UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

(Mark One)

For the quarterly period ended June 30, 20172018

OR

For the transition period from                to                

Commission File Number:0-21990

Mateon Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

701 Gateway Blvd, Suite 210

South San Francisco, CA 94080

(Address of principal executive offices, including zip code)

(650) 635-7000

(Registrant’s telephone number, including area code)

Not applicableapplicable.

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒☑     No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    Yes  ☒☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act inRule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).    Yes  ☐     No  ☒☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

As of July 31, 2017,August 14, 2018, there were 26,544,93441,419,934 shares of the Registrant’s Common Stock issued and outstanding.

Mateon Therapeutics, Inc.

Cautionary Factors that May Affect Future Results

This report contains “forward-looking statements,” which give management’s current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as “promising,” “potential,” “may,” “will,” “would,“should,” “expect,” “plan,” “anticipate,” “could,” “project,“would,” “believe,“will,” “intend,” “project,” “estimate,” “potential,“predict,” “seek,” “indicate,”“indicate” or “continue”“continue,” or the negative of these terms and other words and termsothers of similar meaning.

Any or all of our forward-looking statements in this report may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual results may vary materially from those set forth in forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future, such as those relating to our cash resourcesliquidity and our needexpectations regarding our needs for and ability to raise additional capital in the near term in ordercapital; our ability to continue operations;as a going concern; our estimates regarding the initiation, timing, progress and results of our preclinical and clinical trials; anticipated operating losses, future performance, future revenues and projected expenses; our ability to select and capitalize on commercially desirable product opportunities as a result of limited financial resources; our ability to manage our expenses effectively;effectively and raise the funds needed to continue our business; our ability to retain the services of our current executive officers, directors and principal consultants; the competitive nature of our industry and the possibility that our products or product candidates may become obsolete; our ability to obtain and maintain regulatory approval of our product candidatesexisting products and any future products we may develop; the clinical development of and the process of commercializing OXi4503 and CA4P which(which is also known as combretastatinA4-phosphate, fosbretabulin or fosbretabulin tromethamine;tromethamine and ZYBRESTAT^®); the efficacycombination of OXi4503 with cytarabine and the combination of CA4P with bevacizumab;immune-oncology agents; the initiation, timing, progress and results of our preclinical and clinical trials, research and development programs including preclinical studies;programs; regulatory and legislative developments in the United States and foreign countries; the timing, costs and other limitations involved in obtaining regulatory approval for any product candidate;product; the further preclinical or clinical development and commercialization of our product candidates; our ability to obtain and maintain orphan drug exclusivity for some of our product candidates; the potential benefits of our product candidates over other therapies; our ability to enter into and maintain any collaboration with respect to product candidates; our ability to continue to develop or commercialize our products or product candidates in the event any license agreements in place with third parties expire or are terminated; the performance and conduct of third parties, including our third-party manufacturers and third party service providers used in our clinical trials; our ability to obtain and maintain intellectual property protection for our product candidates and any future products we may develop and operate our business without infringing upon the intellectual property rights of others; the potential liability exposure related to our product candidates and any future products we may develop and our insurance coverage for such exposure; the successful development of our sales and marketing capabilities; the size and growth of the potential markets for our products and our ability to serve those markets; the rate and degree of market acceptance of any future products; the sufficiency of potential proceeds from any financing; the volatility of the price of our common stock; the ability to achieve secondary trading of our stock in certain states; the dilutive effects of potential future equity issuances; our expectation that no dividends will be declared on our common stock in the foreseeable future; our ability to maintain an effective system of internal controls; the payment and reimbursement methods used by private or governmental third-party payers; our ability to retain adequate staffing levels; unfavorable global economic conditions; a failure of our internal computer systems or those of our contractors and consultants; potential misconduct or other improper activities by our employees, contractors or consultants; the ability of our business continuity and disaster recovery plans to protect us in the event of a natural disaster,disaster; and other factors discussed in our Annual Report on Form10-K for the year ended December 31, 20162017 filed with the Securities and Exchange Commission (the SEC) on March 30, 2017April 17, 2018 or any document incorporated by reference herein or therein.

We will not update forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. You are advised to consult any further disclosures we make in our reports to the SEC, including our reports on Form10-Q,8-K and10-K. Our filings list various important factors that could cause actual results to differ materially from expected results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

INDEX

PART I - I—FINANCIAL INFORMATION

Item 1. Financial Statements

Mateon Therapeutics, Inc.

