In July 2016, in connection with the Amended and Restated Articles of Incorporation, the Company issued 250,000 Class A preferred shares to Fortress. The Class A preferred shares entitle the holder to a stock dividend equal to 2.5% of the fully diluted outstanding equity of the Company (“The Annual Stock Dividend”).

 

The Company recorded the Annual Stock Dividend due to Fortress as contingent consideration. Contingent consideration is recorded when probable and reasonably estimable. The Company’s future share prices cannot be estimated due to the nature of its assets and the Company’s stage of development. Due to these uncertainties, the Company concluded that it could not reasonably estimate the contingent consideration until shares were actually issued on March 13, 2018 and March 13, 2017. Because the issuance of shares on March 13, 2018 and 2017 occurred prior to the issuance of the December 31, 2017 and 2016 financial statements, respectively, the Company recorded approximately $9.6 million and $4.4 million in research and development - licenses acquired for the years ended December 31, 2017 and 2016, respectively.  

 

In March 2015, the Company entered into a Management Services Agreement (the “MSA”) with Fortress. Pursuant to the terms of the MSA, for a period of five years (with automatic five-year renewals), Fortress will render advisory and consulting services to the Company. In consideration for these services, the Company will pay Fortress an annual consulting fee of $0.5 million (the “Annual Consulting Fee”), payable in advance in equal quarterly installments on the first business day of each calendar quarter in each year, provided, however, that such Annual Consulting Fee shall be increased to $1.0 million for each calendar year in which the Company has net assets in excess of $100 million at the beginning of the calendar year. For the three months ended March 31, 2018 and 2017, the Company recorded expenses related to the MSA of approximately $0.1 million, respectively. For the three months ended March 31, 2018 and 2017, respectively, expenses related to the MSA are recorded 50% in research and development expenses and 50% in general and administrative expenses on the condensed statement of operations.

 

 

COH owns 1,000,000 shares of the Company’s Class A common stock and 293,588 shares of the Company’s common stock, representing approximately 5.0% of the Company’s outstanding capital stock, and has the right to appoint a director to the Company’s Board of Directors (the “Board”). As such, the Company considers COH to be a related party, due to the foregoing rights and ownership, as well as the high proportion of the Company’s assets that are licensed from COH.

 

Payable and Accrued Expenses Related Party

In the normal course of business Fortress pays for certain expenses on behalf of the Company. Such expenses are recorded as Payable and accrued expenses - related party and are reimbursed to Fortress in the normal course of business.

Fortress owns a majority interest in National Holdings Corporation (“NHLD”). National Securities Inc. (“NSC”) a subsidiary of NHLD acted as placement agent for the Company’s third-party financings (see Note 6). No fees were incurred for the three months ended March 31, 2018 for any such financings. For the three months ended March 31, 2017, the Company paid NSC placement agent fees of $5.6 million in cash and 860,077 warrants to purchase the Company’s common stock.

 

 

On February 2, 2018 the Company entered into an Option Agreement with TG Therapeutics, Inc. (“TGTX Option”), a related party, whereby TGTX was granted the option to enter into a global collaboration on the joint development and commercialization of product candidates pertaining to the Company’s CD20 license agreement with Fred Hutch. In consideration of the TGTX Option, TGTX paid an option fee of $50,000, which was recorded by the Company as Revenue-related party in the condensed statement of operations. The TGTX Option expires 180 days after the effective date and can be extended for three months upon mutual written consent. Mr. Weiss serves as the Chief Executive Officer of TGTX.

 

 

In connection with Mr. Weiss’ services as Chairman of the Board of the Company, for the three months ended March 31, 2018 and 2017, the Company recognized $15,000 and $15,000, respectively, in expense in its condensed statements of operations related to the advisory agreement. Caribe BioAdvisors, LLC is owned by Mr. Weiss. Additionally, Mr. Weiss serves as the Executive Vice Chairman of Fortress.

 

 

In April 2017, the Company made an option award to two employees of Fortress (see Note 5).