NAVIDEA BIOPHARMACEUTICALS, INC. - Quarter Report: 2019 September (Form 10-Q)

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended

September 30, 2019

 

or

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to                

 

Commission File Number: 001-35076                         

 

NAVIDEA BIOPHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware		31-1080091
State or Other Jurisdiction of Incorporation or Organization		IRS Employer Identification No.

 

4995 Bradenton Avenue, Suite 240, Dublin, Ohio		43017-3552
Address of Principal Executive Offices		Zip Code

 

(614) 793-7500

Registrant’s Telephone Number, Including Area Code

 

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Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging Growth Company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Act.) Yes ☐  No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock	NAVB	NYSE American

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 18,079,406 shares of common stock, par value $.001 per share (as of the close of business on November 1, 2019).

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		September 30, 2019				December 31, 2018
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	2,841,498			$	3,475,881
Available-for-sale securities			—				799,270
Accounts and other receivables			145,816				21,151
Prepaid expenses and other			247,001				1,299,454
Total current assets			3,234,315				5,595,756
Property and equipment			1,206,280				1,251,185
Less accumulated depreciation and amortization			1,159,708				1,089,013
Property and equipment, net			46,572				162,172
Right-of-use lease assets			397,783				—
Less accumulated amortization			91,689				—
Right-of-use lease assets, net			306,094				—
License agreements, patents and trademarks			480,404				480,404
Less accumulated amortization			74,160				51,912
License agreements, patents and trademarks, net			406,244				428,492
Other assets			828,431				835,107
Total assets		$	4,821,656			$	7,021,527
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable		$	838,968			$	424,718
Accrued liabilities and other			2,487,752				2,517,047
Notes payable			—				316,074
Lease liabilities, current			249,615				—
Terminated lease liability, current			—				120,679
Total current liabilities			3,576,335				3,378,518
Lease liabilities			575,064				—
Terminated lease liability			—				468,494
Deferred revenue			700,000				700,000
Other liabilities			63,000				64,055
Total liabilities			4,914,399				4,611,067
Commitments and contingencies (Note 11)
Stockholders’ (deficit) equity:
Preferred stock; $.001 par value; 5,000,000 shares authorized; no shares issued or outstanding at September 30, 2019 and December 31, 2018			—				—
Common stock; $.001 par value; 300,000,000 shares authorized; 18,059,406 and 10,019,535 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively			209,056				200,391
Additional paid-in capital			343,929,129				338,265,383
Accumulated deficit			(344,899,232	)			(336,722,905	)
Accumulated other comprehensive loss			—				(730	)
Total Navidea stockholders' (deficit) equity			(761,047	)			1,742,139
Noncontrolling interest			668,304				668,321
Total stockholders’ (deficit) equity			(92,743	)			2,410,460
Total liabilities and stockholders’ (deficit) equity		$	4,821,656			$	7,021,527

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		Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018				2019				2018
Revenue:
Royalty revenue		$	4,895			$	2,382			$	13,985			$	9,842
License revenue			—				19,930				9,953				277,639
Grant and other revenue			231,916				209,146				514,589				762,549
Total revenue			236,811				231,458				538,527				1,050,030
Cost of revenue			195				38,101				6,559				73,811
Gross profit			236,616				193,357				531,968				976,219
Operating expenses:
Research and development			1,801,558				1,225,770				3,612,783				3,367,444
Selling, general and administrative			1,519,496				2,688,703				5,109,612				6,254,474
Total operating expenses			3,321,054				3,914,473				8,722,395				9,621,918
Loss from operations			(3,084,438	)			(3,721,116	)			(8,190,427	)			(8,645,699	)
Other income (expense):
Interest income (expense), net			11,858				(28,074	)			23,336				(20,234	)
Loss on extinguishment of debt			—				—				—				(4,265,434	)
Other, net			(1,524	)			3,540				(5,880	)			1,654
Total other income (expense), net			10,334				(24,534	)			17,456				(4,284,014	)
Loss before income taxes			(3,074,104	)			(3,745,650	)			(8,172,971	)			(12,929,713	)
Provision for income taxes			—				(76,259	)			(707	)			(65,330	)
Loss from continuing operations			(3,074,104	)			(3,821,909	)			(8,173,678	)			(12,995,043	)
Discontinued operations, net of tax effect
Loss from discontinued operations			—				—				(2,665	)			(1,938	)
Gain on sale			—				—				—				43,053
Net loss			(3,074,104	)			(3,821,909	)			(8,176,343	)			(12,953,928	)
Less loss attributable to noncontrolling interest			(2	)			(308	)			(16	)			(333	)
Net loss attributable to common stockholders		$	(3,074,102	)		$	(3,821,601	)		$	(8,176,327	)		$	(12,953,595	)
Loss per common share (basic and diluted):
Continuing operations		$	(0.17	)		$	(0.46	)		$	(0.62	)		$	(1.59	)
Discontinued operations		$	—			$	—			$	—			$	0.01
Attributable to common stockholders		$	(0.17	)		$	(0.46	)		$	(0.62	)		$	(1.58	)
Weighted average shares outstanding			18,044,406				8,342,771				13,082,393				8,198,197

