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: SeptemberJune 30, 20172020
or
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission File No. 001-35182
AMPIO PHARMACEUTICALS, INC.
(www.ampiopharma.com)
NYSE American: AMPE
(Exact name of registrant as specified in its charter)
Delaware | 26-0179592 | |
(State or other jurisdiction of
| (IRS Employer
|
373 Inverness Parkway, Suite 200
Englewood, Colorado80112
(Address of principal executive offices, including zip code)
(720) 437-6500
(720) 437-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol | Name of each exchange on which registered: | ||
Common | | 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 x☒ No ¨
☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨
☐
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”,filer,” “smaller reporting company”company,” and “emerging growth company”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 x
☒
As of November 2, 2017,July 31, 2020, there were 75,941,809176,542,000 outstanding shares of Common Stock, outstanding, par value $0.0001, of the registrant.
AMPIO PHARMACEUTICALS, INC.
FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20172020
INDEX
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Condensed Balance Sheets as of | 5 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | |
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38 |
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” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this report, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements appear in a number of places, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements represent our reasonable judgment ofabout the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,“future,” “intend,” “may,” “should,” “plan,” “project”“potential,” “project,” “will,” “would” and other words of similar meaning. In particular, thesemeaning, or the negatives of such terms or other variations. These include, but are not limited to, statements relating to the following:
Our beliefs, assumptions and expectations about the regulatory approval pathway for Ampion including, but not limited to, our ability to obtain regulatory |
● | Our ability to identify strategic partners and enter into beneficial license, co-development, collaboration or similar |
Any or all of our forward-looking statements may turn out to be wrong. They canmay be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors including, among others:
our ability to continue as a going concern; |
● | we have incurred significant losses since inception, expect to incur net losses for at least the next several years and may never achieve or sustain profitability; |
● | our ability to fund our operations, including our ability to access sufficient funding through our “at-the-market” offering; |
● | the loss of key management personnel |
the progress and results of clinical trials for |
the risk and costs associated with our decision to suspended enrollment in its Phase III clinical trial for treatment of severe OAK due to considerations relating to the COVID-19 pandemic; |
● | our ability to navigate the regulatory approval process in the U.S. and other countries, and our success in obtaining required regulatory approvals for |
commercial developments for products that compete with |
the actual and perceived effectiveness of our |
the rate and degree of market acceptance and clinical utility of Ampion or any other of our product candidates for which we receive marketing approval; |
● | adverse effects of the recent and ongoing COVID-19 pandemic; |
● | the strength of our intellectual property protection, and our success in avoiding |
adverse developments in our research and development activities; |
potential liability if our product |
3
our ability to operate our business efficiently, manage capital expenditures and costs (including general and administrative expenses) and obtain financing when required; and |
our expectations with respect to |
In addition, there may be other factors that could cause our actual results to be materially different from the results referenced in the forward-looking statements, some of which are included elsewhere in this report, including, but not limited to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 21, 2020 (the “2019 Annual Report”), particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement canshould be guaranteed.relied upon. Our actual future results may vary materially from those expressed or implied in any forward-looking statements. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date they are made, and we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report, except as otherwise required by applicable law.
This Quarterly Report on Form 10-Q includes trademarks such asfor Ampion, and Optina, 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® orTM 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 4
PART I-FINANCIALI – FINANCIAL INFORMATION
Item 1. Financial Statements |
Condensed Balance Sheets
Balance Sheets
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 1,807,149 | $ | 4,894,834 | ||||
Trading security Aytu BioScience, Inc. (Note 4) | 20,445 | 122,641 | ||||||
Prepaid expenses and other | 422,970 | 240,890 | ||||||
Prepaid research and development - related party (Note 9) | - | 143,802 | ||||||
Total current assets | 2,250,564 | 5,402,167 | ||||||
Fixed assets, net (Note 3) | 7,102,612 | 7,980,011 | ||||||
Long-term portion of prepaid research and development - related party (Note 9) | - | 179,752 | ||||||
Deposits | 33,856 | 33,856 | ||||||
Total assets | $ | 9,387,032 | $ | 13,595,786 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | 1,027,773 | $ | 709,294 | ||||
Accrued compensation | 1,184,310 | 1,365,693 | ||||||
Deferred rent | 59,579 | 59,579 | ||||||
Total current liabilities | 2,271,662 | 2,134,566 | ||||||
Long-term deferred rent | 550,905 | 588,303 | ||||||
Warrant derivative liability | 6,763,930 | 4,238,606 | ||||||
Total liabilities | 9,586,497 | 6,961,475 | ||||||
Commitments and contingencies (Note 6) | ||||||||
Stockholders’ equity | ||||||||
Preferred Stock, par value $.0001; 10,000,000 shares authorized; none issued | - | - | ||||||
Common Stock, par value $.0001; 200,000,000 shares authorized; shares issued and outstanding - 68,232,409 in 2017 (unaudited) and 57,179,686 in 2016 | 6,823 | 5,718 | ||||||
Additional paid-in capital | 161,656,114 | 159,732,194 | ||||||
Advance to stockholder | - | (25,160 | ) | |||||
Accumulated deficit | (161,862,402 | ) | (153,078,441 | ) | ||||
Total stockholders’ equity | (199,465 | ) | 6,634,311 | |||||
Total liabilities and stockholders’ equity | $ | 9,387,032 | $ | 13,595,786 |
The accompanying notes are an integral part of these financial statements.
4
AMPIO PHARMACEUTICALS, INC.(unaudited)
Statements of Operations
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2020 |
| 2019 | ||
| | | | | | |
Assets |
| |
|
| |
|
Current assets |
| |
|
| |
|
Cash and cash equivalents | | $ | 4,842,000 | | $ | 6,532,000 |
Prepaid expenses and other | |
| 1,947,000 | |
| 1,718,000 |
Total current assets | |
| 6,789,000 | |
| 8,250,000 |
| | | | | | |
Fixed assets, net | |
| 4,157,000 | |
| 4,748,000 |
Right-of-use asset | | | 915,000 | | | 1,003,000 |
Total assets | | $ | 11,861,000 | | $ | 14,001,000 |
| | | | | | |
Liabilities and Stockholders’ Equity | |
|
| |
|
|
Current liabilities | |
|
| |
|
|
Accounts payable and accrued expenses | | $ | 2,267,000 | | $ | 4,025,000 |
Lease liability-current portion | |
| 272,000 | |
| 259,000 |
Total current liabilities | |
| 2,539,000 | |
| 4,284,000 |
| | | | | | |
Lease liability-long-term | |
| 1,071,000 | |
| 1,210,000 |
Warrant derivative liability | |
| 1,908,000 | |
| 2,064,000 |
Total liabilities | |
| 5,518,000 | |
| 7,558,000 |
| | | | | | |
Commitments and contingencies (Note 7) | |
|
| |
|
|
| | | | | | |
Stockholders’ equity | |
|
| |
|
|
Preferred Stock, par value $0.0001; 10,000,000 shares authorized; NaN issued | |
| — | |
| — |
Common Stock, par value $0.0001; 300,000,000 shares authorized; shares issued and outstanding - 173,342,000 as of June 30, 2020 and 158,645,000 as of December 31, 2019 | |
| 17,000 | |
| 16,000 |
Additional paid-in capital | |
| 198,869,000 | |
| 191,060,000 |
Accumulated deficit | |
| (192,543,000) | |
| (184,633,000) |
Total stockholders’ equity | |
| 6,343,000 | |
| 6,443,000 |
| | | | | | |
Total liabilities and stockholders’ equity | | $ | 11,861,000 | | $ | 14,001,000 |
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Operating expenses | ||||||||||||||||
Research and development | $ | 1,992,825 | $ | 1,752,273 | $ | 6,659,349 | $ | 8,796,848 | ||||||||
Research and development - related party (Note 9) | - | 35,951 | 323,554 | 107,851 | ||||||||||||
General and administrative | 1,073,458 | 1,555,527 | 3,776,654 | 5,229,436 | ||||||||||||
Total operating expenses | 3,066,283 | 3,343,751 | 10,759,557 | 14,134,135 | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest income | - | 3,080 | 3,086 | 19,789 | ||||||||||||
Derivative (loss) gain | (1,146,772 | ) | (715,732 | ) | 2,092,994 | (715,732 | ) | |||||||||
Unrealized (loss) gain on trading security | (39,854 | ) | 64,274 | (102,196 | ) | 64,274 | ||||||||||
Loss from equity investment in Aytu BioScience, Inc. | - | - | - | (1,043,353 | ) | |||||||||||
Total other income (expense) | (1,186,626 | ) | (648,378 | ) | 1,993,884 | (1,675,022 | ) | |||||||||
Net loss from continuing operations | $ | (4,252,909 | ) | $ | (3,992,129 | ) | $ | (8,765,673 | ) | $ | (15,809,157 | ) | ||||
Basic and diluted net loss per common share | $ | (0.06 | ) | $ | (0.07 | ) | $ | (0.14 | ) | $ | (0.30 | ) | ||||
Weighted average number of common shares outstanding | 68,232,409 | 53,842,234 | 62,072,354 | 52,629,343 |
The accompanying notes are an integral part of these financial statements.
5
AMPIO PHARMACEUTICALS, INC.
Condensed Statements of Stockholders’ Equity (Deficit)Operations
(unaudited)
Common Stock | Additional Paid- in | Advance to | Accumulated | Total Stockholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Stockholder | Deficit | Equity | |||||||||||||||||||
Balance - December 31, 2016 | 57,179,686 | $ | 5,718 | $ | 159,732,194 | $ | (25,160 | ) | $ | (153,078,441 | ) | $ | 6,634,311 | |||||||||||
Common stock issued for services (unaudited) | 62,478 | 6 | 59,994 | - | - | 60,000 | ||||||||||||||||||
Warrant modification (unaudited) | - | - | 74,527 | - | - | 74,527 | ||||||||||||||||||
Stock-based compensation (unaudited) | - | - | 622,231 | - | - | 622,231 | ||||||||||||||||||
Stock-based compensation forfeitures (see Note 1) (unaudited) | - | - | 4,725 | - | (18,288 | ) | (13,563 | ) | ||||||||||||||||
Common stock issued in connection with registered direct offering, net of offering costs of $1,181,753 (unaudited) | 10,990,245 | 1,099 | 792,978 | - | - | 794,077 | ||||||||||||||||||
Warrants issued in connection with registered direct offering to the placement agent (unaudited) | - | - | 369,465 | - | - | 369,465 | ||||||||||||||||||
Write-off of advance (unaudited) | - | - | - | 25,160 | - | 25,160 | ||||||||||||||||||
Net loss (unaudited) | - | - | - | - | (8,765,673 | ) | (8,765,673 | ) | ||||||||||||||||
- | ||||||||||||||||||||||||
Balance - September 30, 2017 (unaudited) | 68,232,409 | $ | 6,823 | $ | 161,656,114 | $ | - | $ | (161,862,402 | ) | $ | (199,465 | ) |
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
| | | | | | | | | | | | | |
Operating expenses |
| |
|
| |
|
| |
|
| |
|
|
Research and development | | $ | 1,118,000 | | $ | 2,136,000 | | $ | 5,373,000 | | $ | 3,702,000 | |
General and administrative | |
| 1,482,000 | |
| 1,445,000 | |
| 3,249,000 | |
| 2,556,000 | |
Total operating expenses | |
| 2,600,000 | |
| 3,581,000 | |
| 8,622,000 | |
| 6,258,000 | |
| | | | | | | | | | | | | |
Other income (expense) | |
|
| |
|
| |
|
| |
|
| |
Interest income | |
| — | |
| 21,000 | |
| 12,000 | |
| 45,000 | |
Paycheck protection program funding | | | 544,000 | | | — | | | 544,000 | | | — | |
Derivative (loss) gain | |
| (675,000) | |
| 3,981,000 | |
| 156,000 | |
| 822,000 | |
Total other income (expense) | |
| (131,000) | |
| 4,002,000 | |
| 712,000 | |
| 867,000 | |
| | | | | | | | | | | | | |
Net (loss) income | | $ | (2,731,000) | | $ | 421,000 | | $ | (7,910,000) | | $ | (5,391,000) | |
| | | | | | | | | | | | | |
Net loss per common share: | |
|
| |
|
| |
|
| |
|
| |
Basic | | $ | (0.02) | | $ | 0.00 | | $ | (0.05) | | $ | (0.05) | |
Diluted | | $ | (0.02) | | $ | (0.03) | | $ | (0.05) | | $ | (0.05) | |
| | | | | | | | | | | | | |
Weighted average number of common shares outstanding: | | | | | | | | | | | | | |
Basic | |
| 166,393,000 | |
| 115,031,000 | |
| 162,723,000 | |
| 113,079,000 | |
Diluted | | | 166,393,000 | | | 118,770,000 | | | 163,906,000 | | | 117,350,000 | |
The accompanying notes are an integral part of these financial statements.
6
AMPIO PHARMACEUTICALS, INC.
Condensed Statements of Cash FlowsStockholders’ Equity (Deficit)
(unaudited)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (8,765,673 | ) | $ | (15,809,157 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Losses in equity investment in Aytu BioScience, Inc. | - | 1,043,353 | ||||||
Stock-based compensation and warrant modification | 683,195 | 1,362,646 | ||||||
Depreciation and amortization | 910,725 | 916,598 | ||||||
Write-off of advances to stockholder | 25,160 | - | ||||||
Amortization of prepaid research and development - related party (Note 9) | 323,554 | 107,851 | ||||||
Common stock issued for services | 60,000 | 60,000 | ||||||
Derivative (gain) loss | (2,092,994 | ) | 715,732 | |||||
Unrealized loss (gain) on trading security | 102,196 | (64,274 | ) | |||||
Repayment of advance to stockholder | - | 39,987 | ||||||
Changes in operating assets and liabilities | ||||||||
Increase in prepaid expenses and other | (182,080 | ) | (49,646 | ) | ||||
Increase (decrease) in accounts payable | 318,479 | (657,486 | ) | |||||
Decrease in deferred rent | (37,398 | ) | (30,143 | ) | ||||
(Decrease) increase in accrued compensation | (181,383 | ) | 320,322 | |||||
Net cash used in operating activities | (8,836,219 | ) | (12,044,217 | ) | ||||
Cash flows used in investing activities | ||||||||
Purchase of fixed assets | (33,326 | ) | - | |||||
Net cash used in investing activities | (33,326 | ) | - | |||||
Cash flows from financing activities | ||||||||
Proceeds from sale of common stock related to the Registered Direct Offering | 6,594,148 | 3,750,000 | ||||||
Costs related to sale of common stock related to the Registered Direct Offering | (812,288 | ) | (338,005 | ) | ||||
Proceeds from sale of common stock related to the controlled equity offering | - | 153,313 | ||||||
Costs related to sale of common stock related to the controlled equity offering | - | (102,530 | ) | |||||
Net cash provided by financing activities | 5,781,860 | 3,462,778 | ||||||
Net change in cash and cash equivalents | (3,087,685 | ) | (8,581,439 | ) | ||||
Cash and cash equivalents at beginning of period | 4,894,834 | 15,998,392 | ||||||
Cash and cash equivalents at end of period | $ | 1,807,149 | $ | 7,416,953 | ||||
Non-cash transactions: | ||||||||
Distribution to stockholders | $ | - | $ | 13,018,687 | ||||
Warrant derivative liability - registered offering | 4,618,318 | 4,127,130 | ||||||
Warrants issued to placement agent in connection with registered offering | 369,465 | 88,530 |
| | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | Total | ||
| | Common Stock | | Paid-in | | Accumulated | | Stockholders' | ||||||
|
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity (Deficit) | ||||
Balance at December 31, 2018 |
| 110,942,000 | | $ | 11,000 | | $ | 176,228,000 | | $ | (171,003,000) | | $ | 5,236,000 |
| | | | | | | | | | | | | | |
Issuance of common stock for services | | 136,000 | | | — | | | 60,000 | | | — | | | 60,000 |
Stock-based compensation, net of forfeitures |
| — | |
| — | |
| 28,000 | |
| — | |
| 28,000 |
Warrants exercised, net |
| 50,000 | |
| — | |
| 20,000 | |
| — | |
| 20,000 |
Net loss |
| — | |
| — | |
| — | |
| (5,812,000) | |
| (5,812,000) |
| | | | | | | | | | | | | | |
Balance at March 31, 2019 |
| 111,128,000 | | $ | 11,000 | | $ | 176,336,000 | | $ | (176,815,000) | | $ | (468,000) |
| | | | | | | | | | | | | | |
Stock-based compensation, net of forfeitures |
| — | |
| — | |
| 73,000 | |
| — | |
| 73,000 |
Warrants exercised, net |
| 825,000 | |
| — | |
| 330,000 | |
| — | |
| 330,000 |
Issuance of common stock in connection with the "at-the-market" equity offering program | | 255,000 | | | — | | | 142,000 | | | — | | | 142,000 |
Offering costs related to the issuance of common stock in connection with the "at-the-market" equity offering program | | — | | | — | | | (144,000) | | | — | | | (144,000) |
Issuance of common stock in connection with public offering | | 30,000,000 | | | 3,000 | | | 11,997,000 | | | — | | | 12,000,000 |
Offering costs related to the issuance of common stock in connection with public offering | | — | | | — | | | (1,243,000) | | | — | | | (1,243,000) |
Net income |
| — | |
| — | |
| — | |
| 421,000 | |
| 421,000 |
| | | | | | | | | | | | | | |
Balance at June 30, 2019 |
| 142,208,000 | | $ | 14,000 | | $ | 187,491,000 | | $ | (176,394,000) | | $ | 11,111,000 |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Balance at December 31, 2019 | | 158,645,000 | | | 16,000 | | | 191,060,000 | | | (184,633,000) | | | 6,443,000 |
| | | | | | | | | | | | | | |
Issuance of common stock for services | | 136,000 | | | — | | | 80,000 | | | — | | | 80,000 |
Stock-based compensation, net of forfeitures |
| — | |
| — | |
| 213,000 | |
| — | |
| 213,000 |
Issuance of common stock in connection with the "at-the-market" equity offering program |
| 1,241,000 | |
| — | |
| 682,000 | |
| — | |
| 682,000 |
Offering costs related to the issuance of common stock in connection with the "at-the-market" equity offering program | | — | | | — | | | (246,000) | | | — | | | (246,000) |
Net loss |
| — | |
| — | |
| — | |
| (5,179,000) | |
| (5,179,000) |
| | | | | | | | | | | | | | |
Balance at March 31, 2020 |
| 160,022,000 | | $ | 16,000 | | $ | 191,789,000 | | $ | (189,812,000) | | $ | 1,993,000 |
| | | | | | | | | | | | | | |
Stock-based compensation, net of forfeitures | | — | | | — | | | 64,000 | | | — | | | 64,000 |
Stock options exercised, net | | 1,000 | | | — | | | — | | | — | | | — |
Warrants exercised, net | | 250,000 | | | — | | | 100,000 | | | — | | | 100,000 |
Issuance of common stock in connection with the "at-the-market" equity offering program | | 13,069,000 | | | 1,000 | | | 7,230,000 | | | — | | | 7,231,000 |
Offering costs related to the issuance of common stock in connection with the "at-the-market" equity offering program | | — | | | — | | | (314,000) | | | — | | | (314,000) |
Net loss |
| — | |
| — | |
| — | |
| (2,731,000) | |
| (2,731,000) |
| | | | | | | | | | | | | | |
Balance at June 30, 2020 |
| 173,342,000 | | $ | 17,000 | | $ | 198,869,000 | | $ | (192,543,000) | | $ | 6,343,000 |
| | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
7
AMPIO PHARMACEUTICALS, INC.
