10-Q 1 navb20220930_10q.htm FORM 10-Q navb20220930_10q.htm
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Loss from operations does not reflect the allocation of certain selling, general and administrative expenses, excluding depreciation and amortization, to our individual reportable segments, other than those expenses directly incurred by Navidea Europe, Navidea UK and MT. Depreciation and amortization are reflected in selling, general and administrative expenses ($24,703 and $18,066 for the three-month periods ended September 30, 2022 and 2021, and $69,352 and $55,672 for the nine-month periods ended September 30, 2022 and 2021, respectively). 00008105092022-01-012022-09-30 0000810509us-gaap:CommonStockMember2022-01-012022-09-30 0000810509navb:PreferredStockPurchaseRightsMember2022-01-012022-09-30 xbrli:shares 00008105092022-11-07 thunderdome:item iso4217:USD 00008105092022-09-30 00008105092021-12-31 0000810509navb:NotePayableToRelatedPartyMember2022-09-30 iso4217:USDxbrli:shares 0000810509navb:NonSeriesPreferredStockMember2022-09-30 0000810509navb:NonSeriesPreferredStockMember2021-12-31 0000810509us-gaap:SeriesDPreferredStockMember2022-09-30 0000810509us-gaap:SeriesDPreferredStockMember2021-12-31 0000810509us-gaap:SeriesEPreferredStockMember2022-09-30 0000810509us-gaap:SeriesEPreferredStockMember2021-12-31 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022                                                                                                                                                

 

or

 

         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                   

 

Commission File Number: 001-35076                              

 

NAVIDEA BIOPHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

31-1080091

State or Other Jurisdiction of

Incorporation or Organization

 

IRS Employer Identification No.

 

4995 Bradenton Avenue, Suite 240, Dublin, Ohio

 

43017-3552

Address of Principal Executive Offices

 

Zip Code

 

(614) 793-7500

Registrant’s Telephone Number, Including Area Code

 


 

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of exchange on which registered

Common Stock

NAVB

NYSE American

Preferred Stock Purchase Rights

N/A

NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging Growth Company

  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Act.) Yes   No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 32,364,362 shares of common stock, par value $.001 per share (as of the close of business on November 7, 2022).

 



 

 

 

 

NAVIDEA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

PART I  Financial Information

 
     

Item 1.

Condensed Consolidated Financial Statements

3
     
 

Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021

3
     
 

Condensed Consolidated Statements of Operations for the Three-Month and Nine-Month Periods Ended September 30, 2022 and 2021 (unaudited)

5
     
 

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the Nine-Month Periods Ended September 30, 2022 and 2021 (unaudited)

6
     
 

Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2022 and 2021 (unaudited)

8
     
 

Notes to the Condensed Consolidated Financial Statements (unaudited)

9
     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26
     
 

Forward-Looking Statements         

26
     
 

The Company         

26
     
 

Technology and Product Candidates         

27
     
 

Outlook         

31
     
 

Results of Operations         

32
     
 

Liquidity and Capital Resources         

33
     
 

Off-Balance Sheet Arrangements         

 
     
 

Recent Accounting Standards         

36
     
 

Critical Accounting Policies         

36
     
 

Critical Accounting Estimates         

37
     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk         

37
     

Item 4.

Controls and Procedures         

37
     
 

Disclosure Controls and Procedures         

37
     
 

Changes in Control Over Financial Reporting         

38
     

PART II  Other Information

 
     

Item 1.

Legal Proceedings         

39
     

Item 1A.

Risk Factors         

39
     

Item 6.

Exhibits         

39

 

2
 

 

 

PART I FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

Navidea Biopharmaceuticals, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

  

September 30,

2022

  

December 31,

2021

 

 

 

(unaudited)

     
ASSETS        

Current assets:

        

Cash and cash equivalents

 $4,600,791  $4,230,865 

Receivables

  155,189   92,992 

Inventory, net

  193,806   151,155 

Prepaid expenses and other

  150,125   908,273 

Total current assets

  5,099,911   5,383,285 

Property and equipment

  835,845   866,306 

Less accumulated depreciation and amortization

  686,828   745,816 

Property and equipment, net

  149,017   120,490 

Right-of-use lease assets

  448,940   448,940 

Less accumulated amortization

  412,458   320,725 

Right-of-use lease assets, net

  36,482   128,215 

License agreements, patents and trademarks

  1,143,814   953,424 

Less accumulated amortization

  202,566   167,773 

License agreements, patents and trademarks, net

  941,248   785,651 

Other assets

  31,774   227,192 

Total assets

 $6,258,432  $6,644,833 

 

(continued)

 

3

 

Navidea Biopharmaceuticals, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (continued)

