See accompanying notes to condensed consolidated financial statements.
Notes to the Condensed Consolidated Financial Statements (unaudited)
|
1.
|
Summary of Significant Accounting Policies
|
|
|
a.
|
Basis of Presentation: The information presented as of September 30, 2021 and for the three-month and nine-month periods ended September 30, 2021 and 2020 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 prior period amounts also have been reclassified to conform to the current year’s presentation. In addition, 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 (“SEC”). The balances as of September 30, 2021 and the results for the interim periods are not necessarily indicative of results to be expected for the year. The condensed consolidated financial statements should be read in conjunction with Navidea’s audited consolidated financial statements for the year ended December 31, 2020, which were included as part of our Annual Report on Form 10-K.
|
Our condensed consolidated financial statements include the accounts of Navidea and our wholly owned subsidiaries, Navidea Biopharmaceuticals Europe Limited (“Navidea Europe”) and Navidea Biopharmaceuticals Limited (“Navidea UK”), as well as those of our majority-owned subsidiary, Macrophage Therapeutics, Inc. (“MT”). All significant inter-company accounts were eliminated in consolidation.
|
|
b.
|
Financial Instruments and Fair Value: The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
|
|
|
(1)
|
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.
|
|
|
(2)
|
Notes payable: The carrying value of our debt as of September 30, 2021 and December 31, 2020 primarily consisted of the face amount of the notes plus accrued interest. As of September 30, 2021 and December 31, 2020, the fair value of our notes payable was approximately $0 and $745,000, respectively, both amounts equal to the carrying value of the notes payable. See Note 8.
|
|
|
c.
|
Revenue Recognition: We currently generate revenue 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 3.
|
|
d.
|
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 condensed 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. Short-term operating leases which have an initial term of 12 months or less are not recorded on the condensed 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 condensed consolidated statements of operations. See Note 9.
|
|
|
e.
|
Convertible Preferred Stock: The Company evaluated the provisions of the Series C, Series D and Series E Convertible 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, Series D nor Series E 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, Series D and Series E 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, Series D or Series E Preferred stock and thus these features should not be bifurcated and accounted for as derivatives. Additionally, the Series C and Series D Preferred Stock contain a beneficial conversion feature (“BCF”). Prior to the adoption of Accounting Standards Update (“ASU”) No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, effective January 1, 2021, the BCF resulted in an increase to additional paid-in capital and a discount on the Series C and Series D Preferred Stock. The discounts on the Series C and Series D Preferred Stock were considered to be fully amortized at the date of issuance because the Series C and Series D Preferred Stock are immediately convertible, resulting in a deemed dividend at the date of issuance for the amount of the BCF. Finally, the Company determined that the Series D and Series E Preferred Stock does not contain conversion features that could result in the Company being required to redeem a portion of the shares converted, thus the Series D and Series E Preferred Stock should not be classified in mezzanine equity. See Note 11.
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|
|
f.
|
Recently Adopted Accounting Standards: In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to improve consistent application and simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. ASU 2019-12 is effective for annual and interim reporting periods beginning after December 12, 2020, with early adoption permitted. The adoption of ASU 2019-12 did not have a material impact on our condensed consolidated financial statements.
|
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 was issued to reduce the complexity associated with accounting for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 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 2020-06 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 2020-06 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 adopted ASU 2020-06 effective January 1, 2021 using the modified retrospective method. The adoption of ASU 2020-06 did not result in a cumulative effect adjustment to retained earnings.
|
|
g.
|
Recently Issued Accounting Standards: In May 2021, the FASB Issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 was issued to clarify and reduce diversity in an issuer’s accounting for modifications or exchange of freestanding equity-classified written call options (for example, warrants) that remain equity-classified after modification or exchange. ASU2 021-04 requires that an entity treat a modification or exchange of a freestanding equity-classified written call option that remains equity-classified after modification or exchange be treated as an exchange of the original instrument for a new instrument. ASU2021-04 also clarifies how an entity should measure and recognize the effect of a modification or exchange of a freestanding equity-classified written call option that remains equity-classified after modification or exchange. ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, and should be implemented prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including in an interim period. We do not expect the adoption of ASU 2021-04 to have a material impact on our condensed consolidated financial statements.
|
As disclosed in the notes to the financial statements included in the Company’s Annual Report on Form 10-K, the Company has been engaged in litigation with Platinum-Montaur Life Sciences LLC (“Platinum-Montaur”), an affiliate of Platinum Management (NY) LLC, Platinum Partners Value Arbitrage Fund L.P., Platinum Partners Capital Opportunity Fund, Platinum Partners Liquid Opportunity Master Fund L.P., Platinum Liquid Opportunity Management (NY) LLC, and Montsant Partners LLC (collectively, “Platinum”). See Note 10.
In addition, the Company is engaged in ongoing litigation with our former President and Chief Executive Officer, Dr. Michael Goldberg. See Note 10.
The Company has also been engaged in ongoing litigation with Capital Royalty Partners II L.P. (“CRG”). See Note 10.
On August 30, 2020, the Company entered into a Stock Purchase Agreement (the “Common Stock Purchase Agreement”) with each of the investors named therein (the “Investors”), pursuant to which the Investors agreed to purchase from the Company, up to $25.0 million in shares of the Company’s common stock, par value $0.001 per share (“Common Stock”). As of the date of filing of this Quarterly Report on Form 10-Q, we have received only $25,000 of the $5.0 million that is currently owed under the Common Stock Purchase Agreement. During the second quarter of 2021, the Company determined that it is unlikely that the remaining $4.975 million will ever be collected. Accordingly, the common stock subscription receivable was reversed from the condensed consolidated balance sheet during the second quarter of 2021. We are continuing to evaluate our rights and remedies under that agreement. See Note 11.
On August 31, 2020, the Company entered into a Stock Purchase Agreement and Letter of Investment Intent (the “Series D Preferred Stock Purchase Agreement”) with Keystone Capital Partners, LLC (“Keystone”) pursuant to which the Company agreed to issue to Keystone 150,000 shares of newly-designated Series D Redeemable Convertible Preferred Stock (the “Series D Preferred Stock”) for an aggregate purchase price of $15.0 million. Pursuant to the Series D Preferred Stock Purchase Agreement, Keystone agreed to purchase Series D Preferred Stock in amounts to be determined by Keystone in one or more closings before the end of the nine-month period following the date when the Company’s prospectus supplement to its existing registration statement on Form S-3 was filed with the SEC. On July 8, 2021 (the “Amendment Effective Date”), the Company entered into an Amendment to Stock Purchase Agreement and Letter of Investment Intent (the “Series D Amendment”) with Keystone pursuant to which Keystone purchased 22,077 shares of Series D Preferred Stock for an aggregate purchase price of approximately $2.2 million. Prior to the Amendment Effective Date, Keystone had purchased 72,500 shares of Series D Preferred Stock pursuant to the Series D Preferred Stock Purchase Agreement for an aggregate purchase price of $7.25 million, leaving a remaining balance of 77,500 shares of Series D Preferred Stock. Including the purchases pursuant to the Series D Amendment, Keystone’s purchases of Series D Preferred Stock pursuant to the Series D Purchase Agreement during the nine-month period ended September 30, 2021 totaled 76,827 shares of Series D Preferred Stock for an aggregate purchase price of approximately $7.7 million. After purchasing the 22,077 shares, Keystone has no further right or obligation to purchase shares of Series D Preferred Stock. Accordingly, the Series D Preferred Stock subscription receivable was reduced to $0 on the condensed consolidated balance sheet as of September 30, 2021. The Series D Preferred Stock is convertible into a maximum of 5,147,000 shares of Common Stock. As of the date of filing of this Quarterly Report on Form 10-Q, the 22,077 outstanding shares of Series D Preferred Stock have not been converted. See Note 11.
