Platinum Settlement

As discussed in Note 10, Platinum and the Company settled their dispute and Platinum’s lawsuit was dismissed in January 2022. As part of the settlement, Platinum returned their six shares of MT Preferred Stock, representing 60% of the noncontrolling interest in MT, to the Company. Prior to the settlement, the carrying amount of the noncontrolling interest in MT was $731,299. As a result of the settlement and the return of six shares of MT Preferred Stock, the Company recorded a reduction of the noncontrolling interest in MT and an increase in additional paid-in capital of $438,778.

Series E Preferred Stock

On January 31, 2022, pursuant to the Certificate of Designations of the Series E Preferred Stock dated March 2, 2021, the holder of the Series E Preferred Stock, John K. Scott, Jr., notified the Company that he was exercising his option to extend the Conversion Deadline (as defined therein) for an additional period of six months.

NOL Rights Agreement

On April 7, 2022, the Company’s Board of Directors adopted an NOL rights plan in the form of a Section 382 Rights Agreement (“NOL Rights Agreement”) to preserve and protect the Company’s net operating loss carryforwards (“NOLs”) and other tax assets. As of December 31, 2021, the Company had approximately $164 million of NOLs available to offset future federal taxable income.

Under the NOL Rights Agreement, the Board declared a non-taxable dividend of one preferred share purchase right for each outstanding share of common stock of the Company, each right initially representing the right to purchase one one-thousandth of a share of our Series H Junior Participating Preferred Stock. The rights will be exercisable only if a person or group acquires 4.99% or more of Navidea common stock. Existing shareholders that beneficially own in excess of 4.99% of Navidea common stock are “grandfathered in” at their current ownership level and the rights then become exercisable if any of those stockholders acquire an additional 0.5% or more of Navidea common stock. If the rights become exercisable, all holders of rights, other than the person or group triggering the rights, will be entitled to purchase Navidea common stock at a 50 percent discount or the Company may exchange each right held by such holders for five shares of common stock. Rights held by the person or group triggering the rights will become void and will not be exercisable. The Board has the discretion to exempt any person or group from the provisions of the NOL Rights Agreement.

The rights issued under the NOL Rights Agreement will expire on the earliest of (i) April 6, 2025; (ii) the effective date of the repeal of Section 382 or any successor statute if the Board determines in its sole discretion that the NOL Rights Agreement is no longer necessary or desirable for the preservation of NOLs or other tax benefits; (iii) the first day of a taxable year of the Company to which the Board determines in its sole discretion that no NOLs or other Tax Benefits may be carried forward; or (iv) the day following the certification of the voting results of the Company’s 2022 annual meeting of stockholders if at or before such annual meeting a proposal to approve the NOL Rights Agreement has not been approved by stockholders, unless the Rights are earlier redeemed or exchanged by the Company, or upon the occurrence of certain transactions.

Stock Exchange and Loan Agreement

On April 10, 2022, the Company entered into a Purchase Agreement with John K. Scott, Jr., 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. The outstanding balance of the loan, which is evidenced by a 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 and 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.

As consideration and a partial inducement for Mr. Scott to make the loan, at the closing, Mr. Scott delivered 50,000 shares of Series E Preferred Stock, representing 100% of the outstanding Series E Preferred Stock, to the Company in exchange for the Company’s issuance of 1,740 shares of Series F Convertible Preferred Stock and 3,260 shares of Series G Preferred Stock. The number of shares of Common Stock that the Company may issue to Mr. Scott upon conversion of the Series F Preferred stock may not exceed that number of shares that would result in Mr. Scott owning more than 33.33% of the Company’s then outstanding shares of Common Stock unless the Company obtains stockholder approval to issue more than the 33.33% cap. The closing of the loan and stock exchange took place on April 12, 2022.

In connection with the Purchase Agreement, the Company entered into a Registration Rights Agreement with Mr. Scott, pursuant to which the Company agreed to file a registration statement with the SEC to register the resale of the shares issuable to Mr. Scott upon conversion of the Series F Preferred Stock.

Rights Offering

On August 30, 2022, the Company closed on the Rights Offering to its stockholders and certain warrant holders as of August 3, 2022 of the right to purchase up to 35,000 Units at a subscription price of $1,000 per Unit. The Rights Offering resulted in the sale of 10,423 Units for aggregate gross proceeds of $6,173,000 to the Company. Each Unit consisted of one share of 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 Common Stock at $0.45 per share. If exercised, additional gross proceeds of up to $11.6 million may be received through the exercise of Warrants issued in the Rights Offering.