 

  

September 30,

2022

  

December 31,

2021

 

 

 

(unaudited)

     
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY       

Current liabilities:

        

Accounts payable

 $1,738,519  $1,421,317 

Accrued liabilities and other

  5,866,992   3,149,340 

Note payable, current

     453,427 

Lease liabilities, current

  27,346   275,718 

Deferred revenue, current

  800,000    

Total current liabilities

  8,432,857   5,299,802 

Lease liabilities, net of current portion

  1,690   20,288 

Deferred revenue

  700,000   700,000 

Note payable to related party, net of discount of $708,999

  1,791,001    

Total liabilities

  10,925,548   6,020,090 

Commitments and contingencies (See Note 10)

          

Stockholders’ (deficit) equity:

        

Preferred stock; $.001 par value; 5,000,000 shares authorized; no shares issued or outstanding as of September 30, 2022 and December 31, 2021

      

Series D preferred stock; $.001 par value, 150,000 shares authorized; 0 and 22,077 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

     22 

Series E preferred stock; $.001 par value, 50,000 shares authorized; 0 and 50,000 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

     50 

Series G preferred stock; $.001 par value, 3,260 shares authorized; 3,260 and 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

  3    

Series H preferred stock; $.001 par value, 75,000 shares authorized; 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021

      

Series I preferred stock; $.001 par value, 35,000 shares authorized; 9,667 and 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

  10    

Common stock; $.001 par value, 300,000,000 shares authorized; 32,150,918 and 30,279,922 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

  223,148   221,277 

Additional paid-in capital

  379,337,227   370,459,705 

Accumulated deficit

  (384,520,021

)

  (370,787,610

)

Total stockholders' deficit

  (4,959,633

)

  (106,556

)

Noncontrolling interest

  292,517   731,299 

Total Navidea stockholders’ (deficit) equity

  (4,667,116

)

  624,743 

Total liabilities and stockholders’ (deficit) equity

 $6,258,432  $6,644,833 

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

 

Navidea Biopharmaceuticals, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(unaudited)

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Revenue:

                

Sales revenue

 $7,516  $  $14,035  $ 

License revenue

     9,116      44,665 

Grant and other revenue

     87,266   51,007   436,500 

Total revenue

  7,516   96,382   65,042   481,165 

Cost of sales

  1,432      1,905    

Reserve for expiring inventory

  133,006      133,006    

Gross (loss) profit

  (126,922

)

  96,382   (69,869)  481,165 

Operating expenses:

                

Research and development

  1,186,419   1,048,786   4,079,661   3,769,596 

Selling, general and administrative

  3,637,450   1,469,375   6,703,145   5,132,730 

Total operating expenses

  4,823,869   2,518,161   10,782,806   8,902,326 

Loss from operations

  (4,950,791

)

  (2,421,779)  (10,852,675)  (8,421,161

)

Other (expense) income:

                

Interest expense, net

  (765,456

)

  (2,814)  (852,702)  (4,423

)

Gain on extinguishment of debt

           366,000 

Other, net

  8,422   2,800   10,849   (3,141

)

Total other (expense) income, net

  (757,034

)

  (14)  (841,853)  358,436 

Net loss before income taxes

  (5,707,825

)

  (2,421,793)  (11,694,528)  (8,062,725

)

Provision for income taxes

     (16,043)     (16,043

)

Net loss

  (5,707,825

)

  (2,437,836)  (11,694,528)  (8,078,768

)

Net loss attributable to noncontrolling interest

     1   4   4 

Net loss attributable to Navidea and subsidiaries

  (5,707,825)  (2,437,835)  (11,694,524)  (8,078,764)

Deemed dividend on preferred stock exchanged for Units

  (2,037,886)     (2,037,886)   

Net loss attributable to common stockholders

 $(7,745,711

)

 $(2,437,835) $(13,732,410

)

 $(8,078,764

)

                 

Loss attributable to common stockholders per common share (basic and diluted)

 $(0.25

)

 $(0.08) $(0.45

)

 $(0.28

)

Weighted average shares outstanding

  30,732,001   30,122,549   30,404,789   29,067,784 

 

See accompanying notes to condensed consolidated financial statements.