Condensed Statements of Cash Flows
(unaudited)
| | | | | | | |
|
| Six Months Ended June 30, |
| ||||
|
| 2020 |
| 2019 |
| ||
| | | | | | | |
Cash flows from operating activities | | | | | | | |
Net loss | | $ | (7,910,000) | | $ | (5,391,000) | |
Adjustments to reconcile net loss to net cash used in operating activities | | | | | | | |
Stock-based compensation, net of forfeitures | |
| 277,000 | |
| 101,000 | |
Depreciation and amortization | |
| 591,000 | |
| 736,000 | |
Paycheck Protection Program funding that offsets qualified expenses | | | (544,000) | | | — | |
Issuance of common stock for services | |
| 80,000 | |
| 60,000 | |
Derivative gain | |
| (156,000) | |
| (822,000) | |
Changes in operating assets and liabilities | | | | | | | |
Increase in prepaid expenses and other | |
| (229,000) | |
| (1,216,000) | |
(Decrease) increase in accounts payable and accrued expenses | |
| (1,758,000) | |
| 752,000 | |
Decrease in lease liability | |
| (38,000) | |
| (114,000) | |
Proceeds received under the Paycheck Protection Program | |
| 544,000 | |
| — | |
Net cash used in operating activities | |
| (9,143,000) | |
| (5,894,000) | |
| | | | | | | |
Cash flows used in investing activities | | | | | | | |
Purchase of fixed assets | |
| — | |
| (14,000) | |
Net cash used in investing activities | |
| — | |
| (14,000) | |
| | | | | | | |
Cash flows from financing activities | | | | | | | |
Proceeds from sale of common stock in connection with "at-the-market" equity offering program | |
| 7,913,000 | |
| 142,000 | |
Costs related to sale of common stock in connection with the "at-the-market" equity offering program | |
| (560,000) | |
| (144,000) | |
Proceeds from sale of common stock in connection with the public offering | | | — | | | 12,000,000 | |
Costs related to sale of common stock in connection with the public offering | | | — | | | (1,243,000) | |
Proceeds from warrant exercises | | | 100,000 | | | 350,000 | |
Net cash provided by financing activities | |
| 7,453,000 | |
| 11,105,000 | |
| | | | | | | |
Net change in cash and cash equivalents | |
| (1,690,000) | |
| 5,197,000 | |
| | | | | | | |
Cash and cash equivalents at beginning of period | |
| 6,532,000 | |
| 7,585,000 | |
Cash and cash equivalents at end of period | | $ | 4,842,000 | | $ | 12,782,000 | |
| | | | | | | |
Non-cash transactions: | | | | | | | |
Commercial insurance premium financing agreement | | $ | 1,347,000 | | $ | — | |
Initial lease liability arising from the adoption of ASC 842 | | | — | | | 1,704,000 | |
Initial recognition of right-of-use asset arising from the adoption of ASC 842 | | | — | | | 1,168,000 | |
| |
| | | | | |
The accompanying notes are an integral part of these financial statements.
8
AMPIO PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(unaudited)
Note 1 - Basis– The Company and Summary of PresentationSignificant Accounting Policies
These unaudited financial statements represent the financial statements of Ampio Pharmaceuticals, Inc. (“Ampio” or “the Company”the “Company”). is a biopharmaceutical company focused on the development and advancement of immunology-based therapies for prevalent inflammatory conditions.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) 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.
These unaudited financial statements should be read in conjunction with Ampio’s Annual Report on Form 10-Kthe audited financial statements and accompanying notes thereto for the year ended December 31, 2016, which2019 included all disclosures required by generally accepted accounting principles (“GAAP”). Inin the opinion of management, these unaudited financial statements contain all adjustments necessary to present fairly the financial position of Ampio for the balance sheet and the results of operations and cash flows for the interim periods presented.Company’s 2019 Annual Report. The results of operations for the interim period ended September 30, 2017shown in this report are not necessarily indicative of the results that may be expected operating resultsfor any other interim period or for the full year. The balance sheet at December 31, 2019 was derived from the audited financial statements at that date but does not include all of the information presented throughoutand footnotes required by GAAP for complete financial statements.
Impact of Global Pandemic
In January 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of the novel coronavirus (“COVID-19”). In March 2020, the WHO declared the outbreak of COVID-19, a global pandemic. COVID-19 has and continues to significantly affect the United States and global economies. In April 2020, and pursuant to the U.S. Food and Drug Administration (“FDA”), independent Safety Monitoring Committee (“SMC”), and regulatory Institutional Review Board guidance covering ongoing clinical trials in the presence of the COVID-19 pandemic, the Company and the clinical research organization (“CRO”) paused all ongoing conduct associated with the Phase III clinical trial (the “AP-013 study”). In June 2020, increases in COVID-19 cases across certain regions of the United States were reported. Due to the increase in reported cases, the Company has determined that the AP-013 study will remain paused. At this report as of and fortime, the period ended September 30, 2017Company is unaudited.
Ampio is a biopharmaceutical company primarily focused on developing compounds that decrease inflammation by (i) inhibiting specific pro-inflammatory compounds by affecting specific pathways at the protein expression and at the transcription level; (ii) activating specific phosphatase or depleting available phosphate needed for the inflammation process; and (iii) decreasing vascular permeability.
Ampio’s activities have been primarilyalso pursuing new clinical trials related to researchpotential new applications of Ampion related to the COVID-19 infection. The outbreak has and may continue to spread, which could materially impact the Company’s business operations and, in addition, those of third parties on which the Company relies, including organizations that conduct clinical trials. The full extent of potential impacts on the Company’s business and product development, including clinical trials, financing activities and raising capital.the global economy will depend on future developments, which cannot be predicted due to the uncertain nature of the continued COVID-19 pandemic, government mandated shut downs, and its adverse effects, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. These effects could have a material adverse impact on the Company’s business, operations, financial condition and results of operations.
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 not generated revenueno 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
9
institutions with which it invests. During the three months ended June 30, 2020, and as consistent with prior reporting periods, the Company maintained balances in excess of federally insured limits.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to date.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 accrual for the AP-013 study of Ampion for treatment of severe Osteoarthritis of the Knee (“OAK”), projected future liquidity and resulting going concern position, warrant derivative liability and related periodic gains and losses, stock-based compensation, the projected useful lives and potential impairment of fixed assets, and the valuation allowance related to deferred tax assets. The Company develops these estimates using its judgment based upon the facts and circumstances known at the time.
Adoption of Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09,“Compensation -Stock Compensation (Topic 718): Improvements to Employee Share Based Payment Accounting” . The standard includes multiple provisions intended to simplify various aspects of the accounting for share based payments. The amendments are expected to significantly impact net income, earnings per share, and the statement of cash flows. Implementation and administration may present challenges to companies with significant share based payment activities. These amendments were effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company adopted ASU 2016-09 in the first quarter of 2017. The Company elected to recognize forfeitures as they occur rather than estimating the forfeiture rate on the option grant date. The cumulative-effect of the change was $18,000 which was charged to retained earnings during the first quarter.
Recent Accounting Pronouncements
In February 2016,August 2018, the FASB issued ASU 2016-02,2018-13, ““LeasesFair Value Measurement - Disclosure Framework (Topic 842)820)”. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liabilityupdated guidance modified the disclosure requirements on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.fair value measurements. The new standardupdated guidance is effective for fiscal years beginning after December 15, 2018,2019, including interim periods within those fiscal years. Lessees are required to use a modified retrospective transition approach for capital and operating leases existing at, or entered after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of its pending adoption of this standard on its financial statements.
In May 2017, the FASB issued ASU 2017-09,“Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting”. The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The new standard is for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of its pending adoption of this standard on its financial statements.
In July 2017, the FASB issued ASU 2017-11,“Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. The amendments require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity. The new standard is effective for fiscal years beginning after December 15, 2018, including interimreporting periods within those fiscal years. The Company is currently evaluatingadopted ASU 2018-13 during the impactfirst quarter of its pending2020 and the adoption of this standardguidance did not have a material impact on the Company’s financial statements.
Recent Accounting Pronouncements
The Company reviewed the recent accounting pronouncements and determined that none of the recent accounting pronouncements were applicable.
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 its financial statements.condition, results of operations, cash flows or disclosures.
In August 2017, the FASB issued ASU 2017-12,“Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”.These amendments refine and expand hedge accounting for both financial (e.g., interest rate) and commodity risks. Its provisions create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. It also makes certain targeted improvements to simplify the application of hedge accounting guidance. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company currently does not apply hedge accounting so there is no impact expected from this standard on the financial statements.
Note 2 - Going Concern
As reflected inof and for the accompanying financial statements,six months ended June 30, 2020, the Company had cash and cash equivalents of $1.8$4.8 million as of September 30, 2017 withand a net loss of $8.8$7.9 million. The net loss is primarily attributable to operating expenses of $8.6 million, forpartially offset with the period ended September 30, 2017.receipt of the Paycheck Protection Program (“PPP”) proceeds of $0.5 million (see Note 6) and non-cash derivative gain of $0.2 million. The Company used net cash in operations of $8.8$9.1 million for the periodsix months ended SeptemberJune 30, 2017. The Company ended the quarter with2020 as well as an accumulated deficit of $161.9 million and a deficit in stockholders’ equity of $199,000.$192.5 million and $6.3 million, respectively. In addition, the Company isas a clinical stage biopharmaceutical company, andthe Company has not generated any operating revenues or profits to date. These existing and projected on-going factors continue to raise substantial doubt about the Company’s ability to continue as a going concern.
In October 2017,February 2020, the Company raised netentered into a Sales Agreement (“Sales Agreement”) with two agents to implement an “at-the-market” (“ATM”) equity offering program under which the Company, at its sole discretion, may issue and sell from time to time shares of its authorized common stock. During the six months ended June 30, 2020, the Company sold shares pursuant to the ATM equity offering program, which yielded gross proceeds of $6.3$7.9 million (see Note 10). In July 2020, the Company received additional gross proceeds of $1.5 million from the sale of 2.3 million shares of common stock under the ATM equity offering program, which was offset by offering related costs of $61,000.
The Company has prepared an updated projection covering the period from July 1, 2020 through June 30, 2021 based on the requirements of ASC 205-40, “Going Concern”, which reflects cash requirements for fixed, on-going expenses such as payroll, legal and accounting, patents and overhead at an average cash burn rate of approximately $800,000 per month. The Company continues to assess the impact of the COVID-19 pandemic, while taking into consideration the
10
recent spike in COVID-19 cases in the United States, on the AP-013 study and any new studies related to COVID-19, and, as such, is not currently in a Securities Purchase Agreement (See Note 11)position to project the required liquidity needs for completion of the study. The Company anticipates using the ATM equity offering program and could supplement the funds raised with separate private/public equity offering(s). Ampio expectsBased on the Company’s current cash resourcesposition, projection of operations and expected access to equity financing, the lack of operating cash flowsCompany believes it will not behave sufficient liquidity to sustainfund operations through the second quarter of 2018.2021. This projection is based on many assumptions that may prove to be incorrect, including, but not limited to, the overall effectiveness of sourcing requisite capital through the ATM equity offering and/or private/public equity program(s) in a manner that is not materially detrimental to the Company’s shareholders. As such, it is possible that the Company could exhaust its available cash and cash equivalents earlier than presently anticipated. In addition, as the global COVID-19 pandemic continues to rapidly evolve, its effect on the Company’s operations and ability to raise capital through the ATM equity offering program, or otherwise, is currently highly uncertain and subject to change. The abilityCompany expects to seek additional capital investments in both the near and long-term to enable it to support its business operations, including specifically (i) clinical development, (ii) Biologics License Application (“BLA”) preparation and submission, (iii) existing base business operations and (iv) commercial development activities for Ampion. The Company will continue to closely monitor and evaluate the overall capital markets to determine the appropriate timing for sourcing such capital raise, which will primarily depend on existing market conditions relative to the timing of the Company’s liquidity needs. However, the Company to continue its operations is dependent on management’s plans, which include continuing to raise equity-based and debt financing. The Company is currently in negotiation with potential investors for financing. However, there is nocannot give any assurance that the Companyit will be successful in raisingsatisfying its future liquidity needs in a manner that will be sufficient capital.to fund its operations.
The accompanying unaudited interim financial statements have beenwere 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 recoverabilityrecovery of the recorded assets or the classification of the liabilities, that mightwhich adjustments may be necessary in the future should the Company be unable to continue as a going concern.
Note 3 -– Prepaid Expenses and Other
Prepaid expenses and other balances as of June 30, 2020 and December 31, 2019 are as follows:
| | | | | | |
|
| June 30, 2020 | | December 31, 2019 | ||
|
| | | | | |
Unamortized commercial insurance premiums | | $ | 1,311,000 | | $ | 502,000 |
Deposits | | | 453,000 | | | 1,162,000 |
Other | | | 183,000 | | | 54,000 |
Total prepaid expenses and other | | $ | 1,947,000 | | $ | 1,718,000 |
Note 4 – Fixed Assets
Fixed assets are recorded atbased on acquisition cost and, once placed in service, are depreciated on the straight-line method over their estimated economic useful lives. Leasehold improvements are accreted over the shorter of the estimated useful lives.economic life or related lease term. Fixed assets consist of the following:
| | | | | | | | | | | | | | | |
| | Estimated | | December 31, | | | | | | | | June 30, |
| ||
|
| Useful Lives in Years |
| 2019 |
| Additions |
| Disposals |
| 2020 | | ||||
| | | | | | | | | | | | | | | |
Leasehold improvements |
| 10 | | $ | 6,075,000 | | $ | — | | $ | — | | $ | 6,075,000 | |
Manufacturing facility/clean room |
| 3 - 8 | | | 3,081,000 | | | — | | | — | | | 3,081,000 | |
Lab equipment |
| 5 - 8 | |
| 1,137,000 | | | — | | | — | |
| 1,137,000 | |
Office furniture and equipment |
| 5 - 10 | |
| 520,000 | | | — | | | — | |
| 520,000 | |
Less accumulated depreciation and amortization | | | |
| (6,065,000) | | | (591,000) | | | — | |
| (6,656,000) | |
Fixed assets, net | | | | $ | 4,748,000 | | $ | (591,000) | | $ | — | | $ | 4,157,000 | |
Estimated | As of September 30, | As of December 31, | ||||||||
Useful Lives in years | 2017 | 2016 | ||||||||
Manufacturing facility/clean room | 8 | $ | 2,734,000 | $ | 2,734,000 | |||||
Leasehold improvements | 10 | 6,075,000 | 6,075,000 | |||||||
Office furniture and equipment | 3 -10 | 557,000 | 557,000 | |||||||
Lab equipment | 5 -10 | 1,060,000 | 1,026,000 | |||||||
Less accumulated depreciation and amortization | (3,323,000 | ) | (2,412,000 | ) | ||||||
Fixed assets, net | $ | 7,103,000 | $ | 7,980,000 |
11
Depreciation and amortization expense for the respective periods is as follows:
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
| | | | | | | | | | | | | |
Depreciation and amortization expense | | $ | 296,000 | | $ | 330,000 | | $ | 591,000 | | $ | 655,000 | |
Note 5 – Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of June 30, 2020 and December 31, 2019 are as follows:
| | | | | | |
|
| June 30, 2020 | | December 31, 2019 | ||
|
| | | | | |
Accounts payable | | $ | 432,000 | | $ | 151,000 |
| | | | | | |
Commercial insurance premium financing agreement | |
| 1,347,000 | |
| 21,000 |
Clinical trials | | | 191,000 | | | 3,288,000 |
Professional fees | |
| 156,000 | |
| 317,000 |
Accrued incentive compensation | | | 59,000 | | | 72,000 |
Other | | | 82,000 | | | 176,000 |
Accounts payable and accrued expenses | | $ | 2,267,000 | | $ | 4,025,000 |
Note 6 – Paycheck Protection Program
In response to the COVID-19 pandemic, the PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). Companies who met the eligibility requirements set forth by the PPP could qualify for PPP loans provided by local lenders, which supports payroll, rent and utility expenses (“qualified expenses”). If the loan proceeds are fully utilized to pay qualified expenses over the covered period, as further defined by the PPP, the full principal amount of the PPP loan may qualify for loan forgiveness, subject to potential reduction based on the level of full-time employees maintained by the organization during the covered period as compared to a baseline period.
In April 2020, the Company received proceeds of $544,000 under the PPP provided by KeyBank National Association (the “Lender”). Based on the term and conditions of the loan agreement, the term of the PPP loan is two years with an annual interest rate of 1.0% and principal and interest payments will be deferred for the first six months of the loan term, which has been updated according to the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”).
