What changed in this filing

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Item 9A. Controls and Procedures

2023-03-31 compared with 2022-03-28 · 600 added, 636 removed, 1135 unchanged (52% of the section changed)

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Changes in Internal Controls over Financial Reporting

In September 2021, a partner company email account was compromised by a third-party impersonator and payments intended for a vendor, approximating $9.5 million, were fraudulently re-directed into an individual bank account controlled by this third-party impersonator.

The impersonator had taken a number of steps to deceive our employees and reduce the likelihood of detection.

As a result of the foregoing, we identified a material weakness due to our internal controls having not been adequately designed to prevent or timely detect unauthorized cash disbursements.

Given the identification of the material weakness during September 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2021, our disclosure controls and procedures were not effective at the reasonable assurance level.

In light of the above incident, our management took immediate action to remediate the material weakness, including enhancing and formalizing cash disbursement controls to prevent and timely detect unauthorized cash disbursements and significantly enhancing our information technology infrastructure and security measures.

Subsequent to the breach, management has remediated our controls and as of December 31, and we believe this material weakness has been remediated.

Except for the remediation efforts described above taken to address the material weakness, there were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Reports of Independent Registered Public Accounting Firms (KPMG LLP, Short Hills, NJ;

Reports of Independent Registered Public Accounting Firms (BDO USA, Boston, MA;

Consolidated Balance Sheets

5 unchanged sentences

Exhibit Title

Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10 (file No.

Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc.

(formerly Coronado Biosciences, Inc.) dated April 1, 2020 (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10 (file No.

000-54463) filed with the SEC on July 15, 2011).

First Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 of the Registrant’s Form 10 (file No.

First Certificate of Amendment of Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc.

dated May 20, 2011 (incorporated by reference to Exhibit 3.2 of the Registrant’s Form 10 (file No.

000-54463) filed with SEC on July 15, 2011) .

Second Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.7 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on October 31, 2013.

Second Certificate of Amendment of Amended and Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.8 of the Registrant’s Annual Report on Form 10-K (file No.

Second Certificate of Amendment of Amended and Restated Certificate of Incorporation, as amended, of Fortress Biotech, Inc.

dated October 1, 2013 (incorporated by reference to Exhibit 3.8 of the Registrant’s Annual Report on Form 10-K (file No.

001-35366) filed with the SEC on March 14, 2014) .

Third Certificate of Amendment of Amended and Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.9 of the Registrant’s Current Report on Form 8-K (file No.

Third Certificate of Amendment of Amended and Restated Certificate of Incorporation, as amended, of Fortress Biotech, Inc.

dated April 22, 2015 (incorporated by reference to Exhibit 3.9 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on April 27, 2015) .

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No.

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc.

dated June 18, 2020 (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on June 19, 2020).

Certificate of Amendment to the Certificate of Designations of Rights and Preferences of the Fortress Biotech, Inc.

9.375% Series A Cumulative Redeemable Perpetual Preferred Stock under the Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc (incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K (file No.

9.375% Series A Cumulative Redeemable Perpetual Preferred Stock under the Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc.

dated June 18, 2020 (incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on June 19, 2020).

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc.

dated June 23, 2021, incorporated herein by reference to the Form 8-K filed on June 23, 2021 (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No.

dated June 23, 2021, (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on June 23, 2020) .

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc.

dated July 8, 2022 (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on July 11, 2022).

Second Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.7 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on October 31, 2013.

Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10 (file No.

000-54463) filed with the SEC on July 15, 2011) .

Certificate of Designation of Rights and Preferences 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No.

Certificate of Designation of Rights and Preferences of the Fortress Biotech, Inc.

9.375% Series A Cumulative Redeemable Perpetual Preferred Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on November 7, 2017) .

Description of Securities of Fortress Biotech, Inc (incorporated by reference to Exhibit 4.3 of the Registrant’s Annual Report on Form 10-K (file No.

001-35366) filed with the SEC on March 31, 2021).

Description of Securities of Fortress Biotech, Inc.*

Form of Stock Option Award Agreement (incorporated by reference to Exhibit 10.9 of the Registrant’s Form 10 (file No.

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001-35366) filed with the SEC on March 18, 2019).

Exhibit Title

Form of Indemnification Agreement by and between the Registrant and its officers and directors (incorporated by reference to Exhibit 10.25 of the Registrant’s Form 10 (file No.

000-54463) filed with the SEC on August 24, 2011).

Exhibit Title

Fortress Biotech, Inc.

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001-35366) filed with the SEC on June 4, 2015).

Restricted Stock Unit Award Agreement between Fortress Biotech, Inc.

and George Avgerinos effective July 15, 2015 (incorporated by reference to Exhibit 10.70 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on July 17, 2015).#

Form of Common Stock Purchase Warrant in favor of National Securities Corporation (incorporated by reference to Exhibit 10.35 of the Registrant’s Quarterly Report on Form 10-Q (file No.

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001-35366) filed with the SEC on June 12, 2017) .

Stock Purchase and Merger Agreement, dated as of November 12, 2018, by and between Avenue Therapeutics, Inc., InvaGen Pharmaceuticals Inc.

and Madison Pharmaceuticals Inc (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on November 16, 2018).

Stockholders Agreement, dated as of November 12, 2018, by and between Fortress Biotech, Inc., Avenue Therapeutics, Inc., Dr.

Lucy Lu, M.D.

and InvaGen Pharmaceuticals Inc (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on November 16, 2018).

Development, Option and Stock Purchase Agreement by and among Caelum Biosciences, Inc., Alexion Pharmaceuticals, Inc., Fortress Biotech, Inc., and the several shareholders of Caelum Biosciences, Inc., dated January 30, 2019 (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (file No.

001-35366) filed with the SEC on May 10, 2019).*

Amendment to the Fortress Biotech, Inc.

2013 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on June 19, 2020).#

Exhibit Title

Credit Agreement, dated as of November 12, 2018, by and between Avenue Therapeutics, Inc.

and InvaGen Pharmaceuticals Inc (incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on November 16, 2018).

Guaranty, dated as of November 12, 2018, by and between Fortress Biotech, Inc.

and InvaGen Pharmaceuticals Inc (incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on November 16, 2018).

Voting and Support Agreement, dated as of November 12, 2018, by and between Fortress Biotech, Inc., Avenue Therapeutics, Inc., Dr.

Lucy Lu, M.D.

and InvaGen Pharmaceuticals Inc (incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on November 16, 2018).

Waiver Agreement, dated as of November 12, 2018, by and between Fortress Biotech, Inc., Avenue Therapeutics, Inc.

and InvaGen Pharmaceuticals Inc (incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on November 16, 2018).

Restrictive Covenant Agreement, dated as of November 12, 2018, by and between Fortress Biotech, Inc.

and InvaGen Pharmaceuticals Inc (incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on November 16, 2018).

Indemnification Agreement, dated as of November 12, 2018, by and between Fortress Biotech, Inc.

and InvaGen Pharmaceuticals Inc (incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on November 16, 2018).

Development, Option and Stock Purchase Agreement by and among Caelum Biosciences, Inc., Alexion Pharmaceuticals, Inc., Fortress Biotech, Inc., and the several shareholders of Caelum Biosciences, Inc., dated January 30, 2019 (incorporated by reference to the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on January 31, 2019) .*

Amendment to the Fortress Biotech, Inc.

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001-35366) filed with the SEC on November 9, 2020) .

Letter from BDO USA, LLP to the Securities and Exchange Commission dated September 22, 2021, incorporated by reference to the Form 8-K filed on September 24, 2021 (incorporated by reference to Exhibit 16.1 of the Registrant’s Current Report on Form 8-K (file No.

Restricted Stock Unit Award Agreement between Fortress Biotech, Inc.

and David Jin effective October 26, 2022 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on October 28, 2022).#

Indemnification Agreement between Fortress Biotech, Inc.

and Lucy Lu, M.D.

dated as of December 14, 2022 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the Sec on December 19, 2022).#

Amendment to Fortress Biotech, Inc.

2012 Employee Stock Purchase Plan (incorporated by reference to Exhibit A of the Registrant’s Schedule 14A (file No.

001-35366) filed with the SEC on April 30, 2018).#

Letter from BDO USA, LLP to the Securities and Exchange Commission dated September 22, 2021 (incorporated by reference to Exhibit 16.1 of the Registrant’s Current Report on Form 8-K (file No.

001-35366) filed with the SEC on September 24, 2021).

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Consent Independent Registered Accounting Firm (KPMG LLP, Short Hills, NJ).

Consent Independent Registered Accounting Firm ( BDO USA, LLP, Boston MA).

Power of Attorney (included on the signature page of this Form 10-K).

Exhibit Title

Certification of Chairman, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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Reports of Independent Registered Public Accounting Firms ( KPMG LLP , Short Hills, NJ ;

Reports of Independent Registered Public Accounting Firms (BDO USA LLP, Boston, MA;

Consolidated Balance Sheets

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We have audited the accompanying consolidated balance sheets of Fortress Biotech, Inc.

and subsidiaries (the Company) as of December 31, 2021, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with U.S.

and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

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These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

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Evaluation of accrued coupon liability

As discussed in Note 2 and Note 11 of the consolidated financial statements, the Company accrues for coupons on products for certain qualified commercially-insured parties.

At December 31, 2021, the Company recorded $10.6 million in accrued coupon and rebates, which included the accrued coupon liability.

As discussed in Note 11 of the consolidated financial statements, the Company accrues for coupons on products for certain qualified commercially-insured parties.

At December 31, 2022, the Company recorded $7,604 thousand in accrued coupon and rebates, which included the accrued coupon liability.

The Company estimates the amount of its expected coupon redemptions for product that is still in the distribution channel and records the estimate as a reduction of revenue in the period the related product revenue is recognized.

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We tested the sales data and coupon redemption data used by management to calculate coupon redemption costs and cost of coupon claims by comparing the data to historical information.

We also recalculated the coupon costs and the cost per coupon claim.

We developed an expectation of the coupon accrual liability based on an independent estimate of the product in the distribution channel and we compared our expectation to the Company’s coupon accrual liability.

We developed an expectation of the accrued coupon liability based on an independent estimate of the product in the distribution channel and we compared our expectation to the Company’s accrued coupon liability.

We have served as the Company’s auditor since 2021.

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March 31, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

FORTRESS BIOTECH, INC.

AND SUBSIDIARIES

New York, New York

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Fortress Biotech, Inc.

and subsidiaries (the “Company”) as of December 31, 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020 , in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ BDO USA, LLP

Boston, Massachusetts

March 31, 2021

We have served as the Company’s auditor from 2016 to 2021.

FORTRESS BIOTECH, INC.

AND SUBSIDIARIES

Consolidated Balance Sheets

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Total current assets

Property and equipment, net

Property, plant and equipment, net

Operating lease right-of-use asset, net

Restricted cash

Long-term investment, at fair value

Intangible asset, net

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Income taxes payable

Common stock warrant liabilities

Operating lease liabilities, short-term

Partner company convertible preferred shares, short-term, net

Partner company line of credit

Partner company installment payments - licenses, short-term (net of imputed interest of $ 490 and $ 778 as of December 31, 2021 and December 31, 2020, respectively)

Partner company installment payments - licenses, short-term, net

Other short-term liabilities

Total current liabilities

Notes payable, long-term (net of debt discount of $ 7,063 and $ 8,323 as of December 31, 2021 and December 31, 2020, respectively)

Notes payable, long-term, net

Operating lease liabilities, long-term

Partner company installment payments - licenses, long-term (net of imputed interest of $ 373 and $ 863 as of December 31, 2021 and December 31, 2020, respectively)

Partner company installment payments - licenses, long-term, net

Other long-term liabilities

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Revenue - related party

Other revenue

Operating expenses

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Interest expense and financing fee

Foreign exchange loss

Change in fair value of investments

Change in fair value of derivative liability

Change in fair value of warrant liabilities

Total other income (expense)

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Net loss attributable to common stockholders

Net loss per common share - basic and diluted

Net loss per common share attributable to non - controlling interests - basic and diluted

Net loss per common share attributable to common stockholders - basic and diluted

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Consolidated Statements of Changes in Stockholders’ Equity

($ in thousands except for share amounts)

Series A Preferred Stock

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Stockholders'

($ in thousands except for share amounts)

Balance at December 31, 2020

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Issuance of common stock related to equity plans

Issuance of common stock under ESPP

Issuance of common stock for at-the-market offering, net

Payment of Series A perpetual preferred stock dividends

Repurchase of Series A preferred stock, net

Retirement of Series A preferred stock

Issuance of Series A preferred stock for cash, net

Partner company’s offering, net

Partner companies' at-the-market offering, net

Partner company’s preferred stock offering, net

Issuance of common stock under partner company’s ESPP

Partner company’s dividends declared and paid

Partner company’s exercise of warrants for cash

Partner company’s exercise of options for cash

Reclass partner company's warrants from liability to equity

Issuance of partner company’s common shares for research and development expenses

Common shares issued for 2017 Subordinated Note Financing interest expense

Issuance of warrants in conjunction with Oaktree Note

Non-controlling interest in partner companies

Common shares issued for dividend on partner company's convertible preferred shares

Conversion of partner company convertible preferred shares

Conversion of partner company derivative warrant liabilities

Non-controlling interest in subsidiaries

Net loss attributable to non-controlling interest

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Issuance of common stock related to equity plans

Issuance of common stock under ESPP

Issuance of common stock for at-the-market offering, net

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Partner company’s exercise of options for cash

Partner company’s exercise of warrants for cash

Partner company’s reclassification of warrant liability to equity

Partner company's repurchase of stock

Issuance of common stock under partner company’s ESPP

Partner company’s dividends declared and paid

Issuance of partner company’s common shares for research and development expenses

Common shares issued for dividend on partner company's convertible preferred shares

Conversion of partner company convertible preferred shares

Conversion of partner company derivative warrant liabilities

Partner company’s redemption of preferred shares

Partner company’s stock adjustment

Partner company’s net settlement of shares withheld for taxes

Partner company stock adjustment

Partner company’s warrants issued in conjunction with debt

Partner company’s retained earning adjustment

Non-controlling interest in subsidiaries

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Depreciation expense

Loss on disposal of property and equipment

Bad debt expense

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Stock-based compensation expense

Issuance of common stock for service

Issuance of partner company’s common shares for research and development expenses

Common shares issued for dividend on partner company's convertible preferred shares

Common shares issued for 2017 Subordinated Note Financing interest expense

Change in fair value of investment in Caelum

Change in fair value of partner company derivative liability

Change in fair value of partner companies' warrant liabilities

Research and development-licenses acquired, expense

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Accounts payable and accrued expenses

Interest payable

Interest payable - related party

Deferred revenue

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Purchase of property and equipment

Proceeds from the sale of partner company's fixed assets

Purchase of intangible asset

Acquisition of Vyne products

Proceeds from sale of Caelum

Net cash provided by (used in) investing activities

Net cash used in investing activities

The accompanying notes are an integral part of these consolidated financial statements.

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Payment of Series A perpetual preferred stock dividends

Purchase of treasury stock

Payment of costs related to purchase of treasury stock

Proceeds from issuance of Series A perpetual preferred stock

Payment of costs related to issuance of Series A perpetual preferred stock

Proceeds from issuance of common stock for at-the-market offering, net

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Partner company’s dividends declared and paid

Proceeds from partner companies' sale of stock, net

Proceeds from partner companies' sale of stock and warrants, net

Proceeds from partner companies' at-the-market offering, net

Proceeds from partner company's preferred stock offering

Payment of costs related to partner company's preferred stock offering

Proceeds from partner company convertible preferred shares, net

Proceeds from partner company's preferred stock offering, net

Proceeds from exercise of partner companies’ equity grants

Payment of debt issuance costs associated with 2017 Subordinated Note Financing

Payment of debt issuance costs associated with 2018 Venture Notes

Proceeds from Oaktree Note

Partner company’s net settlement of shares withheld for taxes

Partner company's cash payout for reverse stock split fractional shares

Payment of partner company’s redemption of preferred shares

Payment of partner company's repurchase of stock

Payment of partner company's deferred financing cost

Payment of debt issuance costs associated with Oaktree Note

Repayment of Oaktree Note

Repayment of 2017 Subordinated Note Financing

Repayment of 2018 Venture Notes

Repayment of 2019 Notes

Repayment of partner company's Horizon Notes

Repayment of IDB Note

Repayment of partner company installment payments - licenses

Proceeds from partner company convertible preferred shares, net

Proceeds from partner company convertible preferred shares

Payment of debt issuance costs associated with partner company convertible preferred shares

Proceeds from partner company long-term debt, net

Proceeds from partner's company line of credit

Repayment of partner's company line of credit

Repayment of partner company's line of credit

Net cash provided by financing activities

Net increase in cash and cash equivalents and restricted cash

Net (decrease) increase in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash at beginning of period

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Cash paid for interest

Cash paid for interest - related party

Cash paid for tax

The accompanying notes are an integral part of these consolidated financial statements.

FORTRESS BIOTECH, INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

($ in thousands)

Year Ended December 31,

Supplemental disclosure of non-cash financing and investing activities:

Settlement of restricted stock units into common stock

Issuance of warrants in conjunction with Oaktree Note

Common shares issued from 2017 Subordinated Note Financing interest expense

Unpaid fixed assets

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Conversion of partner company derivative warrant liabilities

Conversion of partner company annual maintenance fee to a promissory note

Partner company's unpaid intangible assets

Reclass partner company's warrants from liability to equity

Unpaid partner company’s at-the-market offering cost

Unpaid partner company’s preferred stock offering cost

Unpaid partner company’s debt offering cost

Unpaid partner company’s offering cost

Unpaid partner company’s repurchase of stock

Partner company’s retained earning adjustment

Partner company’s reclassification of warrant liability to equity

Partner company derivative warrant liability associated with partner company convertible preferred shares

Unpaid debt offering cost

Unpaid at-the-market offering cost

Retirement of Series A perpetual preferred stock

Partner company’s warrants issued in conjunction with debt

Unpaid research and development licenses acquired

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Fortress Biotech, Inc.