Condensed Balance Sheets

(in thousands, except per share data)

See accompanying notes.

Mateon Therapeutics, Inc.

Condensed Statements of Comprehensive Loss

(in thousands, except per share data)

(unaudited)

See accompanying notes.

Mateon Therapeutics, Inc.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

See accompanying notes.

Mateon Therapeutics, Inc.

Notes to Condensed Financial Statements

June 30, 20172018

(Unaudited)

1. Summary of Significant Accounting Policies

Description of Business

Mateon Therapeutics, Inc. (“Mateon” or the “Company”) is a clinical-stage biopharmaceutical company seeking to realize the full potential of vascular targeted therapy in oncology. Vascular targeted therapy includes vascular disrupting agents (VDAs), such as the investigationaldeveloping drugs that Mateon is developing, and anti-angiogenic agents (AAs), a number of which are approved and widely used in oncology indications. Mateon’s VDAs selectively obstruct a tumor’s blood supply without obstructing the blood supply to normal tissues, and treatment with Mateon’s VDAs has been shown to lead to significant central tumor necrosis. The Company believes thatfor the treatment of cancer would be significantly improved if VDAsorphan oncology indications, with a program in acute myeloid leukemia (“AML”) and AAs were used together, due to their complementary mechanisms of action. In combination, the VDA would occlude the blood vesselsmyelodysplastic syndromes (“MDS”) and a program in the interior of a tumor while the AA would prevent the formation of new tumor blood vessels. The Company has two VDA drug candidates currently being tested in clinical trials, CA4P (combretastatin A4 phosphate, or fosbretabulin) and OXi4503. The Company was originally incorporated under the name OXiGENE, Inc. in 1988 in the state of New York, reincorporated in 1992 in the state of Delaware and changed its name to Mateon Therapeutics, Inc. on June 17, 2016.immuno-oncology.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form10-Q and Article 10 ofRegulation S-X. The financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, however, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 20172018 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2017.2018.

The balance sheet at December 31, 20162017 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in the Annual Report on Form10-K for the Company for the year ended December 31, 2016.2017.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents

Highly liquid investments with original maturities of three months or less at the date of purchase are considered to be cash equivalents. Cash equivalents are stated at fair value.

Short-term InvestmentsDerivative Financial Instruments Indexed to the Company’s Common Stock

All marketable securities have been classifiedThe Company has generally issued derivative financial instruments, such as “availablewarrants, in connection with its equity offerings. The Company evaluates the terms of these derivative financial instruments in order to determine their accounting treatment in the Company’s financial statements. Key considerations include whether the financial instruments are freestanding and whether they contain conditional obligations. If the warrants are freestanding, do not contain conditional obligations and meet other classification criteria, the Company accounts for sale” andthe warrants as an equity instrument. If the warrants are carried atfreestanding but contain conditional obligations, then the Company accounts for the warrants as a liability until the conditional obligations are met or are no longer relevant. For financial instruments which are accounted for as a liability, the Company reports changes in their estimated fair value based upon quoted market prices. The Company considers itsavailable-for-sale portfolio to be available for use in current operations. Accordingly, the Company classifies certain investments as short-term marketable securities, even though the stated maturity date may be one year or more beyond the current balance sheet date. Unrealized gains and losses, net of any related tax effects, are excluded from earnings and are included in other comprehensive income and reported as a separate componentgain or loss in the Company’s Statement of stockholders’ deficit until realized. Realized gains and losses and declines in value judged to be other than temporary, if any, onavailable-for-sale securities are included in other income (expense), net. The cost of securities sold is based on the specific-identification method.

Comprehensive Loss.

Going Concern Evaluation

The principal source of the Company’s working capital to date has been the proceeds from the sale of equity. The Company has experienced net losses every year since inception and, as of June 30, 2017,2018, had cash and cash equivalents of $5.0 million and an accumulated deficit of over $286approximately $294 million. The Company’s net loss was $3.9 million and $7.8 million for the three and six month periods ended June 30, 2017, respectively. The Company has no source of revenue and does not expect to receive any product revenue in the near future. If the Company remains in operation, theThe Company expects to incur significant additional operating losses over at least the next several years, principally as a result of the Company’s continuing clinical trials for its investigational drugs. The principal source of the Company’s working capital to date has been the proceeds from the sale of equity. As of June 30, 2018, the Company had $2.0 million in cash and current liabilities of $1.6 million. Based on the Company’s planned operations, Management expects the Company’s existingmanagement expects its cash and cash equivalents to support its operations only into October 2017.the fourth quarter of 2018. Prior to this time, the Company will need to secure additional funding or it could be forced to curtail or terminate its drug development programs and its operations. Because the Company does not currently have a guaranteed source of working capital that will sustain its planned operations past October 2017,the fourth quarter of 2018, Management has determined that there is substantial doubt about the Company’s ability to continue as a going concern.

