Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2023
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35182
AMPIO PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
26-0179592
(State or other jurisdiction ofincorporation or organization)
(IRS EmployerIdentification No.)
9800 Mount Pyramid Court, Suite 400
Englewood, Colorado 80112
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code): (720) 437-6500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered:
Common stock, par value $0.0001 per share
AMPE
NYSE American
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 7, 2023, there were 15,101,490 outstanding shares of common stock, par value $0.0001 per share, of the registrant.
FOR THE QUARTER ENDED JUNE 30, 2023
INDEX
Page
PART I-FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
4
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
19
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
25
Item 4.
Controls and Procedures
26
PART II-OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
27
SIGNATURES
28
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our anticipated future clinical developments, future financial position, and plans and objectives of management for future operations, are forward-looking statements. Words such as “may”, “will”, “should”, “forecast”, “could”, “expect”, “suggest”, “believe”, “estimate”, “continue”, “anticipate”, “intend”, “ongoing”, “opportunity”, “potential”, “predicts”, “seek”, “plan,” or similar words, or the negatives of such terms or other variations on such terms or comparable terminology, typically identify forward-looking statements. Such forward-looking statements include, but are not limited to, statements relating to the following:
We undertake no obligation to update or revise publicly any forward-looking statements to reflect events or circumstances after the date of such statements for any reason, except as otherwise required by law.
Forward-looking statements are based on certain assumptions and expectations of future events and trends that are subject to risks and uncertainties. Actual future results and trends may differ materially from historical results or those reflected in any such forward-looking statements depending on a variety of factors.
Additional factors that could cause or contribute to such differences include, but are not limited to, those described in the section entitled “Risk Factors” in Part I, Item 1A of the Form 10-K for the year ended December 31, 2022, other similar sections of our subsequent reports. Additionally, other sections of this Quarterly Report include additional factors that could adversely impact the business and financial performance expressed or implied in any forward-looking statements, including, but not limited to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For additional information concerning factors that may cause actual results to vary materially from those stated in the forward-looking statements, see our reports on Forms 10-K, 10-Q and 8-K filed with the SEC from time to time.
This Quarterly Report on Form 10-Q includes trademarks for Ampion®, which are protected under applicable intellectual property laws and are our property. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names.
3
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
(unaudited)
June 30,
December 31,
2023
2022
Assets
Current assets
Cash and cash equivalents
$
6,953,000
12,653,000
Insurance recovery receivable
1,380,000
—
Prepaid expenses and other
816,000
676,000
Total current assets
9,149,000
13,329,000
Fixed assets, net
184,000
Right-of-use asset, net
75,000
Total assets
13,588,000
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable and accrued expenses
2,141,000
852,000
Lease liability-current portion
354,000
340,000
Total current liabilities
2,495,000
1,192,000
Lease liability-long-term
94,000
274,000
Warrant derivative liability
44,000
Asset retirement obligation
289,000
Total liabilities
2,589,000
1,799,000
Commitments and contingencies (Note 5)
Mezzanine equity:
Preferred Stock, par value $0.0001; 10,000,000 shares authorized; shares issued and outstanding - 15,103 and none as of June 30, 2023 and December 31, 2022, respectively
Stockholders’ equity
Common Stock, par value $0.0001; 300,000,000 shares authorized; shares issued and outstanding - 15,102,877 as of June 30, 2023 and December 31, 2022
2,000
Additional paid-in capital
245,802,000
245,726,000
Accumulated deficit
(239,244,000)
(233,939,000)
Total stockholders’ equity
6,560,000
11,789,000
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these financial statements.
Condensed Statements of Operations
Three Months Ended June 30,
Six Months Ended June 30,
Operating expenses
Research and development
344,000
1,743,000
868,000
5,430,000
General and administrative
1,216,000
3,245,000
5,036,000
6,528,000
Loss on sale of fixed assets
56,000
Total operating expenses
1,560,000
4,988,000
5,960,000
11,958,000
Other income
Interest income
98,000
32,000
202,000
35,000
Rental income
91,000
121,000
Loss on derecognition of ARO asset
(6,000)
Gain on elimination of ARO obligation
294,000
Derivative gain
2,886,000
4,217,000
Total other income
189,000
2,918,000
611,000
4,252,000
Net loss
(1,371,000)
(2,070,000)
(5,349,000)
(7,706,000)
Net loss per common share:
Basic
(0.09)
(0.14)
(0.35)
(0.51)
Diluted
(0.33)
(0.79)
Weighted average number of common shares outstanding:
15,093,944
15,072,392
15,093,919
15,072,307
5
Condensed Statements of Mezzanine Equity and Stockholders’ Equity
Mezzanine Equity
Additional
Total
Series D Preferred
Common Stock
Paid-in
Accumulated
Stockholders'
Shares
Amount
Capital
Deficit
Equity
Balance at December 31, 2021
15,172,111
244,884,000
(217,602,000)
27,284,000
Share-based compensation, net of forfeitures
716,000
Shares held back in settlement of tax obligation for shares issued in connection with restricted stock awards
(9,234)
(79,000)
Offering costs related to the issuance of common stock in connection with the "at-the-market" equity offering program
(32,000)
(5,636,000)
Balance at March 31, 2022
15,162,877
245,489,000
(223,238,000)
22,253,000
423,000
Restricted stock award forfeitures
(60,000)
(509,000)
Balance at June 30, 2022
15,102,877
245,403,000
(225,308,000)
20,097,000
Balance at December 31, 2022
Reclassification of warrant derivative upon adoption of ASU 2020-06
23,000
(3,978,000)
Balance at March 31, 2023
245,749,000
(237,873,000)
7,878,000
53,000
Issuance of Series D preferred stock dividend
15,103
Balance at June 30, 2023
6
Condensed Statements of Cash Flows
Cash flows used in operating activities
Adjustments to reconcile net loss to net cash used in operating activities:
76,000
630,000
Depreciation and amortization
122,000
518,000
6,000
(294,000)
Accretion of asset retirement obligation
5,000
(4,217,000)
Changes in operating assets and liabilities:
Increase in insurance recovery receivable
(1,380,000)
Increase in prepaid expenses and other
(140,000)
(15,000)
(Decrease) increase in accounts payable and accrued expenses
1,289,000
(53,000)
Decrease in lease liability
(91,000)
(48,000)
Net cash used in operating activities
(5,700,000)
(10,891,000)
Net cash used in investing activities
Cash flows used in financing activities
Costs related to the sale of common stock and warrants in connection with the registered direct offering
Funding of tax obligation relative to shares withheld in connection with restricted stock awards
Net cash used in financing activities
(111,000)
Net change in cash and cash equivalents
(11,002,000)
Cash and cash equivalents at beginning of period
33,892,000
Cash and cash equivalents at end of period
22,890,000
Non-cash transactions:
Commercial insurance premium financing agreement
703,000
1,159,000
7
Notes to Condensed Financial Statements
Note 1 – The Company and Summary of Significant Accounting Policies
Ampio Pharmaceuticals, Inc. (“Ampio” or the “Company”) is a pre-revenue stage biopharmaceutical company that until May 2022 was engaged with the development of Ampion and early development of AR-300, a synthetic version of Ampion and subsequently, a small molecule pre-clinical stage development asset which was designed to leverage the key attributes of Ampion, which was referred to previously as the OA-20X program and is now referred to as the OA.201 program. As part of the OA.201 program, we have been focusing our ongoing efforts toward optimizing two potential small molecule formulations to take forward into development. In the third quarter of 2023, we intend to select one of these optimized formulations to move towards clinical development. Given that these formulations are unique, proprietary, and are neither Ampion nor AR-300 (or derivatives thereof), we now refer to development of these new formulations as the OA.201 program.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information and with the instructions of the SEC on Quarterly Reports on Form 10-Q and Article 8 of Regulation S-X. Accordingly, such financial statements do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, the financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the financial position and of the results of operations and cash flows of the Company for the periods presented.
