UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended: ~~June 30, 2020~~March 31, 2021


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

For the transition period from to

Commission File ~~No.~~Number: 001-35182

cid:image001.jpg@01CDF343.4BBAE3B0

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 incorporation or organization)	(IRS Employer Identification No.)

373 Inverness Parkway, Suite 200

Englewood, Colorado 80112

(Address of principal executive offices, including zip code)

(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 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting 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 ☒

As of ~~July 31, 2020,~~April 26, 2021, there were ~~176,542,000~~195,689,128 outstanding shares of ~~Common Stock,~~common stock, par value $0.0001 per share, of the registrant.

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AMPIO PHARMACEUTICALS, INC.

FOR THE QUARTER ENDED ~~JUNE 30, 2020~~MARCH 31, 2021

INDEX


		Page
	PART I-FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	5

	~~Condensed Balance Sheets as of June 30, 2020 and December 31, 2019~~	5

	~~Condensed Statements of Operations for the three and six months ended June 30, 2020 and June 30, 2019~~	6

	~~Condensed Statements of Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2020 and ended June 30, 2019~~	7

	~~Condensed Statements of Cash Flows for the six months ended June 30, 2020 and June 30, 2019~~	8

	~~Notes to Financial Statements~~	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2421

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3432

Item 4.	Controls and Procedures	3532

	PART II-OTHER INFORMATION

Item 1.	Legal Proceedings	3533

Item 1A.	Risk Factors	3533

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3633

Item 3.	Defaults Upon Senior Securities	3633

Item 4.	Mine Safety Disclosures	3633

Item 5.	Other Information	3733

Item 6.	Exhibits	3734

SIGNATURES		3835

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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.~~forward-looking statements. 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 about 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~~such 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,” “future,” “intend,” “may,” “should,” “plan,” “potential,” “project,” “will,” “would” and other words of similar meaning, or the negatives of such terms or other variations. These include, but are not limited to, statements relating to the following:

●

~~Projected~~projected operating or financial results, including anticipated cash flows used in operations;

●

~~Expectations~~expectations regarding clinical trials for Ampion, capital expenditures, research and development expenses and other payments;

●

~~Our~~our beliefs and assumptions relating to our liquidity position, including, but not limited to, our ability to obtain near-term additional financing;

●

~~Our~~our beliefs, assumptions and expectations about the regulatory approval pathway for Ampion including, but not limited to, our ability to obtain regulatory approval for Ampion in a timely manner, or at all;

●

~~In the event that the we do not have redundant manufacturing capabilities, we may be forced to rely on third party manufacturers, if we receive regulatory approval;~~ and

●

~~Our~~our ability to identify strategic partners and enter into beneficial license, co-development, collaboration or similar arrangements.

Any or all of our forward-looking statements may turn out to be wrong. They may 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;

●

the fact that 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;~~offering or through other equity or debt offerings;

●

~~the loss of~~our ability to retain key ~~management personnel upon whom we depend;~~employees, consultants, and advisors and to attract, retain and motivate qualified personnel;

●

the progress and results of clinical trials for Ampion and additional costs or delays associated therewith;

●

our reliance on third parties to conduct our clinical trials resulting in costs or delays that prevent us from successfully commercializing Ampion;

●

competition for patients in conducting clinical trials delaying product development and straining our limited financial resources;

●

the risk and costs associated with our decision to ~~suspended~~suspend enrollment in ~~its~~the Phase III clinical trial for treatment of severe ~~OAK~~Osteoarthritis of the Knee due to considerations relating to the COVID-19 pandemic;

●

our ability to receive regulatory approval for and sell the products that we are developing for the treatment of COVID-19;

●

the significant competition in the search for a treatment for COVID-19;

●

our ability to navigate the regulatory approval process in the U.S. and other countries, and our success in obtaining required regulatory approvals for Ampion on a timely basis;

●

our need to rely on third party manufacturers if we receive regulatory approval for Ampion but do not have redundant manufacturing capabilities;

●

commercial developments for products that compete with Ampion;

●

the actual and perceived effectiveness of ~~our~~ Ampion, and how Ampion compares to competitive products;

●

the rate and degree of market acceptance and clinical utility of Ampion or any ~~other~~ of our other product candidates for which we receive marketing approval;

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●

expenses and costs we will incur to comply with FDA post-approval requirements if we, or our collaborators, obtain marketing approval for Ampion;

●

government restrictions on pricing reimbursement, as well as other healthcare payor cost-containment initiatives;

●

our ability to obtain approval to develop, manufacture and sell our products internationally;

●

our ability to realize the investment we made in our manufacturing facility if Ampion does not 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 infringement of the intellectual property rights of others;

●

adverse developments in our research and development activities;

●

potential liability if any of our product ~~candidate causes~~candidates cause illness, injury or death, or adverse publicity from any such events;

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●

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 future licensing, partnering or other strategic ~~transactions activity.~~activities.

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~~March 3, 2021 (the ~~“2019~~“2020 Annual Report”), particularly in the “Risk Factors” ~~section,~~sections of each report, that could cause actual results or events to differ materially from the forward-looking statements that we ~~make.~~make herein. Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement should be 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 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.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

AMPIO PHARMACEUTICALS, INC.

Condensed Balance Sheets

(unaudited)


	June 30,		December 31,		March 31,		December 31,
	2020		2019		2021		2020

Assets
Current assets
Cash and cash equivalents	$	4,842,000	$	6,532,000	$	15,804,000	$	17,346,000
Prepaid expenses and other		1,947,000		1,718,000		1,798,000		1,147,000
Total current assets		6,789,000		8,250,000		17,602,000		18,493,000

Fixed assets, net		4,157,000		4,748,000		3,348,000		3,561,000
Right-of-use asset		915,000		1,003,000		776,000		824,000
Total assets	$	11,861,000	$	14,001,000	$	21,726,000	$	22,878,000

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable and accrued expenses	$	2,267,000	$	4,025,000	$	1,351,000	$	1,550,000
Lease liability-current portion		272,000		259,000		291,000		284,000
Total current liabilities		2,539,000		4,284,000		1,642,000		1,834,000

Lease liability-long-term		1,071,000		1,210,000		851,000		925,000
Warrant derivative liability		1,908,000		2,064,000		2,456,000		2,607,000
Total liabilities		5,518,000		7,558,000		4,949,000		5,366,000

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
Common Stock, par value $0.0001; 300,000,000 shares authorized; shares issued and outstanding - 195,689,128 as of March 31, 2021 and 193,378,996 as of December 31, 2020						19,000		19,000
Additional paid-in capital		198,869,000		191,060,000		220,952,000		218,020,000
Accumulated deficit		(192,543,000)		(184,633,000)		(204,194,000)		(200,527,000)
Total stockholders’ equity		6,343,000		6,443,000		16,777,000		17,512,000

Total liabilities and stockholders’ equity	$	11,861,000	$	14,001,000	$	21,726,000	$	22,878,000

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

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AMPIO PHARMACEUTICALS, INC.

Condensed Statements of Operations

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2020		2019		2020		2019		2021		2020

Operating expenses
Research and development	$	1,118,000	$	2,136,000	$	5,373,000	$	3,702,000	$	2,296,000	$	4,254,000
General and administrative		1,482,000		1,445,000		3,249,000		2,556,000		1,523,000		1,767,000
Total operating expenses		2,600,000		3,581,000		8,622,000		6,258,000		3,819,000		6,021,000

Other income (expense)
Other income
Interest income		—		21,000		12,000		45,000		1,000		11,000
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
Derivative gain										151,000		831,000
Total other income										152,000		842,000

Net (loss) income	$	(2,731,000)	$	421,000	$	(7,910,000)	$	(5,391,000)
Net loss									$	(3,667,000)	$	(5,179,000)

Net loss per common share:
Basic	$	(0.02)	$	0.00	$	(0.05)	$	(0.05)	$	(0.02)	$	(0.03)
Diluted	$	(0.02)	$	(0.03)	$	(0.05)	$	(0.05)	$	(0.02)	$	(0.04)

Weighted average number of common shares outstanding:
Basic		166,393,000		115,031,000		162,723,000		113,079,000		195,387,047		159,053,722
Diluted		166,393,000		118,770,000		163,906,000		117,350,000		200,752,267		160,557,777

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

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AMPIO PHARMACEUTICALS, INC.

Condensed Statements of Stockholders’ Equity ~~(Deficit)~~

(unaudited)


				Additional				Total					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
										Common Stock			Paid-in		Accumulated		Stockholders'
										Shares	Amount		Capital		Deficit		Equity
Balance at December 31, 2019	158,645,000		16,000		191,060,000		(184,633,000)		6,443,000	158,644,757	$	16,000	$	191,060,000	$	(184,633,000)	$	6,443,000

Issuance of common stock for services	136,000		—		80,000		—		80,000	136,236		0		80,000		0		80,000
Stock-based compensation, net of forfeitures	—		—		213,000		—		213,000	—		0		213,000		0		213,000
Issuance of common stock in connection with the "at-the-market" equity offering program	1,241,000		—		682,000		—		682,000	1,241,126		0		682,000		0		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)	—		0		(246,000)		0		(246,000)
Net loss	—		—		—		(5,179,000)		(5,179,000)	—		0		0		(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	160,022,119	$	16,000	$	191,789,000	$	(189,812,000)	$	1,993,000


Balance at December 31, 2020										193,378,996		19,000		218,020,000		(200,527,000)		17,512,000

Issuance of common stock for services										54,052		0		80,000		0		80,000
Stock-based compensation, net of forfeitures	—		—		64,000		—		64,000	—		0		166,000		0		166,000
Stock options exercised, net	1,000		—		—		—		—	129,500		0		33,000		0		33,000
Shares held back in settlement of tax obligation and exercise cost										(28,562)		0		(40,000)				(40,000)
Warrants exercised, net	250,000		—		100,000		—		100,000	306,705		0		114,000		0		114,000
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	1,848,437		0		2,705,000		0		2,705,000
Offering costs related to the issuance of common stock in connection with the "at-the-market" equity offering program	—		—		(314,000)		—		(314,000)	—		0		(126,000)		0		(126,000)
Net loss	—		—		—		(2,731,000)		(2,731,000)	—		0		0		(3,667,000)		(3,667,000)

Balance at June 30, 2020	173,342,000	$	17,000	$	198,869,000	$	(192,543,000)	$	6,343,000

Balance at March 31, 2021										195,689,128	$	19,000	$	220,952,000	$	(204,194,000)	$	16,777,000

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

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AMPIO PHARMACEUTICALS, INC.

