Riot Platforms, Inc. - Quarter Report: 2012 June (Form 10-Q)

appy_10q-063012.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 June 30, 2012

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 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 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 o Non-accelerated filer o Smaller reporting company x

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 August 6, 2012 was 7,716,480.

ASPENBIO PHARMA, INC.

		Page
PART I - Financial Information

Item 1.	Condensed Financial Statements

	Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011	3

	Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2011 (unaudited)	4

	Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (unaudited)	5

	Notes to Condensed Financial Statements (unaudited)	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II - Other Information

Item 1.	Legal Proceedings	21

Item 1A.	Risk Factors	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 6.	Exhibits	23

	Signatures	23

PART I — FINANCIAL INFORMATION

Item I. Condensed Financial Statements

AspenBio Pharma, Inc.

Balance Sheets

	June 30, 2012 (Unaudited)			December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	10,949,955		$	2,968,104
Short term investments (Note 1)		209,972			1,003,124
Accounts receivable (Note 7)		25,196			35,016
Prepaid expenses and other current assets		146,047			314,800

Total current assets		11,331,170			4,321,044

Property and equipment, net (Notes 2 and 4)		2,608,950			2,795,149

Other long term assets, net (Note 3)		1,581,789			1,611,652

Total assets	$	15,521,909		$	8,727,845

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	435,807		$	581,713
Accrued compensation		275,722			47,622
Accrued expenses		366,632			368,406
Notes and other obligations, current portion (Note 4)		899,654			1,074,185

Total current liabilities		1,977,815			2,071,926

Deferred revenue (Note 8)		204,000			—
Notes and other obligations, less current portion (Note 4)		2,372,537			2,830,041

Total liabilities		4,554,352			4,901,967

Commitments and contingencies (Note 7)

Stockholders' equity (Notes 5 and 6):
Common stock, no par value, 30,000,000 shares authorized;
7,716,480 and 1,608,146 shares issued and outstanding		80,236,505			68,846,796
Accumulated deficit		(69,268,948	)		(65,020,918	)

Total stockholders' equity		10,967,557			3,825,878

Total liabilities and stockholders' equity	$	15,521,909		$	8,727,845

See Accompanying Notes to Unaudited Condensed Financial Statements

AspenBio Pharma, Inc.

Statements of Operations

Three and Six Months Ended June 30

(Unaudited)

	Three Months Ended							Six Months Ended
		2012			2011				2012			2011
Sales (Note 7)		$	27,241		$	55,322			$	34,516		$	152,638
Cost of sales			12			2,749				196			15,576

Gross profit			27,229			52,573				34,320			137,062

Other revenue - fee			—			17,766				—			35,531

Operating expenses:
Selling, general and administrative			1,393,714			1,360,256				2,598,389			2,963,729
Research and development			880,610			1,456,335				1,557,228			2,728,330

Total operating expenses			2,274,324			2,816,591				4,155,617			5,692,059

Operating loss			(2,247,095	)		(2,746,252	)			(4,121,297	)		(5,519,466	)

Other expense, net (primarily interest)			(62,664	)		(41,040	)			(126,733	)		(73,660	)

Net loss		$	(2,309,759	)	$	(2,787,292	)		$	(4,248,030	)	$	(5,593,126	)

Basic and diluted net loss per share (Note 1)		$	(1.19	)	$	(2.08	)		$	(2.39	)	$	(4.17	)

Basic and diluted weighted average number
of shares outstanding (Note 1)			1,948,717			1,340,649				1,778,433			1,340,649

See Accompanying Notes to Unaudited Condensed Financial Statements

AspenBio Pharma, Inc.

Statements of Cash Flows

Six Months Ended June 30

(Unaudited)

	2012			2011
Cash flows from operating activities:
Net loss	$	(4,248,030	)	$	(5,593,126	)
Adjustments to reconcile net loss to
net cash used in operating activities
Stock-based compensation for services		451,197			675,005
Depreciation and amortization		224,452			252,963
Amortization of license fee		—			(35,531	)
Impairment charges		44,554			59,503
Decrease in:
Accounts receivable		9,820			52,696
Prepaid expenses and other current assets		168,753			198,012
Increase (decrease) in:
Accounts payable		(145,906	)		131,155
Accrued liabilities		(1,774	)		792,457
Accrued compensation		228,100			(205,500	)
Deferred revenue		204,000			(675,000

Net cash used in operating activities		(3,064,834	)		(4,347,366	)

Cash flows from investing activities:
Purchases of short-term investments		(209,714	)		(312,763	)
Sales of short-term investments		1,002,866			2,293,276
Purchases of property and equipment		—			(65,128	)
Patent and trademark acquisition costs		(52,944	)		(145,273	)

Net cash provided by investing activities		740,208			1,770,112

Cash flows from financing activities:
Repayment of notes payable and other obligation		(632,035	)		(222,709	)
Net proceeds from issuance of common stock		10,938,512			—

Net cash provided by (used in) financing activities		10,306,477			(222,709	)

Net increase (decrease) in cash and cash equivalents		7,981,851			(2,799,963	)

Cash and cash equivalents at beginning of period		2,968,104			8,908,080

Cash and cash equivalents at end of period	$	10,949,955		$	6,108,117

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	125,163		$	89,314

See Accompanying Notes to Unaudited Condensed Financial Statements

AspenBio Pharma, Inc.

Notes to Condensed Financial Statements

(Unaudited)

INTERIM FINANCIAL STATEMENTS

The accompanying financial statements of AspenBio Pharma, Inc. (the “Company,” “we,” “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 June 30, 2012 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, 2011. The results of operations for the period ended June 30, 2012 are not necessarily an indication of operating results for the full year.

