Ampio Pharmaceuticals(AMPE) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Presents Ampio Pharmaceuticals' unaudited condensed financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, with detailed notes Condensed Balance Sheets Total assets and stockholders' equity significantly decreased due to reduced cash and an accumulated deficit, while current liabilities increased | Metric | June 30, 2023 | December 31, 2022 | Change (Absolute, $) | Change (%) | | :--------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Cash and cash equivalents | $6,953,000 | $12,653,000 | $(5,700,000) | -45.05% | | Total current assets | $9,149,000 | $13,329,000 | $(4,180,000) | -31.36% | | Total assets | $9,149,000 | $13,588,000 | $(4,439,000) | -32.67% | | Total current liabilities | $2,495,000 | $1,192,000 | $1,303,000 | 109.31% | | Total liabilities | $2,589,000 | $1,799,000 | $790,000 | 43.91% | | Accumulated deficit | $(239,244,000) | $(233,939,000) | $(5,305,000) | 2.27% | | Total stockholders' equity | $6,560,000 | $11,789,000 | $(5,229,000) | -44.36% | Condensed Statements of Operations Net loss decreased due to significant reductions in operating expenses, particularly R&D and G&A costs | Metric (Unaudited) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $344,000 | $1,743,000 | $868,000 | $5,430,000 | | General and administrative | $1,216,000 | $3,245,000 | $5,036,000 | $6,528,000 | | Total operating expenses | $1,560,000 | $4,988,000 | $5,960,000 | $11,958,000 | | Total other income | $189,000 | $2,918,000 | $611,000 | $4,252,000 | | Net loss | $(1,371,000) | $(2,070,000) | $(5,349,000) | $(7,706,000) | | Basic Net loss per share | $(0.09) | $(0.14) | $(0.35) | $(0.51) | | Diluted Net loss per share | $(0.09) | $(0.33) | $(0.35) | $(0.79) | Condensed Statements of Stockholders' Equity Total stockholders' equity decreased from $11.8 million to $6.6 million due to net loss, partially offset by warrant reclassification and share-based compensation | Metric | December 31, 2022 | June 30, 2023 | Change (Absolute, $) | Change (%) | | :----------------------------------------- | :---------------- | :------------ | :---------------- | :--------- | | Total Stockholders' Equity | $11,789,000 | $6,560,000 | $(5,229,000) | -44.36% | | Accumulated Deficit | $(233,939,000) | $(239,244,000) | $(5,305,000) | 2.27% | | Reclassification of warrant derivative | — | $44,000 | $44,000 | N/A | | Share-based compensation, net of forfeitures | $245,726,000 (APIC) | $245,802,000 (APIC) | $76,000 | 0.03% | - Issuance of 15,103 Series D Preferred Stock shares as a dividend on May 24, 2023, subsequently redeemed on July 27, 2023, upon stockholder approval of a reverse stock split[21][72][74] Condensed Statements of Cash Flows Net cash used in operating activities significantly decreased to $5.7 million due to lower net loss and working capital changes | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change (Absolute, $) | Change (%) | | :---------------------------------- | :----------------------------- | :----------------------------- | :---------------- | :--------- | | Net cash used in operating activities | $(5,700,000) | $(10,891,000) | $5,191,000 | -47.66% | | Net cash provided by investing activities | — | — | — | N/A | | Net cash used in financing activities | — | $(111,000) | $111,000 | -100.00% | | Net change in cash and cash equivalents | $(5,700,000) | $(11,002,000) | $5,302,000 | -48.19% | Notes to Condensed Financial Statements Detailed notes explain financial statements, covering accounting policies, asset/liability changes, commitments, equity, and subsequent events Note 1 – The Company and Summary of Significant Accounting Policies Ampio is a pre-revenue biopharmaceutical company focused on the OA.201 program, facing substantial doubt about its going concern ability - Ampio is a pre-revenue biopharmaceutical company, shifting focus from Ampion and AR-300 to the OA.201 program, which involves optimizing two potential small molecule formulations for clinical development[27] - The company adopted ASU 2020-06 effective January 1, 2023, which did not have a material impact on its financial statements[40] - The