Condensed Statements of Cash Flows

(unaudited)


	Six Months Ended June 30,				Three Months Ended March 31,
	2020		2019		2021		2020

Cash flows from operating activities
Cash flows used in operating activities
Net loss	$	(7,910,000)	$	(5,391,000)	$	(3,667,000)	$	(5,179,000)
Adjustments to reconcile net loss to net cash used in operating activities
Stock-based compensation, net of forfeitures		277,000		101,000		166,000		213,000
Depreciation and amortization		591,000		736,000		294,000		295,000
Paycheck Protection Program funding that offsets qualified expenses		(544,000)		—
Issuance of common stock for services		80,000		60,000		80,000		80,000
Derivative gain		(156,000)		(822,000)		(151,000)		(831,000)
Changes in operating assets and liabilities
Increase in prepaid expenses and other		(229,000)		(1,216,000)
(Increase) decrease in prepaid expenses and other						(651,000)		698,000
(Decrease) increase in accounts payable and accrued expenses		(1,758,000)		752,000		(199,000)		189,000
Decrease in lease liability		(38,000)		(114,000)		(19,000)		(18,000)
Proceeds received under the Paycheck Protection Program		544,000		—
Net cash used in operating activities		(9,143,000)		(5,894,000)		(4,147,000)		(4,553,000)

Cash flows used in investing activities
Purchase of fixed assets		—		(14,000)		(81,000)		0
Net cash used in investing activities		—		(14,000)		(81,000)		0

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		2,705,000		682,000
Costs related to sale of common stock in connection with the "at-the-market" equity offering program		(560,000)		(144,000)		(126,000)		(246,000)
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		114,000		0
Other						(7,000)		0
Net cash provided by financing activities		7,453,000		11,105,000		2,686,000		436,000

Net change in cash and cash equivalents		(1,690,000)		5,197,000		(1,542,000)		(4,117,000)

Cash and cash equivalents at beginning of period		6,532,000		7,585,000		17,346,000		6,532,000
Cash and cash equivalents at end of period	$	4,842,000	$	12,782,000	$	15,804,000	$	2,415,000

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.

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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 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 financial statements should be read in conjunction with the audited financial statements and accompanying notes thereto for the year ended December 31, ~~2019~~2020 included in the Company’s ~~2019~~2020 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 months ended March 31, 2021 is unaudited. The balance sheet at December 31, ~~2019~~2020 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.

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~~adversely impact 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”) of Ampion for the treatment of Osteoarthritis of the Knee (“OAK”). In ~~June 2020, increases~~March 2021, the Company submitted a detailed proposal to the FDA in ~~COVID-19 cases across certain regions~~response to the FDA’s guidance regarding the status of the ~~United States were reported. Due~~AP-013 study. In April 2021, the Company received a response to the ~~increase~~proposal from the FDA, which provides guidance and flexibility on how to maintain the Special Protocol Assessment (“SPA”), while allowing the Company to evaluate and consider several paths for moving forward. The Company is evaluating the FDA’s response and will continue to maintain an ongoing active dialog with the FDA with respect to the AP-013 study to reach agreement on the path forward considering the ongoing pandemic. The AP-013 study data will continue to remain paused and blinded to ensure clinical trial integrity and compliance with the SPA issued by the FDA in ~~reported cases,~~June 2019 until agreement is reached with the FDA.

In addition, since June 2020, the Company has ~~determined that the AP-013 study will remain paused. At this time, the Company is also pursuing new~~commenced several clinical trials ~~related~~ to ~~potential~~determine the safety and efficacy for new applications of Ampion (i.e., inhaled and intravenous) related to COVID-19 infection. Given the continued evolution of the COVID-19 ~~infection. The outbreak has~~pandemic and ~~may continue to spread, which could materially impact~~the related complexities and uncertainties associated with the additional variants, the Company’s business operations could be significantly impacted and, in addition, ~~those~~the business operations of third parties on which the Company relies, including organizations that conduct clinical ~~trials.~~trials and key suppliers which provide the raw materials for manufacturing Ampion for the ongoing clinical trials could also be impacted. The full extent of the potential ~~impacts~~adverse impact on the Company’s business operations and related product development, including, but not limited to, clinical trials, financing activities and the overall impact on the United States and the global economy will depend on future developments, which cannot be predicted at this time due to the ~~uncertain nature~~continued uncertainty 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.pandemic.

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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

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institutions with which it invests. During the three months ended ~~June 30, 2020,~~March 31, 2021, 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 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

The Company has not adopted any recent accounting pronouncements during the three months ended March 31, 2021.

Recent Accounting Pronouncements

In August ~~2018,~~2020, the FASB issued ASU ~~2018-13,~~2020-06, “~~Fair Value Measurement - Disclosure Framework (Topic 820)~~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 ~~modified~~is part of the ~~disclosure requirements on fair value measurements.~~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, ~~2019, including~~2023, and interim ~~reporting~~ periods within those fiscal ~~years.~~years, with early adoption permitted for periods beginning after December 15, 2020. The Company ~~adopted~~is currently evaluating the impact of ASU ~~2018-13 during the first quarter of 2020 and the adoption of this guidance did not have a material impact~~2020-06 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~~the Company’s financial condition, results of operations, cash flows or disclosures.

Note 2 - Going Concern

As of and for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, the Company had cash and cash equivalents of ~~$4.8~~$15.8 million and a net loss of ~~$7.9 million.~~$3.7 million, respectively. The net loss is primarily attributable to operating expenses of ~~$8.6~~$3.8 million, partially offset ~~with~~by the ~~receipt of the Paycheck Protection Program (“PPP”) proceeds of $0.5 million (see~~ ~~Note 6~~~~) and~~ non-cash derivative gain of ~~$0.2 million.~~$151,000 (see Note 9). The Company used net cash in operations of ~~$9.1~~$4.1 million for the ~~six~~three months ended ~~June 30, 2020 as well as~~March 31, 2021 and ended the quarter with an accumulated deficit and stockholders’ equity of ~~$192.5~~$204.2 million and ~~$6.3~~$16.8 million, respectively. In addition, as a clinical stage biopharmaceutical company, the Company has not generated any operating revenues or profits ~~to date.~~since the inception of operations. These existing and projected on-going factors continue to raise substantial doubt about the Company’s ability to continue as a going concern.

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In February 2020, the Company entered into a Sales Agreement (“Sales Agreement”) with ~~two~~2 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~~three months ended ~~June 30, 2020,~~March 31, 2021, the Company sold shares pursuant to the ATM equity offering program, which yielded gross proceeds of ~~$7.9~~$2.7 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.~~$126,000 (see Note 10).

The Company has prepared an updated projection covering the period from ~~July~~May 1, ~~2020~~2021 through ~~June~~April 30, ~~2021~~2022 based on the requirements of ASC 205-40, “Going Concern”, which reflects cash requirements for fixed, ~~on-going~~recurring base level business expenses such as payroll, legal and accounting, patents and overhead, ~~at an average cash burn rate of approximately $800,000 per month.~~and incremental costs supporting the existing and projected incremental clinical development programs. The Company continues to assess the impact of the COVID-19 pandemic ~~while taking into consideration~~and the

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~~recent spike in COVID-19 cases in the United States,~~ impact that it may have on the ~~AP-013 study~~Company’s current and ~~any new studies related to COVID-19, and, as such, is not currently in a position to project the required liquidity needs for completion of the study.~~projected future studies. The Company anticipates using the ATM equity offering program ~~and could supplement~~to raise additional funds in the near term, as needed, while also considering supplementing the funds raised with separate ~~private/~~private or public equity offering(s). Based on the Company’s current cash position, projection of ~~operations~~operating expenses, current and ~~expected access to~~projected capacity under the ATM and/or other equity financing opportunities, the Company believes it will have sufficient liquidity to fund operations through the second quarter of ~~2021.~~2022. This projection is based on many assumptions that may prove to be ~~incorrect, including, but not limited to,~~incorrect. For example, despite the ~~overall effectiveness~~historically successful use of ~~sourcing requisite capital through~~ the ATM equity offering ~~and/or private/~~program, due to the inherent uncertainties associated with raising capital in the public markets and the fact that the ATM equity ~~program(s)~~offering program is not deemed a fixed and determinable committed source of liquidity, the Company’s management is unable to conclude that it is probable that future capital will be available to satisfy its ongoing liquidity needs as they arise and in a manner that ~~is not materially detrimental~~will be timely and sufficient to ~~the Company’s shareholders.~~fund operations. 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 business operations and ability to raise capital through the ATM equity offering program, or otherwise, ~~is currently highly~~remains uncertain and subject to change. The Company expects to seek to raise additional capital investments in both the near and long-term to enable it to support its business operations, including specifically (i) clinical development of Ampion, (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 and funding level for ~~sourcing~~any such capital ~~raise,~~raising activities, which will primarily depend on stock price and existing market conditions relative to the timing of the Company’s liquidity needs. However, the Company cannot give any assurance that it will be successful in satisfying its future liquidity needs in a manner that will be sufficient to fund its ~~operations.~~base level of operations and any incremental expenses related to the further development of Ampion for OAK, therapeutic treatment of COVID-19 and other indications as they arise.

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.

Note 3 – Prepaid Expenses and Other

Prepaid expenses and other balances as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are as follows:


	June 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020

Deposits					$	1,311,000	$	266,000
Unamortized commercial insurance premiums	$	1,311,000	$	502,000		295,000		627,000
Deposits		453,000		1,162,000
Annual maintenance service contracts						77,000		—
Receivable						26,000		185,000
Other		183,000		54,000		89,000		69,000
Total prepaid expenses and other	$	1,947,000	$	1,718,000	$	1,798,000	$	1,147,000

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Note 4 – Fixed Assets

Fixed assets are recorded based 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 economic life or related lease term. Fixed assets, net of accumulated depreciation and amortization, 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
	Useful Lives	March 31,		December 31,
	in Years	2021		2020

Leasehold improvements	10	$	2,100,000	$	2,250,000
Manufacturing facility/clean room	3 - 8		931,000		998,000
Lab equipment and office furniture	5 - 8		317,000		313,000
Fixed assets, net		$	3,348,000	$	3,561,000

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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


	Three Months Ended March 31,
	2021		2020

Depreciation and amortization expense	$	294,000	$	295,000

Note 5 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are as follows:


	June 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020

Accounts payable	$	432,000	$	151,000	$	126,000	$	186,000

Commercial insurance premium financing agreement		1,347,000		21,000
Clinical trials		191,000		3,288,000		1,050,000		558,000
Professional fees		156,000		317,000		78,000		267,000
Accrued incentive compensation		59,000		72,000
Other insurance premium						32,000		386,000
Other		82,000		176,000		65,000		153,000
Accounts payable and accrued expenses	$	2,267,000	$	4,025,000	$	1,351,000	$	1,550,000

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~~via a loan from KeyBank National Association (the “Lender”)~~. Based on~~ that was issued under the ~~term~~Paycheck Protection Program (the “PPP”) established under the Coronavirus Aid, Relief and ~~conditions of the loan agreement, the~~Economic Security Act. 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~~was subsequently updated ~~according to~~in accordance with the Paycheck Protection Program Flexibility Act of 2020 ~~(“Flexibility~~(the “Flexibility Act”).

In ~~June~~October 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.

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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 tosubmitted 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, inrequesting forgiveness of the ~~near term. In accordance with~~full principal amount of its PPP loan of $544,000, which the ~~terms~~Company believes to consist of qualified expenses as defined by the Flexibility Act. The loan forgiveness application has been approved by the Lender and ~~conditions under~~submitted to the SBA for final review. According to 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,~~Lender, plus any interest accrued thereon through the date of payment, not later than 90 days after the ~~lender~~Lender issues its decision to the SBA. ~~Although~~As of the date of this filing, the Company ~~believes~~has not been notified by the Lender of the SBA’s response to the PPP loan forgiveness application, but the Lender has confirmed that repayment of the loan will be deferred until the SBA provides a response. Based on the PPP loan forgiveness application calculation, and the Lender approving the loan forgiveness application, the Company continues to assert that it is probable ~~that~~ the PPP loan qualifies for forgiveness in full by the SBA and such forgiveness will be ~~forgiven,~~provided by the SBA in

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due course. However, without formal approval from the SBA, the Company cannot ~~currently~~ provide ~~any objective assurance~~certainty that it will obtain forgiveness in whole or in part.

