ASPENBIO PHARMA, S-1/A Filing by APPY-Agreements

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									                          As filed with the Securities and Exchange Commission on May 25, 2012
                                                                                                         Registration Statement File No. 333-180691


                                               UNITED STATES
                                   SECURITIES AND EXCHANGE COMMISSION
                                          WASHINGTON, D.C. 20549




                                                  AMENDMENT NO. 1 TO

                                                             FORM S-1

                                          REGISTRATION STATEMENT
                                       UNDER THE SECURITIES ACT OF 1933




                                        AspenBio Pharma, Inc.
                                          (Exact name of registrant as specified in its charter)


         Colorado                                               2835                                                84-1553387
 (State or other jurisdiction of                    (Primary Standard Industrial                                    (I.R.S. Employer
incorporation or organization)                      Classification Code Number)                                  Identification Number)

                                                    1585 South Perry Street
                                                    Castle Rock, CO 80104
                                                        (303) 794-2000
                                          (Address, including zip code, and telephone number,
                                     including area code, of registrant’s principal executive offices)




                                                    Stephen T. Lundy
                                          President and Chief Executive Officer
                                                 AspenBio Pharma, Inc.
                                                 1585 South Perry Street
                                                 Castle Rock, CO 80104
                                                      (303) 794-2000
                                      (Name, address, including zip code, and telephone number,
                                              including area code, of agent for service)




                                                              Copies to:


             Gerald J. Guarcini, Esq.                                                          Yvan-Claude Pierre, Esq.
              Mary J. Mullany, Esq.                                                             Daniel I. Goldberg, Esq.
               Ballard Spahr LLP                                                                    Reed Smith LLP
          1735 Market Street, 51 st Floor                                                        599 Lexington Avenue
             Philadelphia, PA 19103                                                               New York, NY 10022
            Telephone: (215) 665-8500                                                          Telephone: (212) 521-5400
            Facsimile: (215) 864-8999                                                          Facsimile: (212) 521-5450
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


       Large accelerated filer                                                              Accelerated filer 
       Non-accelerated filer  (Do not check if smaller reporting company)                   Smaller reporting company 
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                                                       CALCULATION OF REGISTRATION FEE


                Title of Each Class of Securities to be Registered                        Proposed Maximum                   Amount of
                                                                                               Aggregate                   Registration Fee
                                                                                            Offering Price (1)
                Common Stock, no par value per share (2) (3)                         $             17,250,000         $           1,976.85
                Underwriters’ Warrants to Purchase Common Stock (4)                                         0                            0
                Common Stock Underlying Underwriters’ Warrants (5)                                    937,500                       107.43
                  Total Registration Fee (6)                                         $             18,187,500         $           2,084.28




(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).
(2) Includes shares of common stock that may be issued upon exercise of a 45-day option granted to the underwriters to cover over-allotments, if any.
(3) Pursuant to Rule 416 under the Securities Act, the shares of common stock registered hereby also include an indeterminate number of additional shares of comm
    stock as may from time to time become issuable by reason of stock splits, stock dividends, recapitalizations or other similar transactions.
(4) In accordance with Rule 457(g) under the Securities Act, because the shares of the Registrant’s common stock underlying the underwriters’ warrants are register
    hereby, no separate registration fee is required with respect to the warrants registered hereby.
(5) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act. The warrants are exercisable at a per share
    exercise price equal to 125% of the public offering price. As estimated solely for these purpose of recalculating the registration fee pursuant to Rule 457(g) unde
    the Securities Act, the proposed maximum aggregate offering price of the underwriters’ warrants is $937,500, which is equal to 125% of $750,000 (5% of
    $15,000,000).
(6) Previously paid.




The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission becomes effective. This preliminary prospectus is not an offer to sell these
securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.




            PRELIMINARY PROSPECTUS                                      SUBJECT TO COMPLETION                                     DATED MAY 25, 2012


$15,000,000 of Shares
Common Stock




AspenBio Pharma, Inc. is offering        shares of its common stock, no par value per share.
We expect to effect a reverse split on a 1-for-6 basis immediately prior to the date of this prospectus. Unless indicated otherwise
and excluding our historical financial statements included herein, all information in the prospectus has been prepared on a pro
forma basis that assumes a 1-for-6 reverse split of our issued and outstanding shares of common stock, options and warrants.
Our common stock is quoted on the NASDAQ Capital Market under the trading symbol “APPY.” On May 24, 2012, the last
reported sale price of our common stock on the NASDAQ Capital Market was $0.64 per share, or $3.84 per share after giving
effect to the anticipated 1-for-6 reverse stock split.
Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 8 of this prospectus
for a discussion of information that should be considered before investing in our common stock.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the
securities described herein or determined if this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

                                                                                                                               Per Share             Total
            Public offering price                                                                                          $                  $
            Underwriting discounts and commissions (1)                                                                     $                  $
            Proceeds, before expenses, to AspenBio Pharma, Inc.                                                            $                  $




(1) The underwriters will receive compensation in addition to the underwriting discount. See “Underwriting” beginning on page 65 of this prospectus for a description of compensation
    payable to the underwriters.
We have granted the underwriters an option to purchase up to an additional       shares of our common stock from us at the public
offering price, less underwriting discounts and commissions, within 45 days from the date of this prospectus, to cover
over-allotments of the shares, if any.
The underwriters expect to deliver our shares to purchasers in the offering on or about        , 2012.

                                                                Aegis Capital Corp
                                                           The date of this prospectus is                   , 2012
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                                                           TABLE OF CONTENTS


                                                                                                                          Page
              Prospectus Summary                                                                                              1
              Risk Factors                                                                                                    8
              Forward-Looking Statements                                                                                     19
              Use of Proceeds                                                                                                20
              Dividend Policy                                                                                                21
              Capitalization                                                                                                 22
              Dilution                                                                                                       23
              Market Price Information                                                                                       24
              Management’s Discussion and Analysis of Financial Condition and Results of Operations                          25
              Business                                                                                                       35
              Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                           49
              Quantitative and Qualitative Disclosure About Market Risk                                                      49
              Management                                                                                                     50
              Director Compensation                                                                                          54
              Executive Compensation                                                                                         56
              Certain Relationships and Related Party Transactions                                                           60
              Principal Shareholders                                                                                         61
              Description of Securities                                                                                      64
              Underwriting                                                                                                   65
              Legal Matters                                                                                                  73
              Experts                                                                                                        73
              Where You Can Find More Information                                                                            73
              Index to Financial Statements                                                                                 F-1
Please read this prospectus carefully. It describes our business, our financial condition and results of operations. We have prepared this
prospectus so that you will have the information necessary to make an informed investment decision.
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different
information. If anyone provides you with different or inconsistent information, you should not rely on it. The information contained in this
prospectus is accurate only on the date of this prospectus. Our business, financial condition, results of operations and prospects may have
changed since such date. Other than as required under the federal securities laws, we undertake no obligation to publicly update or revise such
information, whether as a result of new information, future events or any other reason.
For investors outside the United States:
Neither we nor any of the underwriters has done anything that would permit this offering or possession or distribution of this prospectus or any
free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required,
other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the
distribution of this prospectus and any such free writing prospectus outside of the United States.
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                                                       PROSPECTUS SUMMARY
     This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information
     that you should consider before making an investment decision with respect to our securities. You should read this entire
     prospectus, including the “Risk Factors” section beginning on page 8 of this prospectus and our financial statements and related
     notes contained in this prospectus before making an investment decision with respect to our securities. Please see the risk factors
     following the heading “Risks Related to Our Proposed Reverse Stock Split” in the section of this prospectus titled “Risk Factors.”
     Please see the section titled, “Where You Can Find More Information,” beginning on page 73 of this prospectus. Unless the
     context indicates otherwise, references to “Company” or “AspenBio” or “we,” “us” or “our” refers to AspenBio Pharma, Inc.

                                                            AspenBio Pharma, Inc.
     Business Overview
     AspenBio Pharma, Inc. is advancing products that address unmet human diagnostic and animal health therapeutic needs. AspenBio
     was formed in August 2000 as a Colorado corporation to produce purified proteins for diagnostic applications. We have leveraged
     our science and technology to develop a number of product candidates.
     We are developing a blood test, AppyScore TM , that is intended to be used by emergency department physicians to aid them in the
     rule out decision of possible appendicitis in children, adolescent and young adult (ages 2 – 20) patients that present with abdominal
     pain. We are aware of no blood test that is cleared by the Food and Drug Administration (FDA) for the purpose of aiding in the
     ruling out of appendicitis and are not aware of any current competitors in this area. We expect the main benefit of AppyScore will
     be to provide the physician with objective information that will aid in the identification of patients at low risk for appendicitis and
     thereby potentially reducing the number of expensive and potentially hazardous computed tomography (CT) scans that are
     currently performed on these patients. In addition, we believe the test will potentially save significant costs through both the
     reduction of CT scans and improved patient throughput in crowded emergency departments. We are in the final stages of
     development and intend to commence an FDA pivotal trial in the summer of 2012 and potentially commence marketing AppyScore
     outside the United States in the second half of 2012.
     Data obtained from the Centers for Disease Control and Prevention (CDC) Public-use Data Files (1973 – 2009) indicates that over
     9.5 million total patients visited U.S. hospital emergency departments in 2009 with the primary complaint being abdominal pain.
     Over 3.1 million of these patients went on to receive a CT scan. Approximately 300,000 cases of appendicitis were indicated. Our
     research indicates that a significant reason for ordering the CT scan is to aid in the rule in or rule out of appendicitis. In 2007, the
     New England Journal of Medicine published a study which concluded that CT scans confer a significant increase of cancer risk,
     particularly when administered to young patients. Physicians we have surveyed have indicated that a blood test to aid them as they
     evaluate patients suspected of appendicitis would have great value.
     The AppyScore test currently under development employs three biomarkers; (1) our previously patented MRP- 8/14, also known as
     S100/A8/A9 or calprotectin, (2) C-Reactive Protein (CRP) and (3) White Blood Cell Count (WBC). The individual biomarkers are
     calculated and entered into a mathematical algorithm which calculates the AppyScore. The results are displayed on the display of
     the AppyScore reader, which is a small bioanalyzer or instrument. The test is designed to be run in approximately 20 minutes by
     trained laboratory personnel, with the results being reported back to the emergency department physician to assist triaging the
     patient to a more conservative management route, or possibly a CT scan and other imaging studies or consultation with a surgeon.
     In 2011, we conducted a pilot study of the AppyScore multi-marker test in 11 hospitals in the United States and enrolled 503
     patients between the ages of 2 through 20. The pilot study evaluated the use of multiple biomarkers for the AppyScore test
     configuration and demonstrated appreciably better results than the single-marker test evaluated in our previous studies. Based upon
     the pilot study, the panel for AppyScore was

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     determined to comprise three biomarkers; the Company’s patented MRP 8/14 biomarker and CRP, along with WBC. The
     concentration in blood or plasma of each of these components was measured and the results analyzed using a proprietary algorithm.
     The following data, which was presented March 16 – 17, 2012, at the West Region meeting held in Las Vegas, NV, and March 21,
     2012 at the Northeastern Region meeting held in Springfield, MA, of the Society for Academic Emergency Medicine (SAEM)
     summarize the results of the pilot study:


                                       AppyScore Multi-Marker Study Result                 95% Confidence Interval
                                       Sensitivity                     96.5%            92.1 – 98.5
                                       Specificity                     43.2%            38.2 – 48.3
                                         NPV                           96.9%            92.9 – 98.7
     The study data demonstrated high sensitivity and high negative predictive value (NPV) similar to other adjunctive tests currently
     used by physicians to aid them in ruling out diseases. These performance attributes should provide the physician with incremental
     diagnostic information that we believe will enhance their decision-making process when it comes to evaluating possible
     appendicitis. By way of example, with an NPV of 96.9%, the physician could be 96.9% confident that the patient did not have the
     disease, based upon these results. The potential value of the AppyScore test is its ability to aid a physician in his evaluation of
     ruling out appendicitis to pursue a more conservative treatment path. The AppyScore’s study results are in line with other in vitro
     diagnostic tests approved for and currently in use in the market today to assist clinicians in their rule out of disease conditions.
     Clinicians interviewed have indicated that this performance would be helpful to them in managing patients suspected for
     appendicitis. It would enable them to use the test to assist in the evaluation of appendicitis, and potentially decrease their overall
     use of CT scans.
     We plan to finalize the conversion of the AppyScore from a single marker test to a multi-marker reader cassette system blood test
     and submit a pre-investigational device exemption (pre-IDE) application to the FDA in the second quarter of 2012. This submission
     is intended to document the planned regulatory path for AppyScore, which we believe to be de-Novo 510(k), as well as achieve
     agreement on the statistical analysis plan and protocol for the clinical trial. This would be followed by the commencement of a
     pivotal clinical trial, which we expect would be concluded in the first quarter of 2013. Following the conclusion of the trial, we
     plan to submit the trial results to the FDA and, if successful, launch the product in the United States after FDA clearance. We
     intend to file for a conformity mark for product conformity under the European Economic Area (CE mark) for the product in the
     third quarter of 2012 which would potentially enable us to initiate marketing of AppyScore in the European Union, where a pivotal
     trial is not required.
     If we obtain FDA clearance or approval, we plan to commercialize the product in the United States through a small direct sales
     organization, supplemented by distributors as necessary. The primary revenue will be generated through the sale of disposable
     cassettes which are run separately for each patient. We anticipate the AppyScore instrument will be moderately-priced and are
     exploring options to either sell or lease the instrument to the hospitals. We expect to market the product outside the United States
     through either a network of specialized distributors or partners.
     Beginning in 2004, we initiated the establishment of an intellectual property portfolio for AppyScore. Ongoing scientific and
     technical progress remains the basis for our patenting efforts. Since March 2009, three U.S. patents have been issued and one
     foreign patent has been allowed. At this time, additional foreign patent applications have been allowed or are pending. On
     November 16, 2011, an additional provisional patent application was filed which focuses on the newly developed multiple-marker
     technology. Currently, this filing is a provisional patent and has not yet filed or granted in any specific countries.
     Our animal health product development efforts are directed toward the creation of reproduction drugs for the enhancement of
     animal fertility. The initial focus is for use in the cattle industry, to be followed by other livestock species of economic importance.

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     Company Information
     We were organized as a Colorado corporation on July 24, 2000. Our principal executive offices are located at 1585 S. Perry Street,
     Castle Rock, CO 80104. Our phone number is (303) 794-2000 and our facsimile is (303) 798-8332. We maintain a website at
     www.aspenbiopharma.com . The information on our website or any other website is not incorporated by reference into this
     prospectus and does not constitute a part of this prospectus.
     Risks
     We are developing a medical device product and have no significant revenues, and, as such, face significant uncertainty regarding
     our future capital needs, timelines for and success of our intended products. We have experienced significant recurring losses from
     operations and negative cash flows from operations. Our business and our ability to execute our business strategy are subject to a
     number of risks of which you should be aware before you decide to buy our common stock. In particular, you should carefully
     consider the following risks, which are discussed more fully under “Risk Factors” beginning on page 8 of this prospectus.
        •    Our independent registered public accounting firm added an emphasis paragraph to their audit report describing an
             uncertainty related to our ability to continue as a going concern.
        •    If we fail to obtain FDA clearance, which we expect to proceed under a 510(k) de-Novo Classification path, we cannot
             market our product in the United States.
        •    The successful development of a medical device such as our acute appendicitis test is highly uncertain and requires
             significant financial expenditures and time.
        •    Clinical trials for our products are expensive and we cannot assure you that we will be able to complete our clinical trial
             programs successfully within any specific time period, or if such clinical trials take longer to complete than we project, our
             ability to execute our current business strategy will be adversely affected.
        •    We face competition in the biotechnology and pharmaceutical industries and new diagnostic tests and new animal
             treatments which may be developed by others could impair our ability to maintain and grow our business and remain
             competitive.
        •    Failure to obtain medical reimbursement for our products under development, as well as a changing regulatory
             environment, may impact our business.
        •    We have very limited sales and marketing experience and limited sales capabilities, which may make commercializing our
             products difficult.
        •    If we successfully obtain FDA clearance or approval to market our acute appendicitis tests, we may experience
             manufacturing problems resulting in shortages or delays in production that could limit the near term growth of our revenue.
        •    Our results of operations could be affected by our royalty payments due to third parties.
        •    Our success depends on our ability to successfully develop, obtain clearance or approval for and commercialize new
             products.
        •    Our success will depend in part on establishing and maintaining effective strategic partnerships and business relationships
             with third parties.
        •    If we fail to obtain regulatory approval in foreign jurisdictions, then we cannot market our products in those jurisdictions.
        •    We may be unable to retain key employees or recruit additional qualified personnel.
        •    Our product liability insurance coverage may not be sufficient to cover claims.
        •    Our competitive position is contingent upon the production of our intellectual property and we may not be able to
             withstand challenges to our intellectual property rights.

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        •   We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual
            property rights and we may be unable to protect our rights to, or use of, our technology.
        •   Obtaining and maintaining our patent protection depends upon compliance with various procedural, document submission,
            fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced
            or eliminated for non-compliance with these requirements.
        •   Our failure to secure trademark registration could adversely affect our ability to market our product candidates and our
            business.
        •   Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other
            proprietary information and may not adequately protect our intellectual property, which could impede our ability to
            compete.
        •   We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former
            employers.
        •   We may not be able to adequately protect our intellectual property outside of the United States.
        •   While our common stock currently trades on the NASDAQ Capital Markets Exchange, our share price is below
            NASDAQ’s $1.00 minimum bid price rule, which could subject our shares to de-listing.
        •   While our common stock currently trades on the NASDAQ Capital Markets Exchange, our total stockholders’ equity is
            below NASDAQ’s $2.5 million minimum, which could subject our shares to de-listing.
        •   We require additional capital for future operations and we cannot assure you that capital will be available on reasonable
            terms, if at all, or on terms that would not cause substantial dilution to our existing shareholders.
        •   Current challenges in the commercial and credit environment may adversely affect our business and financial condition.
        •   We do not anticipate paying any dividends in the foreseeable future and, as a result, our investors’ sole source of gain, if
            any, will depend on capital appreciation, if any.
        •   Our stock price, like that of many biotechnology companies, is volatile.
        •   Management will have broad discretion as to the use of the net proceeds from this offering, and we may not use the
            proceeds effectively.
        •   A substantial number of shares of common stock may be sold in the market following this offering, which may depress the
            market price for our common stock.
        •   Investors in this offering will pay a much higher price than the book value of our stock.
        •   Our shareholders have approved a reverse split of our common stock for the purpose of meeting the minimum bid
            requirement imposed by the NASDAQ Stock Market for continued listing. However, the reverse stock split, ultimately,
            may not increase our stock price and we may not be able to continue to list our common stock on the NASDAQ Capital
            Market.
        •   Even if the reverse stock split achieves the requisite increase in our stock price, we cannot assure you that we will be able
            to comply or continue to comply with the minimum bid price requirement.
        •   The reverse stock split may decrease the liquidity of our stock.
        •   After the reverse stock split, the resulting stock price may not attract new investors, including institutional investors, and
            may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock
            may not improve.

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     Recent Developments
     Results from our 503-patient pilot study of AppyScore test using multiple markers were presented March 16 – 17, 2012, at the
     West Region meeting held in Las Vegas, NV, and March 21, 2012 at the Northeastern Region meeting held in Springfield, MA, of
     the Society for Academic Emergency Medicine (SAEM). The results were also presented from the podium at the annual meeting of
     the SAEM, held in Chicago, on May 11, 2012.
     As a result of our decision to focus on the human AppyScore test development activities, we are currently advancing in a strategic
     process to monetize our animal health business and related intellectual property, with the goal of entering into a transaction or
     license agreement with a third party, most likely a company currently in the industry, who would take over product development
     and commercialization. Our animal health product development efforts were directed toward the creation of reproduction drugs for
     the enhancement of animal fertility. The initial focus was for use in the cattle industry, to be followed by other livestock species of
     economic importance. The cattle therapeutics were sub-licensed in 2008 to Novartis Animal Health (Novartis) under a long-term
     world-wide development and marketing agreement. In November 2011, following the failure of a pilot study result to meet the
     defined criteria for success, we and Novartis entered into a termination agreement. The termination agreement provides, subject to
     agreed upon conditions, including specified payments being made by us, product rights and technology originally licensed to
     Novartis returns to us.
     On May 11, 2012, Erik S. Miller, Vice President of Marketing and Business Development of the Company, resigned.
     On May 22, 2012 at the Company’s 2012 Annual Shareholders’ Meeting, the shareholders, among other actions, approved granting
     authority to the Board of Directors to effect a reverse stock split of the outstanding shares of the Company’s Common Stock in a
     ratio of at least 1-for-2 and up to 1-for-6 and approval of a corresponding amendment to the Company’s Articles of Incorporation,
     as amended, subject to the authority of the Board of Directors to abandon such amendment.
     On May 23, 2012, Don Hurd was hired and we executed an employment agreement with him for a new position of Senior Vice
     President and Chief Commercial Officer.

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                                                             THE OFFERING
    Common Stock we are offering
                                                         Up to $15,000,000 of shares of common stock ($17,250,000 of shares if the
                                                         underwriters exercise their over-allotment option).
    Offering price
                                                         $   per share.
    Common stock outstanding prior to this
      offering
                                                         1,609,720 shares.
    Common stock to be outstanding after this
      offering
                                                             shares.
    Use of proceeds
                                                         We intend to use the net proceeds from this offering for general corporate
                                                         purposes, including conducting our clinical trial for AppyScore. See “Use of
                                                         Proceeds” for additional information.
    NASDAQ Capital Market symbol:
                                                         “APPY”
    Risk Factors
                                                         The securities offered by this prospectus are speculative and involve a high
                                                         degree of risk. Investors purchasing securities should not purchase the
                                                         securities unless they can afford the loss of their entire investment. See “Risk
                                                         Factors” beginning on page 8 .
     Unless indicated otherwise, we have, for purposes of disclosure in the prospectus, assumed consummation of a 1-for-6 reverse
     stock split immediately prior to the date of this prospectus and have assumed an offering price of $3.84, the closing price of the
     Company’s common stock on May 24, 2012, as adjusted to reflect the reverse stock split. The number of shares of common stock
     outstanding immediately prior to, and to be outstanding immediately after, this offering is based on the number of shares
     outstanding as of May 24, 2012, and does not include the following (in each case giving effect to the anticipated 1-for-6 reverse
     stock split):
        •    238,481 shares of common stock issuable upon the exercise of outstanding options at a weighted average exercise price of
             $45.03 per share;
        •    48,651 shares of common stock available for future issuance under our stock option plans;
        •    296,889 shares of common stock issuable upon exercise of our non-qualified options and warrants, 267,500 of which are
             exercisable for $7.32 per share and 29,389 of which are exercisable for $13.26 per share;
        •    585,937 shares of common stock issuable upon exercise of the underwriters’ over-allotment option; and
        •    195,312 shares of common stock underlying the warrants to be issued to the representative of the underwriters in
             connection with this offering.

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                                                     SUMMARY FINANCIAL DATA
     The following tables summarize our financial data for the periods presented. The summary statements of operations data for the
     years ended December 31, 2011, 2010 and 2009, and the balance sheet data as of December 31, 2011 have been derived from our
     audited financial statements, which are included in this prospectus. The historical results are not necessarily indicative of the results
     to be expected for any future periods. You should read this data together with the financial statements and related notes included
     elsewhere in this prospectus, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
     and the other financial information included elsewhere in this prospectus.
     Statements of Operations Data:


                                  Three months ended March 31,                                     For the Fiscal Years Ended
                                          (unaudited)                                                    December 31,
                                   2012                 2011                      2011                         2010                      2009
       Summary
         Statement of
         Operations
         Items:
       Total revenues       $         7,000      $         97,000      $            219,000           $        370,000          $       291,000
       Net loss             $    (1,938,000 )    $     (2,806,000 )    $        (10,214,000 )         $    (13,338,000 )        $   (15,518,000 )

       Basic and diluted $             (1.21 )   $          (2.10 )    $                 (7.63 )      $           (10.16 )      $           (14.03 )
         loss per share (1)
          (2)

       Weighted average           1,605,554            1,338,054                  1,338,786                   1,312,680                  1,105,748
        shares
        outstanding (2)



     (1) See “Note 2. Summary of Significant Accounting Policies” of Notes to our Financial Statements for a description of the
         computation of loss per share.
     (2) The basic and diluted net loss per share and shares used in loss per share calculation have been adjusted to reflect the
         one-for-five reverse stock split that was effected on July 28, 2011 and has also been adjusted to give pro forma effect to the
         1-for-6 reverse stock split that we intend to effect immediately prior to the date of this prospectus.
     Balance Sheet Data:


                                                                                       As of                    As Adjusted, March 31,
                                                                                    March 31,                          2012 (1)
                                                                                 2012 (unaudited)
                   Summary Balance Sheet Information:
                     Current assets                                         $             2,091,000         $            15,441,000
                     Total assets                                           $             6,367,000         $            19,717,000
                     Long term liabilities                                  $             2,603,000         $             2,603,000
                     Total liabilities                                      $             4,257,000         $             4,257,000
                     Total Shareholders’ Equity                             $             2,110,000         $            15,460,000



     (1) As adjusted amounts give effect to the issuance and sale of 3,906,250 shares of common stock by us in this offering at an
         assumed initial public offering price of $3.84 per share and the application of the net proceeds of the offering, after deducting
         underwriting discounts and commissions and estimated offering expenses payable by us, as set forth under “Use of Proceeds.”
         See “Use of Proceeds” and “Capitalization.”

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                                                                RISK FACTORS
An investment in our common stock involves a high degree of risk. Before you decide to invest in our common stock, you should consider
carefully all of the information in this prospectus or incorporated herein by reference, including the risks described below. Any of these risks
could have a material adverse effect on our business, prospects, financial condition and results of operations. In any such case, the trading
price of our common stock could decline and you could lose all or part of your investment. You should also refer to the other information
contained in this prospectus, including our financial statements and the notes to those statements, and the information set forth under the
caption “Forward-Looking Statements.” The risks described below and contained in our other periodic reports incorporated herein by
reference are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also
adversely affect our business, prospects, financial condition and results of operations.
Risks Relating to Our Business
Our independent registered public accounting firm added an emphasis paragraph to their audit report describing an uncertainty related to
our ability to continue as a going concern.
Due to our continued losses and limited capital resources our independent registered public accounting firm has issued a report that describes
an uncertainty related to our ability to continue as a going concern. The auditors’ report discloses that we did not generate significant revenues
in 2011, we incurred a net loss of approximately $10,214,000 and we consumed cash in operating activities of approximately $8,333,000 in
2011. These conditions raise substantial doubt about our ability to continue as a going concern and may make it difficult for us to raise capital.
The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
If we fail to obtain FDA clearance, which we expect to proceed under a 510(k) de-Novo Classification path, we cannot market our product
in the United States.
Therapeutic or human diagnostic products require FDA approval (or clearance) prior to marketing and sale. This applies to our ability to
market, directly or indirectly, our AppyScore acute appendicitis test. As a new product, this test must undergo lengthy and rigorous
development testing and other extensive, costly and time-consuming procedures mandated by the FDA. In order to obtain required FDA
clearance we must finalize development of our product and successfully complete clinical testing. This process can take substantial amounts of
time and resources to complete. We may elect to delay or cancel our anticipated regulatory submissions for new indications for our proposed
new products for a number of reasons. There is no assurance that any of our strategies for obtaining FDA clearance or approval in an expedient
manner will be successful, and FDA clearance is not guaranteed. The timing of such completion, submission and clearance, which cannot be
estimated at this point, could also impact our ability to realize market value from such tests. If we do achieve FDA clearance or approval, it
could subsequently be suspended or revoked, or we could be fined, based on a failure to continue to comply with ongoing regulatory
requirements and standards. Similar regulatory approval or ongoing requirements and contingencies will also be encountered in major
international markets.
FDA approval is also required prior to marketing and sale for therapeutic products that will be used on animals, and can also require
considerable time and resources to complete. New drugs for animals must receive New Animal Drug Application approval. This type of
approval is required for the use of our therapeutic equine and bovine protein products. The requirements for obtaining FDA approval are
similar to those for human drugs and will require similar clinical testing. Approval is not assured and, once FDA approval is obtained, we
would still be subject to fines and suspension or revocation of approval if we fail to comply with ongoing FDA requirements.
If we fail to obtain FDA clearance or approval for our human diagnostic products or our animal health therapeutic products, we will not be
able to market and sell our products in the United States. As a result, we would not be able to recover the time and resources spent on research
and development of such products.
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The successful development of a medical device such as our acute appendicitis test is highly uncertain and requires significant financial
expenditures and time.
Successful development of medical devices is highly uncertain. Products that appear promising in research or development may be delayed or
fail to reach later stages of development or the market for several reasons, including failure to obtain regulatory clearance or approval,
manufacturing costs, pricing and reimbursement issues, or other factors that may render the product uneconomical to commercialize. In
addition, success in pilot trials does not ensure that larger-scale clinical trials will be successful. Evolutions in development from early stage
products to later state products may require additional testing or analysis. Clinical results are frequently susceptible to varying interpretations
that may delay, limit, or prevent regulatory approvals. The length of time necessary to complete clinical trials and to submit an application for
marketing approval for a final decision by a regulatory authority varies significantly and may be difficult to predict. If our large-scale clinical
trials for a product are not successful, we will not recover our substantial investments in that product.
Factors affecting our research and development productivity and the amount of our research and development expenses include, but are not
limited to, the number of patients required to be enrolled and the outcome of required clinical trials to be conducted by us and/or our
collaborators.
Clinical trials for our products are expensive and we cannot assure you that we will be able to complete our clinical trial programs
successfully within any specific time period, or if such clinical trials take longer to complete than we project, our ability to execute our
current business strategy will be adversely affected.
Conducting clinical trials is a lengthy, time-consuming and expensive process. Before obtaining regulatory approvals for the commercial sale
of any products, we, or our partners, must demonstrate through clinical trials the safety and efficacy of our products. We have incurred, and we
will continue to incur, substantial expense for, and devote a significant amount of time to, product development, pilot trial testing and clinical
trials.
Even if completed, we do not know if these trials will produce statistically significant or clinically meaningful results sufficient to support an
application for marketing approval. Whether or not and how quickly we complete clinical trials is dependent in part upon the rate at which we
are able to obtain regulatory clearance to commence clinical trials, engage clinical trial sites and medical investigators, reach agreement on
acceptable clinical trial agreement terms, clinical trial protocols or informed consent forms with medical investigators, clinical trial sites or
institutional review boards and, thereafter, the rate of patient enrollment, and the rate to collect, clean, lock and analyze the clinical trial
database.
Patient enrollment in trials is a function of many factors, including the design of the protocol, the size of the patient population, the proximity
of patients to and availability of clinical sites, the eligibility criteria for the study, the perceived risks and benefits of the product candidate
under study and of the control, if any, the medical investigator’s efforts to facilitate timely enrollment in clinical trials, the patient referral
practices of local physicians, the existence of competitive clinical trials, and whether other investigational, existing or new products are
available or approved for the indication. If we experience delays in identifying and contracting with appropriate medical investigators and site,
in patient enrollment and/or/completion of our clinical trial programs, we may incur additional costs and delays in our development programs,
and may not be able to complete our clinical trials on a cost-effective or timely basis. Accordingly, we may not be able to complete the clinical
trials within an acceptable time frame, if at all. If we or any third party have difficulty enrolling a sufficient number of patients in a timely or
cost-effective manner to conduct clinical trials as planned, or if enrolled patients do not complete the trial as planned, we or a third party may
need to delay or terminate ongoing clinical trials, which could negatively affect our business.
Clinical trials often require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit for our
clinical trials. Our ability to enroll sufficient numbers of patients in our clinical trials depends on many factors, including the size of the
relevant patient population, the nature and design of the protocol, the proximity of patients to clinical sites, the eligibility and exclusion criteria
applicable for the trial, existence of competing clinical trials and the availability of already approved effective drugs for the indications being
studied. In addition, patients may withdraw from a clinical trial or be unwilling to follow our clinical trial protocols for a variety of reasons. If
we fail to enroll and maintain the number of patients for
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which the clinical trial was designed, the statistical power of that clinical trial may be reduced which would make it harder to demonstrate that
the product candidate being tested in such clinical trial is safe and effective.
We face competition in the biotechnology and pharmaceutical industries and new diagnostic tests and new animal treatments which may
be developed by others could impair our ability to maintain and grow our business and remain competitive.
We face intense competition in the development, manufacture, marketing and commercialization of diagnostic products such as ours from a
variety of sources, such as academic institutions, government agencies, research institutions and biotechnology and pharmaceutical companies,
including other companies with similar diagnostic or in vitro testing technologies, including those with platform technologies. These platform
technologies vary from very large analyzer systems to smaller and less expensive instruments similar to ours. These competitors are working
to develop and market other diagnostic tests, systems, products, and other methods of detecting, preventing or reducing disease.
The development of new technologies or improvements in current technologies for diagnosing acute appendicitis, including CT imaging
agents and products that would compete with our acute appendicitis test could have an impact on our ability to sell the acute appendicitis tests
or the sales price of the tests. This could impact our ability to market the tests and/or secure a marketing partner both of which could have a
substantial impact on the value of our acute appendicitis products.
Among the many experimental diagnostics and therapies being developed around the world, there may be diagnostics and therapies unknown
to us that may compete with our technologies or products.
Many of our competitors have much greater capital resources, manufacturing, research and development resources and production facilities
than we do. Many of them also have much more experience than we have in preclinical testing and clinical trials of new diagnostic tests or
animal drugs and in obtaining FDA and foreign regulatory approvals.
Major technological changes can occur quickly in the biotechnology and pharmaceutical industries, and the development of technologically
improved or different products or technologies may make our product candidates or platform technologies obsolete or noncompetitive.
Our product candidates if successfully developed and approved for commercial sale, will compete with a number of human diagnostic tests or
animal drugs currently manufactured and marketed by other biotechnology companies. Our product candidates may also compete with new
products currently under development by others or with products which may cost less than our product candidates. Physicians, patients, third
party payors and the medical community may not accept or utilize our acute appendicitis test products when and if approved. If our products,
if and when approved, do not achieve significant market acceptance, our business, results of operations and financial condition may be
materially adversely affected.
Failure to obtain medical reimbursement for our products under development, as well as a changing regulatory environment, may impact
our business.
The U.S. healthcare regulatory environment may change in a way that restricts our ability to market our acute appendicitis tests due to medical
coverage or reimbursement limits. Sales of our human diagnostic tests will depend in part on the extent to which the costs of such tests are
paid by health maintenance, managed care, and similar healthcare management organizations, or reimbursed by government health payor
administration authorities, private health coverage insurers and other third-party payors. These healthcare management organizations and third
party payers are increasingly challenging the prices charged for medical products and services. The containment of healthcare costs has
become a priority of federal and state governments. Accordingly, our potential products may not be considered to be cost effective, and
reimbursement to the consumer may not be available or sufficient to allow us to sell our products on a competitive basis. Legislation and
regulations affecting reimbursement for our products may change at any time and in ways that are difficult to predict and these changes may
be adverse to us. Any reduction in Medicare, Medicaid or other third-party payer reimbursements could have a negative effect on our
operating results.
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We have very limited sales and marketing experience and limited sales capabilities, which may make commercializing our products
difficult.
We currently have very little marketing experience and limited sales capabilities. Therefore, in order to commercialize our products, once
approved, we must either develop our own marketing and distribution sales capabilities or collaborate with a third party to perform these
functions. We may, in some instances, rely significantly on sales, marketing and distribution arrangements with collaborative partners and
other third parties. In these instances, our future revenues will be materially dependent upon the success of the efforts of these third parties.
We may not be able to attract and retain qualified personnel to serve in our sales and marketing organization, to develop an effective
distribution network or to otherwise effectively support our commercialization activities. The cost of establishing and maintaining a sales and
marketing organization may exceed its cost effectiveness. If we fail to develop sales and marketing capabilities, if sales efforts are not
effective or if costs of developing sales and marketing capabilities exceed their cost effectiveness, our business, results of operations and
financial condition would be materially adversely affected.
If we successfully obtain FDA clearance or approval to market our acute appendicitis tests, we may experience manufacturing problems
resulting in shortages or delays in production that could limit the near term growth of our revenue.
Our ability to successfully market the acute appendicitis test, once approved, will partially depend on our ability to obtain sufficient quantities
of the finished tests from qualified GMP suppliers. While we have identified and are progressing with qualified suppliers, their ability to
produce tests or component parts in sufficient quantities to meet possible demand may cause delays in securing products or could force us to
seek alternative suppliers. The need to locate and use alternative suppliers could also cause delivery delays for a period of time. Delays in
finalizing and progressing under agreements with cGMP facilities may delay our FDA approval process and potentially delay sales of such
products. In addition, we may encounter difficulties in production due to, among other things, the inability to obtain sufficient amounts of raw
materials, components or finished goods inventory and quality control issues with raw materials, components or finished goods. These
difficulties could reduce sales of our products, increase our costs, or cause production delays, all of which could damage our reputation and
hurt our financial condition. To the extent that we enter into manufacturing arrangements with third parties, we will depend on them to
perform their obligations in a timely manner and in accordance with applicable government regulations.
Our results of operations could be affected by our royalty payments due to third parties.
Any revenues from products under development will likely be subject to royalty payments under licensing or similar agreements. Major
factors affecting these payments include, but are not limited to:
   •    coverage decisions by governmental and other third-party payors;
   •    our ability to achieve meaningful sales of our products;
   •    the achievement of milestones established in our license agreements; and
   •    our use of the intellectual property licensed in developing the products.
If we need to seek additional intellectual property licenses in order to complete our product development, our cumulative royalty obligations
could adversely affect our net revenues and results of operations.
Our success depends on our ability to successfully develop, obtain clearance or approval for and commercialize new products.
Our success depends on our ability to successfully develop new products. Although we were engaged in human diagnostic antigen
manufacturing operations and historically, substantially all of our revenues have been derived from this business, our ability to substantially
increase our revenues and generate net income is contingent on successfully developing one or more of our pipeline products. Our ability to
develop any of the pipeline products is dependent on a number of factors, including funding availability to complete development efforts, to
adequately test and refine products, to seek required FDA clearance or approval and to commercialize our products, thereby generating
revenues once development efforts prove successful. We have
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encountered in the past, and may again encounter in the future, problems in the testing phase for different pipeline products, which sometimes
resulted in substantial setbacks in the development process. There can be no assurance that we will not encounter similar setbacks with the
products in our pipeline, or that funding from outside sources and our revenues will be sufficient to bring any or all of our pipeline products to
the point of commercialization. There can be no assurance that the products we are developing will work effectively in the marketplace, or that
we will be able to produce them on an economical basis.
Our success will depend in part on establishing and maintaining effective strategic partnerships and business relationships with third
parties.
A key aspect of our business strategy is to establish and maintain strategic partnerships. We currently have a license arrangement with
Washington University in St. Louis (WU). It is likely that we will seek other strategic alliances. We also intend to rely heavily on companies
with greater capital resources and marketing expertise to market some of our products. We have identified certain possible candidates for other
potential products. We may not reach definitive agreements with any potential strategic partners. Even if we enter into these arrangements, we
may not be able to maintain these collaborations or establish new collaborations in the future on acceptable terms. Furthermore, future
arrangements may require us to grant certain rights to third parties, including exclusive marketing rights to one or more products, or may have
other terms that are burdensome to us, and may involve the issuance of our securities. Our partners may decide to develop alternative
technologies either on their own or in collaboration with others. If any of our partners terminate their relationship with us or fail to perform
their obligations in a timely manner, or if we fail to perform our obligations in a timely manner, the development or commercialization of our
technology in potential products may be affected, delayed or terminated.
If we fail to obtain regulatory approval in foreign jurisdictions, then we cannot market our products in those jurisdictions.
We plan to market some of our products in foreign jurisdictions. Specifically, we expect that AppyScore will be aggressively marketed in
foreign jurisdictions. We may market our therapeutic animal health products in foreign jurisdictions, as well. We may need to obtain
regulatory approval from the European Union or other foreign jurisdictions to do so and obtaining such approval in one jurisdiction does not
necessarily guarantee approval in another. We may be required to conduct additional testing or to provide additional information, resulting in
additional expenses, to obtain necessary approvals. If we fail to obtain approval in such foreign jurisdictions, we would not be able to sell our
products in such jurisdictions, thereby reducing the potential revenue from the sale of our products.
We may be unable to retain key employees or recruit additional qualified personnel.
Because of the specialized scientific nature of our business, we are highly dependent upon qualified scientific, technical and managerial
personnel. There is intense competition for qualified personnel in our business. A loss of the services of our qualified personnel, as well as the
failure to recruit additional key scientific, technical and managerial personnel in a timely manner would harm our development programs and
our business.
Our product liability insurance coverage may not be sufficient to cover claims.
Our insurance policies currently cover claims and liabilities arising out of defective products for losses up to $2.0 million. As a result, if a
claim was to be successfully brought against us, we may not have sufficient insurance that would apply and would have to pay any costs
directly, which we may not have the resources to do.
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Risks Relating to our Intellectual Property
Our competitive position is contingent upon the production of our intellectual property and we may not be able to withstand challenges to
our intellectual property rights.
We rely on our intellectual property, including our issued and applied for patents and our licenses, as the foundation of our business. If our
intellectual property rights are challenged, no assurances can be given that our patents or licenses will survive claims alleging invalidity or
infringement on other patents and/or licenses. Additionally, disputes may arise regarding inventorship of our intellectual property. There also
could be existing patents of which we are unaware that our products may be infringing upon. As the number of participants in the market
grows, the possibility of patent infringement claims against us increases. It is difficult, if not impossible, to determine how such disputes
would be resolved. Furthermore, because of the substantial amount of discovery required in connection with patent litigation, there is a risk
that some of our confidential information could be required to be publicly disclosed. In addition, during the course of patent litigation, there
could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation. Any
litigation claims against us may cause us to incur substantial costs and could place a significant strain upon our financial resources, divert the
attention of management or restrict our core business or result in the public disclosure of confidential information. The occurrence of any of
the foregoing could materially impact our business.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we
may be unable to protect our rights to, or use of, our technology.
Some or all of our patent applications may not issue as patents, or the claims of any issued patents may not afford meaningful protection for
our technologies or products. In addition, patents issued to us or our licensors, if any, may be challenged and subsequently narrowed,
invalidated or circumvented. Patent litigation is widespread in the biotechnology industry and could harm our business. Litigation might be
necessary to protect our patent position or to determine the scope and validity of third-party proprietary rights.
If we choose to go to court to stop someone else from using the inventions claimed in our patents, that individual or company would have the
right to ask the court to rule that such patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive
and we may not have the required resources to pursue such litigation or to protect our patent rights. In addition, there is a risk that the court
will decide that these patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the
risk that, even if the validity of these patents is upheld, the court will refuse to stop the other party on the ground that such other party’s
activities do not infringe our rights in these patents.
Furthermore, a third party may claim that we are using inventions covered by the third party’s patent rights and may go to court to stop us
from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are costly and could
affect our results of operations and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we
are infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court
will order us to pay the other party treble damages for having violated the other party’s patents. The biotechnology industry has produced a
proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or
methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued
for patent infringement, we would need to demonstrate that our products or methods of use either do not infringe the claims of the relevant
patent and/or that the patent claims are invalid, and we may not be able to do this. Proving invalidity in the United Sates, in particular, is
difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.
Because some patent applications in the United States may be maintained in secrecy until the patents are issued, patent applications in the
United States and many foreign jurisdictions are typically not published until eighteen months after filing, and publications in the scientific
literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our
issued patents or our pending applications or that we were the first to invent the technology. Our competitors may have filed, and may in the
future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications
and could further require us to obtain rights to issued patents
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covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an
interference or other proceeding in the U.S. Patent and Trademark Office, or the PTO, or a court to determine priority of invention in the
United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss
of our U.S. patent position with respect to such inventions.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have
substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a
material adverse effect on our ability to raise the funds necessary to continue our operations.
Obtaining and maintaining our patent protection depends upon compliance with various procedural, document submission, fee payment
and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for
non-compliance with these requirements.
The PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and
other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or
patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able
to enter the market earlier than would otherwise have been the case.
Our failure to secure trademark registration could adversely affect our ability to market our product candidates and our business.
Our trademark applications in the United States, when filed, and any other jurisdictions where we may file may not be allowed for registration,
and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections.
Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the PTO
and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and
to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our applications and/or registrations, and
our applications and/or registrations may not survive such proceedings. Failure to secure such trademark registrations in the United States and
in foreign jurisdictions could adversely affect our ability to market our product candidates and our business.
Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary
information and may not adequately protect our intellectual property, which could impede our ability to compete.
Because we operate in the highly technical field of biotechnology and pharmaceutical development, we rely in part on trade secret protection
in order to protect our proprietary trade secrets and unpatented know-how. However, trade secrets are difficult to protect, and we cannot be
certain that others will not develop the same or similar technologies on their own. We have taken steps, including entering into confidentiality
agreements with all of our employees, consultants and corporate partners, to protect our trade secrets and unpatented know-how. These
agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by
the party or made known to the party by us during the course of the party’s relationship with us. We also typically obtain agreements from
these parties which provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property.
However, these agreements may not be honored and may not effectively assign intellectual property rights to us. Enforcing a claim that a party
illegally obtained and is using our trade secrets or know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In
addition, courts outside the United States may be less willing to protect trade secrets or know-how. The failure to obtain or maintain trade
secret protection could adversely affect our competitive position.
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We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at other
biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently
pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other
proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in
defending against these claims, litigation could result in substantial costs and be a distraction to management.
We may not be able to adequately protect our intellectual property outside of the United States.
The laws in some of those countries may not provide protection for our trade secrets and intellectual property. If our trade secrets or
intellectual property are misappropriated in those countries, we may be without adequate remedies to address the issue. Additionally, we also
rely on confidentiality and assignment of invention agreements to protect our intellectual property. These agreements provide for contractual
remedies in the event of misappropriation. We do not know to what extent, if any, these agreements and any remedies for their breach will be
enforced by a foreign or domestic court. In the event our intellectual property is misappropriated or infringed upon and an adequate remedy is
not available, our future prospects will greatly diminish.
Additionally, prosecuting and maintaining intellectual property (particularly patent) rights are very costly endeavors. We do not know whether
legal and government fees will increase substantially and therefore are unable to predict whether cost may factor into our intellectual property
strategy.
Risks Related to Our Securities
While our common stock currently trades on the NASDAQ Capital Markets Exchange, our share price is below NASDAQ’s $1.00
minimum bid price rule, which could subject our shares to de-listing.
On February 13, 2012, the Company was notified by NASDAQ that the Company did not meet the minimum bid price rule required for
continued listing and was provided until August 13, 2012 to achieve compliance with such minimum bid rule. If at any time before August 13,
2012, the bid price of our common stock closes at $1.00 per share or more for a minimum of 10 consecutive trading days (subject to extension
to 20 trading days in NASDAQ’s discretion), we will regain compliance with the bid price rule. Our shareholders have approved a reverse
stock split transaction to help achieve such compliance. If we do not regain compliance by the end of this grace period, we anticipate we will
receive notification from NASDAQ that our common stock is subject to delisting. At that time we may then appeal the delisting determination
to a Hearings Panel. Such notification will have no immediate effect on our listing on the NASDAQ Capital Market nor will it have an
immediate effect on the trading of our common stock pending such hearing. There can be no assurance, however, that we will be able to regain
compliance with NASDAQ’s minimum bid price per share requirement for continued listing on the NASDAQ Capital Market. Being delisted
by NASDAQ could have a negative impact on our ability to raise capital among other considerations.
While our common stock currently trades on the NASDAQ Capital Markets Exchange, our total stockholders’ equity is below NASDAQ’s
$2.5 million requirement, which could subject our shares to de-listing.
The Company did not meet NASDAQ’s minimum stockholders’ equity required for continued listing as of March 31, 2012. On May 15, 2012,
the Company received a letter from NASDAQ regarding the failure to meet that requirement and under NASDAQ rules the Company has
forty-five days to submit a plan to regain compliance with such rule. If such plan is accepted, the Company could be granted an extension of
up to 180 calendar days to regain compliance with the rule. The letter has no immediate effect on our listing on the NASDAQ Capital Market
nor on the trading of our common stock. There can be no assurance, however, that we will be able to regain compliance with NASDAQ’s
minimum shareholders’ equity requirement for continued listing on the NASDAQ Capital Market. Being delisted by NASDAQ could have a
negative impact on our ability to raise capital among other considerations.
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We require additional capital for future operations and we cannot assure you that capital will be available on reasonable terms, if at all, or
on terms that would not cause substantial dilution to our existing shareholders.
We have historically needed to raise capital to fund our operating losses including development expenses, which have been significant. We
expect to continue to incur operating losses in the 2012 calendar year and at least into 2013. If capital requirements vary materially from those
currently planned, we may require additional capital sooner than expected. There can be no assurance that such capital will be available in
sufficient amounts or on terms acceptable to us, if at all, especially in light of the state of the current financial markets which could impact the
timing, terms and other factors in our attempts to raise capital. Any sale of a substantial number of additional shares may cause dilution to our
existing shareholders and could also cause the market price of our common stock to decline.
Current challenges in the commercial and credit environment may adversely affect our business and financial condition.
The global financial markets have recently experienced unprecedented levels of volatility. Our ability to generate cash flows from operations,
issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the
demand for the Company’s products or in the solvency of its customers or suppliers, deterioration in the Company’s key financial ratios or
credit ratings, or other significantly unfavorable changes in conditions. While these conditions and the current economic downturn have not
meaningfully adversely affected our operations to date, continuing volatility in the global financial markets could increase borrowing costs or
affect the company’s ability to access the capital markets. Current or worsening economic conditions may also adversely affect the business of
our customers, including their ability to pay for our products and services, and the amount spent on healthcare in general. This could result in a
decrease in the demand for our potential products and services, longer sales cycles, slower adoption of new technologies and increased price
competition. These conditions may also adversely affect certain of our suppliers, which could cause a disruption in our ability to produce our
products.
We do not anticipate paying any dividends in the foreseeable future and, as a result, our investors’ sole source of gain, if any, will depend
on capital appreciation, if any.
The Company does not intend to declare any dividends on our shares of common stock in the foreseeable future and currently intends to retain
any future earnings for funding growth. As a result, investors should not rely on an investment in our securities if they require the investment
to produce dividend income. Capital appreciation, if any, of our shares may be investors’ sole source of gain for the foreseeable future.
Moreover, investors may not be able to resell their shares of our common stock at or above the price they paid for them.
Our stock price, like that of many biotechnology companies, is volatile.
The market prices for securities of biotechnology companies, in general, have been highly volatile and may continue to be highly volatile in
the future, particularly in light of the current financial markets. In addition, the market price of our common stock has been and may continue
to be volatile, especially on the eve of Company announcements which the market is expecting, as is the case with clinical trial results. Among
other factors, the following may have a significant effect on the market price of our common stock:
   •   announcements of clinical trial results, FDA correspondence or interactions, developments with regard to our intellectual property rights, technological
       innovations or new commercial products by us or our competitors;
   •   publicity regarding actual or potential medical results related to products under development or being commercialized by us or our competitors;
   •   regulatory developments or delays affecting our products under development in the United States and other countries; and
   •   new proposals to change or reform the U.S. healthcare system, including, but not limited to, new regulations concerning reimbursement programs.