The Company will need to raise capital in order to fund its planned operations beyond this time. If the Company is unable to access additional funds when needed, it may not be able to continue the development of its investigational drugs and the Company could be required to delay, scale back or eliminate some or all of its development programs and other operations. Any additional equity financing, if available to the Company, may not be available on favorable terms, and would most likely be dilutive to its current stockholders. Anystockholders and debt financing, if available, would likelymay involve restrictive covenants and may also result in dilution to current stockholders.covenants. If the Company accesses funds through collaborative or licensing arrangements, it may be required to relinquish rights to some of its technologies or product candidates that it would otherwise seek to develop or commercialize on its own, on terms that are not favorable to the Company. The Company’s ability to access capital in any formwhen needed is not assured and, is likely to be dependent on upcoming clinical trial results, which are not under the control of the Company. If access to additional capital isif not achieved on a timely basis, it wouldwill materially harm the Company’sits business, financial condition and results of operations.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, or FASB issued ASUNo. 2016-2, “Leases.“Leases (Topic 842),” This ASUwhich requires substantially all leases, including operating leases, to be recognized by lessees on their balance sheet as aright-of-use asset and corresponding lease liability. This ASU is effective for the Company’s interim and annual reporting periods beginning January 1, 2019 and early adoption is permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on its financial statements.

In March 2016, the FASB issued ASUNo. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which simplified several aspects of the accounting for share-based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to the employees’ maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares fortax-withholding purposes. This ASU became effective for Mateon’s interim and annual reporting periods beginning January 1, 2017, and the adoption of this standard did not have a material impact on the Company’s financial statements. As part of the adoption of this standard, the Company elected to continue estimating the expected option forfeiture rate.

In August 2016, theThe FASB issued ASUNo. 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” addressingwhich addresses several specific cash flow issues to reduce diversitythat diversify in practice. The amendednew guidance is effective for fiscal years beginning after December 31,15, 2017 and for interim periods within those years. The Company currently does not expect the adoption ofadopted this ASU toas of January 1, 2018, and its adoption did not have a material impact on itsthe Company’s financial statements.

2. Stockholders’ Equity

Cash, cash equivalentsApril 2018 Private Placement

In April 2018, the Company entered into a private placement transaction, raising net proceeds of approximately $2.4 million from the sale of 14,875,000 shares of common stock and short-term investments consistedwarrants to purchase 14,875,000 shares of common stock. The purchase price of the following (in thousands):common stock was $0.20 per share and the exercise price of the warrants is $0.40 per share. The warrants expire two years from the date they initially became exercisable. In connection with the private placement transaction, the Company also issued 1,487,500 warrants to the placement agent. The placement agent warrants have an exercise price of $0.20 per share and expire five years from the date of issuance.

The warrants consist of 7,437,500 Series A warrants (the “Series A Warrants”) and 7,437,500 Series B warrants (the “Series B Warrants”). The exercise price of all warrants is payable in cash and there are no cashless exercise provisions.

Fair value is definedThe Series A Warrants were immediately exercisable upon issuance and expire on April 12, 2020. The Company has accounted for the Series A Warrants as an equity instrument from the price at whichdate of issuance.

When the Company completed the private placement transaction, the exercisability and expiration of the Series B Warrants were dependent on the Company’s receipt of stockholder approval for an asset could be exchanged orincrease in the number of authorized shares of the Company’s common stock. Accordingly, on the date of issuance, the Company accounted for the Series B Warrants as a liability, transferred in a transaction between knowledgeable, willing parties inutilizing the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied.

Assets and liabilities recorded at fair value are categorized based upon the level of judgment associated with the inputs usedBlack-Scholes option pricing model to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets at the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide reasonably accurate pricing information on an ongoing basis.

Level 2—Inputs, other than quoted prices included in Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data at the reporting date and for the duration of the instrument’s anticipated life.

