Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.8.0.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
7. Fair Value Measurements
 
Certain of the Company’s financial instruments are not measured at fair value on a recurring bass but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as accounts payable, accrued expenses and other current liabilities.
 
Origo Acquisition Corporation
 
A shareholder meeting of “Origo Acquisition Corporation” (“Origo”) was held on March 12, 2018, at which the Origo shareholders approved the extension of the date by which to consummate a business combination to June 12, 2018.
  
As of March 31, 2018, the Company valued its investment in Origo, a publicly traded company, utilizing the following assumptions: probability of a successful business combination of 38.4%, and no dividend rate, which yielded an instrument value upon business combination of $10.96 per ordinary share for the private placement shares. The rights and warrants were valued utilizing a binomial-lattice model at a value of $0.44 for each right and $0.36 for each warrant. Based upon the valuation, the Company recorded a decrease in fair-value of investment of $0.1 million for the three months ended March 31, 2018. At March 31, 2018, the fair value of the Company’s investment in Origo was, $1.3 million. The Company’s working capital note with Origo of $0.3 million can be converted to stock upon a successful business combination.
 
Securities Owned
 
National
 
The fair value of National’s warrants, representing the cumulative value of warrants received in publicly traded companies’, in which NSC as placement agent received warrants as the placement agent. National calculated the fair value of the warrants using a Black Scholes model. A summary of the weighted averages (in aggregate) of significant unobservable inputs (Level 3 inputs) used in measuring National’s warrants that are categorized within Level 3 of the fair value hierarchy as of March 31, 2018 is as follows:
 
 
 
December 31,
2017
 
Risk-free interest rate
 
 
1.53% – 2.2
%
Expected dividend yield
 
 
–
%
Expected term in years
 
 
.43 – 4.35
 
Remaining volatility
 
 
369.19% – 59.69
%
Strike price
 
 
$0.01 – $10.00
 
 
($in thousands)
 
Fair Value of
Derivative
Warrants
 
Beginning balance at September 30, 2017
 
$
548
 
Change in fair value of derivative liabilities
 
 
138
 
Ending balance at December 31, 2017
 
$
686
 
 
Warrant Liabilities
 
Helocyte
 
The fair value of Helocyte’s warrant liability, which was issued in connection with Helocyte’s convertible note (see Note 11), was measured using a Monte Carlo simulation valuation methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Helocyte’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy as of March 31, 2018 is as follows:
 
 
 
March 31,
2018
 
Risk-free interest rate
 
 
2.411% - 2.447
%
Expected dividend yield
 
 
-
%
Expected term in years
 
 
3.25 – 3.67
 
Expected volatility
 
 
70.0
%
Strike price
 
$
0.46
 
 
($in thousands)
 
Fair Value of
Derivative
Warrant
Liability
 
Beginning balance at January 1, 2018
 
$
87
 
Change in fair value of derivative liabilities
 
 
(9)
 
Ending balance at March 31, 2018
 
$
78
 
 
Notes at Fair Value
 
Helocyte
 
Helocyte’s convertible note is measured at fair value using the Monte Carlo simulation valuation methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Helocyte’s convertible debt that is categorized within Level 3 of the fair value hierarchy as of March 31, 2018 is as follows:
 
 
 
March 31, 2018
 
Risk-free interest rate
 
 
1.96%- 2.21
%
Expected dividend yield
 
 
-
%
Expected term in years
 
 
0.58 – 1.67
 
Expected volatility
 
 
53.1
%
($in thousands)
 
Helocyte
Convertible
Note, at fair
value
 
Beginning balance at January 1, 2018
 
$
4,700
 
Payment of convertible notes
 
 
(1,858)
 
Change in fair value of convertible notes
 
 
(331)
 
Ending balance at March 31, 2018
 
$
2,511
 
 
Caelum
 
Caelum’s convertible debt is measured at fair value using the Monte Carlo simulation valuation methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Caelum’s convertible debt that is categorized within Level 3 of the fair value hierarchy as of March 31, 2018 is as follows:
 
 
 
March 31, 2018
 
Risk-free interest rate
 
 
1.71%- 2.17
%
Expected dividend yield
 
 
-
%
Expected term in years
 
 
0.21 – 1.46
 
Expected volatility
 
 
53.1
%
 
($in thousands)
 
Caelum
Convertible
Note, at fair
value
 
Beginning balance at January 1, 2018
 
$
10,059
 
Change in fair value of convertible notes
 
 
81
 
Ending balance at March 31, 2018
 
$
10,140
 
  
The following tables classify the fair value hierarchy of Fortress's financial instruments, exclusive of National's financial instruments, measured at fair value as of March 31, 2018 and December 31, 2017:
 
 
 
Fair Value Measurement as of March 31, 2018
 
($in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term investments, at fair value
 