In June 2020, the Flexibility Act was signed into law, which amended the CARES Act. The Flexibility Act changed key provisions of the PPP, including, but not limited to, (i) provisions relating to the maturity of PPP loans, (ii) the deferral period covering of PPP loan payments and (iii) the process for measurement of loan forgiveness. More specifically, the Flexibility Act provides a minimum maturity of five years for all PPP loans made on or after the date of the enactment of the Flexibility Act (“June 5, 2020”) and permits lenders and borrowers to extend the maturity date of earlier PPP loans by mutual agreement. As of the date of this filing, the Company has not approached the lender to request an extension of the maturity date from two years to five years. The Flexibility Act also provides that if a borrower does not apply for forgiveness of a loan within 10 months after the last day of the measurement period (“covered period”), the PPP loan is no longer deferred and the borrower must begin paying principal and interest. Therefore, the Company’s deferral period for principal and interest payments was updated from six months according to the terms and conditions of the loan agreement to ten months. In addition, the Flexibility Act extended the length of the covered period from eight weeks to 24 weeks from receipt of proceeds, while allowing borrowers that received PPP loans before June 5, 2020 to determine, at their sole discretion, a covered period of either eight weeks or 24-weeks.
12
After reviewing the applicable terms and conditions of the Flexibility Act, the Company has elected to extend the length of the covered period from the lesser of (i) period whereby qualified expenses equal loan proceeds or (ii) 24 weeks. The Company has performed initial calculations for the PPP loan forgiveness according to the terms and conditions of the SBA’s Loan Forgiveness Application (Revised June 16, 2020) and, based on such calculations, expects that the PPP loan will be forgiven in full over a period less than 24 weeks. In addition, the Company has determined that it is probable the Company will meet all the conditions of the PPP loan forgiveness. As such, the Company has decided that the PPP loan should be accounted for as a government grant which analogizes with International Accounting Standards (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance. Under the provisions of IAS 20, “a forgivable loan from government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.” IAS 20 does not define “reasonable assurance”, however, based on certain interpretations, it is analogous to “probable” in U.S. GAAP under FASB ASC 450-20-20, which is the definition the Company has applied to its expectations of the PPP loan forgiveness. In addition, in accordance with the provisions of IAS 20, government grants shall be recognized in profit or loss on a systematic basis over the periods in which the Company recognizes costs for which the grant is intended to compensate (i.e. qualified expenses). Therefore, the Company recognized PPP funding during the periods when qualified expenses were incurred. The balance and activity related to the PPP loan is as follows as of June 30, 2020:
| | | |
|
| June 30, 2020 | |
| | | |
PPP loan proceeds | | $ | 544,000 |
Qualified expenses eligible for forgiveness | | | (544,000) |
PPP loan balance | | $ | — |
The Company plans to submit the PPP loan forgiveness application in the near term. In accordance with the terms and conditions under the Flexibility Act, the lender has 60 days from receipt of the completed application to issue a decision to the SBA. If the lender determines that the borrower is entitled to forgiveness of some or all of the amount applied for under the statue and applicable regulations, the lender must request payment from the SBA at the time the lender issues its decision to the SBA. The SBA will, subject to any SBA review of the loan or loan application, remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, not later than 90 days after the lender issues its decision to the SBA. Although the Company believes it is probable that the PPP loan will be forgiven, the Company cannot currently provide any objective assurance that it will obtain forgiveness in whole or in part.
Pursuant to the Flexibility Act, the Company’s PPP loan agreement will be amended in the event that no amount or less than all of the PPP loan is forgiven. In addition, starting in August 2021, the Company will be required to make principal and interest payments totaling $23,000 per month or an adjustment amount based on the loan amendment over the remaining term of the PPP loan until such time the loan is fully settled. The Company may prepay the PPP loan at any time without penalty and the loan agreement evidencing the PPP Loan contains customary events of default relating to, among other things, payment defaults, or breaches of representations and warranties, or other provisions of the loan agreement. The occurrence of an event of default may trigger the immediate repayment of all amounts outstanding, collection of all amounts owing from the Company, and/or the Lender filing suit and obtaining a judgment against the Company.
13
Note 47 - Trading Security Aytu BioScience, Inc.Commitments and Contingencies
Commitments and contingencies are described below and summarized by the following table:
| | | | | | | | | | | | | | | | | | | | | |
|
| Total (1) |
| 2020 |
| 2021 |
| 2022 |
| 2023 |
| 2024 |
| Thereafter | |||||||
Key clinical research trial obligations | | $ | 2,251,000 | | $ | 167,000 | | $ | 2,084,000 | | $ | — | | $ | — | | $ | — | | $ | — |
BLA consulting services | | | 1,145,000 | | | — | | | 458,000 | | | 687,000 | | | — | | | — | | | — |
Statistical analysis and programming consulting services | | | 325,000 | | | 60,000 | | | 265,000 | | | — | | | — | | | — | | | — |
Employment agreements | | | 1,704,000 | | | 442,000 | | | 783,000 | | | 466,000 | | | 13,000 | | | — | | | — |
Commercial insurance premium financing agreement | |
| 1,347,000 | |
| 888,000 | |
| 459,000 | |
| — | | | — | |
| — | |
| — |
| | $ | 6,772,000 | | $ | 1,557,000 | | $ | 4,049,000 | | $ | 1,153,000 | | $ | 13,000 | | $ | — | | $ | — |
(1) | Not included in the commitments and contingencies table above are the monthly principal and interest payments of $23,000 that would be due under the PPP loan if it is not forgiven by the SBA (see Note 6). |
Key Clinical Research Trial Obligations
AP-013 study
In March 2019, the Company entered into a contract with a CRO in connection with the AP-013 study totaling $6.2 million and covering an initial clinical trial size of 724 patients, which was increased by $4.1 million in January 2020 as a result of an increase in number of patients to 1,034 resulting in the CRO contract commitment totaling $10.3 million. In April 2020, and pursuant to the FDA guidance covering ongoing clinical trials in the presence of the COVID-19 pandemic, the Company and the CRO paused all ongoing conduct associated with the AP-013 study. In June 2020, increases in COVID-19 cases across certain regions of the United States continue to be reported on a consistent basis. Due to the continued increase in reported cases, the Company has determined that the AP-013 study will remain paused.
From the inception of this contract through June 30, 2020, the Company incurred and accrued cumulative costs totaling $8.2 million against the contract. This contract had an outstanding obligation for future costs and services totaling $2.1 million as of June 30, 2020. However, this obligation assumes that the Company will continue the AP-013 study at the same point the study was paused, and that the completion of the study will be consistent with the parameters as contained in the existing contract, which may not be the case. The Company continues to explore all viable options to enable it to complete the AP-013 study; however, it is possible that the COVID-19 pandemic may prevent completion of the AP-013 study at this time or at all. Due to the uncertainty resulting from the COVID-19 pandemic, the future contractual commitment amount related to the AP-013 study may change. The following table provides further detail of the Company’s current contractual obligations for the conduct of the AP-013 study, which does not reflect any changes
14
related to the potential impact of COVID-19, as such impacts are unknown and cannot be reasonably estimated at the date of this filing:
| | | |
|
| June 30, 2020 | |
|
| | |
Original contract (based on 724 patients) | | $ | 6,180,000 |
Amendment to contract (based on 1,034 patients) | | | 4,075,000 |
Total Contract | | $ | 10,255,000 |
| | | |
Initial deposit (included in original contract amount) | | $ | 861,000 |
Amendment to deposit | |
| 699,000 |
Expenses incurred applied to deposit | | | (1,344,000) |
Remaining Deposit (applied to future expenses) | | $ | 216,000 |
| | | |
Expenses incurred/accrued (includes expenses applied to deposit) | | $ | 8,171,000 |
| | | |
Total future commitment | | $ | 2,084,000 |
In June 2019, the Company entered into a contract with a patient recruitment services company in connection with the AP-013 study totaling $264,000. In September 2019, the Company finalized contract negotiations to increase the contract to $377,000 as a result of an increased number of patients, from 724 to 1,034, required for the study. In January 2020, the Company finalized contract negotiations to increase the contract to $698,000 as a result of an expected increase in advertising to accelerate enrollment for the AP-013 study. The Company incurred lower than expected advertising costs. Cumulative costs under the current contract totaled $550,000 and there was no outstanding future commitment as of June 30, 2020 as the patient enrollment commitment was fulfilled. Given the current status of the AP-013 and uncertainty resulting from COVID-19, the future contractual commitment amount related to patient recruitment services may change and such change would be incorporated into a fully executed change order and would be reflected as a commitment at such time.
Nebulized treatment for COVID-19 patients
In May 2020, the Company entered into a contract with a CRO in connection with an Ampion nebulized safety study totaling $207,000. The contract required a deposit of $83,000, which has been funded and recognized in full as of June 30, 2020. Therefore, the Company had an outstanding future commitment of $124,000 as of June 30, 2020 and expects this commitment to be fully settled over the remainder of fiscal 2020.
Intravenous treatment for COVID-19 patients
In June 2020, the Company entered into a contract with a CRO in connection with the FDA approved Investigational New Drug (“IND”) application covering intravenous Ampion treatment for COVID-19 patients (the “AP-016 study”) totaling $43,000. The Company commenced the AP-016 study in July 2020 and, as such, had an outstanding future commitment of $43,000 as of June 30, 2020.
In July 2020, the Company entered into a contract with a regional hospital group in connection with the FDA approved IND application for the AP-016 study totaling $50,000. As noted, above, the Company commenced the AP-016 study in July 2020.
BLA Consulting Services
In March 2018, the Company entered into a BLA consulting services agreement for $1.2 million. This contract required a deposit, of which $182,000 was funded and is recorded within the “prepaid expenses and other” line item on the balance sheet. In June 2020, the Company finalized contract negotiations to increase the contract by $10,000 to include the review for the IND applications for nebulized and intravenous Ampion. The Company had incurred cumulative costs
15
totaling $77,000 against this contract and, as such, had outstanding future obligations totaling $1.1 million as of June 30, 2020, which will be settled at such time future services are provided to the Company related to the development and filing of the Ampion BLA. Given the uncertainty surrounding the COVID-19 pandemic and the resulting impact on the AP-013 study, at the date of this filing, the Company estimates the incurrence of the remaining costs associated with the preparation of the BLA filing will be postponed until late fiscal 2021, if not later.
Statistical Analysis and Programming Consulting Services
In May 2019, Ampio entered into a statistical analysis and programming consulting services agreement for $578,000. The Company had incurred cumulative costs totaling $253,000 against the contract as of June 30, 2020 and, as such, had an outstanding obligation of $325,000 at June 30, 2020.
Employment Agreements
On December 14, 2019, the Company entered into a new three-year employment agreement with Mr. Macaluso, Chief Executive Officer, which became effective January 4, 2016, Ampio completed10, 2020, immediately following the spin-offexpiration of Aytu BioScience, Inc. (“Aytu”)his prior employment agreement. The new employment agreement provides for an annual salary of $300,000 and term ending January 10, 2023, subject to certain automatic renewal provisions.
On September 16, 2019, the Company entered into a new two-year employment agreement with Ms. Cherevka, Chief Operating Officer, which by distributingits terms cancelled the previous employment agreement on such date. The new employment agreement provides for an annual salary of $280,000 and a majorityterm ending September 16, 2021, subject to certain automatic renewal provisions.
The Company entered into an employment agreement with Mr. Daniel Stokely, Chief Financial Officer, on July 9, 2019, which provided for an annual salary of $285,000 and a term beginning July 31, 2019 and lasting for three years, subject to certain automatic renewal provisions. The employment agreement, as amended in July 2020, allowed for reimbursement of reasonable commuting and relocation expenses, including the employee portion of taxes, for up to one year. The Company expects the commuting and relocation expenses to be incurred in full by September 2020.
Amounts noted above do not assume the continuation of employment beyond the contractual terms of each employee’s existing employment agreements.
Commercial Insurance Premium Financing Agreement
In July 2020, the Company entered into an insurance premium financing agreement for $1.3 million, with a term of nine months and an annual interest rate of 3.37%. Under the terms and provisions of the agreement, the Company will be required to make principal and interest payments totaling $116,000 per month over the remaining term of the agreement. The outstanding obligation as of June 30, 2020 was $1.3 million, which will be paid in full by March 2021. In addition, the Company had a remaining balance of $57,000 related to annual insurance premiums payable to the Company’s insurance broker until June 2021.
Facility Lease
In December 2013, the Company entered into a 125-month non-cancellable operating lease for office space and a manufacturing facility. 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. The Company adopted the FASB issued ASC 842, “Leases (Topic 842)” effective January 1, 2019. With the adoption of ASC 842, the Company recorded an operating ROU asset and an operating lease liability on its balance sheet. The ROU asset represents the Company’s right to use the underlying asset for the lease term and the lease obligation represents the Company’s commitment to make the lease payments arising from the lease. ROU lease assets and obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term. As the Company’s lease does not provide an implicit rate, the Company used an estimated incremental borrowing rate 5.75% based on the information available at the commencement date in determining the
16
present value of the lease payments. Lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. The lease liability is classified as current or long-term on the balance sheet.
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 presented in the balance sheet as of June 30, 2020:
| | | | | | | | | | | | | | | | | | | | | |
|
| Facility Lease Payments |
| 2020 |
| 2021 |
| 2022 |
| 2023 |
| 2024 |
| Thereafter | |||||||
| | | | | | | | | | | | | | | | | | | | | |
Remaining Facility Lease Payments | | $ | 1,513,000 | | $ | 169,000 | | $ | 345,000 | | $ | 355,000 | | $ | 364,000 | | $ | 280,000 | | $ | — |
Less: Discount Adjustment | |
| (170,000) | | | | | | | | | | | | | | | | | | |
Total lease liability | | $ | 1,343,000 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Lease liability-current portion | | $ | 272,000 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Long-term lease liability | | $ | 1,071,000 | | | | | | | | | | | | | | | | | | |
The following table provides a reconciliation of the Company’s remaining ROU asset for its facility lease presented in the balance sheet as of June 30, 2020:
| | | |
|
| Right-of-Use Asset | |
| | | |
Balance as of December 31, 2019 | | $ | 1,003,000 |
Amortization | | | (88,000) |
Balance as of June 30, 2020 | | $ | 915,000 |
The Company recorded lease expense in the respective periods is as follows:
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
| | | | | | | | | | | | | |
Lease expense | | $ | 66,000 | | $ | 65,000 | | $ | 132,000 | | $ | 131,000 | |
Note 8 – Warrants
The Company has issued equity-classified warrants and liability warrants in conjunction with previous equity raises. The Company had a total of 2.7 million equity-classified warrants and 4.2 million liability warrants outstanding as of June 30, 2020.
The following table summarizes the Company’s warrant activity:
| | | | | | | |
|
| |
| Weighted |
| Weighted Average | |
| | Number of | | Average | | Remaining | |
| | Warrants | | Exercise Price | | Contractual Life | |
| | | | | | | |
Outstanding at December 31, 2019 | | 7,116,000 | | $ | 0.57 | | 3.41 |
Warrants issued | | — | | $ | — | | |
Warrants exercised | | (250,000) | | $ | 0.40 | | |
Warrants expired | | — | | $ | — | | |
Outstanding at June 30, 2020 |
| 6,866,000 | | $ | 0.57 |
| 2.90 |
17
During the six months ended June 30, 2020, the Company issued 250,000 shares of common stock as a result of Aytu to the Ampio shareholders on a pro rata basis. This transaction changed Ampio’s ownership from 81.5% to 8.6%exercise of Aytu’s outstanding shares on that date. Due to this transaction,investor warrants with an exercise price of $0.40. The Company received proceeds of $100,000 during the financial statements of Aytu were deconsolidated in the beginning of 2016. In May 2016, Aytu completed an offering which was dilutive to the Aytu shares held by Ampio. In the beginning of July 2016, Aytu added a fifth Board member. Ampio had significant influence over Aytu subsequent to the spin-off throughsix months ended June 30, 2016 due2020 related to the fact that Ampio’s Chief Executive Officer was one of three and one of four Aytu Board members.
In July 2016, the Company determined that Ampio’s influence was no longer significant over Aytu’s Board of Directors. Ampio reclassified its remaining investment in Aytu to a trading security in July of 2016. The Aytu security is recorded at fair value on the accompanying balance sheet with the change in fair value recorded as an unrealized loss on the statement of operations. As of September 30, 2017, Ampio’s ownership in Aytu’s outstanding shares was less than 1.0%.
Note 5 - Fair Value Considerations
these warrant exercises.
The Company’s financial instruments include cash and cash equivalents, trading security in Aytu, accounts payable and accrued expenses, and warrant derivative liability. The carrying amounts of financial instruments, including cash and cash equivalents, receivable from Aytu, accounts payable and accrued expenses are carried at cost which approximates fairtotal value due to the short maturity of these instruments. The fair value of trading securities is based on quoted market prices, if available, or estimated discounted future cash flows. Warrants were recorded at estimated fair value based on a Monte Carol warrant pricing model. The valuation policies are determined by the Chief Financial Officer and approved by the Company’s Board of Directors.
Authoritative guidance defines fair value as the price that would be received to sell 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 are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of Ampio. 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:
| |
Ampio’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. Ampio’s policy is to recognize transfers in and/or out of fair value hierarchy as of the date in which the event or change in circumstances caused the transfer. Ampio has consistently applied the valuation techniques discussed below in all periods presented.
The following table presents Ampio’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2017 and December 31, 2016, by level within the fair value hierarchy:
Fair Value Measurements Using | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
September 30, 2017 | ||||||||||||||||
ASSETS | ||||||||||||||||
Trading security Aytu (Note 4) | $ | 21,000 | $ | - | $ | - | $ | 21,000 | ||||||||
LIABILITIES | ||||||||||||||||
Warrant derivative liability | $ | - | $ | - | $ | 6,764,000 | $ | 6,764,000 | ||||||||
December 31, 2016 | ||||||||||||||||
ASSETS | ||||||||||||||||
Trading security Aytu (Note 4) | $ | 123,000 | $ | - | $ | - | $ | 123,000 | ||||||||
LIABILITIES | ||||||||||||||||
Warrant derivative liability | $ | - | $ | - | $ | 4,239,000 | $ | 4,239,000 |
On August 25, 2017, Aytu announced a 1-for-20 stock split which automatically converted twenty shares of Aytu’s common stock into one new share of common stock. The estimated fair value of the Company’s investment, the trading security in Aytu is recorded at fair value which represents Ampio’s ownership shares in Aytu of 5,111 after the stock split, multiplied by Aytu’s closing stock price on September 30, 2017 and December 31, 2016, which is classified as Level 1 (quoted price is available).