The Company utilizes third party pricing services in developing fair value measurements where fair value is based on observable market inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers and other reference data. The Company uses quotes from external pricing service providers and otheron-line quotation systems to verifydetermine the fair value of investments provided by third party pricing service providers.these derivative financial instruments based on the following key measurements and assumptions: $0.26 per share stock price; $0.40 per share exercise price; 2.2 year term to maturity; 2.37% risk-free interest rate and 100.9% annualized volatility, resulting in an estimated fair value of the warrant liability of $886,000.

Level 3—Unobservable inputsOn June 20, 2018, the Company’s stockholders approved an increase in the number of authorized shares of common stock, satisfying the conditional obligation of the Series B Warrants. The Series B Warrants became exercisable on June 20, 2018 and expire on June 20, 2020. Following the stockholder approval, the Company determined that are supported by little orliability accounting was no market activitylonger appropriate and that are significantequity accounting was appropriate for the Series B Warrants. The Company utilized the Black-Scholes option pricing model to determine the Series B Warrants’ fair value as of June 20, 2018, based on the following key measurements and assumptions: $0.22 per share stock price; $0.40 per share exercise price; 2.0 year term to maturity; 2.56% risk-free interest rate and 100.0% annualized volatility, resulting in an estimated fair value of the warrant liability of $636,000.

The decrease in the fair value of the assets or liabilities reflect management’s best estimateSeries B Warrants from the date of what market participants would useissuance through the satisfaction of the conditional criteria has been classified as a “Gain on change in pricing the asset or liability at the reporting date. Consideration is given to the risk inherentfair value of warrants” in the valuation technique and the risk inherent in the inputsStatement of Comprehensive Loss.

Outstanding Warrants to the model.Purchase Common Stock

Financial assets measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations (in thousands):

The following is a summary of the Company’s outstanding common stock warrants:

Equity Incentive Plans

The following is a summary of the Company’s stock option activity under its equity incentive plans:

As of June 30, 2017,2018, there was approximately $1.3$0.9 million of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over a weighted average period of approximately 2.41.5 years.

The fair valuesvalue for the stock options granted wereis estimated at the date of grant using the Black-Scholes option pricing model withmodel. The Company used the following weighted-averageweighted average assumptions forto estimate the periods indicated:fair value of the stock options.

3. Net Loss Per Share

Basic and diluted net loss per share was calculated by dividing the net loss per share attributed to the Company’s common shares by the weighted-average number of common shares outstanding during the period. Diluted net loss per share includes the effect of all dilutive, potentially issuable common equivalent shares as defined using the treasury stock method. All of the Company’s common stock equivalents are anti-dilutive due to the Company’s net loss position for all periods presented. Accordingly, common stock equivalents of approximately 5,941,0007,319,000 stock options and 9,626,00024,528,000 warrants at June 30, 20172018 and 4,139,0005,941,000 stock options and 9,842,000 warrants at June 30, 2016,2017, were excluded from the calculation of weighted average shares for diluted net loss per share.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read together with the audited financial statements and notes as well as our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included in our Annual Report on Form10-K for the year ended December 31, 2016,2017, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained therein. The following discussion and analysis should also be read in conjunction with the unaudited financial statements set forth in Part I, Item 1 of this Quarterly Report on Form10-Q.

Overview and Recent Developments

We are a clinical-stage biopharmaceutical company focused on the development of vascular disrupting agents, or VDAs,developing drugs for the treatment of cancer. VDAs selectively target the vasculatureorphan oncology indications. We currently have two active drug development programs, one of cancer tumors and obstruct a tumor’s blood supply without disrupting the blood supply to normal tissues. Treatment with VDAs has been shown to lead to significant central tumor necrosis, which refers to the death of cancer cells. Unlike most other drugs used for the treatment of cancer, our investigational drugs have consistently shown a stronger treatment effect in larger tumors than in smaller tumors.

VDAs are in a class of drugs called vascular targeted therapies, or VTTs, which also includes anti-angiogenic agents, or AAs. Bevacizumab (marketed under the brand name Avastin^® by Roche/Genentech) and other currently-approved AA drugs work by preventing the growth of new blood vessels which can supply nutrients to tumor cells. We are seeking to realize the full potential of VTTs in oncology by using the combination of VDAs and AAs to treat cancer tumors. The aim of using a VDA and an AA in combination is for the VDA to directly cut off the blood supply to the majority of the tumor, while the AA indirectly inhibits angiogenesis, which is evaluating the process by which new blood vessels form andre-vascularize the tumor. Our current VDA development plans are focused on this combination so that the mechanism of action of eachinvestigational drug would complement that of the other – disrupting tumor blood supply in two different ways instead of just one.