On March 2, 2021, the Company entered into a Stock Purchase Agreement and Letter of Investment Intent (the “Series E Preferred Stock Purchase Agreement”) with an existing accredited investor, John K. Scott, Jr. pursuant to which the Company issued to Mr. Scott in a private placement transaction 50,000 shares of newly-designated Series E Redeemable Convertible Preferred Stock (the “Series E Preferred Stock”) for an aggregate purchase price of $5.0 million. The Series E Preferred Stock is convertible into a maximum of 2,173,913 shares of Common Stock. As of the date of filing of this Quarterly Report on Form 10-Q, none of the Series E Preferred Stock has been converted. See Note 11.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020. Among the provisions contained in the CARES Act was the creation of the Paycheck Protection Program (“PPP”) that provides for Small Business Administration (“SBA”) Section 7(a) loans for qualified small businesses. PPP loan proceeds are available to be used to pay for payroll costs, including salaries, commissions, and similar compensation, group health care benefits, and paid leaves; rent; utilities; and interest on certain other outstanding debt. On May 18, 2020, Fifth Third Bank (the “Lender”) funded a loan to the Company in the amount of $366,000 under the SBA’s PPP (the “PPP Loan”). In accordance with the loan forgiveness requirements of the CARES Act, the Company used the proceeds from the PPP Loan primarily for payroll costs, rent and utilities. On February 23, 2021, the Lender notified the Company that the entire PPP Loan amount of $366,000 was forgiven. See Note 8.
We do not believe there has been a significant impact to the Company’s clinical development and regulatory timelines resulting from the ongoing COVID-19 global pandemic. However, the COVID-19 outbreak delayed enrollment in our NAV3-32 clinical study in the United Kingdom due to national COVID-19-related shutdowns. In addition, the regulatory approval process in India has been delayed by the impact of COVID-19 in that country.
The Company has experienced recurring net losses and has used significant cash to fund its operations. The Company has considerable discretion over the extent of development project expenditures and has the ability to curtail the related cash flows as needed. The Company also has funds remaining under outstanding grant awards, and continues working to establish new sources of funding, including collaborations, potential equity investments, and additional grant funding that can augment the balance sheet. However, based on our current working capital and our projected cash burn, management believes that there is substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the filing of this Quarterly Report on Form 10-Q. No adjustments have been made to the accompanying condensed consolidated financial statements as a result of this uncertainty.
|
3.
|
Revenue from Contracts with Customers
|
Navidea is focused on the development and commercialization of precision immunodiagnostic agents and immunotherapeutics. We manage our business based on two primary types of drug products: (i) diagnostic substances, including Tc99m tilmanocept and other diagnostic applications of our Manocept platform, and (ii) therapeutic development programs, including all therapeutic applications of our Manocept platform. Tc99m tilmanocept, which the Company has a license to distribute outside of Canada, Mexico and the United States, is the only one of the Company’s drug product candidates that has been approved for sale in any market. The Company has license and distribution agreements in place in India and China, however Tc99 tilmanocept has not been approved in either of those markets. On May 11, 2020, the Company terminated its license and distribution agreement in Europe and Australia.
The Company also has an agreement in place to provide Meilleur Technologies, Inc., (“Meilleur”), a wholly-owned subsidiary of Cerveau Technologies, Inc. (“Cerveau”), worldwide rights to conduct research using NAV4694, as well as an exclusive license for the development and commercialization of NAV4694 in Australia, Canada, China, and Singapore. Meilleur also has an option to commercialize worldwide.
Currently, the Company recognizes revenue from up-front license fees and pre-market milestones after the cash has been received from its customers and the performance obligations have been met. Payments for sales-based royalties and milestones are generally received after the related revenue has been recognized and invoiced. Normal payment terms generally range from 15 to 90 days following milestone achievement or royalty invoice, in accordance with each contract.
Up-front and milestone payments received related to our license and distribution agreements in India and China are deferred until Tc99m tilmanocept has been approved by the regulatory authorities in each of those countries. It is not possible to determine with any degree of certainty whether or when regulatory approval for this product will be achieved in India or China, if at all. In addition, since sales of Tc99m tilmanocept have not yet begun in India or China, there is no basis for estimating whether, to what degree, or the rate at which the product will be accepted and utilized in these markets. Therefore, it is not possible to determine with any degree of certainty the expected sales in future periods in those countries. As such, the Company intends to recognize revenue from up-front and milestone payments on a straight-line basis beginning at the time of regulatory approval in each country through the end of the initial term of each agreement. The initial term of each agreement is eight years in India and ten years in China.
The transaction price of a contract is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. Transaction prices do not include amounts collected on behalf of third parties (e.g., sales taxes). To determine the transaction price of a contract, the Company considers the terms of the contract. For the purpose of determining transaction prices, the Company assumes that the goods or services will be transferred to the customer as promised in accordance with existing contracts and that the contracts will not be cancelled, renewed, or modified.
When estimating a contract’s transaction price, the Company considers all the information (historical, current, and forecasted) that is reasonably available to it and identifies possible consideration amounts. Most of the Company’s contracts with customers include both fixed and variable components of the transaction price. Under those contracts, some or all of the consideration for satisfied performance obligations is contingent on events over which the Company has no direct influence. For example, regulatory approval or product sales volume milestones are contingent upon the achievement of those milestones by the distributor. Additionally, the prices charged to end users of Tc99m tilmanocept, upon which royalty payments are based in India and China, are set by the distributor in each of those countries.
The milestone payments have a binary outcome (that is, the Company will either receive all or none of each milestone payment) and can be estimated using the most-likely-amount method. Taking into account the constraint on variable consideration, the Company has assessed the likelihood of achieving the non-sales-based milestone payments in our current contracts and has determined that it is probable the milestones will be achieved and the Company will receive the consideration. Accordingly, it is probable that including those payments in the transaction price will not result in a significant revenue reversal when the contingency is resolved. Therefore, the amount of the non-sales-based milestone payments is included in the transaction price.
Royalties are estimated based on the expected value method because they are based on a variable amount of sales representing a range of possible outcomes. However, when taking into account the constraint on variable consideration, the estimate of future royalties included in the transaction price is generally $0. This conclusion is based on the fact that Tc99m tilmanocept is early in the commercial launch process in Europe and Australia, and sales have not yet begun in India or China, therefore there is currently no basis for estimating whether, to what degree, or the rate at which the product will be accepted and utilized in these markets. Similarly, we currently have no basis for estimating whether sales-based milestones will ever be achieved. Accordingly, the Company recognizes revenue from royalties when the related sales occur and from sales-based milestones when they are achieved.
The sublicense of NAV4694 to Meilleur provides for payments to Navidea including up-front payments, milestones, an option for worldwide commercial rights, royalties on net sales, and reimbursement for product development assistance during the initial transition period. In accordance with Accounting Standards Codification No. 606, Revenue from Contracts with Customers (“ASC 606”), the upfront payments were recognized upon contract inception, and reimbursement for product development assistance will be recognized on a monthly basis. Should some or all of the variable consideration from milestones, the option and royalties meet the requirements of the revenue recognition standard to be included in the transaction price, those amounts will be recognized as revenue in future periods.
Up-front fees, milestones and royalties are generally non-refundable. Therefore, the Company does not estimate expected refunds nor do we adjust revenue downward. The Company will evaluate and update the estimated transaction prices of its contracts with customers at the end of each reporting period.