(“Fortress” or the “Company”) is a biopharmaceutical company dedicated to acquiring, developing and commercializing pharmaceutical and biotechnology products and product candidates, which the Company does at the Fortress level, at its majority-owned and majority-controlled subsidiaries and joint ventures, and at entities the Company founded and in which it maintains significant minority ownership positions.

Fortress has a talented and experienced business development team, comprising scientists, doctors and finance professionals, who identify and evaluate promising products and product candidates for potential acquisition by new or existing partner companies.

Fortress through its partner companies has executed such arrangements in partnership with some of the world’s foremost universities, research institutes and pharmaceutical companies, including City of Hope National Medical Center, Fred Hutchinson Cancer Research Center, St.

Fortress has a talented and experienced business development team, comprising scientists, doctors and finance professionals, who work in concert with its extensive network of key opinion leaders to identify and evaluate promising products and product candidates for potential acquisition.

The Company has executed such arrangements in partnership with some of the world’s foremost universities, research institutes and pharmaceutical companies, including City of Hope National Medical Center, Fred Hutchinson Cancer Center, St.

Jude Children’s Research Hospital, Dana-Farber Cancer Institute, Nationwide Children's Hospital, Cincinnati Children's Hospital Medical Center, Columbia University, the University of Pennsylvania, Mayo Foundation for Medical Education and Research, AstraZeneca plc and Dr.

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(a subsidiary of Cipla Limited) and Sentynl Therapeutics, Inc.

On October 6, 2021, AstraZeneca plc (“AstraZeneca”) (acquiror of Alexion) purchased 100 % of our partner company Caelum Biosciences, Inc.

(“Sentynl”), respectively.

In October 2021, AstraZeneca plc (“AstraZeneca”) (acquiror of Alexion) purchased 100 % of the Company’s partner Caelum Biosciences, Inc.

(“Caelum”) for approximately $ 150 million upfront and up to $ 350 million in contingent regulatory and sales milestone payments.

Several of our partner companies possess licenses to product candidate intellectual property, including Aevitas Therapeutics, Inc.

(“Aevitas”), Baergic Bio, Inc.

(“Baergic”), Caelum, Cellvation, Inc.

Several of the Company’s partner companies possess licenses to product candidate intellectual property are Aevitas Therapeutics, Inc.

(“Aevitas”), Avenue Therapeutics, Inc.

ATXI, “Avenue”), Baergic Bio, Inc.

(“Baergic”, a subsidiary of Avenue), Cellvation, Inc.

(“Cellvation”), Checkpoint Therapeutics, Inc.

(“Checkpoint”), Cyprium Therapeutics, Inc.

CKPT, “Checkpoint”), Cyprium Therapeutics, Inc.

(“Cyprium”), Helocyte, Inc.

(“Helocyte”), Journey Medical Corporation (“Journey” or “JMC”), Mustang Bio, Inc.

(“Mustang”) Oncogenuity, Inc.

("Oncogenuity"), and UR-1 Therapeutics, Inc.

(“Helocyte”), Journey Medical Corporation (Nasdaq:

DERM, “Journey” or “JMC”), Mustang Bio, Inc.

MBIO, “Mustang”) Oncogenuity, Inc.

("Oncogenuity"), and Urica Therapeutics, Inc.

(“Urica”, formerly UR-1 Therapeutics, Inc).

Liquidity and Capital Resources

Since inception, the Company’s operations have been financed primarily through the sale of equity and debt securities, from the sale of partner companies, and the proceeds from the exercise of warrants and stock options.

Since inception, the Company’s operations have been financed primarily through the sale of equity and debt securities, from the sale of subsidiaries/partner companies, and the proceeds from the exercise of warrants and stock options.

The Company has incurred losses from operations and negative cash flows from operating activities since inception and expects to continue to incur substantial losses for the next several years as it continues to fully develop and prepare regulatory filings and obtain regulatory approvals for its existing and new product candidates.

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If such funding is not available or not available on terms acceptable to the Company, the Company’s current development plans, and plans for expansion of its general and administrative infrastructure may be curtailed.

The Company also has the ability, subject to limitations imposed by Rule 144 of the Securities Act of 1933 and other applicable laws and regulations, to raise money from the sale of common stock of the public companies in which it has ownership positions.

In addition to the foregoing, the Company experienced minimal impact on its development timelines, revenue levels and its liquidity due to the worldwide spread of COVID-19.

Fortress also has the ability, subject to limitations imposed by Rule 144 of the Securities Act of 1933 and other applicable laws and regulations, to raise money from the sale of common stock of the public companies in which it has ownership positions.

On October 31, 2022, we received a letter from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the bid price of the Company’s common stock, par value $ 0.001 per share (the “Common Stock”), had closed below $ 1.00 per share for 30 consecutive business days and, as a result, the Company is not in compliance with Nasdaq Listing Rule 5550(a)(2), which sets forth the minimum bid price requirement for continued listing on The Nasdaq Capital Market.

Our Common Stock may be subject to delisting from The Nasdaq Capital Market if we are unable to regain compliance which may decrease the market liquidity and market price of our Common Stock.

Summary of Significant Accounting Policies

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Revenue Recognition

The Company records revenue in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

The core principle of this revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

The Company records and recognizes revenues in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

The Company’s revenues primarily result from contracts with customers, which are generally short-term and have a single performance obligation – the delivery of product.

The Company’s performance obligation to deliver products is satisfied when the goods are received by the customer, which is the point at which the customer obtains title to, and accepts the risks and rewards of ownership of, the products.

The Company’s performance obligation to deliver products is satisfied at the point in time that the goods are received by the customer, which is when the customer obtains title to and has the risks and rewards of ownership of the products.

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods to a customer.

The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

Many of the Company’s products sold are subject to trade discounts, rebates, coupons and right of return.

Revenues are recorded net of provisions for variable consideration, including discounts, rebates, governmental rebate programs, price adjustments, returns, chargebacks, promotional programs and other sales allowances.

Accruals for these provisions are presented in the consolidated financial statements as reductions in determining net sales and as a contra asset in accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash).

Many of the Company’s products sold are subject to a variety of deductions.

Revenues are recorded net of provisions for variable consideration, including coupons, chargebacks, wholesaler fees, prompt pay discounts, specialty pharmacy discounts, managed care rebates, product returns, government rebates and other deductions customary to the pharmaceutical industry.

Accruals for these provisions are presented in the consolidated financial statements as reductions to gross sales in determining net sales and as a contra asset within accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash).

Amounts recorded for revenue deductions can result from a complex series of judgements about future events and uncertainties and can rely heavily on estimates and assumptions.

The following section briefly describes the nature of the Company’s provisions for variable consideration and how such provisions are estimated:

Gross-to-Net Sales Accruals — The Company records gross-to-net sales accruals for government rebates, chargebacks, wholesaler distributor service fees, other rebates and administrative fees, sales returns and allowances and sales discounts.

Trade Discounts and Other Sales Allowances — The Company provides trade discounts and allowances to its wholesale customers for sales order management, data, and distribution services.

The Company also provides for prompt pay discounts if payment is received within the payment term days which generally range from 30 to 75 days .

These discounts and allowances are recorded at the time of sale based on the customer’s contracted rate and have been recorded as a reduction of revenue and a reduction to accounts receivables.

Wholesaler fees — The Company pays administrative and other fees to certain wholesale customers consistent with pharmaceutical industry practices.

The Company records a provision for these fees based on contracted rates and historical redemption rates.

Assumptions used to establish the provision include level of wholesaler inventories, contract sales volumes and average contract pricing.

The Company regularly reviews the information related to these estimates and adjust the provision accordingly.

Product Returns — Consistent with industry practice, the Company offers customers a right to return any unused product.

Such right of return commences six months prior to the product expiration date and ends one year after the product expiration date.

Products returned for expiration are reimbursed at current or contracted price, less 5%.

The Company estimates the amount of its product sales that may be returned by its customers and accrues this estimate as a reduction of revenue in the period the related product revenue is recognized.

The Company currently estimates product return reserves using available industry data and its own sales information, including its visibility and estimates into the inventory remaining in the distribution channel.

The Company bases its product returns allowance on estimated on-hand inventories in the sales channels, measured end-customer demand, actual returns history and other factors, such as the trend experience for lots where product is still being returned, as applicable.

If the historical data the Company uses to calculate these estimates does not properly reflect future returns, then a change in the allowance would be made in the period in which such a determination is made and revenues in that period could be materially affected.

Under this methodology, the Company tracks actual returns by individual production lots.

Returns on closed lots, that is, lots no longer eligible for return credits, are analyzed to determine historical returns experience.

Returns on open lots, that is, lots still eligible for return credits, are monitored and compared with historical return trend rates.

Any changes from the historical trend rates are considered in determining the current sales return allowance.

Government Chargebacks — Chargebacks for fees and discounts to indirect qualified government healthcare providers represent the estimated obligations resulting from contractual commitments to sell products to qualified U.S.

Department of Veterans Affairs hospitals and 340B entities at prices lower than the list prices charged to customers who purchase product directly from the Company.

Customers charge the Company for the difference between what they pay for the product and the statutory selling price to the qualified government entity.

These allowances are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable, net.

The chargeback amount from our direct customers is generally determined at the time of our direct customers’ resale to the qualified government healthcare provider, and the Company generally issues credits for such amounts within a few weeks of our direct customer’s notification to the Company of the resale.

The allowance for chargebacks is based on expected sell-through levels by our direct customers to indirect customers, as well as estimated wholesaler inventory levels.

Government Rebates — The Company is subject to discount obligations under state Medicaid programs and Medicare.

These accruals are recorded in the same period that the related revenue is recognized, resulting in a reduction of product revenue.

For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap, for whom the Company will owe an additional liability under the Medicare Part D program.

For Medicaid programs, the Company estimates the portion of sales attributed to Medicaid patients and records a liability for the rebates to be paid to the respective state Medicaid programs.

The Company’s liability for these rebates consists of invoices received for:

claims from prior quarters that have not been paid or for which an invoice has not yet been received;

estimates of claims for the current quarter;

and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period.

Wholesaler Chargeback Accruals — The Company sells a portion of its products indirectly through wholesaler distributors to contracted customers commonly referred to as “indirect customers.” The Company enters into specific agreements with these indirect customers to establish pricing for its products, and in-turn, the indirect customers independently select a wholesaler from which to purchase the products.

Because the price paid by the indirect customers is lower than the price paid by the wholesaler (wholesale acquisition cost, or “WAC”), the Company provides a credit, called a chargeback, to the wholesaler for the difference between the contractual price with the indirect customers and WAC.

The Company’s provision for chargebacks is based on expected sell-through levels by the Company’s wholesale customers to the indirect customers and estimated wholesaler inventory levels as well as historical chargeback rates.

The Company continually monitors its reserve for chargebacks and adjusts the reserve accordingly when expected chargebacks differ from actual experience.

Coupons — The Company offers coupons on products for qualified commercially-insured parties with prescription drug co-payments.

Such product sales flow through both traditional wholesaler and specialty pharmacy channels.

Approximately 85 % of the Company's product revenues are sold through the specialty pharmacy channel, which has a shorter cycle from the Company’s sales date to the fulfilment of the prescription by the specialty pharmacy customer, resulting in less inventory in this channel.

Coupons are processed and redeemed at the time of prescription fulfilment by the pharmacy, and the Company is charged for the coupons redeemed monthly.

The majority of coupon liability at the end of the period represents coupons that have been redeemed and for which the Company has been billed, and an accrual for expected redemptions for product in the distribution channel.

This element of the liability requires the Company to estimate the distribution channel inventory at period end, the expected redemption rates, and the cost per coupon claim that the Company expects to receive associated with product that has been recognized as revenue but remains in the distribution channel at the end of each reporting period.

The estimate of product remaining in the distribution channel is comprised of actual inventory at the wholesaler as well as an estimate of inventory at the specialty pharmacies, which the Company estimates based upon historical ordering patterns, which consist of reordering approximately every two weeks.

Coupons are processed and redeemed at the time of prescription fulfilment by the pharmacy.

The majority of coupon reserve accrual at the end of the period reflects coupons that have been redeemed for which the Company has been billed in addition to an accrual for expected redemptions for product in the distribution channel.

The expected accrual reserve requires us to estimate the distribution channel inventory at period end, the expected redemption rates, and the cost per coupon claim that the Company expects to receive.

The estimate of product remaining in the distribution channel is comprised of estimated inventory at the wholesaler as well as an estimate of inventory on the shelves at the specialty pharmacies, which the Company estimates based upon historical ordering patterns.

The estimated redemption rate is based on historical redemptions as a percentage of units sold.

The cost per coupon is based on the coupon rate.

Managed Care Rebates — The Company offers managed care rebates to certain providers.

The Company calculates rebate payment amounts due under this program based on actual qualifying products and applies a contractual discount rate.

The accrual is based on an estimate of claims that the Company expects to receive and inventory in the distribution channel.

The accrual is recognized at the time of sale, resulting in a reduction of product revenue.

Chargebacks and Government Chargebacks — The Company sells a portion of its products indirectly through wholesaler distributors to contracted indirect customers, qualified government healthcare providers, qualified U.S.

Department of Veterans Affairs hospitals, and 340B entities.

The Company enters into specific agreements with or provides discounts to these indirect customers and entities to establish pricing for the Company’s products, and in-turn, the indirect customers and entities independently purchase these products.

Because the price paid by the indirect customers and/or entities is lower than the price paid by the wholesaler, the Company provides a credit, called a chargeback, to the wholesaler for the difference between the contractual price with the indirect customers and their purchase price.

The Company continually monitors its reserve for chargebacks and adjusts the reserve accordingly when expected chargebacks differ from actual experience.

Wholesaler fees – The Company provides allowances to its wholesale customers for sales order management, data, and distribution services.

The Company also pays administrative and other fees to certain wholesale customers consistent with pharmaceutical industry practices.

The Company records a provision for these fees based on contracted rates.

Assumptions used to establish the provision include contract sales volumes and average contract pricing.

The Company regularly reviews the information related to these estimates and adjusts the provision accordingly.

Prompt-Pay Discounts – The Company provides for prompt pay discounts if payment is received within contractual payment term days, which generally ranges from 30 to 90 days .

These discounts are recorded at the time of sale based on the customer’s contracted rate and recorded as a reduction of revenue and a reduction to accounts receivables.

Specialty Pharmacy Discounts - The Company has in place contractual arrangements with specialty pharmacies and provides for contractually agreed upon discounts.

These discounts are recorded at the time of sale based on the customer’s contracted rate and recorded as a reduction of revenue.

Managed Care Rebates — The Company is subject to rebates in connection with its agreements with certain contracted commercial payers.

The Company estimates its managed care rebates based on the Company’s estimated payer mix and the applicable contractual rebate rate.

The Company’s accrual for managed care rebates is based on an estimate of future claims that the Company expects to receive, which considers an estimate for inventory in the distribution channel.

The accrual is recognized at the time of sale, resulting in a reduction of gross product revenue.

Product Returns — Consistent with industry practice, the Company offers customers a right to return any unused product.

The customer’s right of return commences six months prior to product expiration date and ends one year after product expiration date.

Products returned for expiration are reimbursed at current wholesale acquisition cost or indirect contract price.

The Company estimates the amount of its product sales that may be returned by the Company’s customers and accrues this estimate as a reduction of revenue in the period the related product revenue is recognized.

The Company estimates products returns as a percentage of sales to its customers.

The rate is estimated by using historical and its own sales information, including its visibility and estimates into the inventory remaining in the distribution channel.

Collaboration Revenue

Our collaboration revenue includes service revenue, license fees and future contingent milestone-based payments.

We recognize collaboration revenue for contracted R&D services performed for our customers over time.

We measure our progress using an input method based on the effort we expend or costs we incur toward the satisfaction of our performance obligation.

We estimate the amount of effort we expend, including the time it will take us to complete the activities, or the costs we may incur in a given period, relative to the estimated total effort or costs to satisfy the performance obligation.

This results in a percentage that we multiply by the transaction price to determine the amount of revenue we recognize each period.

This approach requires us to make estimates and use judgement.

If our estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that we recognize in the current and future periods.

Reclassifications

Certain comparative figures have been reclassified to conform to the current year presentation.

The Company reclassified certain return reserves related to sales allowances of $4.6 million from accounts receivable to current liabilities on the consolidated balance sheet at December 31, 2020.

This reclassification was deemed to be immaterial.

The Company’s collaboration revenue includes service revenue, license fees and future contingent milestone-based payments.

Collaboration revenue is recognized for contracted R&D services performed for it’s customers over time.

The Company measures it’s progress using an input method based on the effort expended or costs incurrd toward the satisfaction of the Company’s performance obligation.

The Company estimates the amount of effort to be expended, including the time it will take to complete the activities, or the costs that may be incurred in a given period, relative to the estimated total effort or costs to satisfy the performance obligation.

This results in a percentage that is multiplied by the transaction price to determine the amount of revenue the Comapny recognizes each period.

This approach requires the use of estimates and judgemenst.

If the Company’s estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that is recognized in the current and future periods.

Fair Value Measurement

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Cash and cash equivalents at December 31, 2022 and 2021, consisted of cash and certificates of deposit in institutions in the United States.

Balances at certain institutions have exceeded Federal Deposit Insurance Corporation insured limits.

The Company maintains its cash and cash equivalent balances with high-quality financial institutions and, consequently, the Company believes that such funds are currently adequately protected against credit risk.

At times, portions of the Company’s cash and cash equivalents may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation (FDIC) limits, though the Company customarily invests a significant portion of its cash in Certificate of Deposit Account Registry Service (“CDARS”) accounts to maximize FDIC insurance coverage across its holdings.

As of December 31, 2022, the Company had not experienced losses on these accounts, and management believes the Company is not exposed to significant risk on such accounts.

The Company’s cash equivalents and investments may comprise money market funds that are invested in U.S.

Treasury obligations, corporate debt securities, U.S.

Treasury obligations and government agency securities.

Credit risk in these securities is reduced as a result of the Company’s investment policy to limit the amount invested in any single issuer and to only invest in securities of a high credit quality.

The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

Property and Equipment

Computer equipment, furniture & fixtures and machinery & equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of each asset.

