Note 4 – Reverse Merger

On March 15, 2019, the Company (then operating as Edge), Merger Sub and Private PDS completed the Merger in accordance with the Agreement and Plan of Merger and Reorganization, dated as of November 23, 2018, as amended on January 24, 2019, pursuant to and in accordance with which Merger Sub merged with and into Private PDS, with Private PDS surviving as the Company’s wholly-owned subsidiary. Immediately following completion of the Merger, the Company effected the Reverse Stock Split at a ratio of one new share for every twenty shares of its common stock then-outstanding, and changed its corporate name from Edge Therapeutics, Inc. to PDS Biotechnology Corporation, and Private PDS, now the Company’s wholly-owned subsidiary, changed its name to PDS Operating Corporation. The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.

In connection with the Merger, each share of Private PDS’s common stock outstanding immediately prior to the Merger was converted into 0.3262 shares (on a post-Reverse Stock Split basis) of the Company’s common stock. As a result, the Company issued 3,573,760 shares of its common stock to the stockholders of Private PDS in exchange for all of the outstanding shares of common stock of Private PDS.

For accounting purposes, Private PDS was considered to be the accounting acquirer in the Merger. As the accounting acquirer, Private PDS’s assets and liabilities continue to be recorded at their historical carrying amounts and the historical operations that will be reflected in the Company’s consolidated financial statements will be those of Private PDS. All references in the consolidated financial statements to the number of shares and per share amounts of the Company’s common stock have been retroactively restated to reflect completion of the Merger and the Reverse Stock Split.

Purchase Price

Pursuant to the Agreement and Plan of Merger and Reorganization, as amended, Edge issued to Private PDS’s stockholders a number of shares of Edge’s common stock representing approximately 70% of the outstanding shares of our common stock. The purchase price, which represents the consideration transferred to Edge’s stockholders in the Merger is calculated based on the number of shares of our common stock that Edge’s stockholders owned as of the closing of the Merger on March 15, 2019, which consists of the following:

Number of our shares of common stock to be owned by Edge security holders (1)		1,600,166
Multiplied by the price per share of Edge’s common stock as of March 15, 2019	$	9.87
Purchase price (in thousands)	$	15,794

(1)

The amount includes 1,576,916 shares of Edge’s common stock outstanding as of March 15, 2019 plus 23,250 stock options of Edge that were in the money and vested immediately upon closing of the Merger. At closing, 753 of in-the-money options and 235 fractional shares paid out in cash to shareholders were not issued as common stock, resulting in 1,599,178 common shares issued.

Final Purchase Price Allocation

The Company completed its analysis of the allocation of the purchase price as of December 31, 2019. The purchase price was allocated to the net assets acquired of Edge based upon their preliminary estimated fair values as of March 15, 2019. The in-process research and development asset (“IPR&D”) that is recognized relates to Edge’s NEWTON 2 clinical trial for EG-1962 that has not reached technological feasibility. The Company was actively looking to license out EG-1962 and had preliminary discussions with third parties who were actively looking at the data of EG-1962 during the year. Accordingly, the IPR&D was capitalized as an indefinite-lived intangible asset and tested for impairment at least annually until it is determined that there is no future economic benefit from EG-1962. As a result of capitalizing the IPR&D, the Company recognized an indefinite life deferred tax liability. During the three months ended June 30, 2019, two adjustments were made to the preliminary allocation. The first was for $275,000 relating to an offer to purchase equipment that was given a value of $0 in the preliminary allocation. The second was for $65,551 relating to Edge’s bonus plan that was effective prior to the date of acquisition. During the three months ended December 31, 2020 two additional adjustments were made to the preliminary valuation. The first was for an increase of $1,751,000 relating to the IPR&D in which the Company finalized the valuation of the IPR&D and as a result recognized an additional deferred tax liability of $224,513. The second was for a write-off relating to a transition service arrangement that was effective prior to the date of the acquisition for $131,250. In accordance with ASC 805, Business Combinations any excess fair value of the acquired net assets over the purchase price has been recognized as a bargain purchase gain in the consolidated statement of operations and comprehensive loss. In the fourth quarter 2019, the Company has reassessed whether all the assets acquired, and the liabilities assumed have been identified and recognized in the purchase price allocation.

The final allocation of the purchase price to the net assets of Edge, based on the fair values as of March 15, 2019, is as follows:

Cash and cash equivalents	$	29,106,513
Prepaid expense and other assets		1,585,482
Right to use asset		1,384,810
Intangible assets-IPR&D		2,974,000
Total identifiable assets acquired		35,050,805
Accounts payable, accrued expenses, other liabilities		(4,595,934	)
Lease liability		(945,152	)
Deferred tax liability		(381,513	)
Total liabilities assumed		(5,922,599	)
Net identifiable assets acquired		29,128,206
Bargain purchase gain		(13,334,568	)
Purchase price	$	15,793,638

The fair value of the IPR&D was determined using the discounted cash flow method based on probability- adjusted cash flow success scenarios to develop EG-1962 into a commercial product, estimating the revenue and costs. The rates utilized to discount the net cash flows to the present value are commensurate with the stage of development of the projects and uncertainties in the economic estimates used in the projections.

Pro Forma Financial Information

The following pro forma consolidated results of net loss for the year ended December 31, 2019:

Pro forma operating expenses	$	(31,152,190	)
Pro forma net loss		(31,134,293	)
Pro forma basic and diluted net loss per share	$	(6.40	)

The December 31, 2019 pro forma net loss excludes the bargain purchase gain that resulted from the Merger.