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Risks Related to This Offering
Management will have broad discretion as to the use of the net proceeds from this offering, and we may not use the proceeds effectively.
Our management will have broad discretion as to the application of the net proceeds and could use them for purposes other than those
contemplated at the time of this offering. Our shareholders may not agree with the manner in which our management chooses to allocate and
spend the net proceeds. Moreover, our management may use the net proceeds for corporate purposes that may not increase our profitability or
our market value.
A substantial number of shares of common stock may be sold in the market following this offering, which may depress the market price for
our common stock.
Sales of a substantial number of shares of our common stock in the public market following this offering could cause the market price of our
common stock to decline. A substantial majority of the outstanding shares of our common stock are, and the shares of common stock sold in
this offering upon issuance will be, freely tradable without restriction or further registration under the Securities Act. In addition, as of May
24, 2012, 535,370 shares of our common stock, as if a 1-for-6 reverse stock split had been effected, are issuable upon exercise of outstanding
options and warrants (not including shares issuable upon exercise of the warrants to be issued in this offering).
Investors in this offering will pay a much higher price than the book value of our stock.
If you purchase common stock in this offering, you will incur an immediate and substantial dilution in net tangible book value of $1.32 per
share, after giving effect to the sale by us of common shares in this offering at the assumed offering price of $3.84 per common share, all
assuming a 1-for-6 reverse stock split had been effected.
Risks Related to Our Proposed Reverse Stock Split
Our shareholders have approved a reverse split of our common stock for the purpose of meeting the minimum bid requirement imposed by
the NASDAQ Stock Market for continued listing. However, the reverse stock split, ultimately, may not increase our stock price and we may
not be able to continue to list our common stock on the NASDAQ Capital Market.
We expect that a reverse stock split of our common stock will increase the market price of our common stock so that we are able to regain
compliance with the minimum bid price requirement of the Listing Rules of The NASDAQ Stock Market. However, the effect of a reverse
stock split upon the market price of our common stock cannot be predicted with certainty, and the results of reverse stock splits by companies
in similar circumstances are varied. It is possible that the share price of our common stock immediately after the reverse stock split will not
remain increased in proportion to the reduction in the number of shares of our common stock outstanding.
Even if the reverse stock split achieves the requisite increase in our stock price, we cannot assure you that we will be able to comply or
continue to comply with the minimum bid price requirement.
There can be no assurance that the market price of our post-reverse split shares will increase sufficiently for us to be in compliance with the
minimum bid price requirement, or that the price will remain at the level required for continuing compliance with that requirement. It is not
uncommon for a company’s share price to decline in the period following the reverse split. If we effect a reverse stock split and the market
price of our common stock declines, the percentage decline may be greater than would occur in the absence of a reverse stock split. In any
event, other factors unrelated to the number of shares of our common stock outstanding, such as our future operating results, will influence the
market price of our stock. Negative financial or operational results or adverse market conditions could affect the market price of our common
stock and jeopardize our ability to meet or maintain NASDAQ’s continued listing requirements. In addition to specific listing and maintenance
standards, NASDAQ has broad discretionary authority over the initial and continued listing of securities, which it could exercise with respect
to our common stock.
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The reverse stock split may decrease the liquidity of our stock.
The liquidity of our common stock may be affected adversely by the reverse split given the reduced number of shares that will be outstanding
after the reverse split, especially if our stock price does not increase as a result of the reverse stock split. In addition, the proposed reverse
stock split may increase the number of shareholders who own odd lots (less than 100 shares) of our common stock, creating the potential for
such shareholders to experience an increase in the cost of selling their shares and greater difficulty effecting sales.
After the reverse stock split, the resulting stock price may not attract new investors, including institutional investors, and may not satisfy
the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.
Although we believe that a higher stock price may help generate greater or broader investor interest, there can be no assurance that the reverse
stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that
the share price will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not
necessarily improve.
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                                                   FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus are forward-looking statements within the meaning of Section 27A of the Securities Act
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor created by the
Securities Litigation Reform Act of 1995. The words “believe,” “should,” “predict,” “future,” “may,” “might,” “will,” “would,” “estimate,”
“continue,” “could,” “anticipate,” “intend,” “plan,” “expect,” “potential,” “continue,” or “opportunity,” or the negative thereof, or other words
and terms of similar meaning, as they relate to us, our business, prospects, future financial or operating performance or our management, are
intended to identify forward-looking statements. While forward-looking statements made by us are based on our current intent, belief,
judgment, assumptions, estimates and projections and are believed by us to be reasonable, they are subject to risks and uncertainties, many of
which are beyond our control. These risks and uncertainties could cause actual results, performance or achievements to vary materially from
the forward-looking statements, including the following risks and uncertainties:
   •   our ability to continue as a going concern and to raise additional capital, as necessary, on acceptable terms or at all;
   •   having available funding for the continued development of AppyScore;
   •   the success of the clinical trials to support clearance or approval for AppyScore;
   •   changes in regulations and the adoption of new regulations;
   •   delays in initiating, conducting or completing clinical trials and the satisfactory results of our clinical trials;
   •   uncertainty related to our ability to obtain clearance or approval of our products by the FDA and regulatory bodies in other jurisdictions;
   •   uncertainty relating to certain of our patents, future patent and other intellectual property infringement claims by third parties and our inability to protect our
       intellectual property;
   •   market acceptance of our products and the estimated potential size of these markets;
   •   pricing and reimbursement for approved or cleared products;
   •   dependence on third parties for clinical development and manufacturing;
   •   dependence on a limited number of key employees;
   •   competition and risk of competitive new products and alternative technologies;
   •   the proposed reverse stock split;
   •   volatility in the value of our common stock;
   •   volatility in the financial markets generally; and
   •   the other risks and uncertainties described under “Risk Factors” or elsewhere in this prospectus.
You should consider the risks above carefully in addition to other information contained in this prospectus before purchasing our common
stock. If any of these risks occur, they could seriously harm our business, prospects, financial condition and results of operations. In such case,
the trading price of our common stock could decline, and you may lose all or part of your investment.
Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any
forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of
unanticipated events. New factors will emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we
cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements. Past financial or operating performance is not necessarily a reliable
indicator of future performance and you should not use our historical performance to anticipate results or future period trends.
Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements.
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                                                            USE OF PROCEEDS
We expect to receive approximately $13.4 million in net proceeds from the sale of the shares of common stock offered by us in this offering
based on the assumed offering price of $3.84 per share, or approximately $15.4 million if the underwriters exercise their over-allotment in full.
“Net proceeds” is what we expect to receive after paying the expenses of this offering, including the underwriting discounts and commissions
as described in “Underwriting” and other estimated offering expenses payable by us, which include legal, accounting and printing fees.
We intend to use the net proceeds from this offering for general corporate purposes, including conducting our clinical trial for AppyScore. We
have not yet determined with certainty the manner in which we will allocate the net proceeds; however, we currently anticipate using:
   •   approximately $2.8 million to complete activities required for regulatory Pre-IDE submission to the FDA and undertake a clinical trial for AppyScore;
   •   approximately $5.0 million to operating and development expenses to be incurred during the upcoming quarters; and
   •   approximately $5.6 million to general corporate purposes, intellectual property and working capital.
The amounts described above are only an estimate of the expenses we currently anticipate will be necessary to undertake the clinical trial. We
may also invest working capital in acquiring or developing technologies or products that complement our business. Our management will have
broad discretion in the application of the net proceeds, and investors will be relying on the judgment of our management regarding the
application of the proceeds of this offering.
Until we use the net proceeds of this offering, we intend to invest the funds in short-term, investment grade, interest-bearing securities.
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                                                               DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We currently intend to retain our future earnings, if any, for use in our
business and therefore do not anticipate paying cash dividends in the foreseeable future. Payment of future dividends, if any, will be at the
discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and
anticipated cash needs.
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                                                           CAPITALIZATION
The following table presents a summary of our cash, cash equivalents, short-term investments and capitalization as of March 31, 2012:
   •    on an actual basis, which consists of the shares of common stock outstanding on March 31, 2012; and
   •    on an as adjusted basis, to reflect our receipt of estimated net proceeds of approximately $13.4 million from the sale of shares of common stock in this offer
        at an assumed public offering price of $3.84 per share, the closing price of the Company’s common stock on May 24, 2012, as adjusted to reflect the 1-for-6
        reverse stock split and after deducting estimated underwriting discounts and commissions and offering expenses.
This table gives effect to the anticipated 1-for-6 reverse stock split that we intend to effect immediately prior to the date of this prospectus.
You should read the following table in conjunction with “Use of Proceeds,” “Summary Financial Information,” “Management’s Discussion
and Analysis of Financial Condition and Results of Operation” and the historical consolidated financial statements and the related notes
thereto included in this prospectus.


                                                                                                            As of March 31, 2012
                                                                                                       (in thousands except share and
                                                                                                             per share amounts)
                                                                                                    Actual                      As Adjusted
               Cash, cash equivalents and short-term investments                        $            1,878,000         $         15,228,000
               Current liabilities                                                      $            1,654,000         $          1,654,000
               Long-term liabilities                                                    $            2,603,000         $          2,603,000
               Shareholders’ equity
               Common stock ((i) Actual: 30,000,000 shares authorized, no               $          69,069,000          $         82,419,000
                 par value; 1,605,554 shares issued and outstanding and (ii)
                 As Adjusted: 30,000,000 shares authorized, no par value;
                 5,511,804 shares issued and outstanding)
               Accumulated Deficit                                                      $          (66,959,000 )       $        (66,959,000 )

The number of shares in the table above excludes as of March 31, 2012 (and giving effect to the anticipated 1-for-6 reverse stock split):
   •    195,294 shares of common stock issuable upon the exercise of outstanding options at a weighted average exercise price of $56.61 per share;
   •    46,005 shares of common stock available for future issuance under our stock option plans;
   •    281,667 shares of common stock issuable upon exercise of our non-qualified options and warrants, 267,500 of which are exercisable for $7.32 per share and
        14,167 of which are exercisable for $29.92 per share;
   •    4,167 shares of restricted stock issued on April 2, 2012 to a consultant of the Company;
   •    585,937 shares of common stock issuable upon exercise of the underwriters’ over-allotment option; and
   •    195,312 shares of common stock underlying the warrants to be issued to the representative of the underwriters in connection with this offering.
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                                                                     DILUTION
Our net tangible book value as of March 31, 2012 was approximately $0.5 million, or approximately $0.34 per share of common stock, after
giving effect to the 1-for-6 reverse stock split that we expect to effect immediately prior to the date of this prospectus. Net tangible book value
per share represents total assets minus capitalized patent costs, other intangibles and total liabilities, divided by the number of shares of
common stock outstanding. Dilution in net tangible book value per share represents the difference between the amount per share paid by
purchasers of common stock in this offering and the net tangible book value per share of our common stock immediately after the offering.
After giving effect to the sale of shares of common stock to be sold in this offering at an assumed offering price of $3.84 per share, the closing
price of the Company’s common stock on May 24, 2012, as adjusted to reflect the anticipated reverse stock split and after deduction of
estimated underwriting discounts and commissions and offering expenses payable by us, our pro forma net tangible book value as of March
31, 2012 would have been approximately $13.9 million, or $2.52 per share. The adjustments made to determine pro forma net tangible book
value per share are the following:
   •   An increase in total assets to reflect the net proceeds of the offering as described under “Use of Proceeds”; and
   •   The addition of the number of shares of common stock offered under this prospectus to the number of shares outstanding.
The following table illustrates the pro forma increase in net tangible book value attributable to existing shareholders of $2.18 per share, after
giving effect to the 1-for-6 reverse stock split we expect to effect immediately prior to the date of this prospectus and the dilution (the
difference between the offering price per share and net tangible book value per share) to new investors:


                    Offering price per share                                                                               $   3.84
                    Net Tangible book value per share as of March 31, 2012                              $    0.34
                    Increase in net tangible book value per share attributable to this                  $    2.18
                      offering
                    Pro forma net tangible book value per share as of March 31, 2012, after                                $   2.52
                      giving effect to this offering
                    Dilution per share to new investors of this offering                                                   $   (1.32 )

If the underwriters exercise in full their over-allotment option to purchase 585,937 shares of common stock offered in this offering at the
assumed public offering price of $3.84 per share, the as adjusted net tangible book value after this offering would be $2.62 per share,
representing an increase in net tangible book value of $2.28 per share to existing shareholders and immediate dilution in net tangible book
value of $1.22 per share to new investors purchasing our common stock in this offering at the public offering price.
The number of shares in the table above reflects the anticipated 1-for-6 reverse stock split that we intend to effect immediately prior to the date
of this prospectus but excludes as of March 31, 2012 (and giving effect to the anticipated 1-for-6 reverse stock split):
   •   195,294 shares of common stock issuable upon the exercise of outstanding options at a weighted average exercise price of $56.61 per share;
   •   46,005 shares of common stock available for future issuance under our stock option plans;
   •   281,667 shares of common stock issuable upon exercise of our non-qualified options and warrants, 267,500 of which are exercisable for $7.32 per share and
       14,167 of which are exercisable for $29.92 per share;
   •   4,167 shares of restricted stock issued on April 2, 2012 to a consultant of the Company; and
   •   195,312 shares of common stock underlying the warrants to be issued to the representative of the underwriters in connection with this offering.
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                                                         MARKET PRICE INFORMATION
Our common stock is quoted on the NASDAQ Capital Market under the symbol “APPY”. The following table shows the high and low sale
prices per share of our common stock as reported by the NASDAQ Stock Market during the periods presented. Prices per share of our
common stock have been adjusted to reflect the 1-for-5 reverse split of our common stock that was effected on July 28, 2011. These prices do
not reflect the 1-for-6 reverse stock split that is anticipated to be effected in connection with this offering.


