Annual report pursuant to Section 13 and 15(d)

Significant Accounting Policies (Policies)

Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2020

Nature of Operations [Policy Text Block]

Organization and Nature of Operations:

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.

Navidea's Manocept platform is predicated on the ability to specifically target the

CD206

mannose receptor expressed on activated macrophages. The Manocept platform serves as the molecular backbone of

Tc99m

tilmanocept, the

first

product developed and commercialized by Navidea based on the platform. Other than

Tc99m

tilmanocept, which the Company has a license to distribute outside of Canada, Mexico and the United States,

none

of the Company's drug product candidates have been approved for sale in any market.

July 2011,

we established a British business unit, Navidea Biopharmaceuticals Limited (“Navidea UK”), to address European and international development and commercialization needs for our technologies, including

Tc99m

tilmanocept. Navidea owns

100%

of the outstanding shares of Navidea UK.

January 2015,

Macrophage Therapeutics, Inc. (“MT”) was formed specifically to explore immuno-therapeutic applications for the Manocept platform. Navidea owns

99.9%

of the outstanding shares of MT.

June 2020,

in anticipation of the United Kingdom's separation from the European Union (“Brexit”), we established an Irish entity, Navidea Biopharmaceuticals Europe Limited (“Navidea Europe”). Following Brexit, Navidea Europe allows us to continue to develop and commercialize our technologies within the European Union (“EU”) as well as internationally. Navidea owns

100%

of the outstanding shares of Navidea Europe.

April 26, 2019,

the Company effected a

one

-for-

twenty

reverse stock split of its issued and outstanding shares of its common stock, par value

$.001

per share (“Common Stock”). As a result of the reverse split, each

twenty

pre-split shares of Common Stock outstanding automatically combined into

one

new share of Common Stock. The number of outstanding shares of Common Stock was reduced from approximately

201.0

million to approximately

10.1

million shares. The authorized number of shares of Common Stock was

not

reduced and remains at

300.0

million. The par value of the Company's Common Stock remained unchanged at

$0.001

per share after the reverse split. Our consolidated balance sheets, statements of operations, statements of stockholders' equity (deficit), and accompanying notes to the financial statements have been restated, as required, for all periods presented to reflect the reverse stock split as if it had occurred on

January 1, 2019.

Our consolidated statements of cash flows were

not

impacted by the reverse stock split.

Consolidation, Policy [Policy Text Block]

b.	Principles of Consolidation: 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.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates:

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.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Financial Instruments and Fair Value:

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

(

)

Cash and cash equivalents, stock subscriptions and other receivables, and accounts payable:

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

(

)

Notes payable:

The carrying value of our debt as of

December 31, 2020

and

2019

primarily consisted of the face amount of the notes plus accrued interest. As of

December 31, 2020

and

2019,

the fair value of our notes payable was approximately

$745,000

and

$306,000,

respectively, both amounts equal to the carrying value of the notes payable. See Note

11.

(

)

Warrants:

June 2019,

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

600,000

shares of Common Stock, representing

7.5%

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

$261,000

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

88.6%,

a risk-free rate of

1.8%

and expected dividends of

$0.

See Note

(b).

Share-based Payment Arrangement [Policy Text Block]

Stock-Based Compensation:

As of

December 31, 2020,

we had instruments outstanding under

two

stock-based compensation plans; the Fourth Amended and Restated

2002

Stock Incentive Plan (the

“2002

Plan”) and the Amended and Restated

2014

Stock Incentive Plan (the

“2014

Plan”). Currently, under the

2014

Plan, we

may

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

may

be granted to our consultants and agents. Total shares authorized under the

2014

Plan is

1,750,000

shares. Although instruments are still outstanding under the

2002

Plan, the plan has expired and

new grants

may

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.

Stock options granted under the

2002

Plan and the

2014

Plan generally vest on an annual basis over

one

four

years. Outstanding stock options under the plans, if

not

exercised, generally expire

ten

years from their date of grant or up to

days following the date of an optionee's separation from employment with the Company. We issue new shares of our Common Stock upon exercise of stock options.

