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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: September 30, 2023

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission File Number: 001-35182

Graphic

AMPIO PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

26-0179592

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

9800 Mount Pyramid Court, Suite 400

Englewood, Colorado 80112

(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area code): (720) 437-6500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol

    

Name of each exchange on which registered:

Common stock, par value $0.0001 per share

AMPE

NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

 

 

 

 

Non-Accelerated Filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       No  

As of November 10, 2023, there were 832,021 outstanding shares of common stock, par value $0.0001 per share, of the registrant.

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our anticipated future clinical developments, future financial position, and plans and objectives of management for future operations, are forward-looking statements. Words such as “may”, “will”, “should”, “forecast”, “could”, “expect”, “suggest”, “believe”, “estimate”, “continue”, “anticipate”, “intend”, “ongoing”, “opportunity”, “potential”, “predicts”, “seek”, “plan,” or similar words, or the negatives of such terms or other variations on such terms or comparable terminology, typically identify forward-looking statements. Such forward-looking statements include, but are not limited to, statements relating to the following:

projected operating or financial results, including anticipated cash flows used in operations or the effect of any actions we may take to reduce expenses and preserve cash and cash equivalents and overall liquidity of the Company;
potential outcomes of preclinical and clinical (assuming FDA approval of the IND) trials for OA-201, any future capital expenditures, research and development expenses and other payments relating to OA-201, and any capital raising activities to fund OA-201 research and development related expenses and to support the ongoing corporate support for the Company;
our strategic alternatives process, including any potential interested counterparty, transaction structure, timing and transaction expense associated with any strategic alternative and the potential success of any strategic alternative(s);
the amount and timing of our future capital needs to fund future research and development expenses relating to OA-201 and our baseline business operations, to regain compliance with NYSE American’s requirement to maintain $6.0 million in minimum stockholders’ equity, or to fund expenses relating to any legal proceeding to the extent that such expenses are not covered or are in excess of our policy limits;
the expense, time and/or outcome of any legal proceeding; and
our ability to identify strategic partners for OA-201 or any other potential product and the execution of beneficial license, co-development, collaboration or similar arrangements.

We undertake no obligation to update or revise publicly any forward-looking statements to reflect events or circumstances after the date of such statements for any reason, except as otherwise required by law.

Forward-looking statements are based on certain assumptions and expectations of future events and trends that are subject to risks and uncertainties. Actual future results and trends may differ materially from historical results or those reflected in any such forward-looking statements depending on a variety of factors.

Factors that could cause our actual results to differ from the results expressed or implied in forward-looking statements include, but are not limited to, those described in the section entitled “Risk Factors” in Part I, Item 1A of the Form 10-K for the year ended December 31, 2022 and other similar sections of our subsequent reports, including Part II, Item 1A of this Quarterly Report on Form 10-Q. Additionally, other sections of this Quarterly Report include additional factors that could adversely impact the business and financial performance expressed or implied in any forward-looking statements, including, but not limited to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

This Quarterly Report on Form 10-Q includes trademarks for Ampion®, which are protected under applicable intellectual property laws and are our property. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names.

3

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

AMPIO PHARMACEUTICALS, INC.

Condensed Balance Sheets

(unaudited)

September 30, 

December 31, 

    

2023

    

2022

Assets

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

6,398,000

$

12,653,000

Insurance recovery receivable

530,000

Prepaid expenses and other

 

718,000

 

676,000

Total current assets

 

7,646,000

 

13,329,000

Fixed assets, net

 

 

184,000

Right-of-use asset, net

75,000

Total assets

$

7,646,000

$

13,588,000

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable and accrued expenses

$

1,909,000

$

852,000

Lease liability-current portion

 

362,000

 

340,000

Total current liabilities

 

2,271,000

 

1,192,000

Lease liability-long-term

 

 

274,000

Warrant derivative liability

 

 

44,000

Asset retirement obligation

289,000

Total liabilities

 

2,271,000

 

1,799,000

Commitments and contingencies (Note 5)