company has an accumulated deficit of $239.2 million as of June 30, 2023, and expects continued operating losses, raising substantial doubt about its ability to continue as a going concern[34][37] Note 2 – Current Assets, Excluding Cash and Cash Equivalents The company recorded a $1.38 million insurance recovery receivable, and prepaid expenses increased due to higher unamortized commercial insurance premiums - Insurance recovery receivable of $1,380,000 as of June 30, 2023, for legal defense costs above the $2.5 million self-insured retention, with $1.0 million received in early Q3 2023[42][35] Prepaid Expenses and Other | Prepaid Expenses and Other | June 30, 2023 | December 31, 2022 | | :------------------------- | :------------ | :---------------- | | Unamortized commercial insurance premiums | $696,000 | $610,000 | | Deposits | $34,000 | $34,000 | | Professional fees | $48,000 | $19,000 | | Other | $38,000 | $13,000 | | Total | $816,000 | $676,000 | Note 3 – Fixed Assets Fixed assets, net, decreased to $0 due to facility sublease and asset sale, significantly reducing depreciation expense Fixed Assets, Net | Fixed Assets, Net | June 30, 2023 | December 31, 2022 | | :---------------- | :------------ | :---------------- | | Fixed assets, net | $0 | $184,000 | - All fixed assets were sold to a subtenant as part of a sublease agreement effective March 1, 2023, resulting in zero net fixed assets[44] Depreciation and Amortization Expense | Depreciation and Amortization Expense | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Expense | $0 | $256,000 | $122,000 | $518,000 | Note 4 – Accounts Payable and Accrued Expenses Accounts payable and accrued expenses increased significantly to $2.14 million, driven by higher professional fees, accounts payable, and insurance premium financing Accounts Payable and Accrued Expenses | Accounts Payable and Accrued Expenses | June 30, 2023 | December 31, 2022 | Change (Absolute, $) | Change (%) | | :------------------------------------ | :------------ | :---------------- | :---------------- | :--------- | | Professional fees | $596,000 | $157,000 | $439,000 | 279.62% | | Accounts payable | $627,000 | $97,000 | $530,000 | 546.39% | | Preclinical and clinical trials | $271,000 | $89,000 | $182,000 | 204.49% | | Commercial insurance premium financing | $545,000 | $189,000 | $356,000 | 188.36% | | Accrued severance | $1,000 | $143,000 | $(142,000) | -99.30% | | Total | $2,141,000 | $852,000 | $1,289,000 | 151.29% | - Entered into a nine-month insurance premium financing agreement for $703,000 in June 2023, with an 8.00% annual interest rate and monthly payments of $59,000[50] Note 5 - Commitments and Contingencies The company has employment agreements with severance, terminated related party research, and subleased its facility, gaining from ARO derecognition - Employment agreements are in place for the CFO (Daniel Stokely, term until Oct 2024, salary $335,000) and CEO (Michael A. Martino, term until Nov 2023, salary $550,000), both with severance clauses[51] - All related party research agreements were terminated by November 4, 2022, with remaining obligations paid, and no related party agreements were in effect as of June 30, 2023[52] - Effective March 1, 2023, the company subleased its facility, transferring rent, utilities, and insurance responsibilities to the subtenant, leading to the derecognition of a $294,000 ARO and a non-cash gain of $288,000[54] Lease Liability (June 30, 2023) | Lease Liability (June 30, 2023) | Amount ($) | | :------------------------------ | :---------- | | Remaining Facility Lease Payments | $464,000 | | Less: Discount Adjustment | $(16,000) | | Total lease liability | $448,000 | | Lease liability-current portion | $354,000 | | Long-term lease liability | $94,000 | Note 6 – Warrants Following ASU 2020-06 adoption, liability-classified warrants were reclassified, with 1.065 million equity-classified warrants outstanding and no derivative liability - Adoption of ASU 2020-06 on January 1, 2023, reclassified "investor" liability-classified warrants to accumulated deficit[59] Warrant Status | Warrant Status | Number of Warrants | Weighted Average