Both the Series I Preferred Stock and the Warrants are standalone instruments and each is classified as stockholders’ equity. We measured the fair value of the Series I Preferred Stock based on the market price of the underlying Common Stock on the closing date of the Rights Offering. We measured the fair value of the Warrants using the Black-Scholes option pricing model as of the closing date of the Rights Offering. The assumptions used to calculate fair value of the Warrants included volatility of 89.25%, a risk-free rate of 3.27% and expected dividends of $0. We then allocated the total value of the Units sold in the Rights Offering based on the relative fair value of the Series I Preferred Stock and the Warrants. Of the $10,423,000 total value of Units sold in the Rights Offering, we allocated $6,278,815 to the Series I Preferred Stock and $4,144,185 to the Warrants.

Certain participants in the Rights Offering had the ability to pay the subscription price for their Units by cancelling or exchanging their shares of Series D Preferred Stock, Series F Preferred Stock and/or Series G Preferred Stock and the Company’s indebtedness evidenced by the Bridge Note, instead of paying by check or wire transfer of funds. The fair market value of the shares of each series of preferred stock and the Bridge Note to be cancelled or exchanged in the Rights Offering was determined by the Company’s Board of Directors with the assistance of an independent appraisal obtained by the Company. In order to help maximize Navidea’s ability to use its NOLs and other tax benefits in future years, Navidea’s Board of Directors exercised its discretion to limit the number of Units that John K. Scott, Jr. could purchase to 2,400 Units, which Mr. Scott elected to pay for by exchanging and surrendering all of his shares of Series F Preferred Stock. Of the total 10,423 Units sold in the Rights Offering, 4,250 Units were sold pursuant to the exchange and surrender of all outstanding shares of Navidea’s Series D Preferred Stock and Series F Preferred Stock. Neither the Series G Preferred Stock nor the Bridge Note was exchanged or cancelled pursuant to the Rights Offering.

In accordance with U.S. GAAP, we determined that the fair value of the Series D Preferred Stock and Series F Preferred Stock that was surrendered pursuant to the Rights Offering was approximately $2,212,114. The total fair value of the Units that were issued in exchange for the Series D Preferred Stock and Series F Preferred Stock was $4,250,000. Therefore, the incremental fair value received by the holders of the Series D Preferred Stock and Series F Preferred Stock was approximately $2,037,886. The incremental amount was recognized as a deemed dividend in the Company’s condensed consolidated statement of operations during the third quarter of 2022.

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 RA, obtaining regulatory approvals, working capital, and for general corporate purposes.

401(k) Employer Match

During the nine-month periods ended September 30, 2022 and 2021, we issued 53,238 and 30,018 shares of our Common Stock as matching contributions to our 401(k) Plan which were valued at $44,720 and $76,846, respectively.

Bonuses Paid in Stock

During the nine-month period ended September 30, 2022, we issued 44,782 shares of our Common Stock to certain of our employees as partial payment in lieu of cash for their 2021 bonuses, which were valued at $24,847.

Long Term Incentive Plan

On September 9, 2022, the Company’s Board of Directors approved and adopted the terms and conditions of a long-term incentive plan (“LTIP”) that seeks to motivate and reward employees. The LTIP provides for the issuance of share-based awards to employees of the Company pursuant to the Navidea Biopharmaceuticals, Inc. 2014 Stock Incentive Plan (“2014 Plan”). The target amount of the stock award under the LTIP for each employee was determined based on a variety of factors. Payout of the stock awards is based on the achievement of pre-established performance objectives and goals related to financing and U.S. Food and Drug Administration (“FDA”) and European Medicines Agency (“EMA”) regulatory milestones for the Company’s Phase 3 clinical trial for rheumatoid arthritis (NAV3-33). The financing and EMA regulatory milestones will each comprise 5% of the total stock award payout for participants; the FDA regulatory milestones will comprise the remaining 90%. The payout amount is subject to downward adjustment based on the timing of the achievement of the particular milestone. In order to receive the payout, the participant generally will be required to continue to be employed through the date of the payout. Upon issuance of the stock award, the participant will be 100% vested in the stock award.

Although the Company did not fully satisfy the financing milestone, based on completion of the Rights Offering, the Board of Directors decided to pay out 5% of the target stock award to all participants under the LTIP. During the nine-month period ended September 30, 2022, we issued 70,500 shares of Common Stock to all participants under the LTIP, which were valued at $19,740. Any additional payouts under the LTIP will be subject to stockholders approving at the upcoming 2022 annual meeting an amendment to the 2014 Plan that increases the number of shares issuable under the 2014 Plan.