Value at December 31, | Unrealized | Fair Value at September 30, | ||||||||||||||||
Maturity in Years | 2016 | Gains | Losses | 2017 | ||||||||||||||
Trading security Aytu (Note 4) | Less than 1 year | $ | 123,000 | $ | - | $ | (102,000 | ) | $ | 21,000 |
The warrant derivative liability was valued using the Black-Scholes valuation methodology because that model embodies all the relevant assumptions that address the features underlying these instruments. Significant assumptions in valuing the warrant derivative liability are based on estimatesas of the value of Ampio’s common stock and various factorsJune 30, 2020 is approximately $1.9 million. See Note 9 for additional information regarding the warrants. These assumptions were as follows as of September 30, 2017 and at issuance:warrant derivative liability.
September 30, 2017 | At Issuance | |||||||
Assumptions for warrants issued June 2, 2017: | ||||||||
Exercise price | $ | 0.76 | $ | 0.76 | ||||
Volatility | 93.4 | % | 94.6 | % | ||||
Equivalent term (years) | 4.67 | 5.00 | ||||||
Risk-free interest rate | 1.87 | % | 1.71 | % | ||||
Number of shares | 10,990,245 | 10,990,245 |
The following table sets forth a reconciliation of changes in the fair value of financial liabilities classified as Level 3 in the fair valued hierarchy:
Derivative Instruments | ||||
Balance as of December 31, 2016 | $ | 4,239,000 | ||
Warrants issuances | 4,618,000 | |||
Change in fair value | (2,093,000 | ) | ||
Balance as of September 30, 2017 | $ | 6,764,000 |
10
Note 69 - CommitmentsFair 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 Contingenciesminimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are 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.
CommitmentsThe Company’s assets and contingenciesliabilities which are described belowmeasured 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 even or change in circumstances caused the transfer. The Company has consistently applied the valuation techniques in all periods presented.
The following table presents the Company’s financial assets and summarized by the following table:
Remaining | ||||||||||||||||||||||||||||
Total | 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | ||||||||||||||||||||||
Ampion supply agreement | $ | 7,459,000 | $ | 2,359,000 | $ | 2,550,000 | $ | 2,550,000 | $ | - | $ | - | $ | - | ||||||||||||||
Clinical research and trial obligations | 1,948,000 | 1,948,000 | �� | - | - | - | - | - | ||||||||||||||||||||
Facility lease | 2,398,000 | 77,000 | 316,000 | 326,000 | 335,000 | 345,000 | 999,000 | |||||||||||||||||||||
$ | 11,805,000 | $ | 4,384,000 | $ | 2,866,000 | $ | 2,876,000 | $ | 335,000 | $ | 345,000 | $ | 999,000 |
Ampion Supply Agreement
In October 2013, Ampio entered into a human serum albumin ingredient and purchase sale agreement which has a remaining commitment of $7.5 million. Per an amendment to the original agreement, Ampio was not committed to purchase any product in 2016 and has extended the agreement to 2019.
Clinical Research and Trial Obligations
As of September 30, 2017, Ampio has a remaining commitment of $1,948,000liabilities that were accounted for at fair value on a contract related torecurring basis as of June 30, 2020 and December 31, 2019, by level within the current clinical trialfair value hierarchy:
| | | | | | | | | | | | |
|
| Fair Value Measurements Using | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
June 30, 2020 | | |
|
| |
|
| |
|
| |
|
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Warrant derivative liability | | $ | — | | $ | — | | $ | 1,908,000 | | $ | 1,908,000 |
| | | | | | | | | | | | |
December 31, 2019 | |
|
| |
|
| |
|
| |
|
|
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Warrant derivative liability | | $ | — | | $ | — | | $ | 2,064,000 | | $ | 2,064,000 |
The warrant derivative liability for both periods presented was valued using the Black-Scholes valuation methodology because that model embodies all the relevant assumptions that address the features underlying these instruments.
18
Facility Lease
On December 13, 2013, Ampio entered intoThe following table sets forth a 125-month non-cancellable operating lease for office space andreconciliation of changes in the manufacturing facility effective May 1, 2014. The lease has initial base rentfair value of $23,000 per month, with the total base rent over the term of the lease of approximately $3.3 million and includes rent abatements and leasehold incentives. The Company recognizes rental expense of the facility on a straight-line basis over the term of the lease. Differences between the straight-line net expenses on rent payments arefinancial liabilities classified as liabilities between current deferred rent and long-term deferred rent.Level 3 in the fair value hierarchy:
| | | |
|
| Derivative Instruments | |
| | | |
Balance as of December 31, 2019 | | $ | 2,064,000 |
Warrant exercises | |
| (121,000) |
Change in fair value | |
| (35,000) |
Balance as of June 30, 2020 | | $ | 1,908,000 |
Rent expense for the respective periods is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Rent expense | $ | 65,000 | $ | 64,000 | $ | 195,000 | $ | 194,000 |
Note 710 - Common Stock
Authorized Shares
Capital Stock
At September 30, 2017 and December 31, 2016, AmpioThe Company had 68,232,409 and 57,179,686 shares of common shares outstanding, respectively. As of these same dates, Ampio had no preferred shares outstanding. Ampio has 200.0300.0 million authorized shares of common stock as of June 30, 2020 and December 31, 2019.
The following table summarizes the Company’s remaining authorized with a par value of $0.0001 per share and 10.0 million shares of preferred stock authorized with a par value of $0.0001 per share.available for future issuance:
| | |
| June 30, 2020 | |
| | |
Authorized shares | | 300,000,000 |
| | |
Common stock outstanding | | 173,342,000 |
Options Outstanding | | 5,375,000 |
Warrants Outstanding | | 6,866,000 |
Reserved for issuance under 2019 Stock and Incentive Plan | | 9,519,000 |
| | |
Available shares | | 104,898,000 |
| | |
Average Stock Price: | | |
30 day | $ | 0.55 |
60 day | $ | 0.56 |
90 day | $ | 0.55 |
Shelf Registration
In March 2017, Ampiothe Company filed a shelf registration statement on Form S-3 (the “Prior Shelf Registration Statement”) with the Securities and Exchange Commission (“SEC”)SEC to register Ampiothe Company’s common stock, preferred stock, debt securities, warrants and warrantsunits in an aggregate amount of up to $100.0 million for offerings from time to time, as well as 5.0 million shares of common stock available for sale by selling shareholders. The shelf registrationPrior Shelf Registration Statement was declared effective in April 2017 by the SEC. AsSEC and was terminated in May 2020. In April 2020, the Company filed a result of equity raises, approximately $85.1 million remained available under the Form S-3 as of September 30, 2017. This shelf registration statement on Form S-3 expires in March of 2020.
Registered Direct Offering
In June 2017,(the “New Shelf Registration Statement”) with the Company completed a registered direct offering. In this offering, Ampio issued directlySEC to multiple investors approximately 11.0 million shares of itsregister the Company’s common stock, preferred stock, debt securities, warrants and approximately 11.0units in an aggregate amount of up to $100.0 million warrantsfor offerings from time to purchase sharestime, which was declared effective in May 2020. The Company had $95.6 million remaining under the New Shelf Registration Statement as of common stock. The common stockJune 30, 2020. However, the Company’s ability to issue and warrants were sold in units, with each unit consisting of one share of common stock and a warrant to purchase one share of common stock. Each unit was sold tosell securities under the investors in this offering at a negotiated price of $0.60 per unit generating gross proceeds of $6.6 million. The shares and the warrants were offered and sold pursuantNew Shelf Registration Statement may be limited, based on many factors including, but not limited to, the Company’s shelf registration statement on Form S-3 that was declared effective bystock price and related volatility, the SEC in April 2017.
The investor warrants have an exercise price of $0.76 per share and are exercisable starting on December 7, 2017 with a term of five years from issuance. The investor warrants include a provision where the warrant holder has the contractual right to request a cash exercise even if the effectivenesstrading volume of the registration statement is not maintained, but securities law would prevent the Company from issuing registered shares in a cash exercise. Therefore, the Company presumably could be forced to cash settle the warrant. Based on this additional derivative feature of the investor warrants, they must be accounted for as a liability at fair value under Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging” . On the date of issuance, these warrants were valued at $4.6 million.
In connection with the offering, the placement agent received an 8% commission totaling $533,000 and approximately 879,000 warrants with an exercise price of $0.76 and a termination date of June 1, 2022. These warrants had a value of $369,000 when they were issued and are accounted for as equity based warrants. The Company also incurred expenses related to legal, accounting, and other registration cost of $292,000.
In September 2016, the Company completed a registered direct offering. In this offering, the Company issued directly to an institutional investor 5.0 million shares of its commonCompany’s stock, and warrants to purchase up to 5.0 millionthe number of remaining authorized shares of common stock. The common stock and warrants were sold in units, with each unit consisting of one share of common stock and a warrant to purchase one share of common stock. Each unit was sold to the investor in this offering at a negotiated price of $0.75 per unit generating gross proceeds of $3.75 million. The shares and the warrants were offered and sold pursuant to the Company’s December 2013 shelf registration statement on Form S-3.
The investor warrants had an exercise price of $1.00 per share and are immediately exercisable with a term of five years from issuance. In addition, the investor warrants included provisionsavailable for the adjustment to the exercise price upon subsequent issuances of common stock by the Company at a price less than the warrant exercise price and the investor was entitled to purchase additional shares, such that the aggregate purchase price of $5.0 million for the warrant shares would remain unchanged. The investor warrants also include a provision for cash redemption at the Black-Scholes value at the request of the holder upon a change of control. Based on these additional derivative features of the investor warrants, they must be accounted for as a liability at fair value under Accounting Standards Codification (“ASC”) 480 “Distinguishing Liabilities from Equity”. On the date of issuance, these warrants were valued at $4.1 million.
In connection with the offering the placement agent received a 6% commission totaling $225,000 and 150,000 warrants with an exercise price of $0.9375 and a termination date of September 1, 2021. These warrants had a value of $89,000 when they were issued and were accounted for as equity based warrants. The Company also incurred expenses related to legal, accounting, and other registration cost of $113,000.
The Company’s net cash proceeds from the registered direct offering were $3.4 million. The additional non-cash charges of $4.2 million related to the 5.0 million investor warrants and the 150,000 placement agent warrants were offset against the net cash transaction proceeds which exceeded 100% of the proceeds requiring the Company to take the additional cost above the transaction proceeds and recognize them as a loss on the day it entered the transaction. The loss on the transaction was $804,000 and was included in derivative expense on the statementissue.
19
ATM Equity Offering Program
Sales Agreement
On March 27, 2017,In February 2020, the Company entered into a Waiver and Consent Letter Agreement (the “Waiver and Consent Agreement”) with the investor, amending the terms of warrants previously issued to the investor in September 2016. Under the Waiver and Consent Agreement, the investor waived the right to have the warrant exercise price reduced and the number of shares of common stock underlying the warrant increased in the event the Company secures any financing, including debt, which includes issuing or selling shares of common stock for a price per share less than the warrant exercise price. The investor also waived the prohibition on the Company’s ability to issue or sell shares of its common stock, options or convertible securities at a price which varies or may vary with the market price of the common stock or pursuant to an equity credit line or similar “at-the-market” offering. The waivers are permanent. In return, the Company agreed to reduce the exercise price of the warrants from $1.00 to $0.40 and to not issue or sell any shares of its capital stock for a period of 10 trading days following the execution of the Waiver and Consent Agreement. All other terms of the warrants remained the same. Based upon the amendment to this warrant agreement, the Company recognized a non-cash derivative gain of $1.1 million during the quarter ended March 31, 2017.
Controlled Equity Offering
In February 2016, Ampio entered into a Controlled Equity OfferingSMSales Agreement (the “Agreement”) with a placement agenttwo agents to implement an “at-the-market”ATM equity offering program under which Ampiothe Company, from time to time and at its sole discretion, may offer and sell shares of its common stock having an aggregate offering price of up to $25.0$50.0 million to the public through the placement agent.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 Agreement. Subject to the terms and conditions of the Sales Agreement, the agents shall use their commercially reasonable efforts to sell shares from time to time, based upon the Company’s instructions as documented on a purchase notification form. If an agent declines to accept the purchase notification form, the agent must promptly notify the Company and the other agent then has the ability to accept or decline the purchase notification form. The Company has no obligation to sell any of the shares and may, at any time and at its sole discretion, suspend sales under the Sales Agreement or terminate the Sales Agreement in accordance with its terms. The Company has provided the placement agentagents with customary indemnification rights. The placement agentrights, and the agents will be entitled to aan aggregate fixed commission of 3.0%4.0% of the gross proceeds from(2.0% to each agent) to the Company of the shares sold.
The following table summarizes Ampio’s totalthe Company’s sales and related issuance costs incurred under the Sales Agreement for the period indicated:as of June 30, 2020:
Year Ended | ||||
December 31, 2016 | ||||
Total shares of common stock sold | 163,254 | |||
Average price per share | $ | 0.94 | ||
Gross proceeds | $ | 153,000 | ||
Commissions earned by placement agent | $ | 5,000 | ||
Other expenses | $ | 98,000 |
| | | |
|
| Sales Agreement | |
| | | |
Total shares of common stock sold | | | 14,310,000 |
| | | |
Average price per share | | $ | 0.55 |
| | | |
Gross Proceeds | | $ | 7,913,000 |
Commissions earned by placement agents | | | (317,000) |
Issuance / subsequent recurring fees | | | (243,000) |
Net Proceeds | | $ | 7,353,000 |
No shares were sold under the Agreement in the nine months ended September 30, 2017.
Common Stock Issued for Services
AmpioIn accordance with the non-employee directors’ service agreement, the Company issued 62,478136,000 and 18,126136,000 shares of common stock valued at $60,000$80,000 and $60,000, respectively, for non-employee directors as part of their director fees for fiscal years 2017during the period ended June 30, 2020 and 2016,2019, respectively.
Note 811 - Equity Instruments
Options
In 2010, Ampio shareholdersDecember 2019, the Company’s Board of Directors and stockholders approved the adoption of a stockthe Ampio Pharmaceuticals, Inc. 2019 Stock and option award planIncentive Plan (the “2010“2019 Plan”), under which shares were reserved for future issuance underof equity related awards classified as option awards/grants, restricted stock awards options, and other equity related awards. The 20102019 Plan permits grants of equity awards to employees, directors and consultants. The shareholders havestockholders approved a total of 11.710.0 million 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.
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The following table summarizes the activity of the 2019 Plan and the shares available for future equity awards as of June 30, 2020:
| | | |
| 2019 Plan | ||
| | | |
Total shares reserved for equity awards | | | 10,000,000 |
Options granted during fiscal 2019 | | (144,000) | |
Options granted during fiscal 2020 | | | (340,000) |
Add back: expired, forfeited and/or cancelled equity awards | | 3,000 | |
Remaining shares available for future equity awards | | | 9,519,000 |
DuringThe following table summarizes the nine months ended September 30, 2017, the Company granted 1,571,334 options at a weighted average exercise price of $0.65 to officers, directors and employees. Of the options granted, 628,000 options vested immediately while 943,334 vest over a one to three-year period.
AmpioCompany’s stock option activity isunder both the 2010 Plan and 2019 Plan:
| | | | | | | | | | |
|
| |
| Weighted |
| Weighted Average |
| | | |
| | Number of | | Average | | Remaining | | | Aggregate | |
| | Options | | Exercise Price | | Contractual Life | | | Intrinsic Value | |
Outstanding at December 31, 2019 |
| 6,000,000 | | $ | 1.33 |
| 5.40 |
| $ | — |
Granted |
| 340,000 | | $ | 0.73 |
| |
| | |
Exercised |
| (10,000) | | $ | 0.51 |
| |
| | |
Forfeited |
| (100,000) | | $ | 1.70 |
| |
| | |
Expired |
| (855,000) | | $ | 1.65 |
| |
| | |
Outstanding at June 30, 2020 |
| 5,375,000 | | $ | 1.18 |
| 6.06 |
| $ | 219,000 |
Exercisable at June 30, 2020 |
| 4,888,000 | | $ | 1.25 |
| 5.74 |
| $ | 152,000 |
The 100,000 stock options that were forfeited and the 855,000 stock options that expired as follows:of June 30, 2020 were issued under the 2010 Plan, which was cancelled as noted above. Therefore, these forfeited and expired stock options were not added back to the 2019 Plan. The 10,000 stock options that were exercised were processed as a net exercise, where the total number of shares of common stock was reduced to cover the exercise price and tax obligations and, as such, the Company did not receive cash related to that stock option exercise.
