13. Stockholders’ Equity

9.375% Series A Cumulative Redeemable Perpetual Preferred Stock Dividends

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On July 5, 2024, Fortress announced that the Company’s Board of Directors had decided to pause the monthly dividend of $0.1953125 per share of the Company’s 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock (the “Series A Preferred Stock”). In accordance with the terms of the Series A Preferred Stock, dividends on the Series A Preferred Stock will continue to accrue and cumulate until such dividends are authorized or declared. The pausing of these dividends will defer approximately $0.7 million in cash dividend payments each month. The Board intends to revisit its decision regarding the monthly dividend regularly and will assess the profitability and cash flow of the Company to determine whether and when the pause should be lifted.

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During the three months ended September 30, 2024, no dividends were declared by the Board of Directors.  At September 30, 2024, the Company had total undeclared dividends of approximately $2.0 million, which represents the cumulated (but undeclared) dividends due to Series A Preferred shareholders on September 30, 2024. Dividends in arrears that have not been declared by the Board of Directors are not recorded in the condensed consolidated balance sheets but are reflected in the net loss attributable to common shareholders (see Note 12).

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Stock-based Compensation

As of September 30, 2024, the Company had the following equity compensation plans: the Fortress Biotech, Inc. 2013 Stock Incentive Plan, as amended (the “2013 Plan”), the Fortress Biotech, Inc. 2012 Employee Stock Purchase Plan (the “ESPP”) and the Fortress Biotech, Inc. Long Term Incentive Plan (“LTIP”). In May 2024, the Company’s Board of Directors and stockholders approved an amendment to the 2013 Plan to increase the number of authorized shares issuable by 10.0 million shares, and approved an amendment to the ESPP to increase the number of shares issuable by 1.0 million. As of September 30, 2024, approximately 10.0 million shares are available for issuance under the 2013 Plan, and approximately 1.0 million shares are available for issuance under the ESPP.

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The following table summarizes the stock-based compensation expense from stock option, employee stock purchase programs and restricted Common Stock awards and warrants for the periods presented:

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For the three months ended September 30, 2024 and 2023, approximately $1.2 million and $0.9 million, respectively, of stock-based compensation expense was included in research and development expenses in connection with equity grants made to employees and consultants and approximately $5.4 million and $3.5 million, respectively, was included in general and administrative expenses in connection with grants made to employees, members of the board of directors and consultants.

For the nine months ended September 30, 2024 and 2023, approximately $2.9 million and $2.3 million, respectively, of stock-based compensation expense was included in research and development expenses in connection with equity grants made to employees and consultants and approximately $13.5 million and $11.0 million, respectively, was included in general and administrative expenses in connection with grants made to employees, members of the board of directors and consultants.

Stock Options

The following table summarizes Fortress stock option activities excluding activity related to Fortress subsidiaries and partner companies:

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As of September 30, 2024 and 2023, Fortress had $0.6 million and $0.4 million, respectively, in unrecognized stock-based compensation expense related to options which is expected to be recognized over the remaining weighted-average vesting period of 3.3 years and 2.7 years, respectively.

Restricted Stock and Restricted Stock Units

The following table summarizes Fortress restricted stock awards and restricted stock units activities, excluding activities related to Fortress subsidiaries and partner companies:

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As of September 30, 2024 and 2023, the Company had unrecognized stock-based compensation expense related to restricted stock and restricted stock unit awards of approximately $6.5 million and $13.5 million, respectively, which is expected to be recognized over the remaining weighted-average vesting period of 1.0 years and 1.7 years, respectively.

Warrants

The following table summarizes Fortress warrant activities, excluding activities related to Fortress subsidiaries and partner companies:

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In connection with the 2024 Oaktree Note (see Note 9), the Company issued warrants to Oaktree and certain of its affiliates to purchase up to approximately 0.5 million shares of Common Stock at a purchase price of $2.0735 per share (the “2024 Oaktree Warrants”). Oaktree is entitled to a reduction in exercise price if, at any time prior to the expiration of the 2024 Oaktree Warrants, the Company issues equity, warrants or convertible notes (collectively known as “Security Instruments”) at a price that is less than 95% of the market price of the Company’s Common Stock on the trading day prior to the issuance of the Security Instruments. As a result of the September 2024 registered direct offering (see Note 13), the exercise price on the 2024 Oaktree warrants was lowered to $1.65 per share, and recorded approximately $20,000 expense to interest expense.