~~Pursuant~~The Company believes that it is not likely or probable, but 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~~September 2021, the Company will be required to make principal and interest payments totaling $23,000 per month or an ~~adjustment~~adjusted amount based on the loan amendment over the remaining term of the PPP loan until such time as 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.

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Note 7 - Commitments and Contingencies

Commitments and contingencies are described below and summarized by the following table:


	Total (1)		2020		2021		2022		2023		2024		Thereafter		Total (1)		2021		2022		2023		2024		2025		Thereafter
Key clinical research trial obligations	$	2,251,000	$	167,000	$	2,084,000	$	—	$	—	$	—	$	—	$	1,708,000	$	1,708,000	$	—	$	0	$	0	$	0	$	0
BLA consulting services		1,145,000		—		458,000		687,000		—		—		—		1,140,000		—		1,140,000		0		0		0		0
Statistical analysis and programming consulting services		325,000		60,000		265,000		—		—		—		—		326,000		326,000		—		0		0		0		0
Employment agreements		1,704,000		442,000		783,000		466,000		13,000		—		—		1,046,000		567,000		466,000		13,000		0		0		0
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	$	—	$	—	$	4,220,000	$	2,601,000	$	1,606,000	$	13,000	$	0	$	0	$	0

(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~~beginning in September 2021 and continuing for a period of 24 months in the ~~PPP~~event the loan ~~if it~~ is not forgiven by the SBA (see Note 6).

Key Clinical Research Trial Obligations

Osteoarthritis of the Knee

AP-013 study

In ~~March 2019,~~December 2020, the Company entered into aan initial contract with a CRO in connection with the AP-013 study database totaling ~~$6.2 million and covering an initial clinical trial size~~$1.4 million. The contract required a retainer of ~~724 patients,~~$465,000, which the Company funded during the three months ended March 31, 2021. In March 2021, the Company submitted a detailed proposal to the FDA in response to the FDA’s guidance regarding the status of the AP-013 study, which was ~~increased by $4.1 million in January 2020~~paused as a result of ~~an increase in number of patients to 1,034 resulting in~~ the ~~CRO contract commitment totaling $10.3 million.~~COVID-19 pandemic. In April ~~2020, and pursuant~~2021, the Company received a response to the ~~FDA guidance covering~~proposal from the FDA. The Company is evaluating the FDA’s response and will continue to maintain an ongoing ~~clinical trials in the presence of the COVID-19 pandemic, the Company and the CRO paused all ongoing conduct associated~~active dialog with the ~~AP-013 study. In June 2020, increases in COVID-19 cases across certain regions of the United States continue~~FDA with respect 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~~to reach agreement on the ~~inception of this contract through June 30, 2020,~~path forward considering the ~~Company incurred and accrued cumulative costs totaling $8.2 million against~~ongoing pandemic. Until agreement with 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~~FDA is reached, the AP-013 study ~~at the same point the study was~~data will continue to remain paused and ~~that~~blinded to ensure clinical trial integrity. Depending on 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,FDA’s response, the future contractual commitment amount ~~related to the AP-013 study~~and timing of disbursement 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~~

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~~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~~$347,000 (net of deposit) as of ~~June 30, 2020 and expects this commitment to be fully settled over the remainder of fiscal 2020.~~March 31, 2021.

~~Intravenous~~Inhaled treatment for COVID-19 patients

AP-014 study and AP-018 study

In ~~June~~September 2020, the Company entered into a contract with a CRO in connection with the FDA approved ~~Investigational New Drug (“IND”)~~IND application covering ~~intravenous~~inhaled Ampion treatment for COVID-19 infected patients hospitalized for respiratory distress (the ~~“AP-016~~“AP-014 study”) totaling ~~$43,000.~~$836,000. The contract scope reflected an initial estimate of 10 study sites. However, the Company was able to finalize enrollment of the AP-014 study with only 3 sites. Based on the reduction in study sites, the revised estimate for the AP-014 study was reduced to $530,000. In addition, the contract required an initial retainer of $232,000, which has been funded and will be applied to the study expenses as further defined by the contract. In March 2021, the Company entered into a new contract with a CRO in connection with a randomized, double-blinded, placebo-controlled Phase I study to evaluate the safety and efficacy of Ampion in patients with Long-COVID, or

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prolonged respiratory symptoms due to COVID-19 (“the AP-018 study”). Due to the reduction of the AP-014 contractual amount, the Company requested, and the CRO approved, that $105,000 of the AP-014 retainer be transferred to the AP-018 study retainer (see additional information below). Due to the transfer of a portion of the retainer to the AP-018 study, the remaining retainer balance for the AP-014 study is $127,000. As of March 31, 2021, the Company had incurred cumulative costs totaling $496,000 against the contract for the AP-014 study and, as such, had an outstanding obligation of $0 (net of deposit).

As noted above, in March 2021, the Company entered into a contract with a CRO totaling $318,000 for the AP-018 study for at-home treatment with inhaled Ampion for patients with Long-COVID, or prolonged respiratory symptoms due to COVID-19. The contract required an initial retainer of $105,000, which will be applied to future study expenses as further defined by the contract. The Company ~~commenced~~expects to commence enrollment of the ~~AP-016~~AP-018 study ~~in July 2020~~during the second quarter of 2021 and, as such, had an outstanding future commitment of ~~$43,000~~$213,000 (net of deposit) as of ~~June 30, 2020.~~March 31, 2021.

Intravenous (“IV”) treatment for COVID-19 patients

AP-017 study

In ~~July~~December 2020, the Company entered into a contract with a ~~regional hospital group~~CRO in connection with the FDA approved IND application covering IV Ampion treatment for ~~the AP-016~~COVID-19 patients for an expanded global Phase II study (the “AP-017 study”) totaling ~~$50,000. As noted, above,~~$1.8 million. The contract required an initial retainer of $495,000, which the Company ~~commenced~~funded during the ~~AP-016~~three months ended March 31, 2021 and which will be applied to future study expenses as further defined by the contract. The Company expects to commence enrollment in ~~July 2020.~~the AP-017 study during the second quarter of 2021 and, as such, had an outstanding future commitment of $1.1 million (net of deposit) as of March 31, 2021.

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~~classified 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~~a nominal amount to ~~include~~incorporate the review ~~for~~of the IND applications for ~~nebulized~~inhaled and ~~intravenous~~IV Ampion treatment. In September 2020, the Company finalized an amendment to the existing contract, which resulted in a refund of the initial deposit and requires the Company to provide a future deposit totaling $364,000 at such time the work commences related to the preparation of the related BLA for Ampion. The Company ~~had~~has incurred cumulative costs

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totaling ~~$77,000~~$82,000 against this contract and, as such, had outstanding future obligations totaling $1.1 million as of ~~June 30, 2020,~~March 31, 2021, which will be settled at such time as future services are provided to the Company primarily related to the development and filing of the Ampion BLA. ~~Given~~Due to the ~~uncertainty surrounding the COVID-19 pandemic and the resulting impact on~~pause of the AP-013 study, atas of 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,~~early 2022, 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~~As of March 31, 2021, the Company had incurred cumulative costs totaling ~~$253,000~~$252,000 against the contract ~~as of June 30, 2020~~ and, as such, had an outstanding obligation of ~~$325,000 at June 30, 2020.~~$326,000, which is expected to be settled over the duration of 2021.

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 10, 2020, immediately following the expiration of 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 its terms cancelled the previous employment agreement on such date. The new employment

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agreement provides for an annual salary of $280,000 and a term 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~~right-of-use (“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

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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:~~March 31, 2021:


	Facility Lease Payments		2020		2021		2022		2023		2024		Thereafter		Facility Lease Payments		Remainder of 2021		2022		2023		2024		2025		Thereafter

Remaining Facility Lease Payments	$	1,513,000	$	169,000	$	345,000	$	355,000	$	364,000	$	280,000	$	—	$	1,259,000	$	260,000	$	355,000	$	364,000	$	280,000	$	—	$	—
Less: Discount Adjustment		(170,000)														(117,000)
Total lease liability	$	1,343,000													$	1,142,000

Lease liability-current portion	$	272,000													$	291,000

Long-term lease liability	$	1,071,000													$	851,000

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:~~March 31, 2021:


	Right-of-Use Asset		ROU Asset

Balance as of December 31, 2019	$	1,003,000
Balance as of December 31, 2020			$	824,000
Amortization		(88,000)		(48,000)
Balance as of June 30, 2020	$	915,000
Balance as of March 31, 2021			$	776,000

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2020		2019		2020		2019		2021		2020

Lease expense	$	66,000	$	65,000	$	132,000	$	131,000	$	73,000	$	67,000

Note 8 – Warrants

The Company has issued ~~equity-classified warrants~~both equity (“placement agent”) and liability classified (“investor”) warrants in conjunction with previous equity raises. The Company had a total of ~~2.7~~1.6 million equity-classified warrants and ~~4.2~~2.2 million ~~liability~~liability-classified warrants outstanding as of ~~June 30, 2020.~~March 31, 2021.

The following table summarizes the Company’s warrant ~~activity:~~activity during the three months ended March 31, 2021:


		Weighted		Weighted Average		Weighted		Weighted Average
	Number of	Average		Remaining	Number of	Average		Remaining
	Warrants	Exercise Price		Contractual Life	Warrants	Exercise Price		Contractual Life

Outstanding at December 31, 2019	7,116,000	$	0.57	3.41
Warrants issued	—	$	—
Outstanding as of December 31, 2020					4,130,724	$	0.66	2.05
Warrants exercised	(250,000)	$	0.40		(316,174)	$	0.41	—
Warrants expired	—	$	—
Outstanding at June 30, 2020	6,866,000	$	0.57	2.90
Outstanding as of March 31, 2021					3,814,550	$	0.68	1.75

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


		Weighted		Weighted Average
	Number of	Average		Remaining
	Warrants	Exercise Price		Contractual Life

Investor warrants at $0.76	2,026,915			1.17
Placement agent warrants at $0.76	431,685			1.17
Placement agent warrants at $0.94	150,000			0.42
Investor warrants at $0.40	153,400			2.37
Placement agent warrants at $0.50	1,052,550			3.22
Outstanding as of March 31, 2021	3,814,550	$	0.68	1.75

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, the Company issued ~~250,000~~284,000 shares of its common stock as a result of the exercise of investor warrants with an exercise price of $0.40. The Company received proceeds of ~~$100,000~~$114,000 during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 related to these investor warrant exercises. In addition, former placement agents elected to exercise 32,000 of their warrants utilizing the net exercise option, where the total number of shares of common stock issued was reduced to cover the exercise price, and the Company issued 23,000 shares of common stock as a result. The Company did not receive any cash related to the exercise of placement agent warrants.