Stock-based payments to employees and directors, including grants of stock options and restricted stock, are recognized in the statements of operations based on their estimated fair values on the date of grant, subject to an estimated forfeiture rate. The fair value of each option award with time-based vesting provisions is estimated on the date of grant using the Black-Scholes option pricing model. The determination of fair value using the Black-Scholes option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables, including expected stock price volatility, risk-free interest rate, expected dividends and projected employee stock option behaviors. The fair value of each option award with market-based vesting provisions is estimated on the date of grant using a Monte Carlo simulation. The determination of fair value using a Monte Carlo simulation is affected by our stock price as well as assumptions regarding a number of complex and subjective variables, including expected stock price volatility, risk-free interest rate, expected dividends and projected employee stock option behaviors.

Expected volatilities are based on the Company's historical volatility, which management believes represents the most accurate basis for estimating expected future volatility under the current circumstances. Navidea uses historical data to estimate forfeiture rates. The expected term of stock options granted is based on the vesting period and the contractual life of the options. The risk-free rate is based on the U.S. Treasury yield in effect at the time of the grant. The assumptions used to calculate the fair value of stock option awards granted during the years ended

December 31, 2020

and

2019

are noted in the following table:

	2020			2019
Expected volatility	86%	-	102%	76%	-	93%
Weighted-average volatility		92%			86%
Expected forfeiture rate	7.0%	-	10.5%	15.1%	-	15.5%
Expected term (in years)	5.5	-	6.0	3.5	-	6.0
Risk-free rate	0.4%	-	1.5%	2.4%	-	2.5%
Expected dividends		—			—

The portion of the fair value of stock-based awards that is ultimately expected to vest is recognized as compensation expense over either (

) the requisite service period or (

) the estimated performance period. Restricted stock awards are valued based on the closing stock price on the date of grant and amortized ratably over the estimated life of the award. Restricted stock

may

vest based on the passage of time, or upon occurrence of a specific event or achievement of goals as defined in the grant agreements. In such cases, we record compensation expense related to grants of restricted stock based on management's estimates of the probable dates of the vesting events. Stock-based awards that do

not

vest because the requisite service period is

not

met prior to termination result in reversal of previously recognized compensation cost. See Note

Cash and Cash Equivalents, Policy [Policy Text Block]

f.	Cash and Cash Equivalents: 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 three months from the date of purchase.

Receivable [Policy Text Block]

Stock Subscriptions and Other Receivables:

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

Inventory, Policy [Policy Text Block]

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 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, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment:

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, Finite-Lived, Policy [Policy Text Block]

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

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

2020

and

2019,

we capitalized patent and trademark costs of

$278,000

and

$57,000,

respectively. During

2020

and

2019,

we abandoned patents with previously-capitalized patent costs of

$9,000

and

$58,000,

respectively.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment or Disposal of Long-Lived Assets:

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

may

not

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

December 31, 2020

2019.

Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Lessee, Leases [Policy Text Block]

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 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

2018.

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

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 consolidated statements of operations. See Note

12.

Revenue [Policy Text Block]

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

Research and Development Expense, Policy [Policy Text Block]

Research and Development Costs:

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 Tax, Policy [Policy Text Block]

Income Taxes:

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

December 31, 2020

and

2019.

Current accounting standards include guidance on the accounting for uncertainty in income taxes recognized in the financial statements. Such standards also prescribe a recognition threshold and measurement model for the financial statement recognition of a tax position taken, or expected to be taken, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company believes that the ultimate deductibility of all tax positions is highly certain, although there is uncertainty about the timing of such deductibility. As a result,

liability for uncertain tax positions was recorded as of

December 31, 2020

2019

and we do

not

expect any significant changes in the next

twelve

months. Should we need to accrue interest or penalties on uncertain tax positions, we would recognize the interest as interest expense and the penalties as a selling, general and administrative expense. As of

December 31, 2020,

tax years

2017

2020

remained subject to examination by federal and state tax authorities. See Note

15.

Stockholders' Equity Note, Redeemable Preferred Stock, Issue, Policy [Policy Text Block]

Series C and Series D Convertible Preferred Stock:

The Company evaluated the provisions of the Series C and Series D Preferred Stock under Accounting Standards Codification (“ASC”)

480,

Distinguishing Liabilities from Equity

, ASC

815,

Derivatives and Hedging

, ASC

470,

Debt

, and Accounting Series Release (“ASR”)

268,

Presentation in Financial Statements of

“

Redeemable Preferred Stocks

.” 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

not

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

not

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

not

be classified in mezzanine equity. See Note

14.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Standards:

February 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No.