Computer equipment, furniture and fixtures and machinery and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of each asset.

Leasehold improvements are amortized over the shorter of the estimated useful lives or the term of the respective leases.

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Intangible Assets

Intangible assets are reported at cost, less accumulated amortization and impairments.

Intangible assets are reported at cost, less accumulated amortization.

Intangible assets with finite lives are amortized over their estimated useful lives, which represents the estimated life of the product.

Amortization is calculated primarily using the straight-line method.

The Company reviews long-lived assets, including intangible assets with finite useful lives, for impairment at least annually or whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable (a “triggering event”).

Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the long-lived asset in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets.

If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value.

An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount.

The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows.

The Company has not recorded any impairment losses on long-lived assets for the years ended December 31, 2022 and 2021.

During the ordinary course of business, the Company has entered into certain licenses and asset purchase agreements.

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The Company records cash held in trust or pledged to secure certain debt obligations as restricted cash.

As of December 31, 2021 and 2020, the Company had $ 2.2 million and $ 1.6 million, respectively, of restricted cash representing pledges to secure letters of credit in connection with certain office leases.

As of December 31, 2022, the Company had $ 2.7 million of restricted cash representing pledges to secure letters of credit in connection with certain office leases and an undertaking posted by Cyprium to secure potential damages in an injunctive proceeding.

As of December 31, 2021, the Company had $ 2.2 million of restricted cash representing pledges to secure letters of credit in connection with certain office leases.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash from the consolidated balance sheets to the consolidated statements of cash flows for the years ended 2022 and 2021:

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Total cash and cash equivalents and restricted cash

Inventories comprise finished goods, which are valued at the lower of cost and net realizable value, on a first-in, first-out basis.

The Company evaluates the carrying value of inventories on a regular basis, taking into account anticipated future sales compared with quantities on hand, and the remaining shelf life of goods on hand.

Included in inventories is the acquired Qbrezxa finished goods inventory which includes a fair value step-up of $ 6.5 million.

The $ 6.5 million was fully expensed within cost of sales for the year ended December 31, 2021, as the inventory was sold to customers.

Inventories are recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.

The Company periodically reviews the composition of inventory in order to identify excess, obsolete, slow-moving or otherwise non-saleable items taking into account anticipated future sales compared with quantities on hand, and the remaining shelf life of goods on hand.

If non-saleable items are observed and there are no alternate uses for the inventory, the Company records a write-down to net realizable value in the period that the decline in value is first recognized.

The Company’s inventory reserves were $ 0.4 million and zero at December 31, 2022 and 2021, respectively.

Accounts Receivable, net

Accounts receivable consists of amounts due to the Company for product sales of JMC.

The Company’s accounts receivable reflects discounts for estimated early payment and for product estimated returns.

Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts that are outstanding longer than the contractual payment terms are considered past due.

The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due and the customer’s current ability to pay its obligation to the Company.

The Company writes off accounts receivable when they become uncollectible.

For the years ended December 31, 2021 and 2020, the allowance for doubtful accounts was approximately $ 0.1 million and $ 0.1 million, respectively.

The Company’s accounts receivable consists of amounts due from customers related to product sales and have standard payment terms.

For certain customers, the accounts receivable for the customer is net of prompt payment or specialty pharmacy discounts.

The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in their credit profile.

The Company reserves against accounts receivable for estimated losses that may arise from a customer’s inability to pay, and any amounts determined to be uncollectible are written off against the reserve when it is probable that the receivable will not be collected.

The Company has historically not experienced significant credit losses.

The allowance for doubtful accounts was $ 0.4 million and $ 0.1 million at December 31, 2022 and 2021, respectively.

Investments at Fair Value

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While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Issuance of Debt and Equity

The Company issues complex financial instruments which include both equity and debt features.

The Company analyzes each instrument under ASC 480, Distinguishing Liabilities from Equity, ASC 815, Derivatives and Hedging and, ASC 470, Debt , in order to establish whether such instruments include any embedded derivatives.

The Company accounted for the Oaktree Note with detachable warrants in accordance with ASC 470, Debt .

The Company assessed the classification of its common stock purchase warrants as of the date of the transaction and determined that such instruments met the criteria for equity classification.

The note proceeds were allocated between the Oaktree Note and the warrants on a relative fair value basis.

The Company recorded the related issue costs and value ascribed to the warrants as a debt discount of the Oaktree Note.

The discount is being amortized utilizing the effective interest method over the term of the Oaktree Note which is approximately 16.08 % at December 31, 2021.

Impairment of Long-Lived Assets

Long-lived assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable.

The Company will perform a periodic assessment of assets for impairment in the absence of such information or indicators.

Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable.

For long-lived assets to be held and used, the Company would recognize an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.

As of December 31, 2021 and 2020 there were no indicators of impairment.

The Company reviews long-lived assets, including intangible assets with finite useful lives, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable (a “triggering event”).

An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount.

The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows.

The Company has not recorded any impairment losses on long-lived assets for the years ended December 31, 2022 and 2021.

Research and Development

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Such licenses purchased by the Company require substantial completion of research and development, regulatory and marketing approval efforts in order to reach commercial feasibility and has no alternative future use.

Accordingly, the total purchase price for the licenses acquired is reflected in research and development – licenses acquired in the Company’s Consolidated Statements of Operations.

Contingencies

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Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

Earnings Per Share

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the reporting period.

Net Loss Per Common Share

Basic net loss per share of common stock is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the reporting period.

Diluted earnings per share is calculated by dividing net income by the weighted-average number of shares of common stock outstanding during the reporting period after giving effect to dilutive potential common shares for stock options and restricted stock units, determined using the treasury stock method.

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Any change in ownership of a subsidiary while the controlling financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling interests.

On March 31, 2021, the Company adopted a sequencing policy under ASC 815-40-35 Derivatives and Hedging (“ASC 815”) whereby in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities convertible or exchangeable for a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares.

Pursuant to ASC 815, grants or issuances of securities or options to the Company’s non-employees, employees or directors are not subject to the sequencing policy.

Comprehensive Loss

The Company’s comprehensive loss is equal to its net loss for all periods presented.

Recently Adopted Accounting Pronouncements

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) .

This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.

This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic.

It specifically addresses:

(1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange;

(2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange;

and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange.

This ASU will be effective for all entities for fiscal years beginning after December 15, 2021.

An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments.

Early adoption is permitted, including adoption in an interim period.

The adoption of ASU 2021-04 is not expected to have a material impact on the Company’s consolidated financial statements or disclosures.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU No.

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The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023 for smaller reporting companies.

Early adoption will be permitted.

The Company is currently evaluating the impact of this standard on its consolidated financial statements.

In December 2019, the FASB issued ASU No.

2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

The Company adopted the new guidance in the first quarter of 2021 and the adoption of this guidance did not to have a material impact on the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses .

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Agreement with AstraZeneca’s Alexion

In January 2019, Caelum, a subsidiary of the Company at that time, entered into a Development, Option and Stock Purchase Agreement (as amended, the "DOSPA") and related documents by and among Caelum, AstraZeneca as successor-in-interest to Alexion Therapeutics, Inc., the Company and Caelum’s other equity holders as parties thereto

(such equity holders, including Fortress, the "Sellers").

Under the terms of the agreement, AstraZeneca obtained a minority interest in Caelum and a contingent exclusive option to acquire the remaining equity in Caelum.

On September 28, 2021 AstraZeneca notified Caelum of its intention to exercise its purchase option, and on October 5, 2021 AstraZeneca acquired Caelum.

The Company received 42.4 % of the distribution of proceeds from the option exercise price of $ 150 million, approximately $ 56.9 million, which is net of the 10 % , 24-month escrow holdback and other miscellaneous transaction expenses.

Under the terms of the DOSPA, AstraZeneca obtained a minority interest in Caelum and a contingent exclusive option to acquire the remaining equity in Caelum.

On September 28, 2021 AstraZeneca notified Caelum of its intention to exercise its purchase option, and on October 5, 2021 AstraZeneca acquired 100 % of the capital stock of Caelum.

Fortress received 42.4 % of the distribution of proceeds from the option exercise price of $ 150 million, approximately $ 56.9 million, which is net of the 10 % , 24-month escrow holdback and other miscellaneous transaction expenses.

The Sellers currently remain eligible to receive up to an additional $ 350 million in contingent regulatory and commercial milestone payments, of which Fortress is eligible to receive 42.4 % or approximately $ 148.6 million.

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On February 24, 2021, Cyprium entered into a development and contingent asset purchase agreement with Sentynl.

Pursuant to the terms of the agreement, Sentynl paid Cyprium an upfront fee of $ 8.0 million specifically earmarked to complete the CUTX-101 development program for the treatment of Menkes disease, through the filing of Cyprium’s New Drug Application (“NDA”) with the U.S.

Pursuant to the terms of the agreement, Sentynl paid Cyprium an upfront fee of $ 8.0 million to complete the CUTX-101 development program for the treatment of Menkes disease, through the filing of Cyprium’s New Drug Application (“NDA”) with the U.S.

Food and Drug Administration (“FDA”).

Cyprium also remains eligible to receive up to an additional $ 12.0 million payable as follows:

Cyprium also remains eligible to receive up to an additional $ 12.0 million in development milestones, payable as follows:

(i) $ 3.0 million upon acceptance by the FDA of the NDA for review;

and (ii) $ 9.0 million upon FDA approval of the NDA and transfer of CUTX-101 to Sentynl.

Cyprium would also be eligible to receive up to $255.0 million in additional sales milestone payments (payable pursuant to five separate milestones), as well as royaltieson CUTX-101 net sales ranging from mid-single digits up to the mid-twenties.

All of the foregoing milestone and royalty payments are subject to 50% diminution in the event Sentynl decides, at its option, to assume development control of CUTX-101 during the 45-day period beginning on September 30, 2023.

The Company will recognize revenue associated with these future milestones based upon achievement.

At December 31, 2022, none of these future milestones was deemed probable.

Following the transfer of CUTX-101 to Sentynl (if any), Cyprium would remain eligible to receive up to $ 255.0 million in additional sales milestone payments (payable pursuant to five milestones), as well as royalties on CUTX-101 net sales ranging from mid-single digits up to the mid-twenties.

Cyprium would retain 100 % ownership over any FDA Priority Review Voucher that may be issued at NDA approval for CUTX-101.

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Accordingly, revenue is being recognized over the period in which the development activities are expected to occur.

For the year ended December 31, 2021, the Company recognized revenue of $ 5.4 million.

No revenue was recognized in connection with this agreement in 2020.

Agreement with InvaGen

For the years ended December 31, 2022 and 2021, the Company recognized revenue of $ 1.9 million and $ 5.4 million, respectively.

Agreements with InvaGen

On November 12, 2018, Avenue entered into a Stock Purchase and Merger Agreement (the “Avenue SPMA”) with InvaGen Pharmaceuticals Inc.

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On November 1, 2021, Avenue delivered InvaGen notice of termination of the Avenue SPMA, meaning that the second stage acquisition of Avenue by InvaGen pursuant to the Avenue SPMA is no longer possible.

In July 2022 Avenue entered into a Share Repurchase Agreement with InvaGen (described below).

In connection with the closing by Avenue of an underwritten public offering (see Note 14) on October 11, 2022, Avenue consummated the transactions contemplated by the Share Repurchase Agreement with InvaGen, pursuant to which Avenue repurchased 100 % of the shares in Avenue held by InvaGen (the “InvaGen Shares”) for a purchase price of $ 3 million.

In addition, under the Share Repurchase Agreement Avenue agreed to pay InvaGen an additional amount as a contingent fee, payable in the form of seven and a half percent ( 7.5 %) of the proceeds of future financings, up to $ 4 million.

In connection with the closing of the Share Repurchase Agreement, which occurred on October 31, 2022, all of the rights retained by InvaGen pursuant to the Stockholders Agreement entered into by and among Avenue, InvaGen and Fortress on November 12, 2018, were terminated.

Inventory consisted of the following:

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Raw materials

Work-in-process

Finished goods

Inventory reserve

Total inventories

The acquired Qbrezxa finished goods inventory includes a fair value step-up of $ 6.5 million, which was fully expensed within cost of sales for the year ended December 31, 2021 as the inventory was sold to customers.

For additional information on Journey’s acquisition of Qbrexza, please refer to Note 9.

Property and Equipment

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Accumulated depreciation

Property and equipment, net

Property, plant and equipment, net

Relates to the Mustang cell processing facility.

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Fair Value Measurements

Fair Value of Investment in Caelum

The Company valued its investment in Caelum in accordance with ASC Topic 820, Fair Value Measurements and Disclosures , and as of December 31, 2020, estimated the fair value to be $ 17.6 million based on a per share value of $ 2.43 .

As of December 31, 2020, the following inputs were utilized to derive the value:

risk free rate of return of 0.36 %, volatility of 70 % and a discount for lack of marketability of 21.0 % to 31.0 % based on maturity dates of various scenarios.

Further, the Company considered the impact of the acquisition of Alexion by AZ, which upon consummation would shorten the timeframe in which the option could be exercised in accordance with the A&R DOSPA.

Upon AstraZeneca’s notification of their intent to acquire Caelum in September 2021, the Company increase the carrying value of its investment in Caelum to 42.4 % of the distribution of proceeds from the option exercise price of $ 150 million, or $ 56.9 million.

Fortress received the funds at the acquisition close in October 2021.

The following table classifies Fortress’ financial instruments, measured at fair value on a recurring basis, into the fair value hierarchy on the Consolidated Balance Sheet as of December 31, 2020:

Fair Value Measurement as of December 31, 2020

Common Stock Warrant Liabilities

($ in thousands)

Balance at December 31, 2020

Journey contingent payment liability

Journey placement agent warrant

Change in fair value of contingent payment liability

Satisfaction of partner company contingent payment

Balance at December 31, 2021

Checkpoint Series A & B common stock warrants

Checkpoint placement agent warrants

Avenue common stock warrants

Urica placement agent warrants

Change in fair value of common stock warrants - Avenue

Change in fair value of common stock warrants - Checkpoint

Balance at December 31, 2022

On December 16, 2022, Checkpoint closed on an offering for the sale of shares of its common stock and pre-funded warrants as part of a registered direct offering (the “December 2022 Registered Direct Offering”).

The common stock and the pre-funded warrants were sold together with December 2022 common warrants and placement agent warrants.

Net proceeds from the December 2022 Registered Direct Offering were $ 6.7 million after deducting commissions and other transaction costs (See Note 14).

The Company deemed the December 2022 common warrants and placement agent warrants to be classified as liabilities on the balance sheet as they contain terms for redemption of the underlying security that are outside its control.

The common warrants and placement agent warrants were recorded at the time of closing at a fair value of $ 7.9 million, determined by using the Black-Scholes model.

As the total fair value of the common stock warrant liability exceeded the total net proceeds of $ 6.7 million, the Company recorded a loss of $ 1.2 million to loss on common stock warrant liabilities in the Consolidated Statements of Operations.

Accordingly, there were no proceeds allocated to the common stock and pre-funded warrants issued as part of this transaction.

The Company revalued the December 2022 common warrants and placement agent warrants at December 31, 2022 using the Black-Scholes model.

This resulted in an increase in common stock warrant liability of $ 3.3 million, with an offsetting loss recorded to loss on common stock warrant liabilities in the Statements of Operations.

($ in thousands)

Common stock warrant liabilities at December 31, 2021

Issuance of Checkpoint common warrants

Issuance of placement agent warrants

Change in fair value of common stock warrant liabilities

Common Stock Warrant liabilities at December 31, 2022

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the warrant liability that are categorized within Level 3 of the fair value hierarchy was as follows:

Checkpoint Series A Warrants

Exercise price

Expected life

Risk-free rate

Dividend yield

Checkpoint Series B Warrants

Exercise price

Expected life

Risk-free rate

Dividend yield

Checkpoint Placement Agent Warrants

Exercise price

Expected life

Risk-free rate

Dividend yield

On October 11, 2022, Avenue announced the closing of an underwritten public offering of 3,636,365 common and pre-funded units.

Each common unit consists of one share of common stock and one warrant to purchase one share of common stock, and each pre-funded unit consists of one pre-funded warrant to purchase one share of common stock and one warrant to purchase one share of common stock.

Each share of common stock (or pre-funded warrant) was sold together with one warrant at a combined purchase price of $ 3.30 per common unit (or $ 3.2999 per pre-funded unit after reducing $ 0.0001 attributable to the exercise price of the pre-funded warrants).

Avenue also simultaneously closed on the sale of an additional 545,454 warrants to purchase common stock, which were sold pursuant to a partial exercise of the underwriter’s over-allotment option.

Avenue received net proceeds of approximately $ 10.3 million at closing after deducting underwriting discounts and commissions and other expenses of the offering.

The Company deemed the warrants to be classified as liabilities on the balance sheet as they contain terms for redemption of the underlying security that are outside its control.

The warrants were recorded at the time of closing at a fair value of $ 8.3 million, determined by using the Monte Carlo simulation approach.

The Company revalued the warrants at December 31, 2022 using the Monte Carlo simulation approach.

This resulted in a decrease in common stock warrant liability of $ 5.7 million, with an offsetting gain recorded in the Statements of Operations.

($ in thousands)

Common stock warrant liabilities at December 31, 2021

Issuance of Avenue common warrants

Change in fair value of common stock warrant liabilities

Common Stock Warrant liabilities at December 31, 2022

Risk-free interest rate

4.02 % - 4.14

Expected dividend yield

Expected term in years

Expected volatility

92.8 % - 90.3

The fair value of Urica’s contingently issuable placement agent warrants in connection with Urica’s first close of their preferred offering in December 2022 (see Note 10), was measured using a Monte Carlo simulation valuation methodology.

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Urica’s warrant liability that are categorized within Level 3 of the fair value hierarchy was as follows:

Risk-free interest rate

Expected dividend yield

Expected term in years

Expected volatility

At December 31, 2022 the value of the Urica’s contingent payment warrant is $ 0.1 million, and was recorded on the consolidated balance sheet.

No liability was recorded at December 31, 2021.

