Fortress Biotech, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Investments at Fair Value

Investments at Fair Value

6 Months Ended

Jun. 30, 2015

11. Investments at Fair Value

From time to time, the Company invests in marketable securities, which are classified as trading securities and are stated at fair value as determined by quoted market prices. As of both June 30, 2015 and December 31, 2014, the Company held approximately $20.0 million in marketable securities, which consisted of a U.S. treasury bill and mutual funds.

The fair value of the Company’s investment of $250,000 in a third-party company developing a laser device to treat migraine headaches, approximated cost, as of June 30, 2015 and December 31, 2014. During the six month ended June 30, 2015, the Company evaluated operating results and other qualitative and quantitative factors pertaining to this investment to arrive at this determination.

As of June 30, 2015, the Company valued its investment in CB Pharma, a publicly traded company, utilizing the following assumptions: volatility of 25.4%, and no dividend rate; yielding an underlying value of $9.52 per ordinary share for the insider shares and $9.52 per ordinary share for the private placement units. The rights and warrants were valued utilizing a binomial-lattice model which assumes a volatility of 25.4%, a risk free rate of return of 1.63% and a strike price of $11.50 per share, and applied a probability factor (implied likelihood of a successful business combination occurring within 18 months from the IPO date) arriving at an estimated value of $0.86 for each warrant and $0.87 for each right. Based upon the valuation, the Company recorded a change in fair-value of investment of $1.4 million; increasing the fair value of the investment to $5.3 million as of June 30, 2015. As of June 30, 2015, CB Pharma had net assets, of approximately $42.9 million. Operations since inception have been insignificant. The Company has a working capital commitment of up to $0.5 million to fund CB Pharma Operations, of which $0.1 million has been paid. As of June 30, 2015, the fair value of this commitment was insignificant.

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.

The following tables classify into the fair value hierarchy financial instruments measured at fair value on a recurring basis in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014:

	Fair Value Measurement as of June 30, 2015
($ in thousands)	Level 1		Level 2		Level 3		Total
Assets
Marketable securities:
U.S. treasury bills	$	20,000	$	-	$	-	$	20,000
Total marketable securities		20,000		-		-		20,000
Long-term investments, at fair value		-		-		5,567		5,567
Total	$	20,000	$	-	$	5,567	$	25,567

	Fair Value Measurement as of December 31, 2014
($ in thousands)	Level 1		Level 2		Level 3		Total
Assets
Marketable securities:
U.S. treasury bills	$	19,998	$	-	$	-	$	19,998
Mutual funds		4		-				4
Total marketable securities		20,002		-		-		20,002
Long-term investments, at fair value		-		-		4,160		4,160
Total	$	20,002	$	-	$	4,160	$	24,162

The fair value of marketable securities are determined using quoted market prices from daily exchange-traded markets based on the closing price as of the balance sheet date.

The table below provides a roll-forward of the changes in fair value of Level 3 financial instruments, as of June 30, 2015:

($ in thousands)	Other		CB Pharma		Total
Balance at December 31, 2014	$	250	$	3,910	$	4,160
Purchases		-		-		-
Change in fair value of investment		-		1,407		1,407
Balance at June 30, 2015	$	250	$	5,317	$	5,567

For the three and six months ended June 30, 2015, no transfers occurred between Level 1, Level 2 and Level 3 instruments.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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