Note 6—Equity Instruments

Options

In 2010, Ampio shareholders approved the adoption of a stock and option award plan (the “2010 Plan”), under which shares were reserved for future issuance under restricted stock awards, options, and other equity awards. The 2010 Plan permits grants of equity awards to employees, directors and consultants. The shareholders have approved a total of 11.7 million shares reserved for issuance under the 2010 plan. Ampio has computed the fair value of all options granted using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding components of the model, including the estimated fair value of the underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to valuation. Ampio calculates its volatility assumption using the actual changes in the market value of its stock. Ampio has estimated a forfeiture rate of 5.3% based upon historical experience; this is an estimate of options granted that are expected to be forfeited or cancelled before becoming fully vested. Ampio estimates the expected term based on the average of the vesting term and the contractual term 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. During the six months ended June 30, 2016, Ampio granted 5,000 options at a price of $6.53 to a former employee to replace 5,000 options that were forfeited due to the spin-off of Aytu. The $6.53 price represented the fair market value on the original date of the grant and was above Ampio’s stock price on the date when the option was re-granted in 2016. On June 30, 2016, the Company cancelled 470,000 performance based options that were based on the outcome of the most recent Ampion trial. As the awards were performance based, no expense was previously recognized on these options. Ampio has computed the fair value of all options granted during the six months ended June 30, 2016 using the following assumptions:


Expected volatility			124%
Risk free interest rate			0.61%
Expected term (years)			1.0
Dividend yield			0.0%
Forfeiture rate			5.3%

Ampio stock option activity is as follows:


	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Outstanding December 31, 2015		7,315,832	$	3.71		6.58
Granted		5,000	$	6.53
Exercised		-	$	-
Forfeited		-	$	-
Expired or Cancelled		(475,000)	$	2.67

Outstanding June 30, 2016		6,845,832	$	3.78		5.23

Exercisable at June 30, 2016		6,490,935	$	3.77		5.04

Available for grant at June 30, 2016		3,441,647

Stock options outstanding and exercisable at June 30, 2016 are summarized in the table below:


Range of Exercise Prices	Number of Options Outstanding and Exercisable		Weighted Average Exercise Price		Weighted Average Remaining Contractual Lives

$1.03 - $4.00		4,670,832	$	2.35	4.91
$4.01 - $7.00		1,240,000	$	6.17	5.39
$7.01 - $8.93		935,000	$	7.73	6.58

		6,845,832	$	3.78	5.23

Stock-based compensation expense related to the fair value of stock options was included in the statements of operations as research and development expenses and general and administrative expenses as set forth in the table below. Ampio determined the fair value as of the date of grant using the Black-Scholes option pricing model and expenses the fair value ratably over the vesting period. The following table summarizes stock-based compensation expense for the three and six months ended June 30, 2016 and 2015:


	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Research and development expenses
Stock options	$	65,000	$	449,000	$	155,000	$	1,057,000

General and administrative expenses
Common stock issued for services		-		-		60,000		30,000
Stock options		208,000		1,192,000		728,000		1,729,000

	$	273,000	$	1,641,000	$	943,000	$	2,816,000


Unrecognized expense at June 30, 2016	$	555,407

Weighted average remaining years to vest		0.83

Warrants

Ampio issued warrants in conjunction with its senior convertible debentures, 2011 private placements and an underwritten public offering. A summary of all Ampio warrants is as follows:


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

Outstanding December 31, 2015		499,076	$	3.24	1.19
Warrants exercised		-	$	-
Warrants expired		(500)	$	3.13

Outstanding June 30, 2016		498,576	$	3.24	0.79

In March 2016, the Company modified 45,300 of its outstanding warrants which extended the expiration for an additional year from March 31, 2016 to March 31, 2017. The $37,000 expense related to this modification was recognized in the quarter ended March 31, 2016.