The total value for the warrant derivative liability as of ~~June 30, 2020~~March 31, 2021 is approximately ~~$1.9 million. See~~$2.5 million (see Note 9~~for additional information regarding the warrant derivative liability.~~).

Note 9 - 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.

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Observable inputs ~~are~~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 ~~even~~event 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 liabilities that were accounted for at fair value on a recurring basis as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, by level within the fair value hierarchy:


	Fair Value Measurements Using									Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
June 30, 2020
March 31, 2021
Liabilities:									��
Warrant derivative liability	$	—	$	—	$	1,908,000	$	1,908,000		$	0	$	0	$	2,456,000	$	2,456,000

December 31, 2019
December 31, 2020
Liabilities:
Warrant derivative liability	$	—	$	—	$	2,064,000	$	2,064,000		$	0	$	0	$	2,607,000	$	2,607,000

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.

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The following table sets forth a reconciliation of changes in the fair value of financial liabilities classified as Level 3 in the fair value hierarchy:


	Derivative Instruments		Derivative Instruments

Balance as of December 31, 2019	$	2,064,000
Balance as of December 31, 2020			$	2,607,000
Warrant exercises		(121,000)		(347,000)
Change in fair value		(35,000)		196,000
Balance as of June 30, 2020	$	1,908,000
Balance as of March 31, 2021			$	2,456,000

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Note 10 - Common Stock

Authorized Shares

The Company had 300.0 million authorized shares of common stock as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

The following table summarizes the Company’s remaining authorized shares 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


	March 31, 2021

Authorized shares		300,000,000

Common stock outstanding		195,689,128
Options outstanding		6,001,151
Warrants outstanding		3,814,550
Reserved for issuance under 2019 Stock and Incentive Plan		7,918,755

Available shares		86,576,416

~~Shelf Registration~~

In March 2017, the Company filed a shelf registration statement on Form S-3 (the “Prior Shelf Registration Statement”) with the SEC to register the Company’s common stock, preferred stock, debt securities, warrants and units 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 Prior Shelf Registration Statement was declared effective in April 2017 by the SEC and was terminated in May 2020. In April 2020, the Company filed a shelf registration statement on Form S-3 (the “New Shelf Registration Statement”) with the SEC to register the Company’s common stock, preferred stock, debt securities, warrants and units in an aggregate amount of up to $100.0 million for offerings from time to time, which was declared effective in May 2020. The Company had $95.6 million remaining under the New Shelf Registration Statement as of June 30, 2020. However, the Company’s ability to issue and sell securities under the New Shelf Registration Statement may be limited, based on many factors including, but not limited to, the Company’s stock price and related volatility, the trading volume of the Company’s stock, and the number of remaining authorized shares available for the Company to issue.

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ATM Equity Offering Program

~~Sales Agreement~~

In February 2020, the Company entered into a Sales Agreement with ~~two~~2 agents to implement an ATM equity offering program under which the Company, from time to time and at its sole discretion, may offer and sell shares of its common stock having an aggregate offering price up to $50.0 million to the public through the agents until (i) each agent declines to accept the terms for any reason, (ii) the entire amount of shares has been sold, or (iii) the Company suspends or terminates the Sales Agreement. 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 shares and may, at any time and atin its sole discretion, suspend sales under the Sales Agreement or terminate the Sales Agreement in accordance with its terms. The ~~Company provided the agents with~~Sales Agreement includes customary indemnification rights in favor of the agents, and provides that the agents will be entitled to an aggregate fixed commission of 4.0% of the gross proceeds (2.0% to each agent) to the Company offrom any shares sold pursuant to the ~~shares sold.~~Sales Agreement.

The following table summarizes the Company’s sales and related issuance costs incurred under the Sales Agreement ~~as of June 30, 2020:~~during the three months ended March 31, 2021:


	Sales Agreement		Sales Agreement

Total shares of common stock sold		14,310,000		1,848,437

Average price per share	$	0.55

Gross Proceeds	$	7,913,000
Gross proceeds			$	2,705,000
Commissions earned by placement agents		(317,000)		(109,000)
Issuance / subsequent recurring fees		(243,000)
Net Proceeds	$	7,353,000
Issuance fees				(17,000)
Net proceeds			$	2,579,000

Common Stock Issued for Services

~~In accordance with the non-employee directors’ service agreement, the~~The Company issued ~~136,000~~54,052 and ~~136,000~~136,236 shares of common stock under the Ampio Pharmaceuticals, Inc. 2019 Stock and Incentive Plan (the “2019 Plan”), each valued at $80,000, ~~and $60,000,~~as partial compensation for the services of non-employee directors, during the ~~period~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

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Note 11 - Equity

Options

In December 2019, the Company’s Board of Directors and stockholders approved the adoption of the ~~Ampio Pharmaceuticals, Inc.~~ 2019 ~~Stock and Incentive~~ Plan, ~~(the “2019 Plan”),~~ under which shares were reserved for future issuance of equity related awards classified as option awards/grants, restricted stock awards and other equity related awards. The 2019 Plan permits grants of equity awards to employees, directors and consultants. The stockholders approved a total of 10.0 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:~~March 31, 2021:


	2019 Plan

Total shares reserved for equity awards		10,000,000
Options granted during previous fiscal ~~2019~~years		~~(144,000)~~(2,067,471)
Options granted during fiscal ~~2020~~2021		~~(340,000)~~(36,000)
~~Add back:~~Forfeited, expired ~~forfeited~~ and/or cancelled equity awards		~~3,000~~22,226
Remaining shares available for future equity awards		~~9,519,000~~7,918,755

The following table summarizes the Company’s stock option activity ~~under both~~during the ~~2010 Plan and 2019 Plan:~~three months ended March 31, 2021:


		Weighted		Weighted Average				Weighted		Weighted Average
	Number of	Average		Remaining		Aggregate	Number of	Average		Remaining		Aggregate
	Options	Exercise Price		Contractual Life		Intrinsic Value	Options	Exercise Price		Contractual Life		Intrinsic Value
Outstanding at December 31, 2019	6,000,000	$	1.33	5.40	$	—
Outstanding as of December 31, 2020							6,099,651	$	1.04	7.36	$	—
Granted	340,000	$	0.73				36,000	$	1.76
Exercised	(10,000)	$	0.51				(129,500)	$	0.48
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
Forfeited, expired and/or cancelled							(5,000)	$	1.75
Outstanding as of March 31, 2021							6,001,151	$	1.06	7.14	$	5,109,000
Exercisable as of March 31, 2021							5,692,151	$	1.06	7.00	$	4,906,000

~~The 100,000 stock options that were forfeited and~~Of the 855,000 stock options that expired as 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 10,000129,500 stock options that were exercised, 8,000 were ~~processed~~cash exercised, where the Company received proceeds to cover the option holder’s exercise price and tax obligations totaling $6,000. In addition, 60,000 stock options were exercised as acashless exercises, where the Company received proceeds to cover the option holders’ exercise price totaling $27,000. The remaining 61,500 stock options were net ~~exercise,~~exercised, where the total number of shares of common stock issued was reduced to cover the option holders’ exercise price and tax obligations. The Company submitted the tax obligations totaling $40,000 on behalf of the option holders and did not receive any cash proceeds from the net stock option exercises. Shares of common stock that are held back upon exercise of a stock option to cover the option holder’s exercise price and tax obligations are added back to the shares of stock available for issuance under the 2019 Plan.

The following table summarizes the outstanding options that were issued in accordance with the 2010 Plan and ~~as such,~~ the ~~Company did not receive cash related to that stock option exercise.~~2019 Plan:


Outstanding Options by Plan	March 31, 2021

2010 Plan		3,938,180
2019 Plan		2,062,971
Outstanding as of March 31, 2021		6,001,151

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Stock options outstanding ~~at June 30, 2020~~as of March 31, 2021 are summarized in the table below:


	Number of	Weighted		Weighted Average	Number of	Weighted		Weighted Average
	Options	Average		Remaining	Options	Average		Remaining
Range of Exercise Prices	Outstanding	Exercise Price		Contractual Lives	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
Up to $0.50					602,000	$	0.44	8.31
$0.51 - $1.00					4,346,007	$	0.70	7.31
$1.01 - $1.50					194,000	$	1.38	9.62
$1.51 and above					859,144	$	3.22	4.88
Total					6,001,151	$	1.06	7.14

The Company computes the fair value for all options granted or modified using the Black-Scholes option pricing model. To calculate the fair value of the options, certain assumptions are made regarding components of the model, including the fair value of the underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. The Company calculates its volatility assumption using the actual changes in the market value of its stock. Forfeitures are recognized as they occur. The Company’s historical option exercises do not provide a reasonable basis to estimate an expected term due to the lack of sufficient data. Therefore, the Company estimates the expected term by using the simplified method. The simplified method calculates the expected term as the average of the vesting term plus the contractual life of the options. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity. The Company computed the fair value of options ~~granted~~granted/modified during the period ended ~~June 30, 2020,~~March 31, 2021, using the following assumptions:

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Expected volatility	~~130.73% - 131.18~~127.17	%
Risk free interest rate	~~1.62% - 1.67~~0.78	%
Expected term (years)	5.00 ~~- 5.51~~

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 (stock options and common stock issued for services) for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

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 March 31,
	2021		2020
Research and development expenses
Stock-based compensation	$	46,000	$	59,000

General and administrative expenses
Issuance of common stock for services		80,000		80,000
Stock-based compensation		120,000		154,000

Total stock-based compensation	$	246,000	$	293,000

Unrecognized expense as of March 31, 2021		165,000

Weighted average remaining years to vest		1.29

Note 12 - Earnings Per Share

Basic earnings per share is computed by dividing net loss available to common stockholders by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is based on the treasury stock method and computed by dividing net loss available to common stockholders by the diluted weighted-average shares of common stock outstanding during each period. The Company’s potentially dilutive shares include stock options and warrants for the shares of common stock. The potentially dilutive shares are considered to be common stock

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equivalents and are only included in the calculation of diluted net loss per share when the effect is dilutive. The investor warrants are treated as equity in the calculation of diluted earnings per share in both the computation of the numerator and ~~denominator.~~denominator, if dilutive. The following table sets forth the calculations of basic and diluted earnings per share for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2020		2019		2020		2019		2021		2020
Net (loss) income	$	(2,731,000)	$	421,000	$	(7,910,000)	$	(5,391,000)
Net loss									$	(3,667,000)	$	(5,179,000)
Less: decrease in fair value of investor warrants		—		(3,981,000)		(156,000)		(822,000)		(151,000)		(831,000)
Loss available to common stockholders	$	(2,731,000)	$	(3,560,000)	$	(8,066,000)	$	(6,213,000)	$	(3,818,000)	$	(6,010,000)

Basic and diluted weighted-average common shares outstanding		166,393,000		115,031,000		162,723,000		113,079,000
Basic weighted-average common shares outstanding										195,387,047		159,053,722
Add: dilutive effect of equity instruments		—		3,739,000		1,183,000		4,271,000		5,365,220		1,504,055
Diluted weighted-average shares outstanding		166,393,000		118,770,000		163,906,000		117,350,000		200,752,267		160,557,777
Earnings per share – basic	$	(0.02)	$	0.00	$	(0.05)	$	(0.05)	$	(0.02)	$	(0.03)
Earnings per share – diluted	$	(0.02)	$	(0.03)	$	(0.05)	$	(0.05)	$	(0.02)	$	(0.04)