Fair Value of Investment in Caelum

Upon AstraZeneca’s notification of their intent to acquire Caelum in September 2021, the Company increased the carrying value of its investment in Caelum to 42.4 % of the distribution of proceeds from the option exercise price of $ 150 million, or $ 56.9 million.

Fortress received the funds at the acquisition close in October 2021.

Prior to AstraZeneca’s notification, the Company had valued its holdings in Caelum in accordance with ASC Topic 820, Fair Value Measurements and Disclosures.

Journey Placement Agent Warrant Liability

The fair value of Journey’s contingently issuable Placement Agent Warrants in connection with Journey’s preferred offering (see Note 10), was measured using a Monte Carlo simulation valuation methodology.

The fair value of Journey’s contingently issuable Placement Agent Warrants in connection with Journey’s preferred offering in March 2021 (see Note 10), was measured using a Monte Carlo simulation valuation methodology.

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Journey’s warrant liability that are categorized within Level 3 of the fair value hierarchy was as follows:

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The Placement Agent Warrants have a term of 5 years .

At December 31,2021, Journey issued 111,567 shares of Journey common stock related to the conversion of all of the placement agent warrants.

At December 31, 2021, Journey issued 111,567 shares of Journey common stock related to the exercise of all of the Placement Agent Warrants.

Journey Contingent Payment Warrant

In connection with the Journey license, collaboration, and assignment agreement (the “DFD Agreement”) to obtain the global rights for the development and commercialization of DFD-29 with Dr.

Reddy’s Laboratories, Ltd (“DRL”) (see Note 7), Journey agreed to pay DRL additional consideration upon either an IPO of the Company’s common stock or an acquisition of the Company, the agreement further specifies that only one payment can be made.

Reddy’s Laboratories, Ltd (“DRL”) (see Note 7), Journey agreed to pay DRL additional consideration upon either an IPO of the Journey’s common stock or an acquisition of Journey, the agreement further specifies that only one payment can be made.

The contingent payment associated with an IPO of Journey’s common stock is deemed to be achieved if upon the completion of an IPO Journey’s market capitalization on a fully diluted basis is $ 150 million or greater at the close of business on the date of such Journey IPO.

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or (b) make a cash payment to DRL equal to $ 5.0 million.

As a result of Journey’s IPO on November 16, 2021, the Company issued 545,131 unregistered shares of Journey common stock to DRL, calculated using a 15-day VWAP of $ 9.1721 per share.

The restrictions on the unregistered shares of common stock are governed by the terms set forth in the DFD-29 Agreement and applicable securities laws.

Cyprium Warrant Liability

The fair value of the Cyprium Contingently Issuable Warrants in connection with the 2018 Venture Debt (see Note 10) was determined by applying management’s estimate of the probability of issuance of the Contingently Issuable Warrants together with an option-pricing model, with the following key assumptions:

Risk-free interest rate

Expected dividend yield

Expected term in years

Expected volatility

The table below provides a roll forward of the changes in fair value of Level 3 financial instruments for the years ended December 31, 2021 and 2020:

Investment in

($ in thousands)

Balance at January 1, 2020

Change in fair value of investment in Caelum

Balance at December 31, 2020

Change in fair value of investment in Caelum

Sale of Caelum

Balance at December 31, 2021

($ in thousands)

Balance at December 31, 2019

Change in fair value

Reclass partner company's warrants from liability to equity

Balance at December 31, 2020

Journey contingent payment liability

Journey placement agent warrant

Change in fair value of derivative liability

Conversion of partner company derivative liabilities

Balance at December 31, 2021

Journey valued the contingent payment discussed above utilizing a Probability Weighted Expected Return Method (PWERM) model using a discount rate of 30 % and expected term of 3 - 5 months.

As a result of Journey’s IPO on November 16, 2021, Journey issued 545,131 unregistered shares of Journey common stock to DRL, calculated using a 15-day VWAP of $ 9.1721 per share.

Licenses Acquired

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Partner companies:

On June 29, 2021, Journey entered into a license, collaboration, and assignment agreement (the “DFD Agreement”) to obtain the global rights for the development and commercialization of DFD-29 with DRL.

Journey paid $ 10.0 million, of which $ 2.0 million was paid upon execution and $ 8.0 million was paid on September 29, 2021.

Additional contingent regulatory and commercial milestone payments totaling up to $ 163.0 million are also payable.

On June 29, 2021, Journey entered into a license, collaboration, and assignment agreement (the “DFD-29 Agreement”) to obtain the global rights, except for DRL retained rights in the BRIC and CIS countries, for the development and commercialization of a late-stage development modified early release oral minocycline for the treatment of rosacea (“DFD-29”) with Dr.

Reddy’s Laboratories, Ltd.(“DRL”).

Pursuant to the terms and conditions of the DFD-29 agreement, Journey paid $ 10.0 million.

Additional contingent regulatory and commercial milestone payments totaling up to $ 158.0 million may also be payable.

Royalties ranging from approximately 10 % to approximately 15 % are payable on net sales of the DFD-29 product.

Additionally, Journey is required to fund and oversee the Phase 3 clinical trials at a cost approximating $ 24.0 million, based upon the current development plan and budget.

The DFD Agreement also included contingent payments to be made to DRL in the event of a Journey IPO or the sale of Journey, See Note 6.

The fair value of the contingent payment was deemed to be $ 3.8 million, and was recorded in research and development, licenses acquired expense for the year ended December 31, 2021.

In connection with the closing of Journey’s IPO on November 16, 2021, Journey issued 545,131 unregistered shares of Journey Medical Inc.

common stock to DRL to settle the obligation, calculated using a 15 -day volume weighted average price (“VWAP”) of $ 9.1721 per share.

For the years ended December 31, 2021 and 2020 Mustang recorded the following expense in research and development – licenses acquired:

For the Year Ended December 31,

($ in thousands)

City of Hope National Medical Center

CD123 (MB-102)

IL13Rα2 (MB-101)

HER2 (MB-103)

PSCA (MB-105)

Fred Hutchinson Cancer Research Center - CD20 (MB-106)

Leiden University Medical Centre (MB-110)

CSL Behring (Calimmune) (MB-107)

SIRION Biotech LentiBOOST TM (MB-207)

The product candidates acquired by the Company require substantial completion of research and development, and regulatory and marketing approval efforts in order to reach technological feasibility.

As such, the $ 10.0 million for the year ended December 31, 2021 for the purchase price of licenses acquired were classified as research and development-licenses acquired in the consolidated statement of operations.

The DFD-29 Agreement contained contingent consideration payable by Journey upon either an IPO of Journey’s common stock or an acquisition of Journey.

Journey recognized $ 3.8 million of expense classified as research and development-licenses acquired upon execution of the DFD-29 Agreement associated with the contingent consideration.

In connection with the closing of Journey’s IPO on November 16, 2021, Journey issued 545,131 shares of its common stock to DRL in a transaction exempt from registration under the Securities Act calculated using a 15 -day volume weighted average price (“VWAP”) of $ 9.1721 per share in full settlement of the contingent payment to DRL.

The restrictions on the unregistered shares of common stock are governed by the terms set forth in the DFD-29 Agreement and applicable securities laws.

See “Journey Contingent Payment Derivative” in Note 6 for further details.

Additionally, the Company is required to fund and oversee the Phase 3 clinical trials.

Either party may terminate the agreement prior to NDA approval in the event of bankruptcy or a material breach that remains uncured beyond the applicable cure period.

Additionally, DRL may terminate the agreement if the Company:

i.) ceases development of the product for 6 consecutive months (except if such cessation is caused by DRL, applicable laws, or action/inaction of any third party beyond Company’s control);

ii.) files a patent challenge on any claim for a product patent or DRL background patent;

or iii.) fails to initiate development of the product in the European Union (“EU”) (such termination solely relates to the rights granted in EU) within 24 months after product regulatory approval or cause first commercial sale in at least one country in the EU within 72 months after product regulatory approval.

From inception to date the Company has incurred approximately $ 13.0 million associated with the development of DFD-29.

In May 2021, Urica entered into an exclusive license agreement with Fuji Yakuhin Co.

(“Fuji”) to develop Dotinurad in North America, Europe, and the UK.

Dontinurad is approved for the treatment of gout and hyperuricemia in Japan.

The license agreement includes contingent regulatory and commercial milestone payments totaling up to $ 88 million with subsequent sales royalties ranging from approximately 7 % to approximately 10 % payable on net sales of Dotinurad.

Urica paid a $ 3.0 million milestone payment in December 2021 upon IND submission of Dotinurad.

In December 2022 Urica Therapeutics expanded its exclusive license agreement with Fuji for the development of Dotinurad to include the Middle East and North Africa (“MENA”) and Turkey territories.

The amendment to the exclusive license agreement included a one-time amendment payment of $ 0.3 million, which was paid in December 2022.

Partner Companies

The Company’s partner companies have entered into various license agreements with other medical centers.

The Company’s partner companies and subsidiaries have entered into various license agreements with other medical centers.

These license agreements include upfront payments which are expensed and various d evelopmental milestone payments due upon achievement of various milestones which in the aggregate are approximately $ 521.2 million, of which $ 348.2 million relates to Mustang agreements.

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($ in thousands)

Agreement with Vyne Therapeutics Inc.

On January 12, 2022, Journey entered into an agreement with Vyne Therapeutics Inc.

(“Vyne”) to acquire two FDA-approved topical minocycline products, Amzeeq ® (minocycline) topical foam, 4%, and Zilxi ® (minocycline) topical foam, 1.5%, and a Molecule Stabilizing Technology™ proprietary platform from Vyne for an upfront payment of $ 20.0 million and an additional $ 5.0 million payment on the one year anniversary of the closing (the “Vyne APA”), which was paid in January 2023.

This expanded Journey’s commercial portfolio to eight marketed branded dermatology products.

Journey also acquired the associated inventory related to the products.

The Vyne APA also provides for contingent net sales milestone payments, on a product-by-product basis.

In the first calendar year in which annual net sales reach each of $100 million, $200 million, $300 million, $400 million and $500 million, Journey is required to make a one-time payment of $ 10 million, $ 20 million, $ 30 million, $ 40 million and $ 50 million, respectively, in that year only, per product, totaling up to $ 450 million.

In addition, Journey will pay Vyne 10 % of any upfront payment received by Journey from a licensee or sublicensee of the products in any territory outside of the United States, subject to exceptions for certain jurisdictions as detailed in the Vyne APA.

The following table summarizes the aggregate consideration transferred for the assets acquired by Journey in connection with the Vyne APA:

($ in thousands)

Aggregate Consideration Transferred

Consideration transferred to Vyne at closing

Fair value of deferred cash payment due January 2023

Transaction costs

Total consideration transferred at closing

The fair value of the deferred cash payment is being accreted to the $ 5.0 million January 2023 cash payment over a one-year period through interest expense.

The deferred cash payment had a carrying value of $ 5.0 million in the Company’s consolidated balance sheets at December 31, 2022, and was paid to Vyne on January 12, 2023.

The following table summarizes the assets acquired in the Vyne Product Acquisition Agreement:

($ in thousands)

Assets Recognized

Identifiable intangibles:

Fair value of net identifiable assets acquired

The intangible assets were valued using an income approach, while the inventory was valued using a final sales value less cost to dispose approach.

On March 31, 2021, Journey executed an Asset Purchase Agreement (the “Qbrexza APA”) with Dermira, Inc.

a subsidiary of Eli Lilly and Company (“Dermira”).

Pursuant to the terms of the agreement, Journey acquired the rights to Qbrexza® (glycoprronium), a prescription cloth towelette to treat primary axillary hyperhidrosis in patients nine years of age or older.

Upon HSR acceptance, which was received on May 13, 2021, Journey paid the upfront fee of $ 12.5 million to Dermira.

In addition, Dermira is eligible to receive up to $ 144 million in the aggregate upon the achievement of certain sales milestones.

Pursuant to the terms of the agreement, Journey acquired global rights to Qbrexza® (glycoprronium), a prescription cloth towelette to treat primary axillary hyperhidrosis in patients nine years of age or older.

Journey paid an upfront fee of $ 12.5 million to Dermira.

In addition, Journey is obligated to pay Dermira up to $ 144 million in the aggregate upon the achievement of certain sales milestones.

The royalty structure for the agreement is tiered with royalties for the first two years ranging from approximately 40 % to 30 %.

Thereafter for a period of eight years royalties are approximately 12.0 % to 19.0 %.

Royalty amounts are subject to 50 % diminution in the event of loss of exclusivity due to the introduction of an authorized generic.

Upon closing of the Qbrexza® purchase, Journey became substituted for Dermira as the plaintiff in U.S.

Royalty amounts are subject to 50 % diminution in the event of loss of exclusivity due to generic competition.

Upon closing of the Qbrexza® purchase on May 13, 2021, Journey was substituted for Dermira as the plaintiff in U.S.

patent litigation commenced by Dermira on October 21, 2020 in the U.S.

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The Patent Litigation was initiated following the submission by Perrigo, in accordance with the procedures set out in the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”), of an Abbreviated New Drug Application (“ANDA”).

The ANDA seeks approval to market a generic version of Qbrexza® prior to the expiration of the Qbrexza® Patents and alleges that the Qbrexza® Patents are invalid.

Perrigo is subject to a 30-month stay preventing it from selling a generic version, but that stay is set to expire on March 9, 2023.

Trial in the Patent Litigation is scheduled for September 19, 2022.

The Company cannot make any predictions about the final outcome of this matter or the timing thereof.

The ANDA sought approval to market a generic version of Qbrexza® prior to the expiration of the Qbrexza® Patents and alleged that the Qbrexza® Patents were invalid.

Perrigo was subject to a 30-month stay preventing it from selling a generic version, but that stay was set to expire on March 9, 2023.

As of December 31, 2022, the Patent Litigation was settled by and between the parties and the case subsequently has been dismissed.

Pursuant to the terms of the settlement agreement, Padagis is prohibited from launching its generic to Qbrexza, under its ANDA or otherwise, until August 15, 2030.

The purchase price of $ 12.5 million included the asset Qbrexza as well as finished goods and raw material inventory.

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The future contingent milestone payments, if achieved, will be recorded to intangible asset and amortized over the seven-year life of the asset commencing on the closing date.

In December 18, 2020, Journey entered an Asset Purchase Agreement with a third party (the “Anti-itch Product Agreement”) for a topical product that is indicated to treat scabies and skin itch conditions (“Anti-itch Product”).

Pursuant to the terms and conditions of the Anti-itch Product Agreement, Journey agreed to pay $ 4.0 million, comprised of a non-refundable deposit of $ 0.2 million upon the execution of the term sheet, a cash upfront payment of $ 1.8 million on January 1, 2021 and additional future payments of $ 0.5 million on April 1, 2021, $ 0.5 million on July 1, 2021, and $ 1.0 million on January 1, 2022.

There are no subsequent milestone payments or royalties beyond the aforementioned payments.

Commercial launch of this product is expected in the first half of 2022.

On July 29, 2020, Journey entered into a license and supply agreement for Accutane® (“Accutane Agreement”) with DRL.

Pursuant to the Accutane Agreement, Journey agreed to pay $ 5.0 million, comprised of an upfront payment of $ 1.0 million paid upon execution, with additional milestone payments totaling $ 4.0 million.

Three additional milestone payments totaling $ 17.0 million are contingent upon the achievement of certain net sales milestones.

Royalties in the low-double digits based on net sales, subject to specified reductions are also due.

The term of the agreement is ten years and renewable upon mutual agreement.

Journey is required to pay royalties during the term of the agreement.

The agreement contains customary representations, warranties, and indemnities.

Each party may also terminate the agreement for material breach by the other party or for certain bankruptcy or insolvency related events and Journey may terminate for upon 180 days written notice to the other party.

The table below provides a summary of intangible assets as of December 31, 2022 and 2021, respectively:

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December 31, 2021

Total intangible assets – asset purchases

Intangible assets – product licenses

Accumulated amortization

Net intangible assets

The table below provides a summary for the years ended December 31, 2021 and 2020, of recognized expense related to product licenses, which was recorded in costs of goods sold on the Consolidated Statement of Operations (see Note 19):

Intangible asset activity for the years ended December 31, 2022 and 2021:

($ in thousands)

Beginning balance at December 31, 2019

Anti-itch product license acquisition 2

Amortization expense

Ending balance at December 31, 2020

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Amortization expense

Bbalance at December 31, 2021

VYNE Product Acquisition:

Amortization expense (recorded in cost of goods sold)

Ending balance at December 31, 2022

Includes an upfront payment of $ 1.0 million and a milestone payment of $ 0.5 million in 2020 and three payments totaling $ 3.5 million due at various points between 2021 through 2023.

Such payments were discounted by $ 0.3 million as a result of the long-term nature of such payments.

Includes an upfront payment of $ 0.2 million and three payments totaling $ 2.8 million in 2021 and $ 1.0 million in 2022.

Such payments were discounted by $ 0.1 million as a result of the long-term nature of such payments.

As of December 31, 2020, this asset has not yet been placed in service, therefore no amortization expense was recognized on this asset for the year ended December 31, 2020.

The Company expects to launch this asset in the first half of 2022.

Once the asset is placed in service Journey will amortize the asset over three years , which represents its expected useful life.

The future amortization of these intangible assets is as follows:

($ in thousands)

Year ended December 31, 2022

Year ended December 31, 2023

Year ended December 31, 2024

Year ended December 31, 2025

Assets not yet placed in service:

Anti-itch product license acquisition

December 31, 2023

December 31, 2024

December 31, 2025

December 31, 2026

Asset not yet placed in service

Debt and Interest

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Interest rate

Total notes payable - Oaktree Note

August - 2025

EWB Term Loan

January - 2026

Discount on notes payable

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Total notes payable

On August 27, 2020 (the “Closing Date”), Fortress, as borrower, entered into a $ 60.0 million senior secured credit agreement with Oaktree (the “Oaktree Agreement” and the debt thereunder, the “Oaktree Note”) .

On August 27, 2020 (the “Closing Date”), Fortress, as borrower, entered into the $ 60.0 million senior secured credit agreement with Oaktree (the “Oaktree Agreement” and the debt thereunder, the “Oaktree Note”) with Oaktree Fund Administration, LLC and the lenders from time-to-time party thereto (collectively, “Oaktree”) .

