Acquisitions

6 Months Ended

Jun. 30, 2019

Business Combinations [Abstract]

Acquisitions

NOTE 3 - ACQUISITIONS

Merger Agreement with Oncotelic, Inc.

Effective April 22, 2019, the Company completed the Merger pursuant to the Merger Agreement. Pursuant to the terms of the Merger Agreement, Oncotelic, Inc. merged with and into Merger Sub. Oncotelic, Inc. was the surviving corporation and, as a result of the Merger, became a wholly owned subsidiary of Mateon.

On the effectiveness of the Merger it is reflected that:

● for all bookkeeping and accounting purposes, the closing of the Merger (the “Closing”) was to be deemed to have occurred at 10:00 am local time on April 22, 2019;

● for the purposes of calculating the number of shares of Mateon’s common stock, $0.01 par value per share, to be issued in exchange for common equity units of Oncotelic, Inc. in connection with the Merger, the conversion ratio was to be 3.97335267 for Common Stock and 0.01877292 of newly designated Series A Convertible Preferred Stock;

● 41,419,934 shares of Mateon common stock were issued and outstanding as of the date of the Merger;

● Oncotelic’s outstanding 10,318,746 shares of common stock, consisting of 7,866,335 outstanding shares of common stock, 3,102,411 converted options and 150,000 converted warrants, that were exchanged for an aggregatge of (a) 41,000,033 shares of the Company’s Common Stock and (b) 193,713 shares of the Company’s newly designated Series A Preferred Stock, par value $0.01 per share each of which are initially convertible into 1,000 shares of Common Stock. Included in the shares issued to the former stockholders of Oncotelic are approximately 2.1 million shares of common stock and approximately 10,000 shares of the Preferred Stock which are to be issued subject to the holders’ waiver of dissenter’s rights.

● Holders of the Company’s Common Stock at the close of business on the date prior to the effectiveness of the Merger were issued a Contingent Value Right (“CVR”).

Each CVR provides its holder 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 Mateon’s product candidates OXi4503 and CA4P, in their form and for their contemplated uses at the time of Closing, 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 CVRs are not transferable, do not entitle the holder to any equity interest in the Company and do not have any voting or dividend rights.

Immediately following the Merger, Mateon had 82,419,967 shares of common stock issued and outstanding and 193,713 shares of preferred stock which converted at a 1:1,000 ratio resulting in an additional 193,712,995 shares of common stock. The pre-Merger stockholders of Mateon retained an aggregate of 41,419,934 shares of common stock of Mateon, representing approximately 15% ownership of the post-Merger company. Therefore, upon consummation of the Merger, there was a change in control of Mateon, with the former owners of Oncotelic effectively acquiring control of Mateon. The Merger has been treated as a recapitalization and reverse acquisition for financial accounting purposes. As such, Oncotelic is considered the acquirer for financial accounting purposes, and the registrant’s historical financial statements of the Company before the Merger has been replaced with the historical financial statements of Oncotelic before the Merger in the financial statements and filings with the Securities and Exchange Commission.

The Company obtained a preliminary 3^rd party valuation on the fair value of the assets acquired and liabilities assumed for use in the purchase price allocation, as well as the value the consideration exchanged in the Merger. It was determined that the market price of the Company’s common stock was not the most readily determinable measurement for calculating the fair value of the consideration, and instead the estimation of the consideration was based on an income approach to value the equity interest exchanged.

The following table summarizes the allocation of the purchase price to the fair values of the assets acquired and liabilities assumed as of the transaction date:

Cash	$	182,883
Prepaid expenses		56,175
Right of use operating asset		33,825
Accounts payable and other current liabilities assumed		(1,296,186	)
Net liability acquired		(1,023,303	)
Goodwill (a.)		4,751,055
Total purchase price (b.)	$	3,727,752

a. The primary items that generate goodwill include the value of the synergies between the acquired company and Oncotelic, Inc. and the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset.

Goodwill is the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. In accordance with applicable accounting standards, goodwill is not amortized but instead is tested for impairment at least annually or more frequently if certain indicators are present. Goodwill and intangibles is not deductible for tax purposes. The Company has considered the valuation as a preliminary allocation of assets and liabilities and may adjust such estimates in the future, if deemed material.

b. The total purchase price of $3,727,752 represents the consideration transferred from Mateon in the Merger and was calculated based on the number of shares of Common Stock of the combined company that Mateon stockholders ownded as of the closing of the transaction and the fair value of assets and liabilities assumed by Oncotelic.