We have two clinical stage investigational drugs, both VDAs, that we are currently developing – CA4P and OXi4503. Our most advanced compound is CA4P. The largest clinical trial of CA4P conducted to date was a phase 2 clinical trial in recurrent ovarian cancer sponsored by the Gynecologic Oncology Group, or GOG, which was completed in 2014 and met its primary endpoint by demonstrating an improvement in progression-free survival for the patients who received CA4P. This trial, referred to asGOG-0186I, compared treatment with CA4P plus bevacizumab to treatment with bevacizumab alone. Based on the positive results of this clinical trial, we are conducting the FOCUS Study, which is atwo-stage, phase 2/3 clinical trial in platinum-resistant ovarian cancer. FOCUS is comparing treatment with the three-drug combination of CA4P, bevacizumab and chemotherapy, or the active treatment arm, to treatment with the current standard of care, thetwo-drug combination of bevacizumab and chemotherapy, or the control arm. CA4P is also being studied in combination with pazopanib in anon-going phase 2 clinical trial in recurrent ovarian cancer that is sponsored by The Christie Hospital NHS Foundation Trust (the Christie NHS Trust) in the United Kingdom and a phase 1 study in combination with everolimus in neuroendocrine tumors that is sponsored by the Markey Cancer Center at the University of Kentucky. Our second compound, OXi4503, is being studied in combination with cytarabine in a phase 1/2 clinical trial in the United States in patients with relapsed or refractory acute myelogenous leukemia (AML) or myelodysplastic syndromes (MDS).

Recent Developments

On April 18, 2017, we announced results from the first scheduled interim analysis of theon-going FOCUS Study. The interim analysis was conducted after the first 20 patients enrolled into the trial had been treated for at least two months or had discontinued from the trial. Interim results indicated that no significant CA4P safety issues had been identified in the trial, and that the initial efficacy was in favor of CA4P, with 22% (2/9) of patients in the treatment arm responding compared to 9% (1/11) of patients in the control arm.

On June 7, 2017, we announced that the FDA had granted Fast Track designation to our product candidate OXi4503 for the treatment of AML.two related conditions – acute myeloid leukemia, or AML, and myelodysplastic syndromes, or MDS, and the other of which is evaluating the investigational drug CA4P as an immuno-oncology agent in advanced metastatic melanoma.

On June 12, 2017,In April 2018, we announced that one patient outraised net proceeds of three enrolledapproximately $2.4 million in an equity financing transaction. Prior to closing the fourth cohortfirst tranche of this financing, we had curtailed nearly all operating activities, including a pause in enrollment in our ascending-dose study of OXi4503 infor the treatment of relapsed/refractory AML experienced a significant AML blast count reduction. In addition,and MDS. Following the financing, we announced that the Christie NHS Trust has temporarily suspendedresumed enrollment in this trial. Newly enrolled patients are entering into the PAZOFOS Study in order to evaluate two potential adverse events involvingtrial’s sixth cohort (12.2 mg/m² of OXi4503; a 25% greater dose than the combination of CA4P and pazopanib.

On July 31, 2017, we announced that two out of four patients inmost recently completed fifth cohort). In the fifth cohort, of Study OX1222 had morphologicalwe observed two complete remissions (50%) after one cycle of treatment with OXi4503.

On August 1, 2017, we announced that we had completed enrollment in9.76 mg/m² of OXi4503, and did not observe any dose-limiting toxicities. Among the first partfour cohorts (lower doses of OXi4503 ranging from 3.75 to 7.81 mg/m²), we observed three complete remissions (18%), each occurring after two cycles of treatment. Because of the FOCUS Studypromising data observed through the first five cohorts, we are enrolling a higher number of CA4P for platinum-resistant ovarian cancer.patients into the sixth cohort in order to better evaluate the potential efficacy of OXi4503. Initial data from the sixth cohort is expected in late summer 2018.

ResultsIn immuno-oncology, our goal and the next step for establishing CA4P as a safe and effective agent is to initiate a clinical trial in a setting where immuno-oncology agents are currently used as standard therapy but have historically been associated with a low overall durable response rate. Animal models, for example, show that CA4P in combination with an immuno-oncology agent significantly enhances the number and activity of Operationscancer-fightingT-cells within tumors compared to the immuno-oncology agent alone. In these animal models, when CA4P was tested the cancer-fightingT-cells were shown to be evident throughout the tumor and were associated with twice the amount of tumor necrosis than with the immuno-oncology agent alone. Therefore, we are planning to initiate a clinical trial evaluating CA4P in combination with an approved immuno-oncology agent, Opdivo^® (nivolumab, marketed by Bristol-Myers Squibb), in patients with advanced metastatic melanoma who have previously failed Opdivo and consequently have a poor prognosis.