Management’s plans and basis of presentation:

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has experienced recurring losses and negative cash flows from operations. At June 30, 2012, following the completion of its June 2012 public offering, the Company had cash and liquid investments of $11,160,000, working capital of $9,353,000, total stockholders’ equity of $10,968,000 and an accumulated deficit of $69,269,000. To date, the Company has in large part relied on equity financing to fund its operations. The Company expects to continue to incur losses from operations for the near-term and these losses could be significant as product development, contract consulting and other product development related expenses are incurred. The Company believes that its current working capital position will be sufficient to meet its estimated cash needs for the remainder of 2012. If the Company does not obtain additional capital, the Company would potentially be required to reduce the scope of its research and development activities or cease operations. The Company continues to explore obtaining additional financing. The Company is closely monitoring its cash balances, cash needs and expense levels. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result should the Company be unable to continue as a going concern.

The ability for the Company to continue as a going concern is dependent on management’s ability to further implement its strategic plans, which includes the following:

·	aggressively pursuing additional capital raising opportunities;

·	continuing to advance development of the Company’s products, particularly AppyScore;

·	continuing to advance the strategic process to monetize the Company’s animal health business and related intellectual property;

·	continuing to explore prospective partnering or licensing opportunities with complementary opportunities and technologies; and

·	continuing to monitor and implement cost control initiatives to conserve cash.

Note 1. Significant accounting policies:

Cash, cash equivalents and investments:

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, United States Food and Drug Administration (the “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 (expense) income in current period earnings. The Company’s 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. Based upon market conditions, the investment guidelines have been tightened to increase the minimum acceptable investment ratings required for investments and shorten the maximum investment term. As of June 30, 2012, 45% of the investment portfolio was in cash and cash equivalents, which is presented as such on the accompanying balance sheet, and the remaining funds were invested in short-term marketable securities with none individually representing more than 18% of the portfolio and none with maturities past August 2012. To date, the Company’s cumulative realized market loss from the investments has not been in excess of $5,000. For the six months ended June 30, 2012, there was approximately $1,343 in unrealized income, $82 realized loss, and $1,071 in management fees. For the six months ended June 30, 2011, there was approximately $2,600 in unrealized loss, $1,072 in realized income, and $ 6,343 in management fees.

Fair value of financial instruments:

The Company accounts for financial instruments under Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC) 820, 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.

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 and short-term investments as of June 30, 2012 and December 31, 2011.

The carrying amounts of the Company’s financial instruments (other than cash, cash equivalents and short-term 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.

Recently issued and adopted accounting pronouncements:

The Company has evaluated all recently issued accounting pronouncements and believes such pronouncements do not have a material effect on the Company’s financial statements.

Reclassifications:

Certain prior period amounts in the accompanying financial statements have been reclassified to conform to the presentation used in 2012.

Income (loss) per share:

ASC 260, Earnings Per Share, requires dual presentation of basic and diluted earnings per share (EPS) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Basic earnings (loss) per share includes no dilution and is computed by dividing net earnings (loss) available to shareholders by the weighted average 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 (loss). 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 840,400 shares as of June 30, 2012 and 214,500 shares as of June 30, 2011) would be to decrease the net loss per share.

Upon the completion of the 2012 annual shareholders meeting on May 22, 2012, where such actions were approved by shareholders, the Board of Directors authorized a reverse stock split of the Company’s common stock at a ratio of one-for-six, whereby each six shares of common stock were combined into one share of common stock (the “Reverse Stock Split”). The Reverse Stock Split was implemented and effective on June 20, 2012. As a result of the Reverse Stock Split, the basic and diluted weighted average number of shares outstanding for the six months ended June 30, 2012 was reduced from approximately 10.7 million shares to approximately 1.8 million shares. All historical references to shares and share amounts in this report have been retroactively revised to reflect the Reverse Stock Split.

A reconciliation of basic and diluted weighted average number of shares outstanding adjusted for the Reverse Stock Split for each of the three and six month periods ended June 30, 2011 was 8,027,665 shares on a pre-split basis and 1,340,649 shares on a post-split basis.

Note 2. Property and equipment:

Property and equipment consisted of the following:

	June 30, 2012 (Unaudited)			December 31, 2011

Land and improvements	$	1,107,508		$	1,107,508
Building		2,589,231			2,589,231
Building improvements		251,049			251,049
Laboratory equipment		1,175,047			1,175,047
Office and computer equipment		398,295			398,295

		5,521,130			5,521,130
Less accumulated depreciation		(2,912,180	)		(2,725,981	)

	$	2,608,950		$	2,795,149

Depreciation expense totaled approximately $92,600 and $102,700, and $186,200 and $202,400, for the three and six month periods ended June 30, 2012 and 2011, respectively.

Note 3. Other long-term assets:

Other long-term assets consisted of the following:

	June 30, 2012 (Unaudited)		December 31, 2011

Patents, trademarks and applications, net of accumulated amortization of $308,949 and $273,550	$	1,187,739	$	1,214,748
Goodwill		387,239		387,239
Other		6,811		9,665

	$	1,581,789	$	1,611,652

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 $72,000 for each of the next five fiscal years.

Note 4. Notes and Other Obligations:

Notes payable and installment obligations consisted of the following:

	June 30, 2012 (Unaudited)			December 31, 2011

Mortgage notes	$	2,490,504		$	2,545,312
Termination obligation		781,687			1,152,753
Other short-term installment obligations		—			206,161

		3,272,191			3,904,226
Less current portion		(899,654	)		(1,074,185	)

	$	2,372,537		$	2,830,041

Mortgage notes:

The Company has a mortgage facility on its land and building. The mortgage is held by a commercial bank and includes approximately 35% 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 former officer 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 2012 and 2011, and the SBA portion bears interest at the rate of 5.86%. The commercial bank portion of the loan requires total monthly payments of approximately $14,200, which includes approximately $9,500 per month in contractual interest, through July 2013 when the then remaining principal balance is due which is estimated to be approximately $1,578,000 at that time. The SBA portion of the loan requires total monthly payments of approximately $9,200 through July 2023, which includes approximately $4,200 per month in contractual interest and fees.