On November 9, 2022, the Company effected a 15-to-1 reverse stock split. The Company has retroactively applied the reverse stock split made effective on November 9, 2022 to share and per share amounts in the condensed financial statements for the three and six months ended June 30, 2023 and June 30, 2022. Additionally, pursuant to their terms, a proportionate adjustment was made to the per share exercise price and number of shares issuable under all of the Company’s outstanding options and warrants, and the number of shares authorized for issuance pursuant to the Company’s equity incentive plans have been reduced proportionately, with any fractional shares rounded up to the next whole share. The Company also retroactively applied such adjustments in the notes to the condensed financial statements for the three and six months ended June 30, 2023 and June 30, 2022. The reverse stock split did not reduce the number of authorized shares of common stock and preferred stock and did not alter the par value.
These financial statements should be read in conjunction with the audited financial statements and accompanying notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”). The results of operations for the interim period shown in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The information as of and for the three and six months ended June 30, 2023 and June 30, 2022 is unaudited. The balance sheet at December 31, 2022 was derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company has no off-balance-sheet concentrations of credit risk, such as foreign exchange contracts, option contracts or foreign currency hedging arrangements. The Company consistently maintains its cash and cash equivalent balances in the form of bank demand deposits, United States federal government backed treasury securities and fully liquid money market fund accounts with financial institutions that management believes are creditworthy. The Company periodically monitors its cash positions with, and the credit quality of, the financial institutions with which it invests. As of and subsequent to March 31, 2023, the Company no longer holds balances in excess of federally insured limits.
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses, and related disclosures in the financial statements and accompanying notes. The Company bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.
Significant items subject to such estimates and assumptions primarily include the Company’s projected current and long-term liquidity and insurance recovery receivable related to attorney’s fees for the Class Action Lawsuit and the Shareholder Derivative Actions to be covered and paid by our directors’ and officers’ insurance carrier, after satisfaction of our $2.5 million retention. The Company develops these estimates using its judgment based upon the facts and circumstances known to it at the time.
Liquidity / Going Concern
We are a pre-revenue stage biopharmaceutical company that has incurred an accumulated deficit of $239.2 million as of June 30, 2023. We expect to generate continued operating losses for the foreseeable future as we are pursuing the continued development and advancement of the OA.201 program and sourcing the requisite liquidity primarily through capital raising efforts.
As of June 30, 2023, we had $7.0 million of cash and cash equivalents and an insurance recovery receivable of $1.4 million, of which $1.0 million was received in early third-quarter 2023. Based on our current cash / liquidity position and current projection of operating expenses and capital expenditures, we believe we will have sufficient liquidity to fund operations into the first quarter of 2024. Our cash resources and our capital needs are based upon management estimates as to future operations and expense and the timing of collection of the insurance recovery receivable, which involve significant judgment. If we are able to successfully optimize a small molecule formulation to take forward into development, we intend to fund that future development of the OA.201 program through an offering of our equity securities. We may also seek to raise equity capital in order to attempt to cure potential non-compliance with the minimum stockholders’ equity requirement of the NYSE American in future reporting periods. Additionally, given that the Ampio board of directors is considering strategic alternatives, our forecasts regarding the sufficiency of our liquidity is based upon maintaining our current operations. Accordingly, we may require a greater amount of capital than presently anticipated or may require capital more quickly than presently anticipated, or both.
Additional financing may not be available in the amount or at the time we need it or may not be available on acceptable terms or at all. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests and the value of shares of our common stock could decline. Our efforts to raise additional funds from the sale of equity may be hampered by the currently depressed trading price of our common stock. If we raise additional equity financing, new investors may demand rights, preferences, or privileges senior to those of existing holders of common stock.
Based on the above, these existing and ongoing factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited interim financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
These financial statements do not include any separate adjustments relating to the recovery of recorded assets or the classification of liabilities, which adjustments may be necessary in the future should the Company be unable to continue as a going concern.
Adoption of Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, “Debt (Subtopic 470-20); Debt with Conversion and Other Options and Derivatives and Hedging (Subtopic 815-40) Contracts in Entity’s Own Equity”. The updated guidance is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. Consequently, more convertible debt instruments will be reported as single liability instruments with no separate accounting for embedded conversion features. The ASU 2020-06 also removes certain
9
settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. In addition, ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The updated guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted for periods beginning after December 15, 2020. The Company adopted ASU 2020-06 effective January 1, 2023. The adoption of ASU 2020-06 did not have a material impact on the Company’s financial statements.
