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

Quarterly report pursuant to Section 13 or 15(d)

Debt and Interest

Debt and Interest

6 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

Debt and Interest

11. Debt and Interest

Debt

Total debt consists of the following as of June 30, 2017 and December 31, 2016:

	June 30,		December 31,
($ in thousands)	2017		2016		Interest rate			Maturity
IDB Note	$	14,929	$	14,929		2.25	%	Feb - 2018
NSC Note		3,608		3,608		8.00	%	Sep - 2018
2017 Subordinated Note Financing		3,254		-		8.00	%	March - 2020
2017 Subordinated Note Financing		13,893		-		8.00	%	May - 2020
2017 Subordinated Note Financing		1,820		-		8.00	%	June - 2020
Opus Credit Facility		9,500		7,000		12.00	%	Sep - 2018
Helocyte Convertible Note, at fair value		1,076		1,031		5.00% - 8.00%		December 2017
Helocyte Convertible Note, at fair value		2,135		2,051		5.00% - 8.00%		March - 2018
Helocyte Convertible Note, at fair value		1,032		991		5.00% - 8.00%		April - 2018
Helocyte Convertible Note, at fair value		430		414		5.00% - 8.00%		May - 2018
Avenue Convertible Note, at fair value		-		200		5.00% - 8.00%		June - 2018
Total notes payable		51,677		30,224
Less: Discount on notes payable		4,723		2,009
Total notes payable	$	46,954	$	28,215

IDB Note

On February 13, 2014, the Company executed a secured promissory note in favor of Israel Discount Bank of New York (“IDB”) in the amount of $15.0 million (the “IDB Note”). As of June 30, 2017, the Company had $14.9 million outstanding under the IDB Note, secured by a $15.0 million pledge account.

2017 Subordinated Note Financing

On March 31, 2017, the Company entered into Note Purchase Agreements (the “Purchase Agreements”) with NAM Biotech Fund II, LLC I (“NAM Biotech Fund”) and NAM Special Situations Fund I QP, LLC (“NAM Special Situations Fund”), both of which are accredited investors, and sold subordinated promissory notes (the “Notes”) of the Company (the “2017 Subordinated Note Financing”) in the aggregate principal amount of $3.25 million. The Notes bear interest at the rate of 8% per annum; additionally, the Notes accrue paid-in-kind interest at the rate of 7% per annum, which will be paid quarterly in shares of the Company’s common stock and/or shares of common stock of one of the Company’s subsidiaries that are publicly traded, in accordance with the terms of the Notes. Each Note is due on the third anniversary of its issuance, provided that the Company may extend the maturity date for two one-year periods in its sole discretion. The 2017 Subordinated Note Financing is for a maximum of $40.0 million (which the Company may, in its sole discretion, increase to $50.0 million).

National Securities Corporation (“NSC”), a subsidiary of National and a related party, (see Note 17), pursuant to a Placement Agency Agreement entered into between the Company, NAM Biotech Fund and NSC (the “NAM Placement Agency Agreement”) and a Placement Agency Agreement entered into between the Company, NAM Special Situations Fund and NSC (together with the NAM Placement Agency Agreement, the “Placement Agency Agreements”) acts as placement agent in the 2017 Subordinated Note Financing. Pursuant to the terms of the Placement Agency Agreements, NSC receives (in addition to reimbursement of certain expenses) an aggregate cash fee equal to 10% of the aggregate sales price of the Notes sold in the 2017 Subordinated Note Financing to NAM Biotech Fund and NAM Special Situations Fund. The Placement Agent also receives warrants equal to 10% of the aggregate principal amount of the Notes sold in the 2017 Subordinated Note Financing divided by the closing share price of the Company’s common stock on the date of closing (the “Placement Agent Warrants”). The Placement Agent Warrants are exercisable immediately at such closing share price for a period of five years. The Placement Agent will have a right of first offer for a period of 12 months for any proposed issuance of the Company’s capital stock in a private financing, subject to certain exceptions, and will also have the right to participate as an investor in subsequent financings.

In connection with the initial closing of the 2017 Subordinated Note Financing, NSC received a cash fee of $325,400 and a Placement Agent Warrant to purchase 87,946 shares of the Company’s common stock. The Company valued the Warrant at $0.2 million, which was recorded as debt discount, in the Condensed Consolidated Balance Sheets as of June 30, 2017.

On May 1, 2017, the Company held a second closing of the 2017 Subordinated Note Financing and received gross proceeds of $8.6 million, before expenses. NSC received a placement agent fee of approximately $0.9 million in the second closing and warrants to purchase 234,438 shares of the Company’s common stock at an exercise price of $3.65 per share.

On May 31, 2017, the Company held a third closing of the 2017 Subordinated Note Financing and received gross proceeds of $5.3 million, before expenses. NSC received a placement agent fee of approximately $0.5 million in the third closing and warrants to purchase 147,806 shares of the Company’s common stock at an exercise price of $3.61 per share.

On June 30, 2017, the Company held a fourth closing of the 2017 Subordinated Note Financing and received gross proceeds of $1.8 million, before expenses. NSC received a placement agent fee of approximately $0.2 million in the fourth closing and warrants to purchase 38,315 shares of the Company’s common stock at an exercise price of $4.75 per share.

Opus Credit Facility

As of June 30, 2017, the Company had $9.5 million outstanding under the Opus Credit Facility (see Note 17), net of a debt discount related to the allocated value of the warrants associated with the Opus Credit Facility of $1.6 million.

Interest Expense

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:

	For the Three Months Ended June 30,				For the Three Months Ended June 30,
($ in thousands)	2017		2016		2017		2016
IDB Note
Interest	$	87	$	79	$	169	$	159
Amortization of fees		-		-		-		1
Total IDB Note		87		79		169		160

NSC Debt
Interest		84		144		155		311
Amortization of fees		40		54		73		422
Total NSC Debt		124		198		228		733

NHLD Debt
Interest		406		-		406		-
Amortization of fees		175		-		175		-
Total NHLD Debt		581		-		581		-

Opus Credit Facility
Interest		276		-		508		-
Amortization of fees		241		-		454		-
Total Opus Note		517		-		962		-

LOC Fees
Interest		7		3		15		7
Total LOC		7		3		15		7

Helocyte Convertible Note
Interest		57		-		111		-
Financing fee		-		249		1		249
Total Helocyte Convertible Note		57		249		112		249

Avenue Convertible Note
Interest		5		-		5		-
Financing fee		-		-		3		-
Total Helocyte Convertible Note		5		-		8		-

D&O Insurance
Interest		2		-		3		-
Total D&O Insurance		2		-		3		-
Total Interest Expense and Financing Fee	$	1,380	$	529	$	2,078	$	1,149