 

5

 

 

Navidea Biopharmaceuticals, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders (Deficit) Equity

(unaudited)

 

For the Nine Months Ended September 30, 2022

 
                                 
                                 
  

Preferred Stock

  

Common Stock Issued

  

Additional

Paid-In

  

Accumulated

  

Non-controlling

     
  

Shares

  

Amount

  

Shares

  

Amount

  Capital  Deficit  Interest  Total 

Balance, January 1, 2022

  72,077  $72   30,279,922  $221,277  $370,459,705  $(370,787,610) $731,299  $624,743 

Issued stock in lieu of cash bonuses

  -   -   16,632   17   16,948   -   -   16,965 

Issued stock to 401(k) plan

  -   -   53,238   53   44,667   -   -   44,720 

Issued stock for payment of director fees

  -   -   7,500   7   6,518   -   -   6,525 

MT Preferred Stock reacquired due to Platinum settlement

  -   -   -   -   438,778   -   (438,778)  - 

Stock compensation expense

  -   -   -   -   184,850   -   -   184,850 

Net loss

  -   -   -   -   -   (2,987,242)  (3)  (2,987,245)

Balance, March 31, 2022

  72,077   72   30,357,292   221,354   371,151,466   (373,774,852)  292,518   (2,109,442)

Series E Preferred Stock exchanged for Series F and Series G Preferred Stock

  (45,000)  (45)  -   -   821,295   -   -   821,250 

Issued stock for payment of director fees

  -   -   7,500   7   6,443   -   -   6,450 

Stock compensation expense

  -   -   -   -   40,554   -   -   40,554 

Net loss

  -   -   -   -   -   (2,999,458)  (1)  (2,999,459)

Balance, June 30, 2022

  27,077   27   30,364,792   221,361   372,019,758   (376,774,310)  292,517   (4,240,647)

Issued Series I Preferred Stock, net of costs

  10,423   10   -   -   5,209,725   -   -   5,209,735 
Series D and Series F Preferred Stock exchanged for Units in Rights Offering  (23,817)  (23)  -   -   20   -   -   (3)
Deemed dividend on Series D and Series F Preferred Stock exchanged for Units in Rights Offering  -   -   -      2,037,886   (2,037,886)  -   - 

Series I Preferred Stock converted into common stock

  (756)  (1)  1,679,976   1,680   (1,679)  -   -   - 

Issued stock for payment of director fees

  -   -   7,500   8   2,942   -   -   2,950 

Issued stock in lieu of cash bonus

  -   -   28,150   28   7,854   -   -   7,882 

Issued stock under long term incentive plan

  -   -   70,500   71   19,669   -   -   19,740 

Stock compensation expense

  -   -   -   -   41,052   -   -   41,052 

Net loss

  -   -   -   -   -   (5,707,825)  -   (5,707,825)

Balance, September 30, 2022

  12,927  $13   32,150,918  $223,148  $379,337,227  $(384,520,021) $292,517  $(4,667,116)

 

6

 

For the Nine Months Ended September 30, 2021

 
                                                         
                                                         
  

Preferred Stock

  

Preferred Stock Subscribed

  

Preferred Stock Subscriptions

  

Common Stock Issued

  

Common Stock Subscribed

  

Common Stock Subscriptions

  

Additional Paid-In

  

Accumulated

  

Non-controlling

  

 

 
  

Shares

  

Amount

  

Shares

  

Amount

  Receivable  

Shares

  

Amount

  

Shares

  

Amount

  Receivable  Capital  Deficit  Interest  Total 

Balance, January 1, 2021

    $   132,250  $132  $(10,300,000)  27,149,691  $218,146   995,000  $995  $(4,975,000) $375,428,014  $(359,056,683) $731,303  $2,046,907 

Issued restricted stock

                 12,500   13                     13 

Issued stock to 401(k) Plan

                 30,018   30            76,816         76,846 

Issued Series D Preferred Stock

  31,750   32   (31,750)  (31)  250,000                           250,001 

Issued stock upon conversion of Series D Preferred Stock

  (31,750)  (32)           1,513,978   1,514            (1,482)         

Series D Preferred Stock subscribed

              500,000                           500,000 

Issued Series E Preferred Stock, net of issuance costs

  50,000   50                           4,980,659         4,980,709 

Stock compensation expense

                                121,298         121,298 

Net loss

                                   (2,966,890)  (2)  (2,966,892)

Balance, March 31, 2021

  50,000   50   100,500   101   (9,550,000)  28,706,187   219,703   995,000   995   (4,975,000)  380,605,305   (362,023,573)  731,301   5,008,882 

Issued Series D Preferred Stock

  23,000   23   (23,000)  (23)  1,800,000                           1,800,000 

Issued stock upon conversion of Series D Preferred Stock

  (23,000)  (23)           1,437,531   1,437            (1,414)         

Series D Preferred Stock subscribed (See Note 11)

        (55,423)  (56)  7,750,000                  (5,542,245)        2,207,699 

Incurred costs related to Series E Preferred Stock

                                (50,671)        (50,671)