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The Company evaluated the accounting treatment of the 2024 Oaktree Warrants and determined that the 2024 Oaktree warrants met the scope exception of ASC 815-10-15-74(a) Derivatives and Hedging and therefore the warrants should be classified in stockholders’ equity.  As such, the Company used a Black-Scholes model to value the Oaktree Warrants.  Utilizing the following inputs: term of 7 years, volatility of 90.52%, risk-free rate of return of 4.18% yielding a value of $1.3 million. ASC 470-20-25-2 Debt – Debt with Conversion and Other Options dictates that debt or stock issued with detachable warrants requires the proceeds to be allocated to the two instruments based on their relative fair values.  The relative fair value of the warrants was determined to be $1.3 million and was recorded as a component of Stockholders’ Equity in the Company’s condensed consolidated balance sheet at September 30, 2024.

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In connection with the 2020 Oaktree Note (see Note 9), in August 2020 the Company had issued warrants to Oaktree and certain of its affiliates to purchase up to approximately 0.1 million shares of Common Stock at an exercise price of $8.14 per share (the “Oaktree Warrants”). The Oaktree Warrants expire on August 27, 2030 and may be net exercised at the holder’s election. Oaktree is entitled to additional warrants if at any time prior to the expiration of the Oaktree Warrants the Company issues equity, warrants or convertible notes (collectively known as “Security Instruments”) at a price that is less than 95% of the market price of the Company’s Common Stock on the trading day prior to the issuance of the Security Instruments. As a result of the September 2024 registered direct offering (see Note 13), the Company issued an additional 14,450 warrants to Oaktree and adjusted the exercise price of the Oaktree Warrants to $7.2392, and recorded the resulting expense of $27,000 to interest expense.

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The Company filed registration statement No. 333-282384 on Form S-1 to register the resale of the shares of Common Stock issuable upon exercise of the 2024 Oaktree Warrants and the additional Oaktree Warrants, which was declared effective by the SEC on October 7, 2024.

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Long-Term Incentive Program (“LTIP”)

On July 15, 2015, the Company’s stockholders approved the LTIP for the Company’s Chairman, President and Chief Executive Officer, Dr. Rosenwald, and Executive Vice Chairman, Strategic Development, Mr. Weiss (amended and restated with stockholder approval on June 7, 2017 and May 23, 2024). The LTIP consists of a program to grant equity interests in the Company and in the Company’s subsidiaries, and a performance-based bonus program that is designed to result in performance-based compensation that is deductible without limit under Section 162(m) of the Internal Revenue Code of 1986, as amended.

On January 1, 2024 and 2023, the Compensation Committee granted 216,465 shares and 81,286 shares each to Dr. Rosenwald and Mr. Weiss, respectively. These equity grants were made in accordance with the LTIP, and each award represents 1% of total outstanding shares of the Company as of the dates of such grants. The shares’ original vesting terms includes vesting in full if the employee was either in the service of the Company as an employee, Board member or consultant (or any combination of the foregoing) on the tenth anniversary of the LTIP, or the eligible employee has an involuntary Separation from Service (as defined in the LTIP). The only other vesting condition – one based on the achievement of an increase in the Company’s market capitalization – has already been achieved, with respect to each annual award under the LTIP. The shares awarded under the LTIP will also vest in full (and the Company’s repurchase option on each tranche of shares granted thereunder will accordingly lapse) upon the occurrence of a Corporate Transaction (as defined in the LTIP), if the eligible employee is in service to the Company on the date of such Corporate Transaction. The fair value of each grant on the grant date was approximately $0.7 million for the 2024 grant and $0.8 million for the 2023 grant.  For the three months ended September 30, 2024 and 2023, the Company recorded stock compensation expense related to LTIP grants of approximately $1.7 million and $1.5 million, respectively, and for the nine months ended September 30, 2024 and 2023, the Company recorded stock compensation expense related to LTIP grants of approximately $5.0 million and $4.4 million, respectively, on the unaudited condensed consolidated statement of operations.