2016

02,

Leases (Topic

842

)

. ASU

2016

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

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.

July 2018,

the FASB issued ASU

No.

2018

10,

Codification Improvements to Topic

842,

Leases

, and ASU

No.

2018

11,

Targeted Improvements to Topic

842,

Leases

. ASU

2018

updates Topic

842

in order to clarify narrow aspects of the guidance issued in ASU

2016

02,

Leases (Topic

842

)

. ASU

2018

provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity's reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current U.S. GAAP (Topic

840,

Leases

). An entity that elects this transition method must provide the required Topic

840

disclosures for all periods that continue to be in accordance with Topic

840.

The amendments in ASU

2018

and ASU

2018

are effective when ASU

2016

is effective, for fiscal years beginning after

December 15, 2018.

The Company adopted ASU

2016

02,

ASU

2018

and ASU

2018

effective

January 1, 2019

using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented. Related to the adoption of these standards, the Company made a short-term lease accounting policy election allowing lessees to

not

recognize right-of-use assets and liabilities for leases with an initial term of

months or less.

The adoption of ASU

2016

resulted in the recognition of operating lease right-of-use assets and related lease liabilities of approximately

$407,000

on the consolidated balance sheet as of

January 1, 2019

related to our leases that were previously classified as operating leases, primarily for office space. The adoption of ASU

2016

did

not

materially impact our operating results or liquidity. Disclosures related to the amount, timing and uncertainty of cash flows arising from leases are included in Note

12.

June 2018,

the FASB issued ASU

No.

2018

07,

Compensation

—

Stock Compensation (Topic

718

): Improvements to Nonemployee Share-Based Payment Accounting

. ASU

2018

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

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 (

) financing to the issuer or (

) 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

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

did

not

have a significant impact on our consolidated financial statements.

July 2018,

the FASB issued ASU

No.

2018

09,

Codification Improvements

. ASU

2018

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

2018

were 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

did

not

have a significant impact on our consolidated financial statements.

August 2018,

the FASB issued ASU

No.

2018

13,

Fair Value Measurement (Topic

820

Disclosure Framework

—

Changes to the Disclosure Requirements for Fair Value Measurement

. ASU

2018

is intended to improve the effectiveness of disclosure requirements on fair value measurements in Topic

820.

ASU

2018

modifies certain disclosure requirements and is effective for annual and interim reporting periods beginning after

December 15, 2019.

The adoption of ASU

2018

did

not

have any impact on our consolidated financial statements or our fair value disclosures.

Recently Issued Accounting Standards:

December 2019,

the FASB issued ASU

No.

2019

12,

Income Taxes (Topic

740

): Simplifying the Accounting for Income Taxes

. ASU

2019

is intended to improve consistent application and simplify the accounting for income taxes. ASU

2019

removes certain exceptions to the general principles in Topic

740

and clarifies and amends existing guidance. ASU

2019

is effective for annual and interim reporting periods beginning after

December 12, 2020,

with early adoption permitted. We do

not

expect the adoption of ASU

2019

to have a material impact on our consolidated financial statements.

August 2020,

the FASB issued ASU

No.

2020

06,

Accounting for Convertible Instruments and Contracts in an Entity

s Own Equity

. ASU

2020

was issued to reduce the complexity associated with accounting for certain financial instruments with characteristics of liabilities and equity. ASU

2020

reduces the number of accounting models for convertible debt instruments and convertible preferred stock and improves the disclosures for convertible instruments and related earnings-per-share (“EPS”) guidance. ASU

2020

also amends the guidance for the derivatives scope exception for contracts in an entity's own equity and improves and amends the related EPS guidance. ASU

2020

is effective for public business entities except smaller reporting companies for annual and interim reporting periods beginning after

December 15, 2021,

and for annual and interim reporting periods beginning after

December 15, 2023

for all other entities. Early adoption is permitted, but the guidance must be adopted as of the beginning of a fiscal year. We are currently evaluating the impact of potential early adoption of ASU

2020

on our consolidated financial statements.