The Oaktree Note bears interest at a fixed annual rate of 11.0 %, payable quarterly and maturing on the fifth anniversary of the Closing Date, August 27, 2025 , the (“Maturity Date”).

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Following an event of default and any cure period, if applicable, the Agent will have the right upon notice to accelerate all amounts outstanding under the Oaktree Agreement, in addition to other remedies available to the lenders as secured creditors of the Company.

The Oaktree Agreement grants a security interest in favor of the Agent, for the benefit of the lenders, in substantially all of the Company’s assets (consisting principally of the Company’s shareholdings in, and in some cases debt owing from, its partner companies) as collateral securing the Company’s obligations under the Oaktree Agreement, except for:

The Oaktree Agreement grants a security interest in favor of the Agent, for the benefit of the lenders, in substantially all of the Company’s assets (consisting principally of the Company’s shareholdings in, and in some cases debt owing from, its subsidiaries and partner companies) as collateral securing the Company’s obligations under the Oaktree Agreement, except for:

(i) certain interests in controlled foreign corporation subsidiaries of the Company;

(ii) the Company’s holdings in Avenue;

and (iii) those portions of the Company’s holdings in certain subsidiaries (plus Caelum) that are encumbered by pre-existing equity pledges to certain of the Company’s officers.

and (iii) those portions of the Company’s holdings in certain subsidiaries and partner companies that are encumbered by pre-existing equity pledges to certain of the Company’s officers.

None of Fortress’ subsidiaries or partner companies is a party to the Oaktree Agreement, and the collateral package does not include the assets of any such subsidiaries or partner companies.

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For the years ended December 31, 2022 and 2021, the Company amortized $ 1.5 million and $ 1.3 million, respectively, of debt discount associated with the Oaktree Note.

Debt Repayment

In August 2020, in connection with the Oaktree Note, the Company repaid the following indebtedness:

the 2018 Venture Notes in the amount of $ 21.7 million, 2019 Notes (formerly the Opus Credit Facility) in the amount of $ 9.0 million and the 2017 Subordinated Notes in the amount of $ 28.4 million.

Additionally the Company repaid its IDB Note of $ 14.0 million by utilizing the restricted cash securing the note.

For the year ended December 31, 2020, the Company incurred interest expense related to the accelerated amortization of the debt discount associated with the aforementioned debt payoff.

Interest expense included $ 1.2 million of unamortized debt discount fees for the 2017 Subordinated Note Financing, $ 0.3 million for the 2018 Venture Notes and $ 1.8 million for the Mustang Horizon Notes expensed at the time of the debt repayment.

Mustang Horizon Notes

On September 30, 2020, Mustang repaid the amount outstanding under the Horizon Notes in full, which was comprised of $ 15.0 million face value of the outstanding notes, $ 0.1 million in accrued and unpaid interest, a $ 0.8 million final payment fee and prepayment penalties of $ 0.6 million.

East West Bank Line of Credit and Long-Term Debt (“EWB Term Loan”)

On January 12, 2022, Journey entered into a third amendment of the loan and security agreement with East West Bank (“EWB”) (the “Amendment”), which increased the borrowing capacity of Journey’s revolving line of credit to $ 10.0 million, $ 2.9 million of which was outstanding at December 31, 2022, and added a term loan not to exceed $ 20.0 million.

Both the revolving line of credit and the term loan mature on January 12, 2026.

In January 2022 and August 2022, Journey borrowed $ 15.0 million and $ 5.0 million, respectively, against the term loan.

The term loan bears interest at a floating rate equal to 1.73 % above the prime rate and are payable monthly.

The term loan effective interest rate at December 31, 2022 is 9.64 %.

The term loan contains an interest-only payment period through January 12, 2024, with an extension through July 12, 2024, if certain covenants are met, after which the outstanding balance of each term loan is payable in equal monthly installments of principal, plus all accrued interest, through the term loan maturity date.

Journey may prepay all or any part of the term loan without penalty or premium, but may not re-borrow any amount, once repaid.

Any outstanding borrowing against the revolving line of credit bears interest at a floating rate equal to 0.70 % above the prime rate.

The Amendment includes customary financial covenants such as collateral ratios and minimum liquidity provisions.

Journey was in compliance with all applicable financial covenants under the Amendment as of December 31, 2022.

The remaining $ 7.1 million revolving line of credit is fully available to Journey without any restrictions, other than certain customary and ordinary closing conditions.

Journey accounted for the Amendment as a debt modification.

The remaining unamortized debt issuance costs related to the original revolving facility together with any lender fees and direct third-party costs incurred in connection with the entry into the Amendment are considered associated with the new arrangement.

The fees allocated to the revolving line are amortized over the new four-year term of the amended revolving facility.

The fees allocated to the term loan are recorded as a debt discount and amortized to interest expense over the four-year term of the term loan under the effective interest method.

Mustang Runway Growth Finance Corp.

Debt Facility (“Runway Note”)

On March 4, 2022 (the “Closing Date”), Mustang entered into a $ 75.0 million long-term debt facility with Runway Growth Finance Corp.

(the “Runway Note”).

Under the Runway Note, $ 30.0 million of the $ 75.0 million loan was funded on the Closing Date, with the remaining $ 45.0 million fundable when Mustang achieves certain predetermined milestones.

The Runway Note matures on April 15, 2027 (the “Maturity Date”).

Starting March 15, 2022, Mustang makes monthly payments of interest only until April 1, 2024 (the “Amortization Date”).

The Amortization Date may be extended to April 1, 2025, if Mustang achieves certain predetermined milestones based on equity raises and the initiation of certain clinical trials.

After that, Mustang will make monthly payments of interest and principal.

If the Amortization Date is extended to April 1, 2025, the monthly payments will be recalculated in equal amounts according to the remaining number of payment dates through the Maturity Date.

All unpaid outstanding principal and accrued and unpaid interest will be due and payable in full on the Maturity Date.

The Runway Note accrues interest at a variable annual rate equal to 8.75 % plus the greater of (i) 0.50 % and (ii) the three month LIBOR Rate for U.S.

dollar deposits or a rate equivalent to the three month LIBOR (the “Applicable Rate”);

provided that the Applicable Rate will not be less than 9.25 %.

On December 7, 2022, Mustang entered into the Runway First Amendment (the “Runway First Amendment”) to the Runway Note by and between Mustang and Runway.

The Runway First Amendment amended certain definitions and other provisions of the Runway Note to replace LIBOR-based benchmark rates applicable to loans outstanding under the Runway Note with SOFR-based rates, subject to adjustments as specified in the Runway First Amendment.

At December 31, 2022 the floating interest rate was 13.40 %.

Mustang has the option to prepay all of the outstanding Runway Note but not less.

Prepayment would include outstanding principal, accrued interest, prepayment fee and final payment which is equal to the original principal amount of the Runway Note times 3.5 % or $ 1.1 million and is accreted over the life of the Runway Note.

In addition, Mustang’s Runway Note is secured by a lien on substantially all of Mustang’s assets other than certain intellectual property assets and certain other excluded collateral, and it contains a minimum liquidity covenant and other covenants that include among other items:

(i) limits on indebtedness, repurchase of stock from employees, officers and directors.

Mustang was in compliance with all applicable covenants as of December 31, 2022.

The Runway Note contains customary events of default, in certain circumstances subject to customary cure periods.

Following an event of default and any cure period, if applicable, Runway will have the right upon notice to accelerate all amounts outstanding under the Runway Note, in addition to other remedies available to the lenders as secured creditors of the Mustang.

Pursuant to the terms of the Runway Note, upon closing Mustang paid Runway an upfront commitment fee equal to 1 % of the $ 30 million, or $ 0.3 million.

In addition, Mustang paid a $ 75,000 deposit fee to Runway, together with other cash fees of $ 2.7 million directly to third parties involved in the transaction.

Mustang also issued to Runway a warrant to purchase up to 748,036 of Mustang common shares with an exercise price of $ 0.8021 per share, pursuant to the terms of the Runway Note.

In addition, the provisions of the warrant provide for additional warrants to be issued upon funding of the loan tranches.

The fair value of the warrant was determined utilizing a Black Scholes Model with the following assumptions:

risk free rate of return 1.74 % , volatility of 57.3 % , 10 -year life yielding a value of approximately $ 0.4 million at March 4, 2022.

The fair value of the warrant was recorded in debt discount and will be amortized over the life of the note.

For the year ended December 31, 2022, Mustang amortized approximately $ 0.5 million of debt discount associated with the Runway Note, which was included in interest expense in the consolidated statement of operations.

IDB Letters of Credit

The Company has several letters of credit (“LOC”) with IDB securing rent deposits for lease facilities totaling approximately $ 2.2 million and $ 1.6 million as of December 31, 2021 and December 31, 2020, respectively.

The LOC’s are secured by cash, which is included in restricted cash on the Company’s Consolidated Balance Sheet .

The Company has letters of credit (“LOC”) with IDB of approximately $ 2.7 million and $ 2.2 million as of December 31, 2022 and December 31, 2021, respectively, securing rent deposits for lease facilities and an undertaking posted by Cyprium to secure potential damages in an injunctive proceeding.

The Company’s LOC’s are secured by cash, which is included in restricted cash on the Company’s Consolidated Balance Sheet .

Interest paid on the letters of credit is 2 % per annum.

Urica 8 % Cumulative Convertible Class B Preferred Offering

On December 27, 2022, Urica consummated the first closing in a private offering of its 8 % Cumulative Convertible Class B Preferred Stock (the “Urica Preferred Stock”), at a price of $ 25.00 per share (“Subscription Price”) pursuant to which it sold 101,334 shares of Preferred Stock for gross proceeds of $ 2.5 million, before deducting underwriting discounts and commissions and offering expenses of approximately $ 0.3 million (the “Urica Offering”).

A non-cash contingent warrant value of $ 0.1 million was also recorded in debt discount (see Note 6).

Dividends on the Preferred Stock are payable quarterly in shares of Fortress common stock based upon a 7.5 % discount to the average trading price over the 10-day period preceding the dividend payment date.

Dividends will be recorded as interest expense and were immaterial in 2022.

The shares mandatorily convert into Urica common stock upon either:

(i) a qualified financing pursuant to which Urica raises at least $ 20 million in aggregate gross proceeds;

or (ii) a sale of Urica (in each case, at a 20 % discount to the lowest price per share at which Urica common stock is issued/sold in such transaction).

Additionally, in the event that neither such a qualified financing nor a sale of Urica has occurred prior to June 27, 2024, then each holder of Urica Preferred Stock is eligible to receive, at Fortress’ election, one of:

(x) a cash payment equal to the product of the Subscription Price and the number of shares of Urica Preferred Stock held by such holder;

(y) a number of shares of Fortress common stock equal to the Fortress Share Exchange Amount;

or (z) a combination of the foregoing (in each case plus cash in lieu of any fractional shares, plus cash in lieu of accumulated and unpaid dividends otherwise payable in Fortress shares up to the conversion/exchange date).

The Urica Preferred Shares have no voting rights and have liquidation rights on parity with all equity securities issued by Urica, and junior to all equity securities issued by Urica with terms outlining senior rank and current and future indebtedness.

The Company evaluated the terms of the Urica Preferred Offering under ASC 480, Distinguishing Liabilities from Equity, and determined the instrument met the criteria to be recorded as a liability.

The value at conversion does not vary with the value of Urica’s common shares, therefore the settlement provision would not be considered a conversion feature.

Accordingly, the Company determined liability classification is appropriate and as such, this instrument was accounted for as a liability.

Harley Capital LLC (“Harley”) was the primary placement agent for the Urica Offering and received a 10 % fee on gross proceeds raised, plus either warrants to purchase 10 % of the Urica common stock into which the Urica Preferred Stock converts (in the event of a sale of Urica or a qualified financing) or 10 % of the Company common stock for which the Urica Preferred Stock is exchanged (in the event neither a sale of Urica nor a qualified financing occurs), in addition to reimbursement of legal and other expenses.

In February 2023, Urica completed two additional closings, raising a combined additional $ 0.9 million and paid placement agent fees of $ 0.1 million for net proceeds of $ 0.8 million.

Journey 8 % Cumulative Convertible Class A Preferred Offering

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Dividends paid on the Journey Preferred Stock was recorded as interest expense on the consolidated statements of operations.

For the year ended December 31, 2021, the Company issued 253,815 shares of common stock representing dividends paid of $ 0.8 million from issuance through conversion.

For the year ended December 31, 2021, Journey issued 253,815 shares of common stock representing dividends paid of $ 0.8 million from issuance through conversion.

As consideration for the foregoing, Journey issued to Fortress 81,985 shares of its common stock at the Journey IPO price of $ 10.00 .

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At December 31, 2021 Journey issued 111,567 shares of Journey common stock related to the conversion of all of the placement agent warrants.

Journey East West Bank Working Capital Line of Credit

On March 31, 2021, Journey entered into an agreement with East West Bank (“EWB”) in which EWB agreed to provide a $ 7.5 million working capital line of credit.

The line of credit is secured by Journey’s receivables and cash.

Interest on the line is the greater of 4.25% or the Prime Rate plus 1% .

The agreement matures in 36 months .

The outstanding balance of the working capital line of credit was $ 0.8 million at December 31, 2021.

Interest Expense

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($ in thousands)

2017 Subordinated Note Financing 1

2018 Venture Notes 1

Mustang Horizon Notes 1,2

Oaktree Note 1

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Partner company installment payments - licenses 2

Partner company notes payable

Total Interest Expense and Financing Fee

Note 1:For the year ended December 31, 2020, includes $ 1.2 million expense of unamortized debt discount fees for the 2017 Subordinated Note Financing, $ 0.3 million for the 2018 Venture Notes and $ 1.8 million for the Mustang Horizon Notes expensed at the time of debt repayment on September 30, 2020.

Includes $ 0.5 million prepayment fee for the Oaktree Note included in interest expense in 2021 and $ 0.6 million of prepayment penalties included in interest expense for the Mustang Horizon Notes in 2020 .

Imputed interest expense related to Ximino, Accutane and Anti-itch product license acquisition (see Note 9).

Includes $ 0.5 million prepayment fee for the Oaktree Note included in interest expense in 2021.

Imputed interest expense related to Ximino, Accutane, Anti-itch product license and Vyne product licenses (see Note 9).

Accounts Payable and Accrued Expenses

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Research and development

Research and development - manufacturing

Research and development - license maintenance fees

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Accrued coupon and rebates

Income taxes payable

Return reserve

Accrued interest

Total accounts payable and accrued expenses

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As of December 31, 2022

Non-controlling interests

Net loss attributable to

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($ in thousands)

NCI equity share

non-controlling interests

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As of December 31, 2021

Non-controlling interests

Net loss attributable to

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($ in thousands)

NCI equity share

non-controlling interests

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Checkpoint is consolidated with Fortress’ operations because Fortress maintains voting control through its ownership of Checkpoint’s Class A Common Shares which provide super-majority voting rights.

Avenue and Mustang are consolidated with Fortress’ operations because Fortress maintains voting control through its ownership of Preferred Class A Shares which provide super-majority voting rights.

Avenue and Mustang are consolidated with Fortress’ operations because Fortress maintains voting control through its ownership of Class A Preferred Shares which provide super-majority voting rights.

Fortress’ ownership in Baergic was transferred to Avenue as of November 7, 2022 (see Note 17).

Net Loss per Common Share

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Diluted net loss per share is computed by dividing the net loss by the weighted-average number of Common Stock and Common Stock equivalents outstanding for the period.

The following shares of potentially dilutive securities, weighted during the years ended December 31, 2021 and 2020 have been excluded from the computations of diluted weighted average shares outstanding as the effect of including such securities would be antidilutive:

The following shares of potentially dilutive securities, weighted during the years ended December 31, 2022 and 2021 have been excluded from the computations of diluted weighted average shares outstanding as the effect of including such securities would be anti-dilutive:

Year Ended December 31,

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Stockholders’ Equity

The Company’s Certificate of Incorporation, as amended, authorizes the Company to issue 170,000,000 shares of $ 0.001 par value Common Stock of which 101,435,505 shares of common stock are outstanding as of December 31, 2021.

Fortress’ Certificate of Incorporation, as amended, authorizes the Company to issue 200,000,000 shares of $ 0.001 par value Common Stock of which 110,494,245 shares of Common Stock are outstanding as of December 31, 2022.

As of December 31, 2021, 170,000,000 shares were authorized and 101,435,505 shares of Common Stock were outstanding.

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The Series A Preferred Stock may be redeemed in whole or in part (at the Company’s option) any time on or after December 15, 2022, upon not less than 30 days nor more than 60 days ’ written notice by mail prior to the date fixed for redemption thereof, for cash at a redemption price equal to $ 25.00 per share, plus any accumulated and unpaid dividends to, but not including, the redemption date.

As of December 31, 2022, no Series A Preferred Stock shares have been redeemed.

Special Optional Redemption

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In 2013, the Company’s Board of Directors adopted and stockholders approved the 2013 Plan authorizing the Company to grant up to 2,300,000 shares of Common Stock to eligible employees, directors, and consultants in the form of restricted stock, stock options and other types of grants.

In 2015, the Company’s Board of Directors and stockholders approved an increase of 7,700,000 shares for the 2013 Plan and in 2020, the Company’s Board of Directors and stockholders approved an increase of 3,000,000 shares bringing the total number of shares approved under this plan to 13,000,000 , with the aggregate total of authorized shares available for grants under the 2007 Plan and the 2013 Plan of up to 19,000,000 shares.

In 2015, the Company’s Board of Directors and stockholders approved an increase of 7,700,000 shares for the 2013 Plan and in 2020 and 2022, the Company’s Board of Directors and stockholders approved an increase of 3,000,000 shares each year, bringing the total number of shares approved under this plan to 16,000,000 , with the aggregate total of authorized shares available for grants under the 2007 Plan and the 2013 Plan of up to 22,000,000 shares.

An aggregate 21,110,948 shares have been granted under both the Company’s 2007 and 2013 plans, net of cancellations, and 889,052 shares were available for issuance as of December 31, 2022.