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The potentially dilutive shares of common stock that have been excluded from the calculation of net loss per share because of ~~the~~their anti-dilutive effect are as follows:


	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended March 31,
	2020	2019	2020	2019	2021	2020
Outstanding stock options	5,375,000	5,440,000	5,141,000	5,414,000	1,510,485	5,948,013
Warrants to purchase shares of common stock	6,866,000	19,826,000	5,917,000	19,320,000	2,939,996	5,904,288
Total potentially dilutive shares of common stock	12,241,000	25,266,000	11,058,000	24,734,000	4,450,481	11,852,301

Note 13 – Litigation

~~On August 25, 2018, a purported stockholder of~~From time to time, the Company ~~commenced~~may be a ~~putative class action lawsuit~~party to litigation arising in the ~~United States District Court for the Central District~~ordinary course of California, captioned Shi v. Ampio Pharmaceuticals, Inc., et al., Case No. 18-cv-07476 (the “Securities Class Action”). Plaintiff in the Securities Class Action alleged that the Company and certainbusiness. As of its current and former officers violated the federal securities laws by misrepresenting and/or omitting material information regarding the AP-003 Phase III clinical trial of Ampion. The plaintiff asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Securities and Exchange Commission Rule 10b-5, on behalf of a putative class of purchasers of the Company’s common stock from December 14, 2017 through August 7, 2018. Plaintiff in the Securities Class Action sought unspecified damages, pre-judgment and post-judgment interest, and attorneys’ fees and costs. On September 27, 2019, 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 motion to dismiss the amended complaint on February 10, 2020. On March 26, 2020, Lead Plaintiff filed a brief in opposition to the Company’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 with the Theise Action under the caption 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 California, 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 future. The Company currently believes the likelihood of a loss contingency related to these matters is remote and given the fact of where the claims exist in the litigation process,31, 2021, the Company is not ~~in the position~~a party to ~~provide an estimate and/or range of potential loss.~~ any ongoing lawsuits.

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~~Note 14 – Subsequent Events~~

In July 2020, the Company issued 913,000 shares of common stock as a result of the exercise of investor warrants with an exercise price of $0.40. The Company received proceeds of $365,000 related to these warrant exercises.

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 contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see “Cautionary Note Regarding Forward-Looking Statements”, above, Part II, Item 1A of this Quarterly Report on Form 10-Q, “Risk Factors,” and the risk factors included in our ~~2019~~2020 Annual Report.

EXECUTIVE SUMMARY

We are a biopharmaceutical company focused on the 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~~biopharmaceutical market, both domestic and globally, 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

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patients most in need of new treatments for inflammatory ~~conditions. These~~ conditions, ~~include,~~including, 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~~Post-Acute Sequelae of ~~respiratory failure, termed Acute Respiratory Distress Syndrome~~SARS-CoV-2 infection (“~~ARDS”~~PASC”) ~~or Acute Lung Injury (“ALI”)~~commonly referred to as “Long-COVID”.

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~~key immunology-based therapies with the ultimate goal of achieving FDA marketing approval and subsequent commercialization of Ampion for these conditions.

Overview

We maintain an Internet website at 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.

Ampion, our lead product candidate, is in the process of advancing through clinical trials in the United States. Ampion is currently in development as an intra-articular injection treatment for severe ~~OAK;~~OAK, an ~~intravenous (“IV”)~~IV treatment for COVID-19 patients, ~~who require supplemental oxygen;~~ and an inhaled treatment for COVID-19 induced ~~ARDS~~respiratory distress and Long-COVID. Pre-clinical and discovery work is also underway for additional applications and indications for Ampion.

~~We received a Special Protocol Assessment (“SPA”) agreement from~~In June 2019, we commenced 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~~the ongoing conduct ~~associated~~of the AP-013 study. During fiscal 2020, the FDA provided guidance specifically designed to assist the pharmaceutical industry with viable options for evaluating data from clinical trials which were impacted by the pandemic. In March 2021, the Company submitted a detailed proposal to the FDA in response to the FDA’s recent guidance regarding the status of the AP-013 study. In ~~June 2020, increases in COVID-19 cases across~~April 2021, we received a response to our proposal from the ~~United States were reported. Due~~FDA, which we are currently evaluating, and we will continue to maintain an ongoing active dialog with the ~~increase in reported cases, we have determined that~~FDA until a decision regarding the AP-013 study is finalized. During this period, the AP-013 study will ~~remain paused. Recognizing these challenges, we~~ continue to ~~actively explore viable options~~remain paused and blinded to ~~enable us~~ensure clinical trial integrity and compliance with the SPA. However, due to ~~complete~~ the ~~study, but~~significant uncertainty surrounding the continuation and overall impact of the pandemic, 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~~In addition, the current uncertainty resulting from the ~~COVID-19~~ pandemic may result in a significant change to the future contractual commitment ~~amount~~ related to the AP-013 ~~study may significantly increase.~~study.

In October 2020, we commenced the AP-014 study titled “A Randomized Controlled Trial to Evaluate the Safety and Efficacy of Nebulized Ampion In Adults with Respiratory Distress Secondary to COVID-19 Infection”. In March 2021, we finalized the enrollment of 40 patients, who were randomized 1:1, Ampion in addition to the Standard of Care (“SOC”) versus SOC alone. Patients were randomized to receive inhaled Ampion for five days. The ~~Company has filed IND applications~~study met its primary end-point and demonstrated the safety and tolerability of inhaled Ampion in COVID-19 patients.

In December 2020, we initiated the AP-017 expanded global study in the United States and Israel for IV Ampion therapy in patients with COVID-19. The preliminary results of the AP-014 study were shared with the FDA, ~~and has maintained ongoing dialog with~~at which point the FDA ~~regarding~~recommended study updates to protocol AP-017, which were implemented in the ~~Company’s development~~study titled “A Randomized, Double-Blinded, Placebo-Controlled Phase II Study to Evaluate the Safety and Efficacy of ~~treatment options which include IV and inhalation applications for~~Intravenous Ampion in Adult COVID-19 ~~affected patients. In June 2020, the Company received FDA agreement~~Patients Requiring Oxygen Supplementation”. We expect 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~~commence enrollment of the ~~Company)~~AP-017 study during the second quarter of 2021.

In March 2021, we initiated the AP-018 study titled, “A Randomized, Double-Blinded, Placebo-Controlled Phase I Study to Evaluate the Safety and Efficacy of Ampion in Patients with Prolonged Respiratory Symptoms due to COVID-19 (“Long-COVID”)”. An increasing number of people with COVID-19 are experiencing lingering effects of COVID-19 and continue to have prolonged respiratory complications months after the onset of the disease, also known as PASC, Long-COVID, and/or long-hauler symptoms. This study aims to evaluate the safety of Ampion and the clinical outcomes in patients with Long-COVID. We expect to commence enrollment of the AP-018 study during the second quarter of 2021.

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In April 2021, we provided an update on the ~~potential benefits~~continued research and discovery for Ampion applications. Laboratory results suggest Ampion’s suitability for addressing kidney diseases and provides further evidence that it is a platform biologic for treatment of ~~inhaled Ampion treatment for COVID-19 patients titled, “The novel immunomodulatory biologic LMWF5A for pharmacological attenuation~~a wide variety of ~~the ‘cytokine storm’ in COVID-19 patients: a hypothesis”.~~ inflammatory and autoimmune diseases.

We believe the immunomodulatory action and anti-inflammatory effects of Ampion may provide a treatment for individuals with inflammatory conditions including, but not limited to, severe OAK and the widespread inflammation associated with COVID-19 infection.

~~AMPION~~Our therapeutic product pipeline is the result of more than two decades of research at leading hospital-based research centers. Significant discoveries in both scientific and clinical research have been published in peer-reviewed journals, highlighting the depth of research supporting Ampion’s therapeutic capabilities. Ampion is backed by an extensive and robust United States and global patent portfolio with intellectual property protection extending through 2035. In addition, Ampion is eligible for 12-year FDA market exclusivity upon approval as a novel biologic under the Biologics Price Competition and Innovation Act of 2009.

~~Ampion for Osteoarthritis~~AMPION

We have developed a novel biologic drug, Ampion, which contains a blood-derived cyclized peptide and small 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 shown that Ampion represses the transcription of proteins responsible for inflammation, while activating anti-inflammatory ~~proteins.~~proteins responsible for signaling tissue growth and healing. Ampion achieves its biological effect by targeting the over production of inflammatory cytokines, which is common in multiple inflammatory diseases like osteoarthritis and respiratory disease, and other inflammatory conditions. Ampion has ~~also~~ been shown ~~in vitro~~to ~~regulate~~uniquely reduce inflammation along multiple pathways, unlike other anti-inflammatory therapies that target only one mechanism.

Ampion has been developed for use, and has been cleared by the FDA for investigation, by multiple routes of administration.

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Intra-articular injection places Ampion right where it is needed to locally treat inflammation. The osteoarthritis trials are evaluating the safety and efficacy of intra-articular injection into the joint.

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Inhalation provides direct application of Ampion to locally treat inflammation in the lungs. The COVID-19 clinical trial is evaluating the safety and efficacy of Ampion inhalation in the lungs of COVID-19 patients with respiratory illness.

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Intravenous provides systemic application of Ampion to broadly treat inflammation throughout the body. The COVID-19 clinical trial is evaluating the safety and efficacy of Ampion IV treatment in COVID-19 patients with respiratory illness.

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We believe that the Ampion mechanism of action provides a therapeutic effect by interrupting the dysregulated immune system responsible for the disease, damage, and pain attributed to many inflammatory and degenerative conditions. Ampion is considered a platform drug which is potentially useful for several inflammatory diseases throughout the body.

Ampion for Osteoarthritis

Ampion targets the cellular pathways in the innate immune response correlated with pain, inflammation, and joint damage from osteoarthritis. As described above, in vitro studies have shown that Ampion represses the transcription of inflammatory cytokines responsible for inflammation, while activating anti-inflammatory proteins responsible for tissue growth and healing. We believe that this mechanism of action interrupts the disease process responsible for the pain and disability associated with ~~OAK; provides~~OAK while providing a market expansion potential as a disease modifying ~~biologic; and may provide a treatment option for other inflammatory and degenerative indications.~~biologic drug.

