Subsequent Events

3 Months Ended

Mar. 31, 2019

5. Subsequent Events

Merger with Oncotelic

On April 17, 2019, the Company entered into a merger agreement with Oncotelic, Inc. (“Oncotelic”, a clinical-stage biopharmaceutical company focused on the treatment of cancer using TGF-b RNA), and Oncotelic Acquisition Corporation (the “Merger Sub”, a newly formed wholly-owned subsidiary of the Company).

Mateon and Oncotelic entered into the merger agreement in order to create a publicly-traded company with a pipeline of immunotherapies that target several cancer markets which currently lack adequate treatment options.

On April 22, 2019, following the satisfaction of closing conditions contained in the merger agreement, the Merger Sub was merged with and into Oncotelic, with Oncotelic surviving the merger as a subsidiary of the Company. In connection with the merger, the Company issued approximately 41,000,000 shares of common stock and 193,713 shares of newly designated Series A Preferred Stock to the former stockholders of Oncotelic in exchange for all of the previously outstanding shares of Oncotelic common stock.

Included in the shares issued to the former stockholders of Oncotelic are approximately

2,110,000

shares of common stock and approximately 10,000 shares of Series A Preferred Stock which are to be issued subject to the holders’ waiver of dissenter’s rights.

ach share of Series A Preferred Stock is convertible into 1,000 shares of common stock and is eligible to vote on stockholder matters on an as-converted basis. The Series A Preferred Stock will convert into common stock upon the availability of a sufficient number of authorized shares of common stock.

As a result of the merger, the former Oncotelic security holders immediately before the transaction own approximately 85% of the issued and outstanding common stock, including shares of common stock that are issuable upon conversion of the Series A Preferred Stock, and the stockholders of the Company immediately before the transaction own the remaining 15%.

The Company plans to report data regarding the financial statements of Oncotelic, including pro forma financial information, once Oncotelic’s financial statements are completed. Oncotelic is in the process of preparing its financial statements for all relevant reporting periods and obtaining audits for its fiscal years ended December 31, 2018 and 2017, and, accordingly, it is currently impractical to include such information.

Contingent Value Right for previous Mateon stockholders

Holders of Mateon common stock at the close of business on the date prior to the effectiveness of the merger were issued a Contingent Value Right (“CVR”), which provides them with the right to receive 75% of the net proceeds received from the full or partial sale, license, transfer or other disposition of the intellectual property rights and related assets of the Company’s product candidates OXi4503 and CA4P, in their current form and for their currently contemplated uses, that occurs under a definitive agreement executed prior to the fourth anniversary of the merger (after the initial $500,000 of such net proceeds, which will be retained by the Company). The Company’s stock transfer agent acts as the rights agent for the CVR holders. The CVRs are not transferrable, do not entitle their holders to any equity interest in the Company and do not have any voting or dividend rights.

Management Change

In accordance with the terms of the merger agreement, Vuong Trieu, Ph.D., Oncotelic’s Chairman and Chief Executive Officer, was appointed to the Company’s board of directors and was appointed Chief Executive Officer of the Company and Chairman of the board of directors. The Company’s previous CEO, William D. Schwieterman, M.D., resigned from his position as CEO, although he will remain a member of the Company’s board of directors. Also in accordance with the terms of the merger agreement, all of the other previous directors of the Company resigned effective on the closing date of the merger.

Bridge financing

On April 23, 2019, the Company completed an initial tranche aggregating $0.6 million of bridge financing. Under the bridge financing, the Company issued $600,000 of debentures to four investors (including $

168,000

with Dr. Trieu, the incoming Chairman and Chief Executive Officer of the Company). The debentures were issued at a 10% discount for proceeds to the Company of $540,000. Under the terms of the bridge financing agreements, after May 23, 2019 the Company has the potential to draw down a second tranche of $600,000 of debentures for an aggregate purchase price of $540,000. The debentures are payable on sliding schedule of premiums over a six month period, and during this period the debentures are convertible into common stock at a fixed price of $0.10 per share. Thereafter, the debentures are convertible into common stock at a discount to the market price at the time of conversion.

Upon closing the bridge financing, the Company issued 700,000 shares of common stock to two of the unaffiliated bridge investors as a commitment fee in connection with the financing.

For additional information concerning the merger with Oncotelic, the CVRs, the management change and the bridge financings, see the Company’s Current Reports on Form 8-K filed with the SEC on April 18 and April 25, 2019.