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | ||||||||||
Outstanding December 31, 2016 | 7,175,832 | $ | 3.64 | 4.99 | ||||||||
Granted | 1,571,334 | $ | 0.65 | |||||||||
Exercised | - | $ | - | |||||||||
Forfeited | (1,438,334 | ) | $ | 4.02 | ||||||||
Expired or Cancelled | - | $ | - | |||||||||
Outstanding September 30, 2017 | 7,308,832 | $ | 2.85 | 5.41 | ||||||||
Exercisable at September 30, 2017 | 6,335,494 | $ | 3.16 | 4.78 | ||||||||
Available for grant at September 30, 2017 | 2,916,169 |
Stock options outstanding at SeptemberJune 30, 20172020 are summarized in the table below:
| | | | | | | |
|
| Number of |
| Weighted |
| Weighted Average | |
| | Options | | Average | | Remaining | |
Range of Exercise Prices | | Outstanding | | Exercise Price | | Contractual Lives | |
$0.40 - $2.00 |
| 4,747,000 | | $ | 0.74 |
| 6.46 |
$2.01 - $5.00 |
| 440,000 | | $ | 3.05 |
| 2.93 |
$5.01 - $8.62 |
| 188,000 | | $ | 7.97 |
| 3.35 |
|
| 5,375,000 | | $ | 1.18 |
| 6.06 |
Range of Exercise Prices | Number of Options Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Contractual Lives | |||||||||
$0.48 - $2.00 | 3,196,888 | $ | 0.90 | 6.48 | ||||||||
$2.01 - $5.00 | 2,731,944 | $ | 3.05 | 4.14 | ||||||||
$5.01 - $8.93 | 1,380,000 | $ | 6.99 | 5.42 | ||||||||
7,308,832 | $ | 2.85 | 5.41 |
Ampio has computedThe Company computes the fair value offor 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 estimated 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. AmpioThe Company calculates its volatility assumption using the actual changes in the market value of its stock. Ampio adopted ASU 2016-09 in 2017 and no longer estimates a forfeiture rate. Instead, forfeituresForfeitures are recognized as they occur. AmpioThe 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 based onby using the simplified method. The simplified method calculates the expected term as the average of the vesting term andplus the contractual termlife 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. Accordingly, Ampio hasThe Company computed the fair value of all options granted during the period ending Septemberended June 30, 2017,2020, using the following assumptions:
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| | | | |
Expected volatility | 130.73% - 131.18 | % | ||
Risk free interest rate | 1.62% - 1.67 | % | ||
Expected term (years) | 5.00 - 5.51 | |||
Stock-based compensation expense related to the fair value of stock options wasis included in the statements of operations as research and development expenses or selling, general and administrative expenses as set forth in the table below. The following table summarizes stock-based compensation expense for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016:2019:
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Research and development expenses |
| |
|
| |
|
| |
|
| |
|
Stock-based compensation | | $ | 11,000 | | $ | 30,000 | | $ | 71,000 | | $ | 31,000 |
| | | | | | | | | | | | |
General and administrative expenses | |
| | |
|
| |
|
| |
|
|
Issuance of common stock for services | |
| — | |
| — | |
| 80,000 | |
| 60,000 |
Stock-based compensation | |
| 53,000 | |
| 43,000 | |
| 206,000 | |
| 69,000 |
| | | | | | | | | | | | |
Total stock-based compensation | | $ | 64,000 | | $ | 73,000 | | $ | 357,000 | | $ | 160,000 |
| | | | | | | | | | | | |
Unrecognized expense at June 30, 2020 | | $ | 55,000 | |
|
| | | | |
|
|
| | | | | | | | | | | | |
Weighted average remaining years to vest | |
| 0.26 | |
|
| | | | |
|
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Research and development expenses | ||||||||||||||||
Stock-based compensation | $ | 179,000 | $ | 162,000 | $ | 255,000 | $ | 317,000 | ||||||||
General and administrative expenses | ||||||||||||||||
Common stock issued for services | - | - | 60,000 | 60,000 | ||||||||||||
Stock-based compensation | 127,000 | 281,000 | 354,000 | 1,009,000 | ||||||||||||
$ | 306,000 | $ | 443,000 | $ | 669,000 | $ | 1,386,000 | |||||||||
Unrecognized expense at September 30, 2017 | $ | 378,000 | ||||||||||||||
Weighted average remaining years to vest | 1.57 |
Warrants
Note 12 - Earnings Per Share
Ampio has issued warrants in conjunction with private and public offerings. A summaryBasic earnings per share is computed by dividing net loss available to common stockholders by the weighted-average number of all Ampio warrants is as follows:
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | ||||||||||
Outstanding December 31, 2016 | 5,648,576 | $ | 0.67 | 4.28 | ||||||||
Warrants issued | 11,869,464 | $ | 0.76 | |||||||||
Warrants exercised | - | $ | - | |||||||||
Outstanding September 30, 2017 | 17,518,040 | $ | 0.73 | 4.34 |
In connection with the June 2017 registered direct offering, Ampio issued to investors warrants to purchase an aggregate of approximately 11 million shares of common stock at an exercise price of $0.76outstanding during each period. Diluted earnings per share is based on the treasury stock method and a term of five years. These warrants, duecomputed by dividing net loss available to certain derivative features, are accounted for under liability accounting and are fair valued each reporting period. At September 30, 2017, these warrants had a fair value of $4,475,000 (see Note 5).
Incommon stockholders by the 2016 registered direct offering, Ampio issued to an investor warrants to purchase an aggregate of 5 milliondiluted weighted-average shares of common stock at an exercise priceoutstanding during each period. The Company’s potentially dilutive shares include stock options and warrants for the shares of $1.00 with a term of five years. These warrants duecommon stock. The potentially dilutive shares are considered to certain derivative features are accounted for under liability accountingbe common stock equivalents and are fair valued each reporting period. At September 30, 2017, theseonly included in the calculation of diluted net loss per share when the effect is dilutive. The investor warrants had a fair valueare treated as equity in the calculation of $2,289,000 (see Note 5).
diluted earnings per share in both the computation of the numerator and denominator. The combined valuefollowing table sets forth the calculations of basic and diluted earnings per share for the warrant liability at Septemberthree and six months ended June 30, 2017 is $6,764,000 (see Note 5).2020 and 2019:
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net (loss) income | | $ | (2,731,000) | | $ | 421,000 | | $ | (7,910,000) | | $ | (5,391,000) |
Less: decrease in fair value of investor warrants | | | — | | | (3,981,000) | | | (156,000) | | | (822,000) |
Loss available to common stockholders | | $ | (2,731,000) | | $ | (3,560,000) | | $ | (8,066,000) | | $ | (6,213,000) |
| | | | | | | | | | | | |
Basic and diluted weighted-average common shares outstanding | | | 166,393,000 | | | 115,031,000 | | | 162,723,000 | | | 113,079,000 |
Add: dilutive effect of equity instruments | | | — | | | 3,739,000 | | | 1,183,000 | | | 4,271,000 |
Diluted weighted-average shares outstanding | | | 166,393,000 | | | 118,770,000 | | | 163,906,000 | | | 117,350,000 |
Earnings per share – basic | | $ | (0.02) | | $ | 0.00 | | $ | (0.05) | | $ | (0.05) |
Earnings per share – diluted | | $ | (0.02) | | $ | (0.03) | | $ | (0.05) | | $ | (0.05) |
During the 2017 registered direct offering, Ampio issued placement agent warrants to purchase an aggregate
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The potentially dilutive shares of common stock at an exercise pricethat have been excluded from the calculation of $0.76 with a termnet loss per share because of five years. These warrants were accounted for as equity based awards (see Note 7). They were valued using the Black-Scholes methodology. Significant assumptions wereanti-dilutive effect are as follows:
| | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||
| 2020 | | 2019 | | 2020 | | 2019 |
Outstanding stock options | 5,375,000 | | 5,440,000 | | 5,141,000 | | 5,414,000 |
Warrants to purchase shares of common stock | 6,866,000 | | 19,826,000 | | 5,917,000 | | 19,320,000 |
Total potentially dilutive shares of common stock | 12,241,000 | | 25,266,000 | | 11,058,000 | | 24,734,000 |
In the 2016 registered direct offering, Ampio issued to the placement agent warrants to purchase an aggregate of 150,000 shares of common stock at an exercise price of $0.9375 with a term of five years. These warrants were accounted for as equity based awards (see Note 7). They were valued using the Black-Scholes methodology.
In March 2017, the Company modified 498,576 of its outstanding warrants which extended the expiration until June 30, 2018. The $75,000 additional expense related to this modification was recognized in the quarter ended March 31, 2017.
In March 2017, the Company modified the five million warrants issued in conjunction with the Company’s September 2016 registered direct offering with an original strike price of $1.00 down to $0.40. The $1.1 million gain related to this modification was recognized in the quarter ended March 31, 2017 (see Note 7).
Note 9 - Related Party Transactions
Sponsored Research Agreement
Ampio entered into a sponsored research agreement with Trauma Research LLC, an entity controlled by Ampio’s Director and Chief Scientific Officer, Dr. Bar-Or, in September 2009, which was amended seven times with the last amendment occurring in June 2017. Under the amended terms, the agreement was terminated effective July 5, 2017. The remaining prepaid of $252,000 was expensed during the quarter ended June 30, 2017. In conjunction with terminating this agreement, the Company extended the contract for Dr. Bar-Or for an additional year. He will continue his current roles as the Chief Scientific Officer and a director.
Service Agreement
In June 2017, Ampio terminated the shared services agreement with Aytu. As of September 30, 2017, Aytu owed Ampio $10,000 under this agreement. For the nine months ended September 30, 2017 and 2016, the total shared overhead cost was $77,000 and $183,000, respectively.
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Note 10 -13 – Litigation
As previously disclosed, on May 8, 2015 and May 14, 2015,On August 25, 2018, a purported stockholdersstockholder of the Company brought twocommenced a putative class action lawsuitslawsuit in the United States District Court infor the Central District of California, Napolicaptioned Shi v. Ampio Pharmaceuticals, Inc., et al., Case No. 2:15-cv-03474-TJH and Stein v. Ampio Pharmaceuticals, Inc., et al., Case No. 2:15-cv-03640-TJH18-cv-07476 (the “Securities Class Actions”Action”), alleging. Plaintiff in the Securities Class Action alleged that Ampiothe Company and certain of its current and former officers violated the federal securities laws by misrepresenting and/or omitting material information regarding the STEP study.AP-003 Phase III clinical trial of Ampion. The cases were consolidated, and on February 8, 2016, the plaintiffs filed a consolidated amended complaint allegingplaintiff asserts claims under Sections 10(b) and 20(a) and Rule 10b-5 underof the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Sections 11Securities and 15 under the Securities Act of 1933Exchange Commission Rule 10b-5, on behalf of a putative class of purchasers of the Company’s common stock from January 13, 2014December 14, 2017 through August 21, 2014, including purchasers7, 2018. Plaintiff in the Company’s offering on February 28, 2014.Securities Class Action sought unspecified damages, pre-judgment and post-judgment interest, and attorneys’ fees and costs. On September 27, 2016, plaintiffs2019, the Court presiding over the Securities Class Action issued an order appointing a Lead Plaintiff and Lead Counsel, pursuant to the Private Securities Litigation Reform Act. Lead Plaintiff filed an amended complaint in late 2019. The Company filed a secondmotion to dismiss the amended complaint allegingon February 10, 2020. On March 26, 2020, Lead Plaintiff filed a brief in opposition to the same claims set forthCompany’s motion to dismiss. The Company filed a reply to the Plaintiff’s brief in opposition on April 27, 2020. On June 19, 2020, the Court granted the Company’s motion to dismiss and dismissed the Securities Class Action with prejudice. Plaintiff did not file a notice of appeal, and the case is now concluded.
On September 10, 2018, a purported stockholder of the Company brought a derivative action in the United States District Court for the Central District of California, captioned Cetrone v. Macaluso, et al., Case No. 18-cv-07855 (the “Cetrone Action”), alleging primarily that the directors and officers of Ampio breached their fiduciary duties in connection with alleged misstatements and omissions regarding the AP-003 Phase III clinical trial of Ampion. Plaintiff seeks unspecified damages, certain governance reforms, pre-judgment and post-judgment interest, attorneys’ fees and costs.
On October 5, 2018, a purported stockholder of the Company brought a derivative action in the United States District Court for the District of Colorado, Theise v. Macaluso, et al., Case No. 18-cv-02558 (the “Theise Action”), which closely parallels the allegations in the Cetrone Action. A second derivative action was filed in the United States District Court for the District of Colorado and was consolidated amended complaint duringwith the same class period. On or about November 8, 2016,Theise Action under the parties reached an agreementcaption In re: Ampio Pharmaceuticals Inc. Stockholder Derivative Actions, Case No. 18-cv-02558. Plaintiffs seek unspecified damages, pre-judgment and post-judgment interest, attorneys’ fees and costs. This consolidated action, and the Certrone Action in principle on a comprehensive settlementCalifornia, had been stayed pending further developments in the Securities Class Action. Given the dismissal of the Securities Class Action, the stays have dissolved and these cases will move forward.
The Company believes that all claims asserted are without merit and intends to defend these lawsuits vigorously. However, it is possible that additional actions will be filed in the lawsuit with no admissionfuture. The Company currently believes the likelihood of liability by any defendantsa loss contingency related to these matters is remote and with any settlement amounts being funded by insurance. On September 29, 2017,given the settlement was finally approved byfact of where the Court and all claims were dismissed with prejudice and with no admission exist in the litigation process, the Company is not in the position to provide an estimate and/or findingrange of any liability or wrongdoing by the defendants.potential loss.
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Note 11 -14 – Subsequent Events
On October 15, 2017,In July 2020, the Company entered intoissued 913,000 shares of common stock as a Securities Purchase Agreement (the “Purchase Agreement”), with certain investors. Pursuant to the termsresult of the Purchase Agreement, theexercise of investor warrants with an exercise price of $0.40. The Company sold approximately 7.7 million shares with total grossreceived proceeds of $6.7 million of its common stock, $0.0001 par value per share (the “Common Stock”) at a price per share of $0.875 (the “Offering”). The Offering closed on October 18, 2017. The net proceeds$365,000 related to the Company from the Offering were $6.3 million, including estimated Offering expenses payable by the Company.these warrant exercises.
The Shares were sold pursuant to the Company’s shelf registration statement on Form S-3. The shelf registration statement was declared effective by the SEC on April 20, 2017.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 containcontains 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, “Risk Factors,” and the risk factors included in our 2019 Annual ReportReport.
EXECUTIVE SUMMARY
We are a biopharmaceutical company focused on Form 10-K filedthe development and advancement of immunology-based therapies for prevalent inflammatory conditions. We have not generated operating revenue to date, and our operations have been substantially funded through equity raises, which have occurred from time to time since inception.
The pharmaceutical market is a highly competitive industry with strict regulations that are unpredictable in nature, time intensive and costly. We are committed to offering a compelling therapeutic option for patients most in need of new treatments for inflammatory conditions. These conditions include, but not limited to, OAK and for the treatment of serious complications arising from the COVID-19 pandemic, including the need for supplemental oxygen and the rapid onset of respiratory failure, termed Acute Respiratory Distress Syndrome (“ARDS”) or Acute Lung Injury (“ALI”).
Moving forward, we will continue to place a disciplined focus on maintaining our business operations in a manner that is streamlined and efficient while continuing to allocate a requisite level of our liquidity, human capital and other operational resources towards the advancement of immunological-based therapies with the Securitiesultimate goal of achieving FDA marketing approval and Exchange Commission on March 16, 2017.
subsequent commercialization of Ampion for these conditions.
Overview
We maintain an Internet website atwww.ampiopharma.com. www.ampiopharma.com. Information on or linked to our website is not incorporated by reference into this Quarterly Report on Form 10-Q. Filings with the SEC can also be obtained at the SEC’s website,www.sec.gov.
We are a biopharmaceutical company focused primarily on developing compounds that decrease inflammation by (i) inhibiting specific pro-inflammatory compounds by affecting specific pathways at the protein expression and at the transcription level; (ii) activating specific phosphatase or depleting available phosphate needed for the inflammation process; and (iii) decreasing vascular permeability.
Product Update –
We continue to execute our business plan and advance our main drug candidates.
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AMPION
Ampion for Osteoarthritis and Other Inflammatory Conditions
www.sec.gov.
Ampion is in the < 5 kDa ultrafiltrateprocess of 5% Human Serum Albumin, or HSA, an approved biologic product.advancing through clinical trials in the United States. Ampion is currently in development as an intra-articular injection treatment for severe OAK; an intravenous (“IV”) treatment for COVID-19 patients who require supplemental oxygen; and an inhaled treatment for COVID-19 induced ARDS.
We received a non-steroidal, low molecular weight, anti-inflammatory biologic,Special Protocol Assessment (“SPA”) agreement from the FDA for the development of an intra-articular injection treatment of Ampion for severe OAK, and commenced our AP-013 study titled, “A Randomized, Controlled, Double-Blind Study to Evaluate the Efficacy and Safety of an Intra-Articular Injection of Ampion in Adults with Pain Due to Severe Osteoarthritis of the Knee” in June 2019. An SPA is a process in which sponsors may ask to meet with the FDA to reach agreement with the FDA on the design and size of certain clinical trials to determine if they adequately address scientific and regulatory requirements for a study that could support regulatory submission. In March 2020, the WHO declared the COVID-19 outbreak a pandemic. In April 2020, due to the impact of COVID-19, we paused all ongoing conduct associated with the AP-013 study. In June 2020, increases in COVID-19 cases across the United States were reported. Due to the increase in reported cases, we have determined that the AP-013 study will remain paused. Recognizing these challenges, we continue to actively explore viable options to enable us to complete the study, but it is
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possible that the continuation of the COVID-19 pandemic may prevent completion of the AP-013 study at this time or at all. Finally, due to the current uncertainty resulting from the COVID-19 pandemic, the future contractual commitment amount related to the AP-013 study may significantly increase.
The Company has filed IND applications for Ampion with the FDA and has maintained ongoing dialog with the FDA regarding the Company’s development of treatment options which include IV and inhalation applications for COVID-19 affected patients. In June 2020, the Company received FDA agreement to proceed with human trials utilizing IV Ampion treatment for COVID-19 patients who require supplemental oxygen. In May 2020, the Company announced the scientific journal, Patient Safety in Surgery, published a manuscript (co-authored by Dr. David Bar-Or, a director of the Company) on the potential to be usedbenefits of inhaled Ampion treatment for COVID-19 patients titled, “The novel immunomodulatory biologic LMWF5A for pharmacological attenuation of the ‘cytokine storm’ in COVID-19 patients: a wide varietyhypothesis”. We believe the immunomodulatory action and anti-inflammatory effects of acute and chronicAmpion may provide a treatment for individuals with inflammatory conditions as well as immune-mediated diseases. including severe OAK and the widespread inflammation associated with COVID-19 infection.
AMPION
Ampion for Osteoarthritis
We have developed a novel biologic drug, Ampion, which contains a blood-derived cyclized peptide and its known componentssmall molecules that target multiple pathways in the innate immune response and that are characteristic of OAK inflammatory disease. Ampion targets the cellular pathways in the innate immune response correlated with pain, inflammation, and joint damage in osteoarthritis. In vitro studies have demonstrated a broad spectrumshown that Ampion represses the transcription of proteins responsible for inflammation, while activating anti-inflammatory proteins. Ampion has also been shown in vitro to regulate the cellular pathways responsible for tissue growth and immune modulatory activity which support thehealing. We believe that this mechanism of action. We have published several scientific papersaction interrupts the disease process responsible for the pain and peer-reviewed publications on the mechanism of Ampion.
disability associated with OAK; provides market expansion potential as a disease modifying biologic; and may provide a treatment option for other inflammatory and degenerative indications.
We are currently developing Ampion as an intra-articular injection to treat pain duethe signs and symptoms of severe OAK, which continues to severe osteoarthritis of the knee, or OAK. Osteoarthritis isbe a growing epidemic in the United States and symptomatic OAK is expected to impact 1 in 2 Americans.other countries worldwide. OAK is a progressive disease characterized by gradual degradation and loss of cartilage due to inflammation of the soft tissue and bony structures of the knee joint. Progression of the most severe form of OAK leaves patients with little toor no treatment options other than a total knee arthroscopy.arthroplasty. The Federal Drug Administration, or FDA has statedasserted that severe OAK is an ‘unmet“unmet medical need’need” with no existing licensed therapiestherapy available. While we believe that Ampion could successfully treat this “unmet medical need”, our ability to market this product is subject to FDA approval.