We are currently developing Ampion as an intra-articular injection to treat the signs and symptoms of severe OAK, which continues to be a growing epidemic in the United States and 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 or no treatment options other than a total knee arthroplasty. The FDA has asserted that severe OAK is an “unmet medical need” with no existing licensed therapy 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 Phase III 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 at 12 weeks 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 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~~or 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.~~Biologics License Application (“BLA”). The FDA provided guidance that we should complete an additional Phase III 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 Phase III 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~~January 2020, the ~~WHO~~United States Department of Health and Human Services declared ~~the~~ COVID-19 ~~outbreak~~ a ~~pandemic. The Centers for Disease Control and Prevention (“CDC”)~~ ~~projects that COVID-19 deaths~~public health emergency in the ~~U.S. may eventually number in~~United States and the ~~hundreds~~CDC indicated that older adults, age 65 years and older, are at higher risk for severe illness as a result of ~~thousands, and potentially in the millions.~~COVID-19. 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 indicated that older adults, 65 years and older, are at higher risk for severe illness during the current COVID-19 pandemic. This~~years. Therefore, 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, and updated on January 27, 2021, 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~~FDA’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,~~study. In March 2021, the Company submitted a detailed proposal to the FDA in response to the FDA’s guidance regarding the status of the AP-013 study. In April 2021, we received a response to our proposal from the FDA, which we are currently evaluating, and we will continue to ~~monitor~~maintain an ongoing active dialog with the ~~COVID-19 health situation and updated~~ FDA ~~guidance on conducting clinical trials in~~until 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~~decision is finalized. During this period, the AP-013 study will ~~remain paused. Recognizing these challenges, we~~ continue to ~~explore options~~remain paused and blinded to ~~enable us~~ensure clinical trial integrity and compliance with the SPA. However, due to ~~complete~~ the ~~study, but~~significant uncertainty surrounding the continuation and overall impact from the pandemic, it is possible that the ~~COVID-19~~continuation of the pandemic may prevent completion of the AP-013 study at this time or at all. In addition, the current uncertainty resulting from the pandemic may result in a significant change to the future contractual commitment related to the AP-013 study.

Ampion for ~~Complications Related to~~ COVID-19 ~~Infection~~

The COVID-19 pandemic has resulted in ~~millions of~~over 145 million cases and ~~hundreds of thousands~~millions 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~~COVID-19 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,~~but are not limited to, Acute Respiratory Distress Syndrome (“ARDS”), Acute Lung Injury (“ALI”), PASC, pneumonia, sepsis and septic shock, cardiomyopathy and arrhythmia, acute kidney injury and prolonged hospitalization for other complications ~~(e.g.~~(i.e., 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 therapeutic treatments are identified and developed to address the full spectrum of clinical features of COVID-19 infection, from the need for oxygen to the progression to ARDS. ~~For instance, it has been reported that treatments that reduce~~

Nonclinical in vitro studies show Ampion decreases the ~~length~~production of ~~stay~~inflammatory cytokines associated with the hyperactive inflammatory response present during COVID-19 infection. Elevated levels of inflammatory cytokines are correlated with COVID-19 severity and may also trigger additional complications including pneumonia, ALI and/or

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ARDS, which is a leading cause of mortality in COVID-19. By targeting and reducing the ~~hospital or~~production of these inflammatory cytokines, Ampion may improve the clinical outcome for patients with COVID-19.

Due to its mode of action, Ampion may be a viable treatment option for those infected with COVID-19 to improve clinical outcomes and decrease the ~~required time on ventilation would not only decrease mortality but also reduce stress on hospital resources, including medical staff, allowing additional~~progression and severity of associated COVID-19 ~~infected patients access to critical~~inflammatory conditions (i.e., COVID-19 pneumonia, ALI, ARDS, and ~~potentially life-saving care.~~

ultimately mortality). Accordingly, Ampion may provide an early intervention option for COVID-19 patients.

As an immunomodulatory agent, we believe that Ampion may be effective in improving the clinical course and outcome of COVID-19 ~~patients experiencing ARDS.~~patients.

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 pathogenesis associated with dysregulated immune ~~disorders, such as ARDS. Development of Ampion supports a mechanism~~disorders. Due to its mode of action, ~~as an immunological agent which decreases~~Ampion may be a viable treatment option for those infected with COVID-19 to improve clinical outcomes and slow the ~~production of physiological mediators (e.g.~~progression and severity associated critical COVID-19 inflammatory conditions (i.e., ~~cytokines~~progression to respiratory failure, the need for assisted breathing 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 facet of ARDS. Ampio is currently working with the FDA to receive authorization to develop Ampion as a potential treatment for complications related to COVID-19 infection.ultimately mortality).

In May 2020, we submitted an ~~IND~~Investigational New Drug (“IND”) application for the IV treatment of adults with COVID-19 requiring supplemental oxygen. In June 2020, we received FDA agreement to proceed with human trials utilizing an IV Ampion treatment for COVID-19 patients who require supplemental oxygen, and we commenced the Phase I AP-016 study in ~~June~~July 2020. In September 2020, we announced the results of the AP-016 study, which met its primary endpoint and found Ampion to be safe and well-tolerated with no remarkable difference in the incidence, frequency, and severity of adverse events between IV Ampion and SOC. These patients were followed for 90-days following treatment to complete their safety assessments and the SMC found the IV treatment of Ampion to be safe and well-tolerated. Secondary efficacy endpoints from the study suggest Ampion may improve the clinical outcome for patients with COVID-19 as measured by the ordinal scale of clinical improvement as recommended by the WHO, and by the National Early Warning Score, as recommended by the National Institute for Health and Care Excellence in its guidelines for the management of COVID-19 patients in critical care. Following these results, in December 2020, the Company initiated an expanded global study, or the AP-017 study, in the United States and Israel for IV Ampion therapy in patients with COVID-19. The preliminary results of the AP-014 study were shared with the FDA, ~~completed its review~~at which point the FDA recommended study updates to protocol AP-017, which were implemented in the study titled “A Randomized, Double-Blinded, Placebo-Controlled Phase II Study to Evaluate the Safety and Efficacy of Intravenous Ampion in Adult COVID-19 Patients Requiring Oxygen Supplementation”. We expect to commence enrollment of the AP-017 study during the second quarter of 2021.

In August 2020, we submitted preclinical safety data to support the IND application ~~and cleared IV Ampion~~for inhalation treatment of adults with respiratory distress due to COVID-19 ~~patients on oxygen~~infection. In September 2020, we received FDA agreement to proceed with human trials utilizing inhaled Ampion as a ~~Phase 1~~treatment for COVID-19 patients who have respiratory distress and, in October 2020, we commenced the AP-014 study. In March 2021, we announced that the Company will present scientific data that supports the safety and tolerability of inhaled Ampion therapy and enabled swift progression to human clinical ~~trial. We have~~trials at the upcoming 23^rd International Congress of the International Society for Aerosols in Medicine (“ISAM”) in a poster titled, “Regulatory Decisions during COVID-19; Efficient Nonclinical Inhalation Toxicology for Clinical Program”. In addition, in April 2021, we announced the results from the AP-014 study. The AP-014 study not only met its primary endpoint, but the final data also ~~submitted~~showed an ~~IND~~even greater improvement than the interim results reported, in the metric measuring all-cause mortality over patients treated using SOC. Specifically, mortality in the SOC group was 24% (interim analysis reported 21%), while in the group treated with Ampion, mortality was only 5% (interim analysis reported 8%).

Other key findings from the study continue to ~~evaluate an inhaled~~show a positive outcome for patients treated with Ampion ~~treatment for adults with ARDS related to COVID-19 viral infection.~~ including:

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Patients who received Ampion required less hospitalization time. The average hospital length of stay was four days less for the Ampion group compared to the patients receiving SOC.

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Patients treated with Ampion were either stable or showed improvement on a scale of clinical improvement compared to patients treated using SOC. By day five, 89% of patients who received Ampion were stable or had improvement compared to 77% of patients who received SOC. This trend in improvement with Ampion treatment is noted as early as day two and continues to day five.

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Ampion treatment was safe and well-tolerated in all patients. There were no remarkable adverse events with Ampion treatment, and no drug-related serious adverse events were reported.

We continue to communicate on a regular basis with the FDA to advance the development of these programs. As an immunomodulatory agent, with ~~anti-~~

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~~inflammatory~~anti-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.

Due to the global pandemic and the need for new treatments, regulatory authorities are applying emergency approval programs. These programs include the Emergency Use Authorization (“EUA”) program in the United States. We may seek an EUA from the FDA for the use of Ampion in respiratory distress due to COVID-19 infection. If we decide to apply for an EUA and it is granted, a separate regulatory process will be needed in order to obtain a full marketing authorization (i.e., non-emergency authorization) for the use of Ampion in COVID-19 patients.

Recent Financing Activities

Information regarding our ~~Recent Financing Activities~~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 biopharmaceutical company that has incurred an accumulated deficit of ~~$192.5~~$204.2 million ~~through June 30, 2020.~~as of March 31, 2021. 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~~indications noted above. In addition, while working in parallel with the continued advancement of ~~immunological-based~~immunology-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~~in order to further leverage and ~~maximizing~~maximize 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 length of time such restrictions continue.

As a result of the public health directives and orders, as of the date of this filing, approximately 50% of our workforce 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 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 until the safety of our 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 Company’s business, operations, financial condition and results of operations, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our ongoing business operations.stockholders.

While we continue to maintain an ongoing dialog with the FDA to explore all viable options to complete the AP-013 study under an amended SPA agreement, as a result of the COVID-19 pandemic and the adverse impact on the study, it remains possible that the ongoing COVID-19 pandemic may prevent completion of the study over the near term or at all. ~~Even if the study is completed in the future,~~

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the Company anticipates the impact of the COVID-19 pandemic on the AP-013 study will likely result in a significant 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 Company economically in other ways. While the potential economic impact brought by and the duration of COVID-19 may be difficult to assess or predict, a continued widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access ~~capital.~~capital in a timely and effective manner. In addition, a recession or market correction resulting from the spread of COVID-19 could have a material adverse impact on our ability to raise requisite financing to support ~~the~~our business operations, which would adversely impact the value of our common stock.

As of ~~June 30, 2020,~~March 31, 2021, we had ~~$4.8~~$15.8 million of cash and cash equivalents. In April 2020, we received PPP loan proceeds of ~~$544,000. As of July~~$544,000, and we are currently awaiting a response from the SBA on their decision regarding our PPP loan forgiveness application despite several attempts to contact the SBA for a status update. During the three months ended March 31, ~~2020,~~2021, we ~~had received~~sold approximately 1.8 million shares pursuant to the ATM equity offering program, which yielded gross proceeds of ~~$9.4 million from the sale of 16.6 million shares of common stock in connection with the Sales Agreement, which was~~$2.7 million; offset by offering related costs of ~~$600,000.~~$0.1 million. We anticipate ~~using~~the continued use of the ATM equity offering program in a disciplined manner based on near-term liquidity needs and ~~could~~may seek to 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.~~2022. This projection is based on many assumptions that may prove to be ~~incorrect, including, but not limited to,~~incorrect. For example, despite the ~~overall effectiveness~~historically successful use of ~~sourcing ongoing requisite capital through~~ the ATM equity offering program, due to the inherent uncertainties associated with raising capital in the public markets, our management is unable to conclude that it is probable that future capital will be available to satisfy our future liquidity needs in a manner that ~~is not materially detrimental~~will be sufficient to ~~the Company.~~fund operations. 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, ~~and~~ its effect on the Company’s operations

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and ability to raise capital through the ATM equity offering program, or otherwise, ~~continues to be highly~~remains 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 2to the Financial Statements).