Capital Raises

2024 Shelf

On May 17, 2024, the Company filed a shelf registration statement (File No. 333-279516) on Form S-3, which was declared effective on May 30, 2024 (the “2024 Shelf”). As of September 30, 2024, $43.5 million of securities were available for sale under the 2024 Shelf, subject to General Instruction I.B.6. of Form S-3, known as the “baby shelf rules,” which limit the number of securities that can be sold under registration statements on Form S-3.

On July 23, 2021, the Company filed a shelf registration statement (File No. 333-258145) on Form S-3, which was declared effective on July 30, 2021 (the “2021 Shelf”). As of September 30, 2024, there were no securities available for sale under the 2021 Shelf as the ability of the Company to register new offers and sales of securities under the 2021 Shelf expired.

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At the Market Offering

During the nine months ended September 30, 2024, the Company issued and sold approximately 1.8 million shares at an average price of $1.95 per share for gross proceeds of $3.5 million under the Company’s at-the-market offering program. During the nine months ended September 30, 2023, the Company issued and sold approximately 0.2 million shares at an average price of $9.61 for gross proceeds of $2.2 million under the Company’s at-the-market offering program.

Equity Offerings and Private Placements

In September 2024, Fortress closed a registered direct offering of an aggregate of 3,939,394 shares of its common stock at a purchase price of $1.65 per share. In a concurrent private placement, the Company also agreed to issue to the same investors that participated in the registered direct offering warrants to purchase up to 3,939,394 shares of common stock (the “Private Placement Warrants”).  The Private Placement Warrants have an exercise price of $1.84 per share, will be exercisable commencing six months from the date of issuance, and will expire five and one-half years following the date of issue.

In a separate concurrent private placement, Dr. Rosenwald purchased 763,359 shares of common stock at a price of $1.84 per share, which represented the consolidated closing bid price of the Company’s common stock on the Nasdaq Capital Market on September 19, 2024, and warrants to purchase up to 763,359 shares of common stock, purchased at a price of $0.125 per warrant (the “(Concurrent Private Placement Warrants”).  The Concurrent Private Placement Warrants have an exercise price of $1.84 per share, will be exercisable commencing six months from the date of issuance, and will expire five and one-half years following the date of issue. Net proceeds to Fortress from the September 2024 registered direct offering and the concurrent private placements, after deducting the placement agent’s fees and other offering expenses and assuming no exercises of the Private Placement Warrants or the Concurrent Private Placement Warrants, were approximately $7.4 million.

The Company filed registration statement No. 333-282384 on Form S-1 to register the resale of the shares of Common Stock issuable upon exercise of the Private Placement Warrants and the Concurrent Private Placement Warrants, which was declared effective by the SEC on October 7, 2024.

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In connection with the financing consummated by the Company in September 2024, the 5,885,000 warrants issued in the November 2023 equity offering (the “November 2023 Warrants”) had their exercise price reduced to $1.65 per share. The November 2023 Warrants contained a one-time exercise price adjustment provision that reduced the exercise price upon the next equity financing at a price lower than the exercise price at issuance which was $1.70 per share.

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In January 2024, Fortress closed a registered direct offering of an aggregate of 3,303,305 shares of its common stock and warrants to purchase up to 3,303,305 shares of its common stock at a combined purchase price of $3.33 per share of common stock and accompanying warrant priced at-the-market under Nasdaq rules. The warrants have an exercise price of $3.21 per share, were immediately exercisable, and expire five years following the date of issue. Net proceeds to Fortress, after deducting the placement agent’s fees and other offering expenses, were approximately $10.2 million.

Checkpoint 2023 Shelf Registration Statement

In March 2023, Checkpoint filed a shelf registration statement (File No. 333-270843) on Form S-3 (the “Checkpoint 2023 S-3”), which was declared effective May 5, 2023. Under the Checkpoint 2023 S-3, Checkpoint may sell up to a total of $150 million of its securities. As of September 30, 2024, approximately $65.7 million of the securities remains available for sale through the Checkpoint 2023 S-3.

In November 2020, Checkpoint filed a shelf registration statement (File No. 333-251005) on Form S-3, which was declared effective in December 2020 (the “Checkpoint 2020 S-3”). As of September 30, 2024, there were no securities available for sale under the Checkpoint 2020 S-3 as the ability of Checkpoint to register new offers and sales of securities under the Checkpoint 2020 S-3 expired.

