11. Debt and Interest

 

 

During the period ended March 31, 2018, the Company closed a private placement of promissory notes for an aggregate of $21.7 million (the “2018 Venture Notes”) through National Securities Corporation (“NSC”), a wholly-owned subsidiary of National and a related party by virtue of the Company’s ownership of National. The Company intends to use the proceeds from the 2018 Venture Notes to acquire and license medical technologies and products through existing or recently formed Company subsidiaries. The Company may also use the proceeds to finance its subsidiaries. The notes mature 36 months from issuance, provided that during the first 24 months the Company may extend the maturity date by six months. No principal amount will be 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.

 

NSC acted as the sole placement agent for the 2018 Venture Notes. The Company paid NSC a fee of $1.7 million during the three months ended March 31, 2018 in connection with its placement of the 2018 Venture Notes. At March 31, 2018, the fee, which was recorded as debt discount and will be amortized over the life of the 2018 Venture Notes, was eliminated in consolidation.

 

The 2018 Venture Notes allows the Company to transfer a portion of the proceeds from the 2018 Venture Notes to a Fortress subsidiary upon the completion by such subsidiary of an initial public offering in which it raises sufficient equity capital so that it has cash equal to five times the amount of the portion of the proceeds of the 2018 Venture Notes so transferred. At the time of transfer the Company’s obligation under the NSC Note will be reduced by the amount transferred.

 

For the period ended March 31, 2018, the Company transferred $1.4 million to Aevitas, $1.0 million to Tamid and $0.4 million to Cellvation.

  

In connection with this transfer NSC will receive warrants to purchase each such subsidiary’s stock equal to 25% of that subsidiary’s proceeds of the 2018 Venture Notes divided by the lowest price at which the subsidiary sells its equity in its first third party equity financing. The warrants issued will have a term of 10 years and an exercise price equal to the par value of the Fortress subsidiary’s common stock. The value of the warrants, if any, is eliminated in consolidation. As of March 31, 2018, the warrants were contingently issuable as neither an initial public offering nor a third-party financing had occurred.

 

Opus Credit Facility Agreement Maturity Date Extension

 

On March 12, 2018, the Company and Opus Point Healthcare Innovation Healthcare Fund (“OPHIF”) amended and restated the Opus Credit Facility (the “A&R Opus Credit Facility”). The A&R Opus Credit Facility extends the maturity date of the notes issued under the Opus Credit Facility from September 14, 2018 by one year to September 14, 2019. The A&R Opus Credit Facility also permits the Company to make portions of interest and principal repayments in the form of shares of the Company’s common stock and/or in common stock of the Company’s publicly-traded subsidiaries, subject to certain conditions. Fortress retains the ability to prepay the Notes at any time without penalty. The notes payable under the A&R Opus Credit Facility continue to bear interest at 12% per annum.

 

Total debt consists of the following as of March 31, 2018 and December 31, 2017:

 

($ in thousands)		March 31, 2018			December 31, 2017			Interest rate			Maturity
IDB Note		$	14,929		$	14,929			2.25	%		August - 2020
2017 Subordinated Note Financing			3,254			3,254			8.00	%		March - 2020
2017 Subordinated Note Financing			13,893			13,893			8.00	%		May - 2020
2017 Subordinated Note Financing			1,820			1,820			8.00	%		June - 2020
2017 Subordinated Note Financing			3,018			3,018			8.00	%		August - 2020
2017 Subordinated Note Financing			6,371			6,371			8.00	%		September - 2020
2018 Venture Notes			6,517			–			8.00	%		February – 2021
2018 Venture Notes			15,190			–			8.00	%		March - 2021
Opus Credit Facility			9,500			9,500			12.00	%		September – 2019
Helocyte Convertible Note, at fair value			–			1,000			5.00% - 8.00	%		December 2017
Helocyte Convertible Note, at fair value			860			2,194			5.00% - 8.00	%		March - 2018
Helocyte Convertible Note, at fair value			945			1,062			5.00% - 8.00	%		April - 2018
Helocyte Convertible Note, at fair value			372			444			5.00% - 8.00	%		May - 2018
Helocyte Convertible Note, at fair value			310			–			5.00% - 8-00	%		September 2018
Helocyte Convertible Note, at fair value			23			–			5.00% - 8.00	%		November 2018
Caelum Convertible Note, at fair value			1,026			1,017			8.00	%		January - 2019
Caelum Convertible Note, at fair value			6,956			6,900			8.00	%		February - 2019
Caelum Convertible Note, at fair value			2,158			2,142			8.00	%		March - 2019
Total notes payable			87,142			67,544
Less: Discount on notes payable			1,047			1,035
Total notes payable		$	86,095		$	66,509

 

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: 

 

		Three Months Ended March 31,
($in thousands)		2018			2017
IDB Note
Interest		$	84		$	82
Total IDB Note			84			82
NSC Debt
Interest			-			71
Amortization of fees			-			38
Total NSC Debt			-			109
2017 Subordinated Note Financing
Interest			1,048			-
Amortization of fees			21			-
Total 2017 Subordinated Note Financing			1,069			-
Opus Credit Facility
Interest			281			232
Amortization of fees			319			208
Total Opus Note			600			440
2018 Venture Notes
Interest			56			-
Amortization of fees			1			-
Total 2018 Venture Notes			57			-
LOC Fees
Interest			7			8
Total LOC			7			8
Helocyte Convertible Note
Interest			68			54
Financing fee			-			1
Total Helocyte Convertible Note			68			55
Avenue Convertible Note
Financing fee			-			3
Total Avenue Convertible Note			-			3
Caelum Convertible Note
Interest			196			-
Total Caelum Convertible Note			196			-
Other
Interest			2			1
Total Other			2			1
Total Interest Expense and Financing Fee		$	2,083		$	698