2,044,000, which is a
$628,000 or 44% increase as compared to the 2009 period. Development efforts and
advances on the appendicitis test, including product development advances, the
clinical trial, FDA submission related activities and market research resulted
in an expense increase in 2010 of approximately $513,000. In
addition, the development expenses on the single-chain animal products increased
approximately $37,000. Additions to research staff, including temporary contract
personnel, to support accelerating development efforts, increased expenses by
approximately $64,000.
Primarily
as a result of the lower levels of cash and reduced investment returns in 2010
as compared to 2009, interest income of approximately $12,000 was earned in 2010
as compared to $76,000 in 2009.
No income
tax benefit was recorded on the loss for the three months ended March 31, 2010,
as management was unable to determine that it was more likely than not that such
benefit would be realized.
Liquidity and Capital
Resources
We
reported a net loss of $3,871,000 during the three months ended March 31, 2010,
which included $702,000 in non-cash expenses relating to stock-based
compensation totaling $595,000 and depreciation, amortization and other items
totaling $109,000. At March 31, 2010, we had working capital of
$8,012,000. As of May 5, 2010 we completed an equity financing as
described in Note 9. Had we closed such financing as of March 31,
2010 our pro forma working capital would have been approximately $17 million. We
believe that our current working capital position is sufficient to continue with
the technology development activities and support the current level of
operations for the near term. Our primary focus currently is to continue the
development activities on the appendicitis and single chain products in order to
attempt to continue to secure near-term value from these products from either
generating revenues directly from sales of the products or entering licensing
agreements for their rights.
Capital
expenditures, primarily for production, laboratory and facility improvement
costs for the remainder of the fiscal year ending December 31, 2010 are
anticipated to total approximately $200,000 to $400,000. We anticipate these
capital expenditures to be financed through working capital.
We
anticipate that expenditures for research and development for the fiscal year
ending December 31, 2010 will generally be consistent with or decrease slightly
as compared to the amounts expended in 2009, primarily due to lower expenses
based on the recently completed AppyScore clinical trial being offset by higher
cassette and instrument development and trial expenses in
2010. Development and testing costs in support of the current
pipeline products as well as costs to file patents and revise and update
previous filings on our technologies will continue to be substantial. Our
principal development products consist of the appendicitis evaluation and the
single-chain animal hormone products. As we continue towards commercialization
of these products, including evaluation of alternatives for possible product
management and distribution alternatives and implications of product
manufacturing and associated carrying costs all of which will impact our future
capital needs. Certain costs such as manufacturing and license / royalty
agreements have different financial, logistical and operational implications
depending upon the ultimate strategic commercialization path
determined.
We expect
that our primary expenditures will be incurred to continue to advance our
initital appendicitis blood test technology, AppyScore™ through the FDA
clearance process in addition to advancing development of the cassette and
instrument version of the appendicitis test products. During the three months
ended March 31, 2010 and 2009, we expended approximately $1,542,000 and
$1,056,000, respectively in direct costs for the appendicitis test development
and related efforts. While commercialization of the appendicitis product will be
an ongoing and evolving process with subsequent generations and improvements
being made in the test, we believe that 2010 will reflect significant progress
in advancing and commercializing the test. Should we be unable to
achieve FDA clearance of the AppyScore test and generate revenues from the
product, we would need to rely on other product opportunities to generate
revenues and costs that we have incurred for the appendicitis patent may be
deemed impaired. In May 2003, we signed the Assignement and
Conusultation Agreement (“Bealer Agreement”) with Dr. John Bealer, which
contains, provisions certain royalty obligations once the appendicitis product
would be commercialized.