RESULTS OF OPERATIONS

Three and Six Months Endedsix months ended June 30, 20172018 and June 30, 20162017

Research and developmentDevelopment expenses

Research and development expenses increaseddecreased markedly for both the three and six month periodsmonths ended June 30, 20172018 compared to the same periods in 2016 primarily2017. The decreased research and development expenses in 2018 were due to additionalour termination of the FOCUS clinical trial activity relatedin late 2017 as well as significant reductions in nearly all operating activities while we sought to our lead investigational drug, CA4P.obtain additional capital to continue operations. The table below summarizes the most significant components of our research and development expenses for the periods indicated and provides the amount and percentage change in these components (in thousands):

Higher expenses were incurredAll research and development activities declined substantially for clinical studies forboth the three months and six month periodsmonths ended June 30, 20172018 compared to the same periods in 2016 due2017. For the three months ended June 30, 2018, our research and development activities were limited tore-initiating enrollment into our OX1222 Study of OXi4503 for relapsed/refractory AML and MDS and planning for a study of CA4P as an immuno-oncology agent in advanced metastatic melanoma.

On September 26, 2017, we terminated themid-2016 initiation of our phase 2/3 FOCUS studyStudy of CA4P in platinum-resistant ovarian cancer. FOCUS represents the most advanced clinical study for our lead investigational drug. Through June 30, 2017, we had enrolled 69 patients into the trial, andcancer – prior to this date, expenses for the 2017FOCUS Study were our largest area of expenditure at the Company in recent years. Due to the limited operating cash at the Company at the time we terminated the FOCUS Study, we also terminated nearly all other research and development employees and nearly all other research and development activities. Accordingly, expenses in all categories of research and development have declined significantly for the 2018 periods include clinical trial costs for these patients, as compared to primarily planning coststhe 2017 periods. Clinical study expenses and employee compensation both declined by over 90% for this trial during the 2016 period. The higher clinical study costs in 2017 associated with FOCUS were partially offset by lower clinical costs for a study of CA4P in neuroendocrine tumors, or NETs, which completed during 2016.

Employee compensation and related expenses were similar forboth the three month periodmonths and six months ended June 30, 2017 and the three month period ended June 30, 2016. Employee compensation and related expenses increased for the six month period ended June 30, 2017 compared to the same period in 2016 due to severance incurred in early 2017 as a result of a reduction in our development headcount in an area not related to the clinical trials. Employee stock-based compensation was similar for both three month periods, but increased for the six month period ended June 30, 2017 compared to the same period in 2016 due to the 2017 initial cliff vesting of certain stock options granted in March 2016, resulting in a reduction to the estimated forfeiture rates for this tranche, increasing the 2017 expense.

Consulting and professional services increased for the three and six month periods ended June 30, 20172018 compared to the same periods in 2016 largely due2017. Employee stock-based compensation declined by a lower percentage than employee compensation because we continued vesting certain stock options for former employees that continued to provide services to us. Consulting and professional services expenses incurredalso declined for similar reasons, but the percentage declines were lower as we utilized certain services to assist with recruiting patients into our FOCUS clinical trial.

The timing of drug manufacturing costs is variablecontinue the OX1222 study in AML/MDS and is impacted byfor planning a study in melanoma. For the timing of when drug product is needed for clinical trials, product expiration and scheduling of production batches. The decrease in2018 periods, drug manufacturing expenses for the three months ended June 30, 2017declined compared to the three months ended June 30, 2016 was due2017 periods because we limited the 2018 activities to costs incurred during the 2016 period which were associated with supplyingexternal storage fees for previously manufactured batches of our investigational drugs and labeling initial drug product for the FOCUS study. The increase in drug manufacturing expenses for the six month period ended June 30,only performed minimally required stability work, whereas 2017 compared to the six month period ended June 30, 2016 was due to work related to optimization of the manufacturing process for our VDAs.expenditures included additional activities.

Other expenses primarily include facility related expenses which are generally allocated between research and represent less than 4%development and general and administrative expenses based on employee headcount. With virtually no separate research and development headcount for the 2018 periods, there was minimal allocation of facility expenses to research and development, accounting for the declines of 84% to 89%.