Issued stock upon stock option exercise

                 2,000   2            2,118         2,120 

Reversal of common stock subscribed

                       (995,000)  (995)  4,975,000   (4,974,005)         

Stock compensation expense

                                142,180         142,180 

Net loss

                                   (2,764,039)  (1)  (2,674,040)

Balance, June 30, 2021

  50,000   50   22,077   22      30,145,718   221,142            370,181,268   (364,697,612)  731,300   6,436,170 

Issued Series D Preferred Stock

  22,077   22   (22,077)  (22)                              

Issued restricted stock

                 2.500   3                     3 

Issued stock in lieu of cash in payment of director fees

                 15.027   15            27,485         27,500 

Stock compensation expense

                                108,157         108,157 

Net loss

                                   (2,437,835)  (1)  (2,437,836)

Balance, September 30, 2021

  72,077  $72     $  $   30,163,245  $221,160     $  $  $370,316,910  $(367,135,447) $731,299  $4,133,994 

 

See accompanying notes to condensed consolidated financial statements.

 

7

 

 

Navidea Biopharmaceuticals, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

   

Nine Months Ended

September 30,

 
   

2022

   

2021

 

Cash flows from operating activities:

               

Net loss

  $ (11,694,528

)

  $ (8,078,768

)

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation and amortization

    69,352       55,672  

Loss on disposal and abandonment of assets

    64,833       19,962  

Reserve for expiring inventory

    133,006        

Amortization of debt discount and issuance costs

    126,878        

Non-cash lease expense

    91,733       91,456  

Stock compensation expense

    266,456       371,637  

Gain on extinguishment of debt

          (366,000

)

Value of stock issued to 401(k) plan for employer matching contributions

    44,720       76,846  

Value of stock issued in payment of employee bonuses

    24,847        

Value of stock issued under long term incentive plan

    19,740        

Value of stock issued in payment of director fees

    15,925       27,500  

Changes in operating assets and liabilities:

               

Receivables

    (62,197

)

    (46,005

)

Inventory

    (175,657

)

    (9,137

)

Prepaid expenses and other assets

    953,566       507,225  

Accounts payable

    317,202       44,512  

Accrued and other liabilities

    2,727,010       35,161  

Lease liabilities

    (266,970

)

    (210,434

)

Deferred revenue

    790,644       (9,356

)

Net cash used in operating activities

    (6,553,440

)

    (7,489,729

)

Cash flows from investing activities:

               

Payments for purchases of equipment

    (63,086

)

    (20,749

)

Patent and trademark costs

    (255,224

)

    (219,236

)

Net cash used in investing activities

    (318,310

)

    (239,985

)

Cash flows from financing activities:

               

Proceeds from issuance of preferred stock and warrants, including collection of stock subscriptions

    6,173,000       12,682,700  

Payment of preferred stock issuance costs

    (963,270

)

    (69,962

)

Proceeds from issuance of common stock

          2,135  

Proceeds from note payable

    2,500,000        

Payment of debt issuance costs

    (14,627

)

     

Principal payments on notes payable

    (453,427

)

    (379,443

)

Net cash provided by financing activities

    7,241,676       12,235,430  

Net increase in cash and cash equivalents

    369,926       4,505,716  

Cash and cash equivalents, beginning of period

    4,230,865       2,670,495  

Cash and cash equivalents, end of period

  $ 4,600,791     $ 7,176,211  

 

See accompanying notes to condensed consolidated financial statements.         

 

8

 

Notes to the Condensed Consolidated Financial Statements (unaudited)

 

 

1.

Summary of Significant Accounting Policies

 

 

a.

Basis of Presentation: The information presented as of September 30, 2022 and for the three-month and nine-month periods ended September 30, 2022 and 2021 is unaudited, but includes all adjustments (which consist only of normal recurring adjustments) that the management of Navidea Biopharmaceuticals, Inc. (“Navidea”, the “Company,” or “we”) believes to be necessary for the fair presentation of results for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The balances as of September 30, 2022 and the results for the interim periods are not necessarily indicative of results to be expected for the year. The condensed consolidated financial statements should be read in conjunction with Navidea’s audited consolidated financial statements for the year ended December 31, 2021, which were included as part of our Annual Report on Form 10-K filed with the SEC on March 28, 2022 (“2021 Form 10-K”).

 

Our condensed consolidated financial statements include the accounts of Navidea and our wholly owned subsidiaries, Navidea Biopharmaceuticals Europe Limited (“Navidea Europe”) and Navidea Biopharmaceuticals Limited (“Navidea UK”), as well as those of our majority-owned subsidiary, Macrophage Therapeutics, Inc. (“MT”). All significant inter-company accounts were eliminated in consolidation.

 

 

b.

Revenue Recognition: We generate revenue from a grant to support one of our product development initiatives. We generally recognize grant revenue when expenses reimbursable under the grant have been paid and payments under the grant become contractually due.

 

We also earn revenue from product sales to end customers, primarily in Europe. Revenue from product sales is generally recognized at the point where the customer obtains control of the goods and we satisfy our performance obligation, which occurs upon either shipment of the product or arrival at its destination, depending upon the shipping terms of the transaction. Our customers have no right to return products purchased in the ordinary course of business, however, we may allow returns in certain circumstances based on specific agreements.

 

In addition, we earn revenues related to our licensing and distribution agreements. The consideration we are eligible to receive under our licensing and distribution agreements typically includes upfront payments, reimbursement for research and development (“R&D”) costs, milestone payments, and royalties. Each licensing and distribution agreement is unique and requires separate assessment in accordance with current accounting standards. See Note 3.

 

 

c.

Research and Development Costs: R&D expenses include both internal R&D activities and external contracted services. Internal R&D activity expenses include salaries, benefits, and stock-based compensation, as well as travel, supplies, and other costs to support our R&D staff. External contracted services include clinical trial activities, manufacturing and control-related activities, and regulatory costs. R&D expenses are charged to operations as incurred. We review and accrue R&D expenses based on services performed and rely upon estimates of those costs applicable to the stage of completion of each project.

 

 

d.

Inventory: All components of inventory are valued at the lower of cost (first-in, first-out) or net realizable value. We adjust inventory to net realizable value when the net realizable value is lower than the carrying cost of the inventory. Net realizable value is determined based on estimated sales activity and margins. We estimate a reserve for obsolete inventory based on management’s judgment of probable future commercial use, which is based on an analysis of current inventory levels, estimated future sales and production rates, and estimated shelf lives. See Note 6.

 

 

e.

Intangible Assets: Intangible assets consist primarily of license agreements and patent and trademark costs. Intangible assets are stated at cost, less accumulated amortization. License agreements and patent costs are amortized using the straight-line method over the estimated useful lives of the license agreements and patents of approximately 5 to 15 years. Patent application costs are deferred pending the outcome of patent applications. Costs associated with unsuccessful patent applications and abandoned intellectual property are expensed when determined to have no recoverable value. We evaluate the potential alternative uses of all intangible assets, as well as the recoverability of the carrying values of intangible assets, on a recurring basis. During the nine-month periods ended September 30, 2022 and 2021, we capitalized patent and trademark costs of $255,224 and $219,236, respectively. During the nine-month periods ended September 30, 2022 and 2021, we abandoned patent applications and trademarks with previously-capitalized costs of $64,833 and $19,874, respectively.

 

 

f.

Leases: All of our leases are operating leases and are included in right-of-use lease assets, current lease liabilities and noncurrent lease liabilities on our condensed consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rates or implicit rates, when readily determinable. The discount rates used for each lease were based principally on the former Platinum debt. We used a “build-up” method where the approach was to estimate the risk/credit spread priced into the debt rate and then adjust that for the remaining term of each lease. Additionally, some market research was completed on the Company’s peer group. Short-term operating leases which have an initial term of 12 months or less are not recorded on the consolidated balance sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense is included in selling, general and administrative expenses on our condensed consolidated statements of operations. See Note 9.

 

9

 
 

g.

Contingent Liabilities: We are subject to legal proceedings and claims that arise in the normal course of business. In accordance with ASC Topic 450, Contingencies, we accrue for contingent liabilities when management determines it is probable that a liability has been incurred and the amount can be reasonably estimated. This determination requires significant judgment by management. As of the date of the filing of this Quarterly Report on Form 10-Q, we are engaged in separate matters of ongoing litigation with Capital Royalty Partners II, L.P. and our former President and Chief Executive Officer, Dr. Michael Goldberg. See Note 10.

 

 

h.

Recently Adopted Accounting Standards: In May 2021, the Financial Accounting Standards Board (“FASB”) Issued Accounting Standards Update (“ASU”) No. 2021-04, Issuers Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 was issued to clarify and reduce diversity in an issuer’s accounting for modifications or exchange of freestanding equity-classified written call options (for example, warrants) that remain equity-classified after modification or exchange. ASU 2021-04 requires that an entity treat a modification or exchange of a freestanding equity-classified written call option that remains equity-classified after modification or exchange be treated as an exchange of the original instrument for a new instrument. ASU 2021-04 also clarifies how an entity should measure and recognize the effect of a modification or exchange of a freestanding equity-classified written call option that remains equity-classified after modification or exchange. ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, and should be implemented prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including in an interim period. The adoption of ASU 2021-04 did not have a material impact on our consolidated financial statements.