                                                                                                       Price Range
                                                                                                High                 Low
              2010
              First Quarter                                                               $       11.85        $      9.55
              Second Quarter                                                                      23.20               4.75
              Third Quarter                                                                        5.60               2.45
              Fourth Quarter                                                                       3.55               1.60
              2011
              First Quarter                                                               $        4.25        $      2.80
              Second Quarter                                                                       3.94               3.10
              Third Quarter                                                                        3.75               2.40
              Fourth Quarter                                                                       2.92               0.97
              2012
              First Quarter                                                               $        1.09        $      0.58
              Second Quarter (through May 24, 2012)                                                0.74               0.55
On May 24, 2012, the last sale price of our common stock, as reported by the NASDAQ Capital Market, was $0.64 per share. On May 24,
2012, there were approximately 950 holders of record and approximately 5,900 beneficial holders of our common stock.
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                                            MANAGEMENT’S DISCUSSION AND ANALYSIS
                                    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below includes certain forward-looking statements that are subject to risks, uncertainties and other factors, as
described in “Risk Factors” and elsewhere in this prospectus, that could cause our actual growth, results of operations, performance,
financial position and business prospects and opportunities for this fiscal year and the periods that follow to differ materially from those
expressed in, or implied by, those forward-looking statements. The following discussion should be read in conjunction with our consolidated
financial statements and related notes thereto included elsewhere in this prospectus.
Results of operations
The Company’s independent public accounting firm’s report on its financial statements as of December 31, 2011 includes a “going concern”
explanatory paragraph that describes factors that raise substantial doubt about the Company’s ability to continue as a going concern. The
Company’s financial statements for the year ended December 31, 2011 have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and commitments in the normal course of business.
The Company has experienced significant recurring losses from operations and negative cash flows from operations, and at December 31,
2011 had cash and liquid investments of $3,971,000, working capital of $2,249,000, total shareholders’ equity of $3,826,000 and an
accumulated deficit of $65,021,000. To date, the Company has in a large part relied on equity financing to fund its operations. 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 not be sufficient to meet
our estimated cash needs for the remainder of 2012. These factors raise substantial doubt about the Company’s ability to continue as a going
concern. If the Company does not obtain additional capital or financing, then the Company would potentially be required to reduce the scope
of its research and development and general and administrative expenses and may not be able to continue in business. 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.
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, or that they will not have significantly dilutive effect on the
Company’s existing shareholders. We are closely monitoring our cash balances, cash needs and expense levels. The Company’s ability to
continue as a going concern depends on the success of management’s plans to bridge cash shortfalls in 2012, which includes the following:
   •   aggressively pursuing additional capital raising activities in 2012;
   •   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.
Revenues
Three Months Ended March 31, 2012 and 2011
Sales for the three months ended March 31, 2012 totaled $7,300, which is a $90,000 or 93% decrease from the same period in 2011. 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 development.
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In April 2008, the Company entered into a long term exclusive license and commercialization agreement with Novartis Animal Health 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 was being recognized over future periods through 2020. In November 2011, the Company
entered into a Termination Agreement with Novartis which terminated future revenue related to the license agreement. Accordingly, the
Company did not recognize any revenue related to the license agreement in the three months ended March 31, 2012. During the three month
period ended March 31, 2011, $18,000 of such license payments was recognized.
Cost of sales for the three months ended March 31, 2012 totaled $200 which is a $12,600 decrease as compared to the same period in 2011. As
a percentage of sales, gross profit was 97% in the 2012 period as compared to gross profit of 87% in the same period in 2011. The
improvement in the gross profit percentage resulted from the fact that no fixed production costs were incurred in the 2012 period.
Year 2011 compared to Year 2010
Sales of the Company’s antigen products for the year ended December 31, 2011 totaled $219,000, which is a $151,000 or 41% decrease from
the 2010 period. This decrease in sales is primarily attributable to the Company’s strategic decision in 2010 to suspend antigen production and
focus available scientific resources on the acute appendicitis project and single-chain animal product development. Two customers accounted
for $93,000 of the total 2011 sales and individually represented 28% and 14% of such sales. Antigen sales in 2012 are expected to decline
significantly from the 2011 totals.
In April 2008, the Company entered into a long-term exclusive license and commercialization agreement with Novartis 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 was being recognized over future periods through 2020. In November 2011, the Company entered into a Termination
Agreement with Novartis Animal Health which terminated future revenue related to the license agreement. The Company recognized $62,000
and $68,000 of such license payments in each of the years ended December 31, 2011 and 2010, respectively.
Cost of sales for the year ended December 31, 2011 totaled $16,000, which is a $342,000 or 95% decrease as compared to the 2010 period. As
a percentage of sales, 2011 gross profit was 93% as compared to 3% in 2010. The improvement in the gross profit percentage resulted from
$153,000 in inventory write downs recorded in 2010 compared to $1,000 in write downs in 2011, combined with no fixed production cost
incurred in the 2011 period.
Year 2010 compared to Year 2009
Sales of the Company’s antigen products for the year ended December 31, 2010 totaled $370,000, which is a $79,000 or 27% increase from
the 2009 period. Four customers accounted for $215,000 of the total 2010 sales and individually represented 10%, 11%, 18% and 19% of such
sales. This increase in sales is primarily attributable to the timing of customer orders as they purchased on-hand stock of inventory. In late
2009, the Company made a strategic decision to suspend antigen production and focus available scientific resources on the acute appendicitis
project and single-chain animal product development.
In April 2008, the Company entered into a long-term exclusive license and commercialization agreement with Novartis 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 was being recognized over future periods through 2020, with $68,000 and $64,000 of such license fee recognized in
each of years ended December 31, 2010 and 2009, respectively. In December 2009, the Company entered into a termination agreement for a
prior distribution agreement covering a bovine diagnostic blood test. Upon execution of the original agreement, the Company received
$200,000, which had been recorded as deferred revenue. Under the termination agreement a refund of 25% ($50,000) of the development
payment previously received was paid and the remaining $150,000, which was no longer subject to any conditions, was recorded as license fee
income in 2009.
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Cost of sales for the year ended December 31, 2010 totaled $358,000, which is a $352,000 or 50% decrease as compared to the 2009 period.
As a percentage of sales, 2010 gross profit was 3% as compared to a gross loss of 144% in 2009. The net decrease in cost of sales is the result
of inventory write-downs in 2009 totaling $400,000 compared to write-downs in 2010 totaling $153,000 as well as the allocation of certain
fixed overhead production costs to cost of sales in 2009, which were not allocated in the 2010 period as no production runs of antigen products
were made in 2010.
Selling, General and Administrative Expenses
Three Months Ended March 31, 2012 and 2011
Selling, general and administrative expenses in the three months ended March 31, 2012 totaled $1,205,000, which is a $399,000 or 25%
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 $205,000. Total stock-based compensation and non-qualified option expenses were approximately $151,000 lower in the 2012
period, primarily due to fewer options being granted in 2012. During the three months ended March 31, 2012, the expenses associated with
legal fees decreased $39,000 and expenses associated with public company activities were approximately $48,000 higher than in the same
period in 2011.
Year 2011 compared to Year 2010
Selling, general and administrative expenses in the year ended December 31, 2011 totaled $5,575,000, which is a $1,842,000 or 25% decrease
as compared to the 2010 period. Total stock-based compensation and non-qualified option expenses decreased $1,044,000 in 2011 primarily
due to fewer options being granted combined with lower computed Black-Scholes values attributable to the options granted. Compensation
expenses also decreased $359,000 in 2011 due to lower employee costs including a reduced amount accrued for incentive pay in the 2011
period compared to the 2010 period. Expenses associated with public company costs decreased $379,000 in 2011 and legal fees decreased
$104,000 compared to 2010.
Year 2010 compared to Year 2009
Selling, general and administrative expenses in the year ended December 31, 2010 totaled $7,418,000, which is a $1,365,000 or 23% increase
as compared to the 2009 period. Hiring of additional management personnel to advance the AppyScore product resulted in approximately
$329,000 of additional expenses in the 2010 period. Approximately $611,000 in additional stock-based compensation expense was recorded in
2010 over 2009 amounts, which included $106,000 related to options granted to animal health advisory board members. Selling, general and
administrative expenses also increased by $213,000 in insurance related costs primarily due to increased medical benefits costs and increases
in the Company’s insurance limits and public company expense increased by $167,000 in 2010.
Research and Development
Three Months Ended March 31, 2012 and 2011
Research and development expenses in the three months ended March 31, 2012 totaled $677,000, which is a $595,000 or 47% decrease as
compared to the same period in 2011. Appendicitis test development and research expenses decreased by approximately $443,000 in the
period ended March 31, 2012 as compared to the same period in 2011, due primarily to reductions in investigational work. Expenses incurred
for the single-chain animal product development decreased by approximately $223,000 in the first quarter of 2012 period as compared to the
same period in 2011. Patent related expenses, including patent impairment expenses in the first quarter of 2012 increased by approximately
$10,000 from the same quarter of 2011.
Year 2011 compared to Year 2010
Research and development expenses in the 2011 period totaled $5,666,000, which is a $446,000 or 7% decrease as compared to the 2010
period. The completion of the Enzyme Linked Immunosorbant Assay (ELISA) based appendicitis clinical trial in mid-2010 resulted in a
$1,269,000 decrease which was offset by $1,030,000 in expenses in 2011 for the AppyScore pilot trial. Discovery efforts related to the
identifying additional markers for the appendicitis test increased expenses by approximately $488,000 compared to the 2010 period and
general appendicitis research decreased $131,000 in the 2011 period. Expenses incurred for the single-chain animal product development
decreased by approximately $963,000 in the 2011 period due to
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lower expenses associated with the shared development costs under the Novartis agreement. Research and development expense increased by
$250,000 for salaries primarily related to development activities on the appendicitis test and related discovery work. Amortization expenses
associated with patents in 2011 increased by $162,000, over 2010 expenses primarily due to patent and trademark amortization and write-offs.
Year 2010 compared to Year 2009
Research and development expenses in the 2010 period totaled $6,112,000, which is a $3,179,000 or 34% decrease as compared to the 2009
period. Development efforts and advances on the acute appendicitis test, including product development advances, clinical trial and regulatory
related activities comprised the primary expenses. Clinical trial and regulatory related expenses were approximately $1,130,000 lower in the
year ended December 31, 2010 primarily due to the fact that in 2009 one AppyScore clinical trial was completed and a second clinical trial
that commenced in the second half of 2009 was completed in early 2010. Development expenses incurred for advances on the cassette and
reader program were approximately $1,448,000 lower in 2010 as compared to 2009, primarily due to substantial completion of development
activities by the firms engaged in product development. Expenses incurred in connection with product and market related studies were
approximately $340,000 lower in 2010 as compared to 2009. Hiring of additional scientific personnel for product development resulted in
approximately $103,000 of additional expenses in the 2010 period. Direct development expenses on the single-chain animal health products
increased by approximately $41,000 in the 2010 period. Amortization expenses during the 2010 period decreased by $384,000 as compared to
2009 amounts which included impairment charges for patents related to terminating an agreement with Merial Limited and management’s
decision to not pursue patents specific to certain small market countries.
Other Income and Expense
Three Months Ended March 31, 2012 and 2011
Primarily as a result of the lower levels of cash and reduced investment returns for the three months ended March 31, 2012 as compared to the
same period in 2011, interest income of approximately $2,000 was earned in the first quarter of 2012 as compared to $8,000 in the same period
of 2011. Interest expense for the three months ended March 31, 2012 increased to $67,000, compared to $45,000 in the same period of 2011.
The increase in interest expense is primarily due to imputed interest expense under the Novartis Animal Health Termination Agreement.
Year 2011 compared to Year 2010
In 2011 other income includes a gain of approximately $939,000 resulting from the Termination Agreement with Novartis. Under the
Termination Agreement, the Company’s liabilities associated with the Novartis arrangements exceeded the net settlement payable to Novartis,
resulting in a gain on the contract termination, net of related legal fees incurred of approximately $7,500.
Primarily as a result of lower average cash and investment balances in 2011 as compared to 2010, interest income of approximately $16,000
was earned in 2011 as compared to $62,000 in 2010. Interest expense for the year ended December 31, 2011 increased to $197,000, compared
to $194,000 the 2010 year. The increase in interest expense is primarily due to the financing of certain insurance premiums.
Year 2010 compared to Year 2009
Primarily as a result of lower average cash and investment balances in 2010 as compared to 2009, interest income of approximately $62,000
was earned in 2010 as compared to $189,000 in 2009. Interest expense for the year ended December 31, 2010 decreased to $194,000, or
$6,000 less as compared to the 2009 year. The decrease was primarily due to lower debt levels resulting from scheduled principal repayments.
Income Taxes
No income tax benefit was recorded on the loss for the three months ended March 31, 2012, as management of the Company was unable to
determine that it was more likely than not that such benefit would be realized. At March 31, 2012, the Company had a net operating loss carry
forwards for income tax purposes of approximately $63 million, expiring through 2031.
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Liquidity and capital resources
At March 31, 2012, we had working capital of $437,000, which included cash, cash equivalents and short term investments of $1,878,000. We
reported a net loss of $1,938,000 during the three months ended March 31, 2012, which included $376,000 in non-cash expenses relating to
stock-based compensation of $222,000 and $154,000 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.
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 not be sufficient
to meet our estimated cash needs for the remainder of 2012. These factors raise substantial doubt about the Company’s ability to continue as a
going concern. If the Company does not obtain additional capital, then the Company would potentially be required to reduce the scope of its
research and development and general and administrative expenses and may not be able to continue in business. 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. 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 fiscal year ending December 31, 2012 are
anticipated to total less than $100,000. 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, 2012 will decrease compared to the
amounts expended in 2011. Development and testing costs in support of the current AppyScore product as well as costs to file patents and
revise and update previous filings on our technologies will continue to be substantial. 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 such evaluation and related decisions 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 development expenditures will be to continue to advance product development and testing of the cassette and
instrument version of AppyScore. During the years ended December 31, 2011, 2010, and 2009, we expended approximately $3,388,000,
$3,371,000 and $6,290,000, 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.
The Exclusive License Agreement (WU License Agreement) between AspenBio and WU was entered into effective May 1, 2004, and 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
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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.
Our animal health technology, licensed from Washington University in St. Louis (WU) in 2004 and further developed at AspenBio, has been
used to develop reproduction drugs, initially applied in the bovine species, to be followed by other livestock species of economic importance.
The bovine drugs were sub-licensed in 2008 to Novartis Animal Health (“NAH” or “Novartis”) under a long-term world-wide development
and marketing agreement. Between 2008 and 2011, substantial investment and progress in product, regulatory and clinical activities were
made on the bovine drug products. A pilot study was completed during late 2010 using the bovine LH drug and subsequently NAH informed
us that preliminary pilot study results revealed that the pilot study did not demonstrate the outcomes as defined in the success criteria, and
NAH had requested a refund of the contingent $900,000 milestone payment that was tied to the pilot study outcome and notified us that they
wished to terminate the agreement. On November 15, 2011, AspenBio and Novartis executed a Termination and Settlement Agreement
(“Novartis Termination Agreement”) that provided for the termination of the existing agreements between the Company and NAH. Under the
terms of the Novartis Termination Agreement, the Company will pay to NAH the refundable $900,000 milestone payment and a negotiated
amount totaling $475,000 of the Company’s portion of net shared development expenses. The settlement amount is payable in quarterly
installments commencing upon execution of the Novartis Termination Agreement and for the following six fiscal quarters. Upon execution of
the Novartis Termination Agreement, the Company gained access to and use of all development and research materials and protocols
developed under the prior NAH agreements. All of NAH’s rights under the prior agreements will be terminated in full once the Company pays
the settlement amount in full.
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, in general, 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 (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, 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 $9,200 per
month in contractual interest, through June 2013, when the then remaining principal balance is due which is estimated to be approximately
$1,607,000 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 (SEC) on the open market, in block
trades and in privately negotiated transactions, depending upon market conditions and other factors. A
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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.
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 2012 will be lower than in 2011. The 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.
Commencing in the fourth quarter of 2008, based upon market conditions, the investment guidelines were 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%, with no security or issuer representing more
than 10% of the portfolio upon purchase. As of December 31, 2011, 64% of the investment portfolio was in cash equivalents which are
included with cash and the remaining funds were invested in short-term marketable securities with none individually representing more than
16% of the portfolio and none maturing past June 2012. To date, we have not experienced a cumulative market loss from the investments that
has exceeded $5,000.
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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Operating Activities
Net cash consumed by operating activities was $1,735,000 during the three months ended March 31, 2012. Cash was consumed by the loss of
$1,938,000, less non-cash expenses of $222,000 for stock-based compensation and $154,000 for depreciation, amortization and impairment
charges. For the three months ended March 31, 2012, decreases in accounts receivable and prepaid and other current assets of $137,000
provided cash, primarily related to routine changes in operating activities. A net decrease of $310,000 in accounts payable and accrued
expenses consumed cash from operating activities, primarily related to the payment of liabilities associated with the completion of the
AppyScore pilot trial in late 2011.
Net cash consumed by operating activities was $8,333,000 during the year ended December 31, 2011. Cash was consumed by the loss of
$10,214,000, less net non-cash expenses of $1,093,000, including stock-based compensation totaling $1,336,000, $491,000 for depreciation
and amortization, impairment and related charges totaling $275,000 and a $939,000 non-cash gain related to the Novartis Termination
Agreement. For the year ended December 31, 2011, a $38,000 decrease in accounts receivable associated with lower antigen sales generated
cash. A decrease in prepaid and other current assets of $427,000 provided cash, primarily related to routine changes in operating activities.
Cash increased from an increase of $292,000 in accounts payable, net of the non-cash adjustment of $837,000 decreasing the accounts payable
balance associated with the Novartis Termination Agreement settlement. Accrued expenses that decreased $31,000 in the year ended
December 31, 2011 also generated cash, primarily due to a combination of an increase in accrued expenses related to AppyScore pilot trial
expenses and a decrease of $180,000 in accrued compensation, due to a decrease in amounts accrued for incentive pay for the 2011 period.
Net cash consumed by operating activities was $10,707,000 during the year ended December 31, 2010. Cash was consumed by the loss of
$13,338,000, less non-cash expenses totaling $2,895,000 relating to stock-based compensation totaling $2,364,000 and depreciation and
amortization totaling $492,000 and other items net, which totaled $39,000. In late 2009, we substantially suspended the production of antigen
products as a result of our strategic decision to focus available scientific resources on acute appendicitis and single-chain animal
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product development. As a result of this decision, we recorded a write down of approximately $153,000 in antigen inventories in 2010. Due to
the suspension of antigen sales, the net investment in accounts receivable and inventories decreased by $297,000 in 2010 generating cash
including the inventory write down of approximately $153,000. A decrease in prepaid and other current assets of $81,000 provided cash,
primarily related to routine changes in operating activities. Cash used by operations included a $642,000 reduction in accounts payable and
accrued expenses in 2010, primarily due to the decrease in expenses related to the recent completion of the Company’s AppyScore clinical
trial.
Net cash consumed by operating activities was $11,364,000 during the year ended December 31, 2009. Cash was consumed by the loss of
$15,518,000, less net non-cash expenses totaling $2,462,000, for stock-based compensation of $1,715,000, impairment and related charges of
$573,000 and depreciation and amortization expenses of $388,000, net of amortized license fee revenues of $214,000. Included in the 2009
impairment charges is $565,000 in patent impairment costs related to terminating an agreement with Merial Limited and to not pursuing
patents specific to certain countries that were determined to be not economically beneficial. A decrease in accounts receivable of $15,000
provided cash resulting from lower base antigen sales levels. Inventory levels decreased by a net $233,000, arising from net sales activities and
the write down of antigen based inventory to lower of cost or market. In late 2009, we substantially suspended the production of antigen
products as a result of its strategic decision to focus available scientific resources on acute appendicitis and single-chain animal product
development. As a result of this decision, we recorded an approximately $400,000 write down in antigen inventories. Cash consumed in
operations was reduced by the net increase of $830,000 in accounts payable and accrued expenses, primarily due to the increase in year-end
accrued expenses.
Investing Activities
Net cash inflows from investing activities generated $418,000 during the three months ended March 31, 2012. Sales of marketable securities
totaled approximately $441,000. A $23,000 use of cash was attributable to additional costs incurred from patent filings.
Net cash inflows from investing activities generated $1,611,000 during the year ended December 31, 2011. Marketable securities investments
purchased totaled approximately $1.0 million and marketable securities sold totaled approximately $3.0 million. Cash totaling $228,000 was
used for additions to patents and additions to equipment totaling $90,000.
Net cash outflows from investing activities consumed $2,923,000 during the year ended December 31, 2010. Marketable securities
investments acquired totaled approximately $7.6 million and sales of marketable securities totaled approximately $5.2 million. Cash was used
for additions to intangibles of $310,000 for costs incurred from patent filings and equipment additions totaling $192,000.
Net cash inflows from investing activities generated $4,533,000 during the year ended December 31, 2009. Marketable securities investments
acquired totaled approximately $2.3 million and sales of marketable securities totaled approximately $7.4 million. Cash totaling $596,000 was
used in additions to intangibles of $352,000 for costs incurred from patent filings and equipment additions totaling $244,000 for additions and
expansion of lab equipment and facilities.
Financing Activities
Net cash outflows from financing activities consumed $335,000 during the three month period ended March 31, 2012 for repayments under
existing debt agreements.
Net cash inflows from financing activities generated $782,000 during the year ended December 31, 2011. The Company received net proceeds
of $1,456,000 from the sale of common stock in a December 2011 registered direct offering and repaid $674,000 in scheduled payments under
its debt agreements.
Net cash inflows from financing activities generated $9,171,000 during the year ended December 31, 2010. The Company received net
proceeds of $9,117,000 from the sale of common stock and $291,000 in proceeds from the exercise of stock options. The Company repaid
$236,000 in scheduled payments under its debt agreements.
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Net cash inflows from financing activities generated $8,378,000 during the year ended December 31, 2009. The Company received net
proceeds of $8,260,000 from an offering of common stock and $469,000 in proceeds from the exercise of stock warrants and options. The
Company repaid $351,000 in scheduled payments under its 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 $275,000, $107,000 and $565,000 of impairment charges during the years ended December 31, 2011,
2010 and 2009, 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
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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.
Recently issued and adopted accounting pronouncements:
The Company has evaluated all recently issued accounting pronouncements and believes such pronouncements upon their adoption will not
have a material effect on the Company’s financial statements.
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                                                                 BUSINESS
Overview
AspenBio Pharma, Inc. (the “Company” or “AspenBio” also “we”, “us” or “our”) is advancing products that address unmet human diagnostic
and animal health therapeutic needs. AspenBio was formed in August 2000 as a Colorado corporation to produce purified proteins for
diagnostic applications. We have leveraged our science and technology to develop a number of product candidates.
The Company’s primary focus is on advancing AppyScore TM , its human diagnostic test to aid in the risk management of acute appendicitis in
pediatric and adolescent populations, toward commercialization. AppyScore is a proprietary blood-based diagnostic test that, if successfully
cleared for marketing in the United States by the U.S. Food and Drug Administration (FDA), and CE marked for the European Union, we
believe will provide emergency department physicians a valuable and objective tool to aid in the risk management of patients suspected of
having acute appendicitis. We expect AppyScore to be useful in the diagnostic evaluation of patients based on the test’s high sensitivity and
negative predictive value, which could provide physicians with additional information to help manage patients who are at low risk of having
acute appendicitis without using expensive imaging and potentially exposing the patient to unnecessary radiation. We intend to pursue clinical
testing to support FDA clearance under FDA’s de-Novo 510(K) process for AppyScore for use in the risk management of children adolescents
and young adults (ages 2 – 20) presenting in the emergency departments of hospitals with abdominal pain suggestive of an acute appendicitis.
Our animal health product development efforts are directed toward the creation of reproduction drugs for the enhancement of animal fertility.
The initial focus is for use in the cattle industry, to be followed by other livestock species of economic importance. The cattle therapeutics
were sub-licensed in 2008 to Novartis Animal Health (NAH or Novartis) under a long-term world-wide development and marketing
agreement. Following the failure of pilot study testing to meet defined success criteria, in November 2011, AspenBio and Novartis entered into
a termination agreement and, subject to agreed upon conditions, including specified payments being made by AspenBio, product rights and
technology returns to AspenBio. As a result of our decision to focus on the human AppyScore test development activities, we are currently
advancing in a strategic process to monetize our animal health business and related intellectual property, with the goal of entering into a
transaction or license agreement with a third party, which will most likely be a company currently in the animal health industry, who would
take over product development and commercialization.
Product Overview
Our business strategy is to focus on products and technologies which we believe have attractive worldwide markets and significant product
margin potential. Our acute appendicitis test, AppyScore, is our primary focus. We also pursue technologies under “in-licensing” agreements
with third parties such as universities, researchers or individuals; we add value by advancing the stage of research and development on the
technologies through proof of concept, and then we will either “out-license” to “big pharma” and/or diagnostic companies or continue with
in-house development towards regulatory approval, product introduction and launch. Presently the products in our existing pipeline are under
the regulatory jurisdiction of the FDA for the United States.
Human Diagnostics
AppyScore is a blood-based test designed to aid in the evaluation of patients presenting signs and symptoms of acute appendicitis to help
physicians with the difficult task of diagnosing acute appendicitis in children, adolescents and young adults (ages 2 – 20) entering the
emergency room with symptoms of the disease. The current version of AppyScore is a multi-marker blood test panel of biomarkers consisting
of the Company’s patented MRP 8/14 (also known as S100A8/A9 or calprotectin) and C-reactive protein (CRP), along with White Blood Cell
count (WBC). The scoring results of these individual components will be analyzed using the company’s proprietary algorithm software
embedded in the AppyScore cassette reader, to provide an AppyScore result to the clinician. We expect AppyScore will help physicians
manage those patients who are suspected of having acute appendicitis but can be determined to be at sufficiently low risk to avoid imaging
procedures which are costly and potentially harmful to patients. The use of AppyScore in emergency departments could also positively impact
resource utilization and improve patient management. The primary
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focus of our recent efforts is directed towards clinical testing to obtain sufficient data for regulatory clearance for AppyScore for the patient
population consisting of children, adolescents and young adults (ages 2 – 20). We are focusing on this intended use because acute appendicitis
is primarily a disease that impacts children, adolescents and young adults, and the young ages of these patients heightens the risk from
exposure to radiation.
Appendicitis Overview and Market
Appendicitis is a rapidly progressing condition which typically causes increasing lower abdominal pain over a period of 12 to 48 hours from
onset of symptoms to perforation. This progressive pain period is variable, however, and can be sustained for 48 hours or more. Acute
appendicitis most frequently occurs in patients aged 10 to 30, but can affect all ages. It is estimated that approximately 5 to 7% of the world’s
population will get appendicitis in their lifetime with the peak age range for the disease being the early teens. To date, there appears to be no
individual sign, symptom, test, or procedure capable of providing either a conclusive rule in or rule out diagnosis of acute appendicitis. In the
United States alone, according to National Hospital Ambulatory Medical Care Survey (NHAMCS) data obtained from the Centers for Disease
Control and Prevention (CDC) Public-use Data Files (1973 – 2009) in 2009, there were approximately 9.6 million total patients who entered
emergency departments complaining of abdominal pain. Out of this total, 6.6 million had complete blood count (CBC) work-ups performed,
3.2 million underwent computed tomography (CT) imaging studies and 1.2 million underwent ultrasound procedures and approximately
300,000 of these total patients were diagnosed as having acute appendicitis and underwent appendectomies. Included in these totals were 2.1
million patients (approximately 21%) comprised of children, adolescents and young adults aged two through twenty years old. Out of this
sub-population, approximately 1.1 million had CBC work-ups performed, 417,000 underwent CT imaging and 259,000 underwent ultrasound
procedures. Approximately 135,000 of this group of patients were diagnosed as having acute appendicitis and underwent appendectomies.
Failure to accurately diagnose and treat acute appendicitis before perforation can lead to serious complications and, in some cases, death. The
current diagnostic and treatment paradigm for acute appendicitis includes many factors, such as a review of the patient’s clinical presentation
including signs and symptoms, health history, blood chemistry, temperature and white blood count. In the United States, patients who are
considered to be at risk for acute appendicitis are frequently sent for CT or ultrasound imaging for further diagnosis and then surgery if
indicated. Currently the total estimated cost of an abdominal or pelvic CT scan plus associated fees can range from several hundred dollars to a
few thousand dollars per procedure, resulting in a total estimated expenditure of over $1.0 billion annually in the United States on CT scans to
diagnose acute appendicitis. A scan can take more than four hours to complete (including typical processing time) and exposes the patient to
high levels of ionizing radiation. Published data indicate that in the United States approximately 12% and 7%, of, adult patients and pediatric
patients, respectively, of appendectomies remove a normal appendix due primarily to incorrect diagnosis prior to surgery.
Although the use of CT scans appears to be the most widely used diagnostic tool in the United States, its results are subject to interpretation
and can be inconclusive in addition to subjecting patients to large doses of radiation. Using a CT scan to rule out acute appendicitis can be
particularly difficult in children and young adults because many patients in these age groups have low body fat resulting in poor tissue
differentiation or contrast on the CT scan.
Over the past decade there has been increasing concern identified regarding the radiation exposure caused by radiologic tests. In 2010, the
FDA released a report titled “Initiative to Reduce Unnecessary Radiation Exposure from Medical Imaging.” We believe that reports such as
this FDA Report could have positive implications for a test like AppyScore which, if cleared could be used to help physicians determine which
patients are at low risk for the disease and potentially avoid CT scanning.
In addition to health risks, hospital charges for unnecessary (negative) appendectomies are estimated to cost approximately $740 million
annually in the United States alone (Flum et al., Arch Surg. 2002;137:799-804). Appendicitis is one of the leading causes of medical
malpractice claims in the United States due to many factors, including high diagnostic error rates, negative appendectomies, and increased cost
and complications in cases where the appendix perforates.
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Results from our development efforts, clinical and pilot trials performed to date indicate that the greatest potential benefit of the AppyScore
test would be in aiding the physician in the evaluation of those patients at low risk for having acute appendicitis. We believe that AppyScore
has the potential to enhance the effectiveness and speed of patient evaluation and improve the standard of care for low risk patients. We
anticipate that if we achieve successful testing and AppyScore is cleared by the FDA, it could be incorporated with other blood-testing when a
patient’s blood sample is taken on initial assessment of the patient entering the emergency department or urgent care setting when the
physician suspects appendicitis, but considers the patient at low risk for the disease. The AppyScore test will comprise a multi-marker blood
test panel of biomarkers consisting of the company’s patented MRP 8/14 and CRP, along with incorporating the hospital collected WBC input
into the reader which will then provide a result. The AppyScore result is intended to help the physician determine if a patient is at a low risk
for acute appendicitis. We anticipate the potential primary market for the AppyScore test will be the emergency medicine diagnostic market. If
successfully developed, tested and cleared by the FDA, we expect our test will be the only commercially available blood-based test
specifically designed to aid in the evaluation of acute appendicitis for low risk children and young adult patients. We believe there is a
significant worldwide market opportunity for this product.
Clinical and Product Development — Appendicitis
We began product development of AppyScore in 2003 with the objective of developing a blood-based, human diagnostic test to aid in the
evaluation of patients suspicious for acute appendicitis. In December 2008, we completed a clinical trial (approximately 800 patients) using
the ELISA-based AppyScore test using MRP 8/14 as a single biomarker test, for use as an aid in the evaluation of acute appendicitis. The
results of this study, based upon an MRP 8/14 AppyScore cut off value of 15, showed sensitivity of 89%, negative predictive value of 89% and
specificity of 38%. Based on these results, in June 2009 we submitted a 510(k) premarket notification application to the FDA to seek clearance
of the AppyScore ELISA-based test used in this trial. In August 2009 the FDA responded to our submission with a request for additional
information. As a result of a number of factors, primarily the need to revise the test’s cut-off value, the Company withdrew its 510(k)
submission in mid-2010.
In March 2010, we completed enrollment for an additional clinical trial (859 patients) of our AppyScore ELISA-based test, based upon MRP
8/14 as a single biomarker test. The patients enrolled in this clinical trial were seen in the emergency departments of more than a dozen
well-known hospitals across the United States. The statistical analysis report for this 2010 trial, based upon an MRP 8/14 cut-off value of 14,
showed higher sensitivity (96%) and negative predictive value (92%), but lower specificity (16%) than seen in the 2008 ELISA-based study.
The study report also revealed a wider range in prevalence of acute appendicitis between sites than had been anticipated. The overall
prevalence of acute appendicitis was similar to that seen in the previous clinical trial, however, inter-site variability was notably larger, with a
wider range of patients enrolled with acute appendicitis observed between sites. We believe that the large inter-site variability in the
prevalence reported is an indication of the clinical challenge of diagnosing acute appendicitis and the judgment of individual ED physicians in
evaluating acute abdominal pain.
In late 2011, we completed enrollment and, in early 2012, completed the analysis of the data for a pilot trial (approximately 500 patients) of
our AppyScore test, involving pediatric and adolescent patients aged 2 through 20 with symptoms suspicious for acute appendicitis who were
enrolled from 11 hospital sites across the country. The pilot study evaluated the use of multiple biomarkers of the AppyScore test
configuration and demonstrated appreciably better results than the single-marker test evaluated in previous studies. Based upon data obtained
from samples at AspenBio, we ran MRP 8/14 values using both our cassette-based reader system as well as the ELISA-based test. We also
measured values for a number of other biomarkers using internal assays. As part of the patient enrollment and sample collection we also
obtained numerous subjective and objective data points for each subject. This included the patient’s WBC count as processed by the hospital.
Our extensive analysis of the data, focusing on the use and interaction of combinations of multiple biomarkers, analyzed using a proprietary
algorithm for the AppyScore test configuration, demonstrated appreciably better results than the single-marker test evaluated in previous
studies. The results of this pilot study based on the multi-marker panel, showed negative predictive value of 97% sensitivity of 96%, and
specificity of 43%. Prevalence of the disease in the pilot study was 29%.
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Based on these results, we are advancing the AppyScore product configuration in a new device that uses the MRP 8/14 and CRP biomarkers,
along with WBC and a proprietary algorithm. MRP 8/14 and CRP testing will be performed on AspenBio’s cassette-based system, with WBC
performed by the hospital’s hematology system or potentially, a standalone system. Each of the individual biomarker’s and the white blood
cell count results will be combined and analyzed using the Company’s proprietary algorithm software embedded in the AppyScore cassette
reader system. An additional patent application has been filed based on the results of our work involving a number of markers including those
mentioned above. Completion of the product development required for the test panel will primarily involve incorporating the CRP test into the
current cassette based reader system. The AspenBio development team has completed the initial work required to add CRP to the assay test
cassette. Based on a preliminary assessment of the ongoing activities, completion of the development work is expected late in the second
quarter of 2012.
The expected indication for use for our AppyScore product is to aid in the identification of patients at low risk for acute appendicitis. A
negative AppyScore result can be used by physicians, as an adjunct to signs and symptoms, to allow for more conservative treatment planning.
Major AppyScore clinical and product development milestones to be accomplished are:
   •   Finish the conversion and validation of AppyScore to a multi-marker or “multivariate” blood-based test on the AppyScore reader cassette system — this is
       currently near completion;
   •   Submit a pre-IDE information package, including the pivotal clinical trial protocol, risk analysis and statistical analysis plan to the FDA;
   •   Verify the regulatory path for AppyScore, which we believe to be de-Novo 510K, as well as achieve agreement on the statistical analysis plan and protocol
       the clinical trial;
   •   Commence the pivotal clinical trial, planned for mid-2012; and
   •   Complete the pivotal clinical trial patient enrollment — planned for late 2012 into early 2013, analyze data, and submit pivotal clinical trial results to FDA.
Assuming a successful clinical testing outcome of the planned clinical pivotal trial this, data would serve as the basis for a 510(k) submission
to the FDA on a path which we expect to include De Novo product classification.
AppyScore Intellectual Property
Beginning in 2004, we initiated the establishment of an intellectual property portfolio for the acute appendicitis testing technology and
products that have been used in the development of AppyScore. We have filed for and are pursuing extensive patent coverage related to
several aspects of the initial discovery and various test applications. Further enhancement and expansion of our proprietary patent position is
ongoing with respect to the scope of protection for our first generation and future generation versions of the test. Scientific and technical
progress remains the basis for these efforts. In March 2009, the U.S. Patent and Trademark Office issued AspenBio’s patent directed to
methods relating to its appendicitis diagnostic technology. This patent, No. 7,501,256, is entitled ‘Methods and Devices for Diagnosis of
Appendicitis.’ Additional U.S. patents, 7,659,087 and 7,670,769, have recently issued on February 9, 2010 and March 2, 2010, respectively.
One foreign patent has also been allowed, Japanese patent, 4,447,641 was allowed on January 29, 2010. At this time, additional foreign patent
applications have been allowed or are pending.
In late 2011, an additional provisional patent application was filed for the appendicitis testing technology and products. This patent filing
focuses on the newly developed multiple-marker technology, providing patent coverage for using the MRP 8/14 levels in a given sample in
conjunction with CRP levels and WBC among a number of other markers in order to provide an increasingly robust test to aid in the
management of low risk patients suspicious for appendicitis. Additionally, this patent filing claims a method for ruling out appendicitis based
on multiple markers, a device or system for assessing a subject based on a plurality of markers, and a kit or device to determine the value of a
biomarker in a given sample. Currently, this filing is a provisional patent and not yet filed or granted in any specific countries.
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Animal Healthcare
Our animal health technology, licensed from Washington University in St. Louis (WU) in 2004 and further developed at AspenBio, is the
basis of our product development efforts focused on reproduction drugs, initially for cattle, to be followed by other livestock species of
economic importance. The cattle products were sub-licensed in 2008 to Novartis Animal Health (NAH or Novartis) under a long-term
world-wide development and marketing agreement. Between 2008 and 2011, substantial investment and progress in product, regulatory and
clinical activities were made on the bovine drug products, including advances in cGMP manufacturing processes with a contract manufacturer
and safety studies required under FDA regulations. A pilot study was completed during late 2010 using the cattle LH drug and subsequently
NAH informed us that preliminary pilot study results revealed that the pilot study did not demonstrate the outcomes as defined in the success
criteria. NAH requested a refund of the contingent $900,000 milestone payment that was tied to the pilot study outcome and notified us that
they wished to terminate the agreements. On November 15, 2011, AspenBio and Novartis executed a Termination and Settlement Agreement
(“Agreement”) that provided for the termination of the existing agreements between the Company and NAH. Under the terms of the
Agreement, the Company will pay to NAH the refundable $900,000 milestone payment and a negotiated amount totaling $475,000 of the
Company’s portion of net shared development expenses. The settlement amount is payable in quarterly installments commencing upon
execution of the Agreement and for the following six fiscal quarters. Upon execution of the Agreement, the Company gained access to and use
of all development and research materials and protocols developed under the prior NAH agreements. All of NAH’s rights under the prior
agreements will be terminated in full once the Company pays the settlement amount in full.
The Exclusive License Agreement (WU License Agreement) between AspenBio and WU was entered into effective May 1, 2004, and grants
AspenBio exclusive license and rights 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.
Our animal health products consist of four veterinary therapeutic drug products which are anticipated to be an important new addition to
veterinary medicine with two drugs each in large livestock markets, cattle and equine. We have also advanced in the preliminary development
of potential recombinant products for use in commercial pig operations. Cattle products, BoviPure-LH TM and BoviPure-FSH TM are the most
advanced products in the pipeline, having advanced in cGMP manufacturing processes with a contract manufacturer and safety studies
required under FDA regulations, and we believe represent the largest market opportunity.
We are currently advancing in a strategic process to monetize our animal health business and related intellectual property. The goal of this
process is to enter into a transaction or license agreement with a third party who would most likely be a company currently in the industry,
who would take over product development, testing, approval and launch.
Assuming we are successful in completing a transaction or a licensing agreement for the animal health business, future product development
and any potential product revenues would be expected to be undertaken by a new partner or other third-party. The discussion below represents
a summary of the products and markets that would be the subject of such third party rights, assuming a third-party agreement is in fact entered
into and finalized and the products are thereafter advanced to commercialization.
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Recombinant LH and FSH Analog Drugs for Animal Reproduction Technology
Cattle Reproduction Products
We believe that the cattle market, primarily dairy operations, represents the largest market opportunity of our current animal products in
development.
The success of a modern dairy cow operation is dependent upon a number of critical factors. Several of these factors are outside the control of
the dairy producer, such as milk prices, costs for feed, nutrients, and medicines. Other factors, however, are within the dairyman’s control such
as size of the operation (number of head milked), labor costs, and access to high quality bulk feed. The amount of revenue derived from milk
sales is a function of the quantity of milk produced and the level of milk fat contained in the milk. These factors correspond directly to the
amount of time that a cow is pregnant. The more days during a year that a cow is not pregnant (frequently referred to as “open”), the lower the
annual milk production from that cow, accordingly the lower the revenue received.
The worldwide population of dairy cows is estimated to exceed 125 million, of which approximately 35 million cows are located in North
America, South America and Europe. According to industry estimates approximately 70% of cows in the North American and European dairy
industry are artificially inseminated (AI). The average number of days per year that a cow remains open has steadily increased over a number
of years. This has had a negative impact on the average milk revenue produced per head. A significant percentage of dairy cows, when
artificially inseminated, do not become pregnant. There is a growing percentage, estimated currently at over 70% of artificially inseminated
cows that do not become pregnant or they abort or absorb prior to delivery. Lower pregnancy rates are associated with higher milk production
costs.
Dairy cows that fail to conceive or maintain a viable pregnancy after AI result in significant financial and production losses to the dairy.
BoviPure-LH utilizes our exclusively licensed developmental drug technology which, if successfully developed and approved, we believe may
offer performance advantages over conventional hormone products currently available in the worldwide market. If successfully developed and
approved, we believe this drug may create a totally new pregnancy maintenance market to enhance dairy economics for artificially
inseminated dairy cows.
BoviPure-LH
BoviPure-LH is a novel LH analog for cows. This new hormone analog is designed to induce ovulation and produce an effect that has been
shown to reduce the rate of pregnancy loss in cows. Currently, it is estimated that more than 70% of dairy cows fail to conceive and/or
maintain a viable pregnancy resulting in significant financial and production losses to dairy farmers.
It is estimated that there are between 16 and 20 million artificial insemination attempts annually in dairy cows in the United States alone. We
believe the U.S. fertility control market for BoviPure-LH could be substantial. While pivotal studies are required to definitively demonstrate
its specific properties and advantages, we believe BoviPure-LH would be an applicable and beneficial product, if approved by the FDA and
administered to dairy cows as part of an artificial insemination program as a therapeutic treatment to improve the quality of ovulation and help
maintain pregnancy. It is anticipated that if this product receives regulatory approval it would be prescribed and administered by licensed
veterinarians; we expect the ultimate customers will be producer clients operating commercial dairy herds using breeding programs.
We anticipate the benefits and value of the BoviPure-LH product, if able to be successfully tested, approved and launched into the dairy
industry, are summarized as follows:
   •   pregnancy rates may increase and potentially reduce the additional cost and manipulation to the animal of repeated reproduction treatments;
   •   potentially reduce average days a cow is “open,” thereby improving overall milk production, milk quality and calf production;
   •   anticipated cost per application may be cost-justified to the dairy operator;
   •   the product is expected to be easy to administer; and
   •   technology is patented with additional patents pending.
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BoviPure-FSH
BoviPure-FSH is a novel FSH analog for cows. It is designed for superovulation for embryo transfer in dairy and beef cows throughout the
world. We expect the initial usage will be greatest in the beef industry but is expected to expand in the dairy industry with the anticipated
increased use of predetermined sex semen for artificial insemination. This product is in development and is expected to provide significant
benefits including superior single-dose product efficacy, unmatched purity, consistent bioactivity and significant labor savings for end users,
versus conventional “animal-derived” pituitary extract FSH products currently on the market. These benefits are important to users of FSH
products currently on the market. Conventional FSH products, all of which are directly harvested from animal organs, have inherent problems
with product safety, purity and consistency. In addition, these conventional FSH products require considerable human and facility resources
with an average of eight treatments given every 12 hours for four consecutive days for every animal being treated versus our single treatment
product.
Equine Reproduction Products
The equine (horse) breeding industry currently lacks effective methods that can effectively impact and control follicular development. Extracts
containing pituitary-derived LH and FSH have been shown to be somewhat effective; however, there is currently no commercially available
product. The use of artificial lights to simulate longer days is also regularly used to attempt to advance the breeding season.
We have advanced preliminary development and testing of equine products EquiPure-LH TM (LH analog for horses) and EquiPure-FSH TM
(FSH analog for horses) to the stage of testing non-GMP manufactured drug product in horses. These specialized products are designed to
create more effective breeding programs for horses. The ability to influence the timing of when mares are ready to breed, including potentially
accelerating the seasonal ovulation, improving the success rate of bred mares and in some cases, increasing the number of embryos produced
and harvested for transfer, are all valuable in equine reproduction worldwide. We have collaborated with researchers at several universities
over several years to study these products and produce a number of publications regarding the basic science of these analogs. As part of our
equine product development considerations, we are exploring options for securing funding for such product development as a separate funding
opportunity.
EquiPure-FSH
EquiPure-FSH is a novel FSH analog for horses. It is designed to assist mares through transition and for super-ovulation (for embryo transfer)
in horses throughout the world. Based upon a Kentucky state legislative report, the U.S. thoroughbred horse industry spends over $1.5 billion
annually for breeding for new foals.
The most significant breeding issue in mares is the timing conflict existing between horse breeders’ goals versus the animal’s normal breeding
cycle during the year. The natural breeding season in horses in the Northern Hemisphere is from April to October. There are several beneficial
reasons to try to influence the normal pattern of reproduction. In racing and some performance horses the age of the horse in the Northern
Hemisphere, is always measured as of January 1st in the year of birth, therefore it is important that foals are born as early as possible in the
year so that they have more time to develop their mature body weight (and strength) by the time they compete as two and three year olds. The
demands of competition and sales, breeders and investor owners desire early breeding in the calendar year. This objective requires effective
breeding programs. Current programs include extending the mare’s daily photoperiod by artificial lighting in an attempt to advance
reproductive activity. This process requires approximately 1 – 2 months and is costly (labor, feed, electricity) and requires additional
infrastructure on the farm. There are currently no effective therapeutic drugs available to address this problem. EquiPure-FSH is designed to,
and in preliminary studies, has been shown to provide an effective solution to current alternative methods to influence the natural breeding
season.
Thoroughbred horses would comprise an important worldwide segment of the EquiPure-FSH market, if the product receives regulatory
approval. According to 2009 Jockey Club statistics, there were an estimated 45,000 mares bred in the United States and 180,000 worldwide.
Additionally the embryo transfer (ET) market is significant. The 2009 International Embryo Transfer Society worldwide data lists
approximately 60,000 donor and recipient mares combined used in ET activities. Argentina and Brazil dominate the
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ET industry with an estimated total of two-thirds of the worldwide transfers occurring in those countries. A significant portion of that activity
relates to the polo horse industry.
EquiPure-LH
EquiPure-LH is a novel LH analog for horses. It is designed to induce ovulation in estrous mares thereby providing better overall breeding
management and convenience to breeders. It is expected that this product will be prescribed and administered by licensed veterinarians when
and if it is cleared for use by the FDA. Ultimate customers would be horse owners and breeding farm operations. EquiPure-LH is in the early
stage of product development and testing.
Human Diagnostic Antigens
Historically we supplied purified proteins for diagnostic applications to large medical diagnostic companies and research institutions. We
manufactured and sold approximately 20 – 30 purified protein products primarily for use as controls by diagnostic test kit manufacturers and
research facilities, to determine whether diagnostic test kits are functioning properly. As a result of the development activities and priorities,
we are focused on the blood-based human diagnostic test, and in the first quarter of 2011, we substantially terminated operations of the antigen
business. In 2011, we had approximately $219,000 in revenue from these products and expect such revenues to decline significantly in 2012
and thereafter.
Raw Materials
Our human antigens products were purified from human tissue or fluids. In 2010, due to the fact that the Company is focusing its efforts
primarily on the development of other products, primarily its AppyScore test, purchases of these raw materials were suspended.
Intellectual Property
Further enhancement and expansion of our proprietary patent position is ongoing with respect to the scope of protection for the Company’s
first generation and future generation versions of tests. Strong scientific and technical progress remains the basis for these innovative efforts.
Human Diagnostics
AspenBio Pharma, Inc. began building its intellectual property portfolio for the appendicitis testing technology and products in 2004. We have
filed for and are pursuing worldwide patent coverage related to several aspects of the initial discovery and various test applications. This initial
patent family, entitled “Methods and Devices for Diagnosis of Appendicitis”, has a number of granted patents, as well as several others still in
prosecution worldwide. Further enhancement and expansion of our proprietary patent position is ongoing with respect to the scope of
protection for our first generation and future generation versions of the test. Recently, key scientific advancements have led to the filing of a
second patent family, entitled “Compositions and Methods for Assessing Appendicitis”, which focuses on a multi-marker approach to aid in
the diagnosis of appendicitis.
In November 2011 an additional patent family filing was added to AspenBio’s intellectual property portfolio for the appendicitis testing
technology and products. This patent filing focuses on the newly developed multiple-marker technology, providing patent coverage for using
the level of MRP 8/14 in a given sample in conjunction with CRP levels and WBC in order to provide an increasingly robust test to aid in the
diagnosis of appendicitis. Additionally, this patent filing claims a method for ruling out appendicitis based on multiple markers, a device or
system for assessing a subject based on a plurality of markers, and a kit or device to determine the value of a biomarker in a given sample.
Currently, this second patent family filing is a provisional patent application and has not yet been filed or granted in any specific countries.
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In May 2003, AspenBio entered into an Assignment and Consultation Agreement (the Bealer Agreement) with Dr. John Bealer related to the
appendicitis diagnosis technology. The Bealer Agreement transferred to AspenBio ownership rights from Dr. Bealer for inventions and related
improvements to technology associated with human appendicitis diagnostics involving protein antigens. The consideration for the Bealer
Agreement was the payment of a future royalty to Dr. Bealer based upon a low double digit rate applied to revenues, all as defined under the
Bealer Agreement. The Bealer Agreement contains confidentiality provisions, provides for the assignment of all patent rights to AspenBio
(which has occurred) and restrictions on the assignability of the agreement. The Bealer Agreement continues for the longer of twenty years or
the expiration of the last AspenBio patent to expire. AspenBio may terminate the Bealer Agreement if AspenBio in its reasonable judgment
decides it has no interest in pursuing the opportunity as defined under the agreement.
Animal Health
The AspenBio animal health patent portfolio originated under the exclusive license agreement with Washington University (St. Louis, MO),
under which we obtained intellectual property rights to their patent estate. This extensive portfolio consists of both patents and pending patent
applications (approximately 25 patents and numerous patent applications) related to our animal health products under development. The term
of the WU License Agreement ends upon the expiration of the last patent to expire. Patents in the estate begin to expire in 2014, with the last
of the current patents set to expire after 2028. WU has filed, and continues to file, patent applications to expand and extend the patent coverage
of the WU technology. AspenBio reimburses WU for the costs of such patent filings, namely prosecution and maintenance fees. Additional
patents in the AspenBio Pharma animal health portfolio have been filed by AspenBio since the execution of the agreement with WU. In
addition to the WU patents rights, there are additional patents and patent applications filed by AspenBio.
A patent filing for the recombinant luteinizing hormone technology was submitted in 2004, entitled “Methods and Kits for Maintaining
Pregnancy, Treating Follicular Cysts, and Synchronizing Ovulation Using Luteinizing Hormone.” This patent family claims methods of
administering rLH, the timing of administration, and dosage given in order to increase formation of accessory corpora lutea and maintain
pregnancies in treated animals. The patent family includes filings in the following countries (patent number included where applicable):
Australia (Pat No. 2004218365), Brazil, Canada and the United States. Three foreign patents have been granted for ‘Methods and Kits for
Maintaining Pregnancy, Treating Follicular Cysts, and Synchronizing Ovulation Using Luteinizing Hormone’, New Zealand patent 542549
was granted March 12, 2009 (expiring March 2024), Australia 2004218365 was granted May 27, 2010 (expiring March 2024) and European
patent 1610803 was granted December 15, 2010 (expiring March 2024). The patent granted by the European Patent Office and has been
validated in the following countries: Belgium, France, Germany, Ireland, Italy, The Netherlands, Spain, Switzerland, and the United Kingdom.
A patent filing for the equine follicle stimulating hormone technology was filed in 2008, entitled “Activity of Recombinant Equine Follicle
Stimulating Hormone.” This patent family provides coverage for the single chain eFSH itself, methods of administering reFSH, the timing of
administration, and dosage given in order to increase reproductive activity in treated animals. To date, no patents have been issued in this
patent family. The application has been filed and is active in the following countries: Brazil, Canada, China, The European Patent Office, and
the United States.
Two separate patent applications relating to cattle pregnancy have been filed by AspenBio. A patent filing for the Bovine Pregnancy test
technology was filed in 2007, entitled “Bovine Pregnancy Test.” This patent family provides coverage for an assay device designed to detect
pregnancy, the specific specifications of the device, for the antibodies used in the assay, as well as the type of sample used and the species for
which the test is effective in detecting pregnancy. The parent application was granted in the United States in 2008 (Pat No. 7,393,696), with
the divisional application granted in 2010 (Pat No. 7,687,281). Additionally, a patent filing for pregnancy detection was filed in 2003, entitled
“Pregnancy Detection.” This patent family provides coverage for an immunoassay test device, the specific specifications of the device, and for
the antibodies used in the assay as well as the type of sample used. The patent has been issued in the following counties: Australia (Pat No.
2003243199), New Zealand (Pat No. 536229 & 572488) and the United States (Pat No. 7,842,513).
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General Operations
Backlog and Inventory — Historically, our antigen business has not been seasonal in nature. As a result of our activities being focused on
AppyScore product development, we do not expend large amounts of capital to maintain inventory. We believe we have developed and
identified reliable sources of raw material and components as we progress towards commercialization of the AppyScore test.
Payment terms — Historically, in connection with our human antigen business we did not provide extended payment terms, other than to
support certain new product introductions, and then with terms of no more than 60 days.
Revenues — Historically, the majority of our revenues have come from U.S. customers of our human antigen business with no long-term
supply agreements and orders processed on a purchase-order basis. For the three months ended March 31, 2012, four customers represented
the total sales for the period. Two customers accounted for $93,000 of the total 2011 sales and individually represented 28% and 14% of such
sales. During the years ended December 31, 2011, 2010 and 2009, one European-based company, accounted for a total of 3%, 4% and 3%,
respectively, of our net sales. Our U.S. based revenues for the three months ended March 31, 2012 was $7,000 and for the years ended
December 31, 2011, 2010 and 2009 were $213,000, $355,000 and $282,000, respectively.
Research and Development
Research and development expenses in the three months ended March 31, 2012 totaled $677,000. We expended $5,666,000 on total research
and development in fiscal 2011, $6,112,000 in fiscal 2010 and $9,292,000 in fiscal 2009. We anticipate that total expenditures for research and
development for the fiscal year ending December 31, 2012 will generally decrease as compared to the amounts expended in 2011, due
primarily to the completion of a majority of the AppyScore discovery efforts in 2011, combined with lower expected product development
activities in 2012, offset by additional anticipated clinical trial costs in the second half of 2012. Research and development activities for the
animal health business are expected to be minimal in 2012.
Development and testing costs in support of the current 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 product consists of the acute appendicitis test, AppyScore. As we
continue towards commercialization of these products including evaluation of strategic alternatives to effectively maximize the value of our
technology, we will need to consider a number of alternatives, including possible capital raising or other transactions and partnering
opportunities, working capital requirements including possible product management and distribution alternatives and implications of product
manufacturing and associated carrying costs. Certain costs such as manufacturing and license/royalty agreements have different implications
depending upon the ultimate strategic path determined.
In April 2008, we entered into a long term exclusive license and commercialization agreement with Novartis Animal Health, Inc., to develop
and launch our novel recombinant single-chain bovine products, BoviPure LH and BoviPure FSH. The license agreement was a collaborative
arrangement that provided 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 under the Novartis License Agreement, of which 50% was
non-refundable upon signing the agreement, and the balance subject to certain conditions. In 2010, the conditions associated with $100,000 of
such milestones were satisfied. Novartis had the right to request a refund of the $900,000 remaining milestone payment and/or terminate the
agreement if the pilot study (as defined in the agreement) was not successful. NAH informed us that preliminary pilot study results revealed
that the pilot study did not demonstrate the outcomes as defined in the success criteria, and NAH requested a refund of the contingent
$900,000 milestone payment that was tied to the pilot study outcome and notified us that they wished to terminate the agreement. On
November 15, 2011, AspenBio and Novartis executed a Termination and Settlement Agreement that provided for the termination of the
existing agreements between the Company and NAH. During the three months ended March 31, 2012 we expended approximately $4,000 and
during the years ended December 31, 2011, 2010 and 2009, we expended approximately $148,000, $1,154,000 and $1,109,000, respectively,
in direct costs for the BoviPure LH and BoviPure FSH product development and related efforts.
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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 or plan to seek FDA clearance. 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 clearance.
We enter into discussions from time to time with various potential manufacturers who meet full cGMP requirements, and are capable of
large-scale manufacturing batches of our medical devices, and who can economically manufacture them to produce our 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 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.
Compliance
FDA
The FDA has regulatory authority over virtually all of our products in development.
AppyScore Acute Appendicitis Blood Tests — The FDA’s Center for Devices and Radiological Health (CDRH) is responsible for regulating
firms who manufacture, repackage, re-label and or import medical devices sold in the United States. Medical devices are classified based on
risk into Class I, II and III. Lacking a predicate device, currently our acute appendicitis test in development is anticipated to be classified as a
Class III medical device, which will require reclassification under the de-Novo 510(k) pathway. We continue to anticipate being able to obtain
FDA 510(k) clearance of our acute appendicitis blood test following successful completion of required clinical trials and other activities.
Generally FDA product clearance is granted after specific clinical trials, GMP validations and quality control requirements have been achieved
to the agency’s satisfaction. There is no assurance that we may obtain FDA clearance to market our acute appendicitis test.
Any product clearances or approvals that are granted remain subject to continual FDA review, and newly discovered or developed safety or
efficacy data may result in withdrawal of products from the market. Moreover, if and when such approval is obtained, the manufacture and
marketing of such products remain subject to extensive regulatory requirements administered by the FDA and other regulatory bodies,
including compliance with current GMP, adverse event and medical device reporting requirements and the FDA’s general prohibitions against
promoting products for unapproved or “off-label” uses. Manufacturers are subject to ongoing inspection and market surveillance by the FDA
for compliance with these regulatory requirements. Failure to comply with the requirements can, among other things, result in warning or
untitled letters, product seizures, recalls, fines, injunctions, suspensions or withdrawals of regulatory approvals, operating restrictions and
criminal prosecutions. Any such enforcement action could have a material adverse effect on our business. Unanticipated changes in existing
regulatory requirements or the adoption of new requirements could also have a material adverse effect on our business.
BoviPure LH and BoviPure FSH Drugs — FDA-INADA file numbers previously obtained by Novartis for BoviPure LH (LH analog for
cows) and BoviPure FSH (FSH analog for cows) have been transferred to AspenBio. INADA’s officially allow for the conduct of studies to
develop data for review under the approval process by the FDA’s Center for Veterinary Medicine (CVM).
EquiPure LH and FSH Drugs — we are reviewing our position and plans regarding INADA filings for these two drugs and CVM approval.
Environmental Protection
We are subject to various environmental laws pertaining to the disposal of hazardous medical waste. We contract for disposal of our hazardous
waste with a licensed disposal facility. We do not expect to incur liabilities related to a failure of compliance with environmental laws;
however, we cannot make a definitive prediction. The costs we incur in disposal of hazardous waste have not been significant.
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Other Laws
We are also subject to other federal, state and local laws, pertaining to matters such as privacy, informed consent, safe working conditions and
fire hazard control.
Glossary of Terms
Human Diagnostic Terms:
Algorithm — a set of rules that precisely defines a sequence of operations, in the case of AppyScore using a mathematical computation in a
software program
Biomarker tests — tests that identify and quantify biologic markers associated with disease or medical condition
Complete Blood Count (CBC) — a blood test used to evaluate overall health and detect a wide range of disorders, including anemia, infection
and leukemia
CRP — an abbreviation for C-reactive protein. CRP is a protein produced in the liver and found in the blood, the levels of which rise in
response to inflammation
De Novo Classification — a mechanism defined by the FDA Modernization Act (Section 513(f)) for classifying new medical devices for
which there is no predicate device, providing the product with a risk-based Class II classification allowing clearance under as a 510(k)
ELISA (Enzyme Linked Immunosorbant Assay) — immunological method used to test a sample for a protein marker
Genomics — the study of the genomes of organisms
GMP\cGMP — Good Manufacturing Practice\Current Good Manufacturing Practice
Immunoassay-based — test that uses antibody-antigen interaction as method of measure
Multi-marker test — a diagnostic or other test that uses multiple protein biomarkers as part of a diagnostic test panel
Proteomics — the study of an organisms complete compliment of proteins
Recombinant — Novel DNA made by genetic engineering
WBC — an abbreviation for white blood cell count. The white blood cells are analyzed from a blood sample collected as part of a standard
protocol for patients suspected of having infections who have entered the Emergency Department of a hospital
Animal Health Terms:
Artificially inseminated (AI) — the process in which a female has been bred via use of semen which does not involve the physical live
mounting/breeding using a bull
Compounded Deslorelin reagents — synthetic gonadotropin releasing hormone drug
Embryo transfer — transfer of an embryo from one female to another
Follicle stimulating hormone (FSH) — hormone that induces ovarian follicular development
GnRH-derived products — synthetic gonadotropin releasing hormone compounds
Gonadorelin — synthetic gonadotropin releasing hormone compound
Gonadotropins — See LH and FSH
Heterodimeric complex — natural form of gonadotropin comprising a complex of an alpha and beta subunit which can easily become
dissociated
Histopathologic — pertaining cell and histological structure in diseased tissue
INADA — an investigational new animal drug application filed with the FDA
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Luteinizing hormone (LH) — hormone that induces ovulation
Prostaglandin — hormone that causes regression of the corpus luteum
Single-chain analogs — see single-chain gonadotropin
Single-chain gonadotropin — recombinant forms of gonadotropins composed of the alpha and beta subunits fused in a single polypeptide
Single-polypeptide-chain-variants — see single-chain gonadotropin
Super ovulation — using hormone treatment to stimulate a female to produce more than one ova at one time
Legal Proceedings
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 Trpisovsky v. 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.
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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 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.
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.
Employees
We currently employ twenty-three full-time employees and five part-time employees. We believe our relationships with our employees are
good. We also regularly use part-time student interns and additional temporary and contract personnel depending upon our research and
development needs at any given time.
Properties
We maintain our administrative office, laboratory and production operations in a 40,000 square foot building in Castle Rock, Colorado, which
was constructed for us in 2003. We presently do not plan any renovation, improvements, or development of this property. We may utilize a
portion of the currently un-used space, which amounts to approximately 14,000 square feet for expansion at some point in the future. The
Company believes that its facilities are adequate for its near-term needs.
We own the property subject to a mortgage with an outstanding balance of approximately $2,545,000 at December 31, 2011, payable in
monthly installments of approximately $23,500 and bearing interest at an approximate average rate of 7%. In the opinion of management, the
Company maintains adequate insurance coverage on the property.
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                                   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                                      ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements between the Company and its independent accountants on any matter of accounting principles or practices,
or financial statement disclosure.

                           QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 December 31, 2011, approximately 64% of the investment portfolio was in 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.
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                                                                 MANAGEMENT
Executive officers of the Company are elected by the Board of Directors, and serve for a term of one year and until their successors have been
elected and qualified or until their earlier resignation or removal by the Board of Directors. There are no family relationships among any of the
directors and executive officers of the Company. None of the executive officers or directors has been involved in any legal proceedings of the
type requiring disclosure by the Company during the past five years. Further, there is no arrangement or understanding between any director
and the Company pursuant to which he or she was selected as a director. Mr. Lundy, Mr. Pusey, Mr. McGonegal and Mr. Hurd have
employment agreements in place with the Company with respect to their executive officer positions with the Company.
The following table sets forth names and ages of all executive officers and directors of the Company and their respective positions with the
Company as of the date of this prospectus:




                   Name                                    Age                              Position
                   Stephen T. Lundy                        50      Chief Executive Officer and President and a Director
                   Gail S. Schoettler                      68      Non-Executive Chair of the Board
                   Daryl J. Faulkner                       63      Director
                   Douglas I. Hepler Ph.D.                 65      Director
                   John H. Landon                          71      Director
                   Michael R. Merson                       67      Director
                   Gregory S. Pusey                        59      Vice President and a Director
                   Mark J. Ratain, M.D.                    57      Director
                   David E. Welch                          65      Director
                   Jeffrey G. McGonegal                    61      Chief Financial Officer and Secretary
                   Donald R. Hurd                          60      Senior Vice President and Chief Commercial Officer
Board of Directors
Stephen T. Lundy was appointed to the positions of Chief Executive Officer and President on March 24, 2010. Effective on the same date, he
was appointed to the Company’s Board of Directors. Mr. Lundy has more than 20 years of experience in drug and diagnostic product
development and commercialization. He most recently was Chief Executive Officer of MicroPhage from 2008 to 2010. Mr. Lundy was Senior
VP of sales and marketing for Vermillion from 2007 to 2008. Mr. Lundy joined Vermillion from GeneOhm (2003 – 2007), a division of
Becton, Dickinson and Company Diagnostics, where he served as Vice President of Sales and Marketing. At GeneOhm, Mr. Lundy
successfully led the commercial launch of several novel molecular diagnostic assays including the first molecular test for Methicillin resistant
Staphylococcus aureus. From 2002 to 2003, Mr. Lundy served as Vice President of Marketing for Esoterix, Inc., which was acquired by
Laboratory Corporation of America, and he led the commercial integration and re-branding of the numerous reference labs acquired by
Esoterix. Prior to Esoterix, he served as Marketing Director for Molecular Diagnostics and Critical Care Testing at Bayer Diagnostics
Corporation. Mr. Lundy graduated from the United States Air Force Academy with a Bachelor of Science and was an officer with the United
States Air Force from 1983 to 1988. Mr. Lundy’s qualifications for serving on the Board of Directors include over 20 years of experience in
drug and diagnostic development companies, including experience leading the commercial launch of diagnostic products and participation in
merger and acquisition transactions in the industry.
Gail S. Schoettler has served on the board of AspenBio Pharma, Inc., since August 2001. She is a member of the audit committee and the
nominating and governance committee of AspenBio Pharma, Inc. In October of 2010, Ms. Schoettler became Non-Executive Chair of the
board of AspenBio. She also serves on the board and is a member of the audit committee of Delta Dental of Colorado, a privately held dental
benefits company. She serves on the boards of The Colorado Trust, where she chairs the investment committee, and several non-profit
organizations. Former corporate board positions include; Masergy Communications, Inc., CancerVax, Inc., PepperBall Technologies, Inc.,
AirGate PCS, Women’s Bank, Equitable Bancshares of Colorado, and Fischer Imaging. She has served as a U.S. Ambassador, appointed by
President Clinton, and as
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Colorado’s Lt. Governor and State Treasurer. In 1998, she narrowly lost her bid for Governor of Colorado. She started two successful banks
and helps run her family’s cattle ranch, vineyards, and real estate enterprises. She and her husband own a travel company that focuses on
introducing business and community leaders to their counterparts overseas as well as to other countries’ cultures, economies, and history. She
earned a BA in economics from Stanford and MA and PhD degrees in African History from the University of California at Santa Barbara.
Among her numerous awards is the French Legion of Honor (France’s highest civilian award) from President Jacques Chirac of France. Ms.
Schoettler’s qualifications for serving on the Board of Directors include business acumen, years of public service and extensive public
company board, business and financial experience.
Daryl J. Faulkner was appointed to the Company’s Board of Directors in the newly created position of Executive Chairman on January 19,
2009 and on February 10, 2009, was appointed to serve as the Company’s interim Chief Executive Officer. Mr. Faulkner resigned from the
positions of interim Chief Executive Officer as of March 24, 2010, upon the hiring of Mr. Lundy and the position of Chairman in October
2010. He continues to serve as a director of the company. Mr. Faulkner has more than 25 years experience in developing and commercializing
medical devices, drug and drug delivery systems, life science research tools, and molecular diagnostics. He served for approximately one year
as President, CEO and a member of the Board of Directors of Digene Corporation, a NASDAQ-traded company prior to its acquisition in July
2007 by Qiagen (traded on NASDAQ’s Global Select market). He served as a consultant to Qiagen, and as co-chair of the executive
integration steering committee with the CEO of Qiagen from July 2007 to January 2009. Currently, Mr. Faulkner also serves as a member of
the Board of Directors of GenMark Diagnostics, Inc. (NASDAQ:GNMK), an emerging molecular diagnostics company traded on NASDAQ.
Prior to joining Digene, Mr. Faulkner spent eight years with Invitrogen (now NASDAQ:LIFE) in a number of senior roles, including SVP
Europe, SVP IVGN International Operations, and SVP of Strategic Business Units. Before Invitrogen, Mr. Faulkner’s career includes 15 years
with the Fortune 100 Company, Abbott Laboratories, in which he held leadership positions in manufacturing operations and plant
management. Mr. Faulkner received a degree in Industrial Relations from the University of North Carolina and a M.A. in Business
Management from Webster University. Mr. Faulkner’s qualifications for serving on the Board of Directors include significant chief executive
and senior executive experience in medical device and medical diagnostics publicly traded companies, both national and global.
Douglas I. Hepler, Ph.D. joined the Company’s Board of Directors in March of 2004. Dr. Helper is the chair of the compensation committee of
AspenBio Pharma, Inc. Commencing in 2006, Dr. Hepler became President of KADO Consulting a then newly formed consulting firm.
Through April 2006, he served as Vice President of Research and Development for IDEXX Pharmaceuticals, Inc., a wholly owned subsidiary
of IDEXX Laboratories, Inc. Dr. Hepler was responsible for the overall technical leadership of the Pharmaceutical Division of IDEXX
Pharmaceuticals, Inc. Dr. Hepler was also the Co-founder and Executive Vice President of Blue Ridge Pharmaceuticals, Inc. before its sale to
IDEXX Laboratories, Inc. in 1998. While at Blue Ridge Pharmaceuticals, Dr. Hepler was instrumental in the development and FDA
registration of Acarexx, Iverhart Plus, PZI Vet, Facilitator, Navigator, Pyrantel and CyFly. Prior to Blue Ridge Pharmaceuticals, Dr. Hepler
played a pivotal role in the development and FDA registration of Interceptor, Program, and Sentenial while at Novartis Animal Health. Dr.
Hepler received a B.S. degree from Lock Haven University in biology, a M.S. from Colorado State University in microbiology and a Ph.D.
from Colorado State University in immunology. Mr. Hepler’s qualifications for serving on the Board of Directors include pharmaceutical and
regulatory experience at the executive level in the field of animal health.
John H. Landon was appointed to our Board of Directors in December 2008 and is a member of the compensation and nominating and
corporate governance committees for AspenBio Pharma, Inc. Mr. Landon’s career includes more than 30 years of broad, multi-functional
experience with the DuPont Company. Prior to retiring from active management, Mr. Landon served as Vice President and General Manager
of medical products for DuPont. He had worldwide responsibility for all of DuPont’s medical product businesses, encompassing total annual
sales of $1 billion and more than 5,000 employees. In addition to other director roles, Mr. Landon served as Chairman of the board of
Cholestech Corporation prior to its 2007 sale to Inverness Medical and as a director of Digene Corporation prior to its 2007 sale to Qiagen. He
currently is a member of the board of LipoScience, Inc., a trustee of Christiana Care Health System, and a member of the
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board of advisors for Water Street Healthcare Partners. Mr. Landon received his B.S. in Chemical Engineering from the University of Arizona.
Mr. Landon’s qualifications for serving on the Board of Directors include extensive executive experience in the life science industry, with
particular experience with medical products businesses, and broad executive compensation knowledge and committee experience.
Michael R. Merson was appointed to our Board of Directors in July 2008. Mr. Merson is chair of the nominating and governance committee
and is a member of the audit committee of AspenBio Pharma. Since 2003, Mr. Merson has served on the board and was elected Chairman in
2004 of CareFirst — Blue Cross/Blue Shield, the sixteenth largest health insurer in the United States with annual revenues of approximately
$7.0 billion and covering over 3.2 million insured individuals. CareFirst is part of the BlueCross/Blue Shield group of insurance providers that
collectively cover 100 million lives in the United States. Mr. Merson previously held director and executive officer positions, primarily
President and/or CEO with MedStar Health, Helix Health, Inc., Franklin Square Hospital Center, and Preferred Health Network. He continues
to provide consulting services to primarily healthcare related enterprises, focused on merger and acquisition, goal setting, business and
governance issues, and executive compensation and benefits through Michael R. Merson, LLC and Yaffe & Company, consultants. He
received a B.S.B.A. from the University of Denver and an M.B.A. from The George Washington University. Mr. Merson’s qualifications for
serving on the Board of Directors includes health insurance company executive experience and extensive experience in the health care
provider industry.
Gregory Pusey became a director of AspenBio Pharma, Inc. in February 2002. Throughout his involvement with AspenBio, he has assisted
with financings, transactions and strategic matters. Over the years Mr. Pusey has served AspenBio as a member of the Board of Directors,
served as Chairman from May 2003 to January 2009 and in January 2010 became a Vice President of the Company. Mr. Pusey is a director
and assistant secretary of Bactolac Pharmaceutical, Inc., a privately held company engaged in manufacturing and marketing of vitamins and
nutritional supplements. Since 1988, Mr. Pusey has been the President and a director of Cambridge Holdings, Ltd. which has distributed
almost all of its assets and has limited activities. Until his resignation in April 2011, Mr. Pusey had served as a director of PepperBall
Technologies, Inc. and its predecessors, since 2002. Over the last 35 years, Mr. Pusey has helped a variety of companies with corporate
development and financing activities. Mr. Pusey graduated from Boston College with a Bachelor of Science degree in Finance. Mr. Pusey’s
qualifications for serving on the Board of Directors include extensive fundraising and financial expertise, particularly in publicly traded
companies.
Mark Ratain, M.D. was appointed to the board of AspenBio Pharma in March 2008 and is a member of the compensation committee and the
nominating and governance committee. He previously (1998 – 2008) served as a director of DATATRAK International, Inc., a publicly traded
company providing services to entities engaged in clinical trials. Dr. Ratain is a hematologist/oncologist and a clinical pharmacologist. He is
the Leon O. Jacobson Professor of Medicine, Director of the Center for Personalized Therapeutics, and Associate Director for Clinical
Sciences of the Comprehensive Cancer Center at the University of Chicago. He has authored and co-authored more than 350 articles and book
chapters. He received his A.B. degree in Biochemical Sciences from Harvard University, and his M.D. from the Yale University School of
Medicine. Dr. Ratain’s qualifications for serving on the Board of Directors include medical practice expertise, previous public company board
experience and broad knowledge of medicine.
David E. Welch became a director of AspenBio Pharma in October 2004. Mr. Welch is chair of the AspenBio Pharma audit committee. Mr.
Welch has served since April 2004 as Vice President and Chief Financial Officer of American Millennium Corporation, Inc., a private
company (publicly traded until June 2010) located in Golden, Colorado. Mr. Welch formerly served as a director of PepperBall Technologies,
Inc. He also is a self-employed financial consultant. From July 1999 to June 2002, Mr. Welch served as Chief Financial Officer, Secretary and
Treasurer of Active Link Communications, Inc., another publicly traded company. During 1998, he served as Chief Information Officer for
Language Management International, Inc., a multinational translation firm located in Denver, Colorado. From 1996 to 1997, he was Director
of Information Systems for Mircromedex, Inc., an electronic publishing firm, located in Denver, Colorado. Mr. Welch also serves on the
Board of Directors of Communication Intelligence Corporation, a publicly traded company. He received a B.S. degree in accounting from the
University of Colorado. Mr. Welch is a Certified Public Accountant,
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licensed in the state of Colorado. Mr. Welch’s qualifications for serving on the Board of Directors include financial and information systems
expertise, particularly in publicly traded companies.
Executive Officers
Stephen T. Lundy — see above under “Board of Directors.”
Gregory S. Pusey — see above under “Board of Directors.”
Jeffrey G. McGonegal became Chief Financial Officer of the Company in June 2003, was appointed Corporate Secretary in January 2010 and
served as interim President in December 2004 and January 2005. Mr. McGonegal served from 2003 to January 1, 2011 as Chief Financial
Officer of PepperBall Technologies, Inc. Mr. McGonegal also serves on a limited part-time basis as Senior Vice President — Finance of
Cambridge Holdings, Ltd., a small publicly held company with limited business activities. Mr. McGonegal served as Chief Financial Officer
of Bactolac Pharmaceutical, Inc. and had been associated with its predecessors through October 2006, a company (publicly held until
September 2006) engaged in manufacturing and marketing of vitamins and nutritional supplements. From 1974 to 1997, Mr. McGonegal was
an accountant with BDO Seidman LLP. While at BDO Seidman LLP, Mr. McGonegal served as Managing Partner of the Denver, Colorado
office. Until his resignation on March 21, 2012, Mr. McGonegal was elected in 2005 to serve on the board of Imagenetix, Inc., a publicly held
company in the nutritional supplements industry. He received a B.A. degree in Accounting from Florida State University.
Donald R. Hurd became the Senior Vice President and Chief Commercial Officer of the Company on May 23, 2012, previously having served
as a consultant to the Company since May 1, 2012. Mr. Hurd has more than 30 years of experience with in vitro diagnostic companies and
joins AspenBio from BioBehavioral Diagnostics, where he most recently served as Vice President Sales from 2010 to 2012. Prior positions
include: Vice President Marketing/Sales at MicroPhage from 2009 to 2010; Vice President North American Customer Operations, Siemens
Healthcare Diagnostics from 1998 to 2009; and U.S. Director of Sales, Bayer Healthcare Diagnostics. Mr. Hurd received a Bachelor of
Science in Business Administration and was a military veteran with the United States Navy.
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                                                       DIRECTOR COMPENSATION
Since February 1, 2008, each non-employee director receives cash compensation of $1,000 per month. On October 7, 2010, upon becoming
non-executive Chair of the Board, Gail Schoettler began receiving cash compensation of $2,000 per month. Our independent directors
typically receive a stock option upon joining and additional options over time, generally annually. As additional compensation for service as
non-executive chair, Ms. Schoettler receives awards equal to 1.5 times the awards made to the other non-employee directors when such awards
are made. The following information does not reflect the 1-for-6 reverse stock split anticipated to be effected upon this offering. The directors
are also reimbursed for all expenses incurred by them in attending board and committee meetings.




