Riot Platforms, Inc. quarterly report, Q2 FY2011

Filing identity and reporting period

Important discrepancy: The supplied filing is AspenBio Pharma, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2011—not a Riot Platforms, Inc. filing. The summary below reflects the filing text provided.

AspenBio was developing an acute appendicitis diagnostic test (AppyScore) and animal-health products, while also selling antigen products. Financial comparisons are for the three and six months ended June 30, 2011 versus the corresponding 2010 periods.

Financial results and liquidity

MetricThree months ended June 30, 2011Six months ended June 30, 2011Comparable 2010 period
Product sales$55,322$152,638$59,132 and $201,265, respectively
Novartis license-fee revenue$17,766$35,531$16,876 and $32,863, respectively
Gross profit / margin on product sales$52,573 / 95%$137,062 / 90%$25,172 / 43% and $101,739 / 51%, respectively
Operating expenses$2.817 million$5.692 million$3.429 million and $7.357 million, respectively
Operating loss$2.746 million$5.519 million$3.387 million and $7.222 million, respectively
Net loss$2.787 million$5.593 million$3.422 million and $7.294 million, respectively
Net loss per share$0.35$0.70$0.44 and $0.95, respectively

At June 30, 2011, cash and cash equivalents were $6.108 million and short-term investments were $0.952 million; management reported working capital of $4.667 million. Total assets were $12.026 million, total liabilities $5.697 million, and stockholders’ equity $6.329 million. Debt and other obligations totaled $2.598 million, primarily mortgage notes; approximately $1.607 million of the bank mortgage principal was estimated to be due in June 2013.

Six-month operating cash use was $4.347 million, investing cash provided was $1.770 million, and financing cash use was $0.223 million. Cash declined by $2.800 million from year-end 2010. The filing reports cash interest paid of $89,314 for the six-month period.

Changes versus the prior comparable periods

  • Six-month product sales fell 24%, which management attributed mainly to suspending antigen production and shifting resources toward product development. Second-quarter sales declined 6%.
  • Six-month gross margin on product sales improved to 90% from 51%, primarily because no fixed production costs were incurred in 2011.
  • Six-month SG&A declined 26%, mainly reflecting lower stock-based compensation and option expense, no accrued employee incentives, and lower public-company costs. R&D declined 19% for the half year, although it increased 11% in the second quarter as AppyScore and secondary-marker work increased.
  • Six-month net loss narrowed to $5.593 million from $7.294 million; operating cash use improved to $4.347 million from $6.446 million.
  • Cash and cash equivalents plus short-term investments fell from $11.840 million at December 31, 2010 to $7.060 million at June 30, 2011.

Outlook, risks, contingencies, and unusual items

  • Management expected continued near-term operating losses and said additional capital would likely be needed within twelve months. It believed available working capital would fund estimated needs for the remainder of 2011; a shelf registration statement had been filed and other financing alternatives were being explored.
  • Management anticipated 2011 R&D spending would exceed 2010 levels, chiefly because of expected preclinical and clinical work. Forecast 2011 capital expenditures were $200,000–$300,000, expected to be funded from working capital.
  • Novartis reported that the bovine-product pilot study did not meet its defined success criteria and requested a $900,000 refund. AspenBio reclassified that amount to accrued expenses; it was a current liability at June 30. The company was reviewing the final study report, and Novartis deferred its refund request pending that review.
  • Three lawsuits related to AppyScore were disclosed: an individual securities-related action, a purported securities class action, and a shareholder derivative action. The company disputed the allegations; the derivative action was stayed. The filing does not quantify potential losses.
  • After quarter-end, a one-for-five reverse stock split became effective July 29, 2011. Share and per-share amounts in the filing were retrospectively adjusted. Management reported disclosure controls were effective and no material change in internal control during the quarter.

Important facts for investors to verify

  • Confirm the intended issuer and filing: the supplied document identifies AspenBio Pharma, not Riot Platforms.
  • Assess the status and cash consequences of Novartis’s $900,000 refund request, the pilot-study review, and the future of the license agreement.
  • Review financing needs and available liquidity against operating cash use, product-development spending, and management’s stated expectation that additional capital may be needed within twelve months.
  • Check AppyScore’s development and regulatory progress, and the status and potential exposure of the disclosed litigation; the filing provides no clear loss estimate.
  • Review the mortgage maturity schedule, especially the estimated $1.607 million bank principal due in June 2013, and confirm the post-quarter reverse-split-adjusted share count.