Ampion Development for Osteoarthritis
Since our inception, we have conducted multiple clinical trials and have advanced through late-stage clinical trials in the United States, initially under the guidance of the FDA’s Office of Blood Research and Review and most recently under the guidance of the FDA’s Office of Tissues and Advanced Therapies.
Study AP-003-A was a multicenter, randomized, double-blind trial of 329 patients who were randomized 1:1 to receive Ampion or saline control via intra-articular injection. The study showed a statistically significant reduction in pain compared to the control, with an average of greater than 40% reduction in pain from baseline at 12 weeks with Ampion treatment. Patients who received Ampion also showed a significant improvement in function and quality of life compared to patients who received the saline control at 12 weeks. Quality of life was assessed using Patient Global Assessment. Furthermore, the trial included severely diseased patients, defined radiographically as Kellgren Lawrence Grade 4 (“KL 4”). From this indication.patient population, those patients who received Ampion had a significantly greater reduction in pain than those who received the saline control. Ampion was well tolerated with minimal adverse events reported in either the Ampion and saline treated groups. There were no drug-related serious adverse events in either group.
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In 2018, the FDA reiterated and confirmed that our successful pivotal Phase III clinical trial, AP-003-A, was adequate and well-controlled, provided evidence of the effectiveness of Ampion and can contribute to the substantial evidence of effectiveness necessary for the approval of a BLA. The FDA provided guidance that we should complete an additional trial of KL 4 severe OAK patients with concurrent controls that would be carried out under an SPA to obtain FDA concurrence on the trial design prior to initiation of the trial.
We received an SPA agreement in June 2019 from the FDA for a clinical protocol in reference to the AP-013 study. The SPA agreement for the AP-013 study finalized patient enrollment at 1,034 patients, with a sample size assessment at an interim analysis of 724 patients to allow an adjustment up to 1,551 patients if deemed necessary. In the SPA agreement, the FDA agreed that the design and planned analysis of the AP-013 study adequately addressed the objectives necessary to support a regulatory submission. According to the FDA’s guidance for industry regarding SPAs (published in April 2018), an SPA documents the FDA’s agreement that the design and planned analysis of a study can address objectives in support of a regulatory submission; however, the final determinations for marketing application approval are made after a complete review of the marketing application and are based on the entire data in the application. Following the receipt of the SPA agreement, we initiated the AP-013 study, identified and engaged clinical sites for the clinical trial, and initiated dosing of patients at those sites. As of December 31, 2019, we completed the enrollment and dosing of 724 patients required for the interim analysis sample size assessment.
In March 2020, the WHO declared the COVID-19 outbreak a pandemic. The Centers for Disease Control and Prevention (“CDC”) projects that COVID-19 deaths in the U.S. may eventually number in the hundreds of thousands, and potentially in the millions. The AP-013 study focuses on individuals with the most severely diseased OAK, which represents an underserved patient population typically excluded from clinical studies because of the intractable nature of their condition. The AP-013 study population is comprised of elderly patients with an average age of 65 years old and a maximum age of 87 years, and the CDC have completed sevenindicated that older adults, 65 years and older, are at higher risk for severe illness during the current COVID-19 pandemic. This guidance from the CDC indicates the AP-013 study population is the highest risk demographic for developing severe illness during the current COVID-19 pandemic. In March 2020, the FDA acknowledged the impact of COVID-19 on clinical trials in a published guidance, “FDA Guidance on Conduct of Clinical Trials of Medical Products during the COVID-19 Pandemic”, which outlines the Agency’s recommendations for ensuring clinical trial participant safety and adherence to good clinical practice guidelines and protocol requirements for clinical trials during the outbreak. In concurrence with the FDA guidance, the SMC for the AP-013 study recognized the impact of COVID-19 on the clinical trial. In April 2020, we paused ongoing conduct of the AP-013 study, and we continue to monitor the COVID-19 health situation and updated FDA guidance on conducting clinical trials in a pandemic. In June 2020, increases in COVID-19 cases across the United States were reported. Due to the increase in reported cases, we have determined that the AP-013 study will remain paused. Recognizing these challenges, we continue to explore options to enable us to complete the study, but it is possible that the COVID-19 pandemic may prevent completion of the AP-013 study at this time or at all.
Ampion for Complications Related to COVID-19 Infection
The COVID-19 pandemic has resulted in millions of cases and hundreds of thousands of deaths worldwide with figures continuing to reflect significant expansion of the pandemic. The COVID-19 infection is an acute respiratory illness caused by a novel coronavirus (SARS-COV-2). Once infected, the COVID virus moves into a patient’s respiratory tract where the lungs may become inflamed, making breathing difficult and requiring treatment with oxygen. The CDC has estimated that approximately 20% of patients with COVID-19 will progress to a severe disease condition, requiring hospitalization and clinical care. Complications of severe COVID-19 infection include ARDS, pneumonia, sepsis and septic shock, cardiomyopathy and arrhythmia, acute kidney injury and prolonged hospitalization for other complications (e.g. secondary bacterial infection). The primary cause of death associated with COVID-19 infection is ARDS, and, as of the date of this filing, there are no clinically approved treatments for ARDS or the COVID-19 infection.
An article published in peer-reviewed journal, The Journal of the American Medical Association, by Bellani et al. in February 2016 titled, ‘Epidemiology, Patterns of Care, and Mortality for Patients With Acute Respiratory Distress Syndrome in Intensive Care Units in 50 Countries’, indicates that under normal circumstances, there is approximately a 40% mortality rate for patients with ARDS. COVID-19 is newly emerging, and there is little published research on mortality in this subset of patients; however, we believe that ARDS secondary to COVID-19 infection may prove to be
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more lethal than ARDS due to other causes. A study of 191 patients in Wuhan, China reported that 50 of the 54 patients with COVID-19 who died during their hospitalization developed ARDS, while only nine of the 137 survivors developed ARDS. That study, published in The Lancet by Zhou et al. in March 2020, demonstrates an 85% (50/59) case mortality rate for ARDS secondary to COVID-19 infection, which is more than double the mortality rate observed without COVID-19 infection.
The CDC has reported that among all patients with a COVID-19 infection, between 3% - 17% develop ARDS, but that percentage increases to 67% - 85% for patients admitted to an intensive care unit. An article published in The New England Journal of Medicine in March 2020 states that based on the size and scope of the COVID-19 pandemic, the disease burden on healthcare facilities and hospitals is expected to be severe, and estimates of material requirements for the treatment of COVID-19 patients indicate the United States is likely to experience widespread shortages of critical standard of care items such as ventilators throughout much of 2020. We believe that it is imperative that effective treatments are identified and developed to address the full spectrum of clinical features of COVID-19 infection, from need for oxygen to the progression to ARDS. For instance, it has been reported that treatments that reduce the length of stay in the hospital or decrease the required time on ventilation would not only decrease mortality but also reduce stress on hospital resources, including medical staff, allowing additional COVID-19 infected patients access to critical and potentially life-saving care.
As an immunomodulatory agent, we believe that Ampion may be effective in improving the clinical course and outcome of COVID-19 patients experiencing ARDS.
Ampion Development for Treating COVID-19 Induced Inflammation
As reported in The Lancet in February 2020 by Huang et al., patients with coronavirus infection, including COVID-19, present symptoms which are primarily fever, fatigue and dry cough. In some cases, the disease progresses to severe illness, dyspnea and hypoxemia within one week after onset of the disease. These patients with severe illness require oxygen therapy, intensive care, and ventilation as they potentially develop inflammatory complications like ARDS and ALI. ARDS is an inflammatory process, and when secondary to COVID-19, the inflammatory response is exaggerated after being triggered by the initial viral infection. The destructive cycle of inflammation related to the COVID-19 infection may impact the clinical course of patients in several significant and potentially fatal ways, indicating the need for a treatment that can interrupt and/or prevent this inflammatory cascade.
During COVID-19 infection, the activation of the innate immune system leads to a dysregulated or “hyper-inflammatory” response, resulting in the excess release of innate pro-inflammatory cytokines by alveolar macrophages and neutrophils as part of a “cytokine storm”. In humans, the severity of disease, including ARDS, is closely related to increased serum levels of pro-inflammatory cytokines accompanied by a corresponding decrease in anti-inflammatory cytokines. These findings have been published in Cell Host and Microbe in February 2016 by Channappanavar et al. and in The International Journal of Clinical and Experimental Pathology in January 2017 by Yang et al.
Ampion is in development as a novel biologic drug that regulates multiple therapeutic targets in the innate immune system responsible for the inflammation, tissue damage and have closed enrollmentpathogenesis associated with dysregulated immune disorders, such as ARDS. Development of our current pivotal phase three trialAmpion supports a mechanism of action as an immunological agent which decreases the production of physiological mediators (e.g., cytokines and chemokines) responsible for inflammation and tissue damage, while simultaneously promoting the production of those mediators required for resolving inflammation and tissue repair. One of the most common and problematic clinical features of ARDS is pulmonary edema, which causes hypoxemia and may result in death. Cellular models treated with Ampion indicate treatment enhances microvascular barrier function in the lung to protect this product.
Clinical Development Pathway
In September and December 2016, we metfacet of ARDS. Ampio is currently working with the Center for Biologics Evaluation and Research, or CBER, Division of the FDA to seek guidancereceive authorization to develop Ampion as a potential treatment for complications related to COVID-19 infection.
In May 2020, we submitted an IND application for IV treatment of adults with COVID-19 requiring supplemental oxygen, and in June 2020, the FDA completed its review of the IND application and cleared IV Ampion treatment of COVID-19 patients on oxygen to proceed with a Phase 1 human clinical trial. We have also submitted an IND to evaluate an inhaled Ampion treatment for adults with ARDS related to COVID-19 viral infection. We continue to communicate with the FDA to advance the development of these programs. As an immunomodulatory agent, with anti-
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inflammatory effects, we believe Ampion may be effective in interrupting the inflammatory cascade associated with COVID-19 and improving the clinical course and outcome for patients.
Recent Financing Activities
Information regarding our Recent Financing Activities is contained in Note 10 to the Financial Statements.
Known Trends or Future Events; Outlook
We are a pre-revenue clinical development stage company that has incurred an accumulated deficit of $192.5 million through June 30, 2020. We expect to generate continued operating losses for the foreseeable future as we continue the ongoing development and advancement of immunological-based therapies with the ultimate goal of achieving FDA marketing approval and subsequent commercialization of Ampion for the conditions noted above. In addition, while working in parallel with the continued advancement of immunological-based therapies for Ampion, we continue to actively explore synergistic licensing and other partnering opportunities with both domestic and global-based organizations with the goal of further leverage and maximizing the value of Ampion to our shareholders.
Due to the COVID-19 pandemic, the U.S. government-imposed restrictions on travel between the United States, Europe and certain other countries. Further, the President of the United States declared the COVID-19 pandemic a national emergency, invoking powers under the Stafford Act, the legislation that directs federal emergency disaster response. Additionally, on March 10, 2020, the Governor of Colorado (the “Governor”) declared a State of Emergency related to the presence of COVID-19 in the State of Colorado. The Colorado Department of Public Health and Environment and the Tri-County Health Department confirmed that COVID-19 continues to spread throughout the state of Colorado including Douglas County, where the Company is located. On March 13, 2020, Douglas County declared a State of Emergency and on March 25, 2020, the Governor issued a “Stay-in-Home” executive order ordering Coloradans to stay in place due to the presence of COVID-19. The Tri-County Health Department, which has public health jurisdiction over a number of counties including Douglas County, issued a “Stay-at-Home” Public Health Order. The “Stay-at-Home” executive order and the public health order both directed residents to remain at home and only leave to engage in activities or perform tasks critical to their health and safety, or to the health and safety of their family or household members or to go to or return from place of employment that is considered critical work. The “Stay-at-Home” executive order exempted certain “critical businesses” including healthcare operations, which includes research and laboratory services and pharmaceutical and biotechnology companies. On April 26, 2020, the Governor and the Tri-County Health Department issued a “Safer-at-Home” that ended the “Stay-at-Home” order and permitted certain non-critical businesses to operate with restrictions. While the “Safer-at-Home” executive order allows non-critical businesses to begin operations subject to restriction, it still strongly encourages residents to remain at home. On June 1, 2020, the Governor and Tri-County Health Department issued a “Safer at Home and in the Vast, Great Outdoors” order, which allowed many Coloradoans to return to work and recreation in the great outdoors while maintaining a sustainable level of social distancing. However, the order still strongly encourages residents to remain at home. We believe we are considered a “critical business” as defined in the executive orders; however, the orders’ social distancing requirements have modestly impacted our operations. The extent of such impact continues to be uncertain at this time and will depend on the best path forward to obtain a Biological License Application, or BLA, for Ampion to treat patients suffering from pain caused by severe osteoarthritislength of the knee. time such restrictions continue.
As a result of these meetings, we continuedthe public health directives and orders, as of the date of this filing, approximately 50% of our discussionsworkforce are working remotely from their homes on either a full time or a part-time basis. In addition, and as a result of the public health directives and orders related to the COVID-19 pandemic, in April 2020 the Company paused all ongoing conduct associated with the AP-013 study, and we continue to monitor the COVID-19 health situation and updated FDA intoguidance on conducting clinical trials in a pandemic. In June 2020, increases in COVID-19 cases across the first quarterUnited States were reported. Due to the increase in reported cases, we have determined that the AP-013 study will remain paused until the safety of fiscal 2017 while analyzingour patients, clinical, and monitoring staff is no longer jeopardized. The continued executive order, shelter-in-place orders and our policies may continue to negatively impact productivity, have adverse effects on the best way to proceed towards filing our BLA for Ampion. BasedCompany’s business, operations, financial condition and results of operations, the magnitude of which will depend, in part, on these discussions with the FDA, we began an Ampion trial for the treatmentlength and severity of the signsrestrictions and symptomsother limitations on our ability to conduct our ongoing business operations.
While we continue to explore all viable options to complete the AP-013 study, it remains possible that the COVID-19 pandemic may prevent completion of severe OAK and announced the close of enrollment and dosing of patients in this trial on September 18, 2017. This 12-week study will evaluateover the responder rate of Ampion-treated patients as defined bynear term or at all. Even if the Osteoarthritis Research Society International (“OARSI”) Standing Committee for Clinical Trials Response Criteria Initiative (OMERACT), which includes pain, function, and patient global assessment. Based on this OMERACT-OARSI responder rate definition and the analysis proposed in this protocol, all previous Ampion single injections clinical trials would have successfully met this endpoint. We believe this trial will bestudy is completed in the fourth quarterfuture,
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the trial is successful, we plan to fileCompany anticipates the BLA thereafter, pending any partnership discussions.
We also intend to study Ampion for therapeutic applications other than osteoarthritisimpact of the knee and hand. We may engage development partners to study Ampion in various conditions including: (i) acute and chronic inflammatory conditions; (ii) degenerative joint diseases; and (iii) respiratory disorders. BasedCOVID-19 pandemic on the continuing evaluation, we are also studying Ampion’s effects on cellular behavior to indicate potential effects on disease modification across multiple conditions. If successful, we believe these additional formulations and potential therapeutic indicationsAP-013 study will supplement the Ampion clinical portfolio, and will enable clinical applications in large therapeutic markets where there are significant unmet needs.
OPTINA
Optina for Diabetic Macular Edema
Optina is a low-dose formulation of danazol that we are developing to treat diabetic macular edema, or DME. Danazol is a synthetic derivative of modified testosterone ethisterone, and we believe it affects vascular endothelial cell linkagelikely result in a biphasic manner. At low doses, danazol decreases vascular permeability by increasingsignificant delay of its previous projected timeline for submitting a BLA. The spread of COVID-19, which has caused a broad impact globally, may materially affect the barrier function of endothelial cells. The lipophilic low-molecular-weight weak androgen hasCompany economically in other ways. While the potential economic impact brought by and the duration of COVID-19 may be difficult to treat multiple angiopathies. Steroid hormones controlassess or predict, a varietywidespread pandemic could result in significant disruption of functions through slow genomic and rapid non-genomic mechanisms. Danazol immediately increases intracellular cyclic adenosine monophosphate through the rapid activation of membrane-associated androgen, steroid binding globulin, and calcium channel receptors. At lower concentrations, such as Optina, danazol bindsglobal financial markets, reducing our ability to androgen and steroid binding globulin receptors stimulating the formation ofaccess capital. In addition, a cortical actin ring. At higher concentrations, activation of the calcium channels shifts the balance towards stress fiber formation and increases vascular permeability.
When organized into a cortical ring, filamentous actin,recession or f-actin, increases the barrier function of endothelial cells by tethering adhesion molecule complexes to the cytoskeleton. In this orientation, increased cortical actin improves tight junctions which strengthen cell-to-cell adhesions. Formation of the cortical actin ring thereby restricts leakage across the cell membrane.
We have completed two clinical trials of Optina and met with the Division of the Transplant and Ophthalmology Products of the FDA in late 2015 to discuss the results of the OptimEyes clinical trial of Optina and to seek guidance on the next steps to approval. The guidancemarket correction resulting from the FDA was thatspread of COVID-19 could have a material adverse impact on our ability to raise requisite financing to support the business operations, which would adversely impact the value of our common stock.
As of June 30, 2020, we perform a confirmatory study on patients with DME who are refractory tohad $4.8 million of cash and cash equivalents. In April 2020, we received PPP proceeds of $544,000. As of July 31, 2020, we had received gross proceeds of $9.4 million from the currently available drugs, which if successful, would qualify Optina as a rescue medication for patients who have no treatment options (failed available therapies).
The FDA has indicated that, for §505(b)(2) NDAs, complete studiessale of the safety and effectiveness of a candidate product may not be necessary if appropriate bridging studies provide an adequate basis for reliance upon the FDA’s findings of safety and effectiveness for a previously approved product.