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VIII 2017 Incentive Plan

The purpose of the Company’s and partner company’s equity compensation plans is to provide for equity awards as part of an overall compensation package of performance-based rewards to attract and retain qualified personnel.

The purpose of the Company’s and its subsidiaries’ and partner companies’ equity compensation plans is to provide for equity awards as part of an overall compensation package of performance-based rewards to attract and retain qualified personnel.

Such awards include, without limitation, options, stock appreciation rights, sales or bonuses of restricted stock, restricted stock units or dividend equivalent rights, and an award may consist of one such security or benefit, or two or more of them in any combination or alternative.

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During the years ended December 31, 2022 and 2021, there were no exercises of stock options.

As of December 31, 2021, the Company had no unrecognized stock-based compensation expense related to options.

The Company used the Black-Scholes option pricing model for determining the estimated fair value of stock-based compensation related to stock options.

The table below summarizes the assumptions used:

Year Ended December 31,

Risk-free interest rate

Expected dividend yield

Expected term in years

Expected volatility

100.65 - 102.71

As of December 31, 2022, the Company had $ 0.1 million of unrecognized stock-based compensation expense related to options.

Restricted Stock

Stock-based compensation expense from restricted stock awards and restricted stock units for the years ended December 31, 2021 and 2020 was $ 19.5 million and $ 12.5 million, respectively.

Consolidated stock-based compensation expense from restricted stock awards and restricted stock units for the years ended December 31, 2022 and 2021 was $ 21.9 million and $ 19.5 million, respectively.

Restricted stock awards and restricted stock unit awards are expensed under the straight-line method over the vesting period.

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During 2022, the Company granted 3.8 million restricted shares of its Common Stock to executives and directors of the Company and 1.6 million restricted stock units to employees and non-employees of the Company.

The fair value of the restricted stock awards issued during 2021 of $ 7.4 million and the fair value of the restricted stock unit awards issued during 2021 of $ 5.5 million were estimated on the grant date using the Company’s stock price as of the grant date.

The fair value of the restricted stock awards issued during 2022 of $ 7.0 million and the fair value of the restricted stock unit awards issued during 2022 of $ 2.1 million were valued on the grant date using the Company’s stock price as of the grant date.

The 2022 restricted stock awards and restricted stock unit awards vest upon both the passage of time as well as meeting certain performance criteria.

During 2021, the Company granted 2.3 million restricted shares of its Common Stock to executives and directors of the Company and 1.4 million restricted stock units to employees and non-employees of the Company.

The fair value of the restricted stock awards issued during 2020 of $ 4.8 million and the fair value of the restricted stock unit awards issued during 2020 of $ 2.4 million were estimated on the grant date using the Company’s stock price as of the grant date.

The fair value of the restricted stock awards issued during 2021 of $ 7.4 million and the fair value of the restricted stock unit awards issued during 2021 of $ 5.5 million were valued on the grant date using the Company’s stock price as of the grant date.

The 2021 restricted stock awards and restricted stock unit awards vest upon both the passage of time as well as meeting certain performance criteria.

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Restricted stock vested

( 1,755,637 )

Restricted stock units granted

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Outstanding as of December 31, 2021

( 2,596,171 )

Outstanding as of December 31, 2022

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The Company’s repurchase option on such shares will also lapse upon the occurrence of a corporate transaction (as defined in the LTIP) if the eligible employee is in service on the date of the corporate transaction.

The fair value of each grant on the grant date was approximately $ 2.8 million for the 2022 grant and $ 3.3 million for the 2021 grant.

The fair value of each grant on the grant date was approximately $ 2.8 million for the January 1, 2022 grant and $ 3.3 million for the January 1, 2021 grant.

For the year ended December 31, 2022 and 2021, the Company recorded stock compensation expense of approximately $ 5.3 million and $ 3.8 million, respectively related to the LTIP grants on the Consolidated Statements of Operations.

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Common Stock At the Market Offering and 2020 Shelf

On May 18, 2020, the Company filed a shelf registration statement on Form S-3, which was declared effective on May 26, 2020 (the "2020 Shelf").

On July 23, 2021, the Company filed shelf registration statement 333-258145 on Form S-3, which was declared effective on July 30, 2021 (the “2021 Shelf”).

No securities have been drawn down under the 2021 Shelf.

On May 18, 2020, the Company filed a shelf registration statement on Form S-3 (File No.

333-238327), which was declared effective on May 26, 2020 (the "2020 Shelf").

In connection with the 2020 Shelf, the Company entered into an At Market Issuance Sales Agreement ("2020 Common ATM"), governing potential sales of the Company's common stock.

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Approximately $ 11.1 million of securities remain available for sale under the 2020 Shelf at December 31, 2022.

On July 23, 2021, the Company filed shelf registration statement 333-255185 on Form S-3, which was declared effective on July 30, 2021 (the “2021 Shelf”).

No securities have been drawn down under the 2021 Shelf.

2019 Common Stock At the Market Offering

On June 28, 2019, the Company entered into an At Market Issuance Sales Agreement (“2019 Common ATM”) governing potential sales of the Company’s common stock.

Under the 2019 Common ATM, the Company paid the agents a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of common stock.

For the year ended December 31, 2020, the Company issued approximately 17.4 million shares of common stock, at an average selling price of $ 2.73 per share for gross proceeds of $ 47.5 million.

In connection with these sales, the Company paid aggregate fees of approximately $ 1.4 million.

2019 9.375 % Series A Cumulative Redeemable Perpetual Preferred Stock Offering

On February 14, 2020, the Company announced the closing of an underwritten public offering, whereby it sold 625,000 shares of its Preferred Stock, (plus a 45-day option to purchase up to an additional 93,750 shares, which was exercised in February 2020) at a price of $ 20.00 per share for gross proceeds of approximately $ 14.4 million, before deducting underwriting discounts and commissions and offering expenses of approximately $ 1.3 million.

On May 29, 2020, the Company closed on an underwritten public offering whereby it sold 555,556 shares of its Preferred Stock, (plus a 45-day option to purchase up to an additional 83,333 shares, which was exercised in May 2020) at a price of $ 18.00 per share for gross proceeds of approximately $ 11.5 million, before deducting underwriting discounts and commissions and offering expenses of approximately $ 1.1 million.

On August 26, 2020, the Company closed on an underwritten public offering whereby it sold 666,666 shares of its Preferred Stock, (plus a 45-day option to purchase up to an additional 66,666 shares, which was exercised in August 2020) at a price of $ 18.00 per share for gross proceeds of approximately $ 13.2 million, before deducting underwriting discounts and commissions and offering expenses of approximately $ 1.1 million.

All of the Company’s Perpetual Preferred Offerings were made under the 2020 Shelf.

Journey’s common stock began trading on the Nasdaq Capital Market on November 12, 2021 under the ticker symbol “DERM.” On November 16, 2021, Journey completed an initial public offering (the “Journey IPO”) whereby it sold 3,520,000 shares of its common stock at a price of $ 10.00 per share for gross proceeds of $ 35.2 million, before deducting underwriting discounts and other offering costs of $ 4.6 million for net proceeds of $ 30.6 million.

In March 2021, Journey commenced an offering of 8 % Cumulative Convertible Class A Preferred Stock (“Journey Preferred Offering”) in an aggregate minimum amount of $ 12.5 million and an aggregate maximum amount of $ 30.0 million.

The Journey Preferred Offering terminated on July 18, 2021.

Journey issued an aggregate of 758,680 Class A Preferred shares at a price of $ 25.00 per share, for gross proceeds of $ 19.0 million.

Following the payment of placement agent fees of $ 1.9 million, and other expenses of $ 0.1 million, Journey received $ 17.0 million in net proceeds.

Due to the Journey IPO in November 2021 as noted above, the Journey Preferred Stock converted into 2,231,346 shares of Journey common stock.

In November 2017, Checkpoint filed a shelf registration statement on Form S-3 (No.

333-221493) (the "Checkpoint 2017 S-3"), which was declared effective in December 2017.

Under the Checkpoint S-3, Checkpoint may sell up to a total of $ 100 million of its securities.

In connection with the Checkpoint S-3, Checkpoint entered into an At-the-Market Issuance Sales Agreement (the "Checkpoint 2017 ATM") relating to the sale of shares of common stock.

Under the Checkpoint 2017 ATM, Checkpoint pays the Agents a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of common stock.

The Checkpoint 2017 S-3 expired in December 2020.

In September 2020, Checkpoint completed an underwritten public offering in which it sold 7,321,429 shares of its common stock at a price of $ 2.80 per share for gross proceeds of approximately $ 20.5 million.

Total net proceeds from the offering were approximately $ 18.9 million, net of underwriting discounts and offering expenses of approximately $ 1.6 million.

For the year ended December 31, 2021, the Company issued approximately 3.1 million shares of common stock at an average price of $ 3.05 per share for gross proceeds of $ 9.4 million.

In connection with these sales, the Company paid aggregate fees of $ 0.3 million.

On December 30, 2022, Journey filed a shelf registration statement on Form S-3 (File No.

333-269079 ), which was declared effective by the Securities and Exchange Commission (“SEC”) on January 26, 2023.

This shelf registration statement 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 (the “Journey 2022 Shelf”).

At December 31, 2022, $ 150.0 million remains available under the Journey 2022 Shelf.

In connection with the Journey 2022 shelf, Journey has entered into an At-the-Market Issuance Sales Agreement (the “Sales Agreement”) with B.

Riley Securities, Inc.

Riley”), relating to shares of the Journey’s common stock.

In accordance with the terms of the 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 through or to B.

Riley acting as Journey’s agent or principal.

Journey’s common stock began trading on the Nasdaq Capital Market on November 12, 2021 under the ticker symbol “DERM.” On November 16, 2021, Journey completed an initial public offering (the “Journey IPO”) whereby it sold 3,520,000 shares of its common stock at a price of $ 10.00 per share for net proceeds of $ 30.6 million, after deducting underwriting discounts and other offering costs of $ 4.6 million.

In November 2020, Checkpoint filed a shelf registration statement on Form S-3 (the “Checkpoint 2020 S-3”), which was declared effective in December 2020.

Under the Checkpoint 2020 S-3, Checkpoint may sell up to a total of $ 100 million of its securities.

In connection with the Checkpoint 2020 S-3, Checkpoint entered into an ATM (the “Checkpoint 2020 ATM”) with the Agents relating to the sale of shares of Checkpoint’s common stock.

Under the Checkpoint 2020 ATM, Checkpoint pays the Agents a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of Checkpoint’s common stock.

During the year ended December 31, 2020, Checkpoint sold a total of 5,104,234 shares of common stock under the Checkpoint 2017 ATM and Checkpoint 2020 ATM combined for aggregate total gross proceeds of approximately $ 12.8 million at an average selling price of $ 2.50 per share, resulting in net proceeds of approximately $ 12.4 million after deducting commissions and other transaction costs.

In connection with the Checkpoint 2020 S-3, Checkpoint entered into an At-the-Market Issuance Sales Agreement (the “Checkpoint 2020 ATM”) with certain agents relating to the sale of shares of Checkpoint’s common stock.

Under the Checkpoint 2020 ATM, Checkpoint will pay the sales agents a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of Checkpoint’s common stock.

During the year ended December 31, 2022, Checkpoint sold a total of 532,816 shares of common stock under the Checkpoint 2020 ATM for aggregate total gross proceeds of approximately $ 10.1 million at an average selling price of $ 18.99 per share, resulting in net proceeds of approximately $ 9.9 million after deducting commissions and other transaction costs.

During the year ended December 31, 2021, Checkpoint sold a total of 1,189,999 shares of common stock under the Checkpoint 2020 ATM for aggregate total gross proceeds of approximately $ 41.3 million at an average selling price of $ 34.69 per share, resulting in net proceeds of approximately $ 40.3 million after deducting commissions and other transaction costs.

In December 2022, Checkpoint closed on the December 2022 Registered Direct Offering with a single institutional investor for the issuance and sale of 950,000 shares of its common stock and 784,105 pre-funded warrants.

Each pre-funded warrant was exercisable for one share of Checkpoint’s common stock.

The common stock and the pre-funded warrants were sold together with Series A warrants to purchase up to 1,734,105 shares of common stock and Series B warrants to purchase up to 1,734,105 shares of common stock, at a purchase price of $ 4.325 per share of common stock and associated common stock warrants, and $ 4.33249 per pre-funded warrant and associated common stock warrants.

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 Series A warrants are exercisable immediately upon issuance and will expire five years following the issuance date and have an exercise price of $ 4.075 per share and the Series B warrants are exercisable immediately upon issuance and will expire eighteen months following the issuance date and have an exercise price of $ 4.075 per share.

Net proceeds from the registered direct offering were $ 6.7 million after deducting commissions and other transaction costs.

As the total fair value of the resulting warrant liability exceeded the total net proceeds of $ 6.7 million, Checkpoint recorded a loss of $ 1.2 million to loss on common stock warrant liabilities in the Consolidated Statements of Operations.

Accordingly, there were no proceeds allocated to the common stock and pre-funded warrants issued as part of this transaction (See Note 6).

As of December 31, 2022, approximately $ 22.3 million of the shelf remains available for sale under the Checkpoint 2020 S-3.

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Under the Mustang 2021 S-3, Mustang may sell up to a total of $ 200 million of its securities.

As of December 31, 2021, $ 200 million of the Mustang 2021 S-3 remains available for sales of securities.

On July 13, 2018, Mustang filed a shelf registration statement No.

333-226175 on Form S-3 , as amended on July 20, 2018 (the "2018 Mustang S-3"), which was declared effective in August 2018.

As of December 31, 2022, $ 200 million of the Mustang 2021 S-3 remained available for sales of securities.

On October 23, 2020, Mustang filed a shelf registration statement No.

333-249657 on Form S-3 (the "2020 Mustang S-3"), which was declared effective in December 2020.

Under the 2020 Mustang S-3, Mustang may sell up to a total of $ 100.0 million of its securities.

In connection with the 2018 Mustang S-3, Mustang entered into an At-the-Market Issuance Sales Agreement (the "Mustang ATM") relating to the sale of shares of common stock.

Under the Mustang ATM, Mustang pays the Agents a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of common stock.

On December 31, 2020, the ATM Agreement was amended to add H.C.

Wainwright & Co., LLC as an Agent.

During the year ended December 31, 2021, the Company issued approximately 19.4 million shares of common stock at an average price of $ 3.70 per share for gross proceeds of $ 71.9 million under the ATM Agreement.

In connection with these sales, the Company paid aggregate fees of approximately $ 1.3 million for net proceeds of approximately $ 70.6 million.

As of December 31, 2022, approximately $ 8.0 million of the 2020 S-3 remains available for sales of securities.

During the year ended December 31, 2022, Mustang issued approximately 7.9 million shares of common stock at an average price of $ 0.84 per share for gross proceeds of $ 6.6 million under the Mustang ATM.

In connection with these sales, Mustang paid aggregate fees of approximately $ 0.1 million for net proceeds of approximately $ 6.5 million.

On October 23, 2020, Mustang filed a shelf registration statement No.

333-249657 on Form S-3 (the "2020 Mustang S-3"), which was declared effective on December 4, 2020.

Under the 2020 Mustang S-3, Mustang may sell up to a total of $ 100.0 million of its securities.

On June 11, 2020, Mustang entered into an underwriting agreement (the “Mustang Underwriting Agreement”).

In connection with the Mustang Underwriting Agreement, Mustang issued 10,769,231 shares of common stock (plus a 30-day option to purchase up to an additional 1,615,384 shares of common stock, of which 686,373 were exercised) at a price of $ 3.25 per share for gross proceeds of approximately $ 37.2 million, before deducting underwriting discounts and commissions and offering expenses.

In connection with the public offering, Mustang paid aggregate fees of approximately $ 2.4 million for net proceeds of approximately $ 34.8 million.

The shares were sold under the Mustang S-3 registrations filed with the Securities and Exchange Commission.

The offering closed on June 15, 2020, and the over-allotment closed on June 25, 2020.

During the year ended December 31, 2021, Mustang issued approximately 19.4 million shares of common stock at an average price of $ 3.70 per share for gross proceeds of $ 71.9 million under the ATM Agreement.

In connection with these sales, the Company paid aggregate fees of approximately $ 1.3 million for net proceeds of approximately $ 70.6 million.

Pursuant to the terms of the Second Amended and Restated Founders Agreement, Mustang issued to Fortress 2.5 % of the aggregate number of shares of Mustang common stock issued in the offerings noted above.

Accordingly, Mustang issued 576,157 shares of common stock and recorded 107,022 shares issuable to Fortress for the year ended December 31, 2021 and issued 730,795 common shares to Fortress for the year ended December 31, 2020.

Accordingly, Mustang issued 196,952 shares of common stock to Fortress for the year ended December 31, 2022 and issued 576,157 common shares to Fortress for the year ended December 31, 2021.

On October 11, 2022, Avenue announced the closing of an underwritten public offering of 3,636,365 common and pre-funded units.

Avenue also simultaneously closed on the sale of an additional 545,454 warrants to purchase common stock, which were sold pursuant to a partial exercise of the underwriter’s over-allotment option.

Avenue received net proceeds of approximately $ 10.3 million at closing after deducting underwriting discounts and commissions and other expenses of the offering.

This transaction, along with Avenue’s repurchase of 100 % of the Avenue shares held by InvaGen for a purchase price of $ 3.0 million, and the closing of the Share Repurchase Agreement between Avenue and InvaGen in October 2022 (see Note 3), resulted in the November 2022 consummation of the Contribution Agreement between Fortress and Avenue (see Note 17).

In November 2021, Avenue, pursuant to an underwritten public offering, sold 2,238,805 shares of its common stock at a price of $ 1.34 per share for gross proceeds of approximately $ 3.0 million.

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After deducting underwriting discounts and commissions and other expenses, net proceeds to Avenue from this underwritten public offering were $ 1.8 million.