 

  

 

  

Stockholders’ equity

 

  

 

  

Common Stock, par value $0.0001; 300,000,000 shares authorized; shares issued and outstanding - 804,604 as of September 30, 2023 and 804,674 as of December 31, 2022

[1]

 

 

Preferred Stock, par value $0.0001; 10,000,000 shares authorized; shares issued and outstanding - none as of September 30, 2023 and December 31, 2022

 

 

Additional paid-in capital

 

245,848,000

[1]

 

245,728,000

Accumulated deficit

 

(240,473,000)

 

(233,939,000)

Total stockholders’ equity

 

5,375,000

 

11,789,000

Total liabilities and stockholders’ equity

$

7,646,000

$

13,588,000

[1] September 30, 2023 balances have been adjusted and December 31, 2022 balances have been retroactively adjusted to reflect the 20-to-1 reverse stock split effected September 12, 2023.

The accompanying notes are an integral part of these financial statements.

4

AMPIO PHARMACEUTICALS, INC.

Condensed Statements of Operations

(unaudited)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2023

    

2022

    

2023

    

2022

    

Operating expenses

 

  

 

  

 

  

 

  

 

Research and development

$

329,000

$

2,747,000

$

1,197,000

$

8,177,000

General and administrative

 

1,071,000

 

2,975,000

 

6,106,000

 

9,504,000

Long-lived assets impairment

1,614,000

1,614,000

Right of use asset impairment

322,000

322,000

Loss on sale of fixed assets

56,000

Total operating expenses

 

1,400,000

 

7,658,000

 

7,359,000

 

19,617,000

Other income

 

  

 

  

 

  

 

  

Interest income

 

79,000

 

80,000

 

280,000

 

116,000

Rental income

92,000

213,000

Gain from elimination of ARO obligation, net

288,000

Derivative gain

 

 

1,167,000

 

 

5,384,000

Total other income

 

171,000

 

1,247,000

 

781,000

 

5,500,000

Net loss

$

(1,229,000)

$

(6,411,000)

$

(6,578,000)

$

(14,117,000)

Net loss per common share: [1]

 

  

 

  

 

  

 

  

Basic

$

(1.53)

$

(8.51)

$

(8.18)

$

(18.73)

Diluted

$

(1.53)

$

(10.06)

$

(8.18)

$

(25.88)

Weighted average number of common shares outstanding: [1]

Basic

 

804,158

753,620

804,158

753,616

Diluted

804,158

753,620

804,158

753,616

[1] Net loss per common share and weighted average number of common shares outstanding for the current period have been adjusted and the prior periods have been retroactively adjusted to reflect the 20-to-1 reverse stock split effected September 12, 2023.

The accompanying notes are an integral part of these financial statements.

5

AMPIO PHARMACEUTICALS, INC.

Condensed Statements of Mezzanine Equity and Stockholders’ Equity

(unaudited)

Mezzanine Equity

Additional

Total

Series D Preferred

Common Stock

Paid-in

Accumulated

Stockholders'

    

Shares

    

Amount

Shares

    

Amount

    

Capital

Deficit

    

Equity

Balance at December 31, 2021

 

$

808,136

$

$

244,886,000

$

(217,602,000)

$

27,284,000

Share-based compensation, net of forfeitures

 

 

 

 

716,000

 

716,000

Shares held back in settlement of tax obligation for shares issued in connection with restricted stock awards

(462)

(79,000)

(79,000)

Offering costs related to the issuance of common stock in connection with the "at-the-market" equity offering program

(32,000)

(32,000)

Net loss

 

 

 

 

(5,636,000)

 

(5,636,000)

Balance at March 31, 2022

807,674

245,491,000

(223,238,000)

22,253,000

Share-based compensation, net of forfeitures

423,000

423,000

Restricted stock award forfeitures

(3,000)

(509,000)

(509,000)

Net loss

(2,070,000)

(2,070,000)

Balance at June 30, 2022

804,674

245,405,000

(225,308,000)