Exercise Price ($) | Weighted Average Remaining Contractual Life (years) | | :-------------------------- | :----------------- | :------------------------------ | :------------------------------------------ | | Outstanding as of Dec 31, 2022 | 1,065,137 | $15.94 | 3.80 years | | Outstanding as of Jun 30, 2023 | 1,065,137 | $15.94 | 3.30 years | - No warrant derivative liability as of June 30, 2023, compared to $44,000 as of December 31, 2022[61] Note 7 - Fair Value Considerations After adopting ASU 2020-06, warrant derivative liability was reclassified, resulting in no Level 1, 2, or 3 financial liabilities - The company adopted ASU 2020-06 effective January 1, 2023, reclassifying the warrant derivative liability to stockholders' equity[64][66] Liabilities (December 31, 2022) | Liabilities (December 31, 2022) | Level 1 ($) | Level 2 ($) | Level 3 ($) | Total ($) | | :------------------------------ | :------ | :------ | :-------- | :-------- | | Warrant derivative liability | $— | $— | $44,000 | $44,000 | - As of June 30, 2023, there were no financial liabilities classified as Level 1, 2, or 3 in the fair value hierarchy[66] Note 8 - Common Stock The company has 300 million authorized common shares, with 15.1 million outstanding and 283.1 million available, and its ATM program expired Common Stock Metrics (June 30, 2023) | Common Stock Metrics (June 30, 2023) | Number of Shares | | :----------------------------------- | :--------------- | | Authorized shares | 300,000,000 | | Common stock outstanding | 15,102,877 | | Options outstanding | 254,388 | | Warrants outstanding | 1,065,137 | | Reserved for issuance under 2019 Plan | 484,372 | | Available shares for future issuance | 283,093,226 | - The ATM equity offering program expired on May 6, 2023, and had no activity during the three months ended June 30, 2023[71] Note 9 – Mezzanine Equity and Stockholders' Equity A Series D Preferred Stock dividend was declared and redeemed, classified as mezzanine equity, while stock options decreased due to forfeitures - On May 24, 2023, a dividend of 15,103 Series D Preferred Stock shares was declared, each carrying 1,000,000 votes for reverse stock split and adjournment proposals, classified as mezzanine equity and redeemed on July 27, 2023[72][73][74][77] Stock Option Activity | Stock Option Activity | Number of Options | Weighted Average Exercise Price ($) | Weighted Average Remaining Contractual Life (years) | | :-------------------------------- | :---------------- | :------------------------------ | :------------------------------------------ | | Outstanding as of Dec 31, 2022 | 297,460 | $14.97 | 6.41 years | | Forfeited, expired and/or cancelled | (43,072) | N/A | N/A | | Outstanding as of Jun 30, 2023 | 254,388 | $15.87 | 7.08 years | - No options were granted or modified during the quarter ended June 30, 2023[85] Note 10 - Earnings Per Share Basic and diluted net loss per common share decreased, reflecting reduced net loss, with potentially dilutive shares excluded due to anti-dilutive effect EPS Metric (Unaudited) | EPS Metric (Unaudited) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss available to common stockholders | $(1,371,000) | $(4,956,000) | $(5,349,000) | $(11,923,000) | | Basic EPS | $(0.09) | $(0.14) | $(0.35) | $(0.51) | | Diluted EPS | $(0.09) | $(0.33) | $(0.35) | $(0.79) | Potentially Dilutive Shares (Excluded) | Potentially Dilutive Shares (Excluded) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Warrants | 1,065,137 | 1,065,137 | 1,065,137 | 1,065,137 | | Outstanding stock options | 254,388 | 436,608 | 254,388 | 436,608 | | Restricted stock awards | 8,933 | 13,400 | 8,933 | 13,400 | | Total | 1,328,458 | 1,515,145 | 1,328,458 | 1,515,145 | Note 11 – Subsequent Events Post-quarter, stockholders approved a reverse stock split and the 2023 Stock and Incentive Plan, leading to Series D Preferred Stock redemption - On July 27, 2023, stockholders approved a reverse stock split proposal (ratio between 5-to-1 and 20-to-1) and the 2023 Stock and Incentive Plan, which replaced the 2019 plan and reserved 1,200,000 shares[93][95] - All 15,103 Series D Preferred Stock shares were redeemed and