 

In November 2021, the FASB issued ASU No. 2021-10, Disclosures by Business Entities about Government Assistance. ASU 2021-10 was issued to increase the transparency of government assistance. ASU 2021-10 requires that entities make certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The required disclosures include: (1) information about the nature of the transactions and the related accounting policy used to account for the transactions; (2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; and (3) significant terms and conditions of the transactions, including commitments and contingencies. The amendments in ASU 2021-10 are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. Early application of the amendments is permitted. An entity should apply the amendments in ASU 2021-10 either (1) prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or (2) retrospectively to those transactions. The adoption of ASU 2021-10 did not have an impact on our condensed consolidated financial statements, however we do expect to make the additional annual disclosures required by the update.

 

 

2.

Liquidity

 

As disclosed in the notes to the consolidated financial statements included in the Company’s 2021 Form 10-K, the Company was engaged in litigation with Platinum-Montaur Life Sciences LLC (“Platinum-Montaur”), an affiliate of Platinum Management (NY) LLC, Platinum Partners Value Arbitrage Fund L.P., Platinum Partners Capital Opportunity Fund, Platinum Partners Liquid Opportunity Master Fund L.P., Platinum Liquid Opportunity Management (NY) LLC, and Montsant Partners LLC (collectively, “Platinum”). The Platinum lawsuit was settled and dismissed in January 2022. In addition, the Company is engaged in ongoing litigation with our former President and Chief Executive Officer, Dr. Michael Goldberg.

 

The Company is also engaged in ongoing litigation with Capital Royalty Partners II L.P. (“CRG”). On August 30, 2022, the District Court of Harris County, Texas (the “Texas Court”) made an oral ruling from the bench at the conclusion of the trial, awarding CRG approximately $2.6 million in attorney’s fees on their breach of contract claims against Navidea and MT. A formal written final judgment was entered by the Texas Court on August 31, 2022, however, the written judgment did not identify the basis and reasoning in support of the decision. On September 9, 2022, Navidea filed a request for findings of fact and conclusions of law, asking that the Texas Court state in writing the facts found by the Court and the Court’s conclusions of law. On October 11, 2022, the Texas Court filed their findings of fact and conclusions of law, which includes conclusions of law that the amounts due are subject to an interest rate of 18% per annum. The Company has objected to many of the findings of fact and conclusions of law and to any attempt to amend the final judgment as being untimely. The Company is currently assessing the Texas Court’s judgment and determining what course of action to pursue, if any, in response to the ruling. As of September 30, 2022, the Company has accrued approximately $3.3 million of attorney’s fees and interest pursuant to the Texas Court’s ruling. See Note 10.

 

10

 

On April 10, 2022, the Company entered into a Stock Exchange and Loan Agreement (the “Purchase Agreement”) with John K. Scott, Jr., the current Vice Chairman of our Board of Directors, pursuant to which Mr. Scott agreed to make a loan to the Company in the principal amount of up to $2.5 million, of which $1.5 million was funded on the closing date. Mr. Scott funded an additional $1.0 million on July 1, 2022. The outstanding balance of the loan, which is evidenced by a Secured Term Note (the “Bridge Note”), bears interest at a rate of 8% per annum, with payments of interest only to be made monthly over a period of two years. All outstanding principal, accrued and unpaid interest under the Bridge Note is due and payable on the second anniversary of the Purchase Agreement. The Company’s obligations under the Bridge Note are secured by a first priority security interest in all of the Company’s assets and personal property pursuant to a Security Agreement. See Note 8.

 

On August 30, 2022, the Company closed on an offering to its stockholders and certain warrant holders as of August 3, 2022 of the right to purchase up to 35,000 units (“Units”) at a subscription price of $1,000 per Unit (the “Rights Offering”). The Rights Offering resulted in the sale of 10,423 Units for aggregate gross proceeds of $6,173,000 to the Company. Of the total 10,423 Units sold, 4,250 Units were sold in exchange for and the surrender of outstanding shares of our Series D Redeemable Convertible Preferred Stock (“Series D Preferred Stock”) and Series F Redeemable Convertible Preferred Stock (“Series F Preferred Stock”). Each Unit consisted of one share of Series I Convertible Preferred Stock (“Series I Preferred Stock”) which is convertible into 2,222 shares of Common Stock and one warrant to purchase an additional 2,222 shares of our Common Stock at $0.45 per share (“Warrant”). If exercised, additional gross proceeds of up to $11.6 million may be received through the exercise of Warrants issued in the Rights Offering. The Warrants are exercisable immediately, expire five years from the date of issuance and have an exercise price of $0.50 per share. Net proceeds after deducting fees and expenses of $963,270 related to the Rights Offering will be used to fund our pivotal Phase 3 clinical trial for rheumatoid arthritis (“RA”), obtaining regulatory approvals, working capital, and for general corporate purposes.