$

20,097,000

Share-based compensation, net of forfeitures

163,000

163,000

Net loss

(6,411,000)

(6,411,000)

Balance at September 30, 2022

$

804,674

$

$

245,568,000

$

(231,719,000)

$

13,849,000

Balance at December 31, 2022

$

804,674

$

$

245,728,000

$

(233,939,000)

$

11,789,000

Reclassification of warrant derivative upon adoption of ASU 2020-06

44,000

44,000

Share-based compensation, net of forfeitures

23,000

23,000

Net loss

(3,978,000)

(3,978,000)

Balance at March 31, 2023

804,674

245,751,000

(237,873,000)

7,878,000

Share-based compensation, net of forfeitures

53,000

53,000

Issuance of Series D preferred stock dividend

15,103

Net loss

(1,371,000)

(1,371,000)

Balance at June 30, 2023

15,103

804,674

245,804,000

(239,244,000)

6,560,000

Share-based compensation, net of forfeitures

44,000

44,000

Preferred stock redemption

(15,103)

Shares held back in settlement of tax obligation for shares issued in connection with restricted stock awards

(70)

Net loss

(1,229,000)

(1,229,000)

Balance at September 30, 2023

$

804,604

$

$

245,848,000

$

(240,473,000)

$

5,375,000

Note that the share numbers and balances for the current period have been adjusted and prior periods have been retroactively adjusted to reflect the 20-to-1 reverse stock split effected September 12, 2023.

The accompanying notes are an integral part of these financial statements.

6

AMPIO PHARMACEUTICALS, INC.

Condensed Statements of Cash Flows

(unaudited)

    

Nine Months Ended September 30, 

    

    

2023

    

2022

    

Cash flows used in operating activities

Net loss

$

(6,578,000)

$

(14,117,000)

Adjustments to reconcile net loss to net cash used in operating activities:

Share-based compensation, net of forfeitures

 

120,000

 

793,000

Depreciation and amortization

 

122,000

 

865,000

Long-lived assets impairment

1,614,000

Right-of-use asset impairment

322,000

Loss on sale of fixed assets

56,000

Net gain from elimination of ARO obligation

(288,000)

Accretion of asset retirement obligation

5,000

Derivative gain

 

 

(5,384,000)

Changes in operating assets and liabilities:

Increase in insurance recovery receivable

(530,000)

(Increase) decrease in prepaid expenses and other

 

(43,000)

 

366,000

Increase (decrease) in accounts payable and accrued expenses

 

1,058,000

 

(1,219,000)

Decrease in lease liability

 

(177,000)

 

(74,000)

Net cash used in operating activities

 

(6,255,000)

 

(16,834,000)

Net cash used in investing activities

 

 

Cash flows used in financing activities

Costs related to the sale of common stock and warrants in connection with the registered direct offering

(32,000)

Funding of tax obligation relative to shares withheld in connection with restricted stock awards

(79,000)

Net cash used in financing activities

 

 

(111,000)

Net change in cash and cash equivalents

 

(6,255,000)

 

(16,945,000)

Cash and cash equivalents at beginning of period

 

12,653,000

 

33,892,000

Cash and cash equivalents at end of period

$

6,398,000

$

16,947,000

Non-cash transactions:

Commercial insurance premium financing agreement

$

703,000

$

1,159,000

Recognition of asset retirement obligation

$

$

282,000

The accompanying notes are an integral part of these financial statements.

7

AMPIO PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

(unaudited)

Note 1 – The Company and Summary of Significant Accounting Policies

Ampio Pharmaceuticals, Inc. (“Ampio” or the “Company”) is a pre-revenue stage biopharmaceutical company focused on the development of a potential treatment for osteoarthritis as part of its OA-201 program. The OA-201 development program is seeking to advance Ampio’s unique and proprietary small molecule formulation to take forward through pain and chondroprotection pre-clinical studies and the next phases of drug development. Ampio’s primary strategy is to address the large and attractive opportunity for treatment of osteoarthritis of the knee (“OAK”) and other joints.