On August 28, 2020, Cyprium closed on an underwritten public offering whereby it sold 255,400 shares of its 9.375 % Series A Cumulative Redeemable Perpetual Preferred Stock (“Cyprium Perpetual Preferred Stock” or “Cyprium PPS”), plus an overallotment of an additional 64,600 shares, which was exercised on September 18, 2020 at a price of $ 25.00 per share for gross proceeds of $ 8.0 million, before deducting underwriting discounts and commissions and offering expenses of approximately $ 0.9 million (the “Cyprium Offering”).

Pursuant to the terms of the Cyprium PPS, shareholders on the record date are entitled to receive a monthly cash dividend of $ 0.19531 per share which yields an annual dividend of $ 2.34375 per share.

The Cyprium PPS will automatically be redeemed upon the first (and only the first) bona fide, arm’s-length sale of a Priority Review Voucher (a “PRV”) issued by the FDA in connection with the approval of CUTX-101, Cyprium’s lead product candidate.

Upon the PRV sale, each share of Cyprium PPS will be automatically redeemed in exchange for a payment equal to twice (2x) the $ 25.00 liquidation preference, plus accumulated and unpaid dividends to, but excluding, the redemption date.

An optional exchange to Company Preferred Stock is available after 24 months from the issuance date so long as a sale of the PRV has not occurred.

Additionally, if a PRV Sale has not occurred by September 30, 2024 the Cyprium PPS is either automatically exchanged for Company Preferred Stock or cash at the discretion of Fortress.

The Cyprium PPS is fully and unconditionally guaranteed by Fortress.

Cyprium paid $ 0.7 million in dividends for the year ended December 31, 2021, and $ 0.2 million in dividends for the year ended December 31, 2020, including the initial dividend of $ 49,883 ($ 0.19531 per share) paid to shareholders of record on September 30, 2020.

In December 2022, Urica commenced an offering of 8 % Cumulative Convertible Class B Preferred Stock.

Urica issued an aggregate of 101,334 Class B Preferred shares at a price of $ 25.00 per share, for gross proceeds of $ 2.5 million.

Following the payment of placement agent fees and other expenses of $ 0.3 million, Urica received $ 2.2 million in net proceeds (see Note 21).

The Company determined liability classification is appropriate and as such, this instrument was accounted for as a liability (see Note 10) at December 31, 2022.

Commitments and Contingencies

On October 3, 2014, the Company entered into a 15 -year lease for office space at 2 Gansevoort Street, New York, NY 10014, at an average annual rent of $ 2.5 million.

The Company took possession of this space, which serves as its principal executive offices, in December 2015, and took occupancy in April 2016.

Total rent expense, over the full term of the lease for this space will approximate $ 40.7 million.

In conjunction with the lease, the Company entered into Desk Space Agreements with two related parties:

OPPM and TGTX, to occupy 10 % and 45 %, respectively, of the office space that requires them to pay their share of the average annual rent of $ 0.3 million and $ 1.1 million, respectively.

The total net rent expense will approximate $ 16.0 million over the lease term.

These initial rent allocations will be adjusted periodically for each party based upon actual percentage of the office space occupied.

Additionally, the Company has reserved the right to execute desk space agreements with other third parties and those arrangements will also affect the cost of the lease actually borne by us.

In October 2015, the Company entered into a 5-year lease for approximately 6,100 square feet of office space in Waltham, MA at an average annual rent of approximately $ 0.2 million.

The Company took occupancy of this space in January 2016.

In December 2020, we amended our lease and entered into a new two-year extension of the same office space in Waltham, MA at an average annual rent of $ 0.2 million.

The term of this amended lease commences on April 1, 2021 and will expire on March 31, 2023 .

In June 2017, Journey extended its lease for 2,295 square feet of office space in Scottsdale, AZ by one year , at an average annual rent of approximately $ 55,000 .

Journey originally took occupancy of this space in November 2014.

In August 2018, Journey amended their lease and entered into a new two-year extension for 3,681 square feet of office space in the same location in Scottsdale, AZ at an annual rate of approximately $ 94,000 .

The term of this amended lease commenced on December 1, 2018 and will expire on November 30, 2020 .

In August 2020, Journey amended their lease and entered into a new 25-month extension of the same office space in Scottsdale, AZ at an average annual rent of $ 0.1 million.

The term of this amended lease commenced on December 1, 2020 and will expire on December 31, 2022 .

On October 27, 2017, Mustang entered into a lease agreement with WCS - 377 Plantation Street, Inc., a Massachusetts nonprofit corporation (“Landlord”).

Pursuant to the terms of the lease agreement, Mustang agreed to lease 27,043 square feet from the Landlord, located at 377 Plantation Street in Worcester, MA (the “Facility”), through November 2026, subject to additional extensions at Mustang’s option.

Base rent, net of abatements of $ 0.6 million over the lease term, totals approximately $ 3.6 million, on a triple-net basis.

The terms of the lease also require that Mustang post an initial security deposit of $ 0.8 million, in the form of $ 0.5 million letter of credit and $ 0.3 million in cash, which increased to $ 1.3 million ($ 1.0 million letter of credit, $ 0.3 million in cash) on November 1, 2019.

After the fifth lease year, the letter of credit obligation is subject to reduction.

The Facility began operations for the production of personalized CAR T and gene therapies in 2018.

The Company’s lease portfolio includes leases for our corporate headquarters, office spaces, and a cell manufacturing facility.

Most of the Company’s lease liabilities result from the lease of its New York City, NY office, which expires in 2031 and Mustang’s Worcester, MA cell processing facility lease, which expires in 2026 .

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At December 31, 2022, the Company had operating lease liabilities of $ 24.0 million and right of use assets of $ 20.0 million, which are included in the Company’s Consolidated Balance Sheet.

During the years ended December 31, 2021 and 2020, the Company recorded $ 3.3 million and $ 3.2 million, respectively, as lease expense to current period operations.

The Company recognizes rent expense on a straight-line basis over the non-cancellable lease term.

Rent expense for the years ended December 31, 2022 and 2021 was $ 2.0 million and $ 2.1 million, respectively.

The components of lease cost are as follows:

Year Ended December 31,

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Total lease expense

The following tables summarize quantitative information about the Company’s operating leases, under the adoption of ASC Topic 842 , Leases :

The following tables summarize quantitative information about the Company’s operating leases:

Year Ended December 31,

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Net operating lease liabilities, short-term and long-term

The Company recognizes rent expense on a straight-line basis over the non-cancellable lease term.

Rent expense for the years ended December 31, 2021 and 2020 was $ 2.1 million and $ 2.0 million, respectively.

License Agreements

The Company has undertaken to make contingent milestone payments to the licensors of its portfolio of drug products and candidates.

In addition, the Company shall pay royalties to such licensors based on a percentage of net sales of each drug candidate following regulatory marketing approval.

For additional information on future milestone payments and royalties, see Note 7.

Indemnification

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There have been no claims to date, and the Company has director and officer insurance to address such claims.

The Company and its partner companies also provide indemnification of contractual counterparties without limitation to clinical sites, service providers and licensors.

The Company and its subsidiaries and partner companies also provide indemnification of contractual counterparties (sometimes without monetary caps) to clinical sites, service providers and licensors.

Legal Proceedings

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Suits and claims may be brought against the Company by customers, suppliers, partners and/or third parties (including tort claims for personal injury arising from clinical trials of the Company’s product candidates and property damage) alleging deficiencies in performance, breach of contract, etc., and seeking resulting alleged damages.

On March 31, 2021 Journey executed an Asset Purchase Agreement (the “Qbrexza APA”) with Dermira, Inc., a subsidiary of Eli Lilly and Company (“Dermira”), and the transaction closed on May 14, 2021.

Upon closing of the Qbrexza purchase, Journey became substituted for Dermira as the plaintiff in, and is currently vigorously litigating, U.S.

patent litigation commenced by Dermira on October 21, 2020 in the U.S.

District Court of Delaware (the “Perrigo Patent Litigation”) against Perrigo Pharma International DAC (“Perrigo”) (N/K/A Padagis Israel Pharmaceuticals Ltd.) alleging infringement of certain patents covering Qbrexza (the “Qbrexza Patents”), which are included among the proprietary rights to Qbrexza that Journey acquired pursuant to the Qbrexza APA.

The Perrigo Patent Litigation was initiated following the submission by Perrigo, in accordance with the procedures set out in the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”), of an Abbreviated New Drug Application, or ANDA.

The ANDA seeks approval to market a generic version of Qbrexza prior to the expiration of the Qbrexza Patents and alleges that the Qbrexza Patents are invalid.

Perrigo is subject to a 30-month stay preventing it from selling a generic version, but that stay is set to expire on March 9, 2023.

Trial in the Perrigo Patent Litigation is scheduled for September 19, 2022.

Journey cannot make any predictions about the final outcome of this matter or the timing thereof.

On March 4, 2022, Journey filed a complaint against Teva Pharmaceuticals, Inc., Teva Pharmaceuticals USA, Inc., and Teva Pharmaceuticals Industries Ltd.

District Court of Delaware (the “Teva Patent Litigation”) alleging infringement of certain patents covering Qbrexza (the “Qbrexza Patents”), which are included among the proprietary rights to Qbrexza that were acquired pursuant to the Qbrexza APA.

The Teva Patent Litigation was initiated following the submission by Teva, in accordance with the procedures set out in the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”), of an Abbreviated New Drug Application, or ANDA.

The ANDA seeks approval to market a generic version of Qbrexza prior to the expiration of the Qbrexza Patents and alleges that the Qbrexza Patents are invalid.

Teva is subject to a 30-month stay preventing it from selling a generic version.

The stay should expire no earlier than August 8, 2024.

Trial in the Teva Patent Litigation has not yet been scheduled.

The Company cannot make any predictions about the final outcome of this matter or the timing thereof.

In January 2022, Journey acquired Amzeeq (minocycline) topical foam, 4%, and Zilxi (minocycline) topical foam, 1.5%, two FDA-Approved Topical Minocycline Products and Molecule Stabilizing Technology (MST)™ from VYNE Therapeutics, Inc.

Upon completion of the acquisition from VYNE, Journey became substituted for VYNE as the plaintiff in U.S.

patent litigation commenced by VYNE on August 9, 2021 in the U.S.

District Court of Delaware (the “Padagis Patent Litigation”) against Padagis Israel Pharmaceuticals Ltd.

(F/K/A Perrigo Israel Pharmaceuticals Ltd.) (“Padagis”) alleging infringement of certain patents covering Amzeeq® (the “Amzeeq® Patents”), which are included among the proprietary rights to Amzeeq® that were acquired pursuant to the APA.

The Padagis Patent Litigation was initiated following the submission by Padagis, in accordance with the procedures set out in the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”), of an Abbreviated New Drug Application (the “ANDA”).

The ANDA seeks approval to market a generic version of Amzeeq® prior to the expiration of the Amzeeq® Patents and alleges that the Amzeeq® Patents are invalid.

Padagis is subject to a 30-month stay preventing it from selling a generic version, but that stay is set to expire on December 30, 2023.

Journey is seeking, among other relief, an order that the effective date of any United States Food and Drug Administration approval of Padagis’ ANDA be no earlier than the expiration of the patents listed in the Orange Book, the latest of which expires on September 8, 2037, and such further and other relief as the court may deem appropriate.

Trial in the Padagis Patent Litigation is scheduled for July 10, 2023.

Journey cannot make any predictions about the final outcome of this matter or the timing thereof.

Employee Benefit Plan

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The amounts associated with the Journey Promissory Note are eliminated in the consolidated balance sheets.

2019 Notes (formerly the Opus Credit Facility)

During the year ended December 31, 2020, the Company used certain proceeds from the Oaktree Note to pay off the $ 9.0 million balance previously outstanding under the 2019 Notes.

For the year ended December 31, 2020, in connection with the 2019 Notes pay off, the Company paid $ 0.5 million in interest on the portion of the 2019 Notes held by the Company's Chairman, President and Chief Executive Officer and the Company's Executive Vice President, Strategic Development.

Avenue Share Contribution Agreement

In November 2022, Fortress completed a Share Contribution Agreement with Avenue to contribute its’ shares in Baergic, which is developing BAER-101, a novel α2/3–subtype-selective GABA A positive allosteric modulator (“PAM”), to Avenue.

As a result, Baergic became a majority-controlled and owned subsidiary company of Avenue.

Under the Contribution Agreement, Fortress also agreed to assign to Avenue certain intercompany agreements existing between Fortress and Baergic, including a Founders Agreement and Management Services Agreement.

Founders Agreement and Management Services Agreement

The Company has entered into Founders Agreements with each of the Fortress partner companies listed in the table below.

Pursuant to each Founders Agreement, in exchange for the time and capital expended in the formation of each partner company and the identification of specific assets the acquisition of which result in the formation of a viable emerging growth life science company, the Company will loan each such partner company an amount representing the up-front fee required to acquire assets.

The Company has entered into Founders Agreements with each of the Fortress partner companies and subsidiaries listed in the table below.

Pursuant to each Founders Agreement, in exchange for the time and capital expended in the formation of each partner company/subsidiary and the identification of specific assets the acquisition of which result in the formation of a viable emerging growth life science company, Fortress will loan each such partner company/subsidiary an amount representing the up-front fee required to acquire assets.

Each Founders Agreement has a term of 15 years , which upon expiration automatically renews for successive one-year periods unless terminated by the Company or a Change in Control (as defined in the Founders Agreement) occurs.

In connection with each Founders Agreement the Company receives 250,000 Class A Preferred shares (except for that with Checkpoint, in which the Company holds Class A Common Stock).

The Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) is identical to common stock other than as to voting rights, conversion rights and the PIK Dividend right (as described below).

The Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) is identical to common stock other than as to voting rights, conversion rights and the Payment-in-Kind (“PIK”) Dividend right (as described below).

Each share of Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) is entitled to vote the number of votes that is equal to one and one-tenth (1.1) times a fraction, the numerator of which is the sum of (A) the shares of outstanding common stock and (B) the whole shares of common stock into which the shares of outstanding Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) are convertible and the denominator of which is the number of shares of outstanding Class A Preferred Stock (Class A Common Stock with respect to Checkpoint).

Thus, the Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) will at all times constitute a voting majority.

Each share of Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) is convertible, at the holder’s option, into one fully paid and nonassessable share of common stock of such partner company, subject to certain adjustments.

The holders of Class A Preferred Stock (and the Class A Common Stock with respect to Checkpoint), as a class, are entitled receive on each effective date or “Trigger Date” (defined as the date that the Company first acquired, whether by license or otherwise, ownership rights to a product) of each agreement (each a “PIK Dividend Payment Date”) until the date all outstanding Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) is converted into common stock or redeemed (and the purchase price is paid in full), pro rata per share dividends paid in additional fully paid and nonassessable shares of common stock (“PIK Dividends”) such that the aggregate number of shares of common stock issued pursuant to such PIK Dividend is equal to two and one-half percent ( 2.5 %) of such partner company’s fully-diluted outstanding capitalization on the date that is one (1) business day prior to any PIK Dividend Payment Date.

The Company has reached agreements with several of the partner companies to change the PIK Dividend Interest Payment Date to January 1 of each year - a change that has not and will not result in the issuance of any additional partner company common stock beyond that amount to which the Company would otherwise be entitled absent such change(s).

The Company owns 100 % of the Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) of each partner company that has a Founders Agreement with the Company.

As additional consideration under the Founders Agreement, each partner company with which the Company has entered into a Founders Agreement will also:

(i) pay an equity fee in shares of the common stock of such partner company, payable within five (5) business days of the closing of any equity or debt financing for each partner company or any of its respective subsidiaries that occurs after the effective date of the Founders Agreement and ending on the date when the Company no longer has majority voting control in such partner company’s voting equity, equal to two and one-half ( 2.5 %) of the gross amount of any such equity or debt financing;

and (ii) pay a cash fee equal to four and one-half percent ( 4.5 %) of such partner company’s annual net sales, payable on an annual basis, within ninety (90) days of the end of each calendar year.

In the event of a Change in Control, each such partner company will pay a one-time change in control fee equal to five (5x) times the product of (A) net sales for the twelve (12) months immediately preceding the change in control and (B) four and one-half percent ( 4.5 %).

The following table summarizes, by subsidiary, the effective date of the Founders Agreements and PIK dividend or equity fee payable to the Company in accordance with the terms of the Founders Agreements, Exchange Agreements and the partner companies’ certificates of incorporation.

The holders of Class A Preferred Stock (and the Class A Common Stock with respect to Checkpoint), as a class, are entitled receive on each effective date or “Trigger Date” (defined as the date that the Company first acquired, whether by license or otherwise, ownership rights to a product) of each agreement (each a “PIK Dividend Payment Date”) until the date all outstanding Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) is converted into common stock or redeemed (and the purchase price is paid in full), pro rata per share dividends paid in additional fully paid and nonassessable shares of common stock (“PIK Dividends”) such that the aggregate number of shares of common stock issued pursuant to such PIK Dividend is equal to two and one-half percent ( 2.5 %) of such partner company or subsidiary’s fully-diluted outstanding capitalization on the date that is one (1) business day prior to any PIK Dividend Payment Date.

The Company has reached agreements with several of the partner companies and subsidiaries to change the PIK Dividend Interest Payment Date to January 1 of each year - a change that has not and will not result in the issuance of any additional partner company/subsidiary common stock beyond that amount to which the Company would otherwise be entitled absent such change(s).

The Company owns 100 % of the Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) of each partner company/subsidiary that has a Founders Agreement with the Company.

As additional consideration under the Founders Agreement, each partner company and subsidiary with which the Company has entered into a Founders Agreement will also:

(i) pay an equity fee in shares of the common stock of such partner company/subsidiary, payable within five (5) business days of the closing of any equity or debt financing for each partner company/subsidiary or any of its respective subsidiaries that occurs after the effective date of the Founders Agreement and ending on the date when the Company no longer has majority voting control in such partner company or subsidiary’s voting equity, equal to two and one-half ( 2.5 %) of the gross amount of any such equity or debt financing;

and (ii) pay a cash fee equal to four and one-half percent ( 4.5 %) of such partner company or subsidiary’s annual net sales, payable on an annual basis, within ninety (90) days of the end of each calendar year.

In the event of a Change in Control, each such partner company/subsidiary will pay a one-time change in control fee equal to five (5x) times the product of (A) net sales for the twelve (12) months immediately preceding the change in control and (B) four and one-half percent ( 4.5 %).