During the three-month periods ended September 30, 2021 and 2020, the Company recognized revenue from contracts with customers of approximately $9,000 and $7,000, respectively. During the nine-month periods ended September 30, 2021 and 2020, the Company recognized revenue from contracts with customers of approximately $45,000 and $31,000, respectively. During the three-month and nine-month periods ended September 30, 2021 and 2020, the Company did not recognize any related impairment losses, nor did the Company recognize any revenue from performance obligations associated with long-term contracts that were satisfied (or partially satisfied) in previous periods.
The following table disaggregates the Company’s revenue from contracts with customers for the three-month and nine-month periods ended September 30, 2021 and 2020.
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Royalty revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tc99m tilmanocept - Europe
|
|
$
|
—
|
|
|
$
|
2,047
|
|
|
$
|
—
|
|
|
$
|
26,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tc99m tilmanocept - Europe
|
|
$
|
9,116
|
|
|
$
|
4,726
|
|
|
$
|
44,665
|
|
|
$
|
4,726
|
|
The following economic factors affect the nature, amount, timing and uncertainty of the Company’s revenue and cash flows as indicated:
Geographical Location of Customers: Drug pricing models vary among different markets, which in turn may affect the royalty rates and milestones we are able to negotiate with our distributors in those markets. Royalty rates and milestone payments vary by contract but may be based in part on the potential market size in each territory. In the case of Tc99m tilmanocept, royalty rates for Europe were lower than rates in India but higher than in China.
Status of Regulatory Approval: The majority of revenue from contracts with customers will generally be recognized after the product is approved for sale in each market. Each Tc99m tilmanocept customer operates in its own distinct regulatory environment, and the laws and pathways to drug product approval vary by market. Tc99m tilmanocept has been approved for sale in Europe, thus the Company recognized royalties from sales in Europe. Tc99m tilmanocept has not yet been approved for sale in India or China, and may never achieve approval in those markets. The regulatory pathways and timelines in those markets will impact whether and when the Company recognizes the related royalties and milestones. Similarly, NAV4694 has not yet been approved for sale in any market, thus the timing of any revenue related to that product will be dependent on the regulatory pathways and timelines in each market in which Meilleur seeks regulatory approval.
Through September 30, 2021, the Company has not capitalized any contract-related costs as contract assets.
The following table summarizes the changes in contract liabilities, the current portion of which is included in accrued liabilities and other in the condensed consolidated balance sheets, during the three-month and nine-month periods ended September 30, 2021 and 2020.
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Total deferred revenue, beginning of period
|
|
$
|
700,000
|
|
|
$
|
860,000
|
|
|
$
|
700,000
|
|
|
$
|
700,000
|
|
|
Revenue deferred related to sublicense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
160,000
|
|
|
Refund of deferred revenue related to sublicense
|
|
|
—
|
|
|
|
(160,000
|
)
|
|
|
—
|
|
|
|
(160,000
|
)
|
|
Revenue recognized from satisfaction of performance obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total deferred revenue, end of period
|
|
$
|
700,000
|
|
|
$
|
700,000
|
|
|
$
|
700,000
|
|
|
$
|
700,000
|
|
The Company had license revenue receivable of approximately $107,000 and $59,000 outstanding as of September 30, 2021 and December 31, 2020.
In addition to revenue from contracts from customers, we also generate revenue from National Institutes of Health (“NIH”) grants to support various product development initiatives. The revenue recognition standard applies to revenue from contracts with customers. A customer is defined as a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ongoing major or central operations in exchange for consideration. The Company’s ongoing major or central operations consist of the development and commercialization of precision immunodiagnostic agents and immunotherapeutics. The NIH and its various institutes are responsible for biomedical and public health research and provide major biomedical research funding to non-NIH research facilities and entities such as Navidea. While the Company will directly benefit from any knowledge gained from the project, there is also a public health benefit provided, which justifies the use of public funds in the form of the grants. Based on the nature of the Company’s operations and the terms of the grant awards, Navidea does not have a vendor-customer relationship with the NIH and the grant awards are outside the scope of the revenue recognition standard. Accordingly, the revenue recognition standard need not be applied to the NIH grants. During the three-month periods ended September 30, 2021 and 2020, the Company recognized grant revenue of $12,000 and $262,000, respectively. During the nine-month periods ended September 30, 2021 and 2020, the Company recognized grant revenue of $87,000 and $665,000, respectively.
On May 11, 2020 (the “Termination Date”), the Company entered into a Termination Agreement (the “Termination Agreement”) with SpePharm AG (“SpePharm”) and Norgine BV (“Norgine”) which terminated that certain Exclusive License Agreement dated March 5, 2015 (as amended to date, the “License Agreement”). Under the License Agreement, SpePharm had the exclusive right to develop, manufacture and commercialize the Company’s products approved for radiolabeling with Tc99m and containing Lymphoseek® (collectively, the “Products”) in several jurisdictions abroad, including the United Kingdom, France, Germany, Australia and New Zealand (collectively, the “Licensed Territory”). In exchange for such rights, the Company was entitled to certain royalty payments.
Pursuant to the Termination Agreement, the parties agreed that neither owed the other any payments due under the License Agreement as of the Termination Date and that, among other things, SpePharm no longer has any right in, nor claim to, any intellectual property owned by the Company or its affiliates anywhere in the world. SpePharm also agreed to perform certain wind-down activities (the “Wind-Down Activities”) during the six-month period following the Termination Date (the “Transition Period”), which Transition Period was extended by ninety days. The Wind-Down Activities included, without limitation, SpePharm transferring to the Company or its designee(s) the regulatory approvals controlled by SpePharm or its affiliates for the purpose of marketing, distributing and selling the Products in the Licensed Territory. SpePharm also transferred to the Company certain tenders and other customer and sales contracts related to the Products. Subject to the terms of the Termination Agreement, Norgine, an affiliate of SpePharm, agreed to guarantee SpePharm’s performance of its obligations under the Termination Agreement. Although the Transition Period has elapsed, SpePharm continued to fulfill customer orders until the Company obtained the regulatory license required to distribute the product in Europe, which license was received early in the fourth quarter of 2021.
|
4.
|
Stock-Based Compensation
|
For the three-month periods ended September 30, 2021 and 2020, our total stock-based compensation expense, which includes reversals of expense for certain forfeited or cancelled awards, was approximately $108,000 and $63,000, respectively. For the nine-month periods ended September 30, 2021 and 2020, our total stock-based compensation expense, which includes reversals of expense for certain forfeited or cancelled awards, was approximately $372,000 and $136,000, respectively. We have not recorded any income tax benefit related to stock-based compensation in any of the three-month or nine-month periods ended September 30, 2021 and 2020.
A summary of the status of our stock options as of September 30, 2021, and changes during the nine-month period then ended, is presented below.
|
|
|
Nine Months Ended September 30, 2021
|
|
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding, January 1, 2021
|
|
|
549,970
|
|
|
$
|
8.81
|
|
|
|
8.0
|
|
|
$
|
209,280
|
|
|
Granted
|
|
|
234,500
|
|
|
|
2.53
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,000
|
)
|
|
|
1.06
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited
|
|
|
(67,600
|
)
|
|
|
4.01
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2,090
|
)
|
|
|
61.75
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2021
|
|
|
712,780
|
|
|
$
|
7.07
|
|
|
|
7.6
|
|
|
$
|
128,765
|
|
|
Exercisable, September 30, 2021
|
|
|
222,882
|
|
|
$
|
13.27
|
|
|
|
5.6
|
|
|
$
|
47,381
|
|
The weighted average grant date fair value per stock option granted during the nine-month period ended September 30, 2021 was $1.86. Key assumptions used in the Black-Scholes option pricing model for stock options granted during the nine-month period ended September 30, 2021 were the Company’s stock price, an expected volatility rate of 90.34%, a risk-free rate of 0.67%, and an expected life of 5.97 years.