$
–
 
$
–
 
$
1,272
 
$
1,272
 
Total
 
$
–
 
$
–
 
$
1,272
 
$
1,272
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Warrant liabilities
 
$
–
 
$
–
 
$
78
 
$
78
 
Caelum Convertible Note, at fair value
 
 
–
 
 
–
 
 
10,140
 
 
10,140
 
Helocyte Convertible Note, at fair value
 
 
–
 
 
–
 
 
2,511
 
 
2,511
 
Total
 
$
–
 
$
–
 
$
12,729
 
$
12,729
 
 
 
 
Fair Value Measurement as of December 31, 2017
 
($in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term investments, at fair value
 
$
–
 
$
–
 
$
1,390
 
$
1,390
 
Total
 
$
–
 
$
–
 
$
1,390
 
$
1,390
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Warrant liabilities
 
$
–
 
$
–
 
$
87
 
$
87
 
Caelum Convertible Note, at fair value
 
 
–
 
 
–
 
 
10,059
 
 
10,059
 
Helocyte Convertible Note, at fair value
 
 
–
 
 
–
 
 
4,700
 
 
4,700
 
Total
 
$
–
 
$
–
 
$
14,846
 
$
14,846
 
 
 
The following table shows the fair values hierarchy of National's financial instruments measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets as of December 31, 2017 and September 30, 2017:
 
 
 
Fair Value Measurement as of December 31, 2017
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
National
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities owned, at fair value
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate stocks
 
$
65
 
$
-
 
$
-
 
$
65
 
Municipal bonds
 
 
3,452
 
 
-
 
 
-
 
 
3,452
 
Restricted stock
 
 
-
 
 
75
 
 
-
 
 
75
 
Warrants
 
 
-
 
 
-
 
 
686
 
 
686
 
Total
 
$
3,517
 
$
75
 
$
686
 
$
4,278
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
National
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities sold, but not yet purchased at fair value
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration
 
 
-
 
 
-
 
 
717
 
 
717
 
Warrants issued - National
 
 
-
 
 
-
 
 
6,671
 
 
6,671
 
Total
 
$
-
 
$
-
 
$
7,388
 
$
7,388
 
 
 
 
Fair Value Measurement as of September 30, 2017
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
National
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities owned, at fair value
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate stocks
 
$
116
 
$
-
 
$
-
 
$
116
 
Municipal bonds
 
 
1,239
 
 
-
 
 
-
 
 
1,239
 
Restricted stock
 
 
-
 
 
82
 
 
-
 
 
82
 
Warrants
 
 
-
 
 
-
 
 
548
 
 
548
 
Total
 
$
1,355
 
$
82
 
$
548
 
$
1,985
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
National
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities sold, but not yet purchased at fair value
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal bonds
 
 
151
 
 
-
 
 
-
 
 
151
 
Contingent consideration
 
 
-
 
 
-
 
 
311
 
 
311
 
Warrants issued - National
 
 
-
 
 
-
 
 
5,597
 
 
5,597
 
Total
 
$
151
 
$
-
 
$
5,908
 
$
6,059
 
 
Warrants issued - National
 
The fair value of the 5.4 million warrants issued by National (represents 44% of the warrants issued to non-Fortress shareholders) are being classified as a liability in the Condensed Consolidated Statement of Operations at March 31, 2018. Such valuation (using level 3 inputs) was determined by use of the Black-Scholes option pricing model using the following assumptions:
 
 
 
 
December 31,
2017
 
Dividend yield
 
 
–
%
Expected volatility
 
 
46.13
%
Risk-free interest rate
 
 
2.20
%
Life (in years)
 
 
3.69
 
 
($ in thousands)
 
National’s
Warrants
 
Beginning balance at September 30, 2017
 
$
5,597
 
Change in fair value of derivative liability
 
 
1,074
 
Ending balance at December 31, 2017
 
$
6,671
 
 
National listed the warrants on the Nasdaq Capital Market under the symbol “NHLDW” in February 2017.
 
The table below provides a roll-forward of the changes in fair value of Level 3 financial instruments for the three months ended March 31, 2018:
 
($ in thousands)
 
Investment in
 Origo
 
Helocyte 
Convertible 
Note, at fair 
value
 
Caelum 
Convertible 
Note, at fair
 value
 
Warrants
 issued and 
issuable
 
Warrant
 liabilities
 
Total
 
Balance at December 31, 2017
 
$
1,390
 
$
4,700
 
$
10,059
 
$
5,597
 
$
87
 
$
21,833
 
Payment of convertible note
 
 
-
 
 
(1,858)
 
 
-
 
 
-
 
 
-
 
 
(1,858)
 
Change in fair value of investments
 
 
(118)
 
 
-
 
 
-
 
 
-
 
 
-
 
 
(118)
 
Change in fair value of convertible notes
 
 
-
 
 
(331)
 
 
81
 
 
-
 
 
-
 
 
(250)
 
Change in fair value of derivative liabilities
 
 
-
 
 
-
 
 
-
 
 
1,074
 
 
(9)
 
 
1,065
 
Balance at March 31, 2018
 
$
1,272
 
$
2,511
 
$
10,140
 
$
6,671
 
$
78
 
$
20,672
 
 
For the three months ended March 31, 2018, no transfers occurred between Level 1, Level 2 and Level 3 instruments.