                Name                                                           Cash Fees Paid         Option Awards               Total
                                                                                    ($)                    ($) (8)                 ($)
                Gail Schoettler (1)                                                  24,000                  36,600                 60,600
                Daryl J. Faulkner (2)                                                12,000                  24,390                 36,390
                Douglas Hepler (3)                                                   12,000                  24,390                 36,390
                John Landon (4)                                                      12,000                  24,390                 36,390
                Michael R. Merson (5)                                                12,000                  24,390                 36,390
                Mark Ratain, M.D. (6)                                                12,000                  24,390                 36,390
                David Welch (7)                                                      12,000                  24,390                 36,390




(1) On January 5, 2011, Ms. Schoettler was granted options to purchase 15,000 shares at $2.95 per share, vesting over three years in arrears and expiring in ten year
    As of December 31, 2011, Ms. Schoettler held a total of 115,000 options to purchase shares of our common stock.
(2) On January 5, 2011, Mr. Faulkner was granted options to purchase 10,000 shares at $2.95 per share, vesting over three years in arrears and expiring in ten years.
    of December 31, 2011, Mr. Faulkner held a total of 125,000 options to purchase shares of our common stock.
(3) On January 5, 2011, Mr. Hepler was granted options to purchase 10,000 shares at $2.95 per share, vesting over three years in arrears and expiring in ten years. A
    December 31, 2011, Mr. Hepler held a total of 90,000 options to purchase shares of our common stock.
(4) On January 5, 2011, Mr. Landon was granted options to purchase 10,000 shares at $2.95 per share, vesting over three years in arrears and expiring in ten years. A
    of December 31, 2011, Mr. Landon held a total of 43,407 options to purchase shares of our common stock.
(5) On January 5, 2011, Mr. Merson was granted options to purchase 10,000 shares at $2.95 per share, vesting over three years in arrears and expiring in ten years. A
    of December 31, 2011, Mr. Merson held a total of 43,135 options to purchase shares of our common stock.
(6) On January 5, 2011, Dr. Ratain was granted options to purchase 10,000 shares at $2.95 per share, vesting over three years in arrears and expiring in ten years. A
    December 31, 2011, Dr. Ratain held a total of 43,263 options to purchase shares of our common stock.
(7) On January 5, 2011, Mr. Welch was granted options to purchase 10,000 shares at $2.95 per share, vesting over three years in arrears and expiring in ten years. A
    December 31, 2011, Mr. Welch held a total of 90,000 options to purchase shares of our common stock.
(8) The “Option Awards” columns reflect the grant date fair value for all stock option awards granted to non-employee directors under the Plan during 2010. These
    amounts are determined in accordance with FASB Accounting Standards Codification 718 (previously known as Statement of Financial Accounting Standards N
    123(R)) (ASC 718), without regard to any estimate of forfeiture for service vesting. Assumptions used in the calculation of the amounts in this column are inclu
    in footnotes 1 and 7 to the Company’s audited financial statements for the fiscal year ended December 31, 2011.
Independence of the Board of Directors
Our Board of Directors currently consists of Ms. Schoettler and Messrs. Lundy, Faulkner, Hepler, Landon, Merson, Pusey, Ratain and Welch.
The Company defines “independent” as that term is defined in Rule 5605(a)(2) of the NASDAQ listing standards. For 2011, Ms. Schoettler
and Messrs. Faulkner, Hepler, Landon, Merson, Ratain and Welch qualified as independent and none of them have any material relationship
with the Company that might interfere with his or her exercise of independent judgment.
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The non-employee directors, with the exception of Ms. Schoettler, receive cash compensation of $1,000 per month as compensation for
service on the Board. Ms Schoettler, the non-executive chair of the board, receives compensation of $2,000 per month as compensation for
service on the Board. The independent directors typically receive a stock option grant upon joining the Board and additional stock option
grants, generally annually, for service on the Board. Effective October 2010, Ms. Schoettler began receiving equity awards equal to 1.5 times
the amount granted to other non-employee directors when such awards are issued. The directors are also reimbursed for all expenses incurred
by them in attending board meetings.
Committees of the Board of Directors of the Company
Audit Committee: The Company has a separately designated standing Audit Committee established in accordance with Section 3(a) (58) (A)
of the Exchange Act. Three of the Company’s directors serve on the Audit Committee — David Welch (who serves as Chair of the
Committee), Gail Schoettler and Michael Merson. Mr. Welch has been designated as the financial expert on the Audit Committee. Each Audit
Committee member meets the definition of independence for audit committee membership as required by the NASDAQ listing standards. The
amended and restated Audit Committee Charter is available on our website at http://www.aspenbiopharma.com .
Nominating and Corporate Governance Committee: The Nominating Committee consists of: Michael Merson (who serves as Chair of the
Committee), Douglas Hepler Ph.D., Mark Ratain M.D. and John Landon, each of whom meet the NASDAQ listing standards for
independence. Duties of the Nominating Committee include oversight of the process by which individuals may be nominated to our Board of
Directors. The Nominating Committee charter is available on our web site at http://www.aspenbiopharma.com . There have been no material
changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors. The specific process for
evaluating new directors, including shareholder-recommended nominees, will vary based on an assessment of the then current needs of the
Board and the Company. The Nominating Committee will determine the desired profile of a new director, the competencies they are seeking,
including experience in one or more of the following: highest personal and professional integrity, demonstrated exceptional ability and
judgment and who shall be most effective in conjunction with the other nominees to the board, in collectively serving the long-term interests
of the shareholders. Candidates will be evaluated in light of the target criteria chosen. The Nominating Committee does not have a formal
diversity policy; in addition to the foregoing, it considers race and gender diversity in selection of qualified candidates.
Compensation Committee: The Company’s Compensation Committee is comprised of, Douglas Hepler Ph.D. (who serves as Chair of the
Committee), Mark Ratain M.D. and John Landon, each of whom is an independent director. The amended and restated Compensation
Committee Charter is available on our website at http://www.aspenbiopharma.com .
Code of Ethics and Whistle Blower Policy
In December 2003, the Board of Directors adopted a Code of Ethics that applies to its directors, officers (including its chief executive officer,
chief operating officer, chief medical officer, chief financial officer, chief scientific officer, controller and other persons performing similar
functions), and all employees generally. The Code of Business Ethics is available on our website at www.aspenbiopharma.com . We intend to
post any material amendments to or waivers of, our Code of Ethics that apply to our executive officers, on this website. In addition, our
Whistle Blower Policy is available on our website at www.aspenbiopharma.com .
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                                                     EXECUTIVE COMPENSATION
Summary Compensation Table
This table provides disclosure, for fiscal years 2011 and 2010 for the Named Executive Officers (NEOs), who are (1) any individual serving in
the office of Chief Executive Officer (CEO) during any part of 2011 and (2) the Company’s two most highly compensated officers, other than
the CEO, who were serving in such capacity on December 31, 2011.




              Named Executive       Year         Salary       Option Awards     Non-Equity         All Other         Total
                                                                   (4)
              Officer and                         ($)                          Incentive Plan    Compensation         ($)
              Principal Position                                   ($)        Compensation (5)         ($)
                                                                                    ($)
              Stephen T.            2011         275,000         268,308                —            34,209         577,517
              Lundy,
              Chief Executive
              Officer and
              President (1)
                                    2010         212,596         726,400           42,100            16,963         998,059
              Jeffrey G.            2011         225,000          24,390               —             20,758         270,148
              McGonegal,
              Chief Financial
              Officer (2)
                                    2010         200,000          88,300           35,000            19,722         343,022
              Erik S. Miller,       2011         225,000         107,420               —             30,894         363,314
              Vice President
              Marketing and
              Business
              Development (3)
                                    2010                  —              —              —            47,625           47,625
(1) Stephen T. Lundy joined the Company in 2010 as CEO and President with an annual salary of $275,000. Mr. Lundy also serves as a director of the Company; he
    does not receive additional compensation for serving in such role. Amounts included in “All Other Compensation” include: temporary living and travel
    accommodations he was provided at a total cost of $18,914 and $7,024 in 2011 and 2010, respectively, and coverage under the Company’s group medical plan a
    total cost of $15,296 and $9,939 in 2011 and 2010, respectively.
(2) Mr. McGonegal’s base compensation was adjusted to $225,000 effective January 1, 2011, as provided for under the terms of his employment agreement. The
    amount included in “All Other Compensation” includes the amount paid on his behalf for group medical benefits.
(3) Mr. Miller joined the Company on January 17, 2011 as Vice President, Marketing and Business Development. Prior to joining the Company he served as a
    consultant to the Company. Amounts included in “All Other Compensation” include: temporary living and travel accommodations he was provided at a total cos
    $11,694 in 2011, coverage under the Company’s group medical plan at a total cost of $7,700 in 2011 and consulting payments made prior to employment of
    $11,500 and $47,625 in 2011 and 2010. On May 11, 2012, Mr. Miller resigned from the Company.
(4) The “Option Awards” columns reflect the grant date fair value for all stock option awards granted under the Plan during 2010 and 2011. These amounts are
    determined in accordance with FASB Accounting Standards Codification 718 (previously known as Statement of Financial Accounting Standards No. 123(R))
    (ASC 718), without regard to any estimate of forfeiture for service vesting. Assumptions used in the calculation of the amounts in these columns for 2010 and 20
    are included in footnotes 1 and 7 to the Company’s audited financial statements for the fiscal year ended December 31, 2011.
(5) The “Non-Equity Incentive Plan Compensation” column reflects the annual cash bonuses earned under the Incentive Plan. The bonus amounts listed were earne
    for the fiscal year reported, but paid in the subsequent year.
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Outstanding Equity Awards at Fiscal Year End
The following table sets forth information regarding our outstanding equity awards as of December 31, 2011, for the Named Executive
Officers:




             Named Executive Officer    Number of         Number of           Equity         Option            Option
                                         Securities        Securities        Incentive       Exercise         Expiration
                                        Underlying        Underlying       Plan Awards:       Price             Date
                                        Unexercised       Unexercised       Number of         ($) (1)            ($)
                                          Options           Options          Securities
                                        Exercisable      Unexercisable      Underlying
                                           (#) (1)           (#) (1)        Unexercised
                                                                             Unearned
                                                                              Options
                                                                                (#)
             Stephen T. Lundy (2)          46,667             33,333             —              11.40           3-24-2020
                                               —              18,000             —               2.95            1-5-2021
                                               —              80,000             —               3.40            7-8-2021
             Jeffrey G. McGonegal          12,000                 —              —               7.35           6-17-2013
                (3)

                                           28,000                 —              —               6.05           1-19-2014
                                           20,000                 —              —               3.75           8-24-2014
                                           10,000                 —              —               4.00           3-24-2015
                                           10,000                 —              —              14.80           1-24-2017
                                            8,000                 —              —              33.15           1-17-2018
                                            6,667              3,333             —               6.65           1-27-2019
                                            3,333              6,667             —              11.00           1-19-2020
                                               —              10,000             —               2.95            1-5-2021
             Erik S. Miller (4)                —              40,000             —               3.25           1-17-2021
(1) As adjusted to reflect the five to one reverse stock split effective July 29, 2011; does not reflect the 1-for-6 reverse stock split that is anticipated to be effected in
    connection with this offering.
(2) Includes options to purchase 80,000 shares at $11.40 per share which were granted on March 24, 2010, options to purchase 18,000 shares at $2.95 per share whi
    were granted on January 5, 2011 and options to purchase 80,000 shares at $3.40 per share which were granted on July 8, 2011. All options are scheduled to vest
    33% on the first and second anniversaries and 34% on the third anniversary of the grant date with the exception of 20,000 shares of the March 24, 2010 stock
    options which vested early based upon their terms, upon the completion of the May 2010 capital raising transaction.
(3) Includes options to purchase 12,000 shares at $7.35 per share which were granted on June 17, 2003, options to purchase 28,000 shares at $6.05 per share which
    were granted January 19, 2004, options to purchase 20,000 shares at $3.75 per share which were granted August 24, 2004, options to purchase 10,000 shares at
    $4.00 per share which were granted March 24, 2005, options to purchase 10,000 shares at $14.80 per share which were granted January 24, 2007, options to
    purchase 8,000 shares at $33.15 per share which were granted January 17, 2008, options to purchase 10,000 shares at $6.65 per share which were granted on
    January 27, 2009, options to purchase 10,000 shares at $ 11.00 per share which were granted on January 19, 2010 and options to purchase 10,000 shares at $2.95
    per share which were granted on January 5, 2011. All options are scheduled to vest 33% on the first and second anniversaries and 34% on the third anniversary o
    the grant date with the exception of the stock options granted March 24, 2005 which were fully vested at grant date.
(4) Includes options to purchase 40,000 shares at $3.25 per share which were granted on January 17, 2011 and are scheduled to vest 33% on the first and second
    anniversaries and 34% on the third anniversary of the grant date. On May 11, 2012, Mr. Miller resigned from the Company.
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Employment Agreements and Post-Employment Benefits
The Company has entered into employment agreements with, and provides post-employment benefits to, its NEOs as follows:
Chief Executive Officer — On March 24, 2010, we entered into an employment agreement with Mr. Lundy for a one-year term which
automatically renews each anniversary thereafter (unless terminated by either party as provided in the agreement). The agreement provides in
the event that the agreement is terminated by the Company for other than cause, or if terminated by the Executive in the event of a change in
control, severance payments based upon Mr. Lundy’s salary will be made for twelve months. In the event of death or disability, severance
payments based upon Mr. Lundy’s salary will be made for three months.
Chief Financial Officer — On February 2, 2009, we entered into an employment agreement with Mr. McGonegal for a one-year term which
automatically renews each anniversary thereafter (unless terminated by either party as provided in the agreement). The agreement provides in
the event that the agreement is terminated by the Company for other than cause, or if terminated by the Executive in the event of a change in
control, severance payments based upon Mr. McGonegal’s salary will be made for six months. In the event of death or disability, severance
payments based upon Mr. McGonegal’s salary will be made for six months.
Post-Employment Benefits
The following table discloses the post-employment termination benefits that would have been received by the NEOs if a termination event had
occurred on December 31, 2011:




              Named Executive             Benefit           Termination          Death or       Change In      Change In Control
              Officer                                     without Cause ($)    Disability ($)    Control        (Double Trigger)
                                                                                                  (Single             ($)
                                                                                                Trigger) ($)
              Stephen T. Lundy       Severance                 275,000              68,750           —              275,000
                                                                    —                   —            —                   —
                                                    (1)
                                     Options

                                     Total                     275,000              68,750           —              275,000
                                                                                                     —
              Jeffrey G.             Severance                 112,500            112,500            —              112,500
                McGonegal
                                                                      —                   —          —                    —
                                                    (1)
                                     Options

                                     Total                     112,500            112,500            —              112,500
                                                                                                     —                   —
              Erik S. Miller (2)     Severance                        —                   —          —                   —
                                                                      —                   —          —                   —
                                                    (1)
                                     Options

                                     Total                            —                   —          —                    —
(1) As of December 31, 2011, all unvested stock options have exercise prices above the closing trading price of the Common Stock of $0.97, prior to the 1-for-6 rev
    stock split expected to be effected immediately prior to the date of this prospectus. Therefore, no value is attributable to such stock options.
(2) On May 11, 2012, Mr. Miller resigned from the Company.
2002 Stock Incentive Plan
The Company currently has one equity compensation plan. The 2002 Stock Incentive Plan (the Plan) was approved by the Board of Directors
and adopted by the shareholders on May 20, 2002. At our annual meeting of shareholders held on June 9, 2008 our shareholders approved an
amendment to the Plan increasing the number of shares reserved under the Plan to 920,000. On November 20, 2009, the Company’s
shareholders approved an amendment to the Plan to increase the number of shares reserved under the Plan to 1,220,000. On November 22,
2010, the Company’s shareholders approved an amendment to the Plan to increase the number of shares reserved under the Plan to 1,360,000.
On July 8, 2011, the Company’s shareholders approved an amendment to the Plan to increase the number of shares reserved under the Plan to
1,500,000. All such share amounts are prior to the 1-for-6 reverse stock split expected to be effected immediately prior to the date of this
prospectus.
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The Plan provides the Committee with the authority to award: (i) options intended to qualify as “incentive stock options” (“Incentive
Options”) under Section 422 of the Code; (ii) non-incentive stock options which are not intended to qualify as Incentive Options
(“Non-Incentive Options”); and (iii) shares issuable under a “Right to Purchase.”
The Plan is intended to provide incentives to officers, directors, employees and other persons, including consultants and advisers, who
contribute to the success of the Company by offering them the opportunity to acquire an ownership interest in it. The Board of Directors
believes that this also helps align the interests of the Company’s management and employees with the interests of shareholders. The terms of
the Plan concerning the Incentive Options and Non-Incentive Options are substantially the same except that only employees of the Company
are eligible to receive Incentive Options; employees and other persons are eligible to receive Non-Incentive Options, and Incentive Stock
Options are subject to certain restrictions and limitations in compliance with Section 422 of the Code. The number of shares reserved for
issuance under the Plan is a maximum aggregate so that the number of Incentive Options and/or Non-Incentive Options that may be granted
reduces the number of Rights to Purchase which may be granted, and vice versa.
The following table gives information about the Company’s Common Stock that may be issued upon the exercise of options and rights under
the Company’s plan as of December 31, 2011 prior to the 1-for-6 reverse stock split expected to be effected upon the pricing of the offering:




                   Plan Category                             Number of securities to   Weighted average        Number of
                                                             be issued upon exercise   exercise price of        securities
                                                             of outstanding options      outstanding       remaining available
                                                                                           options                 for
                                                                                                             future issuance
                   Equity compensation plans approved                 1,291,485        $       8.99               156,306
                     by security holders
                   Equity compensation plans not                              —                  —                      —
                     approved by security holders
                   Total                                              1,291,485        $       8.99               156,306

Other Benefits
Medical insurance — The Company offers health insurance as well as voluntary coverage for dental and vision to its qualifying employees.
All covered employees pay a portion of health insurance and pay all vision and dental premiums.
Perquisites and other benefits — We offer our NEOs modest perquisites and other personal benefits that we believe are reasonable and in our
best interest and generally in line with benefits we offer to all of our employees. See “ Executive Compensation — Summary compensation
table .”
Severance benefits — We have entered into employment agreements with certain of our NEOs. These agreements provide our NEOs with
certain severance benefits in the event of involuntary termination. See “ Executive Compensation — Employment agreements and
post-employment benefits. ”
Pension benefits — The Company has no defined benefit plans, supplemental executive retirement plans or actuarial plans.
Nonqualified defined contribution and other deferred compensation plans — The Company does not have a defined contribution plan and has
not contributed to a deferred compensation plan.
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                          CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company’s Audit Committee is charged with reviewing and approving all related person transactions in advance.
Except for the employment agreements previously entered into between the Company and certain of its executive officers (as described under
“ Executive Compensation — Employment Agreements and Post-Employment Benefits ”), since January 1, 2011, none of the directors or
executive officers of the Company, nor any person who owned of record or was known to own beneficially more than 5% of the Company’s
outstanding shares of its Common Stock, nor any associate or affiliate of such persons or companies, has any material interest, direct or
indirect, in any transaction, or in any proposed transaction, which has materially affected or will affect the Company.
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                                                        PRINCIPAL SHAREHOLDERS
The number of shares of the Company’s common stock outstanding at April 30, 2012 was 9,658,321. All share amounts are prior to the 1-for-6
reverse stock split expected to be effected immediately prior to the date of this prospectus. The following table sets forth the beneficial
ownership of the Company’s Common Stock as of April 30, 2012 by each Company director and each executive officer then serving, by all
directors and executive officers as a group, and sets forth the number of shares of Company common stock owned by each person who owned
of record, or was known to own beneficially, more than 5% of the outstanding shares of common stock. Beneficial ownership is determined in
accordance with Rule 13d-3 under the Exchange Act. In computing the number of shares beneficially owned by a person or a group and the
percentage ownership of that person or group, shares of our common stock subject to options currently exercisable or exercisable within 60
days after April 30, 2012 are deemed outstanding, but are not deemed outstanding for the purpose of computing the percentage ownership of
any other person. To the knowledge of the directors and executive officers of the Company, as of April 30, 2012, there are no persons and/or
companies who or which beneficially own, directly or indirectly, shares carrying more than 5% of the voting rights attached to all outstanding
shares of the Company, other than as set forth below. Unless otherwise indicated, the address of each individual named below is the address of
the company, 1585 South Perry Street, Castle Rock, CO 80104.




              Name and Address                                         Number of             Percentage           Percentage
                                                                        Shares              Ownership as          Ownership
                                                                                             of April 30,        immediately
                                                                                                2012            following this
                                                                                                                   Offering
              Stephen T. Lundy (1)                                            66,000                *
              Gail S. Schoettler (2)                                         104,667              1.1 %
              Daryl J. Faulkner (3)                                          112,000              1.1 %
              Douglas I. Hepler (4)                                           88,260                *
              John H. Landon (5)                                              33,407                *
              Michael R. Merson (6)                                           34,215                *
              Gregory Pusey (7)                                              288,766              3.0 %
              Mark J. Ratain (8)                                              33,263                *
              David E. Welch (9)                                              80,000                *
              Jeffrey G. McGonegal (10)                                      159,731              1.6 %
              Erik S. Miller (11)                                             13,333                *
              All Officers and Directors as a Group (11                    1,013,642              9.7 %
                 persons) (12)
              Perkins Capital Management, Inc.                             1,659,299             17.2 %
              730 Lake St. E.
              Wayzata, MN 55391 (13)
              Sabby Management, Inc.                                         776,008              8.1 %
              10 Mountainview Road, Suite 205
              Upper Saddle River, NJ 07458 (14)
              The Peierls Foundation, Inc.                                   948,088              9.8 %
              c/o U.S. Trust Company of N.Y.
              114 West 47th Street
                New York, NY 10036 (15)




*   Holds less than 1%
(1) Consists of options to acquire 60,000 shares at $11.40 per share and 6,000 shares at $2.95 per share. Does not include options of acquire 20,000 shares at $11.40
    share which are scheduled to vest in March 2013, options to acquire 12,000 shares at $2.95 per share which are scheduled to vest equally in January 2013 and
    January 2014, options to acquire 80,000 shares that were granted in July 2011 at $3.40 per share which vest annually over three years commencing in July 2012
    also excludes options to acquire 75,000 shares that were granted on April 30, 2012 at $0.66 which vest as to 37,500 in October 2012 and 6,250 monthly for the s
    months thereafter.
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(2) Includes 3,000 shares directly owned. Also includes options to purchase 20,000 shares at $7.35 per share, options to purchase 10,000 shares at $4.25 per share,
    options to purchase 20,000 shares at $4.80 per share, options to purchase 10,000 shares at $8.00 per share, options to purchase 10,000 shares at $14.80 per share
    options to purchase 10,000 shares at $33.15 per share, options to acquire 10,000 shares at $6.65 per share, options to purchase 6,667 shares at $11.00 per share a
    options to purchase 5,000 shares at $2.95 per share. Does not include options to purchase 3,333 shares at $11.00 per share which vest in January 2013, options to
    acquire 10,000 shares at $2.95 per share that were granted in January 2011 which vest in equal installments in January 2013 and January 2014, and also exclude
    options to acquire 15,000 shares at $.71 per share that were granted on April 2, 2012 which vest in equal installments in January 2013, January 2014 and January
    2015.
(3) Includes 2,000 common shares held by the Daryl J. and Terri L Faulkner Family Trust. Also includes options to acquire 90,000 shares at $8.45 per share and 16,
    shares at $11.00 per share. Does not include options to acquire 8,333 shares at $11.00 per share which are scheduled to vest in January 2012, options to acquire
    8,667 shares that were granted in January 2011 at $2.95 per share which are scheduled to vest in equal installments in January 2013 and January 2014, and also
    excludes options to acquire 10,000 shares at $.71 per share that were granted on April 2, 2012 which vest in equal installments in January 2013, January 2014 an
    January 2015.
(4) Includes 1,800 shares directly and jointly owned with his wife plus 6,460 shares held solely by Dr. Hepler’s wife. Dr. Hepler disclaims ownership of the shares h
    solely by his wife. Also includes options to purchase 20,000 shares at $7.50 per share, options to purchase 10,000 shares at $4.00 per share, options to purchase
    10,000 shares at $8.00 per share, options to purchase 10,000 shares at $14.80 per share, options to purchase 10,000 shares at $33.15 per share, options to purcha
    10,000 shares at $6.65 per share, options to purchase 6,667 shares at $11.00 per share and options to purchase 3,333 shares at $2.95 per share. Excludes options
    purchase 3,333 shares at $11.00 per share which vest in January 2013, and options to acquire 6,667 shares at $2.95 per share that were granted in January 2011
    which vest in equal installments in January 2013 and January 2014, and also excludes options to acquire 10,000 shares at $.71 per share that were granted on Ap
    2, 2012 which vest in equal installments in January 2013, January 2014 and January 2015.
(5) Includes options to acquire 13,407 shares at $29.35 per share, options to acquire 10,000 shares at $6.65 per share, options to acquire 6,667 shares at $11.00 per
    share and options to acquire 3,333 shares at $2.95 per share. Excludes options to purchase 3,333 shares at $11.00 per share which vest in January 2013, options
    purchase 6,667 shares at $2.95 per share that were granted in January 2011 which vest in equal installments in January 2013 and January 2014, and also exclude
    options to acquire 10,000 shares at $.71 per share that were granted on April 2, 2012 which vest in equal installments in January 2013, January 2014 and January
    2015.
(6) Includes 1,080 shares held directly. Also includes options to purchase 13,135 shares at $31.90 per share, options to acquire 10,000 shares at $6.65 per share, opt
    to acquire 6,667 shares at $11.00 per share and also includes options to acquire 3,333 shares at $2.95 per share. Excludes options to acquire 3,333 shares at $11.
    per share which vest in January 2013, options to acquire 6,667 shares at $2.95 per share that were granted in January 2011 which vest in equal installments in
    January 2013 and January 2014, and also excludes options to acquire 10,000 shares at $.71 per share that were granted on April 2, 2012 which vest in equal
    installments in January 2013, January 2014 and January 2015.
(7) Includes 30,815 shares directly owned by Mr. Pusey. Also includes 14,789 shares held by Mr. Pusey’s wife and his wife’s IRA account; however Mr. Pusey
    disclaims beneficial ownership of these shares. Also includes: (i) 12,086 shares held in Mr. Pusey’s IRA account, (ii) 118,223 shares held jointly with his wife a
    (iii) 2,853 shares held by Cambridge Holdings Ltd. Mr. Pusey is President, a director and principal shareholder of Cambridge. Further, Mr. Pusey’s beneficial
    ownership includes options to acquire 20,000 shares at $6.05 per share, options to acquire 50,000 options at $4.00 per share, options to acquire 10,000 shares at
    $14.80 per share, options to acquire 10,000 shares at $33.15 per share, options to acquire 10,000 shares at $6.65 per share, options to acquire 6,667 shares at $11
    per share and options to acquire 3,333 shares at $2.95 per share. Excludes options to acquire 3,333 shares at $11.00 per share which vest in January 2013, option
    acquire 6,667 shares at $2.95 per share that were granted in January 2011 which vest in equal installments in January 2013 and January 2014 and also excludes
    options to acquire 40,000 shares that were granted on April 30, 2012 at $0.66 which vest as to 20,000 in October 2012 and 3,333 monthly for the six months
    thereafter.
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(8) Includes options to acquire 13,263 shares at $30.65 per share, options to acquire 10,000 shares at $6.65 per share, options to acquire 6,667 shares at $11.00 per
    share and also includes options to acquire 3,333 shares at $2.95 per share. Excludes, options to purchase 3,333 shares at $11.00 per share which vest in January
    2013, options to acquire 6,667 shares at $2.95 per share that were granted in January 2011 which vest in equal installments in January 2013 and January 2014, a
    also excludes options to acquire 10,000 shares at $.71 per share that were granted on April 2, 2012 which vest in equal installments in January 2013, January 20
    and January 2015.
(9) Includes options to acquire 20,000 shares at $3.80 per share, options to acquire 10,000 shares at $4.00 per share, options to acquire 10,000 shares at $8.00 per sh
    options to purchase 10,000 shares at $14.80 per share, options to purchase 10,000 shares at $33.15 per share, options to purchase 10,000 shares at $6.65 per shar
    options to acquire 6,667 shares at $11.00 per share and also includes options to acquire 3,333 shares at $2.95 per share. Excludes options to purchase 3,333 shar
    $11.00 per share which vest in January 2013, options to acquire 6,667 shares at $2.95 per share that were granted in January 2011 which vest in equal installmen
    in January 2013 and January 2014, and also excludes options to acquire 10,000 shares at $.71 per share that were granted on April 2, 2012 which vest in equal
    installments in January 2013, January 2014 and January 2015.
(10) Includes 48,431 shares held directly and 300 shares owned by his daughter; however Mr. McGonegal disclaims beneficial ownership of the shares owned by h
     daughter. Also includes 3,000 shares held in Mr. McGonegal’s IRA account. Also includes options to purchase 12,000 shares at $7.35, options to acquire 28,00
     shares at $6.05 per share, options to acquire 20,000 shares at $3.75 per share, options to purchase 10,000 shares at $4.00 per share, options to purchase 10,000
     shares at $14.80 per share, options to purchase 8,000 shares at $33.15 per share, options to acquire 10,000 shares at $6.65 per share, 6,667 shares at $11.00 per
     share and also includes options to acquire 3,333 shares at $2.95 per share. Excludes options to purchase 3,333 shares at $11.00 per share which vest in January
     2013, options to acquire 6,667 shares at $2.95 per share that were granted in January 2011 which vest in equal installments in January 2013 and January 2014 a
     also excludes options to acquire 40,000 shares that were granted on April 30, 2012 at $0.66 which vest as to 20,000 in October 2012 and 3,333 monthly for the
     months thereafter.
(11) Includes options to acquire 13,333 shares at $3.25 per share. Excludes options to purchase 26,667 shares at $3.25 per share that were granted in January 2011
     which vest in equal installments in January 2013 and January 2014 and also excludes options to acquire 15,000 shares that were granted on April 30, 2012 at $
     which vest as to 7,500 in October 2012 and 1,250 monthly for the six months thereafter. On May 11, 2012, Mr. Miller resigned from the Company.
(12) Includes footnotes (1) through (11).
(13) Information is based upon holdings as of March 31, 2012 as reported on Schedule 13G filed on April 9, 2012. Perkins Capital Management, Inc., an investmen
     advisor, has voting power over 1,191,759 shares and dispositive power over 1,659,299 shares.
(14) Information is based upon holdings as of December 31, 2011 as reported on Schedule 13G filed on January 9, 2012. Sabby Volatility Warrant Master Fund, Lt
     (“Sabby Fund”), Sabby Management, LLC (“Sabby”) and Hal Mintz (“Mintz”) each beneficially own 776,008 shares. Sabby and Mintz do not directly own an
     shares, but each indirectly owns 776,008 shares. Sabby serves as the investment manager of Sabby Fund, which directly holds the shares. Mintz is the manager
     Sabby.
(15) Information based on representations made by representatives of the Peierls Foundation, Inc. to the Company in April 2012.

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                                                      DESCRIPTION OF SECURITIES
Common Stock
Our authorized capital stock consists of 30,000,000 shares of common stock, no par value per share.
As of May 24, 2012, we had 1,609,720 outstanding shares of common stock adjusted to reflect the anticipated 1-for-6 reverse stock split.
As of May 24, 2012, we had outstanding stock options to purchase 238,481 shares of common stock at prices ranging from $3.96 to $261.60,
as adjusted for the anticipated 1-for-6 reverse stock split. As of May 24, 2012, we had outstanding non-qualified options and warrants to
purchase 296,889 shares of common stock at an average price of $7.91 per share of common stock, as adjusted to reflect the anticipated
1-for-6 reverse stock split.
Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders, except that in the
election of directors each shareholder shall have as many votes for each shares held by him, her or it as there are directors to be elected and for
whose election the shareholder has a right to vote. Cumulative voting is not permitted. Generally, all matters to be voted on by shareholders
must be approved by a majority, or, in the case of the election of directors, by a plurality, of the votes cast at a meeting at which a quorum is
present.
Holders of outstanding shares of our common stock are entitled to those dividends declared by the Board of Directors out of legally available
funds, and, in the event of our liquidation, dissolution or winding up of our affairs, holders are entitled to receive ratably our net assets
available to the shareholders. Holders of our outstanding common stock have no preemptive, conversion or redemption rights. All of the issued
and outstanding shares of our common stock are, and all unissued shares of our common stock, when offered and sold will be, duly authorized,
validly issued, fully paid and nonassessable. To the extent that additional shares of our common stock may be issued in the future, the relative
interests of the then existing shareholders may be diluted.
Our authorized but unissued shares of common stock are available for future issuances without shareholder approval and could be utilized for
a variety of corporate purposes, including future offerings to raise additional capital, corporate acquisitions and employee benefit plans. The
existence of authorized but unissued and unreserved common stock could render more difficult or discourage an attempt to obtain control of us
by means of a proxy contest, tender offer, merger or otherwise.
Our Board of Directors approved an amendment as of March 21, 2012, to our Articles of Incorporation as amended, that would permit a
reverse split of our issued and outstanding common stock. The amendment was approved by our shareholders at our Annual Meeting held on
May 22, 2012, giving our Board of Directors the authority to effect a reverse split of our issued and outstanding common stock at a ratio in the
range of between 1-for-2 and 1-for-6. For purposes of disclosure, we have assumed a 1-for-6 reverse stock split immediately prior to the date
of this prospectus.
Underwriters’ Warrants
We are registering the warrants we have agreed to sell to the representative of the underwriters in this offering to purchase up to a total
of     shares of common stock (5% of the shares sold in this offering). A complete description of those warrants is included in the section of
this prospectus titled “Underwriting — Underwriters’ Warrants.”
Transfer Agent
The transfer agent for our common stock is Corporate Stock Transfer, Inc., Denver, CO.
Listing
The shares of our common stock are currently listed on the NASDAQ Capital Market under the symbol “APPY.”
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                                                               UNDERWRITING
Aegis Capital Corp. is acting as the representative of the underwriters of the offering. We have entered into an underwriting agreement
dated , 2012 with the representative. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each
underwriter named below and each underwriter named below has severally agreed to purchase, at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its
name in the following table:




                   Name                                                                                          Number of
                                                                                                                  Shares
                   Aegis Capital Corp.

                          Total
The underwriting agreement provides that the obligations of the underwriters are subject to certain conditions precedent and that the
underwriters have agreed, severally and not jointly, to purchase all of the shares of common stock sold under the underwriting agreement if
any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the
non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to
payments the underwriters may be required to make in respect thereof.
The underwriters are offering our common stock, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of
legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw,
cancel or modify offers to the public and to reject orders in whole or in part.
The underwriters propose to offer the shares of our common stock offered by us to the public at the public offering price set forth on the cover
of this prospectus. In addition, the underwriters may offer some of the shares of our common stock to other securities dealers at such price less
a concession of $ per share. The underwriters may also allow, and such dealers may re-allow, a concession not in excess of $          per share
to other dealers. After the public offering of the shares, the offering price per share and other selling terms may be changed by the
underwriters.
Commissions and Discounts
The following table shows the per share and total underwriting discounts and commissions that we are to pay to the underwriters in connection
with this offering.
                                                                         Per Share       Total Without              Total With
                                                                                         Over-Allotment           Over-Allotment
                                                                                            Option                   Option
              Public offering price                                      $           $                        $
              Underwriting discount (7%)                                 $           $                        $
              Non-accountable expense allowance (1%)                     $           $                        $
              Proceeds, before expenses, to us                           $           $                        $
We have paid an expense deposit of $25,000 to the representative which will be applied against the non-accountable expenses that will be paid
by us to the underwriters in connection with this offering.
We estimate that the total expenses of the offering, including registration, filing and listing fees, printing fees and legal and accounting
expenses, but excluding the underwriting discount, will be approximately $450,000.
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Over-allotment Option
We have granted a 45-day option to the underwriters to purchase up to an additional shares of common stock (15% of common stock sold in
this offering) to cover over-allotments, if any, at the same price as the initial shares offered. If the underwriters fully exercise their
over-allotment option, the total public offering price, underwriting discounts and commissions, and net proceeds (before expenses) to us will
be $      ,$     and $    , respectively.
Underwriters’ Warrants
We have agreed to issue to the representative warrants to purchase up to a total of        shares of common stock (5% of the shares sold in this
offering, excluding the over-allotment option). The shares issuable upon exercise of these warrants are identical to those offered by this
prospectus. The warrants are exercisable at per share price equal to 125% of the public offering price per share in this offering commencing on
a date which is one year from the effective date of the offering under this prospectus and expiring on a date which is no more than five years
from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(H)(i). The warrants have been deemed compensation by
FINRA and are, therefore, subject to a 180-day lock -up pursuant to Rule 5110(g)(1) of FINRA. The underwriters (or permitted assignees
under the Rule) will not sell, transfer, assign, pledge or hypothecate these warrants or the securities underlying these warrants, nor will it
engage in any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of these warrants or
the underlying securities for a period of 180 days after the effective date. In addition, the warrants provide for registration rights upon request,
in certain cases. The demand registration right provided will not be greater than five years from the effective date of the offering in compliance
with FINRA Rule 5110(f)(2)(H)(iv). The piggyback registration right provided will not be greater than seven years from the effective date of
the offering in compliance with FINRA Rule 5110(f)(2)(H)(v). We will bear all fees and expenses attendant to registering the securities
issuable on exercise of the warrants, other than underwriting commissions incurred and payable by the holders. The exercise price and number
of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend,
extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying
shares will not be adjusted for issuances of common stock at a price below the warrant exercise price.
Lock-ups
We, our directors and executive officers and one of our stockholders have entered into lock up agreements with the representative prior to the
commencement of this offering pursuant to which each of these persons or entities, for a period of three months from the effective date of this
offering without the prior written consent of the representative, agree not to (1) offer, pledge, sell, contract to sell, grant, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable
for shares of our common stock, or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the common stock, whether any such transaction described in clause (1) or (2) above is to be settled
by delivery of common stock or such other securities, in cash or otherwise, or (3) make any demand for or exercise any right with respect to
the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock, or (4)
publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement
relating to any of the common stock. Notwithstanding these limitations, these common shares may be transferred by gift, will or intestate
succession, or by judicial decree under certain limited circumstances.
The lock-up period described in the preceding paragraphs will be automatically extended if: (1) during the last 17 days of the restricted period,
we issue an earnings release or announce material news or a material event; or (2) prior to the expiration of the lock-up period, we announce
that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, in which case the restrictions
described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the date of the earnings
release.
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Any of the securities subject to the lock-up agreement may be released in whole or part from the terms thereof only upon the approval of the
representative; provided, however, that we must announce any such release through a major news service and such release will only be
effective two business days after the publication date of such press release.
Right of First Refusal
If at least $15,000,000 in shares of common stock are sold in this offering, we will grant the representative, for a period of 12 months after the
closing of this offering, a right of first refusal to act as, in the Company’s discretion, as lead underwriter or minimally as co-manager with at
least 50% of the economics, or, in the case of a three-underwriter or placement agent transaction, 33% of the economics.
Electronic Offer, Sale and Distribution of Share s
A prospectus in electronic format may be made available on the websites maintained by the underwriters or one or more of the selling group
members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses
electronically. The representative may agree to allocate a number of shares to the underwriters and selling group members for sale to their
online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make
internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is
not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus form a part, has not been
approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
Stabilization
In connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering
transactions, penalty bids and purchases to cover positions created by short sales.
   •   Stabilizing transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpos
       preventing or retarding a decline in the market price of the shares while the offering is in progress.
   •   Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase. This
       creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares
       over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the
       number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by exercising
       over-allotment option and/or purchasing shares in the open market.
   •   Syndicate covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate short
       positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available
       purchase in the open market as compared with the price at which it may purchase shares through exercise of the over-allotment option. If the underwriters se
       more shares than could be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed out only b
       buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be
       downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering.
   •   Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the shares originally sold by that syndicate member ar
       purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price
of our shares or common stock or preventing or retarding a decline in the market price of our shares or common stock. As a result, the price of
our common stock in the open market
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may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or
prediction as to the effect that the transactions described above may have on the price of our common stock. These transactions may be
effected on The NASDAQ Capital Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Passive market making
In connection with this offering, the underwriters and selling group members may engage in passive market making transactions in our
common stock on The NASDAQ Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period
before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker
must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below
the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.
Indemnification
The underwriting agreement provides for indemnification between us and the underwriters against specified liabilities, including liabilities
under the Securities Act, and for contribution by us and the underwriters to payments that may be required to be made with respect to those
liabilities. We have been advised that, in the opinion of the SEC, indemnification for liabilities under the Securities Act is against public policy
as expressed in the Securities Act, and is therefore, unenforceable.
The foregoing does not purport to be a complete statement of the terms and conditions of the underwriting agreement. Reference is made to a
copy of the underwriting agreement, which is on file as an exhibit to the registration statement or an amendment to the registration statement,
of which this prospectus forms a part.
Other Relationships
The underwriters and their affiliates have provided, and may in the future provide, various investment banking, commercial banking and other
financial services for us and our affiliates for which they have received, and may in the future receive, customary fees; however, except as
disclosed in this prospectus, we have no present arrangements with the underwriters for any further services.
Other Terms
Certain of the underwriters and their affiliates have provided, and may in the future provide, various investment banking, commercial banking
and other financial services for us and our affiliates for which they have received, and may in the future receive, customary fees, however,
except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services.
From time to time, the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on
behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.
We have also agreed to pay the underwriters expenses relating to the offering, including (a) all fees, expenses and disbursements relating to
background checks of our officers and directors in an amount not to exceed $1,000 per individual and an aggregate amount of $10,000; (b) all
fees incurred in clearing this offering with FINRA, (c) up to $15,000 for the underwriters’ expenses (including fees of counsel) incurred
relating to registration or qualification of the shares under the “blue sky” securities laws, (d) up to $20,000 of accountable “road show”
expenses, and (e) up to $20,000 for the underwriters use of Ipreo’s book-building, prospectus tracking and compliance software for this
offering. We have paid an advance of $25,000 to the representative, which will be applied against the non-accountable expense allowance
(including an advance for the fees and expenses of the underwriters’ counsel). The total of any advanced payments will be refundable to the
extent not actually incurred in compliance with FINRA Rule 5110(f)(2)(C).
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Offer Restrictions Outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the shares of
common stock offered by this prospectus in any jurisdiction where action for that purpose is required. The shares offered by this prospectus
may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with
the offer and sale of any such shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance
with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform
themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any shares offered by this prospectus in any jurisdiction in which such an offer or a
solicitation is unlawful.
Australia
This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian
Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D
of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is
lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in
section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i)
above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such
a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within
Australia any of the securities sold to the offeree within 12 months after its transfer to the offeree under this prospectus.
China
The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s
Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative
Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly
to “qualified domestic institutional investors.”
European Economic Area — Belgium, Germany, Luxembourg and Netherlands
The information in this document has been prepared on the basis that all offers of securities will be made pursuant to an exemption under the
Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant
Member State”), from the requirement to produce a prospectus for offers of securities.
An offer to the public of securities has not been made, and may not be made, in a Relevant Member State except pursuant to one of the
following exemptions under the Prospectus Directive as implemented in that Relevant Member State:
   •    to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to
        invest in securities;
   •    to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,0
        (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its
        annual unconsolidated or consolidated financial statements);
   •    to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtain
        the prior consent of the Company or any underwriter for any such offer; or
   •    in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for th
        publication by the Company of a prospectus pursuant to Article 3 of the Prospectus Directive.
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France
This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France
within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of
the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not been offered or sold and will not be
offered or sold, directly or indirectly, to the public in France.
This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in
France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for
their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D. 744-1, D.754-1 and D.764-1 of the
French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle
restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1,
D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed
(directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to
L.621-8-3 of the French Monetary and Financial Code.
Ireland
The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed
with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in
Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities
have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to
(i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not
qualified investors.
Israel
The securities offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the ISA), or ISA, nor have
such securities been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the
publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus;
nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the
securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered by this prospectus is subject to
restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.
Italy
The offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission
(Commissione Nazionale per le Societá e la Borsa, “CONSOB” pursuant to the Italian securities legislation and, accordingly, no offering
material relating to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the
meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:
   •    to Italian qualified investors, as defined in Article 100 of Decree no.58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999
        (“Regulation no. 1197l”) as amended (“Qualified Investors”); and
   •    in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 a
        amended.
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Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where
a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:
   •   made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1
       September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and
   •   in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws.
Any subsequent distribution of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules
provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with
such rules may result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for
any damages suffered by the investors.
Japan
The securities have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan
(Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement
of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations
promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any
resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them
to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the
execution of an agreement to that effect.
Portugal
This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal,
within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or
sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to
the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissão do Mercado de Valores
Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in
Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers,
sales and distributions of securities in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities
Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Sweden
This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory
Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under
circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag
(1991:980) om handel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as
defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the
information contained in it to any other person.
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Switzerland
The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock
exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance
prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff.
of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor
any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss
regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss
Financial Market Supervisory Authority (FINMA).
This document is personal to the recipient only and not for general circulation in Switzerland.
United Arab Emirates
Neither this document nor the securities have been approved, disapproved or passed on in any way by the Central Bank of the United Arab
Emirates or any other governmental authority in the United Arab Emirates, nor has the Company received authorization or licensing from the
Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities
within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services
relating to the securities, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within the
United Arab Emirates by the Company.
No offer or invitation to subscribe for securities is valid or permitted in the Dubai International Financial Centre.
United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services
Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as
amended (“FSMA”)) has been published or is intended to be published in respect of the securities. This document is issued on a confidential
basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or
sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do
not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced,
in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the
issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be
communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to the Company.
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters
relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial
Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth
companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant
persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be
engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
                                                                         72
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                                                              LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon by Ballard Spahr LLP, Philadelphia, Pennsylvania. Certain legal
matters will be passed upon for the underwriters by Reed Smith LLP, New York, New York.

                                                                     EXPERTS
The audited financial statements of AspenBio Pharma, Inc., included herein have been audited by GHP Horwath, P.C., independent registered
public accounting firm, for the periods and to the extent set forth in their report (which contains an explanatory paragraph relating to the
Company’s ability to continue as a going concern) appearing herein. Such financial statements have been so included in reliance upon the
report of such firm given upon the firm’s authority as an expert in auditing and accounting.

