Quarterly report pursuant to Section 13 or 15(d)

Note 1 - Summary of Significant Accounting Policies

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Note 1 - Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2018
Notes to Financial Statements  
Significant Accounting Policies [Text Block]
1.
Summary of Significant Accounting Policies
 
 
a.
Basis of Presentation:
The information presented as of
June 30, 2018
and for the
three
-month and
six
-month periods ended
June 30, 2018
and
2017
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. The balances as of
June 30, 2018
and the results for the interim periods are
not
necessarily indicative of results to be expected for the year. The consolidated financial statements should be read in conjunction with Navidea’s audited consolidated financial statements for the year ended
December 
31,
2017,
which were included as part of our Annual Report on Form
10
-K.
 
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, Macrophage Therapeutics, Inc. (“MT”). All significant inter-company accounts were eliminated in consolidation. Cardiosonix was legally dissolved in
September 2017.
 
On
March 3, 2017,
pursuant to an Asset Purchase Agreement dated
November 23, 2016 (
the “Purchase Agreement”), the Company completed its previously announced sale to Cardinal Health
414,
LLC (“Cardinal Health
414”
) of its assets used, held for use, or intended to be used in operating its business of developing, manufacturing and commercializing a product used for lymphatic mapping, lymph node biopsy, and the diagnosis of metastatic spread to lymph nodes for staging of cancer (the “Business”), including the Company’s radioactive diagnostic agent marketed under the Lymphoseek
®
trademark for current approved indications by the U.S. Food and Drug Administration (“FDA”) and similar indications approved by the FDA in the future (the “Product”), in Canada, Mexico and the United States (the “Territory”) (giving effect to a License-Back Agreement and excluding certain assets specifically retained by the Company) (the “Asset Sale”). Such assets sold in the Asset Sale consist primarily of, without limitation, (i) intellectual property used in or reasonably necessary for the conduct of the Business, (ii) inventory of, and customer, distribution, and product manufacturing agreements related to, the Business, (iii) all product registrations related to the Product, including the new drug application approved by the FDA for the Product and all regulatory submissions in the United States that have been made with respect to the Product and all Health Canada regulatory submissions and, in each case, all files and records related thereto, (iv) all related clinical trials and clinical trial authorizations and all files and records related thereto, and (v) all rights, title and interest in and to the Product, as specified in the Purchase Agreement (the “Acquired Assets”).
 
Upon closing of the Asset Sale, the Supply and Distribution Agreement dated
November 15, 2007,
as amended, between Cardinal Health
414
and the Company was terminated and, as a result, the provisions thereof are of
no
further force or effect (other than any indemnification, payment, notification or data sharing obligations which survive the termination).
 
Our consolidated balance sheets and statements of operations have been reclassified, as required, for all periods presented to reflect the Business as a discontinued operation. Cash flows associated with the operation of the Business have been combined with operating, investing and financing cash flows, as appropriate, in our consolidated statements of cash flows. See Note
3.
 
Certain prior period amounts also have been reclassified to conform with the current year’s presentation, including the adoption of Accounting Standards Update (“ASU”)
No.
2014
-
09,
Revenue from Contracts with Customers
,
and cash flows related to loss on extinguishment of debt.
 
 
b.
Financial Instruments and Fair Value:
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
1
measurements) and the lowest priority to unobservable inputs (Level
3
measurements). The
three
levels of the fair value hierarchy are described below:
 
Level
1
– Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
 
Level
2
– Quoted prices in markets that are
not
active or financial instruments for which all significant inputs are observable, either directly or indirectly; and
 
Level
3
– Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
 
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. In determining the appropriate levels, we perform a detailed analysis of the assets and liabilities whose fair value is measured on a recurring basis. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or
no
price transparency are classified as Level
3.
See Note
5.
 
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
 
 
(
1
)
Cash, available-for-sale securities, accounts and other receivables, and accounts payable:
The carrying amounts approximate fair value because of the short maturity of these instruments. At
June 30, 2018
and
December 31, 2017,
approximately
$96,000
of accounts payable was being disputed by the Company related to unauthorized expenditures by a former executive during
2016.
 
 
(
2
)
Notes payable:
The carrying value of our debt at
June 30, 2018
and
December 
31,
2017
primarily consisted of the face amount of the notes less unamortized discounts. At
June 30, 2018,
the fair value of our notes payable was approximately
$2.2
million, equal to the carrying value of
$2.2
million. At
December 31, 2017,
the fair value of our notes payable was approximately
$2.4
million, equal to the carrying value of
$2.4
million. See Note
9.
 
 
(
3
)
Derivative liabilities:
Derivative liabilities are related to certain outstanding warrants which are recorded at fair value. Derivative liabilities totaling
$63,000
as of
June 30, 2018
and
December 31, 2017
are included in other liabilities on the consolidated balance sheets. The assumptions used to calculate fair value as of
June 30, 2018
and
December 31, 2017
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
5.
 
