NVUS 2018 Annual Report

Note 3. Reverse Merger The Company completed the Reverse Merger with Tokai as discussed in Note 1. Based on the terms of the Reverse Merger, the Company concluded that the transaction is a business combination pursuant to ASC 805 Business Combinations , Otic was deemed the acquiring company for accounting purposes, and the transaction has been accounted for as a reverse acquisition under the acquisition method of accounting for business combinations in accordance with GAAP. Under the acquisition method of accounting, the total purchase price was allocated to the acquired tangible and intangible assets and assumed liabilities of Tokai based on their estimated fair values as of the Reverse Merger closing date. The excess of the purchase price over the fair value of assets acquired and liabilities assumed was allocated to goodwill. On May 9, 2017, Tokai issued 4,027,693 shares of its common stock to the stockholders of Otic and the holders of warrants and options of Otic upon the exercise of such options and warrants in exchange for 840,115 Otic Shares. All warrants were exercised as of the merger date and after consummation of the Reverse Merger, Otic stockholders owned a majority of the fully diluted common stock of Novus Therapeutics, Inc.

Purchase Consideration The purchase price for Tokai on May 9, 2017, the closing date of the Reverse Merger, was as follows (in thousands):

Fair value of Tokai common stock outstanding (1)

$ 14,486

Premium paid (2) Purchase price

8,889

$ 23,375

(1) Comprised of 2,515,739 shares of common stock outstanding at the date of the Reverse Merger based on the closing price of $5.76 per share on May 9, 2017, as adjusted for the one-for-nine reverse stock-split on May 11, 2017. (2) Premium paid over fair value of common stock based on net tangible asset multiple of 1.08x book value of Tokai equity of $21.5 million as of May 9, 2017. Allocation of Purchase Consideration The allocation of the estimated purchase price to the acquired assets and liabilities assumed of Tokai, based on their estimated fair values as of May 9, 2017, the close of the transaction, was as follows (in thousands):

Cash, cash equivalents, and restricted cash

$

23,250 1,132

Prepaids and other current assets

Property and equipment

73

Goodwill

1,867

Accounts payable, accrued expenses and other liabilities

(2,947) 23,375

Net assets acquired

$

The Company engaged a third-party valuation firm to assist management in its analysis of the fair value of Tokai. All estimates, key assumptions, and forecasts were either provided by or reviewed by management. While the Company chose to utilize a third-party valuation firm, the fair value analysis and related valuations represent the conclusions of management and not the conclusions or statements of any third party. The excess of the total purchase price over the fair value of assets acquired and liabilities assumed was allocated to goodwill. 7KH &RPSDQ\ EHOLHYHV WKDW WKH KLVWRULFDO YDOXHV RI 7RNDL¶V FXUUHQW DVVHWV DQG FXUUHQW OLDELOLWLHV DSSUR[LPDWH d fair value based on the short-term nature of such items. Goodwill, which relates principally to intangible assets that do not qualify for separate recognition under GAAP, was calculated as the difference between the fair value of the consideration expected to be transferred and the values assigned to the identifiable tangible and intangible assets acquired and liabilities assumed. Goodwill is not expected to be deductible for tax purposes.

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