In May 2011, Platinum-Montaur Life Sciences, LLC (Montaur) converted 917 shares of their Series B Convertible Preferred Stock (the Series B) into 2,998,590 shares of our common stock under the terms of the Series B. In July 2012, Montaur converted 3,063 shares of their Series B into 10,016,010 shares of our common stock under the terms of the Series B. As of September 30, 2012, there are 6,020 shares of Series B outstanding which are convertible into 19,685,400 shares of our common stock.

In December 2011, we executed a Loan and Security Agreement (the Loan Agreement) with Hercules Technology II, L.P. (Hercules), providing for a maximum borrowing of $10 million by the Company in two advances. Pursuant to the Loan Agreement, we issued Hercules: (1) a Secured Term Promissory Note in the principal amount of $7,000,000 (the First Advance), bearing interest at the greater of either (a) the U.S. Prime Rate as reported in The Wall Street Journal plus 6.75%, or (b) 10.0% (effective interest rate at September 30, 2012 was 10.0%), and (2) a Series GG Warrant to purchase 333,333 shares of our common stock at an exercise price of $2.10 per share, expiring in December 2016 (the Series GG Warrant). Additionally, the Loan Agreement provided Navidea with the option to draw a second advance in the principal amount of $3,000,000 if certain conditions were met by June 30, 2012. Such conditions were not met and Hercules no longer has an obligation to provide the additional $3,000,000. The Loan Agreement provided for an interest-only period beginning on December 29, 2011 and expiring on July 1, 2012. The principal and interest is to be repaid in 30 equal monthly installments, payable on the first of each month following the expiration of the interest-only period. As such, a portion of the principal, net of related discounts, has been classified as a current liability as of September 30, 2012. The outstanding balance of the debt is due December 1, 2014. Navidea has the option to pay up to $1.5 million of the principal amount of the debt in stock at a fixed conversion price of $2.77, subject to certain conditions. In addition, Hercules has the option to elect payment for up to another $1.5 million of the principal amount of the debt by conversion at a fixed conversion price of $2.77.

The debt is collateralized by a security interest in substantially all of the Company's assets except for intellectual property, as to which the security interest is in rights to income or proceeds from the sale or licensing thereof. The Loan Agreement also specifies certain covenants including the requirement that Navidea provide certain information, such as financial statements and budgets, on a periodic basis. As of September 30, 2012, we were in compliance with all such covenants.

In accordance with current accounting standards, Hercules' option to convert up to $1.5 million of the debt into stock was evaluated and determined to be a beneficial conversion feature. The beneficial conversion feature of $24,888 was recorded as a discount on the First Advance based on the market price of the Company's stock on the date of the Loan Agreement. In addition, the Series GG Warrant was accounted for as a liability at origination due to the existence of certain provisions in the instrument which will remain in effect for the first 365 days the warrant is outstanding.

During the three-month and nine-month periods ended September 30, 2012, we recorded interest expense of $147,000 and $407,000, respectively, related to amortization of the debt discounts and deferred financing costs related to our convertible note. We recorded no such interest expense during the three-month and nine-month periods ended September 30, 2011. During the third quarter of 2012, we paid $620,000 of principal payments on the debt. As of September 30, 2012, the remaining outstanding principal balance of the debt was approximately $6.4 million.