Recent Accounting Pronouncements
This Quarterly Report on Form 10-Q does not discuss recent pronouncements that are not anticipated to have a current and/or future impact on or are unrelated to the Company’s financial condition, results of operations, cash flows or disclosures.
Note 2 – Current Assets, Excluding Cash and Cash Equivalents
The Company recorded an insurance recovery receivable of $1,380,000 on its balance sheet, as of June 30, 2023, owing from the Company’s insurance carrier to the Company with respect to amounts advanced by the Company in excess of the Company’s previously paid $2.5 million self-insured retention for defense costs relating to currently pending lawsuits and the SEC investigation that we expect to be covered and paid by our directors’ and officers’ insurance. As of June 30, 2023, we have previously paid and accrued to our financial statements covered expenses totaling $2.5 million, the full amount of the self-insured retention.
Prepaid expenses and other balances as of June 30, 2023 and December 31, 2022 are as follows:
June 30, 2023
December 31, 2022
Unamortized commercial insurance premiums
696,000
610,000
Deposits
34,000
Professional fees
48,000
19,000
Other
38,000
13,000
Total prepaid expenses and other
Note 3 – Fixed Assets
Fixed assets are recorded based on acquisition cost and once placed in service, are depreciated utilizing the straight-line method over their estimated economic useful lives. Leasehold improvements are accreted over the shorter of the estimated economic life or related lease term. Effective March 1, 2023, the Company entered into a sublease of its existing facility and in connection with that sublease, entered into a bill of sale with the subtenant for all of the Company’s existing fixed assets (see Note 5).
Fixed assets, net of accumulated depreciation, consist of the following:
Estimated
Useful Lives
(in Years)
Leasehold improvements
10
4,965,000
Manufacturing facility/clean room
3 - 8
2,803,000
Lab equipment and office furniture
5 - 8
1,661,000
Fixed assets, gross
9,429,000
Accumulated depreciation
(9,245,000)
Depreciation and amortization expense for the respective periods is as follows:
Depreciation and amortization expense
256,000
Note 4 – Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of June 30, 2023 and December 31, 2022 are as follows:
596,000
157,000
Accounts payable
627,000
97,000
Preclinical and clinical trials
271,000
89,000
Commercial insurance premium financing
545,000
Accrued severance
1,000
143,000
Property taxes
74,000
Franchise taxes
9,000
78,000
92,000
25,000
Commercial Insurance Premium Financing Agreement
In June 2023, the Company entered into an insurance premium financing agreement for $703,000, with a term of nine months, annual interest rate of 8.00% and made a down payment of $171,000. Under the terms and provisions of the agreement, the Company is required to make principal and interest payments totaling $59,000 per month over the remaining term of the agreement.
Note 5 - Commitments and Contingencies
Employment Agreements
As of June 30, 2023, the Company is a party to an employment agreement dated October 11, 2021 with Daniel Stokely to serve in the capacity as the Company’s Chief Financial Officer with an initial base salary of $335,000 and an initial term ending in October 2024.
As of June 30, 2023, the Company is a party to an employment agreement with Michael A. Martino, Chief Executive Officer, dated November 22, 2021 and amended August 30, 2022 with an initial base salary of $550,000. The amendment on August 30, 2022 extended the term to November 22, 2023. All other terms and conditions of Mr. Martino’s employment agreement remain unchanged. Under these employment agreements, each executive is entitled to a severance payment in the event the Company terminates employee’s employment without cause, or employee terminates his employment with good reason.
11
Related Party Research Agreements
On February 4, 2022, the Company entered into a sponsored research services agreement with Trauma Research, LLC, an entity owned by one of the Company’s former directors. The agreement totaled $400,000 for research activities to be performed over the next two years. In addition, the Company also entered into a personal services agreement dated February 4, 2022 with that individual to provide research services. The agreement payments totaled $250,000, which were to be paid in four equal installments payable quarterly over the one-year term. On August 5, 2022, the Company delivered notice of termination of the personal services agreement, effective September 5, 2022, and during September paid the remaining obligation of $21,000. On August 5, 2022, the Company delivered notice of termination of the research services agreement, effective November 4, 2022, and paid the remaining obligation of $63,000. There are no related party agreements in effect as of June 30, 2023.
Facility Lease
The Company is a party to a Lease Agreement (the “Lease”) with Beta Investors Group, LLC (successor by assignment to NCWP – Inverness Business Park, LLC) (the “Landlord”) dated December 13, 2013 pursuant to which the Company has leased office and manufacturing space in Suite 200 and Suite 204 in the building located at 373 Inverness Parkway, Englewood, Colorado (the “Premises”). The lease was a 125-month non-cancellable operating lease for office space and a manufacturing facility, set to expire September 2024 with the right to renew for an additional 60 months. The effective date of the Lease was May 1, 2014. The initial base rent of the Lease was $23,000 per month. The total base rent over the term of the Lease is approximately $3.3 million, which includes rent abatements and leasehold incentives.
Effective March 1, 2023, the Company entered into a sublease agreement whereby the Company subleased the Premises for a term commencing on March 1, 2023 and continuing until the expiration for the Lease on September 30, 2024. The subtenant will pay to the Company rent and other amounts assessed by the Landlord against the Company under the Lease. The subtenant is also responsible for utilities and insurance under the sublease agreement. Under the terms and conditions of the sublease agreement, the Company was fully released of its obligation under the Lease to dismantle and remove certain components of leasehold improvements at the end of the lease term. Accordingly, the Company derecognized its asset retirement obligation (“ARO”) in the amount of $294,000 which resulted in the recognition of a non-cash gain totaling $288,000 gain, net of $6,000 loss on the derecognition of the ARO asset.
The following table provides a reconciliation of the Company’s remaining undiscounted payments for its facility lease and the carrying amount of the lease liability disclosed on the balance sheet as of June 30, 2023:
Facility Lease Payments
2024
2025
2026
2027
Thereafter
Remaining Facility Lease Payments
464,000
280,000
Less: Discount Adjustment
(16,000)
Total lease liability
448,000
Long-term lease liability
The Right-of-Use (ROU) asset was fully amortized as of March 31, 2023 and remains fully amortized as of June 30, 2023.