Termination obligation:

In November 2011, the Company entered into a Termination Agreement with Novartis Animal Health, Inc. (the “Novartis Termination Agreement”) to terminate the Novartis License Agreement. Under the Novartis termination Agreement, the termination obligation totaled $1,374,000, which was payable $150,000 upon signing the Novartis Termination Agreement and six equal subsequent quarterly installments of $204,000 each. The Company discounted these obligations at an assumed interest rate of 7% (which represents the rate management believes it could have borrowed at for similar financings). At June 30, 2012, the remaining outstanding termination obligation totaled $781,687. This obligation requires principal payments of approximately $384,000 in the remainder of 2012 and the balance of $398,000 due in 2013.

Future maturities:

The Company’s total debt obligations require minimum annual principal payments of approximately $442,000 for the remainder of 2012, $2,067,000 in 2013, $65,000 in 2014, $68,000 in 2015, $71,000 in 2016 and $559,000 thereafter, through the terms of the agreements.

Note 5. Stockholders’ equity:

In June 2012, the Company completed a public offering of securities consisting of 6,100,000 shares of common stock at an offering price of $2.00 per share, generating approximately $12.2 million in total proceeds. Fees and other expenses totaled $1,261,000, including a placement fee of 7%. Under the terms of the Underwriting Agreement, the underwriter received warrants to purchase a total of 305,000 shares of common stock. The exercise price of the warrants is $2.50 per share; the warrants become exercisable in June 2013 and expire in June 2017. Under the terms of the Underwriting Agreement, the Company granted the underwriters an option, exercisable through August 9, 2012, to purchase up to an additional 915,000 shares of Common Stock at $2.00 per share. The purpose of the offering was to raise funds for working capital, new product development and general corporate purposes.

During the three months ended June 30, 2012, under the terms of an agreement for investor relations services, the Company issued a total of 8,334 shares of common stock; 4,167 shares of the total were issued at $4.26 per share and the remaining 4,167 shares were issued at $2.88 per share. The issuance resulted in a total of $29,776 of stock- based compensation being recorded.

Note 6. Stock options and warrants:

Stock options:

The Company currently provides stock-based compensation to employees, directors and consultants, both under the Company’s 2002 Stock Incentive Plan, as amended (the “Plan”) and non-qualified options and warrants issued outside of the Plan. In May 2012, the Company’s shareholders approved an amendment to the Plan to increase the number of shares reserved under the Plan from 250,000 to 295,834. The Company estimates the fair value of the share-based awards on the date of grant using the Black-Scholes option-pricing model (the “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 3-5 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 recognized total expenses for stock-based compensation during the periods ended June 30, as follows:

	Three Months Ended				Six Months Ended
	2012		2011		2012		2011

Stock options to employees and directors	$	191,687	$	245,158	$	389,089	$	609,443
Stock options to consultants for:
Investor relations activates		3,371		16,856		23,598		16,856
AppyScore activities		1,491		22,453		2,982		34,326
Animal health activities		2,876		7,190		5,752		14,380

Total stock-based compensation	$	199,425	$	291,657	$	421,421	$	675,005

The above expenses are included in the accompanying Statements of Operations for the periods ended June 30, in the following categories:

	Three Months Ended				Six Months Ended
	2012		2011		2012		2011

Selling, general and administrative expenses	$	197,934	$	269,204	$	418,439	$	640,679
Research and development expenses		1,491		22,453		2,982		34,326

Total stock-based compensation	$	199,425	$	291,657	$	421,421	$	675,005

Stock incentive plan options:

The Company currently provides stock-based compensation to employees, directors and consultants under the Company’s Plan. The Company utilized assumptions in the estimation of fair value of stock-based compensation for the six months ended June 30, as follows:

	2012		2011

Dividend yield		0%		0%
Expected price volatility		121%		119 to 120%
Risk free interest rate		0.78 to 1.03%		1.55 to 2.14%
Expected term	5 years		5 years

Operating expenses for the three and six month periods ended June 30, 2012 and 2011, include $185,660 and $378,477, and $265,850 and $641,740, respectively, for the value of the stock options issued under the Company’s Plan.

A summary of stock option activity under the Company’s Plan for options to employees, officers, directors and consultants, for the six months ended June 30, 2012, is presented below:

	Shares Underlying Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value

Outstanding at January 1, 2012	215,321		$	53.94
Granted	54,312			4.06
Exercised	—			—
Forfeited	(30,982	)		35.41

Outstanding at June 30, 2012	238,651		$	44.98	6.8	$	—

Exercisable at June 30, 2012	149,033		$	62.37	5.4	$	—

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price on June 30, 2012 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 June 30, 2012.

During the six months ended June 30, 2012, 54,312 options were granted under the Plan to employees, officers, and directors with a weighted average fair value at grant date of $4.06 per option. Included in the 54,312 options issued, directors were granted a total of 12,502 options at an exercise price of $4.26 per share vesting over a three year period annually in arrears and employees were granted 6,474 options at an exercise price of $4.26 per share which vest equally over the twelve monthly periods following grant. In addition, 35,002 stock options were awarded as retention incentive options to management employees and officers exercisable at $3.96 per share and vesting as to 50% on the six month anniversary of the grant date and the remaining 50% vesting monthly in one-sixth increments over the remaining seventh through twelfth month following grant date. One newly hired employee was granted a total of 334 options at $3.60 per share, vesting over a three-year period annually in arrears. All options granted under the Company’s 2002 Stock Incentive Plan expire ten years from the grant date.

During the six months ended June 30, 2012, a total of 30,982 options that were granted under the Plan to employees, including an officer, were forfeited, 9,301 of which were vested and 21,681 were unvested. The options were exercisable at an average of $35.41per share and were forfeited upon the employees’ termination from the Company.

