Quarterly report pursuant to Section 13 or 15(d)

9. RELATED PARTY TRANSACTIONS

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9. RELATED PARTY TRANSACTIONS
9 Months Ended
Sep. 30, 2018
Related Party Transactions [Abstract]  
9. RELATED PARTY TRANSACTIONS

The Company leases an office building and equipment from Areth, LLC (“Areth”) on a month-to-month basis pursuant to a shared services agreement, effective as of January 1, 2016, as amended effective September 25, 2017 and September 27, 2018 (the “Areth Agreement”). Monthly rent on this facility is $10,000. Rent expense under the Areth Agreement for the three and nine months ended September 30, 2018 was $30,000 and $90,000, respectively. Rent expense for the three and nine months ended September 30, 2017 was $48,000 and $144,000, respectively. Areth is a company controlled by Dr. Jerrold B. Grossman, the Company’s Vice Chairman of the Board, and Adam Grossman, the Company’s President and Chief Executive Officer.  

 

As part of the Biotest Transaction, the Company issued a $15.0 million subordinated note payable to Biotest (see Note 4), and recognized interest expense on this note for the three and nine months ended September 30, 2018 in the amount of $0.2 and $0.7 million, respectively. Interest expense on this note for the three and nine months ended September 30, 2017 was $0.2 million and $0.3 million, respectively.

 

For the three and nine months ended September 30, 2018 and 2017, the Company recognized revenues under its out-licensing agreements with Biotest of approximately $36,000 and $107,000, respectively. Deferred revenue of $2.6 million and $2.7 million as of September 30, 2018 and December 31, 2017, respectively, is related to these agreements.

 

Biotest is the Company’s largest customer for the sale of normal source plasma. Plasma sales to Biotest for the three and nine months ended September 30, 2018 were $2.2 million and $7.0 million, respectively. For the three and nine months ended September 30, 2017, plasma sales to Biotest were $2.8 million and $7.3 million, respectively. Accounts receivable includes $1.0 million and $1.2 million due from Biotest as of September 30, 2018 and December 31, 2017, respectively. Additionally, Biotest is a supplier of plasma to ADMA. For the three and nine months ended September 30, 2018, the Company purchased $1.7 million and $2.5 million, respectively, of plasma from Biotest. Plasma purchases from Biotest for the three and nine months ended September 30, 2017 were $1.4 million and $1.7 million, respectively. Included in accounts payable is $1.8 million and $0.1 million due to Biotest as of September 30, 2018 and December 31, 2017, respectively. The following table summarizes the related party balances with Biotest:

 

 

    Three Months Ended September 30,   Nine Months Ended September 30,
    2018   2017   2018   2017
                 
Sale and purchase of plasma                
Product revenue    $               2,207,312    $        2,808,640    $           7,009,380    $          7,262,915
Purchases                     1,694,999              1,411,500                 2,529,788                1,735,640
                 
License revenue                          35,708                   35,708                    107,125                   107,125
                 
Interest expense                        230,000                 230,000                    682,500                   290,000

 

    September 30,   December 31,
    2018   2017
Accounts receivable    $               1,005,971    $        1,245,677
Accounts payable                     1,791,354                 139,939
Accrued expenses                          19,661                 314,820
Note payable, net of discount                   14,865,981            14,842,396
Accrued interest                        292,500                   65,000
Deferred revenue                     2,582,908              2,690,033

 

In connection with the acquisition of the Biotest Assets, the Company entered into a Transition Services Agreement with BPC pursuant to which each of the Company and BPC agreed to provide transition services to the other party, including services related to finance, human resources, information technologies, leasing of equipment and clinical and regulatory services for a period of up to 24 months after the June 6, 2017 closing date, as well as agreements to lease certain laboratory space within the Boca Facility to BPC for a period of up to 24 months after the closing date of the acquisition transaction. As of September 30, 2018 and December 31, 2017, approximately $20,000 and $0.3 million, respectively, was payable by the Company to BPC for services rendered and expenses incurred on behalf of the Company related to these agreements. This amount is reflected in accrued expenses in the accompanying consolidated balance sheets.  The services component of amounts billed to the Company by BPC for the three months and nine months ended September 30, 2018 was not material to the Company’s consolidated financial statements.

 

Under the terms of the acquisition of the Biotest Assets, the Company will transfer ownership of two plasma collection centers to BPC on January 1, 2019. The Company has estimated the fair value of these assets to be $12.6 million, and the obligation to transfer these assets to Biotest is reflected in non-current liabilities in the accompanying consolidated balance sheet as of September 30, 2018 and December 31, 2017.