The Company recorded lease expense in the respective periods as follows:
Lease expense
14,000
70,000
101,000
151,000
12
Note 6 – Warrants
The Company adopted ASU 2020-06 effective January 1, 2023 using the modified retrospective method, and accordingly reclassified its “investor” liability classified warrants to accumulated deficit. The Company’s “placement agent” warrants were previously classified as equity. The Company had a total of 1.1 million equity-classified warrants as of June 30, 2023.
Weighted
Weighted Average
Number of
Average
Remaining
Warrants
Exercise Price
Contractual Life
Outstanding as of December 31, 2022
1,065,137
$ 15.94
3.80
Outstanding as of June 30, 2023
3.30
The following table summarizes the Company’s outstanding warrants between placement agent and investor warrant classifications:
Date
Type
December 2021 registered direct offering
$ 16.50
Investor
1,000,000
3.46
August 2018 public offering
$ 6.00
10,227
0.12
June 2019 public offering
$ 7.50
Placement agent
54,910
0.97
There was no warrant derivative liability as of June 30, 2023. The total value for the warrant derivative liability as of December 31, 2022 was approximately $44,000 (see Note 7).
Note 7 - Fair Value Considerations
Authoritative guidance defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect inputs that market participants would use in pricing the asset or liability based on market data obtained from sources not affiliated with the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on reliability of the inputs as follows:
Level 1:
Inputs that reflect unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities;
Level 2:
Inputs that include quoted prices for similar assets and liabilities in active or inactive markets or that are observable for the asset or liability either directly or indirectly; and
Level 3:
Unobservable inputs that are supported by little or no market activity.
The Company’s financial instruments include cash and cash equivalents, accounts payable and accrued expenses, and warrant derivative liability. Warrants are recorded at estimated fair value utilizing the Black-Scholes warrant pricing model.
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The Company’s assets and liabilities which are measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. The Company’s policy is to recognize transfers in and/or out of the fair value hierarchy as of the date in which the event or change in circumstances caused the transfer. The Company has consistently applied the valuation techniques in all periods presented.
As noted previously, the Company early adopted ASU 2020-06 resulting in the reclassification of the warrant derivative liability to stockholder’s equity, effective January 1, 2023.
The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2022, by level within the fair value hierarchy:
Fair Value Measurements Using
Level 1
Level 2
Level 3
Liabilities:
The warrant derivative liability for the December 31, 2022 period presented was valued using the Black-Scholes valuation methodology as we believe that model embodies all the relevant assumptions (including trading volatility, estimated terms and risk-free interest rates) that address the features underlying these instruments.
Due to the implementation of ASU 2020-06, effective January 1, 2023 the fair value of financial liabilities classified as Level 3 in the fair value hierarchy was reduced by $44,000. There were no financial liabilities classified as Level 1, 2 or 3 as of June 30, 2023.
Note 8 - Common Stock
Authorized Shares
The Company had 300.0 million authorized shares of common stock as of June 30, 2023 and December 31, 2022.
The following table summarizes the Company’s remaining authorized shares available for future issuance:
Authorized shares
300,000,000
Common stock outstanding
Options outstanding
254,388
Warrants outstanding
Reserved for issuance under 2019 Stock and Incentive Plan
484,372
Available shares for future issuance
283,093,226
ATM Equity Offering Program
In February 2020, the Company entered into a Sales Agreement with two agents to implement an “at the market” (ATM) equity offering program under which the Company, from time to time and at its sole discretion, may offer and sell shares of its common stock having an aggregate offering price up to $50.0 million to the public through the agents until (i) each agent declines to accept the terms for any reason, (ii) the entire amount of shares has been sold, or (iii) the Company suspends or terminates the Sales Agreement. The Sales Agreement includes customary indemnification rights in favor of the agents and provides that the agents will be entitled to an aggregate fixed commission of 4.0% of the gross proceeds (2.0% to each agent) to the Company from any shares sold pursuant to the Sales Agreement. The shelf registration
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statement associated with the ATM equity offering program expired on May 6, 2023. Therefore, there was no activity under the Sales Agreement for the three months ended June 30, 2023.
Note 9 – Mezzanine Equity and Stockholders’ Equity
Preferred Stock
On May 24, 2023, the Board declared a dividend of one one-thousandth of a share (1/1000th) of Series D Preferred Stock, par value $0.0001 per share (“Series D Preferred Stock”), for each outstanding share of common stock of the Company, par value $0.0001 per shares (the “Common Stock”) to stockholders of record at 5:00 p.m. Eastern Time on June 8, 2023 (the “Record Date”). The Certificate of Designation of Series D Preferred Stock (the “Certificate of Designation”) was filed with the Delaware Secretary of State and became effective on May 25, 2023.
The dividend was based on the number of shares of common stock on June 8, 2023 and resulted in 15,103 Series D Preferred shares being issued. Each whole share of Series D Preferred Stock entitles the holder thereof to 1,000,000 votes per share, and each fraction of a share of Series D Preferred Stock has a ratable number of votes. Thus, each one-thousandth of a share of Series D Preferred Stock is entitled to 1,000 votes. The outstanding shares of Series D Preferred Stock are entitled to vote together with the outstanding shares of common stock as a single class exclusively with respect to any proposal to adopt an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), to effect a reverse stock split of the outstanding shares of Common Stock at a ratio determined in accordance with the terms of such amendment (the “Reverse Stock Split”), and (ii) any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Reverse Stock Split (the “Adjournment Proposal”). The Reverse Stock Split and Adjournment Proposal were presented at the 2023 Annual Meeting of Stockholders held on Thursday, July 27, 2023.
All shares of Series D Preferred Stock that were not present in person or by proxy at the Annual Meeting of Stockholders as of immediately prior to the opening of the polls at such meeting (the “Initial Redemption Time”) were automatically redeemed in whole, but not in part, by the Company at the Initial Redemption Time without further action on the part of the Company or the holder of shares of Series D Preferred Stock (the “Initial Redemption”). The outstanding shares of Series D Preferred Stock that were not redeemed pursuant to an Initial Redemption were redeemed in whole, but not in part, automatically upon the approval by the Corporation’s stockholders of the Reverse Stock Split at the 2023 Annual Meeting of Stockholders held on Thursday, July 27, 2023. Accordingly, as of July 27, 2023, all outstanding shares of Series D Preferred Stock were redeemed.