Following our April 2018 financing transaction, we resumed enrollment of patients into our study of OXi4503 for AML and MDS. We also incurredstart-up costs for planning a study of CA4P in immuno-oncology, evaluating CA4P in combination with Opdivo^® (nivolumab, marketed by Bristol-Myers Squibb), in patients with advanced metastatic melanoma who have previously failed Opdivo and consequently have a poor prognosis. For the second half of 2018, we expect research and development expenses for all periods presented.

Our FOCUS study of CA4P in platinum-resistant ovarian cancer ison-going and we continue to treat patients that are participating in the clinical study. As a result, research and development expenses may continue to increase in 2017 for clinical studies,comparison to the first half of 2018, subject to our continuing ability to secure sufficient funding to continue these studies.with drug development activities.

General and administrative expenses

General and administrative expenses decreased significantly for both the three and six months ended June 30, 2018 compared to the same periods in 2017. The decreases in 2018 were primarily due to our reduction of nearly all operating activities through April 2018 while we sought to obtain additional capital to continue operations. The table below summarizes the most significant components of our general and administrative expenses for the periods indicated in thousands, and provides the amount and percentage changeschange in these components:

components (in thousands):

GeneralEmployee compensation and administrativerelated expenses decreased by over 60% for both the three and six month periods ended June 30, 20172018 compared to the same periods in 2016.

Employee2017 due to our 2018 reduction in headcount to only two employees, our Chief Executive and Financial Officers, who each have agreed to receive half of their regular salary to date in 2018. Conversely, employee stock-based compensation and related expenses decreasedincreased by 22% for the three month and six month periodsmonths ended June 30, 2018 compared to the three months ended June 30, 2017 comparedprimarily due to the same periods ended June 30, 2016expenses associated with stock options granted to our former Chief Scientific Officer, who remains a member of our board of directors and therefore the expenses associated with his stock options are now classified in general and administrative expenses. In addition, there were additional expenses incurred in 2018 due to lower accrualsstock options recently granted to our Chief Executive and Financial Officers to partially compensate for incentive bonuses intheir reduced 2018 salaries. Finally with respect to stock-based compensation, as a result of the 2017 periods, reduced headcount in the 2017 periodtiming of employee terminations and a lower amount of net vacation earned.

Stock-based compensation decreasedtheir stock option vesting schedules, for the three month periodmonths ended June 30, 2017 compared to the three month period ended June 30, 2016 due to expenses incurredMarch 31, 2018, we experienced decreases in the 2016 period related to the initial one year cliff vesting of certain options granted in 2015 following stockholder approval of the 2015 Equity Incentive Plan. Stock-basedemployee stock-based compensation expenses, wereresulting in comparable employee stock-based compensation for the six month periods ended June 30,full 2018 and 2017 and 2016.

year-to-date periods. Consulting and professional services decreased for both the three month and six month periods ended June 30, 2017 compared to the same periods ended June 30, 2016 due to significantly higher market research costs incurred during the first half of 2016 as well as reduced expenses in nearly all external general and administrative services used.

Other expenses, which include facility related expenses and insurance expenses decreased by 32% and 50% for both the three and six month periods ended June 30, 20172018 compared to the same periods in 2017 due to our minimization of expenses with a focus on continuing in business and seeking new sources of capital.

Other expenses, which include facility related expenses such as rent, insurance expenses and taxes that are not based on income, are allocated between research and development and general and administrative expenses. For 2018, we reduced these expenses to primarily focus on continuing our operations and seeking funding. Because of our curtailed research and development activities for the 2018 periods compared to the 2017 periods, the resulting allocation of these expenses into general and administrative expenses increased the amount reported in general and administrative expenses by 4% for the three months ended June 30, 2016 due2018 and 18% for the six months ended June 30, 2018 compared to lower costs across most areas, none of which were individually significant.the same periods in 2017.

We expect general and administrative expenses to increase for the balanceremainder of 20172018 compared to the first six months of 2018 as we support the resumption of our planned increase in clinical development activities, as well as fortrial activity and pursue additional business development and investor relations efforts,activities, subject to our continuing ability to secure sufficient funding to continue these activities.planned operations.