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information and with the instructions of the Securities and Exchange Commission (“SEC”) on Quarterly Reports on Form 10-Q and Article 8 of Regulation S-X. Accordingly, such financial statements do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, the financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the financial position and of the results of operations and cash flows of the Company for the periods presented.

On November 9, 2022, the Company effected a 15-to-1 reverse stock split. On September 12, 2023, the Company effected a 20-to-1 reverse stock split. The Company has applied and retroactively applied, the reverse stock splits to share and per share amounts in the condensed financial statements for the three and nine months ended September 30, 2023 and September 30, 2022. Additionally, pursuant to their terms, a proportionate adjustment was made to the per share exercise price and number of shares issuable under all the Company’s outstanding options under the 2010 / 2019 Stock and Incentive Plans and warrants, with any fractional shares rounded up to the next whole share. The number of shares authorized for issuance pursuant to the Company’s 2023 Stock and Incentive Plan (the “2023 Plan”) was not impacted by the 20-to-1 reverse stock split (see Note 9 for additional information). The Company also applied and retroactively applied such adjustments in the notes to the condensed financial statements for the three and nine months ended September 30, 2023 and September 30, 2022. The reverse stock split did not reduce the number of authorized shares of common stock and preferred stock and did not alter the par value.

These financial statements should be read in conjunction with the audited financial statements and accompanying notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K (the “2022 Annual Report”). The results of operations for the interim period shown in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The information as of and for the three and nine months ended September 30, 2023 and September 30, 2022 is unaudited. The balance sheet at December 31, 2022 was derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company has no off-balance-sheet concentrations of credit risk, such as foreign exchange contracts, option contracts or foreign currency hedging arrangements. The Company consistently maintains its cash and cash equivalent balances in the form of bank demand deposits, United States federal government backed treasury securities and fully liquid money market fund accounts with financial institutions that management believes are creditworthy. The Company periodically monitors its cash positions with, and the credit quality of, the financial institutions with which it invests. As of and subsequent to March 31, 2023, the Company no longer maintains balances in excess of federally insured limits.

8

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses, and related disclosures in the financial statements and accompanying notes. The Company bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.

Significant items subject to such estimates and assumptions primarily include the Company’s projected current and long-term liquidity needs and availability and the amount and collectability of the insurance recovery receivable representing amounts advanced by the Company in excess of the previously paid $2.5 million self-insured retention for defense costs relating to currently pending lawsuits and the SEC investigation that is expected to be covered and paid by its directors’ and officers’ insurance. The Company develops these estimates using its judgment based upon the facts and circumstances known to it at the time.

Liquidity / Going Concern

The Company is a pre-revenue stage biopharmaceutical company that has incurred an accumulated deficit of $240.5 million as of September 30, 2023. The Company expects to generate continued operating losses for the foreseeable future as it pursues the continued development and advancement of the OA-201 program, with the plan that it will source the requisite liquidity primarily through capital raising efforts.

As of September 30, 2023, the Company had $6.4 million of cash and cash equivalents and an insurance recovery receivable of $0.5 million. Based on the current cash / liquidity position, current projection of operating expenses and assumption regarding the collectability in full of the insurance recovery receivable, the Company believes it will have sufficient liquidity to fund business operations into the first quarter of 2024. Cash resources and capital needs are based upon management’s estimates as to future operating expenses and the timing of collection of the insurance recovery receivable, which involve significant judgment. If the Company is able to successfully optimize a small molecule formulation to advance into development, it intends to fund the future development of the OA-201 program through one or more offerings of its equity securities. The Company also may seek to raise equity capital, which could lead to a possibility of a cure of non-compliance with the $6.0 million minimum stockholders’ equity requirement of the NYSE American exchange. Accordingly, the Company may require a greater amount of capital than presently anticipated or may require capital more quickly than presently anticipated, or both.

Additionally, as the Company’s board of directors continues to evaluate strategic alternatives, the forecasts regarding the sufficiency of liquidity are based upon maintaining current operations.