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Recent Financing Activities
In October 2017, we entered into a Securities Purchase Agreement, with certain investors. Pursuant to the terms of the Purchase Agreement, we agreed to sell approximately 7.716.6 million shares of common stock at a price per share of $0.875 per share. The gross proceeds from the offering were approximately $6.7 million. The costs associatedin connection with the Sales Agreement, which was offset by offering was approximately $419,000. The shares are being offeredrelated costs of $600,000. We anticipate using the ATM equity offering program and sold pursuantcould supplement the funds raised with separate private/public equity offering(s). Based on our current cash position, projection of operations and expected access to equity financing, we believe we will have sufficient liquidity to fund operations through the second quarter of 2021. This projection is based on many assumptions that may prove to be incorrect, including, but not limited to, the overall effectiveness of sourcing ongoing requisite capital through the ATM equity offering program in a manner that is not materially detrimental to the Company. As such, it is possible that the Company could exhaust its available cash and cash equivalents earlier than presently anticipated. In addition, the global COVID-19 pandemic continues to rapidly evolve and its effect on the Company’s shelf registration statement on Form S-3 that was declared effective byoperations and ability to raise capital through the SEC on April 20, 2017.ATM equity offering program, or otherwise, continues to be highly uncertain and subject to change. These existing and on-going factors continue to raise substantial doubt about our ability to continue as a going concern (see Note 2 to the Financial Statements).
In June 2017, we completed a registered direct offering. In this offering, we issued directly to multiple investors approximately 11.0 million shares of our common stock and approximately 11.0 million warrants to purchase shares of common stock. The common stock and warrants were sold in units, with each unit consisting of one share of common stock and a warrant to purchase one share of common stock. Each unit was sold to the investors in this offering at a negotiated price of $0.60 per unit generating gross proceeds of $6.6 million. The shares and the warrants were offered and sold pursuant to our shelf registration statement on Form S-3 thatOur New Shelf Registration Statement, which was declared effective by the SEC in April 2017.
The investor warrants have an exercise price of $0.76 per share and are exercisable starting on December 7, 2017 with a term of five years from issuance. The investor warrants include a provision where the warrant holder has the contractual right to request a cash exercise even if the effectiveness of the registration statement is not maintained, but securities law would preventMay 2020, provides us from issuing registered shares in a cash exercise. Therefore, we presumably could be forced to cash settle the warrant. Based on this additional derivative feature of the investor warrants, they must be accounted for as a liability at fair value under Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging”. On the date of issuance, these warrants were valued at $4.6 million.
In connection with the offering, the placement agent received an 8% commission totaling $533,000 and approximately 879,000 warrants with an exercise price of $0.76 and a termination date of June 1, 2022. These warrants had a value of $369,000 when they were issued and are accounted for as equity based warrants. We also incurred expenses relatedability to legal, accounting, and other registration cost of $292,000.
In September 2016, we completed a registered direct offering. In this offering, we issued directly to an institutional investor 5.0 million shares of our common stock and warrants to purchasesell up to 5.0$100.0 million shares of common stock. The common stock and warrants were sold in units, with each unit consisting of one share of common stock and a warrant to purchase one share of common stock. Each unit was sold to the investor in this offering at a negotiated price of $0.75 per unit generating gross proceeds of $3.75 million. The shares and the warrants were offered and sold pursuant to our December 2013 shelf registration statement on Form S-3.
The investor warrants had an exercise price of $1.00 per share and are immediately exercisable with a term of five years from issuance. In addition, the investor warrants included provisions for the adjustment to the exercise price upon subsequent issuances of our common stock at a price less than the warrant exercise price and the investor was entitled to purchase additional shares, such that the aggregate purchase price of $5.0 million for the warrant shares would remain unchanged. The investor warrants also include a provision for cash redemption at the Black-Scholes value at the request of the holder upon a change of control. Based on these additional derivative features of the investor warrants, they must be accounted for as a liability at fair value under Accounting Standards Codification (“ASC”) 480 “Distinguishing Liabilities from Equity”. On the date of issuance, these warrants were valued at $4.1 million.
In connection with the offering the placement agent received a 6% commission totaling $225,000 and 150,000 warrants with an exercise price of $0.9375 and a termination date of September 1, 2021. These warrants had a value of $89,000 when they were issued and were accounted for as equity based warrants. We also incurred expenses related to legal, accounting, and other registration cost of $113,000.
Our net cash proceeds from the registered direct offering were $3.4 million. The additional non-cash charges of $4.2 million related to the 5.0 million investor warrants and the 150,000 placement agent warrants were offset against the net cash transaction proceeds which exceeded 100% of the proceeds requiring us to take the additional cost above the transaction proceeds and recognize them as a loss on the day we entered the transaction. The loss on the transaction was $804,000 and was included in derivative expense on the statement of operations for the year ended December 31, 2016.
The Board of Directors determined that this transaction that generated net cash proceeds of $3.4 million was in our best interest as we had less than six months of cash based on our current burn rate when the transaction was completed. They believed this capital raise would give us time to advance our clinical trial efforts in the absence of more favorable alternative sources of financing.
On March 27, 2017, we entered into a Waiver and Consent Letter Agreement, or the Waiver and Consent Agreement, with the investor, amending the terms of warrants previously issued to the investor in September 2016. Under the Waiver and Consent Agreement, the investor waived the right to have the warrant exercise price reduced and the number of shares of common stock, underlyingpreferred stock, debt securities, warrants and units, less any sales from the warrant increased inATM equity offering program that occurred prior to May 6, 2020, which was the event we secure any financing, including debt, which includes issuing or selling shares of common stock for a price per share less than the warrant exercise price. The investor also waived the prohibition on our ability to issue or sell shares of our common stock, options or convertible securities at a price which varies or may vary with the market priceeffective date of the common stock or pursuant to an equity credit line or similar “at-the-market” offering. The waivers are permanent. In return, we agreed to reduce the exercise price of the warrants from $1.00 to $0.40 and to not issue or sell any shares of our capital stock for a period ofNew Shelf Registration Statement (see Note 10 trading days following the execution of the Waiver and Consent Agreement. All other terms of the warrants remained the same. Based upon the amendment to this warrant agreement, we recognized a non-cash derivative gain of $1.1 million during the quarter ended March 31, 2017.
We also have access to a controlled equity offering which we used to generate $153,000 of gross proceeds by selling 163,254 common shares in August 2016. The placement agent received a fixed commission of 3.0% of the gross proceeds from the shares sold. We could use the controlled equity offering to generate additional funding in the near future.
We did not use the controlled equity offering in the nine months ended September 30, 2017.
Known Trends or Future Events; Outlook
We are a clinical stage company that has not generated revenues and therefore have incurred significant net losses totaling $161.9 million since our inception in December 2008. We expect to generate operating losses for the foreseeable future, but intend to try to limit the extent of these losses by entering into co-development or collaboration agreements with one or more strategic partners. As of September 30, 2017, we had $1.8 million of cash. In October 2017, we raised net proceeds of $6.3 million from a Securities Purchase Agreement (See Note 11 to the Financial Statements). Based on this recent capital raise, we expect our capital resources will not last through the second quarter of 2018.
On September 1, 2017, we received a letter from the NYSE American, or the Exchange, stating that the Exchange had determined that we were not in compliance with Sections 1003(a)(iii) of the Exchange Company Guide and the stockholder’s equity continued listing standards applicable to us due to our recently reported stockholder’s equity of $3,734,756 as of June 30, 2017 and net losses in our five most recent fiscal years ended December 31, 2016 (See Item 1A).
We submitted a plan on October 2, 2017 advising the Exchange of the actions that will be taken to regain compliance with the continued listing standards by March 19, 2019. If our plan is accepted by the Exchange, then we will be able to continue our listing during the period ending March 1, 2019. During this period, we will be subject to periodic reviews, including quarterly monitoring, for compliance with the plan. If the plan is not accepted, delisting proceedings will commence.
Although we have raised capital with net proceeds of over $100 million in the past five years through the sale of common stock and warrants,However, we cannot assure yoube certain that we will be able to secure such additional financing or that itany funding, if secured under the New Shelf Registration Statement or otherwise, will be adequate to execute our business strategy. Even if we are able to obtain additional financing, itsuch additional financing may be costly and may require us to agree to covenants or other provisions that will favor new investors over existing shareholders.
Our primary focus for the remainder of fiscal 2017 is raising additional capital and advancing the clinical development and BLA preparation of our core asset, Ampion.
ACCOUNTING POLICIES
Significant Accounting Policies and Estimates
Our financial statements have beenwere prepared in accordance with accounting principles generally accepted in the United States of America.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 during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to recoverability of long-lived assets, valuation allowance,allowance(s), useful lives of assets and remaining useful lives, accrued compensation, stock compensation, the valuation of the Aytu BioScience investment and warrant derivative liability.liability, right-of-use asset, lease liability, clinical trial accrual, and the ability for the Company to continue as a going concern. 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 most critical accounting policies have a significant impact on the results we report in our financial statements. Our significant accounting policies and estimates are included in our 20162019 Annual Report on Form 10-K, filed with the SEC on March 16, 2017.
Report. Our significant accounting policies and estimates have not changed substantially from those previously disclosed in our 2019 Annual Report.
Newly Issued Accounting Pronouncements
Information regarding the recently issued accounting standards (adopted and not adopted as of SeptemberJune 30, 2017)2020) is contained in Note 1 to the Financial Statements.
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RESULTS OF OPERATIONS
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Results of Operations-SeptemberOperations – June 30, 20172020 Compared to SeptemberJune 30, 20162019
Results of operationsWe recognized a net loss for the three months ended SeptemberJune 30, 2017, or the “2017 quarter,” and2020 (“2020 quarter”) of $2.7 million compared to net income recognized of $421,000 for the three months ended SeptemberJune 30, 2016, or2019 (“2019 quarter”). The net loss during the “20162020 quarter” reflected net losses from continuing operations was primarily attributable to operating expenses of approximately $4.3$2.6 million and the non-cash derivative loss of $675,000; partially offset by the PPP loan funding of $544,000, which was classified as other income. The increase in our stock price from $0.42 as of March 31, 2020 to $0.64 as of June 30, 2020 caused the valuation of the warrant liability to increase resulting in a derivative loss during the 2020 quarter. The net income during the 2019 quarter was attributable to the recognition of a non-cash derivative gain of $4.0 million, respectively. These losses includewhich was partially offset by operating expenses of $3.6 million. The decrease in our stock price from $0.56 as of March 31, 2019 to $0.39 as of June 30, 2019 caused the valuation of the warrant liability to decrease resulting in a non-cash items of lossderivative gain during the 2019 quarter. The operating expenses for the 2020 quarter decreased $1.0 million from the 2019 quarter primarily due to a $1.0 million decrease in equity investment, unrealized loss on trading security, stock-based compensation, depreciation and amortization, write off of advance to stockholders, amortization of prepaid research and development - related partycosts.
We recognized a net loss for the six months ended June 30, 2020 (“2020 period”) of $7.9 million compared to a net loss of $5.4 million for the six months ended June 30, 2019 (“2019 period”). The net loss during the 2020 period was primarily attributable to operating expenses of $8.6 million, partially offset by the PPP loan funding of $544,000 and common stock issued for services. Innon-cash derivative gain of $156,000. The outstanding amount of investor warrants decreased due to warrant exercises, causing the 2017 quarter, there was a $1.1 million non-cash loss onvaluation of the warrant liability to decrease, which resulted in a non-cash derivative whichgain during the 2020 period. The derivative gain was slightly offset by the increase in our stock price from $0.58 as of December 31, 2019 to $0.64 as of June 30, 2020. The net loss during the 2019 period was attributable to operating expenses totaling $6.3 million, partially offset by the recognition of a non-cash derivative gain of $822,000 due primarily to warrant exercises. The operating expenses increased our loss.
Results of operations for$2.4 million from the nine months ended September 30, 2017, or2019 period to the “20172020 period” and the nine months ended September 30, 2016, or the “2016 period,” reflected net losses from continuing operations of approximately $8.8 primarily due to a $1.7 million and $15.8 million, respectively. These losses include non-cash items of lossincrease in equity investment, unrealized loss on trading security, stock-based compensation, depreciation and amortization, write off of advance to stockholders, amortization of prepaid research and development - related partycosts and common stock issued for services. In the 2017 period, there was a $2.1 million non-cash gain on the warrant derivative$693,000 increase in general and administrative costs, which decreased our loss. is further explained below.
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Operating Expenses
Research and Development
Research and development costs are summarized as follows:follows and excludes an allocation of general and administrative expenses:
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
Clinical trial and sponsored research expenses | | $ | (82,000) | | $ | 562,000 | | $ | 2,928,000 | | $ | 847,000 | |
Salaries and benefits | |
| 652,000 | |
| 736,000 | |
| 1,349,000 | |
| 1,369,000 | |
Depreciation | | | 293,000 | | | 308,000 | | | 586,000 | | | 611,000 | |
Laboratory | | | 95,000 | | | 144,000 | | | 187,000 | | | 269,000 | |
Operations / manufacturing | | | 67,000 | | | 147,000 | | | 101,000 | | | 258,000 | |
Regulatory / FDA | | | 55,000 | | | 119,000 | | | 77,000 | | | 164,000 | |
Stock-based compensation | |
| 11,000 | |
| 30,000 | |
| 71,000 | |
| 31,000 | |
Professional fees | | | 16,000 | | | 67,000 | | | 41,000 | | | 106,000 | |
Equipment rental and repair | | | 11,000 | | | 23,000 | | | 33,000 | | | 47,000 | |
Total research and development | | $ | 1,118,000 | | $ | 2,136,000 | | $ | 5,373,000 | | $ | 3,702,000 | |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Clinical trials and sponsored research | $ | 854,000 | $ | 493,000 | $ | 3,089,000 | $ | 4,663,000 | ||||||||
Labor | 476,000 | 514,000 | 1,767,000 | 2,109,000 | ||||||||||||
Consultants and other | 484,000 | 583,000 | 1,548,000 | 1,708,000 | ||||||||||||
Sponsored research - related party | - | 36,000 | 324,000 | 108,000 | ||||||||||||
Stock-based compensation | 179,000 | 162,000 | 255,000 | 317,000 | ||||||||||||
$ | 1,993,000 | $ | 1,788,000 | $ | 6,983,000 | $ | 8,905,000 |
Research and development costs consistdecreased approximately $1.0 million, or 48%, for the 2020 quarter compared to the 2019 quarter. Research and development costs with variances above $75,000 and 10% are explained below.
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Clinical trial and sponsored research labor, consultants and other, stock-based compensationexpenses
The clinical trial and sponsored research -expenses decreased $644,000, or 114.6%, for the 2020 quarter compared with the 2019 quarter as the AP-013 study was paused in April 2020 due to stay-at-home mandate(s) issued by state and federal governments in response to the pandemic and travel restrictions implemented by the CRO. In June 2020, increases in COVID-19 cases across the United States were reported. Due to the increase in reported cases, we have determined that the AP-013 study will remain paused until the safety of our patients, clinical, and monitoring staff is no longer jeopardized. Management has reviewed the clinical trial accrual assumptions for the AP-013 study and adjusted accordingly based on discussions with the CRO as of June 30, 2020, causing the clinical trial and sponsored research expense line item to be a credit balance as a result of a favorable accrual adjustment recorded in the current period totaling approximately $450,000. The Company continues to have ongoing discussions with the CRO to determine the best approach for the AP-013 study and, at this time, we are not in a position whereby we can reasonably estimate the full financial impact of COVID-19. However, the decrease in expenses related party. Researchto the AP-013 study was partially offset by expenses incurred for the nebulized Ampion safety study and development expense increased $204,000,the AP-016 study.
Salaries and benefits
Salary and benefit costs decreased $84,000, or 11.4%, for the 20172020 quarter compared towith the 2016 quarter. The increase is2019 quarter primarily due to clinical trials and sponsored research expense. The clinical trials expense is larger thantwo open positions, which are projected to remain open due to the sameuncertainty of the COVID-19 pandemic.
Operations / manufacturing
Operations / manufacturing expenses decreased $80,000, or 54.4%, for the 2020 quarter last yearcompared with the 2019 quarter as we initiated our current trialcompleted the production of Ampion vials which were utilized in the AP-013 study. However, we expect operations / manufacturing expenses to increase during the 2017 fiscal year. Labor costs decreased in 2017third quarter due to a reduction in headcount, as well as implementationthe approval of the new PTO policy. Consultants and other costs decreased in 2017 as we continue to focus on cost reduction measures.
IND for IV Ampion.
Research and development expense decreased $1.9costs increased approximately $1.7 million, or 21.6%45.1%, for the 20172020 period compared to the same period in 2016. 2019 period. Research and development costs with variances above $75,000 and 10% are explained below.
Clinical trial and sponsored research cost was $1.6expenses
The clinical trial and sponsored research expenses increased $2.1 million, higheror 245.6%, for the 2020 period compared with the 2019 period. The increase is primarily attributable to the expenses associated with the AP-013 study that commenced in June 2019.
Laboratory
Laboratory expenses decreased $82,000, or 30.5%, for the 2020 period compared with the 2019 period as we finalized a quality control project related to the manufacturing of Ampion during the 2019 period. However, we expect laboratory expenses to increase during the third quarter due to the approval of the IND for IV Ampion treatment.
Regulatory / FDA
Regulatory / FDA expenses decreased $87,000, or 53.0%, for the 2020 period compared with the 2019 period due to the unknown impact of COVID-19 on the AP-013 study. We now expect the incurrence of the remaining costs associated with the preparation of the BLA filing to be postponed until fiscal 2021, if not later.
Operations / manufacturing
Operations/manufacturing expenses decreased $157,000, or 60.9%, for the 2020 period compared with the 2019 period as we completed the production of Ampion vials to be utilized in the 2016 period comparedAP-013 study. As mentioned above, we expect operations / manufacturing expenses to increase during the third quarter due to the 2017 period because we were conducting a trial during the first three quarters of 2016. In 2017, the trial was started at the endapproval of the second quarter. For the remainderIND for IV Ampion treatment.
