Fair Value Measurements |
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Fair Value Measurements |
7. Fair Value Measurements Certain of the Company’s financial instruments are not measured at fair value on a recurring basis 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. Laser Device for Treatment of Migraine Headaches On March 17, 2014, the Company invested $250,000 for a 35% ownership position in a third-party company developing a laser device to treat migraine headaches. The Company elected the fair value option for recording this investment. In conjunction with this investment, the Company entered into a Purchase Agreement with the third-party company, in which the Company received 13,409,962 Class A Preferred Units, representing 83% of a total 16,091,954 Class A Preferred Units. In August 2017, a clinical trial utilizing this device concluded that there was no strong statistical data demonstrating that the device provided relief from migraine headaches. Accordingly, the third-party company ceased operations and the Company wrote off its investment of $0.3 million. The fair value of this investment was nil and $0.3 million as of December 31, 2017 and 2016.
Origo Acquisition Corporation (formerly CB Pharma Acquisition Corporation) On June 10, 2016, CB Pharma Acquisition Corp (“CB Pharma”) held an extraordinary general meeting of shareholders (the “Meeting”). At the Meeting, the shareholders approved each of the following items: (i) an amendment to the CB Pharma’s Amended and Restated Memorandum and Articles of Association (the “Charter”) to extend the date by which CB Pharma has to consummate a business combination from June 12, 2016 to December 12, 2016 (the “ Extension ”), (ii) an amendment to the Charter to allow the holders of the CB Pharma’s ordinary shares issued in the their initial public offering to elect to convert their shares into their pro rata portion of the funds held in trust, if the Extension is approved, and (iii) the change of CB Pharma’s name from “CB Pharma Acquisition Corp.” to “Origo Acquisition Corporation” (“Origo”). In connection with the Meeting, the Company transferred 1,050,000 of its CB Pharma ordinary shares to Origo. The Company retained ownership of 265,000 Origo shares. On July 24, 2017, Origo entered into a Merger Agreement with High Times Holding Corp. (“HTH”), which was later amended on September 27, 2017 (“Amended Merger Agreement”). Pursuant to the terms of the Amended Merger Agreement, the Merger Sub will merge with and into HTH, with HTH continuing as the surviving entity (the “Merger”) and all holders of HTH equity securities and warrants, options and rights to acquire or securities that convert into HTH equity securities (collectively, “HTH Securities”) will convert into Origo common shares and, with respect to options, options to acquire Origo common shares. On September 11, 2017, Origo’s shareholders approved a second amendment to the Articles of Association and extended the date by which to consummate a business combination to March 12, 2018. A shareholder meeting 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 December 31, 2017, and 2016, the Company valued its investment in Origo, a publicly traded company, utilizing the following assumptions: probability of a successful business combination of 46.53% and 51.53%, and no dividend rate, which yielded an underlying value of $10.65 and $8.16 per ordinary share for the private placement shares. The rights and warrants were valued utilizing a binomial-lattice model utilizing a risk-free rate of return of 1.28% and 0.85% and a strike price of $11.50 per share arriving at a value of $1.06 and $0.82 for each right and $1.07 and $0.58 for each warrant. Time to expected business combination/ liquidation was 0.05 and 0.20 during December 31, 2017 and 2016, respectively. Based upon the valuation, the Company recorded an increase in fair-value of investment of $0.2 million and a decrease in fair-value of investment of $1.1 million during December 31, 2017 and 2016, respectively. At December 31, 2017 and 2016, the fair value of the Company’s investment in Origo was, $1.4 million and $1.2 million, respectively. The Company’s working capital note with Origo of $0.3 million can be converted to stock upon a successful business combination. Contingently Issuable Warrant Pursuant to the Amended NSC Note (see Note 11), if a Fortress Company has the proceeds of the NSC Note transferred to it, such Fortress Company will issue a note to NSC and NSC will also receive a warrant to purchase a number of shares of the Fortress Company’s stock equal to 25% of the outstanding Fortress Company note divided by the lowest price for 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 and are accounted for in accordance with ASC 815, Derivatives and Hedging.
Avenue Avenue classified the fair value of the Contingently Issuable Warrants that may have been granted in connection with Avenue’s $3.0 million of its NSC Note transferred from Fortress to Avenue on October 31, 2015 (issuance date) and December 31, 2016 as a derivative liability as there was a potential that Avenue would not have a sufficient number of authorized common shares available to settle these instruments.
The fair value of Avenue’s Contingently Issuable Warrants was determined by applying management’s estimate of the probability of issuance of the Contingently Issuable Warrants together with an option pricing model, with the following key assumptions:
On June 26, 2017, Avenue closed on an Initial Public Offering (“IPO”) raising gross proceeds of $38.0 million and issuing 6.3 million common shares at $6.00 per share. As such, pursuant to the terms of Avenue’s $3.0 million NSC Note, Avenue issued to National a warrant to purchase 125,000 of its common shares at par. The issuance of the warrant relates to the completion of Avenue’s IPO in which Avenue’s raised gross proceeds from a third-party party exceeding five times the value of the debt. Upon the issuance of the warrant by Avenue, the Company was removed as the guarantor on the note.
