Note 7 - Equity Instruments

Options

In 2010, Ampio shareholders approved the adoption of a stock and option award plan (the “2010 Plan”), under which shares were reserved for future issuance under restricted stock awards, options and other equity awards. The 2010 Plan permits grants of equity awards to employees, directors and consultants. The shareholders have approved a total of 11.7 million shares reserved for issuance under the 2010 Plan.

During the three months ended March 31, 2019, the Company did not grant options to officers, directors or employees. There were also no option exercises or forfeitures during the three months ended March 31, 2019.

The following table summarizes Ampio’s stock option activity:


		Weighted		Weighted Average
	Number of	Average		Remaining		Aggregate
	Options	Exercise Price		Contractual Life		Intrinsic Value
Outstanding at December 31, 2018	5,426,165	$	1.99	4.89	$	—
Granted	—	$	—
Exercised	—	$	—
Forfeited	—	$	—
Expired or Cancelled	—	$	—
Outstanding at March 31, 2019	5,426,165	$	1.99	4.65	$	53,814
Exercisable at March 31, 2019	5,171,996	$	2.06	4.46	$	41,789
Available for grant at March 31, 2019	4,229,783

Stock options outstanding at March 31, 2019 are summarized in the table below:


	Number of	Weighted		Weighted Average
	Options	Average		Remaining
Range of Exercise Prices	Outstanding	Exercise Price		Contractual Lives
$0.48 - $2.00	3,293,423	$	0.82	5.61
$2.01 - $5.00	1,750,000	$	3.07	2.99
$5.01 - $8.62	382,742	$	7.13	3.97
	5,426,165	$	1.99	4.65

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 did not utilize any assumptions during the quarter as no options were granted during the period ended March 31, 2019.

Stock-based compensation expense related to the fair value of stock options is included in the statements of operations as research and development expenses or general and administrative expenses as set forth in the table below. The following table summarizes stock-based compensation expense for the three months ended March 31, 2019 and 2018:


	Three Months Ended March 31,
	2019		2018
Research and development expenses
Stock-based compensation	$	500	$	23,000

General and administrative expenses
Issuance of common stock for services		60,000		60,000
Stock-based compensation		27,000		96,000

Total stock-based compensation	$	87,500	$	179,000

Unrecognized expense at March 31, 2019		41,000

Weighted average remaining years to vest		0.75

Warrants

In connection with the August 2018 confidentially marketed public offering, Ampio issued warrants to purchase an aggregate of 20.0 million shares of common stock at an exercise price of $0.40 with a term of five years. Due to certain derivative features, these warrants are accounted for under liability accounting and are recorded at fair value each reporting period. As of March 31, 2019, these warrants had a fair value of $7.5 million. Significant assumptions as of March 31, 2019, December 31, 2018 and at issuance were as follows:


Assumptions for warrants issued August 13, 2018:	March 31, 2019			December 31, 2018			At Issuance

Exercise Price	$	0.40		$	0.40		$	0.40
Volatility		130.2	%		129.8	%		121.8	%
Equivalent term (years)		4.37			4.62			5.00
Risk-free interest rate		2.22	%		2.50	%		2.75	%
Number of shares		15,500,000			15,600,000			20,000,000

The total value for the warrant liability as of March 31, 2019 is $10.1 million, which includes warrant issuances from prior periods. See Note 4 for additional information regarding the warrant derivative liability.

During the three months ended March 31, 2019, the Company issued 50,000 shares of common stock from the exercise of investor warrants with an exercise price of $0.40 from the 2018 confidentially marketed public offering. The Company received $20,000 as of March 31, 2019 related to these investor warrant exercises.

The following table summarizes Ampio’s warrant activity:


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

Outstanding at December 31, 2018	22,283,191	$	0.51	4.25
Warrants exercised	(50,000)	$	0.40
Outstanding at March 31, 2019	22,233,191	$	0.51	4.00