                                              WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 relating to the securities covered by this prospectus. This prospectus is a part
of the registration statement and does not contain all the information in the registration statement. For further information with respect to us
and the securities we are offering under this prospectus, we refer you to the registration statement and the exhibits and schedules filed as a part
of the registration statement. We also file annual, quarterly and current reports, proxy statements and other information with the SEC. You
may read and copy the registration statement, as well as any other material we file with the SEC, at the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on the Public Reference Room. The SEC
maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC, including AspenBio. The SEC’s Internet site can be found at http://www.sec.gov.
We file periodic reports and other information with the SEC. Such periodic reports and other information are available for inspection and
copying at the public reference room and website of the SEC referred to above. We maintain a website at http://www.aspenbiopharma.com .
You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as
reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information and other content contained on
our website are not part of the prospectus.
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                                                  INDEX TO FINANCIAL STATEMENTS




              Annual Financial Statements:
                 Report of Independent Registered Public Accounting Firm                                                   F-2
                 Balance Sheets — December 31, 2011 and 2010                                                               F-3
                 Statements of Operations — For the fiscal years ended December 31, 2011, 2010 and 2009                    F-4
                 Statements of Stockholders’ Equity — For the fiscal years ended December 31, 2011, 2010                   F-5
                   and 2009
                 Statements of Cash Flows — For the fiscal years ended December 31, 2011, 2010 and 2009                    F-6
                 Notes to Financial Statements                                                                             F-7
              Interim Condensed Unaudited Financial Statements:
                 Condensed Balance Sheets — March 31, 2012 (unaudited) and December 31, 2011                              F-23
                 Condensed Statements of Operations — For the three months ended March 31, 2012 and 2011                  F-24
                   (unaudited)
                 Condensed Statements of Cash Flows — For the three months ended March 31, 2012 and 2011                  F-25
                   (unaudited)
                 Notes to Condensed Financial Statements (unaudited)                                                      F-26
    The accompanying financial statements and notes thereto, have not been adjusted to reflect the 1-for-6 reverse stock split anticipated to be
effected immediately prior to the date of this prospectus.
                                                                      F-1
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                           REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
AspenBio Pharma, Inc.
We have audited the accompanying balance sheets of AspenBio Pharma, Inc. (“the Company”) as of December 31, 2011 and 2010, and the
related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AspenBio Pharma,
Inc. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has suffered recurring losses and negative cash flows from operations that raise substantial
doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.




                                                                              /s/ GHP HORWATH,
                                                                              P.C.
Denver, Colorado
March 16, 2012
                   F-2
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                                                         AspenBio Pharma, Inc.

                                                            Balance Sheets
                                                            December 31,




                                                                                  2011                2010
                                     ASSETS
           Current assets:
             Cash and cash equivalents                                  $          2,968,104     $    8,908,080
             Short term investments (Note 1)                                       1,003,124          2,932,188
             Accounts receivable (Note 1)                                             35,016             73,176
             Prepaid expenses and other current assets                               314,800            393,177
                Total current assets                                               4,321,044         12,306,621
           Property and equipment, net (Note 2)                                    2,795,149          3,107,134
           Other long term assets, net (Notes 1 and 3)                             1,611,652          1,745,350
           Total assets                                                 $          8,727,845     $   17,159,105

              LIABILITIES AND STOCKHOLDERS’ EQUITY
           Current liabilities:
             Accounts payable                                           $            581,713     $     1,126,172
             Accrued compensation                                                     47,622             227,570
             Accrued expenses                                                        368,406             357,685
             Deferred revenue, current portion (Note 9)                                   —              746,062
             Notes and other obligations, current portion (Note 4)                 1,074,185             273,861
                Total current liabilities                                          2,071,926           2,731,350
           Notes and other obligations, less current portion (Note 4)              2,830,041           2,546,682
           Deferred revenue, less current portion (Note 9)                                —              633,636
                Total liabilities                                                  4,901,967           5,911,668
           Commitments and contingencies (Note 9)
           Stockholders’ equity (Notes 5 and 6):
             Common stock, no par value, 30,000,000 shares                       68,846,796          66,054,554
                authorized; 9,633,321 and 8,028,321 shares issued and
                outstanding
             Accumulated deficit                                                 (65,020,918 )       (54,807,117 )
                Total stockholders’ equity                                         3,825,878          11,247,437
           Total liabilities and stockholders’ equity                   $          8,727,845     $    17,159,105

                                          See Accompanying Notes to Financial Statements
                                                                 F-3
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                                                         AspenBio Pharma, Inc.

                                                        Statements of Operations
                                                        Years ended December 31,




                                                              2011                   2010                   2009
           Sales (Note 1)                           $          219,420         $      370,229         $       290,872
           Cost of sales                                        16,345                358,094                 710,207
                Gross profit (loss)                            203,075                 12,135                (419,335 )

           Other revenue – fee (Note 9)                          62,179                 68,394               213,947
           Operating expenses:
             Selling, general and administrative              5,575,221              7,417,686              6,052,968
             Research and development                         5,666,221              6,112,405              9,291,637
               Total operating expenses                      11,241,442             13,530,091             15,344,605
               Operating loss                               (10,976,188 )          (13,449,562 )          (15,549,993 )

           Other income (expense):
             Interest income                                     16,424                 61,696                189,429
             Interest expense                                  (196,933 )             (194,482 )             (200,136 )

             Gain on contract termination (Note                938,896                         —                      —
               9)
             Other income (Note 7)                                4,000                244,629                 43,135
               Total other income, net                          762,387                111,843                 32,428
             Net loss                               $       (10,213,801 )      $   (13,337,719 )      $   (15,517,565 )


           Basic and diluted net loss per share     $                (1.27 )   $            (1.69 )   $            (2.34 )
             (Note 1)

           Basic and diluted weighted average                 8,032,718              7,876,081              6,634,490
             number of common shares
             outstanding (Notes 1 and 5)

                                            See Accompanying Notes to Financial Statements
                                                                     F-4
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                                                   AspenBio Pharma, Inc.

                                          Statements of Stockholders’ Equity
                                     Years ended December 31, 2011, 2010 and 2009




                                               Common Stock                    Accumulated            Total
                                                                                  Deficit
                                      Shares                  Amount

           Balance, January 1,        6,235,817       $   43,839,785       $    (25,951,833 )   $   17,887,952
             2009
             Common stock options       227,367                 468,640                  —             468,640
               and warrants
               exercised
             Stock-based                       —              1,714,936                  —            1,714,936
               compensation issued
               for services
             Common stock issued      1,031,000               8,259,765                  —            8,259,765
               for cash, net of
               offering costs of
               $503,735
             Net loss for the year             —                       —        (15,517,565 )       (15,517,565 )

           Balance, December 31,      7,494,184           54,283,126            (41,469,398 )       12,813,728
             2009
             Common stock options        52,209                 291,028                  —             291,028
               exercised
             Stock-based                       —              2,363,871                  —            2,363,871
               compensation issued
               for services
             Common stock issued        481,928               9,116,529                  —            9,116,529
               for cash, net of
               offering costs of
               $883,471
             Net loss for the year             —                       —        (13,337,719 )       (13,337,719 )

           Balance, December 31,      8,028,321           66,054,554            (54,807,117 )       11,247,437
             2010
             Stock-based                       —              1,336,177                  —            1,336,177
               compensation issued
               for services
             Common stock issued      1,605,000               1,456,065                  —            1,456,065
    for cash, net of
    offering costs of
    $181,035
  Net loss for the year           —                  —           (10,213,801 )       (10,213,801 )

Balance, December 31,      9,633,321    $    68,846,796    $     (65,020,918 )   $     3,825,878
  2011

                          See Accompanying Notes to Financial Statements
                                               F-5
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                                                         AspenBio Pharma, Inc.

                                                        Statements of Cash Flows
                                                        Years ended December 31,




                                                             2011                   2010                2009
           Cash flows from operating
             activities:
             Net loss                               $       (10,213,801 )   $      (13,337,719 )   $   (15,517,565 )

             Adjustments to reconcile net loss to
               net cash used by operating
               activities:
               Depreciation and amortization                   490,515                492,160              388,203
               Impairment charges                              274,941                107,443              565,242
               Non-cash charges                                     —                      —                 7,995
               Amortization of license fee                     (62,179 )              (68,394 )           (213,947 )

               Stock-based compensation for                   1,336,177              2,363,871           1,714,936
                 services
               Gain on contract termination                    (938,896 )                   —                   —

             (Increase) decrease in:
                Accounts receivable                              38,160                (25,217 )            15,235

               Prepaid expenses and other                      426,825                403,271             846,029
                  current assets
             Increase (decrease) in:
               Accounts payable                                284,543                (419,377 )          662,309

               Accrued expenses                                  30,773               (222,652 )          167,916

             Net cash used in operating                      (8,332,942 )          (10,706,614 )       (11,363,647 )
               activities
           Cash flows from investing
             activities:
             Purchases of investment securities              (1,043,192 )           (7,628,977 )        (2,307,248 )

             Sales of investment securities                   2,972,256              5,206,909           7,436,336
             Purchases of property and                          (90,100 )             (191,509 )          (243,769 )
               equipment
  Patent and trademark application              (228,163 )             (309,898 )         (352,184 )
     costs
  Net cash provided by (used in)               1,610,801             (2,923,475 )        4,533,135
     investing activities
Cash flows from financing
  activities:
  Repayment of notes payable and                (673,900 )             (236,165 )         (350,621 )
     other obligations
  Net proceeds from issuance of                1,456,065              9,116,529          8,259,765
     common stock
  Proceeds from exercise of warrants                  —                 291,028           468,640
     and options
  Net cash provided by financing                782,165               9,171,392          8,377,784
     activities
Net increase (decrease) in cash and           (5,939,976 )           (4,458,697 )        1,547,272
  cash equivalents
Cash and cash equivalents, at                  8,908,080             13,366,777         11,819,505
  beginning of year
Cash and cash equivalents, at end      $       2,968,104      $       8,908,080     $   13,366,777
  of year

Supplemental disclosure of cash flow
  information:
  Cash paid during the year for:
     Interest                          $        180,915       $         194,533     $     186,700

  Schedule of non-cash investing and
    financing transactions:
    Acquisitions of assets for         $        454,830       $         293,873     $           —
       installment obligations

                               See Accompanying Notes to Financial Statements
                                                    F-6
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                                                                 AspenBio Pharma, Inc.

                                                             Notes to Financial Statements
Note 1. Organization and summary of significant accounting policies:
Nature of operations:
 AspenBio Pharma, Inc. (the “Company” or “AspenBio Pharma”) was organized on July 24, 2000, as a Colorado corporation. AspenBio
Pharma’s business is in the development and commercialization of innovative products that address unmet diagnostic and therapeutic needs.
The Company’s lead product candidate, AppyScore, is designed to be a novel blood-based diagnostic test that, if successfully cleared to be
marketed by the FDA, will aid, through the test’s negative predictive value, in the evaluation of low risk patients initially suspected of having
acute appendicitis, thereby helping address the difficult challenge of triaging possible acute appendicitis patients in the hospital emergency
department or urgent care settings.
The Company’s research and development activities are currently focused primarily on a human acute appendicitis blood-based test.
Going concern, 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, and at December 31, 2011 had cash and liquid investments of
$3,971,000, working capital of $2,249,000, total stockholders’ equity of $3,826,000 and an accumulated deficit of $65,021,000. 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 not be sufficient to meet its estimated cash needs
for the remainder of 2012. These factors raise substantial doubt about the Company’s ability to continue as a going concern. 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 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, or that they will not have
significantly dilutive effect on the Company’s existing shareholders. 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 Company’s ability to continue as a going concern depends on the success of management’s plans to bridge such cash shortfalls in 2012,
which includes the following:
   •   aggressively pursuing additional capital raising activities in 2012;
   •   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.
Cash, cash equivalents and short term 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.
                                                                              F-7
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                                                            AspenBio Pharma, Inc.

                                                         Notes to Financial Statements
Note 1. Organization and summary of significant accounting policies: - (continued)
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, U.S. 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 income (expense) in current period earnings. The 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. 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 December 31, 2011, 64% of the investment portfolio was in 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 16% of the portfolio and none with maturities past June 2012. To date, the Company’s cumulative
realized market loss from the investments has not been in excess of $5,000. For the year ended December 31, 2011, there was $1,004 in
unrealized loss, $3,505 in realized loss, $1,073 in realized gain for the year and $9,248 in management fees. For the year ended December 31,
2010, there was $1,065 in unrealized income, $1,388 in unrealized loss, $2,023 in realized gain for the year and $17,959 in management fees.
For the year ended December 31, 2009, there was $4,709 in unrealized income, there was no realized gain or loss, and $18,271 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 (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.
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 December 31, 2011 and December 31, 2010.
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.
                                                                        F-8
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                                                             AspenBio Pharma, Inc.

                                                          Notes to Financial Statements
Note 1. Organization and summary of significant accounting policies: - (continued)
Revenue recognition and accounts receivable:
The Company recognizes revenue when product is shipped or delivered depending upon the terms of sale. The Company extends credit to
customers generally without requiring collateral. Historically, the Company’s base antigen business has sold products primarily throughout
North America. One European customer accounted for approximately 3%, 4%, and 3% of net sales during 2011, 2010 and 2009, respectively.
At December 31, 2011, two customers accounted for 73% and 19% of total accounts receivable. At December 31, 2010, two customers
accounted for 82% and 13% of total accounts receivable. During the year ended December 31, 2011, two customers accounted for a total of
42% of net sales, each representing 28% and 14%, respectively. During the year ended December 31, 2010, four customers accounted for a
total of 58% of net sales, each representing 19%, 18%, 11% and 10%, respectively. During the year ended December 31, 2009, two customers
accounted for a total of 37% of net sales, each representing 20% and 17%, respectively.
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.
The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. The Company records an allowance for
doubtful accounts when it is probable that the accounts receivable balance will not be collected. When estimating the allowance, the Company
takes into consideration such factors as its day-to-day knowledge of the financial position of specific clients, the industry and size of its clients.
A financial decline of any one of the Company’s large clients could have an adverse and material effect on the collectability of receivables and
thus the adequacy of the allowance for doubtful accounts receivable. Increases in the allowance are recorded as charges to bad debt expense
and are reflected in other operating expenses in the Company’s statements of operations. Write-offs of uncollectible accounts are charged
against the allowance. No allowance was considered necessary at December 31, 2011 or 2010.
Property and equipment:
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, generally
twenty-five years for the building, ten years for land improvements, five years for equipment and three years for computer related assets.
Goodwill and other intangible assets:
Goodwill, arose from the initial formation of the Company, and represents the purchase price paid and liabilities assumed in excess of the fair
market value of tangible assets acquired. The Company performs a goodwill impairment test in the fourth quarter of each year and has
determined that there has been no goodwill impairment. The Company reviews for impairment at least annually, or whenever there is an
indication of impairment.
Impairment of long-lived assets:
Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to
undiscounted future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Based on its review,
including an updated assessment subsequent to year end, management determined that certain costs previously incurred for patents had been
impaired during the years ended December 31, 2011 and 2010. Approximately $275,000, $107,000 and $565,000 of such patent costs were
determined to be impaired during the years ended December 31, 2011, 2010 and 2009, respectively resulting from management’s decisions not
to pursue patents based upon a cost benefit analysis of patent expenses and coverage protection
                                                                         F-9
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                                                            AspenBio Pharma, Inc.

                                                         Notes to Financial Statements
Note 1. Organization and summary of significant accounting policies: - (continued)
in several smaller world markets that were determined to not have the economic or fiscal potential to make the patent pursuit viable.
Impairment charges are included in research and development expenses in the accompanying statement of operations.
Research and development:
Research and development costs are charged to expense as incurred.
Use of estimates:
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 that affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual
results could differ significantly from those estimates.
Income taxes:
The Company accounts for income taxes under the asset and liability method, in which deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation
allowance is required to the extent any deferred tax assets may not be realizable.
The Company does not have an accrual for uncertain tax positions as of December 31, 2011 and 2010. The Company files corporate income
tax returns with the Internal Revenue Service and the State of Colorado, and there are open statutes of limitations for tax authorities to audit
the Company’s tax returns from 2008 through the current period.
Stock-based compensation:
AspenBio Pharma accounts for stock-based compensation under ASC 718 (formerly — SFAS No. 123 (revised 2004)), Share-Based Payment
. ASC 718 requires the recognition of the cost of employee services received in exchange for an award of equity instruments in the financial
statements and is measured based on the grant date fair value of the award. ASC 718 also requires the stock option compensation expense to
be recognized over the period during which an employee is required to provide service in exchange for the award (generally the vesting
period). The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model.
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 stockholders 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
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                                                                 AspenBio Pharma, Inc.

                                                             Notes to Financial Statements
Note 1. Organization and summary of significant accounting policies: - (continued)
stock options and warrants are not considered in the calculation, as the impact of the potential common shares (totaling approximately
2,984,000, 1,286,000 and 952,000 shares for each of the years ended December 31, 2011, 2010 and 2009, respectively) would be to decrease
the net loss per share.
Upon the completion of the 2011 annual shareholders meeting on July 8, 2011 where such actions were approved, the Board of Directors
authorized a reverse stock split of the Company’s common stock at a ratio of one-for-five, whereby each five shares of common stock were
combined into one share of common stock (the “Reverse Stock Split”). The Reverse Stock Split was effective with respect to shareholders of
record at the close of business on July 28, 2011, and trading of the Company’s common stock on the NASDAQ Capital Market began on a
split-adjusted basis beginning on July 29, 2011. As a result of the Reverse Stock Split, the total number of shares of common stock outstanding
was reduced from approximately 40.1 million shares to approximately 8.0 million shares.
All historical references to shares and share amounts in this report have been retroactively revised to reflect the Reverse Stock Split, the
principal effects of which were to:
   1. reduce the number of shares of common stock issued and outstanding by a factor of 5;
   2. increase the per share exercise price of options and warrants by a factor of 5, and decrease the number of shares issuable upon exercise by a factor of 5, for a
      outstanding options and warrants entitling the holders to purchase shares of the Company’s common stock; and
   3. proportionately reduce the number of shares authorized and reserved for issuance under the Company’s existing equity compensation plans.
A reconciliation of historical basic and diluted weighted average number of shares outstanding retroactively adjusted for the Reverse Stock
Split follows:




                                                                                     December 31, 2010             December 31, 2009
                     Basic and diluted weighted average number of
                       shares outstanding
                       Pre-split                                                            39,247,604                    33,169,172
                       Post split                                                            7,876,081                     6,634,490
Recently issued and adopted accounting pronouncements:
In April 2010, the FASB issued ASU 2010-17, “ Revenue Recognition — Milestone Method (Topic 605): Milestone Method of Revenue
Recognition .” The pronouncement provides guidance on the milestone method of revenue recognition for research and development
arrangements. Under the milestone method contingent consideration received from the achievement of a substantive milestone is recognized in
its entirety in the period in which the milestone is achieved. A milestone is defined as an event (i) that can only be achieved based in whole or
in part on either the entity’s performance or on the occurrence of a specific outcome resulting from the entity’s performance, (ii) for which
there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved, and (iii) that would result in
additional payments being due to the entity. A milestone is substantive if the consideration earned from the achievement of the milestone is
consistent with the performance required to achieve the milestone or the increase in value to the collaboration resulting from performance,
relates solely to past performance, and is reasonable relative to all of the other deliverables and payments within the arrangement. The
adoption of this ASU did not have a material impact on the Company’s financial statements.
Reclassifications:
Certain amounts in the accompanying financial statements for the years ended December 31, 2010 and 2009 have been reclassified to conform
to the presentation used in 2011.
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                                                         AspenBio Pharma, Inc.

                                                      Notes to Financial Statements
Note 2. Property and equipment:
Property and equipment consisted of the following as of December 31,:




                                                                                 2011                  2010
                   Land and improvements                                $         1,107,508   $         1,107,508
                   Building                                                       2,589,231             2,589,231
                   Building improvements                                            251,049               235,946
                   Laboratory equipment                                           1,175,047             1,207,241
                   Office and computer equipment                                    398,295               378,431
                                                                                  5,521,130             5,518,357
                   Less accumulated depreciation                                  2,725,981             2,411,223
                                                                        $         2,795,149   $         3,107,134

Depreciation expense totaled approximately $402,000, $395,000 and $341,000 for each of years ended December 31, 2011, 2010 and 2009,
respectively.
Note 3. Other long-term assets:
Other long-term assets consisted of the following as of December 31,:




                                                                                      2011              2010
                   Patents, trademarks and applications, net of accumulated       $          1,214,748       $    1,342,737
                     amortization of $273,550 and $190,829
                   Goodwill                                                                    387,239              387,239
                   Other                                                                         9,665               15,374
                                                                                  $          1,611,652       $    1,745,350

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
$69,000 for each of the next five fiscal years.
Note 4. Notes and other obligations:
Notes payable and installment obligations consisted of the following as of December 31,:




                                                                                      2011                       2010
                   Mortgage notes                                             $        2,545,312         $        2,653,737
                   Termination obligation (Note 9)                                     1,152,753                         —
                   Other short-term installment obligations                              206,161                    166,806
                                                                                       3,904,226                  2,820,543
                   Less current portion                                                1,074,185                    273,861
                                                                              $        2,830,041         $        2,546,682

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 2011 and 2010, and the SBA portion bears interest at the rate of 5.86%.
The commercial bank portion of the loan requires total monthly payments of
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                                                          AspenBio Pharma, Inc.

                                                      Notes to Financial Statements
Note 4. Notes and other obligations: - (continued)
approximately $14,200, which includes approximately $9,200 per month in contractual interest, through June 2013 when the then remaining
principal balance is due which is estimated to be approximately $1,607,000 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.
Other short-term installment obligations:
The Company has executed financing agreements for certain of the Company’s insurance premiums. At December 31, 2011, these obligations
totaled $206,000 all of which are due in 2012.
Future maturities:
The Company’s debt obligations including the termination obligation, require minimum annual principal payments of approximately
$1,074,000 in 2012, $2,067,000 in 2013, $65,000 in 2014, $68,000 in 2015, $72,000 in 2016 and $558,000 thereafter, through the terms of the
agreements. The Company’s Exclusive License Agreement with The Washington University also requires minimum annual royalty payments
of $20,000 per year during its term.
Note 5. Stockholders’ equity:
2011 Transactions:
In July 2011 at the annual shareholders meeting the Board of Directors approved an amendment to the Company’s Articles of Incorporation to
reduce the authorized common shares from 60 million to 30 million.
In December 2011, the Company completed a registered direct offering of securities consisting of 1,605,000 units for a negotiated price of
$1.02 per unit, generating approximately $1,456,000 in net proceeds to the Company. Fees and other expenses totaled $181,000, including a
placement fee of 6.79%. Each unit consisted of one share of the Company’s no par value common stock and one warrant to purchase one share
of common stock. The exercise price of each warrant is $1.22 per share; the warrants are exercisable beginning June 30, 2012 and expire in
June 2017. The purpose of the offering was to raise funds for working capital, new product development and general corporate purposes.
2010 Transactions:
In May 2010, the Company completed a registered direct offering of securities consisting of 481,928 units (Units) for a negotiated price of
$20.75 per Unit, generating approximately $9,117,000 in net proceeds to the Company. Fees and other expenses totaled $883,000, including a
placement fee of 6.5%. Each Unit consisted 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 481,928 shares of common stock and warrants to purchase 137,349 shares of common stock
were issued. The exercise price of the warrants was $24.10 per share; the warrants were exercisable upon issuance for an eight month term and
expired in January 2011. The purpose of the offering was to raise funds for working capital, new product development and general corporate
purposes.
During the year ended December 31, 2010, consultants exercised options outstanding under the Company’s 2002 Stock Incentive Plan (the
Plan) as amended and approved by the Company’s shareholders, to purchase 52,209 shares of common stock generating $291,028 in cash
proceeds to the Company.
2009 Transactions:
During the year ended December 31, 2009, former employees, prior to the termination of their option rights, exercised options outstanding
under the Plan to purchase 121,000 shares of common stock generating $438,700 in cash proceeds to the Company, and consultants exercised
options to purchase 7,600 shares of common stock generating $29,940 in cash proceeds. A consultant’s options to purchase 10,000 shares of
common stock expired upon the consultant’s termination from the Company during 2009. During the year
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                                                                 AspenBio Pharma, Inc.

                                                             Notes to Financial Statements
Note 5. Stockholders’ equity: - (continued)
ended December 31, 2009, the holders of 134,185 warrants that were issued for investor relations services elected to exercise those warrants
on a cashless basis as provided in the agreements and as a result, were issued 98,767 common shares.
In October 2009, the Company completed a placement of registered securities consisting of 1,031,000 common shares generating $8,260,000
in net proceeds to the Company. Fees and costs totaled $503,735, including a placement agent fee of 5% for certain investors. The purpose of
the offering was to raise funds for working capital, new product development and general corporate purposes.
Note 6. Stock options and warrants:
The Company currently provides stock-based compensation to employees, directors and consultants under the Company’s 2002 Stock
Incentive Plan, as amended (the “Plan”) and non-qualified options and warrants issued outside of 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 (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 Compa
       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 stock-based compensation during the years ended December 31, as follows:




                                                                          2011                     2010                    2009
                    Stock options to employees and               $        1,200,118        $       2,103,276       $       1,570,552
                      directors
                    Stock options to consultants for:
                         Animal health activities                            24,446                  161,357                  35,017
                         AppyScore activities                                54,304                   38,064                      —
                         General and other activities                            —                        —                   20,196
                         Investor relations activities                       57,309                   61,174                  89,171
                      Total stock-based compensation             $        1,336,177        $       2,363,871       $       1,714,936
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                                                         AspenBio Pharma, Inc.

                                                     Notes to Financial Statements
Note 6. Stock options and warrants: - (continued)
The above expenses are included in the accompanying Statements of Operations for the years ended December 31, in the following categories:




                                                                 2011                 2010                 2009
                  Selling, general and administrative    $       1,281,873     $      2,325,807     $      1,714,936
                    expenses
                  Research and development expenses                 54,304               38,064                   —
                    Total stock-based compensation       $       1,336,177     $      2,363,871     $      1,714,936

Stock incentive plan options:
The Company currently provides stock-based compensation to employees, directors and consultants under the Company’s 2002 Stock
Incentive Plan, as amended (Plan). In July 2011, the Company’s shareholders approved an amendment to the Plan to increase the number of
shares reserved under the Plan from 1,360,000 to 1,500,000.
The Company utilized assumptions in the estimation of fair value of stock-based compensation for the years ended December 31, as follows:




                                                               2011                  2010                  2009
                  Dividend yield                                        0%                   0%                   0%

                  Expected price volatility                  119 to 120 %          110 to 119 %         113 to 119 %
                   Risk free interest rate                   1.32 to 2.14 %               1.60 to 2.62 %           1.47 to 2.66 %

                   Expected term                                   5 years                    5 years                  5 years
A summary of stock option activity under the Company’s Plan for options to employees, officers, directors and consultants, for the year ended
December 31, 2011, is presented below:




                                                  Shares Underlying            Weighted         Weighted Average          Aggregate
                                                       Options                 Average             Remaining               Intrinsic
                                                                             Exercise Price     Contractual Term            Value
                                                                                                    (Years)
                   Outstanding at January 1,           1,103,358         $        10.60
                     2011
                     Granted                             313,600                   3.19
                     Exercised                                —                      —
                     Forfeited                          (125,473 )                 8.75
                   Outstanding at December             1,291,485         $         8.99                    6.8        $        —
                     31, 2011

                   Exercisable at December               757,664         $        11.14                    5.4        $        —
                     31, 2011

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price
on December 31, 2011 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 December 31, 2011.
During the year ended December 31, 2011, 313,600 stock options were granted under the Plan to employees, officers, directors, and
consultants with a weighted average fair value at the grant date of $3.19 per option. Included in the 313,600 options issued, existing directors
and officers were granted a total of 245,000 options at an exercise price of $3.17 per share and existing employees were granted 25,900
options at an exercise price of $3.05 per share, all vesting over a three-year period annually in arrears and expiring in ten years. Four newly
hired employees were granted a total of 2,700 options at $3.31 per share, all vesting over a three-year period annually in arrears and expiring
in ten years. The Company also issued 40,000 non-qualified options to a consultant at an exercise price of $3.40 per share which expire in ten
years. These non-qualified options are performance related with vesting tied to achieving specific AppyScore clinical and regulatory
                                                                       F-15
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                                                           AspenBio Pharma, Inc.

                                                       Notes to Financial Statements
Note 6. Stock options and warrants: - (continued)
milestones. During the year ended December 31, 2010, 279,600 stock options were granted under the Plan to employees, officers, directors
and consultants with a weighted average fair value at the grant date of $8.55 per option. During the year ended December 31, 2009, there were
412,100 options granted under the Plan to employees, officers, directors and consultants with a weighted average fair value at the grant date of
$8.25 per option.
During the year ended December 31, 2011, no options were exercised. During the year ended December 31, 2010, consultants exercised
52,209 options outstanding under the Company’s Plan generating $291,028 in cash and which had an intrinsic value when exercised of
$371,130. During the year ended December 31, 2009, 128,600 options were exercised by employees, a former officer, and consultants at an
average of $3.65 per that had an intrinsic value totaling $1,285,000.
During the year ended December 31, 2011, a total of 125,473 options granted under the Plan were forfeited, 68,413 of which were vested and
57,060 which were unvested. The options were exercisable at an average of $8.75 per share and were forfeited upon the employees’, officers
and consultant’s termination from the Company. During the year ended December 31, 2010, a total of 9,140 options were forfeited, 2,667 of
which were vested and 6,473 were unvested. The options were exercisable at an average of $13.25 per share and were forfeited upon the
employees’ terminations from the Company. During the year ended December 31, 2009, a total of 70,720 options were forfeited, 26,667 of
which were vested and 44,053 were unvested. The options were exercisable at an average of $13.40 per share and were forfeited upon the
employees’, officer and advisor terminations from the Company.
The total fair value of stock options granted to employees, directors and consultants that vested and became exercisable during the years ended
December 31, 2011, 2010 and 2009, was $2,063,000, $2,327,000 and $964,000, respectively. Based upon the Company’s experience,
approximately 85% of the outstanding stock options, or approximately 1,098,000 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 year ended December 31, 2011 is presented below:




                   Nonvested Shares                             Nonvested Shares        Weighted Average       Weighted
                                                               Underlying Options        Exercise Price         Average
                                                                                                             Grant Date Fair
                                                                                                                 Value
                   Nonvested at January 1, 2011                       506,063          $       10.80        $      8.33
                     Granted                                          313,600                   3.19               2.64
                     Vested                                          (228,782 )                12.31               9.02
                     Forfeited                                        (57,060 )                 8.63               7.04
                   Nonvested at December 31, 2011                     533,821          $        5.94        $      4.83

At December 31, 2011, based upon employee, officer, director and consultant options granted to that point, there was approximately
$1,096,000 additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of
approximately two years.
Subsequent to December 31, 2011, 121,533 options related to employee terminations expired which were exercisable at an average of $7.40
per share.
Other common stock purchase options and warrants:
As of December 31, 2011, in addition to the stock incentive plan options discussed above, the Company had outstanding 1,693,000
non-qualified options and warrants in connection with offering warrants, an officer’s employment and investor relations consulting.
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                                                          AspenBio Pharma, Inc.

                                                      Notes to Financial Statements
Note 6. Stock options and warrants: - (continued)
The Company utilized assumptions in the estimation of the fair value of stock-based compensation for the years ended December 31, as
follows:




                                                               2011                          2010                    2009
                  Dividend yield                                      0%                            0%                       0%

                  Expected price volatility                  119 to 145 %                  128 to 130 %             71 to 128 %

                  Risk free interest rate                  1.20 to 1.95 %             1.26 to 1.70 %              1.14 to 1.62 %

                  Expected term                           3 to 10 years                       3 years                 3 years
Operating expenses for the years ended December 31, 2011, 2010 and 2009, include $92,000, $61,000 and $89,000, respectively, for the value
of the non-qualified options and warrants.
Following is a summary of such outstanding options for the year ended December 31, 2011:




                                                Shares Underlying           Weighted           Weighted Average        Aggregate
                                                Options / Warrants          Average               Remaining             Intrinsic
                                                                          Exercise Price       Contractual Term          Value
                                                                                                   (Years)
                   Outstanding at January                182,855         $    25.15
                     1, 2011
                     Granted                           1,675,000               1.34
                     Forfeited                          (164,855 )            26.56
                   Outstanding at                      1,693,000         $     1.45                 5.5         $      —
                     December 31, 2011

                   Exercisable at December                40,500         $      8.18                1.6         $      —
                     31, 2011

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price
on December 31, 2011 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 December 31, 2011.
During the year ended December 31, 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 Stock 2002 Incentive Plan, and he was granted 40,000 options for services exercisable at $3.25 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 year ended
December 31, 2011, an investor relations firm was granted 30,000 warrants to purchase shares of common stock which are scheduled to vest at
2,500 shares per month over the twelve months from the date of grant and are exercisable at $5.00 per share and expire in three years.
In December 2011, the Company closed a $1.6 million registered direct offering consisting of 1,605,000 shares of the Company’s no par value
common stock and 1,605,000 warrants. The warrants which are included in the table above are not exercisable until June 30, 2012 at an
exercise price of $1.22 per common share, and expire in June 2017. During the year ended December 31, 2011, 27,506 investor relations
consultant options were forfeited of which 9,000 were exercisable at $60.00 per share, 7,506 options were exercisable at $30.05 per share,
10,000 options were exercisable at $27.85 per share, and 1,000 at $24.95 per share. In addition 137,349 warrants granted at $24.10 per share in
connection with the 2010 public registered direct offering expired.
During the year ended December 31, 2010, 143,349 stock options and warrants were granted under to an investor relations firm and under a
registered direct offering with a weighted average fair value at the grant date of $23.50 per option. During the year ended December 31, 2009,
there were 12,000 options granted to an investor relations firm with a weighted average fair value at the grant date of $13.30 per option.
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                                                           AspenBio Pharma, Inc.

                                                        Notes to Financial Statements
Note 6. Stock options and warrants: - (continued)
During the years ended December 31, 2011 and 2010, no options were exercised. During the year ended December 31, 2009, 134,185 options
and warrants were exercised at an average of $8.45 per share that had an intrinsic value totaling $3,141,000.
The total fair value of stock options granted to an investor relations consulting firm that vested and became exercisable during the years ended
December 31, 2011, 2010 and 2009, was $61,000, $61,000 and $89,000, respectively.
A summary of the activity of nonvested, non-qualified options and warrants in connection with employment and investor relations consulting
services during the year ended December 31, 2011, is presented below:




                   Nonvested Shares                             Nonvested Shares        Weighted Average       Weighted
                                                               Underlying Options        Exercise Price         Average
                                                                                                             Grant Date Fair
                                                                                                                 Value
                   Nonvested at January 1, 2011                            —           $          —          $        —
                     Granted                                           70,000                   4.00                2.69
                     Vested                                           (22,500 )                 5.00                2.70
                     Forfeited                                             —                      —                   —
                   Nonvested at December 31, 2011                      47,500          $        3.53         $      2.69

At December 31, 2011, there was approximately $97,000 in unrecognized cost for non-qualified options and warrants that will be recorded
over a weighted average future period of approximately one year.
Subsequent to December 31, 2011, 3,000 investor relations options which were exercisable at $24.95 per share expired.
Note 7. Other income:
In 2010, the Company received $244,479 from the U.S. Department of Treasury under the qualifying therapeutic discovery project under
Section 48D of the Internal Revenue Code which is included in other income for the year ended December 31, 2010.
Note 8. Income taxes:
Income taxes at the federal statutory rate are reconciled to the Company’s actual income taxes as follows:
                                                         2011                    2010                     2009
                  Federal income tax benefit    $       (3,473,000 )        $   (4,535,000 )     $       (5,276,000 )
                    at 34%
                  State income tax net of                 (306,000 )              (400,000 )               (479,000 )
                    federal tax effect
                  Permanent items                          504,000                 881,000                 (258,000 )
                  Valuation allowance                    3,275,000               4,054,000                6,013,000
                                                $               —           $           —        $               —

As of December 31, 2011, the Company has net operating loss carry forwards of approximately $62 million for federal and state tax purposes,
which are available to offset future taxable income, if any, expiring through December 2031. A valuation allowance was recorded at December
31, 2011 due to the uncertainty of realization of deferred tax assets in the future.
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                                                            AspenBio Pharma, Inc.

                                                        Notes to Financial Statements
Note 8. Income taxes: - (continued)
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2011 and
2010, are as follows:




                                                                                2011                          2010
                   Deferred tax assets (liabilities):
                     Net operating loss and credit carry             $          22,767,000         $          19,164,000
                       forwards
                     Inventories                                                     4,000                       318,000
                     Property and equipment                                          8,000                         4,000
                     Patents and other intangible assets                            23,000                        55,000
                     Other                                                          11,000                        12,000
                     Deferred revenue                                                   —                        340,000
                     Research and development credit                               692,000                       650,000
                   Deferred tax asset                                           23,505,000                    20,543,000
                   Valuation allowance                                         (23,505,000 )                 (20,543,000 )
                                                                     $                  —          $                  —

Note 9. Commitments and contingencies:
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.
The animal health technology, licensed from WU in 2004 and further developed at AspenBio, focuses on reproduction drugs, initially in the
bovine, to be followed by other livestock species of economic importance. The bovine drugs were sub-licensed in 2008 to Novartis Animal
Health (“NAH” or “Novartis”) under a long-term world-wide development and marketing agreement. Between 2008 and 2011, substantial
investment and progress in product, regulatory and clinical activities were made on the bovine drug products.
Under the 2008, exclusive license and commercialization agreement (the “NAH License Agreement”) with Novartis the Company received an
upfront cash payment of $2,000,000, of which 50% was non-refundable upon signing the agreement, and the balance of which was subject to
certain conditions and milestones. In 2010, the conditions associated with $100,000 of such milestones were satisfied. As of the November 15,
2011 execution of the termination agreement, discussed below, the $900,000 remaining milestone payment was unachieved.
Revenue recognition related to the NAH License Agreement and WU Agreement was based primarily on the Company’s consideration of
Accounting Standards Codification No. 808-10-45 (EITF 07-1), “ Accounting for Collaborative Arrangements ”, paragraphs 16 – 20. For
financial reporting purposes, the up-front license fees received from the NAH License Agreement, net of the amounts due to WU, were
recorded as deferred revenue and were being amortized over the term of the NAH License Agreement. The non-refundable net
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                                                           AspenBio Pharma, Inc.

                                                       Notes to Financial Statements
Note 9. Commitments and contingencies: - (continued)
amount of $810,000 was being amortized as deferred revenue income to amortized license fee revenue over the 152 month original license
period. Milestone contingent revenue was recognized into income commencing with the date such milestones were achieved. During the year
ended December 31, 2010, milestones totaling $100,000 were achieved, triggering the commencement of amortization of $100,000 of deferred
revenue over the then remaining license period. During the years ended December 31, 2011, 2010 and 2009, $62,179, $68,394 and $63,947,
respectively, was recorded as the amortized license fee revenue arising from the NAH License Agreement. Cumulatively, from inception
through November 15, 2011, the date of the termination Agreement, $242,481 had been recorded as the amortized license fee revenue arising
from the NAH License Agreement. As of December 31, 2010 deferred revenue totaled $1,379,698 and net shared development costs totaled
$760,147, payable to NAH under the Novartis License Agreement. As of the date of termination, future amortization of the deferred revenue
was terminated.
A pilot study was completed during late 2010 using the bovine LH drug and subsequently NAH informed us that preliminary pilot study
results revealed that the pilot study did not demonstrate the outcomes as defined in the success criteria, and NAH had requested a refund of the
contingent $900,000 milestone payment that was tied to the pilot study outcome and notified us that they wished to terminate the agreements.
On November 15, 2011, AspenBio and Novartis executed a Termination and Settlement Agreement (“Termination Agreement”) that provided
for the termination of the existing agreements between the Company and NAH. Under the terms of the Termination Agreement, the Company
will pay to NAH the refundable $900,000 milestone payment and a negotiated amount totaling $475,000 of the Company’s portion of net
shared development expenses. The settlement amount is payable in quarterly installments commencing upon execution of the Termination
Agreement. Upon execution of the Termination Agreement, the Company gained access to and use of all development and research materials
and protocols developed under the prior NAH agreements. All of NAH’s rights under the prior agreements will be terminated in full once the
Company pays the settlement amount in full.
As a result of the Termination Agreement with Novartis, the Company agreed to pay $150,000 upon signing the agreement and six equal
quarterly installments thereafter, of $204,000 each. The Company discounted this future payment stream at an assumed interest rate of 7%
(which represents the rate management believes it could have obtained for similar financings) resulting in a net liability at termination of
$1,303,000. This obligation requires principal payments of approximately $755,000 in 2012 with the remaining balance of $398,000 due in
2013.
Upon execution of the Termination Agreement with Novartis, the Company recorded a gain of $938,896, arising from the elimination of both
the $900,000 in remaining deferred revenue and the net accounts payable to Novartis the total of which exceeded the net recorded settlement
obligation to Novartis. Net cash expenses of approximately $7,500 were incurred by the Company on the transaction.
Other commitments:
As of December 31, 2011, the Company has employment agreements with three officers providing aggregate annual minimum commitments
totaling $650,000. 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 Securities Exchange Act of 1934
(“Exchange Act”) and Securities and Exchange Commission (“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
                                                                     F-20
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                                                           AspenBio Pharma, Inc.

                                                        Notes to Financial Statements
Note 9. Commitments and contingencies: - (continued)
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. 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. 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 Trpisovsky v. 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 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.
                                                                      F-21
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                                                         AspenBio Pharma, Inc.

                                                    Notes to Financial Statements
Note 10. Supplemental data: Selected quarterly financial information (unaudited)




                                             March 31,            June 30,            September 30,         December 31,
                Fiscal 2011 quarters
                  ended:
                  Total revenues         $       97,000      $       55,000       $         22,000      $        45,000
                  Gross margin           $       85,000      $       52,000       $         22,000      $        44,000
                  Net loss               $   (2,806,000 )    $   (2,787,000 )     $     (3,064,000 )    $    (1,557,000 )

                  Loss per               $        (0.35 )    $           (.35 )   $           (0.38 )   $          (0.16 )
                     share – Basic and
                     diluted
                  Market price of
                     common stock
                  High                   $         4.25      $           3.94     $           3.75      $           2.92
                  Low                    $         2.80      $           3.10     $           2.40      $            .97
                Fiscal 2010 quarters
                  ended:
                  Total revenues         $     142,000       $       59,000       $         80,000      $        89,000
                  Gross margin (loss)    $      77,000       $       25,000       $        (70,000 )    $       (20,000 )

                  Net loss               $   (3,871,000 )    $   (3,422,000 )     $     (3,052,000 )    $    (2,993,000 )

                  Loss per               $        (0.50 )    $          (0.45 )   $           (0.40 )   $          (0.40 )
                    share – Basic and
                    diluted
                  Market price of
                    common stock
                  High                   $        11.85      $          23.20     $           5.60      $           3.55
                  Low                    $         9.55      $           4.75     $           2.45      $           1.60
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                                                         AspenBio Pharma, Inc.

                                                            Balance Sheets




                                                                              March 31,             December 31,
                                                                                2012                    2011
                                                                             (Unaudited)
                                  ASSETS
           Current assets:
             Cash and cash equivalents                               $           1,316,462     $         2,968,104
             Short term investments (Note 1)                                       561,778               1,003,124
             Accounts receivable (Note 7)                                            6,988                  35,016
             Prepaid expenses and other current assets                             205,757                 314,800
                Total current assets                                             2,090,985               4,321,044
           Property and equipment, net (Notes 2 and 4)                           2,701,548               2,795,149
           Other long term assets, net (Note 3)                                  1,574,077               1,611,652
           Total assets                                              $           6,366,610     $         8,727,845

           LIABILITIES AND STOCKHOLDERS’ EQUITY
           Current liabilities:
             Accounts payable                                        $             460,578     $           581,713
             Accrued compensation                                                   17,753                  47,622
             Accrued expenses                                                      209,753                 368,406
             Notes and other obligations, current portion (Note 4)                 966,011               1,074,185
                Total current liabilities                                        1,654,095               2,071,926
           Notes and other obligations, less current portion (Note               2,602,912               2,830,041
             4)
                Total liabilities                                                4,257,007               4,901,967
           Commitments and contingencies (Note 7)
           Stockholders’ equity (Notes 5, 6 and 8):
             Common stock, no par value, 30,000,000 shares                      69,068,792              68,846,796
                authorized;
                9,633,321 shares issued and outstanding, each
                period
             Accumulated deficit                                               (66,959,189 )           (65,020,918 )
                Total stockholders’ equity                                       2,109,603               3,825,878
           Total liabilities and stockholders’ equity                $           6,366,610     $         8,727,845

                               See Accompanying Notes to Unaudited Condensed Financial Statements
                                                                 F-23
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                                                           AspenBio Pharma, Inc.

                                                       Statements of Operations
                                                     Three Months Ended March 31
                                                             (Unaudited)




                                                                                   2012                 2011
           Sales (Note 7)                                                 $               7,275     $       97,316
           Cost of sales                                                                    184             12,827
                Gross profit                                                              7,091             84,489
           Other revenue – fee                                                               —              17,765
           Operating expenses:
             Selling, general and administrative                                    1,204,675            1,603,473
             Research and development                                                 676,618            1,271,995
                Total operating expenses                                            1,881,293            2,875,468
             Operating loss                                                        (1,874,202 )         (2,773,214 )
           Other expense, net (primarily interest)                                    (64,069 )            (32,620 )
             Net loss                                                     $        (1,938,271 )     $   (2,805,834 )

           Basic and diluted net loss per share (Note 1)                  $                (.20 )   $          (.35 )

           Basic and diluted weighted average number of shares                     9,633,321            8,028,321
             outstanding (Note 1)

                                See Accompanying Notes to Unaudited Condensed Financial Statements
                                                                   F-24
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                                                        AspenBio Pharma, Inc.

                                                     Statements of Cash Flows
                                                   Three Months Ended March 31
                                                           (Unaudited)




                                                                                2012                 2011
           Cash flows from operating activities:
             Net loss                                                       $   (1,938,271 )   $     (2,805,834 )
             Adjustments to reconcile net loss to net cash used in
                operating activities:
                  Stock-based compensation for services                           221,996              383,348
                  Depreciation and amortization                                   112,325              134,103
                  Amortization of license fee                                          —               (17,765 )
                  Impairment charges                                               41,950               16,361
                Decrease in:
                  Accounts receivable                                              28,028                 5,137
                  Prepaid expenses and other current assets                       109,043                91,083
                Increase (decrease) in:
                  Accounts payable                                                (121,135 )            224,589
                  Accrued expenses                                                (188,522 )            491,767
                  Deferred revenue                                                      —              (675,000 )
             Net cash used in operating activities                              (1,734,586 )         (2,152,211 )
           Cash flows from investing activities:
             Sales of short-term investments                                      441,346            1,692,259
             Purchases of property and equipment                                       —               (43,974 )
             Purchases of patent and trademark application costs                  (23,099 )           (109,903 )
             Net cash provided by investing activities                            418,247            1,538,382
           Cash flows from financing activities:
             Repayment of notes payable and other obligations                     (335,303 )          (153,437 )
             Net cash used in financing activities                                (335,303 )          (153,437 )
           Net decrease in cash and cash equivalents                            (1,651,642 )          (767,266 )
           Cash and cash equivalents at beginning of period                      2,968,104           8,908,080
           Cash and cash equivalents at end of period                       $    1,316,462     $     8,140,814

           Supplemental disclosure of cash flow information:
             Cash paid during the period for interest                       $       64,768     $         44,686

                                See Accompanying Notes to Unaudited Condensed Financial Statements
                                                                     F-25
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                                                                 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
March 31, 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 March 31, 2012 are not necessarily an indication of operating results for the full year.
Going concern, 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, and at March 31, 2012 had cash and liquid investments of $1,878,000,
working capital of $437,000, total stockholders’ equity of $2,110,000 and an accumulated deficit of $66,959,000. 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 not be sufficient to meet its estimated cash needs for the
remainder of 2012. These factors raise substantial doubt about the Company’s ability to continue as a going concern. 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 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, or that such financing will not have a
significantly dilutive effect on the Company’s existing shareholders. 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 Company’s ability to continue as a going concern depends on the success of management’s plans to bridge such cash shortfalls in 2012,
which includes the following:
   •   aggressively pursuing additional capital raising activities in 2012;
   •   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.
                                                                              F-26
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                                                            AspenBio Pharma, Inc.