Additional financing may not be available in the amount or at the time the Company needs it or may not be available on acceptable terms or at all. If the Company raises additional equity financing, our stockholders may experience significant dilution of their ownership interests and the value of shares of our common stock could decline. The Company’s efforts to raise additional funds from the sale of equity may be hampered by the currently depressed trading price of the common stock and the restrictions on ATM agreement sales or other offering types based on the current market capitalization of the Company. If the Company raises additional equity financing, new investors may demand rights, preferences, or privileges senior to those of existing holders of common stock.

Based on the above, these existing and ongoing factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited interim financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

These financial statements do not include any separate adjustments relating to the recovery of recorded assets or the classification of liabilities, which adjustments may be necessary in the future should the Company be unable to continue as a going concern.

9

Adoption of Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, “Debt (Subtopic 470-20); Debt with Conversion and Other Options and Derivatives and Hedging (Subtopic 815-40) Contracts in Entity’s Own Equity”. The updated guidance is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. Consequently, more convertible debt instruments will be reported as single liability instruments with no separate accounting for embedded conversion features. The ASU 2020-06 also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. In addition, ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The updated guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted for periods beginning after December 15, 2020. The Company adopted ASU 2020-06 effective January 1, 2023. The adoption of ASU 2020-06 did not have a material impact on the Company’s financial statements.

Recent Accounting Pronouncements

This Quarterly Report on Form 10-Q does not discuss recent pronouncements that are not anticipated to have a current and/or future impact on or are unrelated to the Company’s financial condition, results of operations, cash flows or disclosures.

Note 2 – Current Assets, Excluding Cash and Cash Equivalents

The Company recorded an insurance recovery receivable of $530,000 on its balance sheet as of September 30, 2023, which is owed from the insurance carrier with respect to amounts advanced by the Company in excess of the previously paid $2.5 million self-insured retention for defense costs relating to currently pending lawsuits and the SEC investigation that is expected to be covered and paid by our directors’ and officers’ insurance.

Prepaid expenses and other balances as of September 30, 2023 and December 31, 2022 are as follows:

    

    

September 30, 2023

December 31, 2022

Unamortized commercial insurance premiums

$

517,000

$

610,000

Deferred issuance costs

136,000

Deposits

34,000

34,000

Other

31,000

32,000

Total prepaid expenses and other

$

718,000

$

676,000

Note 3 – Fixed Assets

Fixed assets are recorded based on acquisition cost and once placed in service, are depreciated utilizing the straight-line method over their estimated economic useful lives. Leasehold improvements are accreted over the shorter of the estimated economic life or related lease term. Effective March 1, 2023, the Company entered into a sublease of its

10

existing facility and in connection with that sublease, entered into a bill of sale with the subtenant for all the Company’s existing fixed assets (see Note 5).

Fixed assets, net of accumulated depreciation, consist of the following:

Estimated

Useful Lives

    

 (in Years)

    

September 30, 2023

December 31, 2022

Leasehold improvements

 

10

$

$

4,965,000

Manufacturing facility/clean room

 

3 - 8

 

 

2,803,000

Lab equipment and office furniture

 

5 - 8

 

 

1,661,000

Fixed assets, gross

9,429,000

Accumulated depreciation

(9,245,000)

Fixed assets, net

$

$

184,000

Depreciation and amortization expense for the respective periods is as follows:

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2023

    

2022

    

2023

    

2022

    

Depreciation and amortization expense

$

$

347,000

$

122,000

$

865,000

Note 4 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses as of September 30, 2023 and December 31, 2022 are as follows:

    

September 30, 2023

December 31, 2022

    

Accounts payable

$

459,000

$

97,000

Professional fees

737,000

157,000

Commercial insurance premium financing

 

354,000

 

189,000

Preclinical and clinical trials

185,000

89,000

Property taxes

60,000

74,000

Franchise taxes

17,000

78,000

Accrued severance

143,000

Other

97,000

25,000

Accounts payable and accrued expenses

$

1,909,000

$

852,000

Commercial Insurance Premium Financing Agreement

In June 2023, the Company entered into an insurance premium financing agreement for $703,000, with a term of nine months, annual interest rate of 8.00% and made a down payment of $171,000. Under the terms and provisions of the agreement, the Company is required to make principal and interest payments totaling $59,000 per month over the remaining term of the agreement.

