In July 2014, Navidea formed a joint enterprise with Essex Woodlands-backed Rheumco, LLC, to develop and commercialize radiolabeled diagnostic and therapeutic products for rheumatologic and arthritic diseases.  The joint enterprise, called R-NAV, LLC, combines Navidea’s proprietary Manocept CD206 macrophage targeting platform and Rheumco’s proprietary Tin-117m radioisotope technology to focus on leveraging the platforms across several indications with high unmet medical need, including the detection and treatment of RA and veterinary osteoarthritis.

Both Rheumco and Navidea have contributed licenses for intellectual property and technology to R-NAV in exchange for common units in R-NAV.  The contributions of these licenses were recorded using the carryover basis.  R-NAV was initially capitalized through a $4.0 million investment from third-party private investors, and the technology contributions from Rheumco and Navidea.  Navidea committed an additional $1.0 million investment to be paid over three years, with $333,334 in cash contributed at inception and a promissory note in the principal amount of $666,666, payable in two equal installments on the first and second anniversaries of the transaction.  In exchange for its capital and in-kind investment, the Company received 1,000,000 Series A preferred units of R-NAV (Series A Units).  The Company will receive an additional 500,000 Series A Units for management and technical services associated with the programs described above to be performed by the Company for R-NAV pursuant to a services agreement.  The Series A Units are convertible into common units at the option of the holder for a conversion price of $1 per unit, subject to broad-based weighted average anti-dilution rights.

Navidea initially owned approximately 33.7% of the combined entity.  At December 31, 2015, Navidea owns approximately 27.3% of R-NAV.  Joint oversight over certain aspects of R-NAV is shared between Navidea and the other investors; Navidea does not control the operations of R-NAV.  Navidea has three-year call options to acquire, at its sole discretion, all of the equity of R-NAV’s Subsidiary 1A (focused on diagnosis of human RA) for $10.5 million prior to the launch of a Phase 3 clinical trial for its development program, and all of the equity of R-NAV’s Subsidiary 1B (focused on treatment of human RA) at fair value upon completion of radiochemistry and biodistribution studies for its development program.

Navidea's investment in R-NAV is being accounted for using the equity method of accounting.  In accordance with current accounting guidance, the Company's contributions of cash and note payable totaling $1.0 million were allocated between the investment in R-NAV and the call option on Subsidiary 1A based on the relative fair values of the assets.  As a result, we recorded an initial equity investment in R-NAV of $727,000 and a call option asset of $273,000 as non-current assets at the time of the initial investment.  Navidea's equity in the loss of R-NAV was $305,253 and $523,809 for the years ended December 31, 2015 and 2014, respectively.  The Company's obligation to provide $500,000 of in-kind services to R-NAV is being recognized as those services are provided.  The Company provided $64,000 and $39,000 of in-kind services during the years ended December 31, 2015 and 2014, respectively.  As of December 31, 2015, the Company has $398,000 of in-kind services remaining to provide under this obligation.  A principal payment of $333,333 was made on the note payable to R-NAV in July 2015.  As of December 31, 2015, the outstanding principal balance of the note payable to R-NAV was $333,333.  The final payment of $333,333 is due in July 2016.  See Note 12.