Note 2 - Liquidity
|6 Months Ended|
Jun. 30, 2017
|Notes to Financial Statements|
|Substantial Doubt about Going Concern [Text Block]||
Prior to the Asset Sale to Cardinal Health
March 2017,all of our material assets were pledged as collateral for our borrowings under the Term Loan Agreement (the “CRG Loan Agreement”) with CRG. In addition to the security interest in our assets, the CRG Loan Agreement carried covenants that imposed significant requirements on us. An event of default would have entitled CRG to accelerate the maturity of our indebtedness, increase the interest rate from
14%to the default rate of
18%per annum, and invoke other remedies available to CRG under the loan agreement and the related security agreement. During the course of
2016,CRG alleged multiple claims of default on the CRG Loan Agreement, and filed suit in the District Court of Harris County, Texas. On
June 22, 2016,CRG exercised control over
oneof the Company’s primary bank accounts and took possession of
$4.1million that was on deposit.
March 3, 2017,the Company entered into a Global Settlement Agreement with MT, CRG, and Cardinal Health
414to effectuate the terms of the settlement previously entered into by the parties on
February 22, 2017.In accordance with the Global Settlement Agreement, on
March 3, 2017,the Company repaid
$59million (the “Deposit Amount”) of its alleged indebtedness and other obligations outstanding under the CRG Term Loan. Concurrently with payment of the Deposit Amount, CRG released all liens and security interests granted under the CRG Loan Documents and the CRG Loan Documents were terminated and are of
nofurther force or effect; provided, however, that, notwithstanding the foregoing, the Company and CRG agreed to continue with their proceeding pending in The District Court of Harris County, Texas to fully and finally determine the actual amount owed by the Company to CRG under the CRG Loan Documents (the “Final Payoff Amount”). The Company and CRG further agreed that the Final Payoff Amount would be
$47million (the “Low Payoff Amount”) and
$66million (the “High Payoff Amount”). In addition, concurrently with the payment of the Deposit Amount and closing of the Asset Sale, (i) Cardinal Health
$7million letter of credit in favor of CRG (at the Company’s cost and expense to be deducted from the closing proceeds due to the Company, and subject to Cardinal Health
414’sindemnification rights under the Purchase Agreement) as security for the amount by which the High Payoff Amount exceeds the Deposit Amount in the event the Company is unable to pay all or a portion of such amount, and (ii) CRG posted a
$12million letter of credit in favor of the Company as security for the amount by which the Deposit Amount exceeds the Low Payoff Amount. If, on the
onehand, it is finally determined by the Texas Court that the amount the Company owes to CRG under the Loan Documents exceeds the Deposit Amount, the Company will pay such excess amount, plus the costs incurred by CRG in obtaining CRG’s letter of credit, to CRG and if, on the other hand, it is finally determined by the Texas Court that the amount the Company owes to CRG under the Loan Documents is less than the Deposit Amount, CRG will pay such difference to the Company and reimburse Cardinal Health
414for the costs incurred by Cardinal Health
414in obtaining its letter of credit. Any payments owing to CRG arising from a final determination that the Final Payoff Amount is in excess of
firstbe paid by the Company without resort to the letter of credit posted by Cardinal Health
414,and such letter of credit shall only be a secondary resource in the event of failure of the Company to make payment to CRG. The Company will indemnify Cardinal Health
414for any costs it incurs in payment to CRG under the settlement, and the Company and Cardinal Health
414further agree that Cardinal Health
414can pursue all possible remedies, including offset against earnout payments (guaranteed or otherwise) under the Purchase Agreement, warrant exercise, or any other payments owed by Cardinal Health
414,or any of its affiliates, to the Company, or any of its affiliates, if Cardinal Health
414incurs any cost associated with payment to CRG under the settlement. The
$2million being held in escrow pursuant to court order in the Ohio case and the
$3million being held in escrow pursuant to court order in the Texas case were released to the Company following the closing of the Asset Sale.
In addition, our Loan Agreement with Platinum-Montaur Life Sciences LLC, an affiliate of Platinum Management (NY) LLC, Platinum Partners Value Arbitrage Fund L.P., Platinum Partners Liquid Opportunity Master Fund L.P., Platinum Liquid Opportunity Management (NY) LLC, and Montsant Partners LLC (collectively, “Platinum”) (the “Platinum Loan Agreement”) carries standard non-financial covenants typical for commercial loan agreements that impose significant requirements on us. Our ability to comply with these provisions
maybe affected by changes in our business condition or results of our operations, or other events beyond our control. The breach of any of these covenants would result in a default under the Platinum Loan Agreement, permitting Platinum to accelerate the maturity of the debt. Such actions by Platinum could adversely affect our operations, results of operations and financial condition, including causing us to curtail our product development activities.
The Platinum Loan Agreement includes a covenant that results in an event of default on the Platinum Loan Agreement upon default on the CRG Loan Agreement. As discussed above, the Company is maintaining its position that CRG’s alleged claims do
notconstitute events of default under the CRG Loan Agreement and believes it has defenses against such claims. The Company has obtained a waiver from Platinum confirming that we are
notin default under the Platinum Loan Agreement as a result of the alleged default on the CRG Loan Agreement and as such, we are currently in compliance with all covenants under the Platinum Loan Agreement.
In connection with the closing of the Asset Sale to Cardinal Health
414,the Company repaid to Platinum Partners Credit Opportunities Master Fund, LP (“PPCO”) an aggregate of approximately
$7.7million in partial satisfaction of the Company’s liabilities, obligations and indebtedness under the Platinum Loan Agreement between the Company and Platinum-Montaur Life Sciences, LLC (“Platinum-Montaur”), which, to the extent of such payment, were transferred by Platinum-Montaur to PPCO. The Company was informed by Platinum Partners Value Arbitrage Fund LP (“PPVA”) that it was the owner of the balance of the Platinum-Montaur loan. Such balance of approximately
$1.9million was due upon closing of the Asset Sale but withheld by the Company and
notpaid to anyone as it is subject to competing claims of ownership by both Dr. Michael Goldberg, the Company’s President and Chief Executive Officer, and PPVA.
Based on our current working capital and our projected cash burn, including the potential for the Company to pay up to an additional
$7million to CRG depending upon the outcome of the Texas litigation, management believes that the Company will be able to continue as a going concern for at least
twelvemonths following the issuance of this Quarterly Report on Form
10-Q. Our projected cash burn also factors in certain cost cutting initiatives that have been implemented and approved by the board of directors, including reductions in the workforce and a reduction in facilities expenses. Additionally, we have considerable discretion over the extent of development project expenditures and have the ability to curtail the related cash flows as needed. We believe all of these factors are sufficient to alleviate substantial doubt about the Company’s ability to continue as a going concern.
The entire disclosure when substantial doubt is raised about the ability to continue as a going concern. Includes, but is not limited to, principal conditions or events that raised substantial doubt about the ability to continue as a going concern, management's evaluation of the significance of those conditions or events in relation to the ability to meet its obligations, and management's plans that alleviated or are intended to mitigate the conditions or events that raise substantial doubt about the ability to continue as a going concern.
Reference 1: http://www.xbrl.org/2003/role/presentationRef