Our ~~New Shelf Registration Statement,~~shelf registration statement, which was declared effective by the SEC in May 2020, provides us with the ability to sell up to an aggregate amount of $100.0 million of shares of common stock, preferred stock, debt securities, warrants and units, or any combination thereof, less any sales from the ATM equity offering program that occurred prior to May 6, 2020, which was the effective date of the ~~New Shelf Registration Statement (see~~ ~~Note 10~~ toshelf registration statement. We had $74.6 million remaining under the ~~Financial Statements).~~shelf registration statement as of March 31, 2021. However, we cannot be certain that we will be able to secure additional financing or that any funding, ~~if secured under~~or securities offered pursuant to the ~~New Shelf Registration Statement~~shelf registration statement or otherwise, will be adequate to execute our business strategy. Even if we are able to obtain additional financing, such additional financing may be costly and may require us to agree to covenants or other provisions that favor new investors over existing ~~shareholders.~~stockholders.


	March 31, 2021

Authorized shares		300,000,000

Common stock outstanding		195,689,128
Options outstanding		6,001,151
Warrants outstanding		3,814,550
Shares reserved for issuance under 2019 Stock and Incentive Plan		7,918,755
Available shares		86,576,416

Effective registration statement	$	100,000,000
ATM activity		(25,406,000)
Remaining amount on registration statement	$	74,594,000

Average stock price immediately preceding March 31, 2021:
30 day	$	1.67
60 day	$	1.81
90 day	$	1.72

Even though the Company had approximately 86.6 million shares of common stock authorized and available for future issuance as of March 31, 2021, the Company’s ability to raise additional funds by issuing securities pursuant to its current shelf registration statement is limited by the $74.6 million remaining on such shelf registration statement. In addition, the Company, at its discretion, may file a new shelf registration statement to register any remaining shares of common stock that are authorized for issuance. Based on the table above, the average stock price could represent a range of the Company’s ability to draw down on the residual shelf capacity.

ACCOUNTING POLICIES

Significant Accounting Policies and Estimates

Our financial statements were prepared in accordance with GAAP. The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses 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(s), useful lives of assets and remaining useful lives, accrued compensation, stock compensation, warrant derivative 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 critical accounting policies have a significant impact

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on the results we report in our financial statements. Our significant accounting policies and estimates are included in our ~~2019~~2020 Annual Report. Our significant accounting policies and estimates have not changed substantially from those previously disclosed in our ~~2019~~2020 Annual Report.

Newly Issued Accounting Pronouncements

Information regarding the recently issued accounting standards (adopted and not adopted as of ~~June 30, 2020)~~March 31, 2021) is contained in Note 1 to the Financial Statements.

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RESULTS OF OPERATIONS –

Results of Operations – ~~June 30, 2020~~March 31, 2021 Compared to ~~June 30, 2019~~March 31, 2020

We recognized a net loss for the three months ended ~~June 30, 2020~~March 31, 2021 (“~~2020~~2021 quarter”) of ~~$2.7~~$3.7 million compared to a net ~~income recognized~~loss of ~~$421,000~~$5.2 million for the three months ended ~~June 30, 2019~~March 31, 2020 (“~~2019~~2020 quarter”). The net loss during the 2021 quarter was primarily attributable to operating expenses of $3.8 million. The net loss during the 2020 quarter was primarily attributable to operating expenses of ~~$2.6~~$6.0 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, which was partially offset by operating expenses of $3.6~~$0.8 million. The decrease in our stock price from ~~$0.56~~$0.58 as of December 31, 2019 to $0.42 as of March 31, ~~2019 to $0.39 as of June 30, 2019~~2020 caused the valuation of the warrant liability to decrease resulting in a ~~non-cash~~ derivative gain during the ~~2019~~2020 quarter. ~~The operating~~Operating expenses ~~for~~decreased $2.2 million from the 2020 quarter ~~decreased $1.0 million from~~to the ~~2019~~2021 quarter primarily due to a ~~$1.0~~$2.0 million decrease in research and development ~~costs.~~

~~We recognized~~costs, as well as a ~~net loss for the six months ended June 30, 2020 (“2020 period”) of $7.9~~$0.2 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 non-cash derivative gain of $156,000. The outstanding amount of investor warrants decreased due to warrant exercises, causing the valuation of the warrant liability to decrease which resulted in a non-cash derivative gain 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 $2.4 million from the 2019 period to the 2020 period primarily due to a $1.7 million increase in research and development costs and a $693,000 increase in general and administrative costs, both of which isare further explained below.

Operating Expenses

Research and Development

Research and development costs (benefits) are summarized as follows and ~~excludes~~exclude an allocation of general and administrative expenses:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2020		2019		2020		2019		2021		2020
Clinical trial and sponsored research expenses	$	(82,000)	$	562,000	$	2,928,000	$	847,000	$	769,000	$	3,011,000
Salaries and benefits		652,000		736,000		1,349,000		1,369,000		621,000		696,000
Operations / manufacturing										389,000		33,000
Depreciation		293,000		308,000		586,000		611,000		289,000		293,000
Laboratory		95,000		144,000		187,000		269,000		115,000		92,000
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		46,000		59,000
Professional fees		16,000		67,000		41,000		106,000		35,000		25,000
Equipment rental and repair		11,000		23,000		33,000		47,000		33,000		22,000
Regulatory / FDA										(1,000)		23,000
Total research and development	$	1,118,000	$	2,136,000	$	5,373,000	$	3,702,000	$	2,296,000	$	4,254,000

2021 Quarter Compared to 2020 Quarter

Research and development costs decreased by approximately ~~$1.0~~$2.0 million, or ~~48%~~46.0%, for the ~~2020~~2021 quarter compared to the ~~2019~~2020 quarter. Research and development costs with variances above $75,000 and 10% compared with the previous quarter are further explained below.

Clinical trial and sponsored research expenses

The clinical trial and sponsored research expense decreased $2.2 million, or 74.5%, primarily due to the AP-013 study being temporarily paused in April 2020 and continuing through the current period as a result of the pandemic. The pause

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~~Clinical trial and sponsored research expenses~~

~~The clinical trial and sponsored research expenses decreased $644,000, or 114.6%, for the 2020 quarter compared with the 2019 quarter as~~of 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 notresulted in a ~~position whereby we can reasonably estimate the full financial impact~~reduction of ~~COVID-19. However, the decrease in~~ expenses ~~related to the AP-013 study was~~totaling $2.4 million, or 80%, partially offset by ~~expenses incurred for the nebulized Ampion safety study and the AP-016 study.~~

~~Salaries and benefits~~

~~Salary and benefit costs decreased $84,000, or 11.4%, for the 2020 quarter compared with the 2019 quarter primarily due to two open positions, which are projected to remain open due to the uncertainty~~$0.2 million of ~~the COVID-19 pandemic.~~

~~Operations / manufacturing~~

Operations / manufacturing expenses decreased $80,000, or 54.4%, for the 2020 quarter compared with the 2019 quarter as we completed the production of Ampion vials which were utilized in the AP-013 study. However, we expect operations / manufacturing expenses to increase during the third quarter due to the approval of the IND for IV Ampion.

Research and development costs increased approximately $1.7 million, or 45.1%, for the 2020 period compared to the 2019 period. Research and development costs with variances above $75,000 and 10% are explained below.

~~Clinical trial and sponsored research expenses~~

~~The clinical trial and sponsored research expenses increased $2.1 million, or 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~~AP-014 and the AP-017 studies, which were initiated subsequent to 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~~quarter.

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/~~Operations / manufacturing expenses ~~decreased $157,000,~~increased $356,000, or ~~60.9%~~1,078.8%, for the ~~2020 period~~2021 quarter compared with the ~~2019 period~~2020 quarter as ~~we completed~~a result of the production of Ampion ~~vials~~clinical trial products to be utilized in the ~~AP-013 study. As mentioned above, we expect operations / manufacturing expenses to increase during the third quarter due to the approval of the IND for IV Ampion treatment.~~current and upcoming clinical trials.

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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,				Three Months Ended March 31,
	2020		2019		2020		2019		2021		2020
Professional fees	$	614,000	$	556,000	$	1,355,000	$	952,000	$	479,000	$	739,000
Insurance		319,000		155,000		592,000		285,000		340,000		273,000
Salaries and benefits		275,000		388,000		512,000		617,000		237,000		237,000
Stock-based compensation		53,000		42,000		286,000		129,000		200,000		234,000
Facilities		120,000		130,000		247,000		261,000		128,000		127,000
Director fees		60,000		84,000		143,000		150,000		92,000		84,000
Other										37,000		26,000
Travel and meetings		16,000		41,000		60,000		55,000		5,000		44,000
Other		22,000		27,000		48,000		63,000
Depreciation		3,000		22,000		6,000		44,000		5,000		3,000
Total general and administrative	$	1,482,000	$	1,445,000	$	3,249,000	$	2,556,000	$	1,523,000	$	1,767,000

2021 Quarter Compared to 2020 Quarter

General and administrative costs ~~increased $37,000,~~decreased $244,000, or ~~2.6%~~13.8%, for the ~~2020~~2021 quarter compared to the ~~2019~~2020 quarter. ~~General and administrative costs with variances above $75,000 and 10% are explained below.~~

~~Insurance~~

Insurance expense increased $164,000, or 105.8%, for the 2020 quarter compared to the 2019 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 separation agreement for the former Chief Financial Officer (“CFO”), which was executed during the 2019 quarter.

~~General and administrative costs increased $693,000, or 27.1%, for the 2020 period compared to the 2019 period.~~ General and administrative costs with variances above $75,000 and 10% are explained below.

Professional fees

Professional fees ~~increased $403,000,~~decreased $260,000, or ~~42.3%~~35.2%, for the ~~2020 period~~2021 quarter compared to the ~~2019 period~~2020 quarter due primarily ~~due~~ to ~~an increase~~a decrease in legal fees related to ~~ongoing current~~litigation. The decrease in litigation related expenses is directly attributable to both the securities class action 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~~derivative cases that were dismissed during the ~~2019 quarter.~~third quarter of 2020.

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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 the issuance of stock options to employees during Q1 2020.~~

Cash Flows

Cash flows for the respective periods are as follows:


	Six Months Ended June 30,				Three Months Ended March 31,
	2020		2019		2021		2020
Net cash used in operating activities	$	(9,143,000)	$	(5,894,000)	$	(4,147,000)	$	(4,553,000)
Net cash used in investing activities		—		(14,000)		(81,000)		—
Net cash provided by financing activities		7,453,000		11,105,000		2,686,000		436,000
Net change in cash and cash equivalents	$	(1,690,000)	$	5,197,000	$	(1,542,000)	$	(4,117,000)

Net Cash Used in Operating Activities

During the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 our operating activities used approximately ~~$9.1~~$4.1 million in cash and cash equivalents, which was more than our reported net loss of ~~$7.9 million~~$3.7 million. The difference is primarily as a result of ~~a decrease~~ an increase

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in working capital, excluding cash and cash equivalents, totaling ~~$1.5~~$0.8 million and non-cash adjustment for the warrant derivative ~~and PPP funding~~gain totaling ~~$0.7~~$0.2 million; partially off-set by recurring non-cash charges related to depreciation and amortization, stock-based compensation and issuance of common stock for services totaling ~~$1.0~~$0.5 million.

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020 our operating activities used approximately ~~$5.9~~$4.5 million in cash and cash equivalents, which was ~~slightly more~~less than our net loss of ~~$5.4~~$5.2 million primarily as a result of ~~an increase~~a decrease in working capital ~~excluding cash and cash equivalents,~~ totaling ~~$0.6~~$0.9 million and recurring non-cash charges related to depreciation and amortization, stock-based compensation and issuance of common stock for services totaling ~~$0.9~~$0.6 million; partially offset by a non-cash adjustment for the warrant derivative gain totaling $0.8 million.