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Checkpoint Registered Direct Offerings

In July 2024, Checkpoint closed on a registered direct offering (the “Checkpoint July 2024 Registered Direct Offering”) for the issuance and sale of an aggregate of 1,230,000 shares of its common stock at a purchase price of $2.05 per share of common stock. In addition, the offering includes 4,623,659 shares of common stock in the form of pre-funded warrants at a price of $2.0499. In a concurrent private placement, Checkpoint issued and sold common warrants (the “Checkpoint July 2024 Common Stock Warrants”) to purchase up to 5,853,659 shares of common stock. The Checkpoint July 2024 Common Stock Warrants will be exercisable beginning on the effective date of stockholder approval of the issuance of the shares upon exercise of the Checkpoint July 2024 Common Stock Warrants with an exercise price of $2.05 per share and will expire five years following the issuance date. Checkpoint also issued the placement agent warrants to purchase up to 351,220 shares of common stock with an exercise price of $2.5625 per share. The total net proceeds from the July 2024 Registered Direct Offering, after deducting placement agent’s fees and other offering expenses, were approximately $11.0 million.

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In January 2024, Checkpoint closed on a registered direct offering (the “Checkpoint January 2024 Registered Direct Offering”) for the issuance and sale of 1,275,000 shares of its common stock and 6,481,233 pre-funded warrants. Each pre-funded warrant was exercisable for one share of Checkpoint common stock. The Checkpoint common stock and the pre-funded warrants were sold together with common stock warrants (the “Checkpoint January 2024 Common Warrants”) to purchase up to 7,756,233 shares of Checkpoint common stock, at a purchase price of $1.805 per share of common stock and $1.8049 per pre-funded warrant. The pre-funded warrants were funded in full at closing except for a nominal exercise price of $0.0001 and are exercisable commencing on the closing date and will terminate when such pre-funded warrants are exercised in full. The Checkpoint January 2024 Common Warrants are exercisable immediately upon issuance and will expire five years following the issuance date and have an exercise price of $1.68 per share. Checkpoint also issued the placement agent warrants to purchase up to 465,374 shares of common stock with an exercise price of $2.2563 per share. Net proceeds to Checkpoint from the Checkpoint January 2024 Registered Direct Offering were $12.6 million after deducting commissions and other transaction costs. All of the pre-funded warrants from the Checkpoint January 2024 Registered Direct Offering are fully exercised.

Pursuant to the Company’s Founders Agreement with Checkpoint, Checkpoint issued to Fortress 2.5% of the aggregate number of shares of common stock issued in the registered direct offerings noted above. Accordingly, Checkpoint issued 340,246 shares of common stock to Fortress for the nine months ended September 30, 2024.

Avenue 2021 Shelf Registration Statement

In December 2021, Avenue filed a shelf registration statement (File No. 333-261520) on Form S-3 (the “Avenue 2021 S-3”), which was declared effective on December 10, 2021. As of September 30, 2024, approximately $24.1 million of the securities were available for sale under the Avenue 2021 S-3, subject to General Instruction I.B.6. of Form S-3.

Avenue 2024 Warrant Exercises and Private Placement

On January 5, 2024, Avenue entered into (i) an inducement offer letter agreement (the “January 2023 Investor Inducement Letter”) with a certain investor (the “January 2023 Investor”) in connection with certain outstanding warrants to purchase up to an aggregate of 25,871 shares of Common Stock, originally issued to the January 2023 Investor on January 31, 2023 (the “January 2023 Warrants”) and (ii) an inducement offer letter agreement (the “November 2023 Investor Inducement Letter Agreement” and, together with the January 2023 Investor Inducement Letter, the “January 2024 Warrant Inducement”) with certain investors (the “November 2023 Investors” and, together with the January 2023 Investor, the “Holders”) in connection with certain outstanding warrants to purchase up to an aggregate of 194,667 shares of Common Stock, originally issued to the November 2023 Investors on November 2, 2023 (the “November 2023 Warrants” and, together with the January 2023 Warrants, the “Existing Warrants”). The January 2023 Warrants had an exercise price of $116.25 per share, and the November 2023 Warrants had an exercise price of $22.545 per share.