 

The Company has previously entered into an API Development Funding and Access Agreement (“API Development Agreement”) with a strategic partner for assistance with the development and supply of the active pharmaceutical ingredient (“API”) used to manufacture Lymphoseek (technetium Tc 99m tilmanocept) that is sold by the Company in countries other than the United States, Canada and Mexico. Under the API Development Agreement, among other things, the strategic partner agreed to reimburse the Company for up to a total of $1.85 million of the Company’s out-of-pocket costs associated with such development, in two installments, subject to specified commercial and regulatory milestones. On August 11, 2022, the Company received the first installment in the amount of $800,000, which is subject to clawback if the Company does not satisfy certain commercial and regulatory milestones on or before March 31, 2023. The strategic partner is obligated, subject to certain conditions, to pay the remaining reimbursement amount upon the later of July 1, 2023 or satisfaction of specified commercial and regulatory milestones.

 

We do not believe there has been a significant impact to the Company’s clinical development and regulatory timelines resulting from the ongoing COVID-19 global pandemic. However, the COVID-19 outbreak delayed enrollment in our NAV3-32 clinical study in the United Kingdom (“UK”) due to national COVID-19-related shutdowns. In addition, the regulatory approval process in India was delayed by the impact of COVID-19 in that country.

 

The current conflict between Ukraine and Russia has created extreme volatility in the global capital markets and is expected to have further global economic consequences, including disruptions of the global supply chain and energy markets. Any such volatility and disruptions may have adverse consequences on us or the third parties who operate in Europe on whom we rely. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any debt or equity financing more difficult to obtain, more costly or more dilutive.

 

The Company has experienced recurring net losses and has used significant cash to fund its operations. The Company has considerable discretion over the extent of development project expenditures and has the ability to curtail the related cash flows as needed. The Company also continues working to establish new sources of funding, including potential equity and/or debt financings, collaborations and additional grant funding that can augment the balance sheet. However, based on our current working capital and our projected cash burn, management believes that there is substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the filing of this Quarterly Report on Form 10-Q.

 

 

3.

Revenue from Contracts with Customers

 

Navidea is focused on the development and commercialization of precision immunodiagnostic agents and immunotherapeutics. We manage our business based on two primary types of drug products: (i) diagnostic substances, including Tc99m tilmanocept and other diagnostic applications of our Manocept platform, and (ii) therapeutic development programs, including all therapeutic applications of our Manocept platform. Tc99m tilmanocept, which the Company has a license to distribute outside of Canada, Mexico and the United States, is the only one of the Company’s drug product candidates that has been approved for sale in any market. Tc99 tilmanocept has only been approved for sale in the European Union (“EU”), the UK, India and Australia.

 

We earn revenue from product sales to end customers, primarily in Europe. Revenue from product sales is generally recognized at the point where the customer obtains control of the goods and we satisfy our performance obligation, which occurs upon either shipment of the product or arrival at its destination, depending upon the shipping terms of the transaction. Our customers have no right to return products purchased in the ordinary course of business, however, we may allow returns in certain circumstances based on specific agreements. Normal payment terms generally range from 30 to 90 days from invoice date, in accordance with each contract or purchase order.

 

11

 

The Company also recognizes revenue from up-front license fees and pre-market milestones after the cash has been received from its customers and the performance obligations have been met. Payments for sales-based royalties and milestones are generally received after the related revenue has been recognized and invoiced. Normal payment terms generally range from 15 to 90 days following milestone achievement or royalty invoice, in accordance with each contract.

 

Up-front and milestone payments received related to our license and distribution agreements in India and China are deferred until Tc99m tilmanocept has been approved by the regulatory authorities and product sales are authorized to commence in each of those countries. The Company received regulatory approval for Tc99m tilmanocept in India in late March 2022, however certain additional approvals, such as an import license and authorization to use an alternative manufacturer, must be obtained prior to commercial sales launch in India. It is not possible to determine with any degree of certainty whether or when regulatory approval for this product will be achieved in China, if at all. In addition, since sales of Tc99m tilmanocept have not yet begun in India or China, there is no basis for estimating whether, to what degree, or the rate at which the product will be accepted and utilized in these markets. Therefore, it is not possible to determine with any degree of certainty the expected sales in future periods in those countries. As such, the Company intends to recognize revenue from up-front and milestone payments on a straight-line basis beginning at the time of commercial sales launch in each country through the end of the initial term of each agreement. The initial term of each agreement is eight years in India and ten years in China.