retired on July 27, 2023, following the Annual Meeting approvals[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Net loss decreased due to reduced operating expenses, but liquidity is a concern, requiring future capital or strategic alternatives ACCOUNTING POLICIES Financial statements adhere to GAAP, relying on management estimates, with no substantial changes to accounting policies from the 2022 Annual Report - Financial statements are prepared under GAAP, relying on management estimates and judgments[97] - Significant accounting policies and estimates remain largely unchanged from the 2022 Annual Report[99] RESULTS OF OPERATIONS Net loss reduced in Q2 and H1 2023 due to significant decreases in total operating expenses, particularly R&D and G&A costs Results of Operations – June 30, 2023 Compared to June 30, 2022 Net loss decreased to $1.4 million for Q2 2023 and $5.3 million for H1 2023, primarily due to significant operating expense reductions | Metric (Unaudited) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(1,371,000) | $(2,070,000) | $(5,349,000) | $(7,706,000) | | Total operating expenses | $1,560,000 | $4,988,000 | $5,960,000 | $11,958,000 | Operating Expenses Total operating expenses significantly decreased, with R&D down 80% and G&A down 63% for the quarter, due to program discontinuation and cost reductions Research and Development R&D costs decreased by 80% for Q2 and 84% for H1, driven by Ampion trial discontinuation, RIF, facility shutdown, and outsourced services R&D Expense Category (Unaudited) | R&D Expense Category (Unaudited) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Pre-clinical, clinical trial & sponsored research | $49,000 | $162,000 | $32,000 | $2,087,000 | | Salaries and benefits | $60,000 | $580,000 | $186,000 | $1,352,000 | | Depreciation | $0 | $250,000 | $123,000 | $506,000 | | Laboratory | $111,000 | $246,000 | $317,000 | $506,000 | | Professional fees | $121,000 | $314,000 | $245,000 | $508,000 | | Operations/manufacturing | $0 | $75,000 | $(6,000) | $280,000 | | Share-based compensation | $3,000 | $95,000 | $(30,000) | $141,000 | | Total R&D | $344,000 | $1,743,000 | $868,000 | $5,430,000 | - R&D costs decreased due to discontinuation/finalization of Ampion clinical trials (AP-013, AP-017, AP-018, AP-019) and a 78% reduction in force[107][108][116][117] - Operations/manufacturing expenses ceased due to the shutdown of the clean room/manufacturing facility in Q3 2022[109][120] General and Administrative G&A costs decreased by 63% for Q2 and 23% for H1, primarily due to reduced legal costs, lower salaries, and decreased facilities expense G&A Expense Category (Unaudited) | G&A Expense Category (Unaudited) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Professional fees | $455,000 | $2,581,000 | $3,377,000 | $3,984,000 | | Salaries and benefits | $262,000 | $292,000 | $536,000 | $925,000 | | Share-based compensation | $50,000 | $(181,000) | $106,000 | $488,000 | | Facilities | $68,000 | $148,000 | $183,000 | $285,000 | | Total G&A | $1,216,000 | $3,245,000 | $5,036,000 | $6,528,000 | - Professional fees decreased significantly due to lower legal costs related to SEC investigations and lawsuits, with a $1.4 million insurance recovery offsetting costs in Q2 2023[125][129] - Facilities expense decreased due to the sublease agreement in March 2023, transferring utilities and operating costs to the subtenant[127] Other income Other income for H1 2023 was $611,000, primarily from increased interest income and a non-cash gain from ARO elimination due to facility sublease - Interest income increased by $166,000 to $201,000 for the six months ended June 30, 2023, due to rising interest rates[133] - Recognized a non-cash gain of $288,000 from the elimination of the ARO and derecognition of the ARO asset following the March 2023 sublease agreement[133] - No derivative gain on warrant liability in 2023 due to the adoption of ASU 2020-06, which converted the warrant liability to stockholders' equity[133] Cash Flows Net cash used in operating activities decreased by 47.66% to $5.7 million due to lower net loss and working capital changes | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change (Absolute, $) | Change (%) | | :---------------------------------- | :----------------------------- | :----------------------------- | :---------------- | :--------- | | Net cash used in operating activities | $(5,700,000) | $(10,891,000) | $5,191,000 | -47.66% | | Net cash provided by investing activities | — | — | — | N/A | | Net cash used in financing activities | — | $(111,000) | $111,000 | -100.00% | | Net change in cash and cash equivalents | $(5,700,000) | $(11,002,000) | $5,302,000 | -48.19% | - The decrease in cash used in operating activities was primarily due to a lower net loss and a decrease in working capital[134] Liquidity and Capital Resources The pre-revenue company, with $7.0 million cash, expects funding only into Q1 2024, requiring future capital and raising going concern doubts - As of June 30, 2023, the company had $7.0 million in cash and cash equivalents and a $1.4 million insurance recovery receivable, providing liquidity to fund operations into Q1 2024[140] - Future development of the OA.201 program and addressing NYSE American minimum stockholders' equity requirements will likely require equity offerings, potentially leading to significant shareholder dilution[140][141] - Substantial doubt exists about the company's ability to continue as a going concern, with management actively monitoring expenses, utilizing an outsourcing philosophy, and considering strategic alternatives, with liquidation or bankruptcy protection as potential outcomes if capital is not secured[143] Off Balance Sheet Arrangements The company does not have any off-balance sheet arrangements, financings, or relationships with unconsolidated entities - The company has no off-balance sheet arrangements[144] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Ampio Pharmaceuticals, Inc. is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk[145] Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls were effective, with no material changes in internal control over financial reporting Disclosure Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023 - The CEO and CFO evaluated and concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[148] Changes in Internal Control over Financial Reporting There were no material changes in internal control over financial reporting during the period covered by the report - No material changes in internal control over financial reporting occurred during the period covered by the report[149] PART II – OTHER INFORMATION Item 1. Legal Proceedings No material developments occurred in pending legal proceedings as of June 30, 2023 - No material developments in pending legal proceedings as of June 30, 2023[150] Item 1A. Risk Factors Readers should consider risk factors from the 2022 Annual Report and other SEC filings, as they could materially affect business or financial condition - Readers should consider risk factors from the 2022 Annual Report and other SEC filings, as they could materially affect business, financial condition, or future results[151] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the current report - Not applicable[151] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities - None[151] Item 4. Mine Safety Disclosures This item is not applicable to the current report - Not Applicable[151] Item 5. Other Information No directors or officers reported adoption, modification, or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No directors or officers reported adoption, modification, or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2023[152] Item 6. Exhibits This section lists all exhibits filed or furnished with the Quarterly Report on Form 10-Q, including certificates, bylaws, and XBRL financial statements - The report includes an Exhibit Index listing various documents such as Certificates of Incorporation, Bylaws, CEO/CFO certifications, and XBRL financial statements[154][155] SIGNATURES SIGNATURES The report is signed by Michael A. Martino (CEO) and Daniel G. Stokely (CFO) on August 8, 2023, certifying its submission - The report was signed by Michael A. Martino (CEO) and Daniel G. Stokely (CFO) on August 8, 2023[157]