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Pursuant to the January 2024 Warrant Inducement, (i) the January 2023 Investor agreed to exercise its January 2023 Warrants for cash at a reduced exercise price of $22.545 per share and (ii) the November 2023 Investors agreed to exercise their November 2023 Warrants for cash at the existing exercise price of $22.545, in each case in consideration for Avenue’s agreement to issue in a private placement (x) Series A Warrants to purchase up to 220,538 shares of Avenue Common Stock and (y) Series B Warrants to purchase up to 220,538 shares of Avenue Common Stock. The net proceeds to Avenue from the exercise of the warrants was approximately $4.5 million, after deducting placement agent fees and estimated offering costs, but without giving effect to the exercise of the Series A Warrants and Series B Warrants issued in the January 2024 Warrant Inducement.

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The fair value of the Series A Warrants and Series B Warrants was allocated between the January 2023 Warrants and the November 2023 Warrants on a weighted basis, with approximately $0.6 million allocated to the January 2023 Warrants and recorded to loss on common stock warrant liabilities in the condensed consolidated statement of operations, and the approximately $4.3 million allocated to the November 2023 Warrants deemed to be a dividend such that it was included in net loss attributable to common stockholders in the calculation of net loss per share in the condensed consolidated statement of operations (see Note 12).

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Also in April 2024, Avenue entered into definitive agreements for the immediate exercise of certain of its existing outstanding warrants for cash an aggregate of 689,680 warrants for shares of Avenue’s common stock at a reduced exercise price of $6.20 per share (the “May 2024 Warrant Inducement”). The exercised warrants are comprised of warrants to purchase shares of common stock originally issued by Avenue on October 11, 2022, each having an exercise price of $116.25 per share, Series A and Series B warrants to purchase shares of common stock originally issued by Avenue on November 2, 2023, each having an exercise price of $22.545 per share, and warrants to purchase shares of common stock originally issued by Avenue on January 9, 2024, each having an exercise price of $22.545 per share. Total net proceeds to Avenue were approximately $3.7 million after deducting placement agent fees and other expenses payable by Avenue.

In consideration for the immediate exercise of the warrants for cash in the May 2024 Warrant Inducement, Avenue issued two new unregistered series of warrants (the “Avenue May 2024 Warrants”) to purchase up to a total of 1,379,360 shares of Avenue common stock for a payment of $0.125 per warrant. The Avenue May 2024 Warrants have an exercise price of $6.20 per share, and terms of eighteen months for one series and five years for the other series. The fair value of the Avenue May 2024 Warrants of approximately $4.5 million is deemed to be a dividend such that it was included in net loss attributable to common stockholders in the calculation of net loss per share in the condensed consolidated statement of operations (see Note 12).

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In May 2024, Avenue entered into an At-the-Market Offering Agreement (the “Avenue ATM”) under which Avenue may offer and sell, from time to time at its sole discretion, up to $3.9 million of shares of its common stock. The offer and sale of the shares will be made pursuant to a base prospectus forming a part of the 2021 Avenue S-3, and the related prospectus supplement dated May 10, 2024. During the nine months ended September 30, 2024, Avenue issued 245,617 shares through the Avenue ATM for net proceeds of $0.9 million.

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Pursuant to the Company’s Founders Agreement with Avenue, Avenue issued to Fortress 2.5% of the aggregate number of shares of common stock issued in the warrant exercises noted above. Accordingly, Avenue issued 25,567 shares of common stock to Fortress and recorded 4,023 shares issuable to Fortress for the nine-month period ended September 30, 2024.

Mustang 2021 Shelf Registration Statement and At-the-Market Offering (the “Mustang ATM”)

On April 23, 2021, Mustang filed a shelf registration statement on Form S-3 (File No. 333-255476) (the “Mustang 2021 S-3”), which was declared effective on May 24, 2021. Under the Mustang 2021 S-3, Mustang was able to sell up to a total of $200.0 million of its securities. In 2024, Mustang sold approximately $4.4 million of securities under the Mustang 2021 S-3 until Mustang’s ability to register new offers and sales of securities under such registration statement expired on May 24, 2024.