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		Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018				2019				2018
Net loss		$	(3,074,104	)		$	(3,821,909	)		$	(8,176,343	)		$	(12,953,928	)
Unrealized (loss) gain on available-for-sale securities			(188	)			1,012				730				1,344
Comprehensive loss		$	(3,074,292	)		$	(3,820,897	)		$	(8,175,613	)		$	(12,952,584	)

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For the Nine Months Ended September 30, 2019
		Common Stock								Additional Paid-In				Accumulated				Accumulated Other Compre -hensive				Non- controlling				Total Stockholders’ (Deficit)
		Shares				Amount				Capital				Deficit				Loss				Interest				Equity
Balance, January 1, 2019			10,019,535			$	200,391			$	338,265,383			$	(336,722,905	)		$	(730	)		$	668,321			$	2,410,460
Issued restricted stock			15,000				300				—				—				—				—				300
Issued stock pursuant to Stock Purchase Agreement			17,857				357				49,643				—				—				—				50,000
Stock compensation expense			—				—				61,978				—				—				—				61,978
Comprehensive loss:
Net loss			—				—				—				(2,429,049	)			—				(12	)			(2,429,061	)
Unrealized gain on available-for-sale securities			—				—				—				—				958				—				958
Total comprehensive loss			—				—				—				—				—				—				(2,428,103	)
Balance, March 31, 2019			10,052,392				201,048				338,377,004				(339,151,954	)			228				668,309				94,635
Rounding adjustments related to reverse stock split			(1,114	)			—				(3,385	)			—				—				—				(3,385	)
Issued stock to 401(k) plan			8,128				8				19,580				—				—				—				19,588
Shares issued for public offering, net of offering costs of $841,559			8,000,000				8,000				5,158,441				—				—				—				5,166,441
Value of warrants issued in connection with public offering			—				—				261,288				—				—				—				261,288
Stock compensation expense			—				—				66,159				—				—				—				66,159
Comprehensive loss:
Net loss			—				—				—				(2,673,176	)			—				(3	)			(2,673,179	)
Unrealized loss on available-for-sale securities			—				—				—				—				(40	)			—				(40	)
Total comprehensive loss			—				—				—				—				—				—				(2,673,219	)
Balance, June 30, 2019			18,059,406				209,056				343,879,087				(341,825,130	)			188				668,306				2,931,507
Stock compensation expense			—				—				50,042				—				—				—				50,042
Comprehensive loss:
Net loss			—				—				—				(3,074,102	)			—				(2	)			(3,074,104	)
Unrealized loss on available-for-sale securities			—				—				—				—				(188	)			—				(188	)
Total comprehensive loss			—				—				—				—				—				—				(3,074,292	)
Balance, September 30, 2019			18,059,406			$	209,056			$	343,929,129			$	(344,899,232	)		$	—			$	668,304			$	(92,743	)