Mustang Mustang classified the fair value of the Contingently Issuable Warrants that may have been granted in connection with Mustang’s $3.6 million NSC Note transferred from Fortress to Mustang on July 5, 2016 (issuance date). In October 2016, Mustang issued 138,462 warrants with an exercise price at par. Upon the issuance of warrants, Fortress derecognized a liability related to contingently issuance warrants of $0.8 million.
The fair value of Mustang’s Contingently Issuable Warrants was determined by applying management’s estimate of the probability of issuance of the Contingently Issuable Warrants together with an option-pricing model, with the following key assumptions:
Checkpoint On October 30, 2015, Checkpoint issued 139,592 warrants to NSC after an initial closing of Checkpoint’s offering on September 30, 2015. The following table sets forth the changes in the estimated fair value for Checkpoint’s Level 3 classified derivative Contingently Issuable Warrant liabilities:
The fair value of Checkpoint’s Contingently Issuable Warrants was determined at various issuance dates from March 19, 2015 to August 31, 2015 (“Issuance Dates”) for $0.2 million and on October 30, 2015 for $0.6 million by applying management’s estimate of the probability of issuance of the Contingently Issuable Warrants together with the option pricing model with the following key assumptions:
Warrant Liabilities Avenue On December 30, 2016, Avenue held a closing of the sale of convertible promissory notes. In the closing, WestPark Capital, Inc., (“WestPark”) the placement agent, received a warrant (“WestPark Warrant”) to purchase the number of shares of Avenue’s common stock equal to $10,000 divided by the price per share at which any note sold to investors first converts into Avenue’s common stock. The Avenue Warrant has a ten-year term and has a per share exercise price equal to the price per share at which any note sold to investors first converts into Avenue’s common stock. The fair value of Avenue’s WestPark Warrant liability was measured at fair value using a Monte Carlo simulation valuation methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (level 3 inputs) used in measuring the Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy for the year ended December 31, 2016 is as follows:
Additionally, on June 26, 2017, in connection with its IPO, Avenue issued 2,488 warrants to purchase common shares of Avenue at $4.02, a 33% discount to the IPO price of $6.00 to Westpark Capital in connection with their role as placement agent for Avenue’s 2016 Convertible Notes, which automatically converted to common shares of Avenue upon completion of the IPO.
Helocyte The fair value of Helocyte’s warrant liability was measured at fair value using a Monte Carlo simulation valuation methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (level 3 inputs) used in measuring the Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy for the year ended December 31, 2017 and 2016 are as follows:
Caelum The fair value of Caelum's warrant liability, which was issued in connection with Caelum’s convertible note, 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 Caelum’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy as of December 31, 2017 is as follows:
Convertible Notes at Fair Value Helocyte Helocyte’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 the convertible debt that is categorized within Level 3 of the fair value hierarchy for the year ended December 31, 2017 and 2016 is as follows:
Avenue Avenue’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 the convertible debt that is categorized within Level 3 of the fair value hierarchy for the year ended December 31, 2016 is as follows:
On June 26, 2017, upon completion of Avenue’s IPO, Avenue’s convertible debt automatically converted into approximately 49,749 common shares of Avenue, at $4.02, a 33% discount to the IPO price, pursuant to the terms of the Convertible Note. As of September 30, 2017, Avenue’s obligation to its note holders was satisfied.
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 December 31, 2017 is as follows:
The following tables classify into the fair value hierarchy of Fortress’ financial instruments, exclusive of National’s financial instruments, measured at fair value on a recurring basis on the Consolidated Balance Sheets as of December 31, 2017 and 2016:
The following tables show the fair values hierarchy of National’s financial instruments measured at fair value on a recurring basis on the Consolidated Balance Sheets as of September 30, 2017 and 2016:
Warrants Issued In accordance with the Merger Agreement, since less than 80% of National’s issued and outstanding shares of common stock were tendered, National remains a publicly-traded company and stockholders post-tender offer received from National a five-year warrant to purchase an additional share of the Company’s common stock at $3.25 as a dividend to all holders of National’s common stock. At September 30, 2016 net cash settlement of the warrant was assumed since National did not have the ability to settle the warrants with unregistered shares and did not have an effective registration statement making settlement outside of National’s control. Accordingly, National was obligated to issue the warrants. The fair value of the 5.4 million warrants issuable (represents 44% of the warrants issued to non-Fortress shareholders) are being classified as a liability in the consolidated statement of financial condition at September 30, 2017 and 2016. Such valuation (using level 3 inputs) was determined by use of the Black-Scholes option pricing model using the following assumptions:
The table below provides a roll forward of the changes in fair value of Level 3 financial instruments for the years ended December 31, 2017 and 2016:
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