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 enhance patient care by identifying the sites and pathways of undetected disease and enable better diagnostic accuracy, clinical decision-making and targeted treatment.

Our consolidated financial statements include the accounts of Navidea and our wholly-owned subsidiaries, Navidea Europe and Navidea UK, as well as those of our majority-owned subsidiary, MT. All significant inter-company accounts were eliminated in consolidation.

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.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

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  The carrying amounts approximate fair value because of the short maturity of these instruments.

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  The carrying value of our debt as of and primarily consisted of the face amount of the notes plus accrued interest. As of and the fair value of our notes payable was approximately and respectively, both amounts equal to the carrying value of the notes payable. See Note

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  In in connection with an underwriting agreement (the “Underwriting Agreement”) between the Company and H.C. Wainwright & Co., LLC (the “Underwriter”) related to a public offering, the Company issued to the Underwriter warrants to purchase shares of Common Stock, representing of the aggregate number of shares of Common Stock sold in the offering (the “Series OO Warrants”). The Series OO Warrants had an estimated fair value of at the date of issuance, which was recorded in additional paid-in capital as a reduction of the gross proceeds raised in the public offering. The assumptions used to calculate fair value of the Series OO Warrants included volatility of a risk-free rate of and expected dividends of See Note (b).

As of we had instruments outstanding under stock-based compensation plans; the Fourth Amended and Restated Stock Incentive Plan (the Plan”) and the Amended and Restated 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 the Plan is shares. 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.

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.

Stock subscriptions 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 against the allowance account when deemed uncollectible. See Note

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 probably 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

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. Amortization related to leasehold improvements is recognized over the shorter of the estimated useful life of the leasehold improvement or the term of the lease. Maintenance and repairs are charged to expense as incurred, while renewals and improvements are capitalized. See Note

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 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. During and we capitalized patent and trademark costs of and respectively. During and we abandoned patents with previously-capitalized patent costs of and respectively.

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.

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 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 Platinum debt, which was secured and outstanding for most of 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 as identified for purposes of compensation analysis. Short-term operating leases which have an initial term of months or less are 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 consolidated statements of operations. See Note

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.

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.

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 as of and

The Company evaluated the provisions of the Series C and Series D Preferred Stock under Accounting Standards Codification (“ASC”) , ASC , ASC , and Accounting Series Release (“ASR”) “.” Based on this evaluation, the Company determined that neither the Series C nor Series D Preferred Stock is a mandatorily redeemable financial instrument and any obligation to issue a variable number of shares of Common Stock is unconditional. Accordingly, the Series C and Series D Preferred Stock should be classified as equity. Neither the embedded conversion option nor the embedded call option meet the criteria to be separated from the Series C or Series D Preferred stock and thus these features should be bifurcated and accounted for as derivatives. Additionally, both the Series C and Series D Preferred Stock contain a beneficial conversion feature (“BCF”) that results in an increase to additional paid-in capital and a discount on the Series C and Series D Preferred Stock. The discount on the Series C and Series D Preferred Stock is considered to be fully amortized at the date of issuance because the Series C and Series D Preferred Stock are immediately convertible. This results in a deemed dividend at the date of issuance for the amount of the BCF. Finally, the Company determined that the conversion features of the Series D Preferred Stock cannot result in the Company being required to redeem a portion of the shares converted, thus the Series D Preferred Stock should be classified in mezzanine equity. See Note

In the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) - . ASU - requires the recognition of right-of-use lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. The core principle of Topic 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.

In the FASB issued ASU - . ASU - is intended to improve consistent application and simplify the accounting for income taxes. ASU - removes certain exceptions to the general principles in Topic and clarifies and amends existing guidance. ASU - is effective for annual and interim reporting periods beginning after with early adoption permitted. We do expect the adoption of ASU - to have a material impact on our consolidated financial statements.