In April
2008 we entered into a long term exclusive license and commercialization
agreement with Novartis Animal Health, Inc., (“Novartis”) to develop and launch
our novel recombinant single-chain bovine products, BoviPure LH™ and BoviPure
FSH™. The license agreement is a collaborative arrangement that provides for a
sharing of product development activities, development and registration costs
and worldwide product sales for the bovine species. We received an upfront cash
payment of $2,000,000, of which 50% was non-refundable upon signing the
agreement and the balance is subject to certain conditions which we expect to be
substantially achieved in 2010. Ongoing royalties will be payable upon product
launch based upon net direct product margins as defined and specified under the
agreement. During the three months ended March 31, 2010 and 2009, we expended
approximately $83,000 and $79,000, respectively in direct costs for the BoviPure
LH and BoviPure FSH product development and related efforts.
14
We have
entered and expect to continue to enter into additional agreements with contract
manufacturers for the development / manufacture of certain of our products
for which we are seeking FDA approval. The ultimate goal of this development
process is to establish current good manufacturing practices (“cGMP”)
manufacturing methods required for those products for which we are seeking FDA
approval. We continue in discussions with other potential manufacturers who meet
full cGMP requirements, and are capable of large-scale manufacturing batches of
our medical devices who can economically manufacture them to produce products at
an acceptable cost. These development and manufacturing agreements generally
contain transfer fees and possible penalty and /or royalty provisions should we
transfer our products to another contract manufacturer. We expect to continue to
evaluate, negotiate and execute additional development and manufacturing
agreements, some of which may be significant commitments during 2010. We may
also consider acquisitions of development technologies or products, should
opportunities arise that we believe fit our business strategy and would be
appropriate from a capital standpoint.
The
Company periodically enters into generally short term consulting and development
agreements primarily for product development, testing services and in connection
with clinical trials conducted as part of the Company’s FDA clearance process.
Such commitments at any point in time may be significant but the agreements
typically contain cancellation provisions.
We have a
permanent mortgage facility on our land and building. The mortgage is held by a
commercial bank and includes a portion guaranteed by the U. S. Small Business
Administration. The loan is collateralized by the real property and is also
personally guaranteed by a stockholder. The average approximate interest rate is
7% and the loan requires monthly payments of approximately $23,700 through June
2013 with approximately $1,607,000 of the then remaining principal balance due
July 2013 and the balance payable through August 2023.
During
the three months ended March 31, 2010, we received cash proceeds of $172,000
from the exercise of 201,043 options.
In April,
2008 our Board of Directors authorized a stock repurchase plan to purchase
shares of our common stock up to a maximum of $5.0 million. Purchases are being
made in routine, open market transactions, when management determines to effect
purchases and any purchased common shares are thereupon retired. Management may
elect to purchase less than $5.0 million. The repurchase program allows us to
repurchase our shares in accordance with the requirements of the Securities and
Exchange Commission on the open market, in block trades and in privately
negotiated transactions, depending upon market conditions and other factors. The
repurchase program is being funded using our working capital. A total of
approximately 232,000 common shares were purchased and retired in 2008 at a
total cost of approximately $992,000 and no purchases have subsequently been
made.
We expect
to continue to incur losses from operations for the near-term and these losses
could be significant as we incur product development, contract consulting and
product related expenses. We have also increased our overhead expenses with the
hiring of additional management personnel. We believe that our current working
capital position will be sufficient to meet our near-term needs. Our investments
are maintained in relatively short term, high quality investments instruments,
to ensure we have ready access to cash as needed.
With the
recent changes in market conditions, combined with our conservative investment
policy and lower average investable balances due to cash consumption, we expect
that our investment earnings in 2010 will be lower than in 2009. Our Board of
Directors has approved an investment policy covering the investment parameters
to be followed with the primary goals being the safety of principal amounts and
maintaining liquidity of the fund. The policy provides for minimum investment
rating requirements as well as limitations on investment duration and
concentrations. Commencing in the fourth quarter of 2008, based upon market
conditions, the investment guidelines were temporarily tightened to raise the
minimum acceptable investment ratings required for investments and shorten the
maximum investment term. Current investment guidelines require investments to be
made in investments with minimum ratings purchasing commercial paper with an
A1/P1 rating, longer-term bonds with an A- rating or better, a maximum maturity
of nine months and a concentration guideline of 10% (no security or issuer
representing more than 10% of the portfolio). As of March 31, 2010
100% of the investment portfolio was in cash equivalents which are included with
cash.