A summary of the status of our unvested restricted stock as of September 30, 2021, and changes during the nine-month period then ended, is presented below.
|
|
|
Nine Months Ended
September 30, 2021
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
|
Unvested, January 1, 2021
|
|
|
60,000
|
|
|
$
|
2.90
|
|
|
Granted
|
|
|
15,000
|
|
|
|
2.17
|
|
|
Vested
|
|
|
(36,667
|
)
|
|
|
2.40
|
|
|
Unvested, September 30, 2021
|
|
|
38,333
|
|
|
$
|
3.10
|
|
As of September 30, 2021, there was approximately $333,000 of total unrecognized compensation expense related to unvested stock-based awards, which we expect to recognize over the remaining weighted average vesting term of 1.4 years.
Basic loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares. Diluted loss per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company include convertible preferred stock, options and warrants.
Diluted loss per common share for the nine-month periods ended September 30, 2021 and 2020 excludes the effects of 1,685,104 and 1,521,844 common share equivalents, respectively, since such inclusion would be anti-dilutive. The excluded shares consist of common shares issuable upon exercise of outstanding stock options and warrants.
The Company’s unvested restricted stock awards contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid (referred to as “participating securities”). Therefore, the unvested restricted stock awards are required to be included in the number of shares outstanding for both basic and diluted earnings per share calculations. However, due to our loss from continuing operations, 38,333 and 60,000 shares of unvested restricted stock for the nine-month periods ended September 30, 2021 and 2020, respectively, were excluded in determining basic and diluted loss per share from operations because such inclusion would be anti-dilutive.
The components of inventory as of September 30, 2021 and December 31, 2020 are as follows:
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
Materials
|
|
$
|
77,750
|
|
|
$
|
77,750
|
|
|
Finished goods
|
|
|
101,185
|
|
|
|
92,048
|
|
|
Total inventory
|
|
$
|
178,935
|
|
|
$
|
169,798
|
|
During the three-month and nine-month periods ended September 30, 2021, we allocated approximately $0 and $10,000, respectively, of finished goods inventory for use in clinical trials. These transactions were recorded in research and development expense in the condensed consolidated statements of operations.
|
7.
|
Accounts Payable, Accrued Liabilities and Other
|
Accounts payable as of September 30, 2021 and December 31, 2020 includes an aggregate of $43,000 and $66,000, respectively, due to related parties for director fees and expenses. Accrued liabilities and other as of September 30, 2021 and December 31, 2020 includes an aggregate of $792,000 and $755,000, respectively, due to related parties for accrued bonuses, benefits, termination costs and director fees. During 2021, the Company began paying director fees 50% in cash and 50% in stock. As a result, 50% of the third quarter director fees are included in accounts payable and 50% are included in accrued liabilities and other in the condensed consolidated balance sheet as of September 30, 2021.
First Insurance Funding
In November 2019, we prepaid $349,000 of insurance premiums through the issuance of a note payable to First Insurance Funding (“FIF”) with an interest rate of 5.0%. The note was payable in eight monthly installments of $44,000, with the final payment made in July 2020.
Interest expense related to the FIF note payable totaled $0 and $5,000 during the three-month and nine-month periods ended September 30, 2020, respectively.
IPFS Corporation
In November 2020, we prepaid $442,000 of insurance premiums through the issuance of a note payable to IPFS Corporation (“IPFS”) with an interest rate of 3.5%. The note is payable in seven monthly installments of $64,000, with the final payment due in June 2021.
Interest expense related to the IPFS note payable totaled $0 and $4,000 during the three-month and nine-month periods ended September 30, 2021, respectively. The balance of the IPFS note payable was $0 and $379,000 as of September 30, 2021 and December 31, 2020, respectively.
Paycheck Protection Program
The CARES Act was enacted on March 27, 2020. Among the provisions contained in the CARES Act was the creation of the PPP that provides for SBA loans for qualified small businesses. PPP loan proceeds are available to be used to pay for payroll costs, including salaries, commissions, and similar compensation, group health care benefits, and paid leaves; rent; utilities; and interest on certain other outstanding debt. On May 18, 2020, the Lender funded the PPP Loan to the Company in the amount of $366,000. In accordance with the loan forgiveness requirements of the CARES Act, the Company used the proceeds from the PPP Loan primarily for payroll costs, rent and utilities. On February 23, 2021, the Lender notified the Company that the entire PPP Loan amount of $366,000 had been forgiven. See Note 2.
Summary
During the three-month periods ended September 30, 2021 and 2020, we recorded interest expense of $0 related to our notes payable in both periods. During the nine-month periods ended September 30, 2021 and 2020, we recorded interest expense of $4,000 and $5,000, respectively, related to our notes payable.
We currently lease approximately 5,000 square feet of office space at 4995 Bradenton Avenue, Dublin, Ohio, as our principal offices, at a monthly base rent of approximately $3,000. The current least term expires in June 2023.
In addition, we currently lease approximately 25,000 square feet of office space at 5600 Blazer Parkway, Dublin, Ohio, formerly our principal offices, at a monthly base rent of approximately $27,000 in 2021. The current lease term expires in October 2022 with an option to extend for an additional five years. The Company does not intend to renew this lease. In June 2017, the Company executed a sublease arrangement for the Blazer Parkway space, providing for monthly sublease payments to Navidea of approximately $39,000 through October 2022.
We currently lease office equipment at a monthly payment of approximately $100, expiring in October 2024. We also leased a vehicle at a monthly payment of approximately $300, which expired in September 2021.
Total operating lease expense was $42,000 and $49,000 for the three-month periods ended September 30, 2021 and 2020, respectively. Total operating lease expense was $131,000 and $151,000 for the nine-month periods ended September 30, 2021 and 2020, respectively. Operating lease expense was recorded in selling, general and administrative expenses on our condensed consolidated statements of operations.
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of September 30, 2021.
|
Maturity of Lease Liabilities
|
|
Operating
Lease
Payments
|
|
|
2021 (remaining)
|
|
$
|
93,889
|
|
|
2022
|
|
|
291,111
|
|
|
2023
|
|
|
19,699
|
|
|
2024
|
|
|
1,355
|
|
|
Total undiscounted operating lease payments
|
|
|
406,054
|
|
|
Less imputed interest
|
|
|
25,531
|
|
|
Present value of operating lease liabilities
|
|
$
|
380,523
|
|
|
Balance Sheet Classification
|
|
|
|
|
|
Current lease liabilities
|
|
$
|
351,487
|
|
|
Noncurrent lease liabilities
|
|
|
29,036
|
|
|
Total operating lease liabilities
|
|
$
|
380,523
|
|
|
Other Information
|
|
|
|
|
|
Weighted-average remaining lease term for operating leases (in years)
|
|
|
1.1
|
|
|
Weighted-average discount rate for operating leases
|
|
|
11.0
|
%
|
Cash paid for amounts included in the present value of operating lease liabilities was $251,000 and $246,000 during the nine-month periods ended September 30, 2021 and 2020, respectively, and is included in operating cash flows.
|
10.
|
Commitments and Contingencies
|
We are subject to legal proceedings and claims that arise in the ordinary course of business. In accordance with ASC Topic 450, Contingencies, we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The amount of ultimate liability, if any, with respect to these actions is unknown.