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For the Nine Months Ended September 30, 2018
		Common Stock								Additional Paid-In				Accumulated				Accumulated Other Compre- hensive				Non- controlling				Total Stockholders’ (Deficit)
		Shares				Amount				Capital				Deficit				Loss				Interest				Equity
Balance, January 1, 2018			8,110,332			$	162,207			$	331,128,787			$	(319,908,968	)		$	(2,396	)		$	668,700			$	12,048,330
Impact of adoption of ASC Topic 606			—				—				—				(700,000	)			—				—				(700,000	)
Issued stock in payment of employee bonuses			22,920				458				164,563				—				—				—				165,021
Issued restricted stock			10,000				200				—				—				—				—				200
Issued stock to 401(k) plan			4,734				95				35,885				—				—				—				35,980
Stock compensation expense			—				—				137,964				—				—				—				137,964
Comprehensive loss:
Net loss			—				—				—				(6,737,953	)			—				(9	)			(6,737,962	)
Unrealized loss on available-for-sale securities			—				—				—				—				(176	)			—				(176	)
Total comprehensive loss			—				—				—				—				—				—				(6,738,138	)
Balance, March 31, 2018			8,147,986				162,960				331,467,199				(327,346,921	)			(2,572	)			668,691				4,949,357
Issued stock in payment of employee bonuses			33,018				660				151,221																151,881
Stock compensation expense			—				—				79,183				—				—				—				79,183
Comprehensive loss:
Net loss			—				—				—				(2,394,041	)			—				(16	)			(2,394,057	)
Unrealized gain on available-for-sale securities			—				—				—				—				508				—				508
Total comprehensive loss			—				—				—				—				—				—				(2,393,549	)
Balance, June 30, 2018			8,181,004				163,620				331,697,603				(329,740,962	)			(2,064	)			668,675				2,786,872
Cancelled forfeited restricted stock			(2,500	)			(50	)			50				—				—				—				—
Issued stock pursuant to private placement			916,031				18,321				2,981,679				—				—				—				3,000,000
Stock compensation expense			—				—				44,088				—				—				—				44,088
Comprehensive loss:
Net loss			—				—				—				(3,821,601	)			—				(308	)			(3,821,909	)
Unrealized gain on available-for-sale securities			—				—				—				—				1,012				—				1,012
Total comprehensive loss			—				—				—				—				—				—				(3,820,897	)
Balance, September 30, 2018			9,094,535			$	181,891			$	334,723,420			$	(333,562,563	)		$	(1,052	)		$	668,367			$	2,010,063

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		Nine Months Ended September 30,
		2019				2018
Cash flows from operating activities:
Net loss		$	(8,176,343	)		$	(12,953,928	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization			107,794				113,088
Loss on disposal and abandonment of assets			1,672				—
Compounded interest on long term debt			—				128,902
Stock compensation expense			178,179				261,235
Loss on extinguishment of debt			—				4,265,434
Value of stock issued to employees			—				316,902
Value of stock issued to 401(k) plan for employer matching contributions			19,588				35,980
Changes in operating assets and liabilities:
Accounts and other receivables			(124,665	)			12,860,320
Prepaid expenses and other assets			753,034				632,106
Accounts payable			414,250				(239,519	)
Accrued and other liabilities			216,180				992,304
Deferred revenue			(11,024	)			(10,037	)
Net cash (used in) provided by operating activities			(6,621,335	)			6,402,787
Cash flows from investing activities:
Purchases of available-for-sale securities			—				(200,000	)
Proceeds from sales of available-for-sale securities			400,000				200,000
Maturities of available-for-sale securities			400,000				1,000,000
Proceeds from disposal (payments for purchases) of equipment			28,382				(19,317	)
Net cash provided by investing activities			828,382				980,683
Cash flows from financing activities:
Proceeds from issuance of common stock			6,046,915				3,000,200
Payment of common stock issuance costs			(572,271	)			—
Payment of debt-related costs			—				(7,153,000	)
Principal payments on notes payable			(316,074	)			(318,211	)
Net cash provided by (used in) financing activities			5,158,570				(4,471,011	)
Net (decrease) increase in cash and cash equivalents			(634,383	)			2,912,459
Cash and cash equivalents, beginning of period			3,475,881				2,795,006
Cash and cash equivalents, end of period		$	2,841,498			$	5,707,465

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1.	Summary of Significant Accounting Policies

 

a.

Basis of Presentation: The information presented as of September 30, 2019 and for the three-month and nine-month periods ended September 30, 2019 and 2018 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 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. The balances as of September 30, 2019 and the results for the interim periods are not necessarily indicative of results to be expected for the year. The consolidated financial statements should be read in conjunction with Navidea’s audited consolidated financial statements for the year ended December 31, 2018, which were included as part of our Annual Report on Form 10-K.