During the six months ended June 30, 2011, 32,183 stock options were granted under the Plan to employees, officers, directors, and consultants with a weighted average fair value at the grant date of $18.36 per option. Included in the 32,183 options issued, existing directors and officers were granted a total of 20,833 options at an exercise price of $17.70 per share and existing employees were granted 4,317 options at an exercise price of $18.30 per share, all vesting over a three-year period annually in arrears and expiring in ten years. Three newly hired employees were granted a total of 367 options at $19.80 per share, all vesting over a three-year period annually in arrears and expiring in ten years. The Company also issued 6,666 non-qualified options to a consultant at an exercise price of $20.40 per share which expires in ten years. These non-qualified options are performance related with vesting tied to achieving specific AppyScore clinical and regulatory milestones.

During the six months ended June 30, 2011, a total of 18,511 options that were granted under the Plan were forfeited, 10,300 of which were vested and 8,211 which were unvested. The options were exercisable at an average of $52.20 per share and were forfeited upon the employees’ terminations from the Company.

The total fair value of stock options granted to employees, directors and consultants that vested and became exercisable during the six months ended June 30, 2012 and 2011, was $1,149,000 and $1,679,000, respectively. Based upon the Company’s experience, approximately 85% of the outstanding stock options, or approximately 203,000 options, are expected to vest in the future, under their terms.

A summary of the activity of non-vested options under the Company’s Plan to acquire common shares granted to employees, officers, directors and consultants during the six months ended June 30, 2012 is presented below:

Nonvested Shares	Nonvested Shares Underlying Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value

Nonvested at January 1, 2012		88,986		$	35.64	$	28.98
Granted		54,312			4.06		3.37
Vested		(31,999	)		44.30		35.91
Forfeited		(21,681	)		24.59		20.18

Nonvested at June 30, 2012		89,618		$	16.06	$	13.10

At June 30, 2012, based upon employee, director and consultant options granted to that point, there was approximately $666,000 of additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of approximately one year.

Subsequent to June 30, 2012, 25,000 stock options were granted to a consultant exercisable at the then fair market value of $1.91 per share, vesting after ninety days. The options were granted under the Company’s 2002 Stock Incentive Plan and expire ten years from the grant date.

Other common stock purchase options and warrants:

As of June 30, 2012, in addition to the stock incentive plan options discussed above, the Company had outstanding 601,729 non-qualified options and warrants in connection with offering warrants, officers’ employment and investor relations consulting that were not issued under the Plan.

The Company utilized assumptions in the estimation of fair value of stock-based compensation for the six months ended June 30 as follows:

	2012		2011

Dividend yield		0%		0%
Expected price volatility		130%		119 to 145%
Risk free interest rate		0.74 %		1.20 to 1.95%
Expected term	5 years		3-5 years

Operating expenses for the three and six month periods ended June 30, 2012 and 2011, include $13,765 and $25,807 and $42,944 and $33,267, respectively, for the value of the non-qualified options and warrants.

Following is a summary of outstanding options and warrants that were issued outside of the Plan for the six months ended June 30, 2012:

	Shares Underlying Options / Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value

Outstanding at January 1, 2012		282,178		$	8.70
Granted		325,000			2.56
Exercised		—			—
Forfeited		(5,449	)		34.06

Outstanding at June 30, 2012		601,729		$	5.16	5.1	$	—

Exercisable at June 30, 2012		276,729		$	34.00	4.9	$	—

Included at June 30, 2012 in the 601,729 total outstanding options and warrants are 572,505 non-compensatory rights granted in connection with the June 2012 share offering and 29,224 rights issued under compensatory arrangements.

During the six months ended June 30, 2012, the Company hired a Senior Vice President and Chief Commercial Officer who previously had a consulting relationship with the Company. As part of the employment arrangement, the Board approved an employment-inducement grant made outside of the Company’s Plan, and he was granted 20,000 options for services which are exercisable at $3.42 per share. The options vest as to 50% of the total on the six month anniversary following the grant date and the remaining 50% vesting one-sixth monthly over months seven through twelve following the grant date and they expire ten years from the grant date.

During the six months ended June 30, 2012, a total of 5,449 options that were granted outside of the Company’s Plan that were exercisable at an average of $34.06 per share were forfeited, 4,447 of which were unvested and were forfeited upon an officer’s termination and 1,002 vested options previously granted to an investor relations firm expired.

During the six months ended June 30, 2011, the Company hired a Vice President of Marketing and Business who previously had a consulting relationship with the Company. As part of the employment arrangement, the Board approved an employment-inducement grant made outside of the Company’s Plan, and he was granted 6,667 options for services which are exercisable at $19.50 per share. The options vest equally over a three year period on the first, second and third anniversary of the grant date and expire in ten years. Also, during the six months ended June 30, 2011, an investor relations firm was granted 5,000 warrants to purchase shares of common stock which vest equally over twelve months from the date of grant and are exercisable at $30.00 per share and expire in three years. During the six months ended June 30, 2011, 2,251 investor relations consultant options were forfeited of which 1,500 were exercisable at $360.00 per share and 751 options were exercisable at $180.30 per share. In addition 22,892 warrants granted at $144.60 per share in connection with the 2010 public registered direct offering expired.

The total fair value of stock options previously granted to an investor relations consulting firm and to certain officers that vested and became exercisable during the six months ended June 30, 2012 and 2011, was $55,998 and $20,227, respectively.

A summary of the activity of nonvested, non-qualified options and warrants granted outside of the Plan in connection with employment and investor relations consulting services during the six months ended June 30, 2012, is presented below:

Nonvested Shares	Nonvested Shares Underlying Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value

Nonvested at January 1, 2012		7,917		$	21.18	$	16.14
Granted		20,000			3.42		2.93
Vested		(3,470	)		23.28		16.14
Forfeited		(4,447	)		19.50		16.11

Nonvested at June 30, 2012		20,000		$	3.42	$	2.93

At June 30, 2012, there was approximately $52,000 in unrecognized cost for non-qualified options that will be recorded over a weighted average future period of less than one year.

