Quarterly report pursuant to Section 13 or 15(d)

Note 10 - Notes Payable

v3.8.0.1
Note 10 - Notes Payable
9 Months Ended
Sep. 30, 2017
Notes to Financial Statements  
Debt Disclosure [Text Block]
10
.
Notes Payable
 
Platinum
 
In
July 2012,
we entered into an agreement with Platinum
-Montaur to provide us with a credit facility of up to
$50
million. In connection with the closing of the Asset Sale to Cardinal Health
414,
the Company repaid to PPCO an aggregate of approximately
$7.7
million in partial satisfaction of the Company’s liabilities, obligations and indebtedness under the Platinum Loan Agreement, which was purportedly transferred by Platinum-Montaur to PPCO. The Company was informed by PPVA that it was the owner of the balance of the Platinum Note. Such balance of approximately
$1.9
million was due upon closing of the Asset Sale but withheld by the Company and
not
paid 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. The remaining balance of the Platinum Note would have matured under its terms in
September 2017,
however the Company has
not
paid the balance as it is still subject to ongoing competing claims of ownership. The Company intends to pay the balance of the debt if it is determined to be due and owing to PPVA or Dr. Goldberg.
 
During the
nine
-month periods ended
September 30, 2017
and
2016,
$211,000
and
$814,000
of interest was compounded and added to the balance of the Platinum Note, respectively. As of
September 30, 2017,
the remaining outstanding principal balance of the Platinum Note was approximately
$2.0
million.
 
Until such time as there is a legal determination regarding liability under the Platinum Note, it is
reflected as a liability on the consolidated balance sheets at its unpaid principal and interest balance of
$1,981,676
and
$9,487,822
at
September 30, 2017
and
December 31, 2016,
respectively. Additionally, the estimated fair value of the embedded conversion option of approximately
$0
and
$153,000
at
September 30, 2017
and
December 31, 2016,
respectively, is included in notes payable on the consolidated balance sheets. Changes in the estimated fair value of the Platinum conversion option were
$0
and an increase of
$839,000,
respectively, and were recorded as non-cash changes in fair value of the conversion option during the
three
-month periods ended
September 30, 2017
and
2016.
Changes in the estimated fair value of the Platinum conversion option were decreases of
$153,000
and
$1.8
million, respectively, and were recorded as non-cash changes in fair value of the conversion option during the
nine
-month periods ended
September 30, 2017
and
2016.
 
Capital Royalty Partners II, L.P.
 
In
May 2015,
Navidea and its subsidiary Macrophage Therapeutics, Inc., as guarantor, executed a Term Loan Agreement (the
“CRG Loan Agreement”) with Capital Royalty Partners II L.P. (“CRG”) in its capacity as a lender and as control agent for other affiliated lenders party to the CRG Loan Agreement (collectively, the “Lenders”) in which the Lenders agreed to make a term loan to the Company in the aggregate principal amount of
$50
million (the “CRG Term Loan”), with an additional
$10
million in loans to be made available upon the satisfaction of certain conditions stated in the CRG Loan Agreement. During the
three
-month period ended
March 
31,
2016,
$519,000
of interest was compounded and added to the balance of the CRG Term Loan.
 
Pursuant to a notice of default letter sent to Navidea by CRG in
April 2016,
the Company stopped compounding interest in the
second
quarter of
2016
and began recording accrued interest. As of
December 31, 2016,
$5.8
million of accrued interest related to the CRG Term Loan is included in accrued liabilities and other on the consolidated balance sheets. As of
December 31, 2016,
the outstanding principal balance of the CRG Term Loan was
$51.7
million.
 
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
one
of the Company
’s primary bank accounts and took possession of
$4.1
million that was on deposit.
 
On
March 3, 2017,
the Company entered into a Global Settlement Agreement with MT, CRG, and Cardinal Health
414
to 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
$59
million 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
no
further 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 Company and CRG further agreed that the Final Payoff Amount would be
no
less than
$47
million and
no
more than
$66
million. In addition, concurrently with the payment of the Deposit Amount and closing of the Asset Sale, (i) Cardinal Health
414
posted a
$7
million letter of credit in favor of CRG 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
$12
million 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
one
hand, 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
414
for the costs incurred by Cardinal Health
414
in obtaining its letter of credit. Any payments owing to CRG arising from a final determination that the Final Payoff Amount is in excess of
$59
million shall
first
be 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
414
for any costs it incurs in payment to CRG under the settlement, and the Company and Cardinal Health
414
further agree that Cardinal Health
414
can 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
414
incurs any cost associated with payment to CRG under the settlement.
 
IPFS Corporation
 
In
December 2016,
we prepaid
$348,000
of insurance premiums through the issuance of a note payable to IPFS Corporation (“IPFS”) with an interest rate of
8.99%.
The note
was payable in
eight
monthly installments of
$45,000,
with the final payment due on
July 10, 2017.
As of
September 30, 2017
and
December 31, 2016,
the remaining outstanding principal balance of the IPFS note payable is approximately
$0
and
$306,000,
respectively, and is included in notes payable, current in the consolidated balance sheets.
 
Summary
 
During the
three
-month periods ended
September 30, 2017
and
2016,
we recorded interest expense of
$26,000
and
$2.6
million, respectively, related to our notes payable. Of these amounts,
$29,000
and
$190,000,
respectively, was compounded and added to the balance of our notes payable during the
three
-month periods ended
September 30, 2017
and
2016,
respectively. During the
nine
-month periods ended
September 30, 2017
and
2016,
we recorded interest expense of
$1.8
million and
$12.3
million, respectively, related to our notes payable. Of these amounts,
$0
and
$78,000,
respectively, related to amortization of the debt discounts related to our notes payable. An additional
$211,000
and
$1.4
million of total interest expense was compounded and added to the balance of our notes payable during the
nine
-month periods ended
September 30, 2017
and
2016,
respectively. The collection fees of
$778,000,
prepayment premium of
$2.1
million, and the remaining unamortized balance of the CRG debt discount of
$2.0
million were also recorded as interest expense during the
nine
-month period ended
September 30, 2016.