 

The transaction price of a contract is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. Transaction prices do not include amounts collected on behalf of third parties (e.g., sales taxes). To determine the transaction price of a contract, the Company considers the terms of the contract. For the purpose of determining transaction prices, the Company assumes that the goods or services will be transferred to the customer as promised in accordance with existing contracts and that the contracts will not be cancelled, renewed, or modified.

 

When estimating a contract’s transaction price, the Company considers all the information (historical, current, and forecasted) that is reasonably available to it and identifies possible consideration amounts. Most of the Company’s contracts with customers include both fixed and variable components of the transaction price. Under those contracts, some or all of the consideration for satisfied performance obligations is contingent on events over which the Company has no direct influence. For example, regulatory approval or product sales volume milestones are contingent upon the achievement of those milestones by the distributor. Additionally, the prices charged to end users of Tc99m tilmanocept, upon which royalty payments are based in India and China, are set by the distributor in each of those countries.

 

The milestone payments have a binary outcome (that is, the Company will either receive all or none of each milestone payment) and can be estimated using the most-likely-amount method. Taking into account the constraint on variable consideration, the Company has assessed the likelihood of achieving the non-sales-based milestone payments in our current contracts and has determined that it is probable the milestones will be achieved and the Company will receive the consideration. Accordingly, it is probable that including those payments in the transaction price will not result in a significant revenue reversal when the contingency is resolved. Therefore, the amount of the non-sales-based milestone payments is included in the transaction price.

 

Royalties are estimated based on the expected value method because they are based on a variable amount of sales representing a range of possible outcomes. However, when taking into account the constraint on variable consideration, the estimate of future royalties included in the transaction price is generally $0. This conclusion is based on the fact that Tc99m tilmanocept is early in the commercial launch process in Europe and Australia, and sales have not yet begun in India or China, therefore there is currently no basis for estimating whether, to what degree, or the rate at which the product will be accepted and utilized in these markets. Similarly, we currently have no basis for estimating whether sales-based milestones will ever be achieved. Accordingly, the Company recognizes revenue from royalties when the related sales occur and from sales-based milestones when they are achieved.

 

Up-front fees, milestones and royalties are generally non-refundable. Therefore, the Company does not estimate expected refunds nor do we adjust revenue downward. The Company will evaluate and update the estimated transaction prices of its contracts with customers at the end of each reporting period.

 

During the three-month periods ended September 30, 2022 and 2021, the Company recognized revenue from contracts with customers of $7,516 and $9,116, respectively. During the nine-month periods ended September 30, 2022 and 2021, the Company recognized revenue from contracts with customers of $14,035 and $44,665, respectively. During the three-month and nine-month periods ended September 30, 2022 and 2021, the Company did not recognize any related impairment losses, nor did the Company recognize any revenue from performance obligations associated with long-term contracts that were satisfied (or partially satisfied) in previous periods.

 

12

 

The following table disaggregates the Company’s revenue from contracts with customers for the three-month and nine-month periods ended September 30, 2022 and 2021.

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Sales revenue:

                

Tc99m tilmanocept - Europe

 $7,516  $  $14,035  $ 
                 

License revenue:

                

Tc99m tilmanocept - Europe

 $  $9,116  $  $44,665 

 

The following economic factors affect the nature, amount, timing and uncertainty of the Company’s revenue and cash flows as indicated:

 

Geographical Location of Customers: Drug pricing models vary among different markets, which in turn may affect the royalty rates and milestones we are able to negotiate with our distributors in those markets. Royalty rates and milestone payments vary by contract but may be based in part on the potential market size in each territory. In the case of Tc99m tilmanocept, royalty rates for Europe were lower than rates in India but higher than in China.

 

Status of Regulatory Approval: The majority of revenue from contracts with customers will generally be recognized after the product is approved for sale in each market. Each Tc99m tilmanocept customer operates in its own distinct regulatory environment, and the laws and pathways to drug product approval vary by market. Tc99m tilmanocept has been approved for sale in the EU and the UK, thus the Company recognized revenue from sales in Europe. Tc99m tilmanocept was approved for sale in India in March 2022, however product sales have not yet commenced. Tc99m tilmanocept has not yet been approved for sale in China and may never achieve approval in that market. The regulatory pathways and timelines in China will impact whether and when the Company recognizes the related royalties and milestones.

 

Through September 30, 2022, the Company has not capitalized any contract-related costs as contract assets.

 

The following table summarizes the changes in contract liabilities during the three-month and nine-month periods ended September 30, 2022 and 2021.

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2022

  

2021

  

2022

  

2021

 
Total deferred revenue related to contracts with customers, beginning of period $700,000  $700,000