On April
30, 2010, the Company entered into an agreement with a placement agent relating
to a registered direct offering by the Company of up to an aggregate of
2,409,639 units (“Units”). Each Unit consists of one share of the Company’s no
par value common stock and one warrant to purchase 0.285 shares of common
stock. Accordingly, a total of 2,409,639 common shares and warrants
to purchase 686,746 shares of common stock, were issued at closing, which
occurred on May 5, 2010. The per share exercise price of the warrants is
$4.82. The warrants are exercisable at any time on or after the date
of closing and will expire eight months from the date of closing. The sale of
the Units was made pursuant to Subscription Agreements, dated April 30, 2010,
with each of the investors. The investors agreed to purchase the Units for a
negotiated price of $4.15 per Unit, resulting in gross proceeds to the Company
of approximately $10.0 million, before deducting placement agent’s fees and
estimated offering expenses. The net offering proceeds to the Company from the
sale of the Units, after deducting fees and other estimated offering expenses
payable by the Company, are expected to be approximately $9.1
million.
15
Due to
recent market events that have adversely affected all industries and the economy
as a whole, management has placed increased emphasis on monitoring the risks
associated with the current environment, particularly the investment parameters
of the short term investments, the recoverability of receivables and
inventories, the fair value of assets, and the Company’s liquidity. At this
point in time, there has not been a material impact on the Company’s assets and
liquidity. Management will continue to monitor the risks associated with the
current environment and their impact on the Company’s results.
Operating
Activities
Net cash
consumed by operating activities was $3,136,000 during the three months ended
March 31, 2010. Cash was consumed by the loss of $3,871,000, less non-cash
expenses of $595,000 for stock-based compensation and $107,000 for depreciation
and amortization, impairment and other non-cash items. For the three
months ended March 31, 2010, decreases in inventories and accounts receivable
generated cash of $44,000 and $9,000 respectively. A net decrease of $48,000 in
accounts payable and accrued expenses consumed cash from operating
activities.
Net cash
consumed by operating activities was $2,130,000 during the three months ended
March 31, 2009. Cash was consumed by the loss of $2,721,000 less non-cash
expenses of $388,000 for stock-based compensation and $96,000 for depreciation
and amortization. As of March 31, 2009 inventories had increased by
$129,000 due to the receipt of raw materials supply order and prepaid expenses
and other current assets generated cash of $179,000 due to a reduction of
$72,000 in costs that we incurred under the Novartis agreement that are
recoverable from them and lower prepaid expense level.
Investing
Activities
Net cash
inflows from investing activities generated $394,000 during the three months
ended March 31, 2010. Sales of marketable securities totaled approximately
$510,000. An $116,000 use of cash was attributable to additional
costs incurred from patent filings and equipment additions.
Net cash
inflows from investing activities generated $3,852,000 during the three months
ended March 31, 2009. Marketable securities investments acquired totaled
approximately $501,000 and sales of marketable securities totaled approximately
$4,484,000. A $132,000 use of cash was primarily attributable to additions to
intangible assets from additional costs incurred from patent filings and
equipment additions for upgrades and expansion of lab equipment.
Financing
Activities
Net cash
inflows from financing activities generated $145,000 during the three month
period ended March 31, 2010. The Company received proceeds of $172,000 from the
exercise of common stock options and consumed $27,000 for repayments under
existing debt agreements.
Net cash
flow from financing activities consumed $75,000 during the three month period
ended March 31, 2009. The Company received proceeds of $30,000 from the exercise
of common stock options and consumed $105,000 for repayments under existing debt
agreements.