11

Note 5 - Commitments and Contingencies

Employment Agreements

As of September 30, 2023, the Company is a party to an employment agreement with Michael A. Martino, Chief Executive Officer, dated November 22, 2021 and amended August 30, 2022 with an initial base salary of $550,000. The amendment on August 30, 2022 extended the term to November 22, 2023. On October 1, 2023, the Company and Michael A. Martino entered into a second amendment to the employment agreement, which changed the term ending on November 22, 2023 to an indefinite term. All other terms and conditions of Mr. Martino’s employment agreement remain unchanged.

As of September 30, 2023, the Company is a party to an employment agreement dated October 11, 2021 with Daniel Stokely to serve in the capacity as the Company’s Chief Financial Officer with an initial base salary of $335,000 and an initial term ending in October 2024.

Under these employment agreements, each executive is entitled to a severance payment in the event the Company terminates employee’s employment without cause, or employee terminates his employment with good reason.

Related Party Research Agreements

On February 4, 2022, the Company entered into a sponsored research services agreement with Trauma Research, LLC, an entity owned by one of the Company’s former directors. The agreement totaled $400,000 for research activities to be performed over the next two years. In addition, the Company also entered into a personal services agreement dated February 4, 2022 with that individual to provide research services. The agreement payments totaled $250,000, which were to be paid in four equal installments payable quarterly over the one-year term. On August 5, 2022, the Company delivered notice of termination of the personal services agreement, effective September 5, 2022, and paid the remaining obligation of $21,000. On August 5, 2022, the Company delivered notice of termination of the research services agreement, effective November 4, 2022, and paid the remaining obligation of $63,000. There are no related party agreements in effect as of September 30, 2023.

12

Facility Lease

The Company is a party to a Lease Agreement (the “Lease”) with Beta Investors Group, LLC (successor by assignment to NCWP – Inverness Business Park, LLC) (the “Landlord”) dated December 13, 2013 pursuant to which the Company has leased office and manufacturing space in Suite 200 and Suite 204 in the building located at 373 Inverness Parkway, Englewood, Colorado (the “Premises”). The lease was a 125-month non-cancellable operating lease for office space and a manufacturing facility, set to expire September 2024 with the right to renew for an additional 60 months. The effective date of the Lease was May 1, 2014. The initial base rent of the Lease was $23,000 per month. The total base rent over the term of the Lease is approximately $3.3 million, which includes rent abatements and leasehold incentives.

Effective March 1, 2023, the Company entered into a sublease agreement whereby the Company subleased the Premises for a term commencing on March 1, 2023 and continuing until the expiration for the Lease on September 30, 2024. The subtenant will pay to the Company rent and other amounts assessed by the Landlord against the Company under the Lease. The subtenant is also responsible for utilities and insurance under the sublease agreement. Under the terms and conditions of the sublease agreement, the Company was fully released of its obligation under the Lease to dismantle and remove certain components of leasehold improvements at the end of the lease term. Accordingly, the Company derecognized its asset retirement obligation (“ARO”) in the amount of $294,000 which resulted in the recognition of a non-cash gain totaling $288,000 gain, net of $6,000 loss on the derecognition of the ARO asset.

