Fortress Biotech, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

National Holdings Corporation

National Holdings Corporation

12 Months Ended

Dec. 31, 2017

3. National Holdings Corporation

On September 9, 2016, the Company, purchased approximately 56.6% of National’s common stock, par value $0.02 per share at the purchase price of $3.25 per share in cash.

On April 27, 2016, the Company entered into an Agreement and Plan of Merger with National and a wholly owned subsidiary of the Company, providing for the acquisition of National (the “Merger Agreement”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions described therein, the Company agreed to cause its wholly owned subsidiary to commence a tender offer for all the issued and outstanding shares of National’s common stock, par value $0.02 per share, at a purchase price of $3.25 per share (the “Offer”). Upon expiration of the Offer on September 9, 2016 (and the subsequent settlement period), a total of approximately 7 million shares were validly tendered, representing approximately 56% of the outstanding shares of National on a fully-diluted basis. The aggregate consideration paid by Fortress in the Offer was approximately $22.9 million, without giving effect to related transaction fees and expenses. Fortress funded the payment with cash on hand.

The following table summarizes the fair value of assets acquired and liabilities assumed at the date of the acquisition ($ in thousands):

Assets
Cash and cash equivalents	$	27,498
Accounts receivable		4,889
Cash deposits with clearing organizations		1,030
Receivable from brokers, dealers and clearing agencies		1,607
Securities owned, at fair value		2,178
Prepaid expenses and other current assets		1,985
Property and equipment		1,132
Restricted cash		353
Intangible assets - trademark		3,000
Intangible assets - customer list		13,500
Goodwill		18,645
Total assets		75,817

Liabilities
Accrued compensation payable	$	14,029
Accounts payable and accrued expenses		6,079
Deferred clearing and marketing credits		1,007
Warrants issuable		13,406
Other current liabilities		707
Total liabilities assumed		35,228
Non-controlling interests		(17,717)
Net assets acquired	$	22,872

Cash and cash equivalents from National	$	27,498
Cash to NHLD Shareholders (Tender Offer)		(22,872)
Net cash acquired in acquisition of National	$	4,626

The Company recognized $18.6 million of goodwill and does not expect goodwill to be deductible for tax purposes.

Intangible assets consist of trademark and customer lists acquired in the merger under the purchase method of accounting are recorded at fair value net of accumulated amortization since the purchase date. Amortization is calculated using the straight-line and accelerated methods over the following estimated useful lives:

		Useful life
Trademark		10 years
Customer lists		6 years

The gross carrying amounts related to acquired intangible assets as of December 31, 2017 and 2016 are as follows ($ in thousands):

Intangible assets at September 9, 2016	$	16,500
Amortization expense		(509)
Intangible assets at December 31, 2016	$	15,991
Amortization expense		(1,651)
Intangible assets at December 31, 2017	$	14,340

The future amortization of these intangible assets is as follows ($ in thousands):

	Trademark		Customer List		Total
Year Ended December 31, 2018	$	300	$	2,250	$	2,550
Year Ended December 31, 2019		300		2,250		2,550
Year Ended December 31, 2020		301		2,250		2,551
Year Ended December 31, 2021		300		2,250		2,550
Year Ended December 31, 2022		300		2,250		2,550
Thereafter		1,107		482		1,589
Total	$	2,608	$	11,732	$	14,340

The Company reviews its finite-lived intangible assets for impairment when events or changes in circumstances indicate that the carrying amount of finite-lived intangible asset may not be recoverable. Recoverability of a finite-lived intangible asset is measured by a comparison of its carrying amount to the undiscounted future cash flows expected to be generated by the asset. If the asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no indicators of impairment during the periods ended September 30, 2017 and 2016, respectively.