Subsequent to June 30, 2012, 334 investor relations options which were exercisable at an average of $56.85 per share expired.

Note 7. Concentrations, commitments and contingencies:

Customer concentration:

At June 30, 2012, three customers accounted for the total accounts receivable. For the six months ended June 30, 2012, three customers individually represented more than 10% of the Company’s sales, accounting for approximately 53%, 21% and 17% respectively, of the sales for the period. For the three months ended June 30, 2012, three customers individually represented more than 10% of the Company’s sales, accounting for approximately 51%, 27% and 22% respectively, of the sales for the period. At December 31, 2011, two customers accounted for 73% and 19% of total accounts receivable. For the six months ended June 30, 2011, four customers individually represented more than 10% of the Company’s sales, accounting for approximately 21%, 20%, 13% and 11% respectively, of the sales for the period. For the three months ended June 30, 2011, two customers individually represented more than 10% of the Company’s sales, accounting for approximately 55% and 26% of the sales for the period.

Commitments:

Effective May 1, 2004 Washington University in St. Louis (WU) and AspenBio entered into The Exclusive License Agreement (WU License Agreement) which grants AspenBio exclusive license and right to sublicense WU’s technology (as defined under the WU License Agreement) for veterinary products worldwide, except where such products are prohibited under U.S. laws for export. The term of the WU License Agreement continues until the expiration of the last of WU’s patents (as defined in the WU License Agreement) to expire. AspenBio has agreed to pay minimum annual royalties of $20,000 annually during the term of the WU License Agreement and such amounts are creditable against future royalties. Royalties payable to WU under the WU License Agreement for covered product sales by AspenBio carry a mid-single digit royalty rate and for sublicense fees received by AspenBio carry a low double-digit royalty rate. The WU License Agreement contains customary terms for confidentiality, prosecution and infringement provisions for licensed patents, publication rights, indemnification and insurance coverage. The WU License Agreement is cancelable by AspenBio with ninety days advance notice at any time and by WU with sixty days advance notice if AspenBio materially breaches the WU License Agreement and fails to cure such breach.

Employment commitments:

As of June 30, 2012, the Company has employment agreements with four officers providing aggregate annual minimum commitments totaling $880,000. The agreements automatically renew at the end of each year unless terminated by either party and contain customary confidentiality and benefit provisions.

Contingencies:

On September 1, 2010, the Company received a complaint, captioned Mark Chipman v. AspenBio Pharma, Inc., Case No. 2:10-cv-06537-GW-JC. The complaint was filed in the U.S. District Court in the Central District of California by an individual investor. The complaint includes allegations of fraud, negligent misrepresentation, violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5, and violations of Sections 25400 and 25500 of the California Corporations Code, all related to the Company’s blood-based acute appendicitis test in development known as AppyScore. On the Company’s motion, the action was transferred to the U.S. District Court for the District of Colorado by order dated January 21, 2011. The action has been assigned a District of Colorado Civil Case No. 11-cv-00163-REB-KMT. On September 7, 2011, the plaintiff filed an amended complaint. Based on a review of the amended complaint, the Company believes that the plaintiff’s allegations are without merit, and intends to vigorously defend against these claims. On October 7, 2011, the Company filed a motion to dismiss the amended complaint, and the plaintiff’s response and the Company’s reply thereto were subsequently filed. Currently, the motion is pending, awaiting a decision by the court.

On October 1, 2010, the Company received a complaint, captioned John Wolfe, individually and on behalf of all others similarly situated v. AspenBio Pharma, Inc. et al., Case No. CV10 7365. This federal securities purported class action was filed in the U.S. District Court in the Central District of California on behalf of all persons, other than the defendants, who purchased common stock of the Company during the period between February 22, 2007 and July 19, 2010, inclusive. The complaint names as defendants certain officers and directors of the Company during such period. The complaint includes allegations of violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5 against all defendants, and of Section 20(a) of the Exchange Act against the individual defendants, all related to the Company’s blood-based acute appendicitis test in development known as AppyScore. On the Company’s motion, this action was also transferred to the U.S. District Court for the District of Colorado by order dated January 21, 2011. The action has been assigned a District of Colorado Civil Case No. 11-cv-00165-REB-KMT. On July 11, 2011, the court appointed a lead plaintiff and approved lead counsel. On August 23, 2011, the lead plaintiff filed an amended putative class action complaint, alleging the same class period. Based on a review of the amended complaint, the Company and the individual defendants believe that the plaintiffs’ allegations are without merit and intend to vigorously defend against these claims. On October 7, 2011, the Company filed a motion to dismiss the amended complaint, and the plaintiff’s response and the Company’s reply thereto were subsequently filed. Currently, the motion is pending, awaiting a decision by the court.

On January 4, 2011, a plaintiff filed a complaint in the U.S. District Court for the District of Colorado captioned Frank Trpisovskyv. Pusey, et al, Civil Action No. 11-cv-00023-PAB-BNB, that purports to be a shareholder derivative action on behalf of the Company against thirteen individual current or former officers and directors. The complaint also names the Company as a nominal defendant. The plaintiff asserts violations of Section 14(a) of the Exchange Act, SEC Rule 14a-9, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. On motion of the Company and the individual defendants, the U.S. District Court has stayed this derivative action by order dated March 15, 2011, and this action continues to be stayed. The Company believes that the plaintiff lacks standing to proceed with this action and intends to challenge the plaintiff’s standing if and when the stay is lifted.

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 makes 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 8. Subsequent event:

During July 2012, the Company entered into an Exclusive License Agreement (the “Agreement”) with Ceva Santé Animale S.A. (the “Licensee”), under which the Company granted the Licensee an exclusive royalty-bearing license to the Company’s intellectual property and other assets, including patent rights and know-how, relating to recombinant single chain reproductive hormone technology for use in non-human mammals (the “Company’s Animal Health Assets”). The Company’s Animal Health Assets includes a sublicense to Licensee of the technology licensed to the Company by The Washington University pursuant to a License Agreement, dated May 1, 2004, as amended.

