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, 2017

Debt Disclosure [Abstract]

Debt and Interest

11. Debt and Interest

Debt

Total debt consists of the following as of September 30, 2017 and December 31, 2016:

	September 30,		December 31,
($ in thousands)	2017		2016		Interest rate			Maturity
IDB Note	$	14,929	$	14,929		2.25	%	Feb - 2018
NSC Note		-		3,608		8.00	%	Sep - 2018
2017 Subordinated Note Financing		3,254		-		8.00	%	March - 2020
2017 Subordinated Note Financing		13,893		-		8.00	%	May - 2020
2017 Subordinated Note Financing		1,820		-		8.00	%	June - 2020
2017 Subordinated Note Financing		3,017		-		8.00	%	August - 2020
2017 Subordinated Note Financing		6,371		-		8.00	%	September - 2020
Opus Credit Facility		9,500		7,000		12.00	%	Sep - 2018
Helocyte Convertible Note, at fair value		1,084		1,031		5.00% - 8.00	%	December 2017
Helocyte Convertible Note, at fair value		2,164		2,051		5.00% - 8.00	%	March - 2018
Helocyte Convertible Note, at fair value		1,049		991		5.00% - 8.00	%	April - 2018
Helocyte Convertible Note, at fair value		436		414		5.00% - 8.00	%	May - 2018
Avenue Convertible Note, at fair value		-		200		5.00% - 8.00	%	June - 2018
Caelum Convertible Note, at fair value		1,004		-		8.00	%	January - 2019
Caelum Convertible Note, at fair value		6,810		-		8.00	%	February -2019
Caelum Convertible Note, at fair value		2,114		-		8.00	%	June - 2019
Total notes payable		67,445		30,224
Less: Discount on notes payable		3,827		2,009
Total notes payable	$	63,618	$	28,215

IDB Note

On February 13, 2014, the Company executed a secured promissory note in favor of Israel Discount Bank of New York (“IDB”) in the amount of $15.0 million (the “IDB Note”). As of September 30, 2017, the Company had $14.9 million outstanding under the IDB Note, secured by a $15.0 million pledge account. On September 18, 2017, the maturity on the IDB Note was extended to August 1, 2020.

NSC Note

On July 5, 2017, the Company repaid it NSC Note in the amount of $3.6 million.

2017 Subordinated Note Financing

On March 31, 2017, the Company entered into Note Purchase Agreements (the “Purchase Agreements”) with NAM Biotech Fund II, LLC I (“NAM Biotech Fund”) and NAM Special Situations Fund I QP, LLC (“NAM Special Situations Fund”), both of which are accredited investors, and sold subordinated promissory notes (the “Notes”) of the Company (the “2017 Subordinated Note Financing”) in the aggregate principal amount of $3.25 million. The Notes bear interest at the rate of 8% per annum; additionally, the Notes accrue paid-in-kind interest at the rate of 7% per annum, which will be paid quarterly in shares of the Company’s common stock and/or shares of common stock of one of the Company’s subsidiaries that are publicly traded, in accordance with the terms of the Notes. Each Note is due on the third anniversary of its issuance, provided that the Company may extend the maturity date for two one-year periods in its sole discretion. The 2017 Subordinated Note Financing is for a maximum of $40.0 million (which the Company may, in its sole discretion, increase to $50.0 million).

National Securities Corporation (“NSC”), a subsidiary of National and a related party, (see Note 17), pursuant to a Placement Agency Agreement entered into between the Company, NAM Biotech Fund and NSC (the “NAM Placement Agency Agreement”) and a Placement Agency Agreement entered into between the Company, NAM Special Situations Fund and NSC (together with the NAM Placement Agency Agreement, the “Placement Agency Agreements”) acts as placement agent in the 2017 Subordinated Note Financing. Pursuant to the terms of the Placement Agency Agreements, NSC receives (in addition to reimbursement of certain expenses) an aggregate cash fee equal to 10% of the aggregate sales price of the Notes sold in the 2017 Subordinated Note Financing to NAM Biotech Fund and NAM Special Situations Fund. The Placement Agent also receives warrants equal to 10% of the aggregate principal amount of the Notes sold in the 2017 Subordinated Note Financing divided by the closing share price of the Company’s common stock on the date of closing (the “Placement Agent Warrants”). The Placement Agent Warrants are exercisable immediately at such closing share price for a period of five years. The Placement Agent will have a right of first offer for a period of 12 months for any proposed issuance of the Company’s capital stock in a private financing, subject to certain exceptions, and will also have the right to participate as an investor in subsequent financings.

On March 31, 2017, held its first closing of the 2017 Subordinated Note Financing and received a gross proceeds of $3.2 million. NSC received a cash fee of approximately $0.3 million and warrant to purchase 87,946 shares of the Company’s common stock at an exercise price of per share $3.70.