In the case of Urica, however, the obligation to pay Fortress royalties under the Founders Agreement would survive any such Change in Control.

PIK Dividend as

Class of Stock

Partner Company

Partner Company/Subsidiary

Effective Date 1

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Pursuant to the terms of the agreement between Avenue and InvaGen Pharmaceuticals, Inc.

during the term of the Avenue SPMA PIK dividends will not be paid or accrued.

during the term of the Avenue SPMA PIK dividends were not be paid or accrued.

Upon the repurchase of the securities held by InvaGen, such PIK dividends have resumed.

Pursuant to the Share Contribution Agreement between Fortress and Avenue, under which Baergic became a majority-controlled and owned subsidiary of Avenue, Fortress also assigned to Avenue the Founders Agreement previously between Fortress and Baergic, such that Baergic’s annual PIK dividend is now payable to Avenue.

Instead of a PIK dividend, Checkpoint pays the Company an annual equity fee in shares of Checkpoint’s common stock equal to 2.5 % of Checkpoint’s fully diluted outstanding capitalization.

Represents the Trigger Date, the date that the Fortress partner company first acquires, whether by license or otherwise, ownership rights in a product.

The following table summarizes, by subsidiary, the PIK dividend or equity fee recorded by the Company in accordance with the terms of the Founders Agreements, Exchange Agreements and the partner companies’ certificates of incorporation for the years ended December 31, 2021 and 2020 ($ in thousands):

The following table summarizes, by subsidiary, the PIK dividend or equity fee recorded by the Company in accordance with the terms of the Founders Agreements, Exchange Agreements and the partner companies’/subsidiaries’ certificates of incorporation for the years ended December 31, 2022 and 2021 ($ in thousands):

Partner company

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December 31, 2021

Includes 2022 PIK dividend accrued for the year ended December 31, 2021, as Type 1 subsequent event.

Management Services Agreements

The Company has entered into Management Services Agreements (the “MSAs”) with certain of its partner companies.

Pursuant to each MSA, the Company’s management and personnel provide advisory, consulting and strategic services to each partner company that has entered into an MSA with Fortress for a period of five (5) years.

Such services may include, without limitation, (i) advice and assistance concerning any and all aspects of each such partner company’s operations, clinical trials, financial planning and strategic transactions and financings and (ii) conducting relations on behalf of each such partner company with accountants, attorneys, financial advisors and other professionals (collectively, the “Services”).

Each such partner company is obligated to utilize clinical research services, medical education, communication and marketing services and investor relations/public relation services of companies or individuals designated by Fortress, provided those services are offered at market prices.

However, such partner companies are not obligated to take or act upon any advice rendered from Fortress, and the Company shall not be liable to any such partner company for its actions or inactions based upon the Company’s advice.

The Company and its affiliates, including all members of Fortress’ Board of Directors, have been contractually exempted from fiduciary duties to each such partner company relating to corporate opportunities.

The following table summarizes, by partner company, the effective date of the MSA and the annual consulting fee payable by the subsidiary to the Company in quarterly installments ($ in thousands):

The Company has entered into Management Services Agreements (the “MSAs”) with certain of its partner companies and subsidiaries.

Pursuant to each MSA, the Company’s management and personnel provide advisory, consulting and strategic services to each partner company/subsidiary that has entered into an MSA with Fortress for a period of five (5) years.

Such services may include, without limitation, (i) advice and assistance concerning any and all aspects of each such company’s operations, clinical trials, financial planning and strategic transactions and financings and (ii) conducting relations on behalf of each such company with accountants, attorneys, financial advisors and other professionals (collectively, the “Services”).

Each such partner company/subsidiary is obligated to utilize clinical research services, medical education, communication and marketing services and investor relations/public relation services of companies or individuals designated by Fortress, provided those services are offered at market prices.

However, such companies are not obligated to take or act upon any advice rendered from Fortress, and Fortress shall not be liable to any such partner company/subsidiary for its actions or inactions based upon Fortress’ advice.

Fortress and its affiliates, including all members of Fortress’ Board of Directors, have been contractually exempted from fiduciary duties to each such partner company/subsidiary relating to corporate opportunities.

The following table summarizes, by partner company/subsidiary, the effective date of the MSA and the annual consulting fee payable by the partner company/subsidiary to Fortress in quarterly installments ($ in thousands):

Year Ended December 31,

Partner company

Partner Company/Subsidiary

Effective Date

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Consolidated (Income)/Expense

Pursuant to the terms of the agreement between Avenue and InvaGen Pharmaceuticals, Inc.

during the term of the Avenue SPMA fees under the MSA will not be due or accrued.

Fees under the MSA were not due or accrued during the pendency of agreements formerly in place between Avenue and InvaGen (now terminated).

Pursuant to the Share Contribution Agreement between Fortress and Avenue, under which Baergic became a majority-controlled and owned subsidiary of Avenue, Fortress also assigned to Avenue the MSA previously between Fortress and Baergic, such that Baergic’s annual MSA fee is now payable to Avenue.

Fees and Stock Grants Received by Fortress

Fees recorded in connection with the Company’s agreements with its subsidiaries are eliminated in consolidation.

Fees recorded in connection with Fortress’ agreements with its subsidiaries and partner companies are eliminated in consolidation.

These include management services fees, issuance of common shares of partner companies in connection with third party raises and annual stock dividend or issuances on the anniversary date of respective Founders Agreements.

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For the years ended December 31, 2022 and 2021, income tax expense was $0.4 million and $ 0.5 million, respectively, resulting in an effective income tax rate of 0 % and 0 %.

The increase in income tax expense in 2021 is due to additional state tax return filings.

The income tax expense in 2022 is primarily due to the recording of uncertain tax positions and state income taxes.

The Company has incurred net operating losses since inception.

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Unrealized gain/loss on investments

Section 174 R&D expenditure capitalization

Business interest limitation

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Deferred tax liabilities:

Section 483 imputed interest

Debt issuance costs

Right of use asset

Basis in subsidiary

Fair Value adjustment on investment in Caelum

Total deferred tax assets, net

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Change in state rate

Intercompany elimination adjustments

Change in valuation allowance

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The Company files a consolidated income tax return with subsidiaries for which the Company has an 80 % or greater ownership interest.

Subsidiaries for which the Company does not have an 80 % or more ownership are not included in the Company’s consolidated income tax group and file their own separate income tax return.

Subsidiaries and partner companies for which the Company does not have an 80 % or more ownership are not included in the Company’s consolidated income tax group and file their own separate income tax return.

As a result, certain corporate entities included in these financial statements are not able to combine or offset their taxable income or losses with other entities’ tax attributes.

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The Company has recorded a full valuation allowance on all of its deferred tax assets, as it believes that it is more likely than not that the deferred tax assets will not be realized regardless of whether an “ownership change” has occurred.

As of December 31, 2021, the Company had no unrecognized tax benefits and does not anticipate any significant change to the unrecognized tax benefit balance.

The Company would classify interest and penalties related to uncertain tax positions as income tax expense, if applicable.

There was no interest expense or penalties related to unrecognized tax benefits recorded through December 31, 2021.

The NOLs from tax years 2008 through 2020 remain open to examination (and adjustment) by the Internal Revenue Service and state taxing authorities.

In accordance with the provisions related to accounting for uncertainty in income taxes, the Company recognizes the benefit of tax position if the position is “more likely than not” to prevail upon examination by the relevant tax authority.

For the year ended December 31, 2022, the company added $3.2 million of unrecognized tax benefits.

If the $3.2 million of unrecognized tax benefits is recognized, approximately $0.7 million would affect the effective tax rate.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s recognized tax positions will significantly increase or decrease within the next 12 months.

At this time, the estimate of the range of the reasonably possible outcomes cannot be made.

The Company classifies interest and penalties related to uncertain tax positions as income tax expense.

The Company had an immaterial amount of accrued interest and penalties at December 31, 2022 and 2021.

The NOLs from tax years 2006 through 2021 remain open to examination (and adjustment) by the Internal Revenue Service and state tax authorities.

In addition, Federal tax years ending December 31, 2019, 2020 and 2021 are open for assessment of federal taxes.

The expiration of the statute of limitations related to the various state income and franchise tax returns varies by state.

Coronavirus Aid, Relief and Economic Security Act ("CARES Act")

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law on March 27, 2020.

The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer's social security payments, net operating loss utilization and carryback periods and modifications to the net interest deduction limitations.

The CARES Act did not have a material impact on the Company’s income tax provision for 2021 or 2020.

The Company will continue to evaluate the impact of the CARES Act on its financial position, results of operations and cash flows.

On December 27, 2020, the President of the United States signed the Consolidated Appropriations Act, 2021 (“Consolidated Appropriations Act”) into law.

The Consolidated Appropriations Act is intended to enhance and expand certain provisions of the CARES Act, allows for the deductions of expenses related to the Paycheck Protection Program funds received by companies, and provides an update to meals and entertainment expensing for 2021.

The Consolidated Appropriations Act did not have a material impact to the Company’s income tax provision for 2021 or 2020.

Segment Information

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Selling, general and administrative

Wire transfer fraud loss

Income tax expense

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Selling, general and administrative

Wire transfer fraud loss

Other expense

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Disaggregation of Total Revenues

Journey has the following actively marketed products, Qbrexza®, Accutane®, Targadox®, Ximino®, Exelderm®, and Luxamend®.

All of Journey’s product revenues are recorded in the U.S.

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Revenue – related party

Other revenue 1

Other revenue for the year ended December 31, 2022 included a net $ 2.5 million milestone payment from Maruho Co., Ltd, upon receipt of marketing and manufacturing approval for Rapifort® Wipes 2.5% (Qbrexza®), as well as $ 0.2 million in royalties from Maruho on sales of Rapifort® Wipes 2.5% in Japan.

Significant Customers

For the years ended December 31, 2021, none of the Company’s Dermatology Products customers accounted for more than 10.0% of its total gross product revenue.

For the years ended December 31, 2022, none of Journey’s Dermatology Products customers accounted for more than 10.0% of its total gross product revenue.

At December 31, 2022, two of Journey’s customers accounted for more than 10% of its total accounts receivable balance at 16.3 % and 12.9 %.

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Subsequent Events

VYNE Therapeutics Product Acquisition (“VYNE Product Acquisition”)

On January 13, 2022 Journey entered into a definitive agreement with VYNE Therapeutics, Inc.

(“VYNE”) to acquire its Molecule Stabilizing Technology (“MST”)™ franchise for an upfront payment of $ 20.0 million and an additional $ 5.0 million on the one (1)-year anniversary of the closing.

The agreement also provides for contingent net sales milestone payments.

The Company acquired Amzeeq (minocycline) topical foam, 4%, and Zilxi (minocycline) topical foam, 1.5%, two FDA-Approved Topical Minocycline Products and Molecule Stabilizing Technology (MST)™.

Maruho Milestone Payment

On February 11, 2022, Journey announced that its exclusive out-licensing partner in Japan received manufacturing and marketing approval in Japan for Rapifort® Wipes 2.5% (Japanese equivalent to U.S.

FDA approved Qbrexza®) for the treatment of primary axillary hyperhidrosis, triggering a net $ 2.5 million milestone payment to Journey.

The net payment reflects a milestone payment of $ 10 million to Journey from their exclusive licensing partner in Japan, Maruho Co., Ltd.

(“Maruho”), offset by a $ 7.5 million payment to Dermira, Inc., pursuant to the terms of the Asset Purchase Agreement between Journey and Dermira Inc.

In conjunction with the terms of the licensing agreement with Maruho, the milestone payment was due from Maruho within 30 days of the approval.

Journey acquired global rights to Qbrexza® from Dermira Inc.

Amendment to the East West Bank Working Capital Line of Credit

On January 12, 2022, Journey entered into a third amendment (the “Amendment”) of its loan and security agreement with East West Bank, which increased the borrowing capacity of Journey’s revolving line of credit to $ 10.0 million, from $ 7.5 million, and added a term loan not to exceed $ 20.0 million.

Both the revolving line of credit and the term loan mature on January 12, 2026 .

The term loan includes two tranches, the first of which is a $ 15.0 million term loan and the second of which is a $ 5.0 million term loan.

On January 12, 2022, Journey borrowed $ 15.0 million against the first tranche of the term loan to facilitate the VYNE Product Acquisition.

The term loan bears interest on its outstanding daily balance at a floating rate equal to 1.73 % above the prime rate and is payable monthly, on the first calendar day each month.

The term loans contain an interest only payment period through January 12, 2024, with an extension through July 12, 2024 if certain covenants are met, after which the outstanding balance of each term loan is payable in equal monthly installments of principal, plus all accrued interest, through the term loan maturity date.

Journey may prepay all or any part of the term loan without penalty or premium, but may not re-borrow any amount, once repaid.

Any outstanding borrowing against the revolving line of credit bears interest at a floating rate equal to 0.70 % above the prime rate.

The Amendment includes customary financial covenants such as collateral ratios and minimum liquidity provisions as well as audit provisions.

Runway Growth Capital LLC Debt Facility

On March 8, 2022, Mustang announced completion of a $ 75 million long-term debt facility with Runway Growth Capital LLC (“Runway”).

Of the $ 75 million, $ 30 million was funded upon closing, and the additional $ 45 million available under the facility may be funded upon Mustang’s achieving certain predetermined milestones.

The loan will be repaid in sixty monthly payments consisting of 24 month ly payments of interest only, followed by 36 month ly payments of principal and accrued interest, payable monthly in arrears, with all repayments ending on the same date as the initial tranche.

The interest-only period may be extended to 36 months contingent upon Mustang achieving certain milestones.

In connection with the debt financing, Mustang issued to Runway warrants to purchase up to 748,036 of its common shares at an exercise price of $ 0.8021 per share.

Proceeds from the facility will be used to support the ongoing clinical development of key investigational product candidates within Mustang’s pipeline and for general working capital purposes.

Avenue Therapeutics Private Offering

On January 27, 2023, Avenue entered into an agreement with a single institutional investor for the sale of 1,940,299 shares of common stock and pre-funded warrants.

In a concurrent private placement, Avenue also agreed to issue to the same investor a total of 1,940,299 warrants to purchase up to one share of common stock each at an exercise price of $ 1.55 per share and a purchase price of $ 0.125 .

The purchase price of each share is $ 1.55 .

The purchase price of each pre-funded warrant is $ 1.5499 with an exercise price of $ 0.0001 .

Avenue received $ 2.8 million in net proceeds.

Avenue License Agreement

In March 2023, Avenue announced that it had entered into an exclusive license agreement with AnnJi Pharmaceutical Co., a Taiwanese clinical-stage drug company, for AJ201, a first-in-class clinical asset currently in a Phase 1b/2a study in the U.S.

for the treatment of spinal and bulbar muscular atrophy, also known as Kennedy's Disease.

Under the license agreement, in exchange for exclusive rights to the intellectual property underlying the AJ201 product candidate, Avenue will pay an initial cash license fee of $ 3.0 million, of which $ 2.0 million is payable within 60 days and $ 1.0 million payable within 180 days after the effective date of the License Agreement.

Checkpoint Therapeutics Registered Direct Offering

In February 2023, Checkpoint closed on a registered direct offering (“February 2023 Direct Offering”) with a single institutional investor for the issuance and sale of 1,180,000 shares of its common stock and 248,572 pre-funded warrants.

Each pre-funded warrant is exercisable for one share of common stock.

The common stock and the pre-funded warrants were sold together with Series A warrants to purchase up to 1,428,572 shares of common stock and Series B warrants to purchase up to 1,428,572 shares of common stock, at a purchase price of $ 5.25 per share of common stock and associated common stock warrants, and $ 4.2499 per pre-funded warrant and associated common stock warrants.

Net proceeds from the February 2023 Direct Offering were $ 6.7 million after deducting commissions and other transaction costs.

Checkpoint BLA Submission and Acceptance

Checkpoint submitted a BLA to FDA in January 2023, for Cosibelimab as a Treatment for Patients with Metastatic or Locally Advanced Cutaneous Squamous Cell Carcinoma.

In March 2023 the FDA accepted this submission and set a Prescription Drug User Fee Act (“PDUFA”) goal date of January 3, 2024.

Fortress Registered Direct Offering and Concurrent Private Placement

On February 10, 2023, the Company completed a registered direct offering of common stock pursuant to which it issued and sold 16,642,894 shares of its common stock at a purchase price of $ 0.835 per share and secured approximately $ 13.3 million in net proceeds after deducting estimated offering expenses.

The Company also simultaneously closed on a concurrent private placement with investors in the registered direct offering, for the pro rata rights to acquire, in the aggregate, securities exercisable into approximately 3.5 % of the outstanding shares of common stock in each of the Company’s next 20 new operating subsidiaries (the “Contingent Subsidiary Securities”).

The Contingent Subsidiary Securities will only be issued to the extent such a new operating subsidiary first consummates a specified corporate development transaction within the next five years , and will be exercisable immediately upon issuance, with an exercise period of 10 years , at an exercise price equal to the fair market value of one share of common stock of the subsidiary on the date of the corporate development transaction.

The issuance of the rights and Contingent Subsidiary Securities are conditioned on the approval of the Company’s stockholders required by Nasdaq Listing Rule 5635.

Urica Preferred Offering

In February 2023, Urica completed two additional closings of the Urica Preferred Offering, whereby it sold 34,160 Class B Preferred shares at a price of $ 25.00 per share, for net proceeds of $ 0.8 million, after deducting placement agent fees of $ 0.1 million.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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(Principal Executive Officer)

POWER OF ATTORNEY

We, the undersigned directors and/or executive officers of Fortress Biotech, Inc., hereby severally constitute and appoint Lindsay A.

Rosenwald, M.D., acting singly, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing necessary or appropriate to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby approving, ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

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Executive Officer ( Principal Executive Officer )

/s/ David Jin

Chief Financial Officer

March 31, 2023

( Principal Financial Officer )

( Principal Financial Officer and Principal Accounting Officer )

Rowinsky, M.D.

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March 31, 2023

/s/ Lucy Lu, M.D.

March 31, 2023

Lucy Lu, M.D.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures