Quarterly report pursuant to Section 13 or 15(d)

Fair Value

Fair Value

9 Months Ended

Sep. 30, 2015

2.	Fair Value

As discussed in Note 8, under the First and Second Amended Platinum Notes, Platinum-Montaur Life Sciences, LLC (Platinum) had the right to convert all or any portion of the unpaid principal or unpaid interest accrued on any draws subsequent to the second quarter of 2013 under the Platinum credit facility into Navidea common stock, under certain circumstances. In May 2015, Navidea and Platinum executed a Third Amended Platinum Note, which extends Platinum's right to convert any portion of the unpaid principal or unpaid interest to all draws under the credit facility, including those made prior to the second quarter of 2013. The Third Amended Platinum Note also changed other provisions of the Platinum Loan Agreement as discussed further in Note 8. Platinum’s debt instrument, including the embedded option to convert such debt into common stock, is recorded at fair value on the consolidated balance sheets. The estimated fair value of the Platinum notes payable is $12.3 million at September 30, 2015.

MT issued warrants to purchase 300 shares of MT Common Stock in connection with the sale of 10 shares of MT Preferred Stock in March 2015. The warrants have certain characteristics including a net settlement provision that require the warrants to be accounted for as a derivative liability at fair value, with subsequent changes in fair value included in earnings. The estimated fair value of the MT warrants is $63,000 at September 30, 2015, and will continue to be measured on a recurring basis. See Notes 1(b)(3) and 6.

The following tables set forth, by level, financial liabilities measured at fair value on a recurring basis:

Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2015
Description	Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Platinum notes payable	$	—	$	—	$	12,280,513	$	12,280,513
Liability related to warrants		—		—		63,000		63,000

Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2014

Description

Quoted Prices in

Active Markets for Identical

Liabilities

(Level 1)

Significant

Other

Observable

Inputs (Level 2)

Significant

Unobservable

Inputs (Level 3)

Total

Platinum notes payable

—

5,615,764

Valuation Processes-Level 3 Measurements: Depending on the instrument, the Company utilizes discounted cash flows, option pricing models, or third-party valuation services to estimate the value of their financial assets and liabilities. Valuations using discounted cash flow methods and certain option pricing models such as Black-Scholes are generally conducted by the Company or by third-party valuation experts. Valuations using complex models such as a Monte Carlo simulation are generally provided to the Company by third-party valuation experts. Each reporting period, the Company provides significant unobservable inputs to the third-party valuation experts based on current internal estimates and forecasts.

Sensitivity Analysis-Level 3 Measurements: Changes in the Company’s current internal estimates and forecasts are likely to cause material changes in the fair value of certain liabilities. The significant unobservable inputs used in the fair value measurement of the liabilities include the amount and timing of future draws expected to be taken under the Platinum Loan Agreement based on current internal forecasts. Significant increases (decreases) in any of the significant unobservable inputs would result in a higher (lower) fair value measurement. A change in one of the inputs would not necessarily result in a directionally similar change in the others.

There were no Level 1 liabilities outstanding at any time during the three-month and nine-month periods ended September 30, 2015 and 2014. There were no transfers in or out of our Level 2 liabilities during the three-month and nine-month periods ended September 30, 2015 or 2014. Changes in the estimated fair value of our Level 3 liabilities relating to unrealized gains (losses) are recorded as changes in fair value of financial instruments in the consolidated statements of operations. The change in the estimated fair value of our Level 3 liabilities during the three-month periods ended September 30, 2015 and 2014 was $1.6 million and $410,000, respectively. The change in the estimated fair value of our Level 3 liabilities during the nine-month periods ended September 30, 2015 and 2014 was $1.7 million and $109,000, respectively.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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