The following table provides a reconciliation of the Company’s remaining undiscounted payments for its facility lease and the carrying amount of the lease liability disclosed on the balance sheet as of September 30, 2023:

    

Facility Lease Payments

    

2023

    

2024

    

2025

    

2026

    

2027

    

Thereafter

Remaining Facility Lease Payments

$

372,000

$

92,000

$

280,000

$

$

$

$

Less: Discount Adjustment

 

(10,000)

Total lease liability

$

362,000

Lease liability-current portion

$

362,000

Long-term lease liability

$

The Company recorded lease expense in the respective periods as follows:

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2023

    

2022

    

2023

    

2022

    

Lease expense

$

7,000

$

70,000

$

108,000

$

221,000

Note 6 – Warrants

The Company adopted ASU 2020-06 effective January 1, 2023 using the modified retrospective method, and accordingly reclassified its “investor” liability classified warrants to accumulated deficit. The Company’s “placement agent” warrants were previously classified as equity. The Company had approximately 53,000 equity-classified warrants as of September 30, 2023.

    

    

Weighted

    

Weighted Average

Number of

Average

Remaining

Warrants

Exercise Price

Contractual Life

Outstanding as of December 31, 2022

53,263

$ 318.80

3.80

Outstanding as of September 30, 2023

 

52,751

$ 320.62

 

3.08

13

The following table summarizes the Company’s outstanding warrants between placement agent and investor warrant classifications:

    

    

    

    

Weighted

    

Weighted Average

Number of

Average

Remaining

Date

Exercise Price

Type

Warrants

Exercise Price

Contractual Life

December 2021 registered direct offering

$ 330.00

Investor

50,001

3.04

June 2019 public offering

$ 150.00

Placement agent

2,750

0.04

Outstanding as of September 30, 2023

 

52,751

$ 320.62

 

3.08

Investor warrants totaling 512 shares expired on August 12, 2023. There was no warrant derivative liability as of September 30, 2023. The total value for the warrant derivative liability as of December 31, 2022 was approximately $44,000 (see Note 7).

Note 7 - Fair Value Considerations

Authoritative guidance defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect inputs that market participants would use in pricing the asset or liability based on market data obtained from sources not affiliated with the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on reliability of the inputs as follows:

 

Level 1:  

Inputs that reflect unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities;

 

 

 

 

Level 2:  

Inputs that include quoted prices for similar assets and liabilities in active or inactive markets or that are observable for the asset or liability either directly or indirectly; and

 

 

 

 

Level 3:  

Unobservable inputs that are supported by little or no market activity.

The Company’s financial instruments include cash and cash equivalents, accounts payable and accrued expenses, and warrant derivative liability. Warrants are recorded at estimated fair value utilizing the Black-Scholes warrant pricing model.

The Company’s assets and liabilities which are measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. The Company’s policy is to recognize transfers in and/or out of the fair value hierarchy as of the date in which the event or change in circumstances caused the transfer. The Company has consistently applied the valuation techniques in all periods presented.

As noted previously, the Company early adopted ASU 2020-06 resulting in the reclassification of the warrant derivative liability to stockholder’s equity, effective January 1, 2023.

14

The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2022, by level within the fair value hierarchy:

    

Fair Value Measurements Using

    

Level 1

    

Level 2

    

Level 3

    

Total

December 31, 2022

 

  

 

  

 

  

 

  

Liabilities:

 

  

 

  

 

  

 

  

Warrant derivative liability

$

$

$

44,000

$

44,000

The warrant derivative liability for the December 31, 2022 period presented was valued using the Black-Scholes valuation methodology as the Company believes that model embodies all the relevant assumptions (including trading volatility, estimated terms and risk-free interest rates) that address the features underlying these instruments.

Due to the implementation of ASU 2020-06, effective January 1, 2023 the fair value of financial liabilities classified as Level 3 in the fair value hierarchy was reduced by $44,000. There were no financial liabilities classified as Level 1, 2 or 3 as of September 30, 2023.

Note 8 - Common Stock

Authorized Shares

The Company had 300.0 million authorized shares of common stock as of September 30, 2023 and December 31, 2022.

The following table summarizes the Company’s remaining authorized shares available for future issuance:

September 30, 2023

Authorized shares

300,000,000

Common stock outstanding

804,604

Options outstanding

12,719

Warrants outstanding

52,751