Annual report pursuant to Section 13 and 15(d)

National Holdings Corporation

v3.6.0.2
National Holdings Corporation
 12 Months Ended
Dec. 31, 2016
Business Combinations [Abstract]  
National Holdings Corporation
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 preliminary 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 preliminary estimated fair values of the assets acquired and liabilities assumed will be finalized as further information is received regarding these items and analysis of this information is completed. The Company preliminarily 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 preliminary 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
 
10 years
 
The gross carrying amounts related to acquired intangible assets as of December 31, 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
 
 
The future amortization of these intangible assets is as follows ($ in thousands):
 
 
 
Trademark
 
Customer List
 
Total
 
Year Ended December 31, 2017
 
$
300
 
$
1,350
 
$
1,650
 
Year Ended December 31, 2018
 
 
300
 
 
1,349
 
 
1,649
 
Year Ended December 31, 2019
 
 
300
 
 
1,349
 
 
1,649
 
Year Ended December 31, 2020
 
 
301
 
 
1,353
 
 
1,654
 
Year Ended December 31, 2021
 
 
300
 
 
1,349
 
 
1,649
 
Thereafter
 
 
1,407
 
 
6,333
 
 
7,740
 
Total
 
$
2,908
 
$
13,083
 
$
15,991
 
 
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 period ended September 30, 2016.
 
National’s results of operations have not been included in the consolidated financial statements prospectively from the date of acquisition, because we have elected to record National’s financial results in operations under a three-month lag. The following unaudited pro forma financial data assumes the acquisition had occurred at the beginning of January 1, 2015. Pro forma results have been prepared by adjusting the Company’s historical results to include National's results of operations. The unaudited pro forma results presented do not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of January 1, 2015, nor do they indicate the results of operations in future periods. Additionally, the unaudited pro forma results do not include the impact of possible business model changes, nor do they consider any potential impacts of current market conditions or revenues, reduction of expenses, asset dispositions, or other factors. The impact of these items could alter the following pro forma results ($ in thousands):
 
 
 
Year Ended December 31,
 
 
 
2016
 
2015
 
 
 
(Unaudited)
 
(Unaudited)
 
Total revenues
 
$
190,556
 
$
163,909
 
Net loss attributable to common stockholders
 
$
(59,027)
 
$
(47,310)
 
Los per share:
 
 
 
 
 
 
 
Basic
 
$
(1.48)
 
$
(1.21)
 
Diluted
 
$
(1.48)
 
$
(1.21)