Critical Accounting
Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions about future events that affect the amounts
reported in the financial statements and accompanying notes. Future events and
their effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results
inevitably will differ from those estimates, and such differences may be
material to the financial statements. The most significant accounting estimates
inherent in the preparation of our financial statements include estimates
associated with revenue recognition, impairment analysis of intangibles and
stock-based compensation.
The
Company’s financial position, results of operations and cash flows are impacted
by the accounting policies the Company has adopted. In order to get a full
understanding of the Company’s financial statements, one must have a clear
understanding of the accounting policies employed. A summary of the Company’s
critical accounting policies follows:
16
Investments: The
Company invests excess cash from time to time in highly liquid debt and equity
securities of highly rated entities which are classified as trading securities.
Such amounts are recorded at market and are classified as current, as the
Company does not intend to hold the investments beyond twelve months. Such
excess funds are invested under the Company’s investment policy but an
unexpected decline or loss could have an adverse and material effect on the
carrying value, recoverability or investment returns of such investments. Our
Board has approved an investment policy covering the investment parameters to be
followed with the primary goals being the safety of principal amounts and
maintaining liquidity of the fund. The policy provides for minimum investment
rating requirements as well as limitations on investment duration and
concentrations.
Inventories: Inventories
are stated at the lower of cost or market. Cost is determined on the first-in,
first-out (FIFO) method. The elements of cost in inventories include materials,
labor and overhead. The Company does not have supply agreements in place for the
antigen business raw material purchases but believes that there are multiple
suppliers for our antigen raw material; however historically substantially all
of our purchases were made from one supplier. Management believes that its
relationship with this supplier is strong; however if necessary this
relationship can be replaced. If the relationship was to be replaced there may
be a short term disruption to the base antigen business and operations, a period
of time in which products would not be available and additional expenses may be
incurred.
Long-Lived Assets:
The Company records property and equipment at cost.
Depreciation of the assets is recorded on the straight-line basis over the
estimated useful lives of the assets. Dispositions of property and equipment are
recorded in the period of disposition and any resulting gains or losses are
charged to income or expense when the disposal occurs. The carrying value of the
Company’s long-lived assets is reviewed at least annually to determine that such
carrying amounts are not in excess of estimated market value. Goodwill is
reviewed annually for impairment by comparing the carrying value to the present
value of its expected cash flows or future value. The required annual testing
resulted in no impairment charges being recorded to date.
Revenue Recognition:
The Company’s revenues are recognized when products are
shipped or delivered to unaffiliated customers. The Securities and Exchange
Commission’s Staff Accounting Bulletin (SAB) No. 104, provides guidance on the
application of generally accepted accounting principles to select revenue
recognition issues. The Company has concluded that its revenue recognition
policy is appropriate and in accordance with SAB No. 104. Revenue is recognized
under development and distribution agreements only after the following criteria
are met: (i) there exists adequate evidence of the transactions; (ii) delivery
of goods has occurred or services have been rendered; and (iii) the price is not
contingent on future activity and collectability is reasonably
assured.
Stock-based Compensation:
ASC 718 (formerly - SFAS No. 123(R)), Share-Based Payment,
defines the fair-value-based method of accounting for stock-based employee
compensation plans and transactions used by the Company to account for its
issuances of equity instruments to record compensation cost for stock-based
employee compensation plans at fair value as well as to acquire goods or
services from non-employees. Transactions in which the Company issues
stock-based compensation to employees, directors and advisors and for goods or
services received from non-employees are accounted for based on the fair value
of the equity instruments issued. The Company utilizes pricing models in
determining the fair values of options and warrants issued as stock-based
compensation. These pricing models utilize the market price of the Company’s
common stock and the exercise price of the option or warrant, as well as time
value and volatility factors underlying the positions.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain
statements in Management’s Discussion and Analysis and other portions of this
report are forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, and are subject to the safe harbor
created thereby. These statements relate to future events or the Company’s
future financial performance and involve known and unknown risks, uncertainties
and other factors that may cause the actual results, levels of activity,
performance or achievements of the Company or its industry to be materially
different from those expressed or implied by any forward-looking statements. In
some cases, forward-looking statements can be identified by terminology such as
“may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,”
“intend,” “believe,” “estimate,” “predict,” “potential” or other comparable
terminology. Please see the “Cautionary Note Regarding Forward-Looking
Statements” and “Risk Factors” in the Company’s Form 10-K, as amended for the
year ended December 31, 2009, as amended, for a discussion of certain important
factors that relate to forward-looking statements contained in this report.