Each share of Series D Preferred Stock was redeemed in consideration for the right to receive an amount equal to $0.01 in cash for each ten whole shares of Series D Preferred Stock that are “beneficially owned” by the “beneficial owner” (as such terms are defined in the Certificate of Designation thereof as of immediately prior to the applicable redemption time, payable upon receipt by the Company of a written request submitted by the applicable holder to the corporate secretary of the Company (each a “Redemption Payment Request”) following the applicable Redemption Time. From July 27, 2023 to the date hereof, there have been no Redemption Payment Requests.
The Series D Preferred Stock was not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Series D Preferred Stock had no stated maturity and it was not subject to any sinking fund. The Series D Preferred Stock was not subject to any restriction on the redemption or repurchase of shares by the Company while there is any arrearage in the payment of dividends or sinking fund installments.
The Company was not solely in control of the redemption of the shares of Series D Preferred Stock since the holders had the option of deciding whether to vote in respect of the Reverse Stock Split, which determines whether a given holder’s shares of Series D Preferred Stock are redeemed in the Initial Redemption or the Subsequent Redemption. Since the redemption of the Series D preferred Stock was not solely in the control of the Company, the shares of Series D Preferred Stock are classified within the mezzanine equity in the Company’s condensed consolidated balance sheet as of June 30, 2023. The shares of Series D Preferred Stock are measured at redemption value and is immaterial to the Company’s financial statements.
15
Options
In December 2019, the Company’s Board of Directors and stockholders approved the adoption of the 2019 Plan, under which shares were reserved for future issuance of equity related awards classified as option awards, restricted stock awards (“RSAs”) and other equity related awards as further defined under the 2019 Plan. The 2019 Plan permits grants of equity awards to employees, directors and consultants. The stockholders approved a total of 666,667 shares to be reserved for issuance under the 2019 Plan. The Company’s previous 2010 Stock and Incentive Plan (the “2010 Plan”) was cancelled concurrently with the adoption of the 2019 Plan.
The following table summarizes the activity of the 2019 Plan and the shares available for future equity awards as of June 30, 2023:
2019 Plan
Total shares reserved for equity awards as of December 31, 2022
441,300
Forfeited, expired and/or cancelled equity option awards
13,737
Remaining shares available for future equity awards as of March 31, 2023
455,037
29,335
Remaining shares available for future equity awards as of June 30, 2023
The following table summarizes the Company’s restricted stock awards activity during the three months ended June 30, 2023:
Average Grant-Date
Aggregate
Awards
Fair Value
Intrinsic Value
Nonvested as of December 31, 2022
13,400
24.60
Vested
(4,467)
Nonvested as of March 31, 2023
8,933
Granted
Forfeited
Nonvested as of June 30, 2023
The following table summarizes the Company’s stock option activity:
297,460
14.97
6.41
Forfeited, expired and/or cancelled
(13,737)
6.83
Outstanding as of March 31, 2023
283,723
15.36
6.58
(29,335)
9.61
15.87
7.08
Exercisable as of June 30, 2023
234,684
15.94
6.96
The following table summarizes the outstanding options that were issued in accordance with the 2010 Plan and the 2019 Plan:
Outstanding Options by Plan
2010 Plan
98,738
155,650
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Stock options outstanding as of June 30, 2023 are summarized in the table below:
Range of Exercise Prices
Outstanding
Contractual Lives
Up to $7.50
40,785
6.62
7.31
$7.51 - $15.00
123,460
10.36
6.56
$15.01 - $22.50
52,400
17.35
8.36
$22.51 and above
37,743
41.86
6.77
The Company computes the fair value for all options granted or modified using the Black-Scholes option pricing model. To calculate the fair value of the options, certain assumptions are made regarding components of the model, including the fair value of the underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. The Company calculates its volatility assumption using the actual changes in the market value of its stock. Forfeitures are recognized as they occur. The Company’s historical option exercises do not provide a reasonable basis to estimate an expected term due to the lack of sufficient data. Therefore, the Company estimates the expected term by using the simplified method. The simplified method calculates the expected term as the average of the vesting term plus the contractual life of the options. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity. The Company did not grant or modify options during the quarter ended June 30, 2023. The Company computed the fair value of options granted/modified during the period ended June 30, 2022, using the following assumptions:
Expected volatility
117% - 119
%
Risk free interest rate
1.26% - 1.94
Expected term (years)
5.45 - 6.51
Share-based compensation expense related to the fair value of stock options is included in the statements of operations as research and development expenses or general and administrative expenses as set forth in the table below. The following
17
table summarizes share-based compensation expense (stock options, restricted stock awards and common stock issued for services) for the three and six months ended June 30, 2023 and 2022:
Research and development expenses
3,000
95,000
(30,000)
142,000
General and administrative expenses
50,000
(181,000)
106,000
488,000
Total share-based compensation, net of forfeitures
(86,000)
Unrecognized share-based compensation expense related to stock options as of June 30, 2023
72,000
Weighted average remaining years to vest for stock options
1.49
Unrecognized share-based compensation expense related to restricted stock awards as of June 30, 2023
Weighted average remaining years to vest for restricted stock awards
1.51
Note 10 - Earnings Per Share
Basic earnings per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is based on the treasury stock method and computed by dividing net loss available to common stockholders by the diluted weighted-average shares of common stock outstanding during each period. The Company’s potentially dilutive shares include stock options, warrants for the shares of common stock and restricted stock awards. The potentially dilutive shares are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when the effect is dilutive. The investor warrants are treated as equity in the calculation of diluted earnings per share in both the computation of the numerator and denominator, if dilutive. The following table sets forth the calculations of basic and diluted earnings per share for the three and six months ended June 30, 2023 and 2022:
Less: decrease in fair value of investor warrants
(2,886,000)
Net loss available to common stockholders
(4,956,000)
(11,923,000)
Basic weighted-average common shares outstanding
Add: dilutive effect of equity instruments
Diluted weighted-average shares outstanding
Earnings per share – basic
Earnings per share – diluted
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The potentially dilutive shares of common stock that have been excluded from the calculation of net loss per share because of their anti-dilutive effect are as follows:
Warrants to purchase shares of common stock
Outstanding stock options
436,608
Restricted stock awards
Total potentially dilutive shares of common stock
1,328,458
1,515,145
Note 11 – Subsequent Events
On July 27, 2023, the Company held an annual meeting of the stockholders (the “Annual Meeting”) which included Proposal No. 3 which sought approval of an amendment to the Company’s certificate of incorporation to effect a reverse stock split of the Company’s shares of common stock at a ratio not less than 5-to-1 and not greater than 20-to-1, with the exact ratio to be set within that range at the discretion of the Company’s Board of Directors before July 20, 2024 without further approval or authorization of the Company’s stockholders. Based on the final certified vote, the reverse split proposal was approved by a majority of the Company’s stockholders.