Under the Agreement, the Licensee obtained a worldwide exclusive license to develop, seek regulatory approval for and offer to sell, sell, market, distribute, import and export luteinizing hormone (“LH”) and/or follicle-stimulating hormone (“FSH”) products for bovine (cattle), equine and swine in the field of the assistance and facilitation of reproduction in bovine, equine and swine animals. The Company also granted the Licensee an option and right of first refusal to use the licensed Animal Health Assets to develop additional animal health products outside of the licensed field of use or any diagnostic pregnancy detection tests for non-human mammals.

Under the Agreement the Company will receive the following financial consideration for the licensed Animal Health Assets:

·	License fees of $1,020,000 payable in quarterly installments with the first installment of $204,000 paid in June 2012 and recorded as deferred revenue on the accompanying balance sheet as of June 30, 2012;

Milestone payments, totaling up to a potential of $2 million in the aggregate, based on the satisfactory conclusion of pilots studies, clinical studies, manufacturing advances, and receipt of various regulatory approvals for bovine FSH products in the field of use and a potential for milestone payments of up to an additional $2 million for development and receipt of regulatory approval for additional licensed products; and

·	Royalties, at low double digit rates, based on sales of licensed products.

The obligations of the Licensee to make future license fee, milestone and royalty payments are conditioned upon the successful completion of a bovine proof of concept study that is expected to be completed by September 30, 2012. If the foregoing condition is not met, the Licensee has the right, in its sole discretion, to terminate the Agreement.

In addition, the Agreement provides that the licensee fee installment payments shall be made by the Licensee to a joint bank account in the name of the Licensee and the Company, until the full payment is made by the Company to Novartis Animal Health pursuant to the Novartis Termination Agreement.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s plans and basis of presentation:

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has experienced recurring losses and negative cash flows from operations. At June 30, 2012, following the completion of its June 2012 public offering, had cash and liquid investments of $11,160,000, working capital of $9,353,000, total stockholders’ equity of $10,968,000 and an accumulated deficit of $69,269,000. To date, the Company has in large part relied on equity financing to fund its operations. The Company expects to continue to incur losses from operations for the near-term and these losses could be significant as product development, contract consulting and other product development related expenses are incurred. The Company believes that its current working capital position will be sufficient to meet its estimated cash needs for the remainder of 2012. If the Company does not obtain additional capital, then the Company would potentially be required to reduce the scope of its research and development activities or cease operations. The Company continues to explore obtaining additional financing. The Company is closely monitoring its cash balances, cash needs and expense levels. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result should the Company be unable to continue as a going concern.

The ability of the Company to continue as a going concern is dependent on management’s ability to further implement its strategic plans, which includes the following:

·	aggressively pursuing additional capital raising opportunities;

·	continuing to advance development of the Company’s products, particularly AppyScore;

·	continuing to advance the strategic process to monetize the Company’s animal health business and related intellectual property;

·	continuing to explore prospective partnering or licensing opportunities with complementary opportunities and technologies; and

·	continuing to monitor and implement cost control initiatives to conserve cash.

Results of Operations

Comparative Results for the Six Months Ended June 30, 2012 and 2011

Sales of the Company’s antigen products for the six months ended June 30, 2012 totaled $35,000, which is an $118,000 or 77% decrease from the 2011 period. The decrease in sales is primarily attributable to the Company’s strategic decision to suspend antigen production in 2010 and focus available scientific resources on the appendicitis and single-chain animal product developments.

In April 2008, the Company entered into a long term exclusive license and commercialization agreement with Novartis Animal Health (the “Novartis License Agreement”) to develop and launch the Company’s novel recombinant single-chain products for bovine species. The total payments received under this agreement were recorded as deferred revenue and were being recognized over future periods. In November 2011, the Company entered into the Novartis Termination Agreement which terminated future revenue related to the Novartis License Agreement. Accordingly, the Company did not recognize any revenue related to the license agreement in the six months ended June 30, 2012. During the six months ending June 30, 2011, $36,000 of such license payments was recognized.

Cost of sales for the six months ended June 30, 2012 totaled $200 which is $15,400 or a 99% decrease as compared to the 2011 period. As a percentage of sales, gross profit was 100% in the 2012 period as compared to gross profit of 90% in the 2011 period.

Selling, general and administrative expenses in the six months ended June 30, 2012, totaled $2,598,000, which is a $365,000 or 12% decrease as compared to the 2011 period. A reduction in personnel from 2011 to 2012 resulted in a decrease in compensation related costs of approximately $154,000. Total stock-based compensation and non-qualified option expenses were approximately $222,000 lower in the 2012 period, primarily due to lower values associated with options granted in 2012. During the six months ended June 30, 2012, the expenses associated with legal and accounting fees decreased $82,000 and expenses associated with public company activities were approximately $102,000 higher in the 2012 period. Insurance costs increased by approximately $39,000 due generally to normal price increases.

Research and development expenses in the six months ended June 30, 2012 totaled $1,557,000, which is a $1,171,000 or 43% decrease as compared to the 2011 period. Appendicitis test development and research expenses decreased by approximately $807,000 in 2012 as compared to 2011, primarily due to reductions in investigational work, including the pilot trial that was completed in 2011. Expenses incurred for the single-chain animal product development decreased by approximately $282,000 in the 2012 period. Patent related expenses, including patent impairment expenses in 2012 decreased by approximately $26,000 over 2011 amounts. A reduction in personnel from 2011 to 2012 resulted in a decrease in compensation related costs of approximately $45,000.

Net interest expense for the six months ended June 30, 2012, increased to $127,000, compared to $74,000 in the 2011 period. The increase in interest expense is primarily due to imputed interest expense under the Novartis Termination Agreement.

