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Reverse Merger | 6 Months Ended
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Jun. 30, 2017
Business Combinations [Abstract] |
Reverse Merger | Note 3. Reverse Merger We 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 U.S. GAAP. Under the acquisition method of accounting, the total purchase price is 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 assume, if any, is allocated to goodwill. On May 9, 2017, Tokai issued 4,027,693 shares of its common stock to the shareholders of Otic and the holders of warrants and options of Otic upon the exercise of such options and warrants in exchange for 836,857 Otic Shares. Purchase Consideration The purchase price for Tokai on May 9, 2017, the closing date of the merger, was as follows (in thousands):
Fair value of Tokai common stock outstanding (1) |  | $ | 14,486 |
Premium paid (2) |  |  | 8,889 |
Purchase price |  | $ | 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, is as follows (in thousands):
Cash, cash equivalents, and restricted cash |  | $ | 23,250 |
Prepaids and other current assets |  |  | 1,132 |
Property and equipment |  |  | 73 |
Goodwill |  |  | 1,867 |
Accounts payable, accrued expenses and other liabilities |  |  | (2,947 | )
Net assets acquired |  | $ | 23,375 |
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. The Company believes that the historical values of Tokai’s current assets and current liabilities approximate fair value based on the short-term nature of such items. Goodwill is 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. The unaudited financial information in the following table summarizes the combined results of operations of the Company and Tokai, on a pro forma basis, as if the merger had occurred at the beginning of the periods presented (in thousands):
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Research and development |  | $ | 686 |  |  | $ | 10,487 |  |  | $ | 1,471 |  |  | $ | 19,109 |
General and administrative |  |  | 2,592 |  |  |  | 4,020 |  |  |  | 5,474 |  |  |  | 7,991 |
Total operating expenses |  |  | 3,278 |  |  |  | 14,507 |  |  |  | 6,945 |  |  |  | 27,100 |
Loss from operations |  |  | (3,278 | ) |  |  | (14,507 | ) |  |  | (6,945 | ) |  |  | (27,100 | )
Other income, net |  |  | 18 |  |  |  | (21 | ) |  |  | 55 |  |  |  | 42 |
Net loss and comprehensive loss |  | $ | (3,260 | ) |  | $ | (14,528 | ) |  | $ | (6,890 | ) |  | $ | (27,058 | )
Net loss per share, basic and diluted |  | $ | (0.47 | ) |  | $ | (2.20 | ) |  | $ | (0.99 | ) |  | $ | (4.10 | )
Weighted-average shares outstanding, basic and diluted |  |  | 6,943,831 |  |  |  | 6,605,009 |  |  |  | 6,943,831 |  |  |  | 6,605,009 |
The above unaudited pro forma information was determined based on historical GAAP results of Otic and Tokai. The unaudited pro forma combined results are not necessarily indicative of what the Company’s combined results of operations would have been if the acquisition was completed at the beginning of the periods presented. The unaudited pro forma combined net loss includes pro forma adjustments primarily relating to the following non-recurring items directly attributable to the business combination:
| • |  | Elimination of transaction costs of $5.4 million and $7.0 million incurred during the three and six months ended June 30, 2017, respectively. These amounts have been eliminated on a pro forma basis as they are not expected to have a continuing effect on the operating results of the combined company.
| • |  | An increase in the weighted-average shares outstanding for the period after giving effect to the issuance of Tokai common stock in connection with the Reverse Merger and Equity Financing.
The combined aggregate transaction costs of the Company were $7.7 million, which were expensed as incurred.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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