Any outstanding shares of Series D Preferred Stock that were not present in person or by proxy at the Annual Meeting as of immediately prior to the opening of the polls on July 27, 2023 (the “Initial Redemption”) were automatically redeemed in whole, but not in part, by the Company at the Initial Redemption time. Any outstanding shares of Series D stock that were not redeemed pursuant to the Initial Redemption were redeemed in whole, but not in part, automatically upon the approval by the Company’s stockholders of Proposal No. 3 at the Annual Meeting. The 15,103 redeemed shares of Series D Preferred Stock were automatically retired and restored to the status of authorized but unissued shares of preferred stock. Each share of Series D Preferred Stock redeemed may be redeemed in consideration for the right to receive an amount equal to $0.01 in cash for each ten whole shares of Series D Preferred Stock that are beneficially owned by the beneficial owner upon written request submitted to the Company.
The 2023 Stock and Incentive Plan (the “2023 Plan”) was approved by the Board on May 24, 2023 subject to stockholder approval. The 2023 Plan replaced the 2019 Stock and Incentive Plan and will be utilized for future awards to employees, officers, non-employee directors, consultants, prospective employees and other key persons of the Company and its majority subsidiaries. The approval of the 2023 Plan does not affect awards granted under the 2019 Plan. The 2023 Plan initially provides a reserve for 1,200,000 shares of common stock for future issuance pursuant to awards issued in accordance with the terms and provisions of the 2023 Plan. The stockholders approved the 2023 Plan at the Annual Meeting.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion should be read in conjunction with our historical financial statements. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see “Cautionary Note Regarding Forward-Looking Statements” above, Part II, Item 1A of this Quarterly Report on Form 10-Q, and the risk factors included in the 2022 Annual Report.
ACCOUNTING POLICIES
Significant Accounting Policies and Estimates
Our financial statements were prepared in accordance with GAAP. The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses incurred during the reporting period. On an on-going basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The methods, estimates, and judgments used by us in applying these critical accounting policies have a significant impact on the results we report in our financial statements.
Our significant accounting policies and estimates have not changed substantially from those previously disclosed in the 2022 Annual Report.
Newly Issued Accounting Pronouncements
Information regarding the recently issued accounting standards (adopted and not adopted as of June 30, 2023) is contained in Note 1 to the Financial Statements.
RESULTS OF OPERATIONS
Results of Operations – June 30, 2023 Compared to June 30, 2022
We recognized a net loss for the three months ended June 30, 2023 (“2023 quarter”) of $1.4 million compared to a net loss of $2.1 million for the three months ended June 30, 2022 (“2022 quarter”). The net loss during the 2023 quarter was attributable to operating expenses of $1.6 million, partially offset by interest and rental income of $0.2 million. The net loss during the 2022 quarter was primarily attributable to operating expenses of $5.0 million, partially offset by a non-cash derivative gain of $2.9 million. Operating expenses decreased $3.4 million (69%) from the 2022 quarter to the 2023 quarter primarily due to a $1.4 million (80%) decrease in research and development costs; and a $2.0 million (63%) decrease in general and administrative costs, both of which are further explained below.
We recognized a net loss for the six months ended June 30, 2023 (“2023 period”) of $5.3 million compared to a net loss of $7.7 million for the six months ended June 30, 2022 (“2022 period”). The net loss during the 2023 period was primarily attributable to operating expenses of approximately $6.0 million, partially offset by interest and rental income of $0.3 million and $0.3 million for the recognition of a non-cash gain on elimination of ARO obligation in conjunction with the sublease of the Company’s facilities in March 2023. The net loss during the 2022 period was primarily attributable to operating expenses of approximately $12.0 million, partially offset by the non-cash derivative gain of $4.2 million.
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Operating Expenses
Research and Development
Research and development costs are summarized as follows and exclude an allocation of general and administrative expenses:
Pre-clinical, clinical trial and sponsored research expenses
49,000
162,000
2,087,000
Salaries and benefits
60,000
580,000
186,000
1,352,000
Depreciation
250,000
123,000
506,000
Laboratory
111,000
246,000
317,000
314,000
245,000
508,000
Operations/manufacturing
Share-based compensation
141,000
21,000
Total research and development
2023 Quarter Compared to 2022 Quarter
Research and development costs decreased by approximately $1.4 million, or 80%, for the 2023 quarter compared to the 2022 quarter. Research and development costs with variances above $75,000 and 10% compared with the previous quarter are further explained below.
Pre-clinical and clinical trial and sponsored research expenses
The clinical trial and sponsored research expense decreased $0.1 million, or 70% for the 2023 quarter compared to the 2022 quarter, due to the commencement of the discontinuation / finalization of all Ampion related clinical trials (i.e., AP-013, AP-017, AP-018 and AP-019) in the 2022 quarter.
Salaries and Benefits
Salaries and benefit expense decreased $0.5 million, or 90%, for the 2023 quarter compared with the 2022 quarter as a result of the reduction in force plan (“RIF”) which was implemented in third quarter 2022 and finalized in first quarter 2023, resulting in a total reduction of seventeen full-time equivalents or 78% reduction in force.
Operations / Manufacturing
There were no operations / manufacturing expenses for the 2023 quarter compared with the $0.1 million in operations / manufacturing expenses for the 2022 quarter as a result of the shut-down of the clean room / manufacturing facility in third-quarter 2022 due to the discontinuation of the Ampion clinical development program.
Laboratory expenses decreased $0.1 million, or 55%, for the 2023 quarter compared with the 2022 quarter as a result of the shift to pre-clinical contract lab related services related to OA.201 in the 2023 quarter which was at a lower cost than the work related to AR-300 in the 2022 quarter.