No income tax benefit was recorded on the net loss for the six months ended June 30, 2012 and 2011, as management was unable to determine that it was more likely than not that such benefit would be realized.

Comparative Results for the Three Months Ended June 30, 2012 and 2011

Sales of the Company’s antigen products for the three months ended June 30, 2012 totaled $27,000, which is a $28,000 or 51% decrease from the 2011 period. The decrease in sales is primarily attributable to the Company’s strategic decision to suspend antigen production in 2010 and focus available scientific resources on the appendicitis and single-chain animal product developments.

In April 2008, the Company entered into the Novartis License Agreement to develop and launch the Company’s novel recombinant single-chain products for bovine species. The total payments received under the Novartis License Agreement were recorded as deferred revenue and were being recognized over future periods. In November 2011, the Company entered into the Novartis Termination Agreement which terminated future revenue related to the Novartis License Agreement. Accordingly, the Company did not recognize any revenue related to the license agreement in the three months ended June 30, 2012. During the three month period ending June 30, 2011, $18,000 of such license payments was recognized.

Cost of sales for the three months ended June 30, 2012 decreased $2,700 as compared to the 2011 period. As a percentage of sales, gross profit was 100% in the 2012 period as compared to gross profit of 95% in the 2011 period.

Selling, general and administrative expenses in the three months ended June 30, 2012, totaled $1,394,000, which is a $33,000 or 2% increase as compared to the 2011 period. Compensation expenses increased by a net of $81,000 in the 2012 period. Total stock-based compensation and non-qualified option expenses were approximately $71,000 lower in the 2012 period, primarily due to the timing of granting options to employees, officers and directors and a lower average values associated with options granted in 2012. During the three months ended June 30, 2012, the expenses associated with legal and accounting fees decreased $35,000 and expenses associated with public company activities increased approximately $55,000.

Research and development expenses in the three months ended June 30, 2012 totaled $881,000, which is a $576,000 or 40% decrease as compared to the 2011 period. Appendicitis test development and research expenses decreased by approximately $408,000 in 2012 as compared to 2011, due primarily to reductions in investigational work, including the pilot trial that was completed in 2011. Expenses incurred for the single-chain animal product development decreased by approximately $70,000 in the 2012 period. Patent related expenses, including patent impairment expenses in 2012 decreased by approximately $36,000 over 2011 amounts. A reduction in personnel from 2011 to 2012 resulted in a decrease in compensation related costs of approximately $51,000.

Net interest expense for the three months ended June 30, 2012, increased to $63,000, compared to $41,000 in the 2011 period. The increase in interest expense is primarily due to imputed interest expense under the Novartis Termination Agreement.

Liquidity and Capital Resources

At June 30, 2012, we had working capital of $9,353,000, which included cash, cash equivalents and short term investments of $11,160,000. We reported a net loss of $4,248,000 during the six months ended June 30, 2012, which included $720,000 in non-cash expenses relating to stock-based compensation of $451,000 and $269,000 for depreciation, amortization and impairment charges.

Currently, our primary focus is to continue the development activities on our acute appendicitis diagnostic test, including advancement of such test with the FDA, and to advance the strategic process to monetize our animal health business and related intellectual property.

In June 2012, the Company completed a public offering of securities consisting of 6,100,000 shares of common stock at an offering price of $2.00 per share, generating approximately $12.2 million in total proceeds. Fees and other expenses totaled $1,261,000, including a placement fee of 7%. Under the terms of the Underwriting Agreement, the underwriter received warrants to purchase a total of 305,000 shares of Common Stock. The exercise price of the warrants was $2.50 per share; the warrants become exercisable in June 2013 and expire in June 2017. Under the terms of the Underwriting Agreement, the Company granted the underwriters an option, exercisable through August 9, 2012, to purchase up to an additional 915,000 shares of Common Stock at $2.00 per share. The purpose of the offering was to raise funds for working capital, new product development and general corporate purposes.

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 other product development related expenses. We believe that our current working capital position will be sufficient to meet our estimated cash needs for the remainder of 2012. The Company is actively looking to obtain additional financing; however, there can be no assurance that the Company will be able to obtain sufficient additional financing on terms acceptable to the Company, if at all. We are closely monitoring our cash balances, cash needs and expense levels. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result in the possible inability of the Company to continue as a going concern.

Capital expenditures, primarily for production, laboratory and facility improvement costs for the year ending December 31, 2012 are anticipated to total approximately $50,000-$100,000. We anticipate these capital expenditures to be financed through working capital.

We expect that our primary development expenditures will be to continue to advance product development and testing of the cassette and instrument version of AppyScore. During the six months ended June 30, 2012 and 2011, we expended approximately $807,000 and $1,409,000, respectively, in direct costs for AppyScore development and related efforts. Steps to achieve commercialization of the acute appendicitis product will be an ongoing and evolving process with subsequent generations and expected improvements being made in the test. Should we be unable to achieve FDA clearance of the AppyScore appendicitis 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 acute appendicitis patent may be deemed impaired.

In November 2011, the Company entered into the Novartis Termination Agreement. Under the Novartis Termination Agreement, the termination obligation totaled $1,374,000, which was payable $150,000 upon signing the Novartis Termination Agreement and six equal subsequent quarterly installments of $204,000 each. The Company discounted these obligations at an assumed interest rate of 7% (which represents the rate management believes it could have borrowed at for similar financings). At June 30, 2012, the remaining outstanding termination obligation totaled $781,700. This obligation requires principal payments of approximately $384,000 in the remainder of 2012 and the balance of $398,000 due in 2013.

Under the Agreement, the Company will receive the following financial consideration for the licensed Animal Health Assets:

·	License fees of $1,020,000 payable in quarterly installments with the first installment of $204,000 paid in June 2012 and recorded as deferred revenue on the accompanying balance sheet as of June 30, 2012;

·	Royalties, at low double digit rates based on sales of licensed products.