 
(
4
)
Warrants:
In
March 2017,
in connection with the Asset Sale, the Company granted to each of Cardinal Health
414
and the University of California, San Diego, (“UCSD”), a
five
-year warrant to purchase up to
10
million shares and
1
million shares, respectively, of the Company’s common stock at an exercise price of
$1.50
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
414
had an estimated fair value of
$3.3
million, which was recorded as a reduction of the gain on sale in the consolidated statement of operations for the
six
-month period ended
June 30, 2017.
The Series NN warrants granted to UCSD had an estimated fair value of
$334,000,
which was recorded as an intangible asset related to the UCSD license in the consolidated balance sheet at the time of issuance. See Note
13.
 
 
c.
Revenue Recognition:
We currently generate revenue primarily from grants to support various product development initiatives. We generally recognize grant revenue when expenses reimbursable under the grants have been paid and payments under the grants become contractually due.
 
We also 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 costs, milestone payments, and royalties. Each licensing and distribution agreement is unique and requires separate assessment in accordance with current accounting standards. See Note
4.
 
 
d.
Recently Adopted Accounting Standards:
In
May 2014,
the Financial Accounting Standards Board (“FASB”) issued ASU
2014
-
09,
Revenue from Contracts with Customers (Topic
606
)
, which supersedes existing revenue recognition guidance under U.S. GAAP. The core principle of ASU
2014
-
09
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
2014
-
09
defines a
five
-step process that requires companies to exercise more judgment and make more estimates than under the current guidance. These
may
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
2014
-
09,
several additional ASUs have been issued and incorporated within Topic
606
to clarify various elements of the guidance. ASU
2014
-
09
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
2014
-
09
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
2014
-
09
is effective for annual reporting periods beginning after
December 15, 2017,
including interim periods within those periods.
 
In
March 2016,
the FASB issued ASU
No.
2016
-
08,
Revenue from Contracts with Customers – Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
.  ASU
2016
-
08
does
not
change the core principle of the guidance, rather it clarifies the implementation guidance on principal versus agent considerations.  ASU
2016
-
08
clarifies the guidance in ASU
No.
2014
-
09,
Revenue from Contracts with Customers (Topic
606
)
, which is
not
yet effective.  The effective date and transition requirements for ASU
2016
-
08
are the same as for ASU
2014
-
09,
which was deferred by
one
year by ASU
No.
2015
-
14,
Revenue from Contracts with Customers – Deferral of the Effective Date
.  Public business entities should adopt the new revenue recognition standard for annual reporting periods beginning after
December 15, 2017,
including interim periods within that year.  Early adoption is permitted only as of annual reporting periods beginning after
December 15, 2016,
including interim periods within that year.
 
In
April 2016,
the FASB issued ASU
No.
2016
-
10,
Revenue from Contracts with Customers – Identifying Performance Obligations and Licensing
.  ASU
2016
-
10
does
not
change the core principle of the guidance, rather it clarifies the identification of performance obligations and the licensing implementation guidance, while retaining the related principles for those areas.  ASU
2016
-
10
clarifies the guidance in ASU
No.
2014
-
09,
Revenue from Contracts with Customers (Topic
606
)
, which is
not
yet effective.  The effective date and transition requirements for ASU
2016
-
10
are the same as for ASU
2014
-
09,
which was deferred by
one
year by ASU
No.
2015
-
14,
Revenue from Contracts with Customers – Deferral of the Effective Date
.  Public business entities should adopt the new revenue recognition standard for annual reporting periods beginning after
December 15, 2017,
including interim periods within that year.  Early adoption is permitted only as of annual reporting periods beginning after
December 15, 2016,
including interim periods within that year.
 
In
May 2016,
the FASB issued ASU
No.
2016
-
12,
Revenue from Contracts with Customers – Narrow-Scope Improvements and Practical Expedients
. ASU
2016
-
12
does
not
change the core principle of the guidance, rather it affects only certain narrow aspects of Topic
606,
including assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. ASU
2016
-
12
affects the guidance in ASU
No.
2014
-
09,
Revenue from Contracts with Customers (Topic
606
)
, which is
not
yet effective. The effective date and transition requirements for ASU
2016
-
12
are the same as for ASU
2014
-
09,
which was deferred by
one
year by ASU
No.
2015
-
14,
Revenue from Contracts with Customers – Deferral of the Effective Date
. Public business entities should adopt the new revenue recognition standard for annual reporting periods beginning after
December 15, 2017,
including interim periods within that year. Early adoption is permitted only as of annual reporting periods beginning after
December 15, 2016,
including interim periods within that year.
 