Professional fees expense decreased by $0.2 million or 61% due to a higher level of contracted Chief Medical Officer services required in the 2022 quarter resulting from the commencement of closeout of the Ampio clinical trials. This was partially offset from costs incurred during the 2023 quarter related to contractor fees for drug development and related advisory services for the OA.201 development program.
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Depreciation expense decreased to $0 in the 2023 quarter as a result of (i) the initial impairment of the Company’s long-lived assets in third quarter 2022 with a final adjustment in March 2023 and (ii) the sublease of the Company’s premises and sale of all existing personal property to the subtenant in conjunction with the provisions of the sublease agreement.
Share-based compensation expense decreased $0.1 million, or 97%, for the 2023 quarter compared with the 2022 quarter as a result of the RIF, as further described above in reference to “salaries and benefits”, which resulted in the expense reversal and discontinuation of future expense from expired / forfeited stock options and restricted stock awards.
2023 Period Compared to 2022 Period
Research and development costs decreased by $4.6 million or 84%, for the 2023 period compared to the 2022 period. The reasons for the increase and an explanation of the research and development costs with variances greater than $175,000 and 10% compared with the previous period are further explained below.
The pre-clinical and clinical trial and sponsored research expenses decreased by approximately $2.1 million, or 98%, due primarily to the completion and commencement of close-out of the AP-017 and AP-019 studies reflecting costs totaling $1.8 million during the 2022 period. In addition, we incurred $0.3 million during the 2022 period related to the AP-013 clinical trial. The Company was not engaged in any clinical trials during the 2023 period.
Salaries and benefits expenses decreased $1.2 million or 86% for the 2023 period compared to the 2022 period as a result of the RIF which was implemented in third quarter 2022 and completed in early first quarter 2023 and which resulted in a 78% reduction in force.
Depreciation expense decreased by $0.4 million or 76% as a result of (i) the initial impairment of the Company’s long-lived assets in third quarter 2022 with a final adjustment in March 2023 as a result of the sublease of the Company’s premises and a sale of all existing personal property to the subtenant in conjunction with the provisions of the sublease agreement.
Laboratory operations / manufacturing expenses decreased $0.2 million, or 37% as a result of the shift to outsourced pre-clinical lab work related to the continued development of OA.201 which commenced in first quarter 2023. During the 2022 period the Company used conducted laboratory operations to support the AP-017 and AP-019 clinical trials combined with outsourced services to support the development of AR-300.
Operations / manufacturing
Operations / manufacturing expenses decreased $0.3 million, or 102%, for the 2023 period as a result of the shut-down and discontinued use / support of the cleanroom and overall manufacturing facility which completed in second half 2022.
Professional Fees
Professional fees expense increased $0.3 million, or 52%, due to a higher level of contracted Chief Medical Officer services required in the 2022 period resulting from the commencement of closeout of the Ampio clinical trials. This was partially offset from costs incurred during the 2023 period related to contractor fees for drug development and related advisory services for the OA.201 development program.
22
General and Administrative
General and administrative expenses are summarized as follows:
455,000
2,581,000
3,377,000
3,984,000
262,000
292,000
536,000
925,000
Insurance
297,000
607,000
500,000
Facilities
68,000
148,000
183,000
285,000
Director fees
51,000
99,000
125,000
204,000
33,000
102,000
Total general and administrative
General and administrative costs decreased $2.0 million, or 63%, for the 2023 quarter compared to the 2022 quarter. General and administrative costs with variances greater than $75,000 and 10% are further explained below.
Professional fees decreased $2.1 million, or 82%, for the 2023 quarter compared to the 2022 quarter due primarily to legal costs associated with an SEC investigation and class action / derivative lawsuits initiated in second half of 2022. Professional fees in the 2022 quarter include legal costs incurred in the 2022 quarter related to investigations conducted by the independent special committee of the Ampio Board of Directors. The 2023 quarter professional fees reflects an offset of insurance recovery totaling $1.4 million for covered legal costs exceeding the retention limit in the 2023 quarter.
Share-based compensation expense decreased $0.2 million, or 128%, for the 2023 quarter compared with the 2022 quarter as a result of forfeitures and cancellations of vested and unvested stock options and restricted stock awards resulting from employee terminations and board resignations in 2022.
Facilities expense decreased $0.1 million, or 54%, for the 2023 quarter compared with the 2022 quarter as a result of the execution of the sublease agreement in March 2023 which resulted in the transfer of all utilities and operating costs of the premises to the subtenant and the full write-off of the ROU asset and future amortization (rent expense).
General and administrative costs decreased $1.5 million, or 23%, for the 2023 period compared to the 2022 period. General and administrative costs with variances above $175,000 and 10% are further explained below.
Professional fees decreased $0.6 million, or 15%, for the 2023 period compared to the 2022 period due primarily to the SEC investigation and class action and derivative lawsuits initiated in second half of 2022 and continuing through the 2023 period. Professional fees in the 2022 period primarily related to investigations conducted by the independent special committee of the Ampio Board of Directors. Professional fees in the 2023 period were offset by an insurance recovery totaling $1.4 million for covered legal costs exceeding the retention limit in the 2023 quarter.
Salaries and benefit expense decreased $0.4 million, or 42%, for the 2023 period compared with the 2022 period as a result of lower weighted average incremental headcount during the 2023 period resulting from the termination of a former officer and the RIF which was initiated in third quarter 2023.
23
Share-based compensation expense decreased $0.4 million, or 78%, as a result of forfeitures and cancellations of unvested stock options from employee terminations and board resignations in 2022.
The Company recognized interest income of $201,000 during the 2023 period which was a $166,000 increase over the 2022 period. The increase is attributable to the continued increase in interest rates since third quarter of 2022. The Company also recognized a non-cash gain of $288,000 related to the elimination of its asset retirement obligation (“ARO”) and derecognition of the ARO asset in conjunction with the sublease agreement entered into on March 1, 2023. There was no derivative gain on the fair value of warrant liability during the 2023 quarter due to the adoption of ASU 2020-06 which converted the warrant liability to stockholder’s equity effective January 1, 2023.
Cash Flows
Cash flows for the respective periods are as follows:
Net cash provided by investing activities
Net Cash Used in Operating Activities
During the six months ended June 30, 2023 our operating activities used approximately $5.7 million in cash and cash equivalents, which is greater than our reported net loss of $5.3 million. The difference is primarily a result of a decrease in working capital, excluding cash and cash equivalents, totaling $0.3 million and non-cash charges totaling $0.1 million.
