In March 2015, Fortress closed the private placement of a promissory note for $10 million through National Securities Corporation (the “NSC Note”) and used the proceeds to acquire medical technologies and products. National Securities Corporation (“NSC”), a wholly owned subsidiary of National Holdings, Inc., acted as the sole placement agent for the NSC Note. The NSC Note allowed Fortress to transfer a portion of the proceeds from the NSC Note to the Company pursuant to which the Company executed an identical NSC Note in favor of NSC. Accordingly, the Company assumed $2.8 million under the NSC Note as part of the Founders Agreement (see Note 4) and issued NSC 139,592 warrants to purchase its common stock, which was equal to twenty-five percent (25%) of the amount of NSC Note proceeds the Company received from Fortress divided by the lowest price at which the Company next sold common stock. The warrant issued has a term of 10 years and an exercise price equal to the par value of the Company’s common stock. In February 2016, the Company paid NSC $2.8 million representing repayment of the assumed NSC Note principal and accrued interest as of the date of payment. Approximately $324,000 of unamortized debt discount was accelerated into interest expense upon payment.

 

The NSC Note had a maturity of 36 months, provided that during the first 24 months the maturity date could be extended by six months. No principal amount was due for the first 24 months (or the first 30 months if the maturity date was extended). Thereafter, the NSC Note would have been repaid at the rate of 1/12 of the principal amount per month for a period of 12 months. Interest on the note was 8% payable quarterly during the first 24 months (or the first 30 months if the note was extended) and payable monthly during the last 12 months.

 

As of September 30, 2016, the Company’s portion of the NSC Note was $0. For the three months ended September 30, 2016 and 2015, the Company recorded costs of approximately $0 and $28,000, respectively, related to the amortization of the debt discount and $0 and $41,000, respectively, of interest expense at 8%, both recorded in interest expense in the Condensed Statements of Operations. For the nine months ended September 30, 2016 and 2015, the Company recorded costs of approximately $324,000 and $28,000, respectively, related to the amortization of the debt discount and $20,000 and $41,000, respectively, of interest expense at 8%, both recorded in interest expense in the Condensed Statements of Operations.

 

The following table summarizes the Company’s Amended NSC Note activities as of September 30, 2016 (in thousands).

 

		NSC Note Payable			Discount			NSC Note Payable, Net
December 31, 2015 balance		$	2,792		$	(324)		$	2,468
Payment of NSC debt			(2,792)			-			(2,792)
Amortization of debt discount			-			324			324
September 30, 2016 balance		$	-		$	-		$	-