                                                   Notes to Condensed Financial Statements
                                                                (Unaudited)
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 March 31, 2012, 63% 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 13% of the portfolio and none with maturities
past June 30, 2012. To date, the Company’s cumulative realized market loss from the investments has not been in excess of $5,000. For the
three months ended March 31, 2012, there was approximately $1,260 in unrealized income, no realized gain or loss, and $657 in management
fees. For the three months ended March 31, 2011, there was approximately $374 in unrealized income, no realized gain or loss, and $3,604 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 (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.
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
                                                                       F-27
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                                                            AspenBio Pharma, Inc.

                                                  Notes to Condensed Financial Statements
                                                               (Unaudited)
Note 1. Significant accounting policies: - (continued)
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 March 31, 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 amounts in the accompanying financial statements for the three months ended March 31, 2011 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 2,862,000 shares as of March 31, 2012
and 1,281,000 shares as of March 31, 2011) would be to decrease the net loss per share.
Upon the completion of the 2011 annual shareholders meeting on July 8, 2011 where such actions were approved, the Board of Directors
authorized a reverse stock split of the Company’s common stock at a ratio of one-for-five, whereby each five shares of common stock were
combined into one share of common stock (the “Reverse Stock Split”). The Reverse Stock Split was effective with respect to shareholders of
record at the close of business on July 28, 2011, and trading of the Company’s common stock on the NASDAQ Capital Market began on a
split-adjusted basis beginning on July 29, 2011. As a result of the Reverse Stock Split, the basic and diluted weighted average number of
shares outstanding for the three months ended March 31, 2011 was reduced from approximately 40.1 million shares to approximately 8.0
million shares. All historical references to shares and share amounts in this report have been retroactively revised to reflect the Reverse Stock
Split.
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                                                         AspenBio Pharma, Inc.

                                                 Notes to Condensed Financial Statements
                                                              (Unaudited)
Note 2. Property and equipment:
Property and equipment consisted of the following:




                                                                          March 31,                December 31,
                                                                            2012                       2011
                                                                         (Unaudited)
                   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                            (2,819,582 )               (2,725,981 )
                                                                  $          2,701,548       $          2,795,149

Depreciation expense totaled approximately $94,000 and $100,000 for the three month periods ended March 31, 2012 and 2011, respectively.
Note 3. Other long-term assets:
Other long-term assets consisted of the following:
                                                                                        March 31,             December 31,
                                                                                          2012                    2011
                                                                                       (Unaudited)
                   Patents, trademarks and applications, net of accumulated       $          1,178,599    $       1,214,748
                     amortization of $290,848 and $273,550
                   Goodwill                                                                    387,239              387,239
                   Other                                                                         8,239                9,665
                   Other                                                          $          1,574,077    $       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
$69,000 for each of the next five fiscal years.
Note 4. Notes and Other Obligations:
Notes payable and installment obligations consisted of the following:




                                                                                March 31,                  December 31,
                                                                                  2012                         2011
                                                                               (Unaudited)
                   Mortgage notes                                       $         2,517,791          $          2,545,312
                   Termination obligation                                           968,821                     1,152,753
                   Other short-term installment obligations                          82,311                       206,161
                                                                                  3,568,923                     3,904,226
                   Less current portion                                            (966,011 )                  (1,074,185 )
                                                                        $         2,602,912          $          2,830,041

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                                                              AspenBio Pharma, Inc.

                                                    Notes to Condensed Financial Statements
                                                                 (Unaudited)
Note 4. Notes and Other Obligations: - (continued)
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 $9,700 per
month in contractual interest, through June 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 $4,300 per month in contractual interest and fees.
Termination obligation:
In November 2011, the Company entered into a Termination Agreement with Novartis Animal Health, Inc. Under the agreement, the
termination obligation totaled $1,374,000, which was payable $150,000 upon signing the 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 March 31, 2012, the remaining outstanding termination
obligation totaled $968,821. This obligation requires principal payments of approximately $571,000 in the remainder of 2012 and the balance
of $398,000 due in 2013.
Other short-term installment obligations:
The Company has executed financing agreements for certain of the Company’s insurance premiums. At March 31, 2012, these obligations
totaled $82,000, all of which are due in 2012.
Future maturities:
The Company’s total debt obligations require minimum annual principal payments of approximately $739,000 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 agree ments.
Note 5. Stockholders’ equity:
During the three months ended March 31, 2012 and 2011, there were no equity issuances.
Note 6. Stock options and warrants:
Stock options:
The Company currently provides stock-based compensation to employees, directors and consultants under the Company’s 2002 Stock
Incentive Plan, as amended (the “Plan”) and non-qualified options and warrants issued outside of 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 (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;
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                                                                 AspenBio Pharma, Inc.

                                                      Notes to Condensed Financial Statements
                                                                   (Unaudited)
Note 6. Stock options and warrants: - (continued)
   •   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 Compa
       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.
During the three months ended March 31, 2012, no stock options were granted under the Plan. The Company utilized the following
assumptions in the estimation of fair value of stock-based compensation for the three months ended March 31, 2011: dividend yield of 0%,
expected price volatility of 119%, risk free interest rate of 2.10% – 2.14%, and a five year expected option term.
The Company recognized stock-based compensation for the three months ended March 31, as follows:




                                                                                                   2012                    2011
                    Stock options to employees and directors                               $         197,402       $         364,285
                    Stock options to consultants for:
                      Animal health activities                                                         2,876                   7,190
                      AppyScore activities                                                             1,491                  11,873
                      Investor relations activities                                                   20,227                      —
                    Total stock-based compensation                                         $         221,996       $         383,348

The above expenses are included in the accompanying Statements of Operations for the three months ended March 31, in the following
categories:
                                                                                    2012                 2011
                  Selling, general and administrative expenses                $       220,505     $        371,475
                  Research and development expenses                                     1,491               11,873
                  Total stock-based compensation                              $       221,996     $        383,348

Stock incentive plan options:
The Company currently provides stock-based compensation to employees, directors and consultants under the Company’s Plan. In July 2011,
the Company’s shareholders approved an amendment to the Plan to increase the number of shares reserved under the Plan from 1,360,000 to
1,500,000.
                                                                  F-31
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                                                            AspenBio Pharma, Inc.

                                                  Notes to Condensed Financial Statements
                                                               (Unaudited)
Note 6. Stock options and warrants: - (continued)
A summary of stock option activity under the Company’s Plan for options to employees, officers, directors and consultants, for the three
months ended March 31, 2012, is presented below:




                                                        Shares                Weighted     Weighted Average         Aggregate
                                                       Underlying             Average         Remaining              Intrinsic
                                                        Options               Exercise     Contractual Term           Value
                                                                               Price           (Years)
                   Outstanding at January 1,             1,291,485        $      8.99
                     2012
                     Granted                                    —                  —
                     Exercised                                  —                  —
                     Forfeited                            (119,721 )             4.60
                   Outstanding at March 31,              1,171,764        $      9.43              6.3          $         —
                     2012

                   Exercisable at March 31,                934,536        $     10.51              5.7          $         —
                     2012

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, 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 March 31, 2012.
During the three months ended March 31, 2012, no stock options were granted under the Plan to employees, officers, directors, and
consultants. During the three months ended March 31, 2011, 150,900 stock options were granted under the Plan to employees, officers and
directors with a weighted average fair value at the grant date of $2.45 per option. Included in the 150,900 options issued, existing directors and
officers were granted a total of 125,000 options at an exercise price of $2.95 per share and existing employees were granted 25,900 options at
an exercise price of $3.05 per share, all vesting over a three-year period annually in arrears and expiring in ten years.
During the three months ended March 31, 2012 and 2011, no options were exercised.
During the three months ended March 31, 2012, a total of 119,721 options that were granted under the Plan to employees, including an officer,
were forfeited, 4,667 of which were vested and 115,054 were unvested. The options were exercisable at an average of $4.60 per share and
were forfeited upon the employees’ terminations from the Company. During the three months ended March 31, 2011, a total of 49,733 options
that were granted under the Plan to employees, including an officer, were forfeited, 3,533 of which were vested and 46,200 were unvested.
The options were exercisable at an average of $8.70 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 three
months ended March 31, 2012 and 2011, was $1,142,000 and $1,726,000, respectively. Based upon the Company’s experience, approximately
85% of the outstanding stock options, or approximately 996,000 options, are expected to vest in the future, under their terms.
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                                                          AspenBio Pharma, Inc.

                                                  Notes to Condensed Financial Statements
                                                               (Unaudited)
Note 6. Stock options and warrants: - (continued)
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 three months ended March 31, 2012 is presented below:




                   Nonvested Shares                                     Nonvested              Weighted        Weighted
                                                                         Shares                Average          Average
                                                                        Underlying             Exercise        Grant Date
                                                                         Options                Price          Fair Value
                   Nonvested at January 1, 2012                             533,821        $      5.94     $       4.83
                     Granted                                                     —                  —                —
                     Vested                                                (181,539 )             7.76             6.29
                     Forfeited                                             (115,054 )             4.55             3.73
                   Nonvested at March 31, 2012                              237,228        $      5.22     $       4.24

At March 31, 2012, based upon employee, officer, director and consultant options granted to that point, there was approximately $702,000
additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of
approximately two years.
Subsequent to March 31, 2012, in connection with its regular annual grant policy, a total of 75,000 stock options were granted to the
Company’s independent directors exercisable at the then fair market value of $0.71, vesting over a three year period annually in arrears. An
additional 38,800 stock options were granted to employees exercisable at the then fair market price of $0.71 which vest equally over the
twelve monthly periods following grant. In addition 210,000 stock options were awarded as retention incentive options to management
employees, including Named Executive Officers exercisable at $0.66 per share and vesting as to 50% on six month the 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. All options were granted under the Company’s 2002 Stock Incentive Plan and expire ten years from the grant date.
Subsequent to March 31, 2012, as a result of consultant and employee terminations, 49,879 options expired which had been exercisable at an
average of $10.55 per share.
Other common stock purchase options and warrants:
As of March 31, 2012, in addition to the stock incentive plan options discussed above, the Company had outstanding 1,690,000 non-qualified
options and warrants in connection with offering warrants, an officer’s employment and investor relations consulting that were not issued
under the Plan. Included in this total are 1,605,000 warrants exercisable at $1.22 per common share, issued to investors in the December 2011
registered direct offering.
During the three months ended March 31, 2012, no stock options were granted outside of the Plan. The Company utilized the following
assumptions in the estimation of fair value of stock-based compensation for the three months ended March 31, 2011: dividend yield of 0%,
expected price volatility of 119%, risk free interest rate of 1.95%, and a five year expected option term.
Operating expenses for the three months ended March 31, 2012 and 2011, include $29,179 and $7,460, respectively, for the value of the
non-qualified options and warrants.
                                                                   F-33
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                                                           AspenBio Pharma, Inc.

                                                 Notes to Condensed Financial Statements
                                                              (Unaudited)
Note 6. Stock options and warrants: - (continued)
Following is a summary of such outstanding options and warrants that were not issued under the Plan for the three months ended March 31,
2012:




                                                           Shares               Weighted       Weighted           Aggregate
                                                          Underlying            Average        Average             Intrinsic
                                                           Options/             Exercise      Remaining             Value
                                                          Warrants               Price        Contractual
                                                                                                 Term
                                                                                                (Years)
                   Outstanding at January 1,                1,693,000       $       1.45
                     2012
                     Granted                                       —                 —
                     Exercised                                     —                 —
                     Forfeited                                 (3,000 )           24.95
                   Outstanding at March 31,                 1,690,000       $      1.41             5.2       $         —
                     2012

                   Exercisable at March 31,                    58,333       $       5.78            3.2       $         —
                     2012

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, 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 March 31, 2012.
During the three months ended March 31, 2012, there were no options granted. During the three months ended March 31, 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 Stock 2002 Incentive Plan, and he was
granted 40,000 options for services exercisable at $3.25 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.
During the three months ended March 31, 2012, 3,000 options previously granted to an investor relations firm exercisable at $24.95 per share
expired. During the three months ended March 31, 2011, 9,000 investor relations consultant options which were exercisable at $60.00 per
share and 137,349 warrants exercisable at $24.10 per share in connection with the 2010 public registered direct offering expired.
During the three months ended March 31, 2012 and 2011, no options or warrants were exercised.
The total fair value of stock options previously granted to an investor relations consulting firm and to the Company’s Vice President
Marketing and Business that vested and became exercisable during the three months ended March 31, 2012 and 2011, was $56,033 and $0,
respectively.
A summary of the activity of nonvested, non-qualified options and warrants in connection with employment and investor relations consulting
services outside of the Plan during the three months ended March 31, 2012, is presented below:




                  Nonvested Shares                                     Nonvested             Weighted        Weighted
                                                                        Shares               Average          Average
                                                                       Underlying            Exercise        Grant Date
                                                                        Options               Price          Fair Value
                  Nonvested at January 1, 2012                             47,500        $      3.53     $       2.69
                    Granted                                                    —                  —                —
                    Vested                                                (20,833 )             3.88             2.69
                    Forfeited                                                  —                  —                —
                  Nonvested at March 31, 2012                              26,667        $      3.25     $       2.69

                                                                   F-34
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                                                          AspenBio Pharma, Inc.

                                                 Notes to Condensed Financial Statements
                                                              (Unaudited)
Note 6. Stock options and warrants: - (continued)
At March 31, 2012, there was approximately $68,000 in unrecognized cost for non-qualified options that will be recorded over a weighted
average future period of approximately one year.
Subsequent to March 31, 2012, 2,000 investor relations options which were exercisable at $7.95 per share expired.
Note 7. Concentrations, commitments and contingencies:
Customer concentration:
At March 31, 2012, three customers accounted for the total accounts receivable. At December 31, 2011, two customers accounted for 73% and
19% of total accounts receivable. For the three months ended March 31, 2012, four customers represented the total sales for the period. For the
three months ended March 31, 2011, three customers represented more than 10% of the Company’s sales, accounting for approximately 32%,
21%, and 15%, respectively, 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 March 31, 2012, the Company has employment agreements with three officers providing aggregate annual minimum commitments
totaling $650,000. 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.
                                                                     F-35
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                                                           AspenBio Pharma, Inc.

                                                  Notes to Condensed Financial Statements
                                                               (Unaudited)
Note 7. Concentrations, commitments and contingencies: - (continued)
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:
Under the terms of an agreement for investor relations services, the Company issued 25,000 shares of Common Stock on April 2, 2012, at
$0.71 per share.
                                                                      F-36
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                    $15,000,000 of Shares
                       Common Stock
    PROSPECTUS




Aegis Capital Corp




        , 2012
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                                                                     Part II

                                           INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table lists the costs and expenses payable by the Company in connection with the sale of the common stock covered by this
prospectus other than any sales commissions or discounts. All amounts shown are estimates except for the SEC registration fee, NASDAQ
listing fee and FINRA fee and all of the fees and expenses will be borne by the Company.




              SEC registration fee                                                                            $            2,084
              NASDAQ listing fees                                                                                         65,000
              FINRA fee                                                                                                    2,319
              Legal fees and expenses                                                                                    225,000
              Accounting fees and expenses                                                                                30,000
              Printing, transfer agent and miscellaneous expenses                                                        125,597
              Total                                                                                           $          450,000

Item 14. Indemnification of Directors and Officers
Our Articles of Incorporation and Bylaws require us to indemnify our officers, directors, employees and agents against reasonably incurred
expenses (including legal fees), judgments, penalties, fines and amounts incurred in the settlement of any action, suit or proceeding if it is
determined that such person conducted himself in good faith and that he reasonably believed (i) in the case of conduct in his official capacity,
that his conduct was in the Company’s best interest, (ii) in all other cases (except criminal proceedings) that his conduct was at least not
opposed to the Company’s best interests, or (iii) in the case of any criminal proceeding, that he has not reasonable cause to believe that his
conduct was unlawful.
This determination shall be made by a majority vote of directors at a meeting at which a quorum is present, provided however that the quorum
can only consist of directors not parties to the proceeding. If a quorum cannot be obtained, the determination may be made by a majority vote
of a committee of the board, consisting of two or more directors who are not parties to the proceeding. Directors who are parties to the
proceeding may participate in the designation of members to serve on the committee. If a quorum of the board or a committee cannot be
established, the determination may be made (i) by independent legal counsel selected by a vote of the board of directors or committee in the
manner described in this paragraph or, if a quorum cannot be obtained or a committee cannot be established, by independent legal counsel
selected by a majority of the full board (including directors who are parties to the proceeding) or (ii) by a vote of the shareholders. Any officer,
director, employee or agent may seek court-ordered indemnification from the court conducting the proceeding. The court may then determine
whether such person should be entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of us
pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person
of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by the Company is against public policy as
expressed in the Securities Act and will be governed by the final adjudication of such issue.
Section 7-108-402 of the Colorado Business Corporation Act (the “Act”) provides, generally, that the articles of incorporation may contain a
provision eliminating or limiting the personal liability of a director to the corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director, except that any such provision shall not eliminate or limit the liability of a director (i) for any breach of the
director’s duty of loyalty to the corporation or its shareholders, (ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) acts specified in Section 7-108-403 of the Act
                                                                       II-1
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(unlawful distributions), or (iv) any transaction from which the director directly or indirectly derived an improper personal benefit. Such
provision may not eliminate or limit the liability of a director for any act or omission occurring prior to the date on which such provision
becomes effective. The Company’s articles of incorporation contain such a provision.
Section 7-109-103 of the Act provides, that a corporation organized under Colorado law shall be required to indemnify a person who is or was
a director of the corporation or an individual who, while serving as a director of the corporation, is or was serving at the corporation’s request
as a director, an officer, an agent, an associate, an employee, a fiduciary, a manager, a member, a partner, a promoter, or a trustee of, or to hold
any similar position with, another domestic or foreign corporation or other person or of an employee benefit plan (a “Director”) of the
corporation and who was wholly successful, on the merits or otherwise, in the defense of any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal (a “Proceeding”), in which he was a party,
against reasonable expenses incurred by him in connection with the Proceeding, unless such indemnity is limited by the corporation’s articles
of incorporation.
Section 7-109-102 of the Act provides, generally, that a corporation may indemnify a person made a party to a Proceeding because the person
is or was a Director against any obligation incurred with respect to a Proceeding to pay a judgment, settlement, penalty, fine (including an
excise tax assessed with respect to an employee benefit plan) or reasonable expenses incurred in the Proceeding if the person conducted
himself or herself in good faith and the person reasonably believed, in the case of conduct in an official capacity with the corporation, the
person’s conduct was in the corporation’s best interests and, in all other cases, his or her conduct was at least not opposed to the corporation’s
best interests and, with respect to any criminal proceedings, the person had no reasonable cause to believe that his or her conduct was
unlawful. A corporation may not indemnify a Director in connection with any Proceeding by or in the right of the corporation in which the
Director was adjudged liable to the corporation or, in connection with any other Proceeding charging that the Director derived an improper
personal benefit, whether or not involving actions in an official capacity, in which Proceeding the Director was judged liable on the basis that
he or she derived an improper personal benefit. Any indemnification permitted in connection with a Proceeding by or in the right of the
corporation is limited to reasonable expenses incurred in connection with such Proceeding.
Under Section 7-109-107 of the Act, unless otherwise provided in the articles of incorporation, a corporation may indemnify an officer,
employee, fiduciary, or agent of the corporation to the same extent as a Director and may indemnify an officer, employee, fiduciary, or agent
who is not a Director to a greater extent, if not inconsistent with public policy and if provided for by its bylaws, general or specific action of its
board of directors or shareholders, or contract.
Item 15. Recent Sales of Unregistered Securities
On April 2, 2012, 25,000 shares (prior to the 1-for-6 reverse stock split expected to be effected immediately prior to the date of this
prospectus) 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.
As incentive compensation, the Company has awarded Donald Hurd, Senior Vice President and Chief Commercial Officer, non-qualified
stock options to acquire 120,000 shares of Company common stock exercisable at $0.57, the fair market value of the Company’s common
stock on May 23, 2012, the “Grant Date”. The options grant, which is an employment-inducement grant made outside of the Company’s 2002
Stock Incentive Plan, as amended, has the following additional material terms: the stock options shall vest as to 50% of the total at the
six-month anniversary of the Grant Date, and the balance shall vest one-twelfth
                                                                         II-2
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monthly over months seven through twelve following the Grant Date. Any stock options granted that are then unvested, shall vest upon the
consummation of a “Change in Control” of AspenBio, using the same definition as contained in the Company’s 2002 Stock Incentive Plan, as
amended. The options are exercisable for a period of ten (10) years after the Grant Date, subject to earlier termination on cessation of service
with the Company.
Item 16. Exhibits and Financial Statement Schedules
The following exhibits are filed as part of, or incorporated by reference into this registration statement:




                 Exhibit                                              Identification Of Exhibit
                 Number
                  1.1*       Form of Underwriting Agreement
                   3.1       Articles of Incorporation filed July 24, 2000 (1)
                  3.1.1      Articles of Amendment to the Articles of Incorporation filed December 26, 2001 (1)
                  3.1.2      Articles of Amendment to the Articles of Incorporation filed November 9, 2005 (2)
                  3.1.2      Articles of Amendment to the Articles of Incorporation filed July 29, 2011 (17)
                   3.2       Amended and Restated Bylaws (3)
                   4.1       Specimen Certificate of Common Stock (1)
                   4.2       Form of Warrant between the Company and certain investors signatory thereto. (10)
                   4.3       Form of Common Stock Warrant between AspenBio and Liolios Group, Inc. (12)
                   4.4       Form of Warrant between the Company and each of the investors signatories to the Securities
                             Purchase Agreement dated December 23, 2011 (18)
                  5.1*       Opinion of Ballard Spahr LLP
                  10.1       2002 Stock Incentive Plan, as amended and restated effective July 1, 2007 (13)
                 10.1.1      Amendment to 2002 Stock Incentive Plan, dated June 9, 2008 (12)
                 10.1.2      Amendment to 2002 Stock Incentive Plan, dated November 20, 2009 (12)
                 10.1.3      Amendment to 2002 Stock Incentive Plan, dated November 22, 2010 (14)
                 10.1.4      Amendment to Amended and Restated 2002 Stock Incentive Plan, as amended, dated July 8, 2011
                             (16)

                 10.1.5      Amendment to Amended and Restated 2002 Stock Incentive Plan, as amended, dated May 22,
                             2012 (21)
                  10.2       Placement Agent Agreement, dated April 30, 2010, between the Company and Lazard Capital
                             Markets LLC. (10)
                 10.2.1      Form of Subscription Agreement between the Company and each of the investors signatories
                             thereto. (10)
                  10.3       Placement Agency Agreement, dated December 23, 2011, between the Company and Landenburg
                             Thalmann & Co. Inc. (18)
                 10.3.1      Form of Securities Purchase Agreement between the Company and each of the investors
                             signatories thereto. (18)
                  10.4       Exclusive License Agreement, dated May 1, 2004 between AspenBio and The Washington
                             University, as amended. (11)
                  10.5       Debt Modification Agreement dated June 13, 2003 with FirstBank of Tech Center. (4)
                 10.5.1      Loan Agreement between AspenBio, Inc. and Front Range Regional Economic Development
         Corporation dated June 13, 2003 for $1,300,000 regarding loan for physical plant or capital
         equipment acquisitions. (4)
10.5.2   Promissory Note dated June 13, 2003 by AspenBio, Inc. to Front Range Regional Economic
         Development Corporation in principal amount of $1,300,000. (4)
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             Exhibit                                        Identification Of Exhibit
             Number
              10.5.3   Unconditional Guarantee dated June 13, 2003 by AspenBio, Inc. to Front Range Regional
                       Economic Development Corporation in principal amount of $1,300,000. (4)
               10.6    Exclusive License Agreement with Novartis Animal Health, Inc., dated as of April 2, 2008. (5)
              10.6.1   Amendment to Exclusive License Agreement with Novartis Animal Health, dated July 26, 2010
                       (15)


              10.6.2   Termination and Settlement Agreement with Novartis Animal Health, dated November 15, 2011
                       (20)

              10.7     Employment Agreement with Jeffrey McGonegal, effective as of February 10, 2009. (6)
              10.8     Assignment and Consultation Agreement, dated May 29, 2003, between AspenBio and John
                       Bealer, M.D. (7)
               10.9    Employment Agreement with Greg Pusey effective as of January 1, 2010. (12)
              10.10    Employment Agreement with Stephen Lundy effective as of March 24, 2010. (19)
              10.11    Form of Stock Option Agreement under the 2002 Stock Incentive Plan, as amended and restated
                       and amended. (12)
              10.12    Non-Employee Director Compensation. (12)
              10.13    Employment Agreement with Donald R. Hurd, effective as of May 23, 2012. (22)
              23.1*    Consent of GHP Horwath, P. C.
              23.2*    Consent of Ballard Spahr LLP (included in Exhibit 5.1).
               24.1    Power of Attorney (included on signature page to this registration statement).
*   Filed herewith.
(1) Incorporated by reference from the registrant’s Registration Statement on Form S-1 (File no. 333-86190), filed April 12, 2002.
(2) Incorporated by reference from the registrant’s Report on Form 10-QSB for the quarter ended October 31, 2005, filed November 10, 2005.
(3) Incorporated by reference from the registrant’s Report on Form 10-Q for the quarter ended March 31, 2008 filed on May 15, 2008.
(4) Incorporated by reference from the registrant’s Report on Form 10-KSB/A for the year ended December 31, 2004 (file no. 000-50019), filed March 29, 2004.
(5) Incorporated by reference from the registrant’s Report on Form 10-Q for the quarter ended June 30, 2008, filed August 13, 2008.
(6) Incorporated by reference from the registrant’s Report on Form 8-K dated February 10, 2009, filed on February 17, 2009.
(7) Incorporated by reference from the registrant’s Report on Form 10-K for the year ended December 31, 2008, filed March 16, 2009.
(8) Incorporated by reference from the registrant’s Report on Form 8-K dated January 19, 2009, filed January 23, 2009.
(9) Incorporated by reference from the registrant’s Report on Form 10-KSB for the year ended December 31, 2007, filed March 21, 2008.
(10) Incorporated by reference from the registrant’s Report on Form 8-K dated and filed on April 30, 2010.
(11) Incorporated by reference from the registrant’s Report on Form 10-Q for the quarter ended June 30, 2010, filed August 5, 2010.
(12) Incorporated by reference from the registrant’s Report on Form 10-K for the year ended December 31, 2009, filed March 9, 2010.
(13) Incorporated by reference from the registrant’s Registration Statement on Form S-8, filed June 22, 2007.
(14) Incorporated by reference from the registrant’s Report on Form 8-K, dated November 22, 2010 and filed November 29, 2010.
                                                                             II-4
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(15) Incorporated by reference from the registrant’s Report on Form 10-K for the year ended December 31, 2010, filed April 15, 2011.
(16) Incorporated by reference from the registrant’s Report on Form 8-K, dated July 8, 2011 and filed July 13, 2011.
(17) Incorporated by reference from the registrant’s Report on Form 8-K, dated and filed July 29, 2011.
(18) Incorporated by reference from the registrant’s Report on Form 8-K, dated December 23, 2011 and filed December 28, 2011.
(19) Incorporated by reference from the registrant’s Report on Form 8-K dated as of March 24, 2010 and filed March 26, 2010.
(20) Incorporated by reference from the registrant’s Report on Form 10-K/A for the year ended December 31, 2011, filed April 9, 2012.
(21) Incorporated by reference from the registrant’s Report on Form 8-K, dated May 22, 2012 and filed May 24, 2012.
(22) Incorporated by reference from the registrant’s Report on Form 8-K, dated May 23, 2012 and filed May 24, 2012.
Item 17. Undertakings
(h) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or
controlling person connected with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
   1. For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registrati
      statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
      Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
   2. For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deem
      to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bon
      fide offering thereof.
                                                                               II-5
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                                                                SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized in Castle Rock, Douglas County, State of Colorado, on May 25, 2012.




                                                              AspenBio Pharma, Inc.
                                                              By:
                                                                  /s/ Stephen T.




                                                                   Lundy
                                                                    Stephen T. Lundy
                                                                   President and Chief Executive Officer
                                                                   (principal executive officer)
By:
      /s/ Jeffrey G.




      McGonegal
       Jeffrey G. McGonegal
      Chief Financial Officer (principal financial officer and
      principal accounting officer)
                   II-6
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                                                                SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the
capacities and on the dates indicated.




                                  Signatures                                            Title                           Date
              /s/ Stephen T.                                       President, Chief Executive Officer and             May 25,
              Lundy                                                Director (principal executive officer)              2012




               Stephen T. Lundy
              /s/ Jeffrey G.                                       Chief Financial Officer (principal financial       May 25,
              McGonegal                                            officer and principal accounting officer)           2012
 Jeffrey G. McGonegal
/s/ Jeffrey G. McGonegal, as   Non-Executive Chair and Director   May 25,
attorney-in-fact                                                   2012




 Gail S. Schoettler
/s/ Jeffrey G. McGonegal, as   Director                           May 25,
attorney-in-fact                                                   2012
 Daryl J. Faulkner
/s/ Jeffrey G. McGonegal, as   Vice President and Director   May 25,
attorney-in-fact                                              2012




 Gregory Pusey
/s/ Jeffrey G. McGonegal, as   Director                      May 25,
attorney-in-fact                                              2012




 Douglas I. Hepler
/s/ Jeffrey G. McGonegal, as   Director                      May 25,
attorney-in-fact                                              2012
 David E. Welch
/s/ Jeffrey G. McGonegal, as   Director   May 25,
attorney-in-fact                           2012




 Mark J. Ratain
/s/ Jeffrey G. McGonegal, as   Director   May 25,
attorney-in-fact                           2012
 Michael R. Merson
/s/ Jeffrey G. McGonegal, as   Director   May 25,
attorney-in-fact                           2012




John H. Landon
                                 II-7
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                                                                EXHIBIT INDEX
The following exhibits are filed as part of, or incorporated by reference into this registration statement:




                 Exhibit                                               Identification Of Exhibit
                 Number
                  1.1*         Form of Underwriting Agreement
                   3.1         Articles of Incorporation filed July 24, 2000 (1)
                  3.1.1        Articles of Amendment to the Articles of Incorporation filed December 26, 2001 (1)
                  3.1.2        Articles of Amendment to the Articles of Incorporation filed November 9, 2005 (2)
                  3.1.2        Articles of Amendment to the Articles of Incorporation filed July 29, 2011 (17)
                   3.2         Amended and Restated Bylaws (3)
                   4.1         Specimen Certificate of Common Stock (1)
                   4.2         Form of Warrant between the Company and certain investors signatory thereto. (10)
                   4.3         Form of Common Stock Warrant between AspenBio and Liolios Group, Inc. (12)
                   4.4         Form of Warrant between the Company and each of the investors signatories to the Securities
                               Purchase Agreement dated December 23, 2011 (18)
                   5.1*        Opinion of Ballard Spahr LLP
                   10.1        2002 Stock Incentive Plan, as amended and restated effective July 1, 2007 (13)
                  10.1.1       Amendment to 2002 Stock Incentive Plan, dated June 9, 2008 (12)
                  10.1.2       Amendment to 2002 Stock Incentive Plan, dated November 20, 2009 (12)
                  10.1.3       Amendment to 2002 Stock Incentive Plan, dated November 22, 2010 (14)
                  10.1.4       Amendment to Amended and Restated 2002 Stock Incentive Plan, as amended, dated July 8,
                               2011 (16)
                  10.1.5       Amendment to Amended and Restated 2002 Stock Incentive Plan, as amended, dated May 22,
                               2012 (21)
                   10.2        Placement Agent Agreement, dated April 30, 2010, between the Company and Lazard Capital
                               Markets LLC. (10)
                  10.2.1       Form of Subscription Agreement between the Company and each of the investors signatories
                               thereto. (10)
                   10.3        Placement Agency Agreement, dated December 23, 2011, between the Company and Landenburg
                               Thalmann & Co. Inc. (18)
                  10.3.1       Form of Securities Purchase Agreement between the Company and each of the investors
                               signatories thereto. (18)
                   10.4        Exclusive License Agreement, dated May 1, 2004 between AspenBio and The Washington
                               University, as amended. (11)
                   10.5        Debt Modification Agreement dated June 13, 2003 with FirstBank of Tech Center. (4)
                  10.5.1       Loan Agreement between AspenBio, Inc. and Front Range Regional Economic Development
                               Corporation dated June 13, 2003 for $1,300,000 regarding loan for physical plant or capital
                               equipment acquisitions. (4)
                  10.5.2       Promissory Note dated June 13, 2003 by AspenBio, Inc. to Front Range Regional Economic
                               Development Corporation in principal amount of $1,300,000. (4)
10.5.3   Unconditional Guarantee dated June 13, 2003 by AspenBio, Inc. to Front Range Regional
         Economic Development Corporation in principal amount of $1,300,000. (4)
 10.6    Exclusive License Agreement with Novartis Animal Health, Inc., dated as of April 2, 2008. (5)
10.6.1   Amendment I to Exclusive License Agreement with Novartis Animal Health, dated July 26, 2010
         (15)



                                               II-8
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                 Exhibit Number                                              Identification Of Exhibit
                      10.6.2         Termination and Settlement Agreement with Novartis Animal Health, dated November 15,
                                     2011 (20)
                      10.7           Employment Agreement with Jeffrey McGonegal, effective as of February 10, 2009. (6)
                      10.8           Assignment and Consultation Agreement, dated May 29, 2003, between AspenBio and John
                                     Bealer, M.D. (7)
                       10.9          Employment Agreement with Greg Pusey effective as of January 1, 2010. (12)
                      10.10          Employment Agreement with Stephen Lundy effective as of March 24, 2010. (19)
                      10.11          Form of Stock Option Agreement under the 2002 Stock Incentive Plan, as amended and
                                     restated and amended. (12)
                      10.12          Non-Employee Director Compensation. (12)
                      10.13          Employment Agreement with Donald R. Hurd, effective as of May 23, 2012. (22)
                      23.1*          Consent of GHP Horwath, P.C.
                      23.2*          Consent of Ballard Spahr LLP (included in Exhibit 5.1).
                       24.1          Power of Attorney (included on signature page to this registration statement).




*   Filed herewith.
(1) Incorporated by reference from the registrant’s Registration Statement on Form S-1 (File no. 333-86190), filed April 12, 2002.
(2) Incorporated by reference from the registrant’s Report on Form 10-QSB for the quarter ended October 31, 2005, filed November 10, 2005.
(3) Incorporated by reference from the registrant’s Report on Form 10-Q for the quarter ended March 31, 2008 filed on May 15, 2008.
(4) Incorporated by reference from the registrant’s Report on Form 10-KSB/A for the year ended December 31, 2004 (file no. 000-50019), filed March 29, 2004.
(5) Incorporated by reference from the registrant’s Report on Form 10-Q for the quarter ended June 30, 2008, filed August 13, 2008.
(6) Incorporated by reference from the registrant’s Report on Form 8-K dated February 10, 2009, filed on February 17, 2009.
(7) Incorporated by reference from the registrant’s Report on Form 10-K for the year ended December 31, 2008, filed March 16, 2009.
(8) Incorporated by reference from the registrant’s Report on Form 8-K dated January 19, 2009, filed January 23, 2009.
(9) Incorporated by reference from the registrant’s Report on Form 10-KSB for the year ended December 31, 2007, filed March 21, 2008.
(10) Incorporated by reference from the registrant’s Report on Form 8-K dated and filed on April 30, 2010.
(11) Incorporated by reference from the registrant’s Report on Form 10-Q for the quarter ended June 30, 2010, filed August 5, 2010.
(12) Incorporated by reference from the registrant’s Report on Form 10-K for the year ended December 31, 2009, filed March 9, 2010.
(13) Incorporated by reference from the registrant’s Registration Statement on Form S-8, filed June 22, 2007.
(14) Incorporated by reference from the registrant’s Report on Form 8-K, dated November 22, 2010 and filed November 29, 2010.
(15) Incorporated by reference from the registrant’s Report on Form 10-K for the year ended December 31, 2010, filed April 15, 2011.
(16) Incorporated by reference from the registrant’s Report on Form 8-K, dated July 8, 2011 and filed July 13, 2011.
(17) Incorporated by reference from the registrant’s Report on Form 8-K, dated and filed July 29, 2011.
                                                                            II-9
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(18) Incorporated by reference from the registrant’s Report on Form 8-K, dated December 23, 2011 and filed December 28, 2011.
(19) Incorporated by reference from the registrant’s Report on Form 8-K dated as of March 24, 2010 and filed March 26, 2010.
(20) Incorporated by reference from the registrant’s Report on Form 10-K/A for the year ended December 31, 2011, filed April 9, 2012.
(21) Incorporated by reference from the registrant’s Report on Form 8-K, dated May 22, 2012 and filed May 24, 2012.
(22) Incorporated by reference from the registrant’s Report on Form 8-K, dated May 23, 2012 and filed May 24, 2012.
                                                                          II-10
     UNDERWRITING AGREEMENT

                  between

        ASPENBIO PHARMA, INC.

                    and

         AEGIS CAPITAL CORP.,

as Representative of the Several Underwriters
                                                          ASPENBIO PHARMA, INC.

                                                        UNDERWRITING AGREEMENT

                                                                                                                              New York, New York
                                                                                                                                   [June] [•], 2012

Aegis Capital Corp.
810 Seventh Avenue, 11 th Floor
New York, New York 10019

Ladies and Gentlemen:

         The undersigned, AspenBio Pharma, Inc., a corporation formed under the laws of the State of Colorado (collectively with its
subsidiaries and affiliates, including, without limitation, all entities disclosed or described in the Registration Statement (as hereinafter defined)
as being subsidiaries or affiliates of AspenBio Pharma, Inc., the “ Company ”), hereby confirms its agreement (this “ Agreement ”) with Aegis
Capital Corp. (hereinafter referred to as “you” (including its correlatives) or the “ Representative ”) and with the other underwriters named on
Schedule 1 hereto for which the Representative is acting as representative (the Representative and such other underwriters being collectively
called the “ Underwriters ” or, individually, an “ Underwriter ”) as follows:

1.       Purchase and Sale of Shares .

         1.1        Firm Shares .

                  1.1.1.      Nature and Purchase of Firm Shares .

                          (i)       On the basis of the representations and warranties herein contained, but subject to the terms and conditions
herein set forth, the Company agrees to issue and sell to the several Underwriters, an aggregate of [•] shares of the Company’s common stock
(“ Firm Shares ”), no par value per share (the “ Shares ”).

                           (ii)       The Underwriters, severally and not jointly, agree to purchase from the Company the number of Firm
Shares set forth opposite their respective names on Schedule 1 attached hereto and made a part hereof at a purchase price of $[•] per Share
(93% of the per Firm Share offering price). The Firm Shares are to be offered initially to the public at the offering price set forth on the cover
page of the Prospectus (as defined in Section 2.1.1 hereof).

                  1.1.2.      Shares Payment and Delivery .

                            (i)      Delivery and payment for the Firm Shares shall be made at 10:00 a.m., Eastern time, on the third (3 rd )
Business Day following the effective date (the “ Effective Date ”) of the Registration Statement (as defined in Section 2.1.1 below) (or the
fourth (4 th ) Business Day following the Effective Date if the Registration Statement is declared effective after 4:01 p.m., Eastern time) or at
such earlier time as shall be agreed upon by the Representative and the Company, at the offices of Reed Smith LLP, 599 Lexington Avenue,
New York, NY 10022 (“ Representative Counsel ”), or at such other place (or remotely by facsimile or other electronic transmission) as shall
be agreed upon by the Representative and the Company. The hour and date of delivery and payment for the Firm Shares is called the “ Closing
Date .”
                            (ii)      Payment for the Firm Shares shall be made on the Closing Date by wire transfer in Federal (same day)
funds, payable to the order of the Company upon delivery of the certificates (in form and substance satisfactory to the Underwriters)
representing the Firm Shares (or through the facilities of the Depository Trust Company (“ DTC ”)) for the account of the Underwriters. The
Firm Shares shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at
least two (2) full Business Days prior to the Closing Date. The Company shall not be obligated to sell or deliver the Firm Shares except upon
tender of payment by the Representative for all of the Firm Shares. The term “ Business Day ” means any day other than a Saturday, a Sunday
or a legal holiday or a day on which banking institutions are authorized or obligated by law to close in New York, New York.

         1.2       Over-allotment Option .

                   1.2.1.    Option Shares . For the purposes of covering any over-allotments in connection with the distribution and sale of the
Firm Shares, the Company hereby grants to the Underwriters an option to purchase up to [•] additional Shares, representing fifteen percent
(15%) of the Firm Shares sold in the offering, from the Company (the “ Over-allotment Option ”). Such [•] additional Shares, the net
proceeds of which will be deposited with the Company’s account, are hereinafter referred to as “ Option Shares .” The purchase price to be
paid per Option Share shall be equal to the price per Firm Share set forth in Section 1.1.1 hereof. The Firm Shares and the Option Shares are
hereinafter referred to together as the “ Public Securities .” The offering and sale of the Public Securities is hereinafter referred to as the “
Offering .”

                   1.2.2.     Exercise of Option . The Over-allotment Option granted pursuant to Section 1.2.1 hereof may be exercised by the
Representative as to all (at any time) or any part (from time to time) of the Option Shares within 45 days after the Effective Date. The
Underwriters shall not be under any obligation to purchase any Option Shares prior to the exercise of the Over-allotment Option. The
Over-allotment Option granted hereby may be exercised by the giving of oral notice to the Company from the Representative, which must be
confirmed in writing by overnight mail or facsimile or other electronic transmission setting forth the number of Option Shares to be purchased
and the date and time for delivery of and payment for the Option Shares (the “ Option Closing Date ”), which shall not be later than five (5)
Business Days or less than three (3) Business Days after the date of the notice or such other time as shall be agreed upon by the Company and
the Representative, at the offices of Representative Counsel or at such other place (including remotely by facsimile or other electronic
transmission) as shall be agreed upon by the Company and the Representative. If such delivery and payment for the Option Shares does not
occur on the Closing Date, the Option Closing Date will be as set forth in the notice. Upon exercise of the Over-allotment Option with respect
to all or any portion of the Option Shares, subject to the terms and conditions set forth herein, (i) the Company shall become obligated to sell to
the Underwriters the number of Option Shares specified in such notice and (ii) each of the Underwriters, acting severally and not jointly, shall
purchase that proportion of the total number of Option Shares then being purchased which the number of Firm Shares set forth in Schedule 1
opposite the name of such Underwriter bears to the total number of Firm Shares, subject, in each case, to such adjustments as the
Representative, in its sole discretion, shall determine.

                  1.2.3.    Payment and Delivery . Payment for the Option Shares shall be made on the Option Closing Date by wire transfer
in Federal (same day) funds, payable to the order of the Company upon delivery to you of certificates (in form and substance satisfactory to the
Underwriters) representing the Option Shares (or through the facilities of DTC) for the account of the Underwriters. The Option Shares shall be
registered in such name or names and in such authorized denominations as the Representative may request in writing at least two (2) full
Business Days prior to the Option Closing Date. The Company shall not be obligated to sell or deliver the Option Shares except upon tender of
payment by the Representative for applicable Option Shares.


                                                                     - 2 -
         1.3       Representative’s Warrants .

                   1.3.1.      Purchase Warrants . The Company hereby agrees to issue and sell to the Representative (and/or its designees) on
the Closing Date an option (“ Representative’s Warrant ”) for the purchase of an aggregate of [•] Shares, representing 5% of the Firm Shares,
for an aggregate purchase price of $100.00. The Representative’s Warrant agreement, in the form attached hereto as Exhibit A (the “
Representative’s Warrant Agreement ”), shall be exercisable, in whole or in part, commencing on a date which is one (1) year after the
Effective Date and expiring on the five-year anniversary of the Effective Date at an initial exercise price per Share of $[•], which is equal to
125% of the initial public offering price of the Firm Shares. The Representative’s Warrant Agreement and the Shares issuable upon exercise
thereof are sometimes hereinafter referred to together as the “ Representative’s Securities .” The Representative understands and agrees that
there are significant restrictions pursuant to FINRA Rule 5110 against transferring the Representative’s Warrant Agreement and the underlying
Shares during the first year after the Effective Date and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or
hypothecate the Representative’s Warrant Agreement, or any portion thereof, or be the subject of any hedging, short sale, derivative, put or call
transaction that would result in the effective economic disposition of such securities for a period of one (1) year following the Effective Date to
anyone other than (i) an Underwriter or a selected dealer in connection with the Offering, or (ii) a bona fide officer or partner of the
Representative or of any such Underwriter or selected dealer; and only if any such transferee agrees to the foregoing lock-up restrictions.

                  1.3.2.   Delivery . Delivery of the Representative’s Warrant Agreement shall be made on the Closing Date and shall be
issued in the name or names and in such authorized denominations as the Representative may request.

2. Representations and Warranties of the Company . The Company represents and warrants to the Underwriters as of the Applicable Time (as
defined below), as of the Closing Date and as of the Option Closing Date, if any, as follows:

         2.1       Filing of Registration Statement .

                  2.1.1.    Pursuant to the Act . The Company has filed with the U.S. Securities and Exchange Commission (the “
Commission ”) a registration statement, and an amendment or amendments thereto, on Form S-1 (File No. 333-180691), including any related
prospectus or prospectuses, for the registration of the Public Securities and the Representative’s Securities under the Securities Act of 1933, as
amended (the “ Act ”), which registration statement and amendment or amendments have been prepared by the Company in all material
respects in conformity with the requirements of the Act and the rules and regulations of the Commission under the Act (the “ Regulations ”)
and will contain all material statements that are required to be stated therein in accordance with the Act and the Regulations. Except as the
context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement
became effective (including the Preliminary Prospectus included in the registration statement, financial statements, schedules, exhibits and all
other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of the Effective Date pursuant
to paragraph (b) of Rule 430A of the Regulations (the “ Rule 430A Information ”)), is referred to herein as the “ Registration Statement .” If
the Company files any registration statement pursuant to Rule 462(b) of the 1933 Act Regulations, then after such filing, the term “
Registration Statement ” shall include such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared
effective by the Commission on the date hereof.


                                                                     - 3 -
         Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A
Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “ Preliminary
Prospectus .” The Preliminary Prospectus, subject to completion, dated [•], 2012, that was included in the Registration Statement immediately
prior to the Applicable Time is hereinafter called the “ Pricing Prospectus .” The final prospectus in the form first furnished to the
Underwriters for use in the Offering is hereinafter called the “ Prospectus .” Any reference to the “most recent Preliminary Prospectus” shall
be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement.

         “ Applicable Time ” means 5:00 p.m., Eastern time, on the date of this Agreement.

           “ Issuer Free Writing Prospectus ” means any “issuer free writing prospectus,” as defined in Rule 433 of the Regulations (“ Rule
433 ”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the Regulations) relating to the Public Securities
that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of
Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule
433(d)(5)(i) because it contains a description of the Public Securities or of the Offering that does not reflect the final terms, in each case in the
form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to
Rule 433(g).

         “ Issuer General Use Free Writing Prospectus ” means any Issuer Free Writing Prospectus that is intended for general distribution
to prospective investors (other than a “ bona fide electronic road show,” as defined in Rule 433 (the “ Bona Fide Electronic Road Show ”)), as
evidenced by its being specified in Schedule 2-B hereto.