CRG Litigation
As disclosed in the notes to the financial statements included in the Company’s Annual Report on Form 10-K, the Company has been engaged in ongoing litigation with CRG, in its capacity as a lender and as control agent for other affiliated lenders party to the CRG Loan Agreement (collectively, the “CRG Lenders”), in the District Court of Harris County, Texas (the “Texas Court”). Currently, CRG’s pending claims against the Company in the Texas Court allege that the Company breached the Global Settlement Agreement and seeks damages, including attorney fees, from the Company. Litigation resumed in the Texas Court on February 1, 2021. CRG filed a motion for summary judgment on its claims in the Texas Court on July 1, 2021. The Company filed counterclaims against CRG in the Texas Court on August 18, 2021, alleging that CRG breached the Global Settlement Agreement and engaged in various tortious acts by recovering more from the Company than was permitted under the Global Settlement Agreement. The Company seeks damages including the amount of CRG’s excess recovery. Both CRG and the Company filed motions for summary judgment as to the Company’s claims. The motions for summary judgment were set to be heard on October 25, 2021, but the Texas Court cancelled that hearing and indicated that a hearing on the motions would not be held. It is currently unknown when the motions for summary judgment will be decided.
The Company has also been engaged in ongoing litigation with CRG in the Court of Common Pleas of Franklin County, Ohio (the “Ohio Court”). On March 16, 2021, Ohio’s 10th District Court of Appeals issued a decision which reversed the Ohio Court’s previous ruling that CRG breached the Global Settlement Agreement and its award of $4.3 million plus statutory interest to Navidea. The Ohio Court of Appeals held that the Ohio Court did not have jurisdiction to adjudicate Navidea’s claims and therefore did not rule on the factual merits of Navidea’s claims regarding CRG’s recovery in excess of the contractually agreed maximum amount. On April 30, 2021, Navidea filed a notice of appeal of the Ohio Court of Appeals’ decision to the Ohio Supreme Court along with a memorandum in support of jurisdiction. On July 20, 2021 the Ohio Supreme Court issued an announcement declining to accept the appeal for review. The case was then returned to the Ohio Court, and, on August 5, 2021, the Company filed a notice of voluntary dismissal without prejudice of its claims in the Ohio Court. See Note 2.
Platinum Litigation
As disclosed in the notes to the financial statements included in the Company’s Annual Report on Form 10-K, the Company has been engaged in litigation with Platinum-Montaur, in which Platinum-Montaur was seeking damages of approximately $1.9 million plus interest. Platinum-Montaur perfected an appeal of the judgment in favor of the Company which is docketed with the Appellate Department-First Division on or about June 28, 2021. Briefing of the appeal has commenced and the Company’s opposition briefing on the appeal is currently due on or before December 8, 2021 and Platinum-Montaur’s reply brief is due on or before December 17, 2021. The case is scheduled to be heard before the appellate court’s January 2022 Term. Specific dates for resolution of the appeal, including potential oral argument, is unknown. See Note 2.
Goldberg Agreement and Litigation
As disclosed in the notes to the financial statements included in the Company’s Annual Report on Form 10-K, the Company is engaged in ongoing litigation with our former President and Chief Executive Officer, Dr. Michael Goldberg. In August 2018, Dr. Goldberg resigned from his positions as an executive officer and a director of Navidea. In connection with Dr. Goldberg’s resignation, Navidea and Dr. Goldberg entered into an Agreement (the “Goldberg Agreement”) which set forth the terms of the separation from service.
New York Litigation Involving Dr. Goldberg
On February 20, 2019, Navidea filed a complaint against Dr. Goldberg in the United States District Court, Southern District of New York (the “District Court”), alleging breach of the Goldberg Agreement, as well as a breach of the covenant of good faith and fair dealing and to obtain a declaratory judgment that Navidea’s performance under the Goldberg Agreement is excused and that Navidea is entitled to terminate the Goldberg Agreement as a result of Dr. Goldberg’s actions. On April 26, 2019, Navidea filed an amended complaint against Dr. Goldberg which added a claim for breach of fiduciary duty seeking damages related to certain actions Dr. Goldberg took while CEO of Navidea. On June 13, 2019, Dr. Goldberg answered the amended complaint and asserted counterclaims against Navidea and third-party claims against MT for breach of the Goldberg Agreement, wrongful termination, injunctive relief, and quantum meruit.
During the course of the New York litigation, the District Court issued a variety of rulings which included, inter alia, dismissing certain portions of Dr. Goldberg’s counterclaims against Navidea and dismissing third-party claims against MT. The District Court also ruled that Dr. Goldberg was entitled to indemnification for defending Navidea’s breach of fiduciary duty claims and advancement for defending Navidea’s breach of contract claims.
On May 27, 2021, the District Court ordered that: (1) Dr. Goldberg be awarded $14,955 for indemnification for his attorneys’ fees; (2) Dr. Goldberg be advanced $1,237.50 for his attorneys’ fees subject to repayment; (3) Navidea should not be required to indemnify or advance any of the costs sought by Dr. Goldberg; (4) Dr. Goldberg is not entitled to advancement for the prosecution of his counterclaims and third-party claims; (5) Dr. Goldberg’s motion to hold Navidea in contempt be denied; and (6) Navidea should not be required to advance any additional fees or costs unless Dr. Goldberg presents his time records and costs in compliance with the District Court’s orders.
On August 6, 2021, the Company moved for reconsideration of its obligations to advance fees in light of the Delaware Court’s decision dated June 23, 2021 (described below). On October 14, 2021, the Magistrate Judge recommended that Navidea’s motion for reconsideration be denied. Both Navidea and Dr. Goldberg have objected to the report and recommendation. The District Court will rule on Navidea’s and Dr. Goldberg’s objections once fully briefed and determine whether Navidea’s motion should be granted.
Fact discovery in the New York Action has been completed and the Court has ordered that expert discovery be completed no later than November 30, 2021.
Delaware Litigation Involving Dr. Goldberg
On February 20, 2019, MT initiated a suit against Dr. Goldberg in the Court of Chancery of the State of Delaware (the “Delaware Court”), alleging, among other things, breach of fiduciary duty as a director and officer of MT and conversion, and to obtain a declaratory judgment that the transactions Dr. Goldberg caused MT to effect are void. On June 12, 2019, the Delaware Court found that Dr. Goldberg’s actions were not authorized in compliance with the Delaware General Corporate Law. Specifically, the Delaware Court found that Dr. Goldberg’s creation of a new subsidiary of MT and the purported assignment by Dr. Goldberg of MT’s intellectual property to that subsidiary were void. The Delaware Court’s ruling follows the order on May 23, 2019 in the case, in which it found Dr. Goldberg in contempt of its prior order holding Dr. Goldberg responsible for the payment of MT’s fees and costs to cure the damages caused by Dr. Goldberg’s contempt.
On June 23, 2021, the Delaware Court ruled in favor of MT and against Dr. Goldberg, finding that Dr. Goldberg breached his fiduciary duties to MT. Specifically, the Delaware Court ruled: “Dr. Goldberg attempted to take for himself that which belonged to [MT]. In doing so, he breached his duty of loyalty to [MT] stockholders. [MT] was absolutely justified in bringing this action to remedy (in this case undo) the harm caused by Dr. Goldberg’s misconduct.” The Delaware Court disagreed with MT’s arguments regarding damages and, other than awarding nominal damages, declined to award additional relief beyond that which it had previously granted. With respect to MT’s claim for conversion, the Delaware Court found that the claim was not supported because “Dr. Goldberg confirmed that he currently does not own or possess any intellectual property related to either Navidea or [MT]” and that “any IP Dr. Goldberg created while at Navidea or any of its subsidiaries was and remains the property of Navidea and its subsidiaries.” In addition, the Delaware Court denied Dr. Goldberg’s motion to hold MT’s directors and CEO in contempt, denied Dr. Goldberg’s motion to dismiss the lawsuit against him, and granted MT’s motion to dismiss Dr. Goldberg’s petition to remove MT’s board members.
