Equity Instruments | Note 7 - Equity Instruments Options In 2010, Ampio shareholders approved the adoption of a stock and option award plan (the “2010 Plan”), under which shares were reserved for future issuance under restricted stock awards, options, and other equity awards. The 2010 Plan permits grants of equity awards to employees, directors and consultants. The shareholders have approved a total of 11.7 million shares reserved for issuance under the 2010 Plan. During the nine months ended September 30, 2018, the Company granted 115,000 options at a weighted average exercise price of $0.51 to an officer and five employees. Former employees and executives exercised 409,666 options with a weighted average exercise price of $2.06. The Company received $636,400 as of September 30, 2018 related to these option exercises. A total of 3,334 options were forfeited and 355,000 expired as of September 30, 2018. The following table summarizes Ampio’s stock option activity: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregated Intrinsic Value Outstanding at December 31, 2017 7,247,165 $ 2.87 5.16 12,739,512 Granted 115,000 $ 0.51 - - Exercised (409,666 ) $ 2.06 - - Forfeited (3,334 ) $ 1.02 - - Expired or Cancelled (355,333 ) $ 5.09 - - Outstanding at September 30, 2018 6,593,832 $ 2.77 4.13 7,784 Exercisable at September 30, 2018 6,242,164 $ 2.88 3.89 7,411 Available for grant at September 30, 2018 3,198,478 Stock options outstanding at September 30, 2018 are summarized in the table below: Range of Exercise Prices Number of Options Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Lives $0.48 - $2.00 3,083,554 $ 0.89 5.28 $2.01 - $5.00 2,285,278 $ 3.10 3.43 $5.01 - $8.93 1,225,000 $ 6.86 2.56 6,593,832 $ 2.77 4.13 Ampio computes the fair value for all options granted or modified using the Black-Scholes option pricing model. To calculate the fair value of the options, certain assumptions are made regarding components of the model, including the 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. Ampio calculates its volatility assumption using the actual changes in the market value of its stock. Ampio adopted ASU 2016-09 in fiscal 2017 and no longer estimates a forfeiture rate. Instead, forfeitures are recognized as they occur. The Company’s historical option exercises do not provide a reasonable basis to estimate an expected term due to the lack of sufficient data. Therefore, the Company estimates the expected term by using the simplified method. The simplified method calculates the expected term as the average time to vest and the contractual life of the options. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity. Ampio has computed the fair value for options granted and modified during the period ended September 30, 2018, using the following assumptions: Expected volatility 100.66% - 127.60% Risk free interest rate 1.86% - 2.96% Expected term (years) 0.32 - 5.00 Dividend yield 0.0 % Stock-based compensation expense related to the fair value of stock options is included in the statements of operations as research and development expenses or general and administrative expenses as set forth in the table below. The following table summarizes stock-based compensation expense for the three and nine months ended September 30, 2018 and 2017: Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Research and development expenses Stock-based compensation $ 20,000 $ 179,000 $ 73,000 $ 255,000 General and administrative expenses Common stock issued for services - - 60,000 60,000 Stock-based compensation 75,000 127,000 214,000 354,000 $ 95,000 $ 306,000 $ 347,000 $ 669,000 Unrecognized expense at September 30, 2018 $ 68,000 Weighted average remaining years to vest 1.26 Warrants In connection with the August 2018 confidentially marketed public offering, Ampio issued warrants to purchase an aggregate of 20.0 million shares of common stock at an exercise price of $0.40 with a term of five years. Due to certain derivative features, these warrants are accounted for under liability accounting and are recorded at fair value each reporting period. As of September 30, 2018, these warrants had a fair value of $8.7 million. Significant assumptions as of September 30, 2018 and at issuance were as follows: September 30, 2018 At Issuance Exercise Price $ 0.40 $ 0.40 Volatility 123.7 % 121.8 % Equivalent term (years) 4.87 5.00 Risk-free interest rate 2.94 % 2.75 % Number of shares 19,950,000 20,000,000 In connection with the June 2017 registered direct offering, Ampio issued investor warrants to purchase an aggregate of approximately 11.0 million shares of common stock at an exercise price of $0.76 with a term of five years. Due to certain derivative features, these warrants are accounted for under liability accounting and are recorded at fair value each reporting period. As of September 30, 2018, these warrants had a fair value of $2.4 million. Significant assumptions as of September 30, 2018 and at issuance were as follows: September 30, 2018 At Issuance Exercise Price $ 0.76 $ 0.76 Volatility 137.2 % 94.6 % Equivalent term (years) 3.67 5.00 Risk-free interest rate 2.90 % 1.71 % Number of shares 6,093,582 10,990,245 The combined value for the warrant liability as of September 30, 2018 is $11.1 million (see Note 4). In connection with the 2016 registered direct offering, Ampio issued to an investor warrants to purchase an aggregate of 5.0 million shares of common stock at an exercise price of $1.00 with a term of five years. In March 2017, the exercise price of these warrants was reduced from $1.00 to $0.40. Due to certain derivative features, these warrants were accounted for under liability accounting and are recorded at fair value each reporting period. As of September 30, 2018, no fair value was recorded as these warrants were exercised in full during the first quarter of 2018. During the 2017 registered direct offering, Ampio issued placement agent warrants to purchase an aggregate of approximately 879,000 shares of common stock at an exercise price of $0.76 with a term of five years. These warrants were accounted for as equity-based awards (see Note 6). They were valued using the Black-Scholes methodology. During 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 6). They were valued using the Black-Scholes methodology. The following table summarizes Ampio’s warrant activity: Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life Outstanding at December 31, 2017 13,332,243 $ 0.73 4.01 Warrants issued 20,000,000 $ 0.40 Warrants exercised (6,200,476 ) $ 0.50 Warrants expired (498,576 ) $ 3.24 Outstanding at September 30, 2018 26,633,191 $ 0.49 4.56 During the nine months ended September 30, 2018, the Company issued 50,000 shares of common stock from the exercise of investor warrants with an exercise price of $0.40 from the 2018 confidentially marketed public offering. The Company also issued 1,511,999 shares of common stock from the exercise of investor warrants with an exercise price of $0.76 from the 2017 registered direct offering. In addition, the Company issued 4,500,000 shares of common stock from the exercise of investor warrants at an exercise price of $0.40 from the 2016 registered direct offering. After this warrant exercise, the Company no longer has outstanding $0.40 warrants from the 2016 registered direct offering. The Company has received approximately $3.0 million as of September 30, 2018 related to these investor warrant exercises. In July 2018, 138,477 103,148 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. These warrants all expired as of June 30, 2018. 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 6). As noted above, these warrants were exercised in full during the first quarter of 2018. |