        “ Issuer Limited Use Free Writing Prospectus ” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free
Writing Prospectus.

         “ Pricing Disclosure Package ” means any Issuer General Use Free Writing Prospectus issued at or prior to the Applicable Time, the
Pricing Prospectus and the information included on Schedule 2-A hereto, all considered together.

                  2.1.2.     Pursuant to the Exchange Act . The Company has filed with the Commission a Form 8-A/A (File Number
001-33675) providing for the registration pursuant to Section 12(b) under the Securities Exchange Act of 1934, as amended (the “ Exchange
Act ”), of the Shares. The registration of the Shares under the Exchange Act has been declared effective by the Commission on or prior to the
date hereof. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Public Securities
and the Representative’s Securities under the Exchange Act, nor has the Company received any notification that the Commission is
contemplating terminating such registration except as described in the Registration Statement, the Pricing Disclosure Package and the
Prospectus.

        2.2         Stock Exchange Listing . The Shares have been approved for listing on The Nasdaq Capital Market (the “ NasdaqCM ”),
and the Company has taken no action designed to, or likely to have the effect of, delisting the Shares from the NasdaqCM, nor has the
Company received any notification that the NasdaqCM is contemplating terminating such listing except as described in the Registration
Statement, the Pricing Disclosure Package and the Prospectus.

          2.3         No Stop Orders, etc . Neither the Commission nor, to the best of the Company’s knowledge, any state regulatory authority
has issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus or the Prospectus or has
instituted or, to the best of the Company’s knowledge, threatened to institute, any proceedings with respect to such an order. The Company has
complied with each request (if any) from the Commission for additional information.


                                                                      - 4 -
         2.4       Disclosures in Registration Statement .

                  2.4.1.      Compliance with Act and 10b-5 Representation .

                             (i)      Each of the Registration Statement and any post-effective amendment thereto, at the time it became
effective, complied in all material respects with the requirements of the Act and the Regulations. Each Preliminary Prospectus, including the
prospectus filed as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, and the Prospectus,
at the time each was filed with the Commission, complied as to form in all material respects with the requirements of the Act and the
Regulations. Each Preliminary Prospectus delivered to the Underwriters for use in connection with this Offering and the Prospectus was or will
be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T;

                           (ii)         Neither the Registration Statement nor any amendment thereto, at its effective time, as of the date of this
Agreement, at the Closing Date or at any Option Closing Date (if any), contained, contains or will contain an untrue statement of a material fact
or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading;

                            (iii)      The Pricing Disclosure Package, as of the Applicable Time, as of the date of this Agreement, at the
Closing Date or at any Option Closing Date (if any), did not, does not and will not include an untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
and each Issuer Limited Use Free Writing Prospectus hereto does not conflict with the information contained in the Registration Statement, any
Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each such Issuer Limited Use Free Writing Prospectus, as supplemented
by and taken together with the Pricing Prospectus as of the Applicable Time, did not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty shall not apply to statements made or statements omitted in reliance upon
and in conformity with written information furnished to the Company with respect to the Underwriters by the Representative expressly for use
in the Registration Statement, the Pricing Prospectus or the Prospectus or any amendment thereof or supplement thereto. The parties
acknowledge and agree that such information provided by or on behalf of any Underwriter consists solely of the following disclosure contained
in the “Underwriting” section of the Prospectus: [______________] (the “ Underwriters’ Information ”); and

                             (iv)       Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as
of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Date or at any Option Closing Date,
included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this
representation and warranty shall not apply to the Underwriters’ Information.


                                                                      - 5 -
                    2.4.2.     Disclosure of Agreements . The agreements and documents described in the Registration Statement, the Pricing
Disclosure Package and the Prospectus conform in all material respects to the descriptions thereof contained therein and there are no
agreements or other documents required by the Act and the Regulations to be described in the Registration Statement, the Pricing Disclosure
Package and the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or
filed. Each agreement or other instrument (however characterized or described) to which the Company is a party or by which it is or may be
bound or affected and (i) that is referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or (ii) is material
to the Company’s business, has been duly authorized and validly executed by the Company, is in full force and effect in all material respects
and is enforceable against the Company and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as
such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (y) as
enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that the
remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought. None of such agreements or instruments has been assigned by the Company,
and neither the Company nor, to the best of the Company’s knowledge, any other party is in default thereunder and, to the best of the
Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute a default thereunder.
To the best of the Company’s knowledge, performance by the Company of the material provisions of such agreements or instruments will not
result in a violation of any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic
or foreign, having jurisdiction over the Company or any of its assets or businesses (each, a “ Governmental Entity ”), including, without
limitation, those relating to environmental laws and regulations.

                   2.4.3.     Prior Securities Transactions . Sine January 1, 2009, no securities of the Company have been sold by the Company
or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by or under common control with t he Company, except
as disclosed in the Registration Statement.

                  2.4.4.     Regulations . The disclosures in the Registration Statement, the Pricing Disclosure Package and the Prospectus
concerning the effects of federal, state, local and all foreign regulation on the Company’s business as currently contemplated are correct in all
material respects and no other such regulations are required to be disclosed in the Registration Statement, the Pricing Disclosure Package and
the Prospectus which are not so disclosed.

         2.5        Changes After Dates in Registration Statement .

                   2.5.1.    No Material Adverse Change . Since the respective dates as of which information is given in the Registration
Statement, the Pricing Disclosure Package and the Prospectus, except as otherwise specifically stated therein: (i) there has been no material
adverse change in the financial position or results of operations of the Company, nor any change or development that, singularly or in the
aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or
otherwise), results of operations, business, assets or prospects of the Company; (ii) there have been no material transactions entered into by the
Company, other than as contemplated pursuant to this Agreement; and (iii) no officer or director of the Company has resigned from any
position with the Company.

                   2.5.2. Recent Securities Transactions, etc . Subsequent to the respective dates as of which information is given in the
Registration Statement, the Pricing Disclosure Package and the Prospectus, and except as may otherwise be indicated or contemplated herein or
disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities or
incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or made any other
distribution on or in respect to its capital stock.


                                                                      - 6 -
         2.6        Independent Accountants . To the knowledge of the Company, GHP Horwath, P.C. (the “ Auditor ”), whose report is filed
with the Commission as part of the Registration Statement, is an independent registered public accounting firm as required by the Act and the
Regulations and the Public Company Accounting Oversight Board. The Auditor has not, during the periods covered by the financial statements
included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Company any non-audit services, as
such term is used in Section 10A(g) of the Exchange Act.

          2.7        Financial Statements, etc . The financial statements, including the notes thereto and supporting schedules included in the
Registration Statement, the Pricing Disclosure Package and the Prospectus, fairly present the financial position and the results of operations of
the Company at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with U.S.
generally accepted accounting principles (“ GAAP ”), consistently applied throughout the periods involved; and the supporting schedules
included in the Registration Statement present fairly the information required to be stated therein. Each of the Registration Statement, the
Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including
contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that may have a material current
or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures,
capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration Statement, the Pricing Disclosure
Package and the Prospectus, (a) the Company has not incurred any material liabilities or obligations, direct or contingent, or entered into any
material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any
distribution of any kind with respect to its capital stock, (c) there has not been any change in the capital stock of the Company or any grants
under any stock compensation plan, and (d) there has not been any material adverse change in the Company’s long-term or short-term debt.

         2.8        Authorized Capital; Options, etc . The Company had, at the date or dates indicated in the Registration Statement, the
Pricing Disclosure Package and the Prospectus, the duly authorized, issued and outstanding capitalization as set forth therein. Based on the
assumptions stated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company will have on the Closing
Date the adjusted stock capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement, the Pricing
Disclosure Package and the Prospectus, on the Effective Date and on the Closing Date, there will be no stock options, warrants, or other rights
to purchase or otherwise acquire any authorized, but unissued Shares of the Company or any security convertible or exercisable into Shares of
the Company, or any contracts or commitments to issue or sell Shares or any such options, warrants, rights or convertible securities.


                                                                    - 7 -
         2.9        Valid Issuance of Securities, etc.

                   2.9.1.        Outstanding Securities . All issued and outstanding securities of the Company issued prior to the transactions
contemplated by this Agreement have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have
no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the
Company. The authorized Shares conform in all material respects to all statements relating thereto contained in the Registration Statement, the
Pricing Disclosure Package and the Prospectus. The offers and sales of the outstanding Shares were at all relevant times either registered under
the Act and the applicable state securities or “blue sky” laws or, based in part on the representations and warranties of the purchasers of such
Shares, exempt from such registration requirements.

                   2.9.2.        Securities Sold Pursuant to this Agreement . The Public Securities and Representative’s Securities have been
duly authorized for issuance and sale and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof
are not and will not be subject to personal liability by reason of being such holders; the Public Securities and Representative’s Securities are not
and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the
Company; and all corporate action required to be taken for the authorization, issuance and sale of the Public Securities and Representative’s
Securities has been duly and validly taken. The Public Securities and Representative’s Securities conform in all material respects to all
statements with respect thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. When paid for and
issued in accordance with the Representative’s Warrant Agreement, the underlying Shares will be validly issued, fully paid and non-assessable;
the holders thereof are not and will not be subject to personal liability by reason of being such holders; the underlying Shares are not and will
not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; and
all corporate action required to be taken for the authorization, issuance and sale of the Representative’s Warrant Agreement has been duly and
validly taken.

          2.10        Registration Rights of Third Parties . Except as set forth in the Registration Statement, the Pricing Disclosure Package and
the Prospectus, no holders of any securities of the Company or any rights exercisable for or convertible or exchangeable into securities of the
Company have the right to require the Company to register any such securities of the Company under the Act or to include any such securities
in a registration statement to be filed by the Company.

         2.11      Validity and Binding Effect of Agreements . This Agreement and the Representative’s Warrant Agreement have been duly
and validly authorized by the Company, and, when executed and delivered, will constitute, the valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms, except: (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors’ rights generally; (ii) as enforceability of any indemnification or contribution
provision may be limited under the federal and state securities laws; and (iii) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may
be brought.


                                                                      - 8 -
           2.12       No Conflicts, etc . The execution, delivery and performance by the Company of this Agreement, the Representative’s
Warrant Agreement and all ancillary documents, the consummation by the Company of the transactions herein and therein contemplated and
the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the lapse of time
or both: (i) result in a material breach of, or conflict with any of the terms and provisions of, or constitute a material default under, or result in
the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant
to the terms of any agreement or instrument to which the Company is a party; (ii) result in any violation of the provisions of the Company’s
Articles of Incorporation (as the same may be amended or restated from time to time, the “ Charter ”) or the by-laws of the Company; or
(iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign,
having jurisdiction over the Company or any of its properties or business constituted as of the date hereof (including, without limitation, those
promulgated by the Food and Drug Administration of the U.S. Department of Health and Human Services (the “ FDA ”) or by any foreign,
federal, state or local regulatory authority performing functions similar to those preformed by the FDA).

         2.13       No Defaults; Violations . No material default exists in the due performance and observance of any term, covenant or
condition of any material license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by
which the Company may be bound or to which any of the properties or assets of the Company is subject. The Company is not in violation of
any term or provision of its Charter, or in violation of any franchise, license, permit, applicable law, rule, regulation, judgment or decree of any
Governmental Entity.

         2.14       Corporate Power; Licenses; Consents .

                    2.14.1.      Conduct of Business . Except as described in the Registration Statement, the Pricing Disclosure Package and
the Prospectus, the Company has all requisite corporate power and authority, and has all necessary material authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental regulatory officials and bodies that it needs as of the date hereof to conduct its
business purpose as described in the Prospectus. The disclosures in the Registration Statement, the Pricing Disclosure Package and the
Prospectus concerning the effects of federal, state, local and foreign regulation on the Offering and the Company’s business purpose as
currently contemplated are correct in all material respects.

                  2.14.2.      Transactions Contemplated Herein . The Company has all corporate power and authority to enter into this
Agreement and to carry out the provisions and conditions hereof, and all consents, authorizations, approvals and orders required in connection
therewith have been obtained. No consent, authorization or order of, and no filing with, any court, government agency or other body is required
for the valid issuance, sale and delivery of the Shares and the consummation of the transactions and agreements contemplated by this
Agreement and the Representative’s Warrant Agreement and as contemplated by the Registration Statement, the Pricing Disclosure Package
and the Prospectus, except with respect to applicable federal and state securities laws and the rules and regulations of the Financial Industry
Regulatory Authority, Inc. (“ FINRA ”).

          2.15        D&O Questionnaires . To the Company’s knowledge, all information contained in the questionnaires (the “
Questionnaires ”) completed by each of the Company’s directors and officers immediately prior to the Offering (the “ Insiders ”) as
supplemented by all information concerning the Company’s directors, officers and principal shareholders as described in the Registration
Statement, the Pricing Disclosure Package and the Prospectus, as well as in the Lock-Up Agreement, provided to the Underwriters is true and
correct in all material respects and the Company has not become aware of any information which would cause the information disclosed in the
Questionnaires to become materially inaccurate and incorrect.


                                                                       - 9 -
         2.16       Litigation; Governmental Proceedings . There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or
governmental proceeding pending or, to the Company’s knowledge, threatened against, or involving the Company or, to the Company’s
knowledge, any executive officer or director which has not been disclosed in the Registration Statement, the Pricing Disclosure Package and
the Prospectus or in connection with the Company’s listing application for the trading of the Shares on the NasdaqCM.

          2.17       Good Standing . The Company has been duly organized and is validly existing as a corporation and is in good standing
under the laws of the State of Colorado as of the date hereof, and is duly qualified to do business and is in good standing in each other
jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to
qualify, singularly or in the aggregate, would not have a material adverse effect on the assets, business or operations of the Company.

          2.18        Insurance . The Company carries or is entitled to the benefits of insurance, with reputable insurers, in such amounts and
covering such risks which the Company believes are adequate, and all such insurance is in full force and effect. The Company has no reason to
believe that it will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable
coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not
result in a material adverse change in the condition, financial or otherwise, or business prospects of the Company.

         2.19       Transactions Affecting Disclosure to FINRA .

                  2.19.1.     Finder’s Fees . Except as described in the Registration Statement, the Pricing Disclosure Package and the
Prospectus, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder’s, consulting or
origination fee by the Company or any Insider with respect to the sale of the Shares hereunder or any other arrangements, agreements or
understandings of the Company or, to the Company’s knowledge, any of its shareholders that may affect the Underwriters’ compensation, as
determined by FINRA.

                    2.19.2.       Payments Within Twelve (12) Months . Except as described in the Registration Statement, the Pricing
Disclosure Package and the Prospectus, the Company has not made any direct or indirect payments (in cash, securities or otherwise) to: (i) any
person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the
Company persons who raised or provided capital to the Company; (ii) any FINRA member; or (iii) any person or entity that has any direct or
indirect affiliation or association with any FINRA member, within the twelve (12) months prior to the Effective Date, other than the payment to
the Underwriters as provided hereunder in connection with the Offering.

              2.19.3.         Use of Proceeds . None of the net proceeds of the Offering will be paid by the Company to any participating
FINRA member or its affiliates, except as specifically authorized herein.

                 2.19.4.         FINRA Affiliation . No officer, director or any beneficial owner of the Company’s unregistered securities has
any direct or indirect affiliation or association with any FINRA member (as determined in accordance with the rules and regulations of
FINRA). The Company will advise the Representative and Representative Counsel if it learns that any officer, director or owner of at least 5%
of the Company’s outstanding Shares (or securities convertible or exercisable into Shares) is or becomes an affiliate or associated person of a
FINRA member participating in the Offering.

                   2.19.5.      Information . All information provided by the Company in its FINRA Questionnaire to Representative Counsel
specifically for use by Representative Counsel in connection with its COBRADesk filings (and related disclosure) with FINRA is true, correct
and complete in all material respects.


                                                                     - 10 -
         2.20       Foreign Corrupt Practices Act . None of the Company or, to the Company’s knowledge, any director, officer, agent,
employee or affiliate of the Company or any other person acting on behalf of the Company, has, directly or indirectly, given or agreed to give
any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier,
employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government
(domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that (i) might subject the
Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a
material adverse effect on the assets, business or operations of the Company as reflected in any of the financial statements contained in the
Prospectus or (iii) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company. The
Company has taken reasonable steps to ensure that its accounting controls and procedures are sufficient to cause the Company to comply in all
material respects with the Foreign Corrupt Practices Act of 1977, as amended.

          2.21     Compliance with OFAC . None of the Company or, to the Company’s knowledge, any director, officer, agent, employee or
affiliate of the Company or any other person acting on behalf of the Company, is currently subject to any U.S. sanctions administered by the
Office of Foreign Assets Control of the U.S. Department of the Treasury (“ OFAC ”), and the Company will not, directly or indirectly, use the
proceeds of the Offering hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or
other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.

         2.22      Money Laundering Laws . The operations of the Company are and have been conducted at all times in compliance with
applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended,
the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “ Money Laundering Laws ”); and no action, suit
or proceeding by or before any Governmental Entity involving the Company with respect to the Money Laundering Laws is pending or, to the
best knowledge of the Company, threatened.

          2.23       Regulatory . All preclinical and clinical studies conducted by or on behalf of the Company that are material to the Company,
taken as a whole, are or have been adequately described in the Registration Statement, the Pricing Disclosure Package and the Prospectus in all
material respects. The clinical and preclinical studies conducted by or on behalf of the Company that are described in the Registration
Statement, the Pricing Disclosure Package and the Prospectus or the results of which are referred to in the Registration Statement, the Pricing
Disclosure Package and the Prospectus were and, if still ongoing, are being conducted in material compliance with all laws and regulations
applicable thereto in the jurisdictions in which they are being conducted and with all laws and regulations applicable to preclinical and clinical
studies from which data will be submitted to support marketing approval. The descriptions in the Registration Statement, the Pricing
Disclosure Package and the Prospectus of the results of such studies are accurate and complete in all material respects and fairly present the
data derived from such studies, and the Company has no knowledge of, or reason to believe that, any large well-controlled clinical study the
aggregate results of which are inconsistent with or otherwise call into question the results of any clinical study conducted by or on behalf of the
Company that are described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or the results of which are
referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus. Except as disclosed in the Registration
Statement, the Pricing Disclosure Package and the Prospectus, the Company has not received any written notices or statements from the FDA,
the European Medicines Agency (“ EMA ”) or any other governmental agency or authority imposing, requiring, requesting or suggesting a
clinical hold, termination, suspension or material modification for or of any clinical or preclinical studies that are described in the Registration
Statement, the Pricing Disclosure Package and the Prospectus or the results of which are referred to in the Registration Statement, the Pricing
Disclosure Package and the Prospectus. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus,
the Company has not received any written notices or statements from the FDA, the EMA or any other governmental agency, and otherwise has
no knowledge of, or reason to believe that, (i) any investigational new drug application for potential product of the Company is or has been
rejected or determined to be non-approvable or conditionally approvable; and (ii) any license, approval, permit or authorization to conduct any
clinical trial of any potential product of the Company has been, will be or may be suspended, revoked, modified or limited.


                                                                     - 11 -
        2.24      Officers’ Certificate . Any certificate signed by any duly authorized officer of the Company and delivered to you or to
Representative Counsel shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.

         2.25        Lock-Up Agreements.

                  2.25.1.      Schedule 3 hereto contains a complete and accurate list of the Company’s officers and directors (collectively, the
“ Lock-Up Parties ”). The Company has caused each of the Lock-Up Parties to deliver to the Representative executed Lock-Up Agreements,
in the form attached hereto as Exhibit B , prior to the execution of this Agreement.

                   2.25.2.        The Company, on behalf of itself and any successor entity, has agreed that, without the prior written consent of
the Representative, it will not, for a period of 90 days after the effective date of the Registration Statement (the “ Lock-Up Period ”), (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration
statement with the Commission relating to the offering of any shares of capital stock of the Company or any securities convertible into or
exercisable or exchangeable for shares of capital stock of the Company; or (iii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction
described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or
otherwise.

                   The restrictions contained in this Section 2.25.2 shall not apply to (i) the Shares to be sold hereunder, (ii) the issuance by the
Company of Shares upon the exercise of a stock option or warrant or the conversion of a security outstanding on the date hereof, of which the
Representative has been advised in writing or (iii) the issuance by the Company of stock options or shares of capital stock of the Company
under any equity compensation plan of the Company.

                   2.25.3.     Notwithstanding the foregoing, if (i) during the last 17 days of the Lock-Up Period, the Company issues an
earnings release or material news or a material event relating to the Company occurs, or (ii) prior to the expiration of the Lock-Up Period, the
Company announces that it will release earnings results or becomes aware that material news or a material event will occur during the 16-day
period beginning on the last day of the Lock-Up Period, the restrictions imposed by the foregoing Section 2.25.2 shall continue to apply until
the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of such material news or material event,
as applicable, unless the Representative waives, in writing, such extension.


                                                                       - 12 -
         2.26     Subsidiaries . The Company has no direct or indirect subsidiaries.

         2.27      Related Party Transactions . There are no business relationships or related party transactions involving the Company or any
other person required to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus that have not been
described as required.

         2.28       Board of Directors . The Board of Directors of the Company is comprised of the persons set forth under the heading of the
Pricing Prospectus and the Prospectus captioned “Management.” The qualifications of the persons serving as board members and the overall
composition of the board comply with the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder (the “ Sarbanes-Oxley Act ”)
applicable to the Company and the listing rules of the Nasdaq Stock Market LLC. At least one member of the Audit Committee of the Board of
Directors of the Company qualifies as a “financial expert,” as such term is defined under the Sarbanes-Oxley Act and the listing rules of the
Nasdaq Stock Market LLC. In addition, at least a majority of the persons serving on the Board of Directors qualify as “independent,” as defined
under the listing rules of the Nasdaq Stock Market LLC.

         2.29     Sarbanes-Oxley Compliance .

                  2.29.1.    Disclosure Controls . The Company has developed and currently maintains disclosure controls and procedures
that will comply with Rule 13a-15 or 15d-15 under the Exchange Act, and such controls and procedures are effective to ensure that all material
information concerning the Company will be made known on a timely basis to the individuals responsible for the preparation of the Company’s
Exchange Act filings and other public disclosure documents.

                2.29.2.    Compliance . The Company is, or on the Effective Date will be, in material compliance with the provisions of the
Sarbanes-Oxley Act applicable to it, and has implemented or will implement such programs and taken reasonable steps to ensure the
Company’s future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the material provisions of the
Sarbanes-Oxley Act.

         2.30       Accounting Controls . The Company maintains systems of “internal control over financial reporting” (as defined under
Rules 13-a15 and 15d-15 under the Exchange Act) that comply with the requirements of the Exchange Act and have been designed by, or under
the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only
in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration
Statement, the Pricing Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in its internal controls.
The Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant
deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are known to the Company’s
management and that have adversely affected or are reasonably likely to adversely affect the Company’ ability to record, process, summarize
and report financial information; and (ii) any fraud known to the Company’s management, whether or not material, that involves management
or other employees who have a significant role in the Company’s internal controls over financial reporting.


                                                                    - 13 -
        2.31      No Investment Company Status . The Company is not and, after giving effect to the Offering and the application of the
proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be, an “investment
company,” as defined in the Investment Company Act of 1940, as amended.

       2.32        No Labor Disputes . No labor dispute with the employees of the Company exists or, to the knowledge of the Company, is
imminent.

         2.33      Intellectual Property . The Company owns or possesses or has valid rights to use all patents, patent applications, trademarks,
service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and similar rights
(“ Intellectual Property ”) necessary for the conduct of the business of the Company as currently carried on and as described in the
Registration Statement, the Pricing Disclosure Package and the Prospectus. To the knowledge of the Company, no action or use by the
Company will involve or give rise to any infringement of, or license or similar fees for, any Intellectual Property of others. The Company has
not received any notice alleging any such infringement or fee.

         2.34      Taxes . The Company has filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to the date
hereof or has duly obtained extensions of time for the filing thereof. The Company has paid all taxes (as hereinafter defined) shown as due on
such returns that were filed and has paid all taxes imposed on or assessed against the Company. The provisions for taxes payable, if any, shown
on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not
disputed, and for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the
Underwriters, (i) no issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes
asserted as due from the Company, and (ii) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given
by or requested from the Company. The term “ taxes ” mean all federal, state, local, foreign and other net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever,
together with any interest and any penalties, additions to tax or additional amounts with respect thereto. The term “ returns ” means all returns,
declarations, reports, statements and other documents required to be filed in respect to taxes.

         2.35      Environmental Matters . Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the
Prospectus, the Company (i) are in compliance in all material respects with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, including, without limitation, those relating to occupational safety and health,
the environment or hazardous or toxic substances or wastes, pollutants or contaminants, including, without limitation, those relating to the
storage, handling or transportation of hazardous or toxic materials (collectively, “ Environmental Laws ”) and (ii) is in compliance in all
material respects with all terms and conditions of any such permit, license or approval relating thereto. The Company, in its reasonable
judgment, has concluded that any costs or liabilities associated with Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean up, closure of properties or compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential liabilities to third parties) would not, singly or in the aggregate, reasonably be
expected to result in a material adverse effect on the assets, business or operations of the Company.


                                                                     - 14 -
        2.36        Ineligible Issuer . As of the time of filing of the Registration Statement, as of the date of this Agreement and as of the
Closing Date or any Option Closing Date, the Company was not, is not, and will not be, an “ineligible issuer” as defined in Rule 405 under the
Act.

         2.37       Smaller Reporting Company . As of the time of filing of the Registration Statement, the Company was a “smaller
reporting company,” as defined in Rule 12b-2 of the Exchange Act.

          2.38        Industry Data . The statistical and market-related data included in each of the Registration Statement, the Pricing
Disclosure Package and the Prospectus are based on or derived from sources that the Company reasonably and in good faith believes are
reliable and accurate or represent the Company’s good faith estimates that are made on the basis of data derived from such sources.

        2.39          Reverse Stock Split . The Company has taken all necessary corporate action to effectuate a reverse stock split of the
Shares on the basis of one (1) such Share for each six (6) issued and outstanding Shares thereof (the “ Reverse Stock Split ”), such Reverse
Stock Split to be effective no later than the first trading day of the Firm Shares following the date hereof.

3.       Covenants of the Company . The Company covenants and agrees as follows:

         3.1       Amendments to Registration Statement . The Company shall deliver to the Representative, prior to filing, any amendment
or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or
supplement to which the Representative shall reasonably object in writing.

         3.2        Federal Securities Laws .

                    3.2.1. Compliance . The Company, subject to Section 3.2.2, shall comply with the requirements of Rule 430A of the
Regulations, and will notify the Representative promptly, and confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed; (ii) of the receipt of
any comments from the Commission; (iii) of any request by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information; (iv) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, or of the suspension of the qualification of the Public Securities and Representative’s Securities for
offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination
pursuant to Section 8(d) or 8(e) of the Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding
under Section 8A of the Act in connection with the Offering of the Public Securities and Representative’s Securities. The Company shall effect
all filings required under Rule 424(b) of the Regulations, in the manner and within the time period required by Rule 424(b) (without reliance on
Rule 424(b)(8)), and shall take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing
under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The
Company shall use its best efforts to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain
the lifting thereof at the earliest possible moment.


                                                                    - 15 -
                   3.2.2.    Continued Compliance . The Company shall comply with the Act and the Regulations so as to permit the
completion of the distribution of the Public Securities as contemplated in this Agreement and in the Registration Statement, the Pricing
Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Public Securities is (or, but for the exception afforded
by Rule 172 of the Regulations (“ Rule 172 ”), would be) required by the Act to be delivered in connection with sales of the Public Securities,
any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the
Company, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) amend or
supplement the Pricing Disclosure Package or the Prospectus in order that the Pricing Disclosure Package or the Prospectus, as the case may
be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend
or supplement the Pricing Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the Act or the
Regulations, the Company will promptly (A) give the Representatives notice of such event; (B) prepare any amendment or supplement as may
be necessary to correct such statement or omission or to make the Registration Statement, the Pricing Disclosure Package or the Prospectus
comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representatives with copies of
any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall
not file or use any such amendment or supplement to which the Representatives or counsel for the Underwriters shall reasonably object in
writing. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may
reasonably request. The Company has given the Representatives notice of any filings made pursuant to the Exchange Act or the regulations
promulgated thereunder within 48 hours prior to the Applicable Time; the Company will give the Representatives notice of its intention to
make any such filing from the Applicable Time to the Closing Date and will furnish the Representatives with copies of any such documents a
reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the
Representatives or counsel for the Underwriters shall reasonably object.

                 3.2.3. Filing of Final Prospectus . The Company shall file the Prospectus (in form and substance satisfactory to the
Representative) with the Commission pursuant to the requirements of Rule 424 of the Regulations.

                3.2.4. Exchange Act Registration . For a period of three (3) years after the Effective Date, the Company shall use its
commercially reasonable efforts to maintain the registration of the Shares. The Company shall not voluntarily deregister the Shares under the
Exchange Act without the prior written consent of the Representative.

                  3.2.5.     Free Writing Prospectuses . The Company agrees that, unless it obtains the prior written consent of the
Representative, it shall not make any offer relating to the Public Securities that would constitute an Issuer Free Writing Prospectus or that
would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or
retained by the Company under Rule 433; provided that the Representative shall be deemed to have consented to each Issuer General Use Free
Writing Prospectus hereto and any “road show that is a written communication” within the meaning of Rule 433(d)(8)(i) that has been
reviewed by the Representative. The Company represents that it has treated or agrees that it will treat each such free writing prospectus
consented to, or deemed consented to, by the Underwriters as an “issuer free writing prospectus,” as defined in Rule 433, and that it has
complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission
where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs
an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in
the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact
necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the
Company will promptly notify the Underwriters and will promptly amend or supplement, at its own expense, such Issuer Free Writing
Prospectus to eliminate or correct such conflict, untrue statement or omission


                                                                     - 16 -
         3.3      Delivery to the Underwriters of Registration Statements . The Company has delivered or made available or shall deliver or
make available to the Representative and counsel for the Representatives, without charge, signed copies of the Registration Statement as
originally filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts,
and will also deliver to the Underwriters, without charge, a conformed copy of the Registration Statement as originally filed and each
amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto
furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.

         3.4      Delivery to the Underwriters of Prospectuses . The Company has delivered or made available or will deliver or make
available to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and
the Company hereby consents to the use of such copies for purposes permitted by the Act. The Company will furnish to each Underwriter,
without charge, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172 of the
Regulations, would be) required to be delivered under the Act, such number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.

          3.5      Effectiveness and Events Requiring Notice to the Representative . The Company shall use its commercially reasonable efforts
to cause the Registration Statement to remain effective with a current prospectus for at least nine (9) months after the Applicable Time, and
shall notify the Representative immediately and confirm the notice in writing: (i) of the effectiveness of the Registration Statement and any
amendment thereto; (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that
purpose; (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the Shares for
offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the mailing and delivery to
the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus; (v) of the receipt of any comments or
request for any additional information from the Commission; and (vi) of the happening of any event during the period described in this Section
3.5 that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement, the Pricing Disclosure
Package or the Prospectus untrue or that requires the making of any changes in (a) the Registration Statement in order to make the statements
therein not misleading, or (b) in the Pricing Disclosure Package or the Prospectus in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company shall make every reasonable effort to obtain promptly the lifting of such order.

          3.6      Review of Financial Statements. For a period of five (5) years after the Effective Date, the Company, at its expense, shall
cause its regularly engaged independent registered public accounting firm to review (but not audit) the Company’s financial statements for each
of the three fiscal quarters immediately preceding the announcement of any quarterly financial information.

         3.7      Listing . The Company shall use its commercially reasonable efforts to maintain the listing of the Shares (including the Public
Securities) on the NasdaqCM.

         3.8      [Intentionally Omitted .]


                                                                      - 17 -
          3.9      Financial Public Relations Firm . As of the Effective Date, the Company shall have retained a financial public relations firm
reasonably acceptable to the Representative and the Company, which shall initially be Liolios Group, Inc., which firm shall be experienced in
assisting issuers in initial public offerings of securities and in their relations with their security holders, and shall retain such firm or another
firm reasonably acceptable to the Representative for a period of not less than two (2) years after the Effective Date.

         3.10     Reports to the Representative .

                   3.10.1. Periodic Reports, etc . For a period of three (3) years after the Effective Date, the Company shall furnish to the
Representative copies of such financial statements and other periodic and special reports as the Company from time to time furnishes generally
to holders of any class of its securities and also promptly furnish to the Representative: (i) a copy of each periodic report the Company shall be
required to file with the Commission; (ii) a copy of every press release and every news item and article with respect to the Company or its
affairs which was released by the Company; (iii) a copy of each Form 8-K prepared and filed by the Company; (iv) five copies of each
registration statement filed by the Company under the Act; and (v) such additional documents and information with respect to the Company
and the affairs of any future subsidiaries of the Company as the Representative may from time to time reasonably request; provided the
Representative shall sign, if requested by the Company, a Regulation FD compliant confidentiality agreement which is reasonably acceptable to
the Representative and Representative Counsel in connection with the Representative’s receipt of such information. Documents filed with the
Commission pursuant to its EDGAR system or posted on the Company’s website shall be deemed to have been delivered to the Representative
pursuant to this Section 3.10.1.

                  3.10.2. Transfer Agent; Transfer Sheets . For a period of three (3) years after the Effective Date, the Company shall retain a
transfer agent and registrar reasonably acceptable to the Representative (the “ Transfer Agent ”) and shall furnish to the Representative at the
Company’s sole cost and expense such transfer sheets of the Company’s securities as the Representative may reasonably request, including the
daily and monthly consolidated transfer sheets of the Transfer Agent and DTC. Corporate Stock Transfer, Inc., Denver, CO , is acceptable to
the Representative to act as Transfer Agent for the Shares.

                  3.10.3. Trading Reports . During such time as the Public Securities are listed on the NasdaqCM, the Company shall provide
to the Representative, at the Company’s expense, such reports published by NasdaqCM relating to price trading of the Public Securities, as the
Representative shall reasonably request.


                                                                      - 18 -
         3.11       Payment of Expenses

                    3.11.1. General Expenses Related to the Offering . The Company hereby agrees to pay on each of the Closing Date and the
Option Closing Date, if any, to the extent not paid at the Closing Date, all expenses incident to the performance of the obligations of the
Company under this Agreement, including, but not limited to: (a) all filing fees and communication expenses relating to the registration of the
Shares to be sold in the Offering (including the Over-allotment Shares) with the Commission; (b) all COBRADesk filing fees associated with
the review of the Offering by FINRA; (c) all fees and expenses relating to the listing of such Shares on the NasdaqCM, the Nasdaq Global
Market, Nasdaq Global Select Market or the NYSE Amex and such other stock exchanges as the Company and the Representative together
determine; (d) all fees, expenses and disbursements relating to background checks of the Company’s officers and directors in an amount not to
exceed $1,000 per individual and $10,000 in the aggregate; (e) all fees, expenses and disbursements relating to the registration or qualification
of such Shares under the “blue sky” securities laws of such states and other jurisdictions as the Representative may reasonably designate
(including, without limitation, all filing and registration fees, it being agreed that if the Offering is commenced on either the Nasdaq Global
Market, Nasdaq Global Select Market or the NYSE Amex, the Company shall make a payment of $5,000 to such counsel at Closing, or if the
Offering is commenced on the NasdaqCM or on the Over-the-Counter Bulletin Board, the Company shall make a payment of $15,000 to such
counsel upon the commencement of “blue sky” work by such counsel and an additional $5,000 at Closing); (f) all fees, expenses and
disbursements relating to the registration, qualification or exemption of such Shares under the securities laws of such foreign jurisdictions as
the Underwriter may reasonably designate; (g) the costs of all mailing and printing of the underwriting documents (including, without
limitation, this Agreement, any Blue Sky Surveys and, if appropriate, any Agreement Among Underwriters, Selected Dealers’ Agreement,
Underwriters’ Questionnaire and Power of Attorney), Registration Statements, Prospectuses and all amendments, supplements and exhibits
thereto and as many preliminary and final Prospectuses as the Representative may reasonably deem necessary; (h) the costs and expenses of the
public relations firm; (i) the costs of preparing, printing and delivering certificates representing the Shares; (j) fees and expenses of the transfer
agent for the Shares; (k) stock transfer and/or stamp taxes, if any, payable upon the transfer of securities from the Company to the Underwriter;
(l) to the extent approved by the Company in writing, the costs associated with post-Closing advertising the Offering in the national editions of
the Wall Street Journal and New York Times; (m) the costs associated with one set of bound volumes of the public offering materials as well as
commemorative mementos and lucite tombstones, each of which the Company or its designee shall provide within a reasonable time after the
Closing in such quantities as the Underwriter may reasonably request; (n) the fees and expenses of the Company’s accountants; (o) the fees and
expenses of the Company’s legal counsel and other agents and representatives; (p) the $20,000 cost associated with the Underwriter’s use of
Ipreo’s book-building, prospectus tracking and compliance software for the Offering; and (q) up to $20,000 of the Underwriter’s actual
accountable “road show” expenses for the Offering. The Representative may deduct from the net proceeds of the Offering payable to the
Company on the Closing Date, or the Option Closing Date, if any, the expenses set forth herein to be paid by the Company to the Underwriters.

                  3.11.2. Non-accountable Expenses . The Company further agrees that, in addition to the expenses payable pursuant to
Section 3.11.1, on the Closing Date it shall pay to the Representative, by deduction from the net proceeds of the Offering contemplated herein,
a non-accountable expense allowance equal to one percent (1%) of the gross proceeds received by the Company from the sale of the Firm
Shares, less the Advance (as such term is defined in Section 8.3 hereof), provided, however, that in the event that the Offering is terminated, the
Company agrees to reimburse the Underwriters pursuant to Section 8.3 hereof.

         3.12      Application of Net Proceeds . The Company shall apply the net proceeds from the Offering received by it in a manner
consistent with the application thereof described under the caption “Use of Proceeds” in the Prospectus.

          3.13     Delivery of Earnings Statements to Security Holders . The Company shall make generally available to its security holders as
soon as practicable, but not later than the first day of the fifteenth (15 th ) full calendar month following the Effective Date, an earnings
statement (which need not be certified by independent registered public accountants unless required by the Act or the Regulations, but which
shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Act) covering a period of at least twelve (12) consecutive months
beginning after the Effective Date.

         3.14       Stabilization . Neither the Company nor, to its knowledge, any of its employees, directors or shareholders (without the
consent of the Representative) has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might
reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the Shares.


                                                                      - 19 -
          3.15       Internal Controls . The Company shall maintain a system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in accordance with GAAP and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

         3.16      Accountants . As of the Effective Date, the Company shall retain an independent registered public accounting firm
reasonably acceptable to the Representative, and the Company shall continue to retain a nationally recognized independent registered public
accounting firm for a period of at least three (3) years after the Effective Date. The Representative acknowledges that the Auditor is acceptable
to the Representative.

          3.17      FINRA . The Company shall advise the Representative (who shall make an appropriate filing with FINRA) if it is aware that
any officer, director, 5% or greater shareholder of the Company or stockholder which purchased unregistered securities of the Company within
180 days prior to the filing of the Registration Statement becomes an affiliate or associated person of a FINRA member participating in the
distribution of the Public Securities.

         3.18      No Fiduciary Duties . The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely
contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary
capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions
contemplated by this Agreement.

          3.19      Release of D&O Lock-up Period . If the Representative, in its sole discretion, agrees to release or waive the restrictions set
forth in the Lock-Up Agreement described in Section 2.25.1 hereof for an officer or director of the Company and provide the Company with
notice of the impending release or waiver at least three (3) Business Days before the effective date of the release or waiver, the Company
agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news
service at least two (2) Business Days before the effective date of the release or waiver.

          3.20     Blue Sky Qualifications . The Company shall use its commercially reasonable efforts, in cooperation with the Underwriters,
if necessary, to qualify the Public Securities for offering and sale under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as the Representative may designate and to maintain such qualifications in effect so long as required to complete the
distribution of the Public Securities; provided, however, that the Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.


                                                                       - 20 -
4.         Conditions of Underwriters’ Obligations . The obligations of the Underwriters to purchase and pay for the Shares, as provided
herein, shall be subject to (i) the continuing accuracy of the representations and warranties of the Company as of the date hereof and as of each
of the Closing Date and the Option Closing Date, if any; (ii) the accuracy of the statements of officers of the Company made pursuant to the
provisions hereof; (iii) the performance by the Company of its obligations hereunder; and (iv) the following conditions:

         4.1         Regulatory Matters .

                   4.1.1. Effectiveness of Registration Statement; Rule 430A Information . The Registration Statement has become effective
not later than 5:00 p.m., Eastern time, on the date of this Agreement or such later date and time as shall be consented to in writing by you, and,
at each of the Closing Date and any Option Closing Date, no stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto has been issued under the Act, no order preventing or suspending the use of any Preliminary Prospectus or
the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s
knowledge, contemplated by the Commission. The Company has complied with each request (if any) from the Commission for additional
information. A prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time
frame required by Rule 424(b) under the Regulations (without reliance on Rule 424(b)(8)) or a post-effective amendment providing such
information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A under the
Regulations.

               4.1.2. FINRA Clearance . By the Effective Date, the Representative shall have received clearance from FINRA as to the
amount of compensation allowable or payable to the Underwriters as described in the Registration Statement.

                  4.1.3. NasdaqCM Stock Market Clearance . On the Closing Date, the Company’s Shares, including the Firm Shares, shall
have been approved for listing on the NasdaqCM. On the first Option Closing Date (if any), the Company’s Shares, including the Option
Shares, shall have been approved for listing on the NasdaqCM.

         4.2         Company Counsel Matters .

                  4.2.1. Closing Date Opinion of Counsel . On the Closing Date, the Representative shall have received the favorable
opinion of Ballard Spahr LLP, in each case, dated the Closing Date and addressed to the Representative, in the form attached hereto as Exhibit
D.

                  4.2.2. 10b-5 Negative Assurance Letter . On the Closing Date, the Representative shall further have received a written
statement providing certain 10b-5 negative assurances from Ballard Spahr LLP, dated the Closing Date and addressed to the Representative, in
the form attached hereto as Exhibit E .

                  4.2.3. Option Closing Date Opinions of Counsel . On the Option Closing Date, if any, the Representative shall have
received the favorable opinions of counsel listed in Sections 4.2.1 and 4.2.2, dated the Option Closing Date, addressed to the Representative
and in form and substance reasonably satisfactory to the Representative, confirming as of the Option Closing Date, the statements made by
such counsel in their respective opinions delivered on the Closing Date.


                                                                    - 21 -
                    4.2.4. Reliance . In rendering such opinions, such counsel may rely: (i) as to matters involving the application of laws
other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent
specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to the Representative) of other
counsel reasonably acceptable to the Representative, familiar with the applicable laws; and (ii) as to matters of fact, to the extent they deem
proper, on certificates or other written statements of officers of the Company and officers of departments of various jurisdictions having
custody of documents respecting the corporate existence or good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Representative Counsel if requested. The opinion of Ballard Spahr LLP and any opinion relied upon by Ballard
Spahr LLP shall include a statement to the effect that it may be relied upon by Representative Counsel in its opinion delivered to the
Underwriters.

         4.3         Comfort Letters .

                  4.3.1. Cold Comfort Letter . At the time this Agreement is executed you shall have received a cold comfort letter
containing statements and information of the type customarily included in accountants’ comfort letters with respect to the financial statements
and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus, addressed to the
Representative and in form and substance reasonably satisfactory in all respects to you and to the Auditor, dated as of the date of this
Agreement.

                  4.3.2. Bring-down Comfort Letter . At each of the Closing Date and the Option Closing Date, if any, the Representative
shall have received from the Auditor a letter, dated as of the Closing Date or the Option Closing Date, as applicable, to the effect that the
Auditor reaffirms the statements made in the letter furnished pursuant to Section 4.3.1, except that the specified date referred to shall be a date
not more than three (3) business days prior to the Closing Date or the Option Closing Date, as applicable.

         4.4        Officers’ Certificates .

                   4.4.1. Officers’ Certificate . The Company shall have furnished to the Representative a certificate, dated the Closing Date
and any Option Closing Date (if such date is other than the Closing Date), of its Chief Executive Officer and President and its Chief Financial
Officer stating that (i) such officers have carefully examined the Registration Statement, the Pricing Disclosure Package, any Issuer Free
Writing Prospectus and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto, as of the Applicable Time
and as of the date of this Agreement and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date) did not
include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Pricing Disclosure Package, as of the Applicable Time and as of the Closing Date (or any Option
Closing Date if such date is other than the Closing Date), any Issuer Free Writing Prospectus as of its date and as of the Closing Date (or any
Option Closing Date if such date is other than the Closing Date), the Prospectus and each amendment or supplement thereto, as of the
respective date thereof and as of the Closing Date, did not include any untrue statement of a material fact and did not omit to state a material
fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, (ii) since the
effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the
Registration Statement, the Pricing Disclosure Package or the Prospectus, (iii) to the best of their knowledge after reasonable investigation, as
of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the representations and warranties of the
Company in this Agreement are true and correct in all material respects, except for such representations and warranties qualified by materiality
or material adverse effect which shall be true and correct in all respects and the Company has complied in all material respect with all
agreements and satisfied in all material respects all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date
(or any Option Closing Date if such date is other than the Closing Date), and (iv) there has not been, subsequent to the date of the most recent
audited financial statements included or incorporated by reference in the Pricing Disclosure Package, any material adverse change in the
financial position or results of operations of the Company, or any change or development that, singularly or in the aggregate, would involve a
material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results of operations,
business, assets or prospects of the Company, except as set forth in the Prospectus.


                                                                     - 22 -
                    4.4.2.    Secretary’s Certificate . At each of the Closing Date and the Option Closing Date, if any, the Representative shall
have received a certificate of the Company signed by the Secretary of the Company, dated the Closing Date or the Option Date, as the case may
be, respectively, certifying: (i) that each of the Charter and Bylaws is true and complete, has not been modified and is in full force and effect;
(ii) that the resolutions of the Company’s Board of Directors or any committee thereof relating to the Offering are in full force and effect and
have not been modified; (iii) as to the accuracy and completeness of all correspondence between the Company or its counsel and the
Commission; and (iv) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to
such certificate.

          4.5         No Material Changes . Prior to and on each of the Closing Date and each Option Closing Date, if any: (i) there shall have
been no material adverse change or development involving a prospective material adverse change in the condition or prospects or the business
activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement, the
Pricing Disclosure Package and the Prospectus; (ii) no action, suit or proceeding, at law or in equity, shall have been pending or threatened
against the Company or any Insider before or by any court or federal or state commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may materially adversely affect the business, operations, prospects or financial condition or income of
the Company, except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (iii) no stop order shall have
been issued under the Act and no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration
Statement, the Pricing Disclosure Package and the Prospectus and any amendments or supplements thereto shall contain all material statements
which are required to be stated therein in accordance with the Act and the Regulations and shall conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration Statement, the Pricing Disclosure Package nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

         4.6        Delivery of Agreements .

                  4.6.1.   Effective Date Deliveries . On the Effective Date, the Company shall have delivered to the Representative executed
copies of this Agreement and the Lock-Up Agreements from each of the persons listed in Schedule 3 hereto.

                  4.6.2.    Closing Date Deliveries . On the Closing Date, the Company shall have delivered to the Representative executed
copies of the Representative’s Warrant Agreement.

         4.7        Additional Documents . At the Closing Date and at each Option Closing Date (if any) Representative Counsel shall have
been furnished with such documents and opinions as they may reasonably require for the purpose of enabling Representative Counsel to deliver
an opinion to the Underwriters, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Public Securities and
the Representative’s Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Representative and
Representative Counsel.


                                                                     - 23 -
       4.8        Reverse Stock Split . No later than the first trading day of the Firm Shares following the effective date of this Agreement,
the Company shall have effected the Reverse Stock Split.