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 goal of this development process is to establish current good manufacturing practices (cGMP) required for those products for which we are seeking FDA approval. 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 and expanded development and manufacturing agreements, some of which may be significant commitments during 2012. 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 that commenced in July 2003. 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 former officer 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, and the SBA portion bears interest at the rate of 5.86%. The commercial bank portion of the loan requires total monthly payments of approximately $14,200, which includes approximately $9,500 per month in contractual interest, through July 2013 when the then remaining principal balance is due which is estimated to be approximately $1,578,000 at that time. The SBA portion of the loan requires total monthly payments of approximately $9,200 through July 2023, which includes approximately $4,200 per month in contractual interest and fees.

In April 2008, the Board authorized a stock repurchase plan to purchase shares of our common stock up to a maximum of $5.0 million. Purchases may be made in routine, open market transactions, when management determines to effect purchases and any purchased shares of common stock 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. A total of approximately 46,400 common shares were purchased and retired in 2008 at a total cost of approximately $992,000. No repurchases have been made since 2008.

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 current assets, 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 $3,065,000 during the six months ended June 30, 2012. Cash was consumed by the loss of $4,248,000, less non-cash expenses of $451,000 for stock-based compensation and $269,000 for depreciation and amortization, impairment and other non-cash items. For the six months ended June 30, 2012, decreases in accounts receivable generated cash of $10,000. Decreases in prepaid and other current assets of $169,000 provided cash, primarily related to routine changes in operating activities. Cash used in operations included an $80,000 increase in accounts payable and accrued expenses in 2012 and cash provided by an increase of $204,000 in deferred revenue, upon the execution of an option agreement for the Company’s animal health assets.

Net cash consumed by operating activities was $4,347,000 during the six months ended June 30, 2011. Cash was consumed by the loss of $5,593,000, less non-cash expenses of $675,000 for stock-based compensation and $277,000 for depreciation, amortization and impairment charges. For the six months ended June 30, 2011, decreases in inventories and accounts receivable generated cash of $67,000. A decrease in prepaid and other current assets of $183,000 provided cash, primarily related to routine changes in operating activities. Cash was generated due to a $718,000 increase in accounts payable and accrued expenses in the six months ended June 30, 2011 and offset by a decrease of $675,000 in the deferred revenue, primarily due to the reclassification of the deferred revenue under the Novartis License Agreement.

Investing Activities

Net cash inflows from investing activities generated $740,000 during the six months ended June 30 2012. Sales of marketable securities investments purchased totaled approximately $1,003,000 and marketable securities purchased totaled approximately $210,000. A $53,000 use of cash was attributable to additional costs incurred from patent filing.

Net cash inflows from investing activities generated $1,770,000 during the six months ended June 30, 2011. Marketable securities investments acquired totaled approximately $313,000 and sales of marketable securities totaled approximately $2,293,000. A $210,000 use of cash was attributable to additional costs incurred from patent filings and equipment additions.

Financing Activities

Net cash inflows from financing activities generated $10,306,000 during the six month period ended June 30, 2012. The Company received net proceeds of $10,938,000 from the sale of common stock in a public offering of securities and repaid $632,000, in scheduled payments under its debt agreements.

Net cash outflows from financing activities consumed $223,000 during the six month period ended June 30, 2011 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:

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.

Intangible Assets: Intangible assets primarily represent legal costs and filings associated with obtaining patents on the Company’s new discoveries. 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. The Company tests intangible assets with finite lives upon significant changes in the Company’s business environment. The testing resulted in approximately $45,000 and $60,000 of patent impairment charges during the six months ended June 30, 2012 and 2011, respectively.

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 Company reviews for impairment whenever there is an indication of impairment. 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 (iv) 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 consultants 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 Annual Report on Form 10-K for the year ended December 31, 2011 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

General

We have limited exposure to market risks from instruments that may impact the Balance Sheets, Statements of Operations, and Statements of Cash Flows. Such exposure is due primarily to changing interest rates.

Interest Rates

The primary objective for our investment activities is to preserve principal while maximizing yields without significantly increasing risk. This is accomplished by investing excess cash in highly liquid debt and equity investments of highly rated entities which are classified as trading securities. As of June 30, 2012, approximately 45% of the investment portfolio was in cash and cash equivalents with very short term maturities and therefore not subject to any significant interest rate fluctuations. We have no investments denominated in foreign currencies and therefore our investments are not subject to foreign currency exchange risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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 June 30, 2012.

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.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any other 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.

Item 1A. Risk Factors

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, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(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.

As of June 1, 2012, 4,167 shares of restricted common stock were granted to a consultant in consideration for investor relations services. These shares of common stock vested upon grant. 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.

(b)

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 administrated by management and may be discontinued at any time. No repurchases have been made since 2008.

Item 6. Exhibits

(a) Exhibits

EXHIBIT		DESCRIPTION

10.1		Amendment to Amended and Restated 2002 Stock Incentive Plan, as amended, of AspenBio Pharma, Inc., effective May 22, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 24, 2012).
10.2		Exclusive License Agreement, dated July 25, 2012, between Ceva Santé Animale S.A. and AspenBio Pharma, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on July 30, 2012).
31.1		Rule 13a-14(a)/15d-14(a) - Certification of Chief Executive Officer. Filed herewith.
31.2		Rule 13a-14(a)/15d-14(a) - Certification of Chief Financial Officer. Filed herewith.
32		Section 1350 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statement of Cash Flows and (iv) the Notes to Condensed Financial Statements. (1)

(1)	Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed by the Company for purposes of Section 18 or any other provision of the Exchange Act of 1934, as amended.

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.

	AspenBio Pharma, Inc. (Registrant)
	By:	/s/ Jeffrey G. McGonegal
Dated: August 7, 2012		Jeffrey G. McGonegal, Chief Financial Officer and duly authorized officer