Quarterly report pursuant to Section 13 or 15(d)

Acquisition of Aquarius Biotechnologies, Inc.

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Acquisition of Aquarius Biotechnologies, Inc.
 9 Months Ended
Sep. 30, 2015
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]
NOTE D – Acquisition of Aquarius Biotechnologies, Inc.
 
On January 29, 2015, we entered into the Merger Agreement with Aquarius, Saffron Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of ours (“Merger Sub”) and J. Carl Craft, as the stockholder representative. The merger contemplated by the Aquarius Merger became effective on January 29, 2015, following the satisfaction or waiver of the conditions described in the Merger Agreement, including approval of the transaction by 100% of Aquarius’ stockholders. Pursuant to the Aquarius Merger, the Merger Sub merged with and into Aquarius, with Aquarius surviving the merger as a wholly-owned subsidiary of ours.
 
Pursuant to the terms of the Merger Agreement, we were obligated to issue an aggregate of up to 5,000,000 shares of our Common Stock at closing, subject to adjustment as set forth in the Merger Agreement. At closing, we issued 4,608,020 shares (the “Closing Shares”) of our Common Stock as closing consideration. In addition, subject to our right of setoff for indemnification claims, we may issue up to an additional 3,000,000 shares (the “Additional Shares”) of our Common Stock upon the achievement of certain milestones. The milestone consideration consists of (i) 1,500,000 shares issuable upon the dosing of the first patient in a phase III trial sponsored by us for a product utilizing Aquarius’ proprietary cochleate delivery technology and (ii) 1,500,000 shares issuable upon FDA approval of the first NDA submitted by us for a product utilizing Aquarius’ proprietary cochleate delivery technology.
 
The transaction was accounted for as a business combination, and accordingly the Company has included the results of operations of Aquarius subsequent to the January 29, 2015 closing date. The transaction resulted in a significant amount of in-process research and development, goodwill and deferred tax liability on the balance sheet, as detailed below.
 
The acquisition-date fair value of the consideration transferred totaled $2,873,035 as of January 29, 2015 and consisted of the following items:
  
Fair value of 4,608,020 of common stock issued at a price per share of $0.46 as of January 29, 2015 the closing date of the merger.
 
$
2,119,689
 
 
 
 
 
 
Fair value of potential Matinas common stock as contingent consideration that will be issued upon achieving certain future clinical milestone-(a)
 
 
422,609
 
 
 
 
 
 
Fair value of potential Matinas common stock as contingent consideration that will be issued upon achieving certain future regulatory milestone-(a)
 
 
330,737
 
 
 
 
 
 
Total consideration
 
$
2,873,035
 
 
(a)-Reflects recognition of the estimated fair value of the contingent consideration payable with issuance of Matinas common stock upon achievement of certain future clinical and regulatory milestones, the achievement of which is uncertain. The fair value of the additional shares were established by assigning probabilities and projected dates of positive outcome for the milestones and valuing the future issuance of the shares by using the Black-Scholes options pricing model to account for the uncertainty in the future value of the shares. The value of the shares as derived using the options pricing model were then weighted based on the probability of achieving the milestones to determine the fair market value of the additional shares.
 
The preliminary allocation of the total purchase price is described below based on the estimated fair value of the assets acquired and liabilities assumed on the date of the acquisition. Management is in the process of refining this allocation.
 
Cash
 
$
70,754
 
Contract/ Grant receivable
 
 
45,644
 
Prepaid expenses and other current assets
 
 
5,084
 
Equipment, net
 
 
5,051
 
Other assets
 
 
700
 
In-process research and development-(b)
 
 
3,017,377
 
Total identifiable assets
 
 
3,144,610
 
 
 
 
 
 
Accounts payable
 
 
300,413
 
Notes payable-(d)
 
 
10,000
 
Accrued expenses
 
 
92,509
 
Total liabilities assumed
 
 
402,922
 
Net identifiable assets acquired
 
 
2,741,688
 
Goodwill-(c)
 
 
1,384,674
 
Deferred income taxes arising from basis differences of tax aspects of in-process research and development
 
 
(1,253,327)
 
Net assets acquired
 
$
2,873,035
 
 
(b)-The fair value of the in-process research and development asset was estimated on the basis of its replacement cost as determined by a buildup of the costs incurred to develop the technology as it existed as of the acquisition date resulting in a fair value of $3,017,377. The fair value of other assets and liabilities approximate their book value.
 
(c)-The Company allocated the purchase price to the net tangible and intangible assets based upon their estimated fair values at the Merger date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired has been recorded as goodwill including deferred tax liabilities resulting from the tax attributes of the in-process research and development (see Note C 14).
 
(d)- Aquarius issued a note for a loan that was made to a related party. Interest on note is calculated using the applicable federal rate for midterm loans. Since the note has no specified repayment terms, it is considered a current liability.