Organization and Summary of Significant Accounting Policies

a.

Navidea Biopharmaceuticals, Inc. (“Navidea,” the “Company,” or “we”), a Delaware Corporation (NYSE American: NAVB), is a biopharmaceutical company focused on the development and commercialization of precision immunodiagnostic agents and immunotherapeutics. Navidea is developing multiple precision-targeted products based on our Manocept™ platform to help identify the sites and pathways of undetected disease and enable better diagnostic accuracy, clinical decision-making, targeted treatment and, ultimately, patient care.

b.

Our consolidated financial statements include the accounts of Navidea and our wholly-owned subsidiaries, Navidea Biopharmaceuticals Limited and Cardiosonix Ltd, as well as those of our majority-owned subsidiary, MT. All significant inter-company accounts were eliminated in consolidation. Prior to termination of Navidea’s joint venture with R-NAV, LLC (“R-NAV”) in Navidea's investment in R-NAV was being accounted for using the equity method of accounting and was therefore consolidated. See Note

c.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

d.

In accordance with current accounting standards, the fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level measurements) and the lowest priority to unobservable inputs (Level measurements). The levels of the fair value hierarchy are described below:

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Cash, restricted cash,

The carrying amounts approximate fair value because of the short maturity of these instruments. At restricted cash represents the balance in an account that was under the control of Capital Royalty Partners II L.P. (“CRG”). See Note At and approximately and respectively, of accounts payable was being disputed by the Company related to unauthorized expenditures by a former executive, which were incurred during the year ended

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Notes payable:

The carrying value of our debt at and primarily consists of the face amount of the notes less unamortized discounts. At and the conversion option of certain notes payable was required to be recorded at fair value. The estimated fair value of the conversion option was calculated using a Monte Carlo simulation. This valuation method includes Level inputs such as the estimated current market interest rate for similar instruments with similar creditworthiness. Unrealized gains and losses on the fair value of the conversion option are classified in other expenses as a change in the fair value of financial instruments in the consolidated statements of operations. At the fair value of the conversion option is approximately . At the fair value of our notes payable was approximately million, equal to the carrying value of million. At the fair value of our notes payable was approximately million, equal to the carrying value of million. See Notes and

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Derivative liabilities:

Derivative liabilities are related to certain outstanding warrants which are recorded at fair value. Derivative liabilities totaling as of and were included in other liabilities on the consolidated balance sheets. The assumptions used to calculate fair value as of and included volatility, a risk-free rate and expected dividends. In addition, we considered non-performance risk and determined that such risk is minimal. Unrealized gains and losses on the derivatives are classified in other expenses as a change in the fair value of financial instruments in the statements of operations. See Note

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Warrants:

In in connection with the Asset Sale, the Company granted to each of Cardinal Health and the University of California, San Diego, (“UCSD”), a -year warrant to purchase up to million shares and million shares, respectively, of the Company’s common stock at an exercise price of per share, each of which warrant is subject to anti-dilution and other customary terms and conditions (the “Series NN warrants”). The assumptions used to calculate fair value at the date of issuance included volatility, a risk-free rate and expected dividends. The Series NN warrants granted to Cardinal Health had an estimated fair value of million, which was recorded as a reduction of the gain on sale in the consolidated statement of operations for the year ended The Series NN warrants granted to UCSD had an estimated fair value of which was recorded as an intangible asset related to the UCSD license in the consolidated balance sheet during the year ended See Note

e.

At we had instruments outstanding under stock-based compensation plans; the Fourth Amended and Restated Stock Incentive Plan (the Plan”) and the Stock Incentive Plan (the Plan”). Currently, under the Plan, we grant incentive stock options, nonqualified stock options, and restricted stock awards to full-time employees and directors, and nonqualified stock options and restricted stock awards be granted to our consultants and agents. Total shares authorized under each plan are million shares and million shares, respectively. Although instruments are still outstanding under the Plan, the plan has expired and new grants be made from it. Under both plans, the exercise price of each option is greater than or equal to the closing market price of our common stock on the date of the grant.

f.

Cash equivalents are highly liquid instruments such as U.S. Treasury bills, bank certificates of deposit, corporate commercial paper and money market funds which have maturities of less than months from the date of purchase.

g.

Accounts and other receivables are recorded net of an allowance for doubtful accounts. We estimate an allowance for doubtful accounts based on a review and assessment of specific accounts and other receivables and write off accounts when deemed uncollectible.  See Note

h.

All components of inventory are valued at the lower of cost (-in, -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

i.

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is generally computed using the straight-line method over the estimated useful lives of the depreciable assets. Depreciation and amortization related to equipment under capital leases and leasehold improvements is recognized over the shorter of the estimated useful life of the leased asset or the term of the lease. Maintenance and repairs are charged to expense as incurred, while renewals and improvements are capitalized. See Note

j.

Intangible assets consist primarily of patents and trademarks. Intangible assets are stated at cost, less accumulated amortization. Patent costs are amortized using the straight-line method over the estimated useful lives of the patents of approximately to 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 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.

k.

Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. impairment was recognized during the years ended or Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

l.

Leases are categorized as either operating or capital leases at inception. Operating lease costs are recognized on a straight-line basis over the term of the lease. An asset and a corresponding liability for the capital lease obligation are established for the cost of capital leases. The capital lease obligation is amortized over the life of the lease. For build-to-suit leases, the Company establishes an asset and liability for the estimated construction costs incurred to the extent that it is involved in the construction of structural improvements or takes construction risk prior to the commencement of the lease. Upon occupancy of facilities under build-to-suit leases, the Company assesses whether these arrangements qualify for sales recognition under the sale-leaseback accounting guidance. If a lease does meet the criteria to qualify for a sale-leaseback transaction, the established asset and liability remain on the Company's balance sheet. See Note

m.

Derivative instruments embedded in contracts, to the extent already a free-standing contract, are bifurcated from the debt instrument and accounted for separately. All derivatives are recorded on the consolidated balance sheet at fair value in accordance with current accounting guidelines for such complex financial instruments. Derivative liabilities with expiration dates within year are classified as current, while those with expiration dates in more than year are classified as long term. We do use derivative instruments for hedging of market risks or for trading or speculative purposes.

n

Prior to the Asset Sale to Cardinal Health in we generated revenue primarily from sales of Lymphoseek. Our standard shipping terms are free on board (FOB) shipping point, and title and risk of loss passes to the customer upon delivery to a carrier for shipment. We generally recognize sales revenue related to sales of our products when the products are shipped. Our customers have right to return products purchased in the ordinary course of business, however, we allow returns in certain circumstances based on specific agreements.

o

Research and development (“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.

p.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Due to the uncertainty surrounding the realization of the deferred tax assets in future tax returns, all of the deferred tax assets have been fully offset by a valuation allowance at and

q

In the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) - , which supersedes existing revenue recognition guidance under U.S. GAAP. The core principle of ASU - is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU - defines a -step process that requires companies to exercise more judgment and make more estimates than under the current guidance. These include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. Since the issuance of ASU - several additional ASUs have been issued and incorporated within Topic to clarify various elements of the guidance. ASU - allows a choice of transition methods: (a) a full retrospective adoption in which the standard is applied to all of the periods presented, or (b) a modified retrospective adoption in which the standard is applied only to the most current period presented in the financial statements with a cumulative-effect adjustment reflected in retained earnings. ASU - also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU - is effective for annual reporting periods beginning after including interim periods within those periods.