 

Our consolidated financial statements include the accounts of Navidea, our wholly owned subsidiary, Navidea Biopharmaceuticals Limited, and our majority-owned subsidiary, Macrophage Therapeutics, Inc. (“MT”). All significant inter-company accounts were eliminated in consolidation.

 

On April 26, 2019, the Company effected a one-for-twenty reverse stock split of its issued and outstanding shares of common stock, par value $0.001 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, 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, 2018.  Our consolidated statements of cash flows were not impacted by the reverse stock split.

 

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, available-for-sale securities, accounts 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 at December 31, 2018 primarily consisted of the face amount of the notes plus accrued interest. At December 31, 2018, the fair value of our notes payable was approximately $316,000, equal to the carrying value of $316,000. We did not have any notes payable outstanding at September 30, 2019. See Note 9.

 

(3)

Derivative liabilities: Derivative liabilities are related to certain outstanding warrants which are recorded at fair value. Derivative liabilities totaling $63,000 as of September 30, 2019 and December 31, 2018 were included in other liabilities on the consolidated balance sheets. The assumptions used to calculate fair value as of September 30, 2019 and December 31, 2018 included volatility, a risk-free rate and expected dividends. In addition, we considered non-performance risk and determined that such risk is minimal. Unrealized gains and losses on the derivatives, if any, are classified in other expenses as a change in the fair value of financial instruments in the statements of operations. See Note 4.

 

c.

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 3.

 

d.

Recently Adopted Accounting Standards: In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). ASU 2016-02 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.

 

 

In 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 2018-10 updates Topic 842 in order to clarify narrow aspects of the guidance issued in ASU 2016-02, Leases (Topic 842). ASU 2018-11 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 2018-10 and ASU 2018-11 are effective when ASU 2016-02 is effective, for fiscal years beginning after December 15, 2018.

 

The Company adopted ASU 2016-02, ASU 2018-10 and ASU 2018-11 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 12 months or less.

 

The adoption of ASU 2016-02 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 2016-02 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 10.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 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 2018-07 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 (1) financing to the issuer or (2) 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 2018-07 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 2018-07 did not have a significant impact on our consolidated financial statements.

 

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements. ASU 2018-09 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 2018-09 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 2018-09 did not have a significant impact on our consolidated financial statements.

 

 

2.

Liquidity

 

As disclosed in the Company’s Annual Report on Form 10-K and other filings, the Company is engaged in ongoing litigation with Capital Royalty Partners II L.P. (“CRG”) and is currently pursuing recovery of $4.1 million and other damages. See Note 11.

 

The Company was also 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. (“PPVA”), Platinum Partners Capital Opportunity Fund (“PPCO”), Platinum Partners Liquid Opportunity Master Fund L.P., Platinum Liquid Opportunity Management (NY) LLC, and Montsant Partners LLC (collectively, “Platinum”), in which Platinum-Montaur was seeking damages of approximately $1.9 million plus interest.  In October 2018, the court granted judgment for Navidea and dismissed all claims in the case; however, in November 2018, Platinum-Montaur filed a notice of appeal.  Oral argument on the appeal was held before the United States Court of Appeals for the Second Circuit (the “Second Circuit”) on September 5, 2019 and the court will issue its decision in the near future. See Notes 9 and 11.

 

 

In addition, the Company is engaged in litigation with our former President and Chief Executive Officer, Dr. Michael Goldberg. See Notes 7 and 11.

 

On June 18, 2019, the Company completed an underwritten public offering of 8,000,000 shares (the “Shares”) of our Common Stock pursuant to an underwriting agreement (the “Underwriting Agreement”), dated June 13, 2019, between the Company and H.C. Wainwright & Co., LLC (the “Underwriter”) at a price to the public of $0.75 per share.  Of the 8,000,000 total Shares, 4,000,000 shares were placed with existing investor John K. Scott, Jr. (the “Investor”), at a price of $0.75 per share. Pursuant to the Underwriting Agreement, the Underwriter purchased the remaining 4,000,000 Shares from the Company at a price of $0.69375 per share.  After underwriting discounts, commissions, fees and expenses paid to the Underwriter, the Company received net proceeds from the offering of $5,555,000.  The Company intends to use the net proceeds from the offering to fund its research and development programs, including continuing to advance its Phase 2b and Phase 3 clinical trials of Tc99m tilmanocept in patients with rheumatoid arthritis, and for general working capital purposes and other operating expenses.