5.       Indemnification .

         5.1         Indemnification of the Underwriters .

                   5.1.1. General . Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless each of the
Underwriters, and each dealer selected by the Representative that participates in the offer and sale of the Shares (each, a “ Selected Dealer ”)
and each of their respective directors, officers and employees and each person, if any, who controls any such Underwriter (“ Controlling
Person ”) within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any and all loss, liability, claim, damage and
expense whatsoever (including but not limited to any and all legal or other expenses reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the
Underwriters and the Company or between any of the Underwriters and any third party, or otherwise) to which they or any of them may
become subject under the Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries,
arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in (i) the Registration Statement, the
Pricing Disclosure Package, the Prospectus or in any Issuer Free Writing Prospectus (as from time to time each may be amended and
supplemented); (ii) any materials or information provided to investors by, or with the approval of, the Company in connection with the
marketing of the Offering, including any “road show” or investor presentations made to investors by the Company (whether in person or
electronically); or (iii) any application or other document or written communication (in this Section 5, collectively called “ application ”)
executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Public
Securities and Representative’s Securities under the securities laws thereof or filed with the Commission, any state securities commission or
agency, the Nasdaq Stock Market LLC or any national securities exchange; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not
misleading, unless such statement or omission was made in reliance upon, and in conformity with, the Underwriters’ Information. With respect
to any untrue statement or omission or alleged untrue statement or omission made in the Pricing Disclosure Package, the indemnity agreement
contained in this Section 5.1.1 shall not inure to the benefit of any Underwriter to the extent that any loss, liability, claim, damage or expense of
such Underwriter results from the fact that a copy of the Prospectus was not given or sent to the person asserting any such loss, liability, claim
or damage at or prior to the written confirmation of sale of the Shares to such person as required by the Act and the Regulations, and if the
untrue statement or omission has been corrected in the Prospectus, unless such failure to deliver the Prospectus was a result of non-compliance
by the Company with its obligations under Section 3.3 hereof. The Company agrees promptly to notify the Representative of the
commencement of any litigation or proceedings against the Company or any of its officers, directors or Controlling Persons in connection with
the issuance and sale of the Public Securities or in connection with the Registration Statement the Pricing Disclosure Package, the Prospectus
or any Issuer Free Writing Prospectus.


                                                                      - 24 -
                   5.1.2. Procedure . If any action is brought against an Underwriter, a Selected Dealer or a Controlling Person in respect of
which indemnity may be sought against the Company pursuant to Section 5.1.1, such Underwriter, such Selected Dealer or Controlling Person,
as the case may be, shall promptly notify the Company in writing of the institution of such action and the Company shall assume the defense of
such action, including the employment and fees of counsel (subject to the reasonable approval of such Underwriter or such Selected Dealer, as
the case may be) and payment of actual expenses. Such Underwriter, such Selected Dealer or Controlling Person shall have the right to employ
its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Underwriter, such Selected
Dealer or Controlling Person unless (i) the employment of such counsel at the expense of the Company shall have been authorized in writing
by the Company in connection with the defense of such action, or (ii) the Company shall not have employed counsel to have charge of the
defense of such action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or
them which are different from or additional to those available to the Company (in which case the Company shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of which events the reasonable fees and expenses of not more than
one additional firm of attorneys selected by the Underwriter (in addition to local counsel), Selected Dealer and/or Controlling Person shall be
borne by the Company. Notwithstanding anything to the contrary contained herein, if any Underwriter, Selected Dealer or Controlling Person
shall assume the defense of such action as provided above, the Company shall have the right to approve the terms of any settlement of such
action, which approval shall not be unreasonably withheld.

         5.2        Indemnification of the Company . Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the
Company, its directors, its officers who signed the Registration Statement and persons who control the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing
indemnity from the Company to the several Underwriters, as incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Pricing Disclosure Package or Prospectus
or any amendment or supplement thereto or in any application, in reliance upon, and in strict conformity with, the Underwriters’ Information.
In case any action shall be brought against the Company or any other person so indemnified based on any Preliminary Prospectus, the
Registration Statement, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or any application, and in
respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Company,
and the Company and each other person so indemnified shall have the rights and duties given to the several Underwriters by the provisions of
Section 5.1.2.

         5.3        Contribution .

                    5.3.1. Contribution Rights . If the indemnification provided for in this Section 5 shall for any reason be unavailable to or
insufficient to hold harmless an indemnified party under Section 5.1 or 5.2 in respect of any loss, claim, damage or liability, or any action in
respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion
as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other, from the
Offering of the Shares, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand,
and the Underwriters, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the
Underwriters, on the other, with respect to such Offering shall be deemed to be in the same proportion as the total net proceeds from the
Offering of the Shares purchased under this Agreement (before deducting expenses) received by the Company, as set forth in the table on the
cover page of the Prospectus, on the one hand, and the total underwriting discounts and commissions received by the Underwriters with respect
to the shares of the Shares purchased under this Agreement, as set forth in the table on the cover page of the Prospectus, on the other hand. The
relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company or the Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree
that it would not be just and equitable if contributions pursuant to this Section 5.3.1 were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 5.3.1 shall be deemed to include, for purposes of this Section 5.3.1, any legal or other
expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5.3.1 in no event shall an Underwriter be required to contribute any amount in excess of the
amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the Offering of the Shares
exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.


                                                                      - 25 -
                  5.3.2. Contribution Procedure . Within fifteen (15) days after receipt by any party to this Agreement (or its representative)
of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made
against another party (“ contributing party ”), notify the contributing party of the commencement thereof, but the failure to so notify the
contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any
such action, suit or proceeding is brought against any party, and such party notifies a contributing party or its representative of the
commencement thereof within the aforesaid 15 days, the contributing party will be entitled to participate therein with the notifying party and
any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of
any settlement of any claim, action or proceeding affected by such party seeking contribution on account of any settlement of any claim, action
or proceeding affected by such party seeking contribution without the written consent of such contributing party. The contribution provisions
contained in this Section 5.3.2 are intended to supersede, to the extent permitted by law, any right to contribution under the Act, the Exchange
Act or otherwise available. Each Underwriter’s obligations to contribute pursuant to this Section 5.3 are several and not joint.

6.       Default by an Underwriter .

          6.1   Default Not Exceeding 10% of Firm Shares or Option Shares . If any Underwriter or Underwriters shall default in its or their
obligations to purchase the Firm Shares or the Option Shares, if the Over-allotment Option is exercised hereunder, and if the number of the
Firm Shares or Option Shares with respect to which such default relates does not exceed in the aggregate 10% of the number of Firm Shares or
Option Shares that all Underwriters have agreed to purchase hereunder, then such Firm Shares or Option Shares to which the default relates
shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder.

          6.2    Default Exceeding 10% of Firm Shares or Option Shares . In the event that the default addressed in Section 6.1 relates to more
than 10% of the Firm Shares or Option Shares, you may in your discretion arrange for yourself or for another party or parties to purchase such
Firm Shares or Option Shares to which such default relates on the terms contained herein. If, within one (1) Business Day after such default
relating to more than 10% of the Firm Shares or Option Shares, you do not arrange for the purchase of such Firm Shares or Option Shares, then
the Company shall be entitled to a further period of one (1) Business Day within which to procure another party or parties satisfactory to you to
purchase said Firm Shares or Option Shares on such terms. In the event that neither you nor the Company arrange for the purchase of the Firm
Shares or Option Shares to which a default relates as provided in this Section 6, this Agreement will automatically be terminated by you or the
Company without liability on the part of the Company (except as provided in Sections 3.9 and 5 hereof) or the several Underwriters (except as
provided in Section 5 hereof); provided, however, that if such default occurs with respect to the Option Shares, this Agreement will not
terminate as to the Firm Shares; and provided, further, that nothing herein shall relieve a defaulting Underwriter of its liability, if any, to the
other Underwriters and to the Company for damages occasioned by its default hereunder .


                                                                     - 26 -
          6.3    Postponement of Closing Date . In the event that the Firm Shares or Option Shares to which the default relates are to be
purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, you or the Company shall have
the right to postpone the Closing Date or Option Closing Date for a reasonable period, but not in any event exceeding five (5) Business Days,
in order to effect whatever changes may thereby be made necessary in the Registration Statement, the Pricing Disclosure Package or the
Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment to the Registration
Statement, the Pricing Disclosure Package or the Prospectus that in the opinion of counsel for the Underwriter may thereby be made necessary.
The term “ Underwriter ” as used in this Agreement shall include any party substituted under this Section 6 with like effect as if it had
originally been a party to this Agreement with respect to such Shares.

7.       Additional Covenants .

        7.1    Board Composition and Board Designations . The Company shall ensure that: (i) the qualifications of the persons serving as
members of the Board of Directors and the overall composition of the Board comply with the Sarbanes-Oxley Act and with the listing rules of
the NasdaqCM or any other national securities exchange, as the case may be, in the event the Company seeks to have its Public Securities listed
on another exchange or quoted on an automated quotation system, and (ii) if applicable, at least one member of the Audit Committee of the
Board of Directors qualifies as a “financial expert,” as such term is defined under the Sarbanes-Oxley Act of 2002 and the listing rules of the
NasdaqCM.

         7.2    Prohibition on Press Releases and Public Announcements . The Company will not issue press releases or engage in any other
publicity, without the Representative’s prior written consent, for a period ending at 5:00 p.m., Eastern time, on the first (1 st ) Business Day
following the forty-fifth (45 th ) day after the Closing Date, other than normal and customary releases issued in the ordinary course of the
Company’s business.

          7.3     Right of First Refusal . Provided that the Public Securities are sold in accordance with the terms of this Agreement, the
Representative shall have an irrevocable right of first refusal for a period of twelve (12) months after the date the Offering is completed to
purchase for its account or to sell for the account of the Company, or any subsidiary of or successor to the Company any securities (whether
debt or equity, or any combination thereof) of the Company or any such subsidiary or successor which the Company or any such subsidiary or
successor may seek to sell whether with or without or through an underwriter, placement agent or broker-dealer and whether pursuant to
registration under the Act, or otherwise. The Company and any such subsidiary or successor will consult the Representative with regard to any
such proposed financing and will offer the Representative the opportunity to purchase or sell any such securities on terms not more favorable to
the Company or any such subsidiary or successor, as the case may be, than it or they can secure elsewhere. If the Representative fails to accept
such offer within ten (10) Business Days after the mailing of a notice containing the material terms of the proposed financing proposal by
registered mail or overnight courier service addressed to the Representative, then the Representative shall have no further claim or right with
respect to the financing proposal contained in such notice. If, however, the terms of such financing proposal are subsequently modified in any
material respect, the right of first refusal referred to herein shall apply to such modified proposal as if the original proposal had not been made.
The Representative’s failure to exercise its right of first refusal with respect to any particular proposal shall not affect its right of first refusal
relative to future proposals. The Company shall have the right, at its option, to designate the Representative as lead underwriter or co-manager
of any underwriting group or co-placement agent of any proposed financing in satisfaction of its obligations hereunder, and the Representative
shall be entitled to receive as its compensation 50% of the compensation payable to the underwriting or placement agent group when serving as
co-manager or co-placement agent and 33% of the compensation payable to the underwriting or placement agent group when serving as
co-manager or co-placement agent with respect to a proposed financing in which there are three co-managing or lead underwriters or
co-placement agents.


                                                                       - 27 -
8.       Effective Date of this Agreement and Termination Thereof .

        8.1        Effective Date . This Agreement shall become effective when both the Company and the Representative have executed the
same and delivered counterparts of such signatures to the other party.

          8.2         Termination . The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date,
(i) if any domestic or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future
materially disrupt, general securities markets in the United States; or (ii) if trading on the New York Stock Exchange or the Nasdaq Stock
Market LLC shall have been suspended or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum
ranges for prices for securities shall have been required by FINRA or by order of the Commission or any other government authority having
jurisdiction; or (iii) if the United States shall have become involved in a new war or an increase in major hostilities; or (iv) if a banking
moratorium has been declared by a New York State or federal authority; or (v) if a moratorium on foreign exchange trading has been declared
which materially adversely impacts the United States securities markets; or (vi) if the Company shall have sustained a material loss by fire,
flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been
insured, will, in the Representative’s opinion, make it inadvisable to proceed with the delivery of the Firm Shares or Option Shares; or (vii) if
the Company is in material breach of any of its representations, warranties or covenants hereunder; or (viii) if the Representative shall have
become aware after the date hereof of such a material adverse change in the conditions or prospects of the Company, or such adverse material
change in general market conditions as in the Representative’s judgment would make it impracticable to proceed with the offering, sale and/or
delivery of the Shares or to enforce contracts made by the Underwriters for the sale of the Shares.

         8.3        Expenses . Notwithstanding anything to the contrary in this Agreement, except in the case of a default by the Underwriters,
pursuant to Section 6.2 above, in the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified
herein or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to the Underwriters their actual and
accountable out-of-pocket expenses related to the transactions contemplated herein then due and payable (including the fees and disbursements
of Representative Counsel up to $100,000, inclusive of the $25,000 advance for non-accountable expenses previously paid by the Company to
the Representative (the “ Advance ”) and upon demand the Company shall pay the full amount thereof to the Representative on behalf of the
Underwriters; provided, however, that such expense cap in no way limits or impairs the indemnification and contribution provisions of this
Agreement ).

         8.4         Indemnification . Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any
termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall remain in full force
and effect and shall not be in any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part
hereof.

          8.5         Representations, Warranties, Agreements to Survive . All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless
of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its
officers or directors or any person controlling the Company or (ii) delivery of and payment for the Public Securities.


                                                                    - 28 -
9.       Miscellaneous .

         9.1        Notices . All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be
mailed (registered or certified mail, return receipt requested), personally delivered or sent by facsimile transmission and confirmed and shall be
deemed given when so delivered or faxed and confirmed or if mailed, two (2) days after such mailing.

         If to the Representative:

         Aegis Capital Corp.
         810 Seventh Avenue, 11 th Floor
         New York, New York 10019
         Attn: Mr. David Bocchi, Managing Director of Investment Banking
         Fax No.: (212) 813-1047

         with a copy (which shall not constitute notice) to:

        Reed Smith LLP
        599 Lexington Avenue
        New York, NY 10022
        Attn: Yvan-Claude Pierre, Esq.
        Fax No.: (212) 521-5450

         If to the Company:

        AspenBio Pharma, Inc.
        1585 South Perry Street
        Castle Rock, CO 80104
        Attention: Chief Executive Officer
        Fax No: (303) 798-8332

         with a copy (which shall not constitute notice) to:

         Ballard Spahr LLP
         1735 Market Street, 51st Floor
         Philadelphia, PA 19103
         Attention: Gerald J. Guarcini
         Fax No: (215) 864-8999

          9.2        Headings . The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way
limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.

         9.3        Amendment . This Agreement may only be amended by a written instrument executed by each of the parties hereto.


                                                                    - 29 -
        9.4         Entire Agreement . This Agreement (together with the other agreements and documents being delivered pursuant to or in
connection with this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and
supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof. Notwithstanding
anything to the contrary set forth herein, it is understood and agreed by the parties hereto that all other terms and conditions of that certain
engagement letter between the Company and Aegis Capital Corp., dated March 16, 2012, shall remain in full force and effect.

         9.5         Binding Effect . This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the
Underwriters, the Company and the Controlling Persons, directors and officers referred to in Section 5 hereof, and their respective successors,
legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provisions herein contained. The term “successors and assigns” shall not include a
purchaser, in its capacity as such, of securities from any of the Underwriters.

          9.6         Governing Law; Consent to Jurisdiction; Trial by Jury . This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees
that any action, proceeding or claim against it arising out of, or relating in any way to this Agreement shall be brought and enforced in the New
York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably
submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction
and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company may be served by
transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in
Section 9.1 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding
or claim. The Company agrees that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its
reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The
Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and each of the Underwriters
hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby.

         9.7         Execution in Counterparts . This Agreement may be executed in one or more counterparts, and by the different parties
hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the
same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each
of the other parties hereto. Delivery of a signed counterpart of this Agreement by facsimile or email/pdf transmission shall constitute valid and
sufficient delivery thereof.

         9.8        Waiver, etc . The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall
not be deemed or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision
hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach,
non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument
executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or
non-fulfillment.

                                                           [ Signature Page Follows ]


                                                                     - 30 -
        If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.

                                                                    Very truly yours,

                                                                    ASPENBIO PHARMA, INC.

                                                                    By:
                                                                          Name:
                                                                          Title:

Accepted on the date first above written.

AEGIS CAPITAL CORP., as Representative

By:
                         Name:
                         Title:

                                                           [SIGNATURE PAGE]

                                            ASPENBIO PHARMA, INC. – UNDERWRITING AGREEMENT
                                SCHEDULE I

                                                 Total Number of
                                                Firm Shares to be
                      Underwriter                   Purchased
Aegis Capital Corp.

TOTAL



                                    Sch. 1 -1
                                                           SCHEDULE 2-A

                                                          Pricing Information

Number of Firm Shares: [  ]

Number of Option Shares: [  ]

Public Offering Price per Share: $[  ]

Underwriting Discount per Share: $[  ]

Underwriting Non-accountable expense allowance per Share: $[  ]

Proceeds to Company per Share (before expenses): $[  ]

                                                           SCHEDULE 2-B

                                             Issuer General Use Free Writing Prospectuses

[None.]


                                                              Sch. 2 -1
                                             SCHEDULE 3

                                        List of Lock-Up Parties

Name                      Position
Stephen T. Lundy          Chief Executive Officer and President and a Director
Gail S. Schoettler        Non-Executive Chair of the Board
Daryl J. Faulkner         Director
Douglas I. Hepler Ph.D.   Director
John H. Landon            Director
Michael R. Merson         Director
Gregory S. Pusey          Vice President and a Director
Mark J. Ratain, M.D.      Director
David E. Welch            Director
Jeffrey G. McGonegal      Chief Financial Officer and Secretary
Don Hurd                  Senior Vice President and Chief Commercial Officer
Erik S. Miller            Vice President, Marketing and Business Development (Former)


                                               Sch. 3 -1
                                                                 EXHIBIT A

                                               Form of Representative’s Warrant Agreement

THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT
SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER
OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS
PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED
BELOW) TO ANYONE OTHER THAN (I) AEGIS CAPITAL CORP. OR AN UNDERWRITER OR A SELECTED DEALER IN
CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF AEGIS CAPITAL CORP. OR OF ANY
SUCH UNDERWRITER OR SELECTED DEALER.

THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO [________________] [ DATE THAT IS ONE YEAR AFTER
EFFECTIVE DATE] . VOID AFTER 5:00 P.M., EASTERN TIME, [___________________] [ DATE THAT IS FIVE YEARS AFTER
EFFECTIVE DATE ].

                                               COMMON STOCK PURCHASE WARRANT

                                             For the Purchase of [_____] Shares of Common Stock
                                                                      of

                                                         ASPENBIO PHARMA, INC.

1.        Purchase Warrant . THIS CERTIFIES THAT, in consideration of funds duly paid by or on behalf of Aegis Capital Corp. (“ Holder ”),
as registered owner of this Purchase Warrant, to AspenBio Pharma, Inc., a Colorado corporation (the “ Company ”), Holder is entitled, at any
time or from time to time from [________________] [ DATE THAT IS ONE YEAR AFTER EFFECTIVE DATE ] (the “ Commencement
Date ”), and at or before 5:00 p.m., Eastern time, [____________] [ DATE THAT IS FIVE YEARS AFTER EFFECTIVE DATE ] (the ”
Expiration Date ”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to [____] shares of common stock of the
Company, no par value per share (the “ Shares ”), subject to adjustment as provided in Section 6 hereof. If the Expiration Date is a day on
which banking institutions are authorized by law to close, then this Purchase Warrant may be exercised on the next succeeding day which is not
such a day in accordance with the terms herein. During the period ending on the Expiration Date, the Company agrees not to take any action
that would terminate the Purchase Warrant. This Purchase Warrant is initially exercisable at $[___] per Share [ 125% of the price of the
Shares sold in the Offering ]; provided , however , that upon the occurrence of any of the events specified in Section 6 hereof, the rights
granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be
adjusted as therein specified. The term “ Exercise Price ” shall mean the initial exercise price or the adjusted exercise price, depending on the
context.


                                                                   Ex. A- 1
2.       Exercise .

          2.1       Exercise Form . In order to exercise this Purchase Warrant, the exercise form attached hereto must be duly executed and
completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being
purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or
official bank check. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration
Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.

         2.2        Cashless Exercise . If at any time after the Commencement Date there is no effective registration statement registering, or
no current prospectus available for, the resale of the Shares by the Holder, then in lieu of exercising this Purchase Warrant by payment of cash
or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the
value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with
the exercise form attached hereto, in which event the issue to Holder, Shares in accordance with the following formula:

     X    =                 Y(A-B)
                              A
     Where,             X        =     The number of Shares to be issued to Holder;
                        Y        =     The number of Shares for which the Purchase Warrant is being exercised;
                        A        =     The fair market value of one Share; and
                        B        =     The Exercise Price.

         For purposes of this Section 2.2, the fair market value of a Share is defined as follows:

              (i)     if the Company’s common stock is traded on a securities exchange, the value shall be deemed to be the closing price on
                      such exchange prior to the exercise form being submitted in connection with the exercise of the Purchase Warrant; or

              (ii)    if the Company’s common stock is actively traded over-the-counter, the value shall be deemed to be the closing bid prior to
                      the exercise form being submitted in connection with the exercise of the Purchase Warrant; if there is no active public
                      market, the value shall be the fair market value thereof, as determined in good faith by the Company’s Board of Directors .

          2.3 Legend . Each certificate for the securities purchased under this Purchase Warrant shall bear a legend as follows unless such
securities have been registered under the Securities Act of 1933, as amended (the “ Act ”):

         “The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “ Act ”), or
applicable state law. Neither the securities nor any interest therein may be offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act, or pursuant to an exemption from registration under the Act and applicable state law which, in
the opinion of counsel to the Company, is available.”


                                                                     Ex. A- 2
3.       Transfer .

          3.1        General Restrictions . The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such
Holder will not: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant for a period of one hundred eighty (180) days following
the Effective Date to anyone other than: (i) Aegis Capital Corp. (“ Aegis ”) or an underwriter or a selected dealer participating in the Offering,
or (ii) a bona fide officer or partner of AEGIS or of any such underwriter or selected dealer, in each case in accordance with FINRA Conduct
Rule 5110(g)(1), or (b) cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative,
put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as
provided for in FINRA Rule 5110(g)(2). On and after 180 days after the Effective Date, transfers to others may be made subject to compliance
with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the
assignment form attached hereto duly executed and completed, together with the Purchase Warrant and payment of all transfer taxes, if any,
payable in connection therewith. The Company shall within five (5) Business Days transfer this Purchase Warrant on the books of the
Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly
evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be
contemplated by any such assignment.

           3.2      Restrictions Imposed by the Act . The securities evidenced by this Purchase Warrant shall not be transferred unless and
until: (i) the Company has received the opinion of counsel for the Holder that the securities may be transferred pursuant to an exemption from
registration under the Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the
Company (the Company hereby agreeing that the opinion of Reed Smith LLP shall be deemed satisfactory evidence of the availability of an
exemption), or (ii) a registration statement or a post-effective amendment to the Registration Statement relating to the offer and sale of such
securities has been filed by the Company and declared effective by the U.S. Securities and Exchange Commission (the “ Commission ”) and
compliance with applicable state securities law has been established.

4.       Registration Rights .

         4.1          Demand Registration .

                   4.1.1        Grant of Right . The Company, upon written demand (a “ Demand Notice ”) of the Holder(s) of at least 51% of
the Purchase Warrants and/or the underlying Shares (“Majority Holders”), agrees to register, on one occasion, all or any portion of the Shares
underlying the Purchase Warrants (collectively, the “ Registrable Securities ”). On such occasion, the Company will file a registration
statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its
reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the
Commission; provided , however , that the Company shall not be required to comply with a Demand Notice if the Company has filed a
registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 4.2 hereof and either: (i)
the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an
underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or
until thirty (30) days after such offering is consummated. The demand for registration may be made at any time during a period of four (4)
years beginning one (1) year after the Effective Date. The Company covenants and agrees to give written notice of its receipt of any Demand
Notice by any Holder(s) to all other registered Holders of the Purchase Warrants and/or the Registrable Securities within ten (10) days after the
date of the receipt of any such Demand Notice.


                                                                    Ex. A- 3
                   4.1.2        Terms . The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities
pursuant to Section 4.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the
Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to
cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such States as are
reasonably requested by the Holder(s); provided , however , that in no event shall the Company be required to register the Registrable
Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State
or submit to general service of process in such State, or (ii) the principal shareholders of the Company to be obligated to escrow their shares of
capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section
4.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities
covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses
provided by the Company to sell the shares covered by such registration statement, and will immediately cease to use any prospectus furnished
by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission.
Notwithstanding the provisions of this Section 4.1.2, the Holder shall be entitled to a demand registration under this Section 4.1.2 on only one
(1) occasion and such demand registration right shall terminate on the fifth anniversary of the Commencement Date.

         4.2        “Piggy-Back” Registration .

                   4.2.1        Grant of Right . In addition to the demand right of registration described in Section 4.1 hereof, the Holder shall
have the right, for a period of four (4) years commencing one (1) year after the Effective Date, to include the Registrable Securities as part of
any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145 (a)
promulgated under the Act or pursuant to Form S-8 or any equivalent form); provided , however , that if, solely in connection with any primary
underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a
limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in such underwriter(s)’
judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to
include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Holder requested
inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the
Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders;
provided , however , that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata
inclusion with the Registrable Securities.

                    4.2.2         Terms . The Company shall bear all fees and expenses attendant to registering the Registrable Securities
pursuant to Section 4.2.1 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected
by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the
Company shall furnish the then Holders of outstanding Registrable Securities with not less than thirty (30) days written notice prior to the
proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed
by the Company until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall
exercise the “piggy-back” rights provided for herein by giving written notice within ten (10) days of the receipt of the Company’s notice of its
intention to file a registration statement. Except as otherwise provided in this Purchase Warrant, there shall be no limit on the number of times
the Holder may request registration under this Section 4.2.2; provided , however , that such registration rights shall terminate on the seventh
anniversary of the Commencement Date.


                                                                    Ex. A- 4
         4.3        General Terms .

                  4.3.1         Indemnification . The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant
to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20 (a) of the Securities Exchange Act of 1934, as amended (“ Exchange Act ”), against all loss, claim, damage, expense or liability
(including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement
but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the
Underwriters contained in Section 5.1 of the Underwriting Agreement between the Underwriters and the Company, dated as of [June] [__],
2012. The Holder(s) of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees
and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors
or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions
contained in Section 5.2 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company.

                  4.3.2         Exercise of Purchase Warrants . Nothing contained in this Purchase Warrant shall be construed as requiring the
Holder(s) to exercise their Purchase Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.

                   4.3.3         Documents Delivered to Holders . The Company shall furnish to each Holder participating in any of the
foregoing offerings and to each underwriter of any such offering, if any, a signed counterpart, addressed to such Holder or underwriter, of: (i)
an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten
public offering, an opinion dated the effective date under any underwriting agreement related thereto), and (ii) a “cold comfort” letter dated the
effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the effective date
under the underwriting agreement) signed by the independent registered public accounting firm which has issued a report on the Company’s
financial statements included in such registration statement, in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of such accountants’ letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to
underwriters in underwritten public offerings of securities. The Company shall also deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence
between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff
with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice,
with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable
securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times as any such
Holder shall reasonably request.


                                                                    Ex. A- 5
                   4.3.4        Underwriting Agreement . The Company shall enter into an underwriting agreement with the managing
underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 4, which managing
underwriter shall be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the
Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and
such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any
underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of
such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders, their Shares and their intended methods of distribution.

                   4.3.5      Documents to be Delivered by Holder(s) . Each of the Holder(s) participating in any of the foregoing offerings
shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of
selling security holders.

                    4.3.6       Damages . Should the registration or the effectiveness thereof required by Sections 4.1 and 4.2 hereof be delayed
by the Company or the Company otherwise fails to comply with such provisions, the Holder(s) shall, in addition to any other legal or other
relief available to the Holder(s), be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened
breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of
posting bond or other security.

5.       New Purchase Warrants to be Issued .

         5.1        Partial Exercise or Transfer . Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or
assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for
cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if
exercised pursuant to Section 2.1 hereto, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like
tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable
hereunder as to which this Purchase Warrant has not been exercised or assigned.

         5.2         Lost Certificate . Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new
Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or
destruction shall constitute a substitute contractual obligation on the part of the Company.

                                                                     Ex. A- 6
6.        Adjustments .

        6.1       Adjustments to Exercise Price and Number of Securities . The Exercise Price and the number of Shares underlying the
Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:

                  6.1.1        Share Dividends; Split Ups. If, after the date hereof, and subject to the provisions of Section 6.3 below, the
number of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the
effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding Shares, and
the Exercise Price shall be proportionately decreased.

                  6.1.2        Aggregation of Shares. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of
outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective date
thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding Shares, and the Exercise
Price shall be proportionately increased.

                   6.1.3        Replacement of Securities upon Reorganization, etc. In case of any reclassification or reorganization of the
outstanding Shares other than a change covered by Section 6.1.1 or 6.1.2 hereof or that solely affects the par value of such Shares, or in the
case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation
or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or
reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the
Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant
shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the
same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or
property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon
a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this
Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 6.1.1 or
6.1.2, then such adjustment shall be made pursuant to Sections 6.1.1, 6.1.2 and this Section 6.1.3. The provisions of this Section 6.1.3 shall
similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other
transfers.

                   6.1.4       Changes in Form of Purchase Warrant. This form of Purchase Warrant need not be changed because of any
change pursuant to this Section 6.1, and Purchase Warrants issued after such change may state the same Exercise Price and the same number of
Shares as are stated in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new
Purchase Warrants reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the
Commencement Date or the computation thereof.


                                                                     Ex. A- 7
         6.2         Substitute Purchase Warrant . In case of any consolidation of the Company with, or share reconstruction or amalgamation
of the Company with or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in
any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or
amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant
then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon
exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation
or share reconstruction or amalgamation, by a holder of the number of Shares of the Company for which such Purchase Warrant might have
been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase
Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 6. The above provision of this
Section shall similarly apply to successive consolidations or share reconstructions or amalgamations.

         6.3         Elimination of Fractional Interests . The Company shall not be required to issue certificates representing fractions of Shares
upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole
number of Shares or other securities, properties or rights.

7.         Reservation and Listing . The Company shall at all times reserve and keep available out of its authorized Shares, solely for the
purpose of issuance upon exercise of the Purchase Warrants, such number of Shares or other securities, properties or rights as shall be issuable
upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Purchase Warrants and payment of the Exercise Price
therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully
paid and non-assessable and not subject to preemptive rights of any shareholder. The Company further covenants and agrees that upon exercise
of the Purchase Warrants and payment of the exercise price therefor, all Shares and other securities issuable upon such exercise shall be duly
and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. As long as the Purchase Warrants
shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of the Purchase
Warrants to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on the OTC Bulletin Board or
any successor trading market) on which the Shares issued to the public in the Offering may then be listed and/or quoted.

8.       Certain Notice Requirements .

         8.1         Holder’s Right to Receive Notice . Nothing herein shall be construed as conferring upon the Holders the right to vote or
consent or to receive notice as a shareholder for the election of directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events
described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen
days prior to the date fixed as a record date or the effective date the transfer books for the determination of the shareholders entitled to such
dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation,
winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be.
Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other shareholders of the Company
at the same time and in the same manner that such notice is given to the shareholders.


                                                                      Ex. A- 8
          8.2       Events Requiring Notice . The Company shall be required to give the notice described in this Section 8 upon one or more
of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated
by the accounting treatment of such dividend or distribution on the books of the Company, (ii) the Company shall offer to all the holders of its
Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business
shall be proposed.

         8.3        Notice of Change in Exercise Price . The Company shall, promptly after an event requiring a change in the Exercise Price
pursuant to Section 6 hereof, send notice to the Holders of such event and change (“ Price Notice ”). The Price Notice shall describe the event
causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s Chief Financial
Officer.

         8.4        Transmittal of Notices . All notices, requests, consents and other communications under this Purchase Warrant shall be in
writing and shall be deemed to have been duly made when hand delivered, or mailed by express mail or private courier service: (i) if to the
registered Holder of the Purchase Warrant, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to
following address or to such other address as the Company may designate by notice to the Holders:

         If to the Holder:

         Aegis Capital Corp.
         810 Seventh Avenue, 11 th Floor
         New York, New York 10019
         Attn: Mr. David Bocchi, Managing Director of Investment Banking
         Fax No.: (212) 813-1047

         with a copy (which shall not constitute notice) to:

         Reed Smith LLP
         599 Lexington Avenue
         New York, NY 10022
         Attn: Yvan-Claude Pierre, Esq.
         Fax No.: 212-521-5450

         If to the Company:

         AspenBio Pharma, Inc.
         1585 South Perry Street
         Castle Rock, CO 80104
         Attention: Chief Executive Officer
         Fax No: (303) 798-8332

         with a copy (which shall not constitute notice) to:

         Ballard Spahr LLP
         1735 Market Street, 51st Floor
         Philadelphia, PA 19103
         Attention: Gerald J. Guarcini
         Fax No: (215) 864-8999

                                                                    Ex. A- 9
9.       Miscellaneous .

         9.1        Amendments . The Company and Aegis may from time to time supplement or amend this Purchase Warrant without the
approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or
inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the
Company and Aegis may deem necessary or desirable and that the Company and Aegis deem shall not adversely affect the interest of the
Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of
the modification or amendment is sought.

          9.2        Headings . The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way
limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.

          9.3.        Entire Agreement . This Purchase Warrant (together with the other agreements and documents being delivered pursuant
to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof,
and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

         9.4       Binding Effect . This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the
Company and their permitted assignees, respective successors, legal representative and assigns, and no other person shall have or be construed
to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein
contained.

         9.5         Governing Law; Submission to Jurisdiction; Trial by Jury . This Purchase Warrant shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company
hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and
enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York,
and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such
exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be
served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set
forth in Section 8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action,
proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the
other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the
preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates)
and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

         9.6        Waiver, etc . The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase
Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or
any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No
waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in
a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such
breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or
non-fulfillment.


                                                                    Ex. A- 10
         9.7         Execution in Counterparts . This Purchase Warrant may be executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and
the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to
each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.

         9.8         Exchange Agreement . As a condition of the Holder’s receipt and acceptance of this Purchase Warrant, Holder agrees that,
at any time prior to the complete exercise of this Purchase Warrant by Holder, if the Company and Aegis enter into an agreement (“ Exchange
Agreement ”) pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of
both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.

                                                          [ Signature Page Follows ]


                                                                   Ex. A- 11
         IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the ____
day of _______, 2012.

        ASPENBIO PHARMA, INC.

        By:
              Name:
              Title:


                                                             Ex. A- 12
                                       [ Form to be used to exercise Purchase Warrant ]

Date: __________, 20___

         The undersigned hereby elects irrevocably to exercise the Purchase Warrant for ______ shares of common stock, no par
value per share (the “ Shares ”), of AspenBio Pharma, Inc., a Colorado corporation (the “ Company ”), and hereby makes payment of
$____ (at the rate of $____ per Share) in payment of the Exercise Price pursuant thereto. Please issue the Shares as to which this
Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant
representing the number of Shares for which this Purchase Warrant has not been exercised.

          or

        The undersigned hereby elects irrevocably to convert its right to purchase ___ Shares of the Company under the Purchase
Warrant for ______ Shares, as determined in accordance with the following formula:

               X       =     Y(A-B)
                                A
 Where,            X   =   The number of Shares to be issued to Holder;
                   Y   =   The number of Shares for which the Purchase Warrant is being exercised;
                   A   =   The fair market value of one Share which is equal to $_____; and
                   B   =   The Exercise Price which is equal to $______ per share

         The undersigned agrees and acknowledges that the calculation set forth above is subject to confirmation by the Company and
any disagreement with respect to the calculation shall be resolved by the Company in its sole discretion.

         Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if
applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been converted.

Signature

Signature Guaranteed


                                                          Ex. A- 13
INSTRUCTIONS FOR REGISTRATION OF SECURITIES

Name:
                                     (Print in Block Letters)

Address:




          NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without
alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by
a firm having membership on a registered national securities exchange.


                                                                Ex. A- 14
                                                [ Form to be used to assign Purchase Warrant ]

ASSIGNMENT

(To be executed by the registered Holder to effect a transfer of the within Purchase Warrant):

FOR VALUE RECEIVED, __________________ does hereby sell, assign and transfer unto the right to purchase shares of common stock, no
par value per share, of AspenBio Pharma, Inc., a Colorado corporation (the “ Company ”), evidenced by the Purchase Warrant and does
hereby authorize the Company to transfer such right on the books of the Company.

Dated: __________, 20__

Signature

Signature Guaranteed

NOTICE: The signature to this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration
or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm
having membership on a registered national securities exchange.


                                                                  Ex. A- 15
                                                                  EXHIBIT B

                                                         Form of Lock-Up Agreement

                                                                                                                                          [•], 2012
Aegis Capital Corp.
810 Seventh Avenue, 11th Floor
New York, New York 10019

Ladies and Gentlemen:

         The undersigned understands that Aegis Capital Corp. (the “ Representative ”) proposes to enter into an Underwriting Agreement
(the “ Underwriting Agreement ”) with AspenBio Pharma, Inc., a Colorado corporation (the “ Company ”), providing for the public offering
(the “ Public Offering ”) by the Representative of [_____________] shares of common stock (“ Firm Shares ”), no par value per share, of the
Company (the “ Shares ”).

          To induce the Representative to continue its efforts in connection with the Public Offering, the undersigned hereby agrees that,
without the prior written consent of the Representative, it will not, during the period commencing on the date hereof and ending on 90 days
after the date of the final prospectus (the “ Prospectus ”) relating to the Public Offering (the “ Lock-Up Period ”), (1) offer, pledge, sell,
contract to sell, grant, lend, or otherwise transfer or dispose of, directly or indirectly, any Shares or any securities convertible into or
exercisable or exchangeable for Shares, or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Shares, whether any such transaction described in clause (1) or (2) above is to be settled by
delivery of Shares or such other securities, in cash or otherwise. Notwithstanding the foregoing, the undersigned may transfer Shares without
the prior consent of the Representative in connection with (a) transactions relating to Shares or other securities acquired in open market
transactions after the completion of the Public Offering, provided that no filing under Section 16(a) of the Securities Exchange Act of 1934, as
amended (the “ Exchange Act ”), shall be required or shall be voluntarily made in connection with subsequent sales of Shares or other
securities acquired in such open market transactions, (b) transfers of Shares or any security convertible into Shares as a bona fide gift, by will
or intestacy or to a family member or trust for the benefit of a family member; provided that in the case of any transfer or distribution pursuant
to clause (b), (i) each donee or distributee shall sign and deliver a lock-up letter substantially in the form of this letter agreement and (ii) no
filing under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of Shares, shall be required or shall be voluntarily
made during the Lock-up Period, (c) transfer of Shares to a charity or educational institution, or (d) if the undersigned, directly or indirectly,
controls a corporation, partnership, limited liability company or other business entity, any transfers of Shares to any shareholder, partner or
member of, or owner of similar equity interests in, the undersigned, as the case may be, if, in any such case, such transfer is not for value. In
addition, the undersigned agrees that during the Lock-Up Period, without the prior written consent of the Representative, it will not make any
demand for or exercise any right with respect to the registration of any Shares or any security convertible into or exercisable or exchangeable
for Shares. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar
against the transfer of the undersigned’s Shares except in compliance with this Agreement.

         If (i) the Company issues an earnings release or material news, during the last 17 days of the Lock-Up Period, or (ii) prior to the
expiration of the Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last
day of the Lock-Up Period, the restrictions imposed by this agreement shall continue to apply until the expiration of the 18-day period
beginning on the issuance of the earnings release, unless the Representative waives such extension.


                                                                    Ex. B- 1
         If the undersigned is an officer or director of the Company, (i) the undersigned agrees that the foregoing restrictions shall be equally
applicable to any issuer-directed or “friends and family” Shares that the undersigned may purchase in the Public Offering; (ii) the
Representative agrees that, at least three (3) Business Days before the effective date of any release or waiver of the foregoing restrictions in
connection with a transfer of shares of Shares, the Representative will notify the Company of the impending release or waiver, and (iii) the
Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news
service at least two (2) Business Days before the effective date of the release or waiver. Any release or waiver granted by the Representative
hereunder to any such officer or director shall only be effective two (2) Business Days after the publication date of such press release. The
provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the
transferee has agreed in writing to be bound by the same terms described in this Agreement to the extent and for the duration that such terms
remain in effect at the time of the transfer.

          No provision in this agreement shall be deemed to restrict or prohibit the exercise or exchange by the undersigned of any option or
warrant to acquire Shares, or securities exchangeable or exercisable for or convertible into Shares, provided that the undersigned does not
transfer the Shares acquired on such exercise or exchange during the Lock-Up Period, unless otherwise permitted pursuant to the terms of this
letter agreement. In addition, no provision herein shall be deemed to restrict or prohibit the entry into or modification of a so-called “10b5-1”
plan at any time (other than the entry into or modification of such a plan in such a manner as to cause the sale of any Shares or any securities
convertible into or exercisable or exchangeable for Shares within the Lock-Up Period).

        The undersigned understands that the Company and the Representative are relying upon this letter agreement in proceeding toward
consummation of the Public Offering. The undersigned further understands that this agreement is irrevocable and shall be binding upon the
undersigned’s heirs, legal representatives, successors and assigns.

         The undersigned understands that, if the Underwriting Agreement is not executed by [_________], 2012, or if the Underwriting
Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of
the Shares to be sold thereunder this agreement shall be void and of no further force or effect.

         Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering
will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the
Representative.

                                                                          Very truly yours,


                                                                          (Name)


                                                                          (Address)


                                                                   Ex. B- 2
                                                              EXHIBIT C

                                                         Form of Press Release

ASPENBIO PHARMA, INC.

[Date]

AspenBio Pharma, Inc. (the “Company”) announced today that Aegis Capital Corp., acting as representative for the underwriters in the
Company’s recent public offering of _______ shares of the Company’s common stock, is [waiving] [releasing] a lock-up restriction with
respect to _________ shares of the Company’s common stock held by [certain officers or directors] [an officer or director] of the
Company. The [waiver] [release] will take effect on _________, 20___, and the shares may be sold on or after such date.

This press release is not an offer or sale of the securities in the United States or in any other jurisdiction where such offer or sale is
prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration
under the Securities Act of 1933, as amended.


                                                                Ex. C- 1
                     EXHIBIT D

Form of Opinion of Company Counsel (Ballard Spahr LLP)


                      Ex. D- 1
                               EXHIBIT E

Form of Company Counsel 10b-5 Negative Assurance Letter (Ballard Spahr LLP)


                                 Ex. E- 1
May 25, 2012

AspenBio Pharma, Inc.
1585 South Perry Street
Castle Rock, Colorado 80104

Re:       Form S-1 Registration Statement

Ladies and Gentlemen:

We have acted as counsel to AspenBio Pharma, Inc., a Colorado corporation (the “Company”) and are rendering this opinion in connection
with the filing of a Registration Statement on Form S-1 (File No. 333-180691) (the “Registration Statement”) by the Company with the
Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”), relating to
shares of common stock, no par value (the “Common Stock”). The Common Stock may be issued and sold by the Company pursuant to that
certain Underwriting Agreement to be entered into between the Company and Aegis Capital Corp. acting severally on behalf of itself and the
underwriters named in Schedule I thereto (the “Underwriting Agreement”). The Common Stock may be issued and sold by the Company for
an aggregate initial offering price not to exceed $17,250,000 (which includes the exercise of the underwriters’ over-allotment option.

We have examined the following documents: (a) the Articles of Incorporation, as amended, of the Company; (b) the Amended and Restated
Bylaws of the Company; (c) the form of Underwriting Agreement; and (d) the Registration Statement and all exhibits thereto. We have also
examined such corporate records and other agreements, documents and instruments, and such certificates or comparable documents of public
officials and officers and representatives of the Company, and have made such inquiries of such officers and representatives and have
considered such matters of law as we have deemed appropriate as the basis for the opinions hereinafter set forth.

We have assumed the legal capacity and competence of natural persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of documents submitted to us as certified, conformed, photostatic, electronic
or facsimile copies, and the completeness of all documents reviewed by us. In rendering the opinion set forth below, we have relied as to
factual matters upon certificates, statements and representations of, and other information obtained from, the Company, its officers and
representatives, public officials and other sources believed by us to be responsible. We have assumed the conformity of the documents filed
with the Commission via the EDGAR system, except for required EDGAR formatting changes, to physical copies of the documents submitted
for our examination.

Atlanta | Baltimore | Bethesda | Denver | Las Vegas | Los Angeles | New Jersey | Philadelphia | Phoenix | Salt Lake City | San Diego
Washington, DC | Wilmington | www.ballardspahr.com
AspenBio Pharma, Inc.
May 25, 2012
Page 2

For the purposes of this opinion letter, we have assumed further that, at the time of the issuance, sale and delivery of the Common Stock at
issue: (a) the authorization thereof by the Company will not have been modified or rescinded, and there will not have occurred any change in
law affecting the validity, legally binding character or enforceability thereof; (b) the Articles of Incorporation, as amended, of the Company, as
currently in effect, will not have been modified or amended except as contemplated by the amendment to the Articles of Incorporation that was
approved by the Company’s shareholders on May 22, 2012 to effect a reverse stock split of the outstanding shares of the Company’s Common
Stock in a ratio of at least 1-for-2 and of up to 1-for-6, to be determined by the Board of Directors (the “Articles Amendment”), (c) the
Company has filed the Articles Amendment to effect a reverse stock split of the outstanding shares of the Company’s Common Stock at a ratio
of 1-for-6; and (d) such Articles of Incorporation, as amended, will be in full force and effect.

On the basis of the foregoing, we are of the opinion that, with respect to the offering of Common Stock by the Company pursuant to the
Registration Statement, when (a) the Registration Statement has become effective under the Securities Act, (b) the board of directors or any
duly designated committee thereof has adopted resolutions approving the issuance and sale of the Common Stock at a specified price or
pursuant to a specified pricing mechanism, (c) certificates representing the shares of Common Stock have been duly executed by appropriate
officers of the Company or appropriate book entries have been made in the stock records of the Company, and (d) the shares of Common Stock
have been duly and properly sold, paid for and delivered as contemplated in the Registration Statement and in accordance with the
Underwriting Agreement, then the shares of Common Stock, will be duly authorized, validly issued, fully paid and non-assessable.

This opinion is limited to the present laws of the State of Colorado and the present federal law of the United States of America. We express no
opinion as to the laws of any other jurisdiction and no opinion regarding the statutes, administrative decisions, rules and regulations or
requirements of any county, municipality or subdivision or other local authority of any jurisdiction.

We hereby consent to the sole use of this opinion as an exhibit to the Registration Statement and to the use of our name under the heading
“Legal Matters” in the Prospectus included therein. In giving this consent, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the Act.

Very truly yours,
/s/ Ballard Spahr LLP
                                                                                                                                  Exhibit 23.1


                              CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Registration Statement of our report dated March 16, 2012 (which expresses an unqualified opinion and
includes an explanatory paragraph related to the Company’s ability to continue as a going concern), relating to the financial statements of
AspenBio Pharma, Inc., and to the reference to our Firm under the caption “Experts” in the Registration Statement.


/s/GHP Horwath, P.C.

Denver, Colorado
May 25, 2012

								
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