Fortress Biotech, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Debt and Interest

Debt and Interest

9 Months Ended

Sep. 30, 2015

Debt Disclosure [Abstract]

Debt and Interest

8. Debt and Interest

Debt

Long-term debt consists of the following as of September 30, 2015 and December 31, 2014:

($ in Thousands)	September 30, 2015		December 31, 2014		Interest Rate			Maturity
IDB Note	$	14,009	$	14,009		2.25	%	Feb - 2017
NSC Note		10,000		-		8.00	%	Mar - 2018
Total notes payable, long-term		24,009		14,009
Less: Discount of notes payable		718		6
Total notes payable, long-term, net	$	23,291	$	14,003

IDB Note

At September 30, 2015, the Company had $14.0 million outstanding under its promissory note with the Israel Discount Bank (the “IDB Note”). Effective March 31, 2015, the Company extended the maturity date of the IDB Note to February 2017. The Company pays interest only on the IDB Note through maturity.

NSC Note

In March 2015, the Company closed a private placement of a promissory note for $10 million through National Securities Corporation’s NSC Biotech Venture Fund I LLC (the “NSC Note”). The Company will use the proceeds from the NSC Note to acquire medical technologies and products. The note matures in 36 months, provided that during the first 24 months the Company can extend the maturity date by six months. No principal amount is due for the first 24 months (or the first 30 months if the maturity date is extended). Thereafter, the note will be repaid at the rate of 1/12 of the principal amount per month for a period of 12 months. Interest on the note is 8% payable quarterly during the first 24 months (or the first 30 months if the note is extended) and monthly during the last 12 months. National Securities Corporation (“NSC”), a wholly owned subsidiary of National Holdings, Inc., acted as the sole placement agent for the NSC Note. The Company paid NSC a fee of $0.9 million during the nine months ended September 30, 2015, in connection with the NSC Note. At September 30, 2015, the Company recorded the fee as a discount to notes payable on the unaudited condensed consolidated balance sheets and will amortize it over the life of the NSC Note. The effective interest rate on the NSC Note approximates 11.3%.

The NSC Note was amended and restated on July 29, 2015 to provide that any time a Fortress Company receives from the Company any proceeds from the NSC Note, the Company may, in its sole discretion, cause the Fortress Company to issue to NSC Biotech Venture Fund I LLC a new promissory note (the “Amended NSC Note”) on identical terms as the NSC Note, giving effect to the passage of time with respect to maturity. The Amended NSC Note will equal the dollar amount of the Fortress Company’s share of the NSC Note and reduce the Company’s obligations under the NSC Note by such amount. The Company will guarantee the Amended NSC Note until the Fortress Company either completes an initial public offering of its securities or raises sufficient equity capital so that it has cash equal to five times the Amended NSC Note. As of September 30, 2015, the Company transferred $2.8 million, including debt discount, of the NSC Note to Checkpoint, representing Checkpoint’s pro rata share of the NSC Note.

In connection with the transfer of NSC Note proceeds to a Fortress Company and the removal of the Company’s guarantee of the Amended NSC Note, NSC will receive a warrant to purchase the Fortress Company’s stock equal to 25% of the NSC Note proceeds transferred to that Fortress Company divided by the lowest price at which the Fortress Company sells its equity in its first third party financing. The warrants issued will have a term of 10 years and an exercise price equal to the par value of the Fortress Company’s common stock. As of September 30, 2015, Fortress continued to guarantee 100% of the debt and therefore there were no warrants issued to NSC.

Interest

The following table shows the details of interest expense for all debt arrangements during the periods presented. Interest expense includes contractual interest and amortization of the debt discount and amortization of fees represents fees associated with loan transaction costs, amortized over the life of the loan:

	For the three months ended September 30,				For the nine months ended September 30,
($ in thousands)	2015		2014		2015		2014
IDB Note
Interest	$	82	$	81	$	235	$	202
Amortization of fees		1		1		3		3
Total IDB Note		83		82		238		205

NSC Debt
Interest		208		-		488		-
Amortization of fees		59		-		140		-
Total NSC Debt		267		-		628		-

Ovamed Manufacturing Agreement
Interest		-		39		167		114
Total Ovamed		-		39		167		114

Hercules Debt
Interest (1)		-		-		-		845
Amortization of fees		-		-		-		42
Total Hercules Debt		-		-		-		887
Total Interest Expense	$	350	$	121	$	1,033	$	1,206

(1) Interest expense related to the Company’s loan with Hercules was $0.8 million, including $0.4 million related to accretion of the debt discount.