Other Income and Expenses

Mateon issued two series of warrants to the investors in its April 2018 equity financing transaction. The Series B Warrants required the Company to receive stockholder approval for additional authorized shares of common stock sufficient to allow for the exercise of the Series B Warrants. Because the Company did not have sufficient shares of authorized common stock at the time of the transaction, the Company accounted for the fair value of the Series B Warrants as a liability, measured at fair value, until the Company received stockholder approval for the additional authorized shares of common stock. The estimated fair value of the Series B Warrants was $886,000 in April 2018 and $636,000 on June 20, 2018, when shareholder approval was received. The decrease in fair value was primarily attributed to a decline in the price of the Company’s common stock and a shorter estimated warrant term. The resulting $250,000 gain on change in the fair value of warrants in the second quarter of 2018 was recorded innon-operating income, and there was no comparable line-item for other periods.

LIQUIDITY AND CAPITAL RESOURCES

We are currently developing two investigational drugs, both VDAs, for the treatment of cancer and currently have no sources of revenue to support the development costs for these investigational drugs. Accordingly, we measure liquidity by the cash and other capital we have available to fund our operations, which are primarily focused on the advancementdevelopment of our drug candidates. To date, we have financed our operations principally through proceeds received from the sale of equity. We have experienced net losses in each year since our inception, and negative cash flows from operations in nearly every year. As of June 30, 2017,2018, we had an accumulated deficit of over $286$293 million, including a net loss of approximately $7.8$1.4 million for the first half of 2017six months ended June 30, 2018 and a net loss of $13.7$13.8 million for the year ended December 31, 2016.2017. As of June 30, 2017,2018, we held cash and cash equivalents of approximately $5$2.0 million, which we expect to be sufficient to fund our planned operating activities only into approximately October 2017.the fourth quarter of 2018. If we are unable to secure additional funding prior to that date,this time, we may be required to scale back or conclude our operationsdevelopment activities altogether.

We will require additional capital before we can complete all planned clinical trials andthe development of CA4POXi4503 and OXi4503.CA4P. Additional funding may not be available to us on acceptable terms, or at all. If we are unable to access additional funds when neededin the near term we may not be able to continue the development of our product candidates orand we could be required to delay, scale back or eliminate some or all of our development programs and operations.terminate operations altogether. Any additional equity financing, if available, may not be available on favorable terms and would be dilutive to our current stockholders. Debt financing, if available, may involve

restrictive covenants and could also be dilutive to our current stockholders. If we are able to access funds through collaborative or licensing arrangements, we may be required to relinquish rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize on our own, on terms that are not favorable to us. Our ability to access capital when needed is not assured and, if access is not achieved on a timely basis, will materially harm our business, financial condition and results of operations.

If we are able to secure additional funding to continue our operations, we expect to incur significant additional costs and expenses over at least the next several years as a result of our plans to develop VDAs for the treatment of cancer, including continuing our existing clinical trials as well as conducting new, additional clinical trials and anticipated research and development expenditures. We anticipate that our development will include continuing our current clinical trials as well as new clinical trials and additional research and development expenditures.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no changes to our critical accounting policies and significant judgments and estimates from our Annual Report on Form10-K for the year ended December 31, 2016.2017.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no changes to our market risks from our Annual Report on Form10-K for the year ended December 31, 2016.2017.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The SEC requires that as of the end of the period covered by this Quarterly Report onForm 10-Q, the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) evaluate the effectiveness of the design and operation of our disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e)) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and report on the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective, as of June 30, 2017,2018, to ensure that we record, process, summarize and report the information we must disclose in reports that we file or submit under the Exchange Act, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such control that occurred during the last fiscal quarter, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Important Considerations

The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.From time to time, we may become involved in legal proceedings arising in the ordinary course of our business.

On July 20, 2018, Accelovance, Inc., a clinical trial vendor that the Company used in 2016 and 2017, filed an action in Superior Court of California, San Mateo County against Mateon alleging that Mateon failed to pay certain amounts owed under a 2016 Clinical Development Master Services Agreement and various amendments to and work orders under that agreement. The complaint seeks approximately $912,000 in damages, plus costs and attorneys’ fees. Mateon believes that it has meritorious defenses to the claims and intends to defend this action vigorously. The Company further believes that it has accrued adequate reserves for the likely outcome of the lawsuit, although the outcome of any lawsuit is difficult to predict, particularly in an early stage. Depending on the outcome or resolution of this lawsuit, it could have a material effect on our financial condition. A status conference for the lawsuit is currently scheduled to occur in November 2018, at which time an initial trial date is likely to be established.

Item 1A. Risk Factors

There have been no material changes to the risk factors as described in our Annual Report on Form10-K for the year ended December 31, 2016.2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.Not applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6.

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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