Net Cash Used in Investing Activities

During the ~~six~~three months ended ~~June 30, 2020, $0~~March 31, 2021, $81,000 in cash and cash equivalents was used to acquire manufacturing machinery and equipment.

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, $0 in cash and cash equivalents was used to acquire ~~$14,000 of~~ manufacturing machinery and equipment.

Net Cash ~~from~~Provided by Financing Activities

During the ~~six~~three months ended ~~June 30,~~March 31, 2021, we received gross proceeds of $2.7 million from the sale of approximately 1.8 million shares of common stock pursuant to the ATM equity offering program, which was partially offset by offering related costs of $126,000. In addition, we also received proceeds of $114,000 from investor warrant exercises representing 284,000 shares of common stock.

During the three months ended March 31, 2020, we received gross proceeds of ~~$7.9~~$0.7 million from the sale of ~~14.3~~approximately 1.2 million shares of common stock ~~in connection with~~pursuant to the ~~Sales Agreement,~~ATM equity offering program, which was partially offset by offering related costs of ~~$0.6~~$0.2 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 public offering, which was offset by offering costs of $1.2 million. We also received proceeds of $350,000 from warrant exercises.

Liquidity and Capital Resources

WeSince inception, we have not generated operating revenue or profits. ~~Our primary activities since inception~~Over this period, we have ~~been~~continued to be focused on research and clinical development activities for the advancement of Ampion towards multiple BLA ~~submission,~~submissions; all of which has required raising a substantial amount of capital. As of ~~June 30, 2020,~~March 31, 2021, we do not have a fixed and determinable committed source of liquidity to meet our expected obligations ~~for~~over the next twelve months. Specifically, we had ~~$4.8~~$15.8 million of cash and cash equivalents

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as of ~~June 30, 2020.~~ March 31, 2021.

We currently anticipate using the ATM equity offering program to raise additional funds in the near term, as needed, and ~~could~~may seek to supplement the funds raised with separate ~~private/~~private or public equity offering(s). Based on our current cash position, projection of ~~operations~~operating expenses and expected access to the ATM and/or other equity financing programs, we believe we will have sufficient liquidity to fund operations through the second quarter of ~~2021. This~~2022. Our projection is based on many assumptions that may prove to be ~~incorrect, including, but not limited to,~~incorrect. For example, despite the ~~overall effectiveness~~historically successful use of ~~sourcing ongoing requisite capital through~~ the ATM equity offering program, ~~and/or private/~~due to the inherent uncertainties associated with raising capital in the public markets and the fact that the ATM equity ~~program(s).~~offering program is not deemed a fixed and determinable committed source of liquidity, our management is unable to conclude that it is probable that future capital will be available to satisfy our ongoing liquidity needs as they arise and in a manner that will be timely and sufficient to fund operations. As such, it is possible that we could exhaust our available cash and cash equivalents earlier than presently anticipated. In addition, as the global COVID-19 pandemic ~~of COVID-19~~ continues to ~~rapidly~~ evolve, ~~and~~ its ~~effects~~effect on our business ~~financial condition~~operations and ~~results of operations are highly~~ability to raise capital through the ATM equity offering, or otherwise, remains uncertain and subject to change. We anticipate that we will seek to raise additional capital investments in both the near and long-term to enable us to primarily support (i) clinical development of Ampion, (ii) BLA preparation and submission, (iii) existing base business operations and (iv) commercial development activities for Ampion. We intend to continue our close evaluation of the overall capital markets to determine the appropriate timing and funding level for any such capital raising ~~activity,~~activities, which will primarily depend on our stock price and existing market conditions relative to our need for funds at such time.

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The audit ~~reports~~report on our financial statements for the fiscal year ended December 31, ~~2019 contained~~2020 contains 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 have prepared a projection through ~~June~~April 30, ~~2021. This~~2022. Our projection reflects cash requirements for fixed, ~~on-going~~recurring base business 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~~and incremental costs supporting our current and projected clinical development programs. We continue 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, iswe are not currently in a position to project the required liquidity needs for 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 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. The continued volatility in the financial markets has adversely affected the market capitalizations of many pre-revenue stage biopharmaceutical companies, particularly small capitalization companies such as Ampio, and generally has made equity and debt financing difficult to obtain in a manner that is not significantly detrimental to the business and without significant dilution to existing shareholders. This volatility, along with the COVID-19 pandemic and other factors, may limit our access to additional financing.ongoing clinical studies.

IfIn May 2020, the shelf registration statement was declared effective by the SEC and, as of March 31, 2021, we ~~cannot~~had approximately $74.6 million available for issuance under the shelf registration statement with approximately 86.6 million authorized shares of common stock remaining available for issuance.

In the event that we are unable to obtain funding through capital raises and/or partnering/licensing transactions in the future when deemed necessary, we will likely be required to delay, reduce the scope of or eliminate our development, manufacturing and/or regulatory programs for Ampion and/or our future commercialization efforts and/or suspend operations for a period of time until we are able to secure additional funding. If we are not successful in raising sufficient funds to pay for further development and licensing of Ampion, we may choose to license or otherwise relinquish greater, or all rights to Ampion, at an earlier stage of development or on less favorable terms than we would otherwise choose. This could 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”.

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 anya smaller reporting company, as defined by Rule 12b-2 of the ~~foregoing risks~~Exchange Act, and ~~therefore currently engage in no hedging activities.~~are not required to provide the information required under this item.

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Item 4. Controls and Procedures.

Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such terms are defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of senior management, including the CEO and the CFO, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and ~~15d-15(b)~~15d-15(b). Based upon this evaluation, the CEO and the CFO concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

Information regarding our Legal Proceedings is contained in Note 13 to the Financial Statements.

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~~2020 Annual Report ~~as updated by our Quarterly Reports on Form 10-Q~~and other reports that we have filed with the SEC, which could materially affect our business, financial condition or future results.

~~Our business, financial condition and results of operations may be materially adversely affected~~ During the period covered by ~~global health epidemics, including, but not limited to, the recent COVID-19 pandemic.~~

~~Outbreaks of epidemic, pandemic or contagious diseases such as COVID-19, could~~this Quarterly Report on Form 10-Q, there 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 AP-013 study has~~ been and may continue to be significantly affected by the COVID-19 pandemic. As a result of the continuation of the pandemic, clinical site monitoring and patient visits may continue to be 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 ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, could be

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challenging and adversely impact our clinical trial operations. In April 2020, we paused all ongoing conduct associated with the AP-013 study. In June 2020, steady increases in COVID-19 cases in certain regions across the United States were reported. Due to the continued steady increase in reported cases, we have determined that the AP-013 study will remain paused.

However, we believe 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 ano 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 to assess the impact of COVID-19 on our business operations, system supports and financial condition, but there can be no assurance that this analysis 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 orchanges 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 andrisk factors 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 limitations, based on the use of the loan proceeds for qualifying expenses, which include payroll costs, rent, and utility costs over the 24-week measurement period following receipt of the loan proceeds.

According to 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. However, the Company cannot give any assurance that it will obtain forgiveness of the PPP loan in whole or in part.

previously disclosed.

Item 2. Unregistered Sales of Securities and Use of Proceeds.

~~None.~~During the three months ended March 31, 2021, we issued 23,000 shares of common stock to former placement agents as a result of net exercises of placement agent warrants, with exercise prices ranging from $0.50 to $0.76 per share of common stock, where the total number of shares of common stock issued was reduced to cover the exercise price. We did not receive any cash related to the exercise of the placement agent warrants.

The issuance of the above securities was exempt from the registration requirements under Rule 4(2) of the Securities Act of 1933, as amended, and/or Rule 506 as promulgated under Regulation D.

Item 3. Defaults Upon Senior Securities.

~~None.~~Not Applicable.

Item 4. Mine Safety Disclosures.

~~None.~~Not Applicable.

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Item 5. Other Information.

~~None.~~The Board of Directors of the Company has set the date of the 2021 Annual Meeting of Stockholders (the “2021 Annual Meeting”) for August 14, 2021 at 10:00 a.m. Mountain Time to be held entirely virtually by means of remote communication. The deadlines for the receipt of any stockholder proposals and director nominations to be considered at the 2021 Annual Meeting are set forth below.

Any stockholder proposal submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Rule 14a-8”), for inclusion in the Company’s proxy materials for the 2021 Annual Meeting must be received by our Secretary at our principal executive offices no later than the close of business on May 16, 2021, which the Company has determined to be a reasonable time before it expects to begin to print and send its proxy materials. Such proposals also need to comply with the SEC stockholder proposal rules.

In addition, any stockholder seeking to nominate a director or to bring other business before the 2021 Annual Meeting outside of Rule14a-8 under the advance notice provisions included in the Company’s Amended and Restated Bylaws (the “Bylaws”) must provide timely notice, as set forth in the Bylaws. Specifically, written notice of any such proposed business or nomination must be received by the Company’s Secretary at our principal executive offices no later than the close of business on May 16, 2021. Any notice of proposed business or nomination also must comply with the notice and other requirements set forth in our Bylaws and with any applicable law.

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For purposes of stockholder proposals, the “close of business” shall mean 6:00 p.m. local time at the principal executive offices of the Corporation on any calendar day, whether or not the day is a business day.

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.


Exhibit Number		Description
~~10.1~~3.1		~~Loan Agreement, dated April 16, 2020,~~Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.3 from Registrant’s Form 8-K filed on March 30, 2010).
3.2		Certificate of Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.4 from Registrant’s Form 8-K filed on March 30, 2010).
3.3		Plan of Conversion of Chay Enterprises, Inc. to a Delaware corporation (incorporated by reference to Exhibit 2.1 from Registrant’s Form 8-K filed on March 30, 2010).
3.4		Certificate of Amendment of Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 from Registrant’s Form 8-K filed on December 18, 2019).
3.5		Amended and ~~between Key Bank National Association and Ampio Pharmaceuticals, Inc. (1)~~Restated Bylaws of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.1 from Registrant’s Form 10-Q filed on November 14, 2018).
31.1		Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002.
31.2		Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002.
32.1		Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002.

101		XBRL (eXtensible Business Reporting Language). The following ~~materials~~financial statements from Ampio Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2020~~March 31, 2021, formatted in Inline XBRL: (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statements of Stockholders’ Equity (Deficit), (iv) the Condensed Statements of Cash Flows, and (v) the Notes to Financial Statements.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

~~(1)~~

~~Incorporated by reference from the Registrant’s Form 8-K filed on April 22, 2020~~

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	AMPIO PHARMACEUTICALS, INC.

	By:	/s/ Michael Macaluso
		Michael Macaluso
		Chairman and Chief Executive Officer
		Date: ~~July 31, 2020~~May 5, 2021

	By:	/s/ Daniel G. Stokely
		Daniel G. Stokely
		Chief Financial Officer ~~Treasurer~~ and Secretary
		Date: ~~July 31, 2020~~May 5, 2021

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	June 30, 2020

PPP loan proceeds	$	544,000
Qualified expenses eligible for forgiveness		(544,000)
PPP loan balance	$	—


	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