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General and Administrative
General and administrative expenses are summarized as follows:
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
Professional fees | | $ | 614,000 | | $ | 556,000 | | $ | 1,355,000 | | $ | 952,000 | |
Insurance | |
| 319,000 | |
| 155,000 | |
| 592,000 | |
| 285,000 | |
Salaries and benefits | | | 275,000 | | | 388,000 | | | 512,000 | | | 617,000 | |
Stock-based compensation | | | 53,000 | | | 42,000 | | | 286,000 | | | 129,000 | |
Facilities | |
| 120,000 | |
| 130,000 | |
| 247,000 | |
| 261,000 | |
Director fees | | | 60,000 | | | 84,000 | | | 143,000 | | | 150,000 | |
Travel and meetings | |
| 16,000 | |
| 41,000 | |
| 60,000 | |
| 55,000 | |
Other | | | 22,000 | | | 27,000 | | | 48,000 | | | 63,000 | |
Depreciation | | | 3,000 | | | 22,000 | | | 6,000 | | | 44,000 | |
Total general and administrative | | $ | 1,482,000 | | $ | 1,445,000 | | $ | 3,249,000 | | $ | 2,556,000 | |
General and administrative costs are summarized as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Occupancy, travel and other | $ | 575,000 | $ | 308,000 | $ | 1,373,000 | $ | 1,200,000 | ||||||||
Labor | 202,000 | 346,000 | 743,000 | 1,083,000 | ||||||||||||
Professional fees | 94,000 | 278,000 | 573,000 | 942,000 | ||||||||||||
Patent costs | 12,000 | 282,000 | 447,000 | 764,000 | ||||||||||||
Stock-based compensation | 127,000 | 281,000 | 414,000 | 1,069,000 | ||||||||||||
Directors fees | 63,000 | 61,000 | 227,000 | 171,000 | ||||||||||||
$ | 1,073,000 | $ | 1,556,000 | $ | 3,777,000 | $ | 5,229,000 |
increased $37,000, or 2.6%, for the 2020 quarter compared to the 2019 quarter. General and administrative costs decreased $483,000,with variances above $75,000 and 10% are explained below.
Insurance
Insurance expense increased $164,000, or 31.0%105.8%, for the 20172020 quarter compared to the 2016 quarter. Professional fees have2019 quarter primarily due to an increase in our D&O insurance premiums covering our new policy, which is consistent with increases experienced by the overall market for public biopharmaceutical companies.
Salaries and benefits
Salaries and benefits decreased $113,000, or 29.1%, for the 2020 quarter compared to the 2019 quarter primarily due to a reduction in legal fees fromseparation agreement for the class action lawsuits. The decrease in stock-based compensation is the result of option awards being granted at a lower strike price and previously awarded high priced options becoming fully vestedformer Chief Financial Officer (“CFO”), which was executed during the 20162019 quarter. Labor cost has decreased in 2017 because of a reduction in headcount and not recording a monthly bonus accrual. Patent costs have decreased due to us delaying non-essential patent renewals until 2018 as we focus on Ampion, in addition to a credit memo received from the patent attorney related to Aytu.
General and administrative costs decreased $1.5 million,increased $693,000, or 27.8%27.1%, for the 20172020 period compared to the 20162019 period. General and administrative costs with variances above $75,000 and 10% are explained below.
Professional fees
Professional fees increased $403,000, or 42.3%, for the 2020 period compared to the 2019 period primarily due to an increase in legal fees related to ongoing current litigation and other matters, as well as fees paid to a strategic advisory firm to evaluate strategic opportunities for the Company.
Insurance
Insurance expense increased $307,000, or 107.7%, for the 2020 period compared to the 2019 period. As noted above, primarily due to an increase in our D&O insurance premiums covering our new policy, which is consistent with increases experienced by the overall market for public biopharmaceutical companies.
Salaries and benefits
Salaries and benefits decreased $105,000, or 17.0%, for the 2020 period compared to the 2019 period primarily due to a separation agreement for the former CFO, which was executed during the 2019 quarter.
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Stock-based compensation
Stock-based compensation increased $157,000, or 121.7%, for the 2020 period compared to the 2019 period due to our focus on cost reduction measures. Occupancy, travel and other expenses increased due to a contractual agreement to grow potential partnerships. During the nine months ended September 30, 2017, we did not have expenses relating to stock-based compensation from the accelerationissuance of the Aytu stock options held by Ampioto employees and professional fees related to shareholder lawsuits that were experienced during the same time period in 2016. We expect our general and administrative expenses to continue to decrease during the remainder of 2017 as we focus on cost reduction measures.Q1 2020.
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Cash Flows
Loss from Operations –
The loss from operationsCash flows for the quarter ended September 30, 2017 of $4.3 million is greater than the loss from operations of $4.0 million for the same quarter in 2016. The loss from operations during the nine months ended September 30, 2017 of $8.8 million is less than the loss from operations of $15.8 million for the same period in 2016. As stated previously, we expect our clinical trial expense to continue to increaserespective periods are as we conduct a new Ampion trial and prepare to file the BLA with the FDA.follows:
| | | | | | |
| | Six Months Ended June 30, | ||||
| | 2020 | | 2019 | ||
Net cash used in operating activities | | $ | (9,143,000) | | $ | (5,894,000) |
Net cash used in investing activities | |
| — | | | (14,000) |
Net cash provided by financing activities | |
| 7,453,000 | | | 11,105,000 |
Net change in cash and cash equivalents | | $ | (1,690,000) | | $ | 5,197,000 |
Net Cash Used in Operating Activities
During the 2017 period,six months ended June 30, 2020 our operating activities used approximately $8.8$9.1 million in cash, which was equal to themore than our net loss of $8.8$7.9 million primarily as a result of thea decrease in working capital, excluding cash and cash equivalents, totaling $1.5 million and non-cash gain inadjustment for the warrant derivatives which was offsetderivative and PPP funding totaling $0.7 million; partially off-set by an increase in accounts payable, stock based compensation,non-cash charges related to depreciation and amortization, stock-based compensation and issuance of common stock for services totaling $1.0 million.
During the acceleration of the related party amortization.
In the 2016 period,six months ended June 30, 2019, our operating activities used approximately $12.0$5.9 million in cash, which was lessslightly more than theour net loss of $15.8$5.4 million, primarily as a result of thean increase in working capital, excluding cash and cash equivalents, totaling $0.6 million and non-cash items such as losses in equity investments in Aytu,charges related depreciation and amortization, stock-based compensation and depreciation and amortizationissuance of common stock for services totaling $0.9 million; offset by decrease in accounts payable.a non-cash adjustment for the warrant derivative totaling $0.8 million.
Net Cash Used in Investing Activities
During the 2017 period,six months ended June 30, 2020, $0 cash was used to acquire $33,000manufacturing machinery and equipment.
During the six months ended June 30, 2019, cash was used to acquire $14,000 of manufacturing machinery and equipment.
Net Cash from Financing Activities
During the 2017 period, there weresix months ended June 30, 2020, we received gross proceeds of $7.9 million from the sale of 14.3 million shares of common stock in connection with the Sales Agreement, which was offset by offering related costs of $0.6 million. We also received proceeds of $100,000 from warrant exercises.
During the six months ended June 30, 2019, we received gross proceeds of $12.0 million from the sale of common stock in a registered directpublic offering, of $6.6 millionwhich was offset by offering costs of $812,000.
During the 2016 period, there were gross proceeds from the registered direct offering and controlled equity offering of $3.9 million with net$1.2 million. We also received proceeds of $3.5 million.$350,000 from warrant exercises.
Liquidity and Capital Resources
To date, weWe have not generated revenuesoperating revenue or profits. Our primary activities aresince inception have been focused on research and clinical development advancing our primary product candidates, andactivities for the advancement of Ampion towards BLA submission, which has required raising capital. As of SeptemberJune 30, 2017,2020, we do not have a fixed and determinable committed source of liquidity to meet our expected obligations for the next twelve months. Specifically, we had $1.8$4.8 million of cash. In October 2017, wecash and cash equivalents
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as of June 30, 2020. We anticipate using the ATM equity offering program and could supplement the funds raised net proceeds of $6.3 million from a Securities Purchase Agreement (See Note 11 to the Financial Statements)with separate private/public equity offering(s). Based on this recent capital raise,our current cash position, projection of operations and expected access to equity financing, we expect our capital resourcesbelieve we will not lasthave sufficient liquidity to fund operations through the second quarter of 2018.2021. This projection is based on severalmany assumptions that may prove to be incorrect, andincluding, but not limited to, the overall effectiveness of sourcing ongoing requisite capital through the ATM equity offering program and/or private/public equity program(s). As such, it is possible that we could exhaust our available cash and cash equivalents earlier than presently anticipated. In addition, the global pandemic of COVID-19 continues to rapidly evolve and its effects on our business, financial condition and results of operations are highly uncertain and subject to change. We anticipate that we will be requiredseek to seekraise additional capital investments in both the near and long-term to continue ourenable us to primarily support (i) clinical development, (ii) BLA preparation and submission, (iii) existing base business operations and (iv) commercial development activities for Ampion. We intend to evaluatecontinue our close evaluation of the overall capital markets from time to time to determine whether to raise additionalthe appropriate timing for any such capital in the form of equity, convertible debt or otherwise, dependingraising activity, which will primarily depend on our stock price and existing market conditions relative to our need for funds at such time, andtime.
The audit reports on our financial statements for the fiscal year ended December 31, 2019 contained an explanatory paragraph indicating that there was substantial doubt about our ability continue as a going concern. In order to address the going concern, we are in negotiations with potential investors for near-term financing.
We have prepared a budget for 2017 whichprojection through June 30, 2021. This projection reflects cash requirements for fixed, on-going expenses such as payroll, legal and accounting, patents and overhead at an average cash burn rate of approximately $700,000$800,000 per month. Additional funds are plannedThe Company continues to closely monitor and assess the impact of the COVID-19 pandemic, including the recent spike in COVID-19 cases in the United States, on the AP-013 study, and, as such, is not currently in a position to project the required liquidity needs for regulatory approvals, clinical trials, outsourced research and development and commercialization consulting.completion of the study. Accordingly, we believe that it will be necessary to continue the disciplined raise of additional capital and/or enter into licensing or collaboration agreements.agreements to fund the further development and regulatory activities that we plan to conduct. In May 2020, we declared the New Shelf Registration Statement effective and have approximately $95.6 million available with 104.9 million authorized shares remaining as of June 30, 2020 (see Note 10 of the Financial Statements). At this time, we expect to satisfy our future cash needs through our disciplined use of our ATM equity offering program, which may be further leveraged with the use of other means of private or public sales of our securities, option/warrant exercises, debt financings and/or a partnering/licensing transaction or our Controlled Equity Offering Sales Agreement that we entered into in February 2016. We cannot be certain that financing will be available to us on acceptable terms, or at all. Over the last three years,transaction. The continued volatility in the financial markets has adversely affected the market capitalizations of many pharmaceuticalpre-revenue stage biopharmaceutical companies, particularly small capitalization companies such as Ampio, and generally has made equity and debt financing more difficult to obtain.obtain in a manner that is not significantly detrimental to the business and without significant dilution to existing shareholders. This volatility, coupledalong with the COVID-19 pandemic and other factors, may limit our access to additional financing and/or make the additional financing dilutive to our current shareholders.financing.
If we cannot raise adequate additionalobtain funding through capital raises and/or partnering/licensing transactions in the future when we require it,deemed necessary, we will likely be required to delay, reduce the scope of or eliminate one our development, manufacturing and/or more of our research or developmentregulatory programs for Ampion and/or our future commercialization efforts and/or suspend operations for a period of time until we are able to raisesecure additional capital. We alsofunding. If we are not successful in raising sufficient funds to pay for further development and licensing of Ampion, we may be requiredchoose to license or otherwise relinquish greater, or all rights to product candidatesAmpion, at an earlier stage of development or on less favorable terms than we would otherwise choose. This maycould lead to impairment or other charges, which could materially affect our balance sheet and operating results.
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”.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk. |
We are not currently exposed to material market risk arising from financial instruments, changes in interest rates or commodity prices or fluctuations in foreign currencies. We have no need to hedge against any of the foregoing risks and therefore currently engage in no hedging activities.
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Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term isterms 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 isare 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 officerChief Executive Officer (“CEO”) and chief financial officer,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 senior management, including the chief executive officerCEO and the chief financial officer,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 chief executive officerCEO and the chief financial officerCFO concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective at the reasonable assurance level.
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.II – OTHER INFORMATION
Item 1. Legal Proceedings. Information regarding our Legal Proceedings is contained in Note 13 to the Financial Statements. |
As previously disclosed, on May 8, 2015 and May 14, 2015, purported stockholders of the Company brought two putative class action lawsuits in the United States District Court in the Central District of California, Napoli v. Ampio Pharmaceuticals, Inc., et al., Case No. 2:15-cv-03474-TJH and Stein v. Ampio Pharmaceuticals, Inc., et al., Case No. 2:15-cv-03640-TJH (the “Securities Class Actions”), alleging that Ampio and certain of its current and former officers violated federal securities laws by misrepresenting and/or omitting information regarding the STEP study. The cases were consolidated, and on February 8, 2016, the plaintiffs filed a consolidated amended complaint alleging claims under Sections 10(b) and 20(a) and Rule 10b-5 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Sections 11 and 15 under the Securities Act of 1933 on behalf of a putative class of purchasers of common stock from January 13, 2014 through August 21, 2014, including purchasers in the Company’s offering on February 28, 2014. On September 27, 2016, plaintiffs filed a second amended complaint, alleging the same claims set forth in the consolidated amended complaint during the same class period. On or about November 8, 2016, the parties reached an agreement in principle on a comprehensive settlement of all claims asserted in the lawsuit with no admission of liability by any defendants and with any settlement amounts being funded by insurance. On September 29, 2017, the settlement was finally approved by the Court and all claims were dismissed with prejudice and with no admission or finding of any liability or wrongdoing by the defendants.
Item 1A. Risk Factors. |
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q and the risk factors included below, you should carefully consider the factors in Part I, “Item 1A. Risk Factors” in our 2019 Annual Report as updated by our Quarterly Reports on Form 10-K for the year ended December 31, 2016, as10-Q filed with the SEC, which could materially affect our business, financial condition or future results. During the period covered
Our business, financial condition and results of operations may be materially adversely affected by this Quarterly Report on Form 10-Q, except as noted below, there were no material changesglobal health epidemics, including, but not limited to, the risk factors describedrecent COVID-19 pandemic.
Outbreaks of epidemic, pandemic or contagious diseases such as COVID-19, could have an adverse effect on our business, financial condition and results of operations. In January 2020, the WHO announced a global health emergency because of COVID-19. In March 2020, the WHO declared the outbreak COVID-19, a global pandemic, based on the rapid increase in exposure globally. The COVID-19 pandemic has and continues to significantly affect the United States and global economies. The outbreak has and may continue to affect the Company’s operations and those of third parties on which the Company relies, including negatively impacting the conduct of current clinical trials.
More specifically, our Annual Report on Form 10-K forAP-013 study has been and may continue to be significantly affected by the fiscal year ended December 31, 2016.
Risks RelatedCOVID-19 pandemic. As a result of the continuation of the pandemic, clinical site monitoring and patient visits may continue to Our Common Stock
Webe delayed due to government mandated and/or CRO initiated travel restrictions and prioritization of clinic resources toward the COVID-19 pandemic. Some patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly, the listing requirementsability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, could be
35
challenging and may be delisted from,adversely impact our clinical trial operations. In April 2020, we paused all ongoing conduct associated with the NYSE American
Our common stock trades onAP-013 study. In June 2020, steady increases in COVID-19 cases in certain regions across the NYSE American, orUnited States were reported. Due to the Exchange. The Exchange imposes various quantitative and qualitative requirements to maintain listing, including minimum stockholders’ equity requirements. On September 1, 2017,continued steady increase in reported cases, we received a letter from the Exchange statinghave determined that the Exchange had determined thatAP-013 study will remain paused.
However, we were not in compliance with Sections 1003(a)(iii) of the Exchange Company Guide and the stockholder’s equity continued listing standards applicable to us due to our recently reported stockholder’s equity of $3,734,756 as of June 30, 2017 and net losses in our five most recent fiscal years ended December 31, 2016.
We submitted a plan on October 2, 2017 advising the Exchange of the actions that will be taken to regain compliance with the continued listing standards by March 19, 2019. If our plan is accepted by the Exchange, then we willbelieve Ampion may be able to treat the serious complications related to the COVID-19 outbreak, including the need for supplemental oxygen and the rapid onset of respiratory failure, termed ARDS or ALI, and we are pursuing new studies related to these life-threatening COVID-19 manifestations. Clinical trials for Ampion that address these serious complications could be impacted if the pandemic subsides or if there is not a sufficient number of COVID-19 patients located in the area where we perform clinical trials.
The full extent of potential impacts of the COVID-19 pandemic on our business and product development, including our clinical trials, financial condition and the global economy will depend on future developments, which are highly uncertain and cannot be predicted due to the uncertain nature of the COVID-19 pandemic and its effects, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. These effects could have a material adverse impact on our business, operations, financial condition and results of operations. Existing insurance coverage may not provide protection for all, or any, costs that may arise from all such possible events. We continue listing duringto assess the period ending March 1, 2019. Duringimpact of COVID-19 on our business operations, system supports and financial condition, but there can be no assurance that this period, weanalysis will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally or in our sector in particular.
There are no assurances that the PPP loan will be forgivable in whole or in part.
In April 2020, the Company received PPP proceeds of $544,000. The PPP loan matures in April 2022 and has an annual interest rate of 1.0%. Payments of principal and interest are deferred until August 2021. Pursuant to Section 1106 of the CARES Act and as amended by Section 3(c) of the Flexibility Act, the Company may apply for and be granted forgiveness for all or a portion of the PPP loan. Such forgiveness will be determined, subject to periodic reviews, including quarterly monitoring for compliance withlimitations, based on the plan. If the plan is not accepted, delisting proceedings will commence. Furthermore, if the plan is accepted by the Exchange, but we are not in compliance with the continued listing standardsuse of the Exchange Company Guide by March 1, 2019, or if we do not make progress consistent withloan proceeds for qualifying expenses, which include payroll costs, rent, and utility costs over the plan, then the Exchange staff will initiate delisting proceedings as appropriate. Although24-week measurement period following receipt of the proceedsloan proceeds.
According to the Flexibility Act, the lender has 60 days from our registered direct offeringreceipt of the completed application to issue a decision to the SBA. If the lender determines that the borrower is entitled to forgiveness of some or all of the amount applied for under the statue and applicable regulations, the lender must request payment from the SBA at the time the lender issues its decision to the SBA. The SBA will, subject to any SBA review of the loan or loan application, remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, not later than 90 days after the lender issues its decision to the SBA. However, the Company cannot give any assurance that it will obtain forgiveness of the PPP loan in October 2017, we believe we arewhole or in compliance with the stockholders’ equity continued listing standards applicable to us, there can be no assurances that we will be able to continue to comply with the Exchange listing requirements.part.
Item 2. Unregistered Sales of Securities and Use of Proceeds. |
None.
Item 3. Defaults Upon Senior Securities. |
None.
Item 4. Mine Safety Disclosures. |
None.
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Item 5. Other Information. |
None.
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.
* Filed herewith.
(1) | Incorporated by reference from the |
37
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
38 |