The parties are in the process of submitting materials in response to Navidea’s request to be reimbursed approximately $70,000 in connection with the Delaware Court’s previous finding that Dr. Goldberg was in contempt of a Court order. Once that issue is resolved, Navidea expects a final judgment to be entered. See Note 2.
NYSE American Continued Listing Standards
Navidea must maintain compliance with NYSE American continued listing standards, including those relating to stockholders’ equity. Specifically, Sections 1003(a)(i), (ii) and (iii) of the NYSE American Company Guide (the “Guide”), the highest of such standards requiring an issuer to have stockholders’ equity of $6.0 million or more if it has reported losses from continuing operations and/or net losses in its five most recent fiscal years. As of September 30, 2021, the Company had stockholders’ equity of approximately $4.1 million.
Even if an issuer does not meet the standards required by Sections 1003(a)(i), (ii) and (iii) of the Guide, the NYSE American will not normally consider delisting securities of an issuer that fails to meet these requirements if the issuer has (1) average global market capitalization of at least $50,000,000; or total assets and revenue of $50,000,000 in its last fiscal year, or in two of its last three fiscal years; and (2) the issuer has at least 1,100,000 shares publicly held, a market value of publicly held shares of at least $15,000,000 and 400 round lot shareholders. As of September 30, 2021, the Company’s total market capitalization was approximately $52.8 million. However, declines in the Company’s stock price since September 30, 2021 have at times resulted in total market capitalization falling below $50.0 million. Therefore, we may not be able to continue meeting these exceptions and there is a risk that our Common Stock may be delisted as a result of our failure to meet the minimum stockholders' equity requirement for continued listing.
In December 2019, the Company executed a Stock Purchase Agreement with the investors named therein. Pursuant to the Stock Purchase Agreement, the investors agreed to purchase approximately 2.1 million shares of the Company’s Common Stock in a private placement for aggregate gross proceeds to the Company of approximately $1.9 million. Of this amount, approximately $1.1 million was received during 2019. The remaining $812,000 of proceeds were received and the related Common Stock was issued in January 2020.
In February 2020, the Company executed agreements with two existing investors to purchase approximately 4.0 million shares of the Company’s Common Stock for aggregate gross proceeds to Navidea of approximately $3.4 million. The entire $3.4 million was received and the related 4,020,588 shares of Common Stock were issued during 2020.
On August 30, 2020, the Company entered into a Common Stock Purchase Agreement with the Investors named therein, pursuant to which the Investors agreed to purchase from the Company up to $25.0 million in shares of the Company’s Common Stock. As of the date of filing of this Quarterly Report on Form 10-Q, we have received only $25,000 of the $5.0 million that is currently owed under the Common Stock Purchase Agreement. In accordance with current accounting guidance, the remaining $4.975 million of stock subscriptions receivable was included in common stock subscriptions receivable in the consolidated balance sheet as of December 31, 2020. During the second quarter of 2021, the Company determined that it is unlikely that the remaining $4.975 million will ever be collected. Accordingly, the common stock subscription receivable was reversed from the condensed consolidated balance sheet during the second quarter of 2021.
On August 31, 2020, the Company entered into a Series D Preferred Stock Purchase Agreement with Keystone pursuant to which the Company agreed to issue to Keystone 150,000 shares of Series D Preferred Stock for an aggregate purchase price of $15.0 million. Pursuant to the Series D Preferred Stock Purchase Agreement, Keystone agreed to purchase Series D Preferred Stock in amounts to be determined by Keystone in one or more closings. On July 8, 2021, the Company entered into the Series D Amendment with Keystone pursuant to which Keystone purchased 22,077 shares of Series D Preferred Stock for an aggregate purchase price of approximately $2.2 million. The Series D Amendment amended the Series D Preferred Stock Purchase Agreement dated August 31, 2020 between the parties. Prior to the Amendment Effective Date, Keystone had purchased 72,500 shares of Series D Preferred Stock pursuant to the Series D Preferred Stock Purchase Agreement for an aggregate purchase price of $7.25 million, leaving a remaining balance of 77,500 shares of Series D Preferred Stock. These 72,500 shares were subsequently converted into 3,778,789 shares of Common Stock through September 30, 2021. Including the purchases pursuant to the Series D Amendment, Keystone’s purchases of Series D Preferred Stock pursuant to the Series D Purchase Agreement during the nine-month period ended September 30, 2021 totaled 76,827 shares of Series D Preferred Stock for an aggregate purchase price of approximately $7.7 million. After purchasing the 22,077 shares, Keystone has no further right or obligation to purchase shares of Series D Preferred Stock. The Series D Amendment also contains a customary mutual release provision. Of the approximately $9.5 million received pursuant to the Series D Preferred Stock Purchase Agreement, $2.925 million was received prior to the filing of our Annual Report on Form 10-K for the year ended December 31, 2020. In accordance with current accounting guidance, this $2.925 million was included in stock subscriptions receivable in the consolidated balance sheet as of December 31, 2020. The Series D Preferred Stock is convertible into a maximum of 5,147,000 shares of Common Stock. See Note 2.
On March 2, 2021, the Company entered into a Series E Preferred Stock Purchase Agreement with an existing accredited investor, John K. Scott, Jr. pursuant to which the Company issued to Mr. Scott in a private placement transaction 50,000 shares of Series E Preferred Stock for an aggregate purchase price of $5.0 million.
Under the Series E Preferred Stock Purchase Agreement, Mr. Scott was granted a right of first offer with respect to future issuances of Company securities (the “Right of First Offer”); provided, however, that in no event shall Mr. Scott have such right if the acquisition of any of such securities would result in Mr. Scott beneficially holding more than 33.33% of the Company’s outstanding Common Stock on an as-converted basis, as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules thereunder (the “Share Cap”). In the event that Mr. Scott does not exercise the Right of First Offer, the Company will then be entitled to offer and sell the new securities to any third party at a price not less than, and upon terms no more favorable to the offeree than, those offered to Mr. Scott (a “Third Party Offering”). Pursuant to the Series E Preferred Stock Purchase Agreement, Mr. Scott also has the option to purchase up to 33.33% of the new securities offered in a Third-Party Offering at the same price and upon the terms available to the other purchaser(s) (the “Preemptive Right”); provided, however, that in no event may Mr. Scott acquire new Company securities in a Third-Party Offering to the extent the acquisition thereof would violate the Share Cap. The Right of First Offer and the Preemptive Right will expire upon the earlier of (i) December 31, 2021 or (ii) upon the voluntary or involuntary liquidation, dissolution, or winding up of the Company.
In connection with the private placement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which, among other things, the Company prepared and filed with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-1 to register for resale the maximum number of Series E Conversion Shares (as defined below) issuable upon conversion of the Series E Preferred Stock. In the event that both (i) the number of shares of Common Stock beneficially held by Mr. Scott falls below 20% of the outstanding Common Stock on an as-converted basis, as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder, and (ii) Mr. Scott is an affiliate (as that term is defined under Rule 144) at the time of the Reload Request (as defined below), the Company, upon written request from Mr. Scott (the “Reload Request”), will be required prepare and file with the SEC one, and only one, additional registration statement covering the resale of those shares of Common Stock owned by Mr. Scott as of the date of the Reload Request that, as of such time, are not registered for resale under the Securities Act of 1933, as amended (the “Securities Act”). The securities issued in the offering have not been registered under the Securities Act, and until so registered the securities may not be offered or sold absent registration or availability of an applicable exemption from registration.