Although the Company believes that the expectations reflected in these
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Unless otherwise required by applicable
securities laws, the Company disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
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Item 3.
Quantitative and Qualitative Disclosures About Market Risk
AspenBio
has limited exposure to market risks from instruments that may impact the Balance Sheets, Statements of Operations, and
Statements of Cash
Flows, with such exposure associated primarily with changing interest
rates on its mortgage notes and investments. Approximately 39% of the total
mortgage balance is guaranteed by the U. S. Small Business Administration
(“SBA”). While we periodically expend funds for products and services that are
denominated in foreign country currencies we do not have any long term
commitments for such purchases.
The
primary objective for our investment activities is to preserve principal while
maximizing yields without significantly increasing risk. This is accomplished by
investing in diversified short-term interest bearing investments of high grade
companies. We have no investments denominated in foreign country currencies and
therefore our investments are not subject to foreign currency exchange
risk.
Management
of the Company, including the Chief Executive Officer and the Chief
Financial Officer, has conducted an evaluation of the effectiveness of the
Company’s disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rule 13a-15(e)) as of the last day of the period of the
accompanying financial statements. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective as of March 31,
2010.
Changes in Internal Control Over
Financial Reporting.
There was
no change in the Company’s internal control over financial reporting that
occurred during the fiscal quarter to which this report relates that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
We are
not a party to any legal proceedings, the adverse outcome of which would, in our
management’s opinion, have a material adverse effect on our business, financial
condition and results of operations.
There
have been no material changes from the risk factors disclosed in our Annual
Report on Form 10-K, as amended, for the year ended December 31,
2009.
(a)
The following sets forth the equity securities we sold during the period covered
by this report, not previously reported on Forms 10-Q or 8-K, which were not
registered under the Securities Act.
On a
monthly basis during the three months ended March 31, 2010, 15,000 warrants
(5,000 per month) to acquire common shares were granted to a consultant in
consideration for investor relations services. The warrants are
exercisable at $1.80 per share. The warrants vested upon grant and expire in
three years. The Company relied on the exemption under section 4(2) of the
Securities Act of 1933 (the “Act”) for the above issuance because we: (i) did
not engage in any public advertising or general solicitation in connection with
the warrant issuance; (ii) made available to the recipient disclosure regarding
all aspects of our business including our reports filed with the SEC and our
press releases, and other financial, business, and corporate information; and
(iii) believed that the recipient obtained all information regarding the Company
requested (or believed appropriate) and received answers to all questions posed
by the recipient, and otherwise understood the risks of accepting our securities
for investment purposes. No commission or other remuneration was paid on this
issuance.
18
(c)
During the quarter covered by this report, the Company did not make any
purchases of its common shares under the previously announced authorized common
stock repurchase program of up to $5 million that may be made from time to
time at prevailing prices as permitted by securities laws and other
requirements, and subject to market conditions and other factors and no
purchases are anticipated in the near-term. The program is administered by
management and may be discontinued at any time.
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EXHIBIT
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DESCRIPTION
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10.1
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10.2
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Form of Subscription
Agreement between the Company and each of the investors signatories
thereto (incorporated by reference to the Company’s Current Report on Form
8-K dated and filed with
the
SEC on April 30, 2010).
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10.3
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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.
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AspenBio
Pharma, Inc.
(Registrant)
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By:
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/s/
Jeffrey G. McGonegal
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Dated:
May 7, 2010
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Jeffrey
G. McGonegal,
Chief
Financial Officer and duly authorized officer
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