During the six months ended June 30, 2022 our operating activities used approximately $10.9 million in cash and cash equivalents, which was greater than our reported net loss of $7.7 million. The difference is primarily a result of a non-cash adjustment of $4.2 million related to the warrant derivative gain partially offset by non-cash charges totaling $1.1 million.
Net Cash Provided by Investing Activities
During the six months ended June 30, 2023 and June 30, 2022, there was no change in cash related to investing activities.
Net Cash Used in Financing Activities
During the six months ended June 30, 2023, there was no change in cash related to financing activities.
During the six months ended June 30, 2022, we settled a tax liability of $79,000 related to the vesting of restricted stock awards. As a result of the settlement, the Company withheld 9,234 common shares for taxes which represented the fair value of the tax settlement. In addition, the Company paid $32,000 in offering costs related to the registered direct offering which was finalized in December 2021.
Liquidity and Capital Resources
Since inception, we have not generated revenue, profits or operating cash flow. Over this period, we have continued to be focused on research and pre-clinical / clinical development, all of which has required raising a substantial amount of
24
capital. We expect to generate continued operating losses for the foreseeable future as we are pursuing the continued development and advancement of the OA.201 program.
As of June 30, 2023, we had $7.0 million of cash and cash equivalents and an insurance recovery receivable of $1.4 million, of which $1.0 million was received in early third-quarter 2023. Based on our current cash / liquidity position and current projection of operating expenses and capital expenditures, we believe we will have sufficient liquidity to fund operations into the first quarter of 2024. Our cash resources and our capital needs are based upon management estimates as to future operations and expense and the timing of collection of the insurance recovery receivable, which involve significant judgment. If we are able to successfully optimize our potential small molecule formulation to take forward into development, we intend to fund that future development of the OA.201 program through an offering of our equity securities. We may also seek to raise equity capital in order to attempt to cure potential non-compliance with the minimum stockholders’ equity requirement of the NYSE American in future reporting periods. Additionally, given that the Ampio board of directors is considering strategic alternatives, our forecasts regarding the sufficiency of our liquidity are based upon maintaining our current operations. Accordingly, we may require a greater amount of capital than presently anticipated or may require capital more quickly than presently anticipated, or both.
Although we have implemented cash-focused measures to manage liquidity which includes the implementation of our hybrid, virtual organizational model in first quarter 2023 and the outsourcing philosophy and the recent sublease of our facility space on March 1, 2023, we continue to expect cash used by operating activities for the remainder of 2023 to be negatively impacted by a high level of general and administrative expense, driven primarily by higher professional fees including incremental legal and other costs associated with an SEC investigation and class action / derivative lawsuits.
Our lack of operating revenue or cash inflows and our cash resources on June 30, 2023 raise substantial doubt as to our ability to continue as a going concern. Management’s plans to address the doubt regarding the Company’s ability to continue as a going concern include the continued aggressive monitoring of our operating expenses and use of our outsourcing philosophy to minimize expenses and increase operating efficiencies associated with the OA.201 program. Management expects to manage future expense associated with the OA.201 program to align with the timing and amount of expense with future capital raising activities. If our available cash resources are insufficient to fund our expenses (including those expenses relating to legal proceedings) and the development of the OA.201 program and/or completion of a strategic transaction, we may implement further cost reduction and other cash-focused measures to manage liquidity and we may pursue a plan of liquidation or dissolution of Ampio or seek bankruptcy protection. If we decided to cease operations and dissolve and liquidate our assets, it is unclear to what extent we would be able to pay our obligations. In such a circumstance and in light of the Company’s current liquidity position and pending legal matters, it is unlikely that cash would be available for distributions to stockholders.
Off Balance Sheet Arrangements
We do not have off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons, also known as “variable interest entities”.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information required under this item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such terms are defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the CEO and the CFO, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based upon this evaluation, the CEO and CFO concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company may be a party to litigation arising in the ordinary course of business. For a summary of the material pending legal proceedings, please see Part I, Item 3 “Legal Proceedings” of the 2022 Annual Report. There were no material developments in these pending legal proceedings as of June 30, 2023.
Item 1A. Risk Factors.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors in Part I, “Item 1A. Risk Factors” in the 2022 Annual Report and other reports that we have filed with the SEC, which could materially affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
During the quarter ended June 30, 2023, none of our directors or officers informed us of the adoption, modification or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408(a).
Item 6. Exhibits.
The exhibits listed on the “Exhibit Index” set forth below are filed or furnished with this Quarterly Report on Form 10-Q or incorporated by reference as set forth therein.
ExhibitNumber
Description
3.1
Certificate of Incorporation of the Registrant (incorporated by reference to Registrant’s Form 8-K filed March 30, 2010).
3.2
Certificate of Amendment to Certificate of Incorporation of the Registrant (incorporated by reference to the Registrant’s Form 8-K filed March 30, 2010).
3.3
Certificate of Amendment to the Certificate of Incorporation of the Registrant (incorporated by reference to the Registrant’s Form 8-K filed December 18, 2019).
3.4
Certificate of Amendment to Certificate of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed November 9, 2022).
3.5
Certificate of Designation of the Series D Preferred Stock of Ampio Pharmaceuticals, Inc. filed May 25, 2023 (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on May 26, 2023)
3.6
Amended and Restated Bylaws of the Registrant (incorporated by reference to the Registrant’s Form 10-Q filed November 14, 2018).
3.7
Amendment to the Amended and Restated Bylaws of Ampio Pharmaceuticals, Inc. adopted May 24, 2023 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 26, 2023)
31.1*
Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1#
Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
XBRL (eXtensible Business Reporting Language). The following financial statements from Ampio Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in Inline XBRL: (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statements of Stockholders’ Equity (Deficit), (iv) the Condensed Statements of Cash Flows, and (v) the Notes to Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Filed herewith.
#Furnished herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
By:
/s/ Michael A. Martino
Michael A. Martino
Chief Executive Officer
(principal executive officer)
Date: August 8, 2023
/s/ Daniel G. Stokely
Daniel G. Stokely
Chief Financial Officer
(principal financial and accounting officer)