Except with respect to transactions which may adversely affect any right, preference, privilege or voting power of the Series E Preferred Stock, the Series E Preferred Stock has no voting rights. Whenever the Company’s Board of Directors declares a dividend on Common Stock, each record holder of a share of Series E Preferred Stock on the record date set by the Board of Directors will be entitled to receive an amount equal to such dividend declared on one share of Common Stock multiplied by the number of shares of Common Stock (the “Series E Conversion Shares”) into which such share of Series E Preferred Stock could be converted on the record date, without regard to any conversion limitations in the Series E Preferred Certificate of Designation of Preferences, Rights and Limitations (the “Series E Preferred Certificate”). Holders of the Series E Preferred Stock may convert some or all of the Series E Preferred Stock into Series E Conversion Shares at a fixed price of $2.30 per Series E Conversion Share, provided that the aggregate number of Series E Conversion Shares issued pursuant to the Series E Preferred Certificate cannot exceed the Share Cap without shareholder approval, which the Company is not required to seek. The Company has the right to redeem any outstanding shares of Series E Preferred Stock at a price of $110 per share at any time on or prior to the one-year anniversary of the issuance date, payable in cash. See Note 2.
During the nine-month periods ended September 30, 2021 and 2020, we issued 30,018 and 32,651 shares of our common stock as matching contributions to our 401(k) Plan which were valued at $77,000 and $40,000, respectively.
During the nine-month period ended September 30, 2020, we issued 94,159 shares of our common stock valued at $172,000 to our full-time employees as partial payment in lieu of cash for their 2019 bonuses.
As of September 30, 2021, there are 972,324 warrants outstanding to purchase Navidea's Common Stock. The warrants are exercisable at prices ranging from $0.20 to $49.80 per share with a weighted average exercise price of $17.97 per share. The warrants have remaining outstanding terms ranging from 5 months to 13.9 years.
Income taxes are accounted for under the asset and liability method in accordance with Accounting Standards Codification 740, Income Taxes. Deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) 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. DTAs and DTLs 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 DTAs and DTLs of a change in tax rates is recognized in income in the period that includes the enactment date.
Current accounting standards require a valuation allowance against DTAs if, based on the weight of available evidence, it is more likely than not that some or all of the DTAs may not be realized. Due to the uncertainty surrounding the realization of these DTAs in future tax returns, all of the DTAs have been fully offset by a valuation allowance as of September 30, 2021 and December 31, 2020.
In assessing the realizability of DTAs, management considers whether it is more likely than not that some portion or all of the DTAs will not be realized. The ultimate realization of DTAs is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods) and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the DTAs are deductible, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences or tax carryforwards as of September 30, 2021.
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, no liability for uncertain tax positions was recorded as of September 30, 2021 or December 31, 2020 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 September 30, 2021, tax years 2017-2020 remained subject to examination by federal and state tax authorities.
As of September 30, 2021, we had approximately $153.3 million of federal and $20.1 million of state net operating loss carryforwards, as well as approximately $8.9 million of federal R&D credit carryforwards which expire from 2021 to 2040.
We report information about our operating segments using the “management approach” in accordance with current accounting standards. This information is based on the way management organizes and reports the segments within the enterprise for making operating decisions and assessing performance. Our reportable segments are identified based on differences in products, services and markets served. There were no inter-segment sales. We manage our business based on two primary types of drug products: (i) diagnostic substances, including Tc99m tilmanocept and other diagnostic applications of our Manocept platform, and (ii) therapeutic development programs, including therapeutic applications of our Manocept platform.
The information in the following tables is derived directly from each reportable segment’s financial reporting.
|
Three Months Ended September 30, 2021
|
|
Diagnostics
|
|
|
Therapeutics
|
|
|
Corporate
|
|
|
Total
|
|
|
License revenue
|
|
$
|
9,116
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,116
|
|
|
Grant and other revenue
|
|
|
87,266
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,266
|
|
|
Total revenue
|
|
|
96,382
|
|
|
|
—
|
|
|
|
—
|
|
|
|
96,382
|
|
|
Research and development expenses
|
|
|
906,677
|
|
|
|
142,109
|
|
|
|
—
|
|
|
|
1,048,786
|
|
|
Selling, general and administrative expenses, excluding depreciation and amortization (1)
|
|
|
—
|
|
|
|
744
|
|
|
|
1,450,565
|
|
|
|
1,451,309
|
|
|
Depreciation and amortization (2)
|
|
|
6,040
|
|
|
|
—
|
|
|
|
12,026
|
|
|
|
18,066
|
|
|
Loss from operations (3)
|
|
|
(816,335
|
)
|
|
|
(142,853
|
)
|
|
|
(1,462,591
|
)
|
|
|
(2,421,779
|
)
|
|
Other expense (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
(14
|
)
|
|
|
(14
|
)
|
|
Income tax expense
|
|
|
(5,763
|
)
|
|
|
(824
|
)
|
|
|
(9,457
|
)
|
|
|
(16,043
|
)
|
|
Net loss
|
|
|
(822,098
|
)
|
|
|
(143,677
|
)
|
|
|
(1,472,062
|
)
|
|
|
(2,437,836
|
)
|
|
Total assets, net of depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
185,205
|
|
|
$
|
—
|
|
|
$
|
8,557,398
|
|
|
$
|
8,742,603
|
|
|
International
|
|
|
216,353
|
|
|
|
—
|
|
|
|
590
|
|
|
|
216,943
|
|
|
Capital expenditures
|
|
|
—
|
|
|
|
—
|
|
|
|
18,042
|
|
|
|
18,042
|
|
|
Three Months Ended September 30, 2020
|
|
Diagnostics
|
|
|
Therapeutics
|
|
|
Corporate
|
|
|
Total
|
|
|
Royalty revenue
|
|
$
|
2,047
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,047
|
|
|
License revenue
|
|
|
4,726
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,726
|
|
|
Grant and other revenue
|
|
|
106,729
|
|
|
|
154,887
|
|
|
|
—
|
|
|
|
261,616
|
|
|
Total revenue
|
|
|
113,502
|
|
|
|
154,887
|
|
|
|
—
|
|
|
|
268,389
|
|
|
Cost of revenue
|
|
|
82
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82
|
|
|
Research and development expenses
|
|
|
1,251,383
|
|
|
|
126,615
|
|
|
|
—
|
|
|
|
1,377,998
|
|
|
Selling, general and administrative expenses, excluding depreciation and amortization (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,773,532
|
|
|
|
1,773,532
|
|
|
Depreciation and amortization (2)
|
|
|
4,027
|
|
|
|
—
|
|
|
|
11,375
|
|
|
|
15,402
|
|
|
(Loss) income from operations (3)
|
|
|
(1,268,605
|
)
|
|
|
28,272
|
|
|
|
(1,784,907
|
)
|
|
|
(2,898,625
|
)
|
|
Other expense (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
(713
|
)
|
|
|
(713
|
)
|
|
Net (loss) income
|
|
|
(1,141,990
|
)
|