In
December 2016,
the FASB issued ASU
No.
2016
-
20,
Technical Corrections and Improvements to Topic
606,
Revenue from Contracts with Customers
. ASU
2016
-
20
does
not
change the core principle of the guidance, rather it affects only certain narrow aspects of Topic
606,
including loan guarantee fees, contract cost impairment testing, provisions for losses on construction- and production-type contracts, clarification of the scope of Topic
606,
disclosure of remaining and prior-period performance obligations, contract modification, contract asset presentation, refund liability, advertising costs, fixed-odds wagering contracts in the casino industry, and cost capitalization for advisors to private and public funds. ASU
2016
-
20
affects the guidance in ASU
No.
2014
-
09,
Revenue from Contracts with Customers (Topic
606
)
, which is
not
yet effective. The effective date and transition requirements for ASU
2016
-
12
are the same as for ASU
2014
-
09,
which was deferred by
one
year by ASU
No.
2015
-
14,
Revenue from Contracts with Customers – Deferral of the Effective Date
. Public business entities should adopt the new revenue recognition standard for annual reporting periods beginning after
December 15, 2017,
including interim periods within that year. Early adoption is permitted only as of annual reporting periods beginning after
December 15, 2016,
including interim periods within that year.
 
We adopted ASU
2014
-
09,
along with additional related ASUs
2016
-
08,
2016
-
10,
2016
-
12
and
2016
-
20,
effective
January 1, 2018
using the modified retrospective method of adoption. The adoption of ASU
2014
-
09
and related ASUs resulted in increases in deferred revenue and accumulated deficit of
$700,000
.
See Note
4.
 
In
November 2016,
the FASB issued ASU
No.
2016
-
18,
Statement of Cash Flows – Restricted Cash
. ASU
2016
-
18
requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash or equivalents. Therefore, restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU
2016
-
18
is effective for public business entities for fiscal years beginning after
December 15, 2017,
and interim periods within those fiscal years. Early adoption in permitted, including adoption in an interim period. If an entity early adopts ASU
2016
-
18
in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. We adopted ASU
2016
-
18
effective
January 1, 2018.
The adoption of ASU
2016
-
18
resulted in reclassification of
$5.0
million of restricted cash in the consolidated statement of cash flows for the
three
-month period ended
March 31, 2017.
 
In
March 2018,
the FASB issued ASU
No.
2018
-
05,
Income Taxes
(Topic
740
)
– Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin
No.
118
. ASU
2018
-
05
amends Accounting Standards Codification (“ASC”) Topic
740
to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the “Tax Act”) pursuant to Staff Accounting Bulletin
No.
118.
ASU
2018
-
05
addresses situations where the accounting under ASC Topic
740
is incomplete for certain income tax effects of the Tax Act upon issuance of the entity’s financial statements for the reporting period in which the Tax Act was enacted. The adoption of ASU
2018
-
05
in
March 2018
did
not
have a material effect on our consolidated financial statements.
 
 
e.
Recent
ly Issued A
ccounting Standards:
In
February 2016,
the FASB issued ASU
No.
2016
-
02,
Leases (Topic
842
)
. ASU
2016
-
02
requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. The core principle of Topic
842
is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU
2016
-
02
is effective for public business entities for fiscal years beginning after
December 15, 2018,
including interim periods within those fiscal years. Early adoption is permitted. We have begun our assessment of the impact of adopting ASU
2016
-
02,
and expect to complete that process during the
third
quarter of
2018.
We expect the adoption of ASU
2016
-
02
to result in an increase in right-of-use assets and lease liabilities on our consolidated statement of financial position related to our leases that are currently classified as operating leases, primarily for office space.
 
In
June 2018,
the FASB issued ASU
No.
2018
-
07,
Compensation—Stock Compensation (Topic
718
) – Improvements to Nonemployee Share-Based Payment Accounting
. ASU
2018
-
07
expands the scope of Topic
718
to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic
718
to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. ASU
2018
-
07
specifies that Topic
718
applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards, and that Topic
718
does
not
apply to share-based payments used to effectively provide (
1
) financing to the issuer or (
2
) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic
606,
Revenue from Contracts with Customers
. ASU
2018
-
07
is effective for public business entities for fiscal years beginning after
December 15, 2018,
including interim periods within that fiscal year. The adoption of ASU
2018
-
07
is
not
expected to have a significant impact on our consolidated financial statements.
 
In
July 2018,
the FASB issued ASU
No.
2018
-
09,
Codification Improvements
. ASU
2018
-
09
updates a variety of topics in order to clarify, correct errors, or make minor improvements to the Codification, making it easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. Certain amendments in ASU
2015
-
09
are effective upon issuance, others are effective for annual periods beginning after
December 15, 2018
for public business entities, and some have been made to recently issued guidance and will be subject to the effective dates within the relevant guidance. The adoption of ASU
2018
-
09
is
not
expected to have a significant impact on our consolidated financial statements.