On May 1, 2017, the Company held a second closing of the 2017 Subordinated Note Financing and received gross proceeds of $8.6 million, before expenses. NSC received a placement agent fee of approximately $0.9 million in the second closing and warrants to purchase 234,438 shares of the Company’s common stock at an exercise price of $3.65 per share.

On May 31, 2017, the Company held a third closing of the 2017 Subordinated Note Financing and received gross proceeds of $5.3 million, before expenses. NSC received a placement agent fee of approximately $0.5 million in the third closing and warrants to purchase 147,806 shares of the Company’s common stock at an exercise price of $3.61 per share.

On June 30, 2017, the Company held a fourth closing of the 2017 Subordinated Note Financing and received gross proceeds of $1.8 million, before expenses. NSC received a placement agent fee of approximately $0.2 million in the fourth closing and warrants to purchase 38,315 shares of the Company’s common stock at an exercise price of $4.75 per share.

On August 31, 2017, the Company held a fifth closing of the 2017 Subordinated Note Financing and received gross proceeds of $3.0 million, before expenses. NSC received a placement agent fee of approximately $0.3 million in the fifth closing and warrants to purchase 63,526 shares of the Company’s common stock at an exercise price of $4.75 per share.

On September 30, 2017, the Company held a sixth closing of the 2017 Subordinated Note Financing and received gross proceeds of $6.4 million, before expenses. NSC received a placement agent fee of approximately $0.6 million in the sixth closing and warrants to purchase 144,149 shares of the Company’s common stock at an exercise price of $4.42 per share.

Caelum Convertible Notes

On July 31, 2017 Caelum through National Securities Corporation (“NSC” or “Placement Agent”), a subsidiary of National offered up to $10 million, convertible promissory notes (the “Caelum Convertible Notes”) to accredited investors (as defined under the U.S. Federal securities laws). Under the terms of the offering the Placement Agent received a 10% selling commission, payable by Caelum and deducted from the gross proceeds (see Note 17).

For the three months ended September 30, 2017, Caelum raised $9.9 million in the offering, in three separate closings and paid a placement fee equal to 10% of the proceeds of the sale or $0.9 million. Additionally NSC received warrants to purchase a number of shares the Caelum’s Common Stock equal to 10% of the aggregate amount of shares underlying the Notes with a per share exercise price equal to 110% of the per share conversion price of the Notes; provided, however, that if no Note converts, the exercise price will be $75 million dollars divided by the total number of fully-diluted shares of Common Stock outstanding immediately prior to exercise of the warrant, giving effect to the assumed conversion of all options, warrants, and convertible securities of the Company.

The notes convert upon a qualified financing in which Caelum raises gross proceeds of at least $10 million as follows: the lesser of (a) a discount to the price per common share being paid in the Sale of the Company equal to 20% or (b) a conversion price per share based on a pre-sale valuation of $75,000,000 divided by the number of common shares outstanding at that time assuming the hypothetical conversion or exercise of any convertible securities, options, warrants and other rights to acquire common shares of the Company. The Company elected the fair value option to account for this note.

Opus Credit Facility

As of September 30, 2017, the Company had $9.5 million outstanding under the Opus Credit Facility (see Note 17), net of a debt discount related to the allocated value of the warrants associated with the Opus Credit Facility of $1.3 million. The commitment period for the Opus Credit Facility expired on September 1, 2017.

Interest Expense

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				For the Nine Months Ended
	September 30,				September 30,
($ in thousands)	2017		2016		2017		2016
IDB Note
Interest	$	85	$	84	$	254	$	243
Amortization of fees		-		-		-		1
Total IDB Note		85		84		254		244

NSC Debt
Interest		(8)		145		147		456
Amortization of fees		127		135		200		557
Total NSC Debt		119		280		347		1,013

2017 Subordinated Note
Interest		755		-		1,161		-
Amortization of fees		208		-		383		-
Total 2017 Subordinated Note		963		-		1,544		-

Opus Credit Facility
Interest		287		26		798		26
Amortization of fees		282		28		733		28
Total Opus Note		569		54		1,531		54

LOC Fees
Interest		7		3		22		10
Total LOC		7		3		22		10

Helocyte Convertible Note
Interest		64		26		175		26
Financing fee		-		242		1		491
Total Helocyte Convertible Note		64		268		176		517

Avenue Convertible Note
Interest		-		-		5		-
Financing fee		-		-		3		-
Total Avenue Convertible Note		-		-		8		-

Caelum Convertible Note
Interest		68		-		68		-
Financing fee		1,317		-		1,317		-
Total Caelum Convertible Note		1,385		-		1,385		-

Falk CSR
Interest		26		-		26		-
Total Falk CSR		26		-		26		-

D&O Insurance
Interest		2		-		5		-
Total D&O Insurance		2		-		5		-
Total Interest Expense and Financing Fee	$	3,220	$	689	$	5,298	$	1,838