On May 31, 2024, Mustang filed a shelf registration statement on Form S-3 (File No. 333-279891) (the “Mustang 2024 S-3”), which was declared effective on June 12, 2024. Under the Mustang 2024 S-3, Mustang may sell up to a total of $40.0 million of its securities. As of September 30, 2024, approximately $36.3 million of the Mustang 2024 S-3 remains available for sales of securities, subject to General Instruction I.B.6. of Form S-3. The ability of Mustang to register new offers and sales of securities under the Mustang 2024 S-3 expires on June 12, 2027.

On May 31, 2024, Mustang entered into an At-the-Market Offering Agreement (the “Mustang ATM”) relating to the sale of shares of common stock pursuant to the Mustang 2024 S-3. During the nine months ended September 30, 2024, Mustang issued approximately 2.7 million shares through the Mustang ATM for net proceeds of approximately $1.2 million.

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Mustang Equity Offering

In May 2024, Mustang closed on an equity offering of 1,160,000 shares of common stock and pre-funded warrants to purchase up to 15,717,638 shares of common stock (or common stock equivalents in lieu thereof), and three series of 16,877,638 warrants each for a total of 50,632,914 warrants with a combined equity offering price of $0.237 per share (or per share common stock equivalent in lieu thereof) and accompanying warrants with an exercise price of $0.237 per share. The Series A-1 warrants have a five-year term, the Series A-2 warrants have a twenty-four month term, and the Series A-3 warrants have a nine month term. The warrants contain customary anti-dilution adjustments to the exercise price, including share splits, share dividends, rights offerings and pro rata distributions. The net proceeds of the equity offering, after deducting the fees and expenses of the placement agent and other offering expenses payable by Mustang was approximately $3.2 million.  All of the 15,717,638 pre-funded warrants have since been exercised.

Mustang also amended certain existing warrants to purchase up to 2,588,236 shares of common stock previously issued in October 2023 with an exercise price of $1.58 per share such that the amended warrants have a reduced exercise price of $0.237 per share, and have a five-year term from date of shareholder approval.

Mustang Registered Direct Offering

In June 2024, Mustang closed on a registered direct offering of 3,025,000 shares of common stock at $0.41 per share (or common stock equivalent) priced at-the-market under Nasdaq rules and pre-funded warrants to purchase up to 3,105,000 shares of common stock, at a price per pre-funded warrant equal to $0.4099, the price per share of common stock, less $0.001.  The pre-funded warrants have an exercise price of $0.001 per share, became exercisable upon issuance and remain exercisable until exercised in full. In a concurrent private placement, Mustang also agreed to issue and sell unregistered warrants to purchase up to 6,130,000 shares of its common stock, with an exercise price of $0.41 per share, exercisable beginning on the effective date of stockholder approval of the issuance of the shares upon exercise of the warrants and will expire five years from the date of stockholder approval.  Net proceeds were approximately $2.1 million, after placement agent’s fees and other offering expenses. All of the 3,105,000 pre-funded warrants have since been exercised.

Pursuant to the Company’s Founders Agreement with Mustang, Mustang issued to Fortress 2.5% of the aggregate number of shares of common stock issued in the financings noted above. Accordingly, Mustang issued 641,740 shares of common stock to Fortress for the nine-month period ended September 30, 2024.

Journey 2022 Shelf Registration Statement and At-the-Market Offering

On December 30, 2022, Journey filed a shelf registration statement on Form S-3 (File No. 333-269079) (the “Journey 2022 S-3”), which was declared effective on January 26, 2023. The Journey 2022 S-3 covers the offering, issuance and sale by Journey of up to an aggregate of $150.0 million of Journey’s common stock, preferred stock, debt securities, warrants, and units. In connection with the Journey 2022 S-3, Journey entered into a sales agreement relating to the sale of shares of Journey’s common stock in an at-the-market offering (the “Journey ATM Sales Agreement”). In accordance with the terms of the Journey ATM Sales Agreement, Journey may offer and sell up to 4,900,000 shares of its common stock, par value $0.0001 per share, from time to time. For the nine months ended September 30, 2024, Journey issued and sold approximately 0.3 million shares of common stock for gross proceeds of $1.7 million under the Journey ATM Sales Agreement. At September 30, 2024, 3.8 million shares remain available for issuance under the Journey ATM Sales Agreement.