|
|
28,272
|
|
|
|
(1,785,620
|
)
|
|
|
(2,899,338
|
)
|
|
Total assets, net of depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,000
|
|
|
$
|
38,320
|
|
|
$
|
5,839,733
|
|
|
$
|
5,879,053
|
|
|
International
|
|
|
116,782
|
|
|
|
—
|
|
|
|
—
|
|
|
|
116,782
|
|
|
Capital expenditures
|
|
|
120,810
|
|
|
|
—
|
|
|
|
—
|
|
|
|
120,810
|
|
21
|
Nine Months Ended September 30, 2021
|
|
Diagnostics
|
|
|
Therapeutics
|
|
|
Corporate
|
|
|
Total
|
|
|
License revenue
|
|
$
|
44,665
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
44,665
|
|
|
Grant and other revenue
|
|
|
436,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
436,500
|
|
|
Total revenue
|
|
|
481,165
|
|
|
|
—
|
|
|
|
—
|
|
|
|
481,165
|
|
|
Research and development expenses
|
|
|
3,359,190
|
|
|
|
410,406
|
|
|
|
—
|
|
|
|
3,769,596
|
|
|
Selling, general and administrative expenses, excluding depreciation and amortization (1)
|
|
|
—
|
|
|
|
3,623
|
|
|
|
5,073,435
|
|
|
|
5,077,058
|
|
|
Depreciation and amortization (2)
|
|
|
18,121
|
|
|
|
—
|
|
|
|
37,551
|
|
|
|
55,672
|
|
|
Loss from operations (3)
|
|
|
(2,896,146
|
)
|
|
|
(414,029
|
)
|
|
|
(5,110,986
|
)
|
|
|
(8,421,161
|
)
|
|
Other income (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
358,436
|
|
|
|
358,436
|
|
|
Income tax expense
|
|
|
(5,763
|
)
|
|
|
(824
|
)
|
|
|
(9,457
|
)
|
|
|
(16,043
|
)
|
|
Net loss
|
|
|
(2,901,909
|
)
|
|
|
(414,853
|
)
|
|
|
(4,762,007
|
)
|
|
|
(8,078,768
|
)
|
|
Total assets, net of depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
185,205
|
|
|
$
|
—
|
|
|
$
|
8,557,398
|
|
|
$
|
8,742,603
|
|
|
International
|
|
|
216,353
|
|
|
|
—
|
|
|
|
590
|
|
|
|
216,943
|
|
|
Capital expenditures
|
|
|
—
|
|
|
|
—
|
|
|
|
20,749
|
|
|
|
20,749
|
|
|
Nine Months Ended September 30, 2020
|
|
Diagnostics
|
|
|
Therapeutics
|
|
|
Corporate
|
|
|
Total
|
|
|
Royalty revenue
|
|
$
|
26,188
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,188
|
|
|
License revenue
|
|
|
4,726
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,726
|
|
|
Grant and other revenue
|
|
|
381,103
|
|
|
|
283,745
|
|
|
|
—
|
|
|
|
664,848
|
|
|
Total revenue
|
|
|
412,017
|
|
|
|
283,745
|
|
|
|
—
|
|
|
|
695,762
|
|
|
Cost of revenue
|
|
|
1,048
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,048
|
|
|
Research and development expenses
|
|
|
3,402,160
|
|
|
|
256,886
|
|
|
|
—
|
|
|
|
3,659,046
|
|
|
Selling, general and administrative expenses, excluding depreciation and amortization (1)
|
|
|
—
|
|
|
|
(550
|
)
|
|
|
4,895,328
|
|
|
|
4,894,778
|
|
|
Depreciation and amortization (2)
|
|
|
4,027
|
|
|
|
—
|
|
|
|
47,474
|
|
|
|
51,501
|
|
|
(Loss) income from operations (3)
|
|
|
(2,995,218
|
)
|
|
|
27,409
|
|
|
|
(4,942,802
|
)
|
|
|
(7,910,611
|
)
|
|
Other income (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
12,045
|
|
|
|
12,045
|
|
|
Net (loss) income
|
|
|
(2,995,218
|
)
|
|
|
27,409
|
|
|
|
(4,930,757
|
)
|
|
|
(7,898,566
|
)
|
|
Total assets, net of depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,000
|
|
|
$
|
38,320
|
|
|
$
|
5,839,733
|
|
|
$
|
5,879,053
|
|
|
International
|
|
|
116,782
|
|
|
|
—
|
|
|
|
—
|
|
|
|
116,782
|
|
|
Capital expenditures
|
|
|
120,810
|
|
|
|
—
|
|
|
|
8,406
|
|
|
|
129,216
|
|
|
|
(1)
|
General and administrative expenses, excluding depreciation and amortization, represent costs that relate to the general administration of the Company and as such are not currently allocated to our individual reportable segments, other than those expenses directly incurred by Navidea Europe, Navidea UK and MT.
|
|
|
(2)
|
Depreciation and amortization are reflected in selling, general and administrative expenses ($18,066 and $15,402 for the three-month periods ended September 30, 2021 and 2020, and $55,672 and $51,501 for the nine-month periods ended September 30, 2021 and 2020, respectively).
|
|
|
(3)
|
Loss from operations does not reflect the allocation of certain selling, general and administrative expenses, excluding depreciation and amortization, to our individual reportable segments, other than those expenses directly incurred by Navidea Europe, Navidea UK and MT.
|
|
|
(4)
|
Amounts consist primarily of interest income and interest expense, which are not currently allocated to our individual reportable segments.
|
|
15.
|
Supplemental Disclosure for Statements of Cash Flows
|
During the nine-month periods ended September 30, 2021 and 2020, we paid interest aggregating $7,000 and $5,000, respectively. During the nine-month period ended September 30, 2021, we collected approximately $2.925 million of stock subscriptions which were received prior to the filing of our Annual Report on Form 10-K for the year ended December 31, 2020 and were included in stock subscriptions receivable in our consolidated balance sheet as of December 31, 2020. In February 2020, the Company amended its existing office lease and recognized a right-of-use lease asset in exchange for a lease liability of $100,432. During the nine-month periods ended September 30, 2021 and 2020, we issued 30,018 and 32,651 shares of our common stock as matching contributions to our 401(k) Plan which were valued at $77,000 and $40,000, respectively. During the nine-month period ended September 30, 2020, we issued 94,159 shares of our common stock valued at $172,000 to our employees as partial payment in lieu of cash for their 2019 bonuses. During the nine-month period ended September 30, 2020, 411,000 Series OO warrants to purchase the Company’s common stock were exercised on a cashless basis in exchange for issuance of 300,595 shares of Navidea common stock. During the nine-month period ended September 30, 2020, the Company recorded a deemed dividend of approximately $467,000 related to the BCF on 420,000 shares of Series C Preferred Stock, and 420,000 shares of Series C Preferred Stock were converted into 1,425,076 shares of Common Stock. Also during the nine-month period ended September 30, 2020, the Company recorded a deemed dividend of approximately $17,000 related to the BCF on 1,500 shares of Series D Preferred Stock, and 1,500 shares of Series D Preferred Stock were converted into 56,497 shares of Common Stock.
The Company has evaluated events and transactions subsequent to September 30, 2021 and through the date these condensed consolidated financial statements were included in this Quarterly Report on Form 10-Q and filed with the SEC.
Resignation of CEO: On October 24, 2021, Jed A. Latkin resigned as Chief Executive Officer, Chief Financial Officer and Chief Operating Officer of the Company, and as a member of the Company’s Board of Directors (the “Board”), effective immediately. Mr. Latkin and the Company are discussing the terms of a severance agreement pursuant to his employment contract.
The Company’s Board of Directors has established an Executive Leadership Committee to lead the Company on an interim basis while its next CEO is identified. The Executive Leadership Committee includes Michael Rosol, Ph.D., the Company’s Senior Vice President and Chief Medical Officer; Erika Eves, the Company’s Vice President of Finance and Administration; and Jeffrey Smith, the Company’s Vice President of Operations. The Executive Leadership Committee will work with a newly established Board Oversight Committee, consisting of independent directors Alexander Cappello, Thomas Farb and John K. Scott, Jr.