 

In addition, 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 June 2019 underwritten public offering provided approximately $5.5 million of additional working capital. 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, and without definitive agreements in place for additional funding, management believes that there is substantial doubt about the Company’s ability to continue as a going concern for at least twelve months following the filing of this Quarterly Report on Form 10-Q.

 

 

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 Europe, India and China, however Tc99 tilmanocept has only been approved for sale in Europe.

 

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 10 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 Europe, 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 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 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 the revenue recognition standard, 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, 2019 and 2018, the Company recognized revenue from contracts with customers of approximately $5,000 and $22,000, respectively. During the nine-month periods ended September 30, 2019 and 2018, the Company recognized revenue from contracts with customers of approximately $35,000 and $303,000, respectively. During the three-month and nine-month periods ended September 30, 2019 and 2018, 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 tables disaggregate the Company’s revenue from contracts with customers for the three-month and nine-month periods ended September 30, 2019 and 2018.

 

 

 

 

 

 

 

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 are 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 has begun to recognize 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, 2019, 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 consolidated balance sheets, during the three-month and nine-month periods ended September 30, 2019 and 2018.

 

 

 

The Company had trade receivables of approximately $0 and $12,000 outstanding as of September 30, 2019 and December 31, 2018.

 

 

In addition to revenue from contracts from customers, we also generate revenue from 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, 2019 and 2018, the Company recognized grant revenue of $232,000 and $169,000, respectively. During the nine-month periods ended September 30, 2019 and 2018, the Company recognized grant revenue of $497,000 and $680,000, respectively.

 

 

4.	Fair Value

 

The Company’s available-for-sale securities consist of certificates of deposit which are measured using Level 2 inputs.

 

MT issued warrants to purchase MT common stock with certain characteristics including a net settlement provision that require the warrants to be accounted for as a derivative liability at fair value on the consolidated balance sheets. The estimated fair value of the MT warrants is $63,000 at both September 30, 2019 and December 31, 2018, is included in other liabilities on the accompanying consolidated balance sheets and will continue to be measured on a recurring basis.

 

The following tables set forth, by level, financial assets and liabilities measured at fair value on a recurring basis.

 

 

 

 

a.

Valuation Processes-Level 3 Measurements: The Company utilizes third-party valuation services that use complex models such as Monte Carlo simulation to estimate the value of our financial liabilities.

 

b.

Sensitivity Analysis-Level 3 Measurements: Changes in the valuation of MT as a whole may cause material changes in the fair value of the MT warrants. Significant increases (decreases) in the valuation of MT, such as may be the result of additional financing, could result in a higher (lower) fair value measurement. A change in the valuation of MT would not necessarily result in a directionally similar change in the value of the MT warrants.

 

There were no transfers in or out of our Level 1 or Level 2 liabilities during the nine-month periods ended September 30, 2019 or 2018.  Changes in the estimated fair value of our Level 3 liabilities relating to unrealized gains (losses), if any, are recorded as changes in fair value of financial instruments in the consolidated statements of operations.  There was no change in the estimated fair value of our Level 3 liabilities during the nine-month periods ended September 30, 2019 and 2018.

 

 

 

5.	Stock-Based Compensation

 

For the three-month periods ended September 30, 2019 and 2018, our total stock-based compensation expense, which includes reversals of expense for certain forfeited or cancelled awards, was approximately $50,000 and $44,000, respectively. For the nine-month periods ended September 30, 2019 and 2018, our total stock-based compensation expense, which includes reversals of expense for certain forfeited or cancelled awards, was approximately $178,000 and $261,000, 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, 2019 and 2018.

 

A summary of the status of our stock options as of September 30, 2019, and changes during the nine-month period then ended, is presented below.

 

 

 

A summary of the status of our unvested restricted stock as of September 30, 2019, and changes during the nine-month period then ended, is presented below.

 

 

As of September 30, 2019, there was approximately $83,000 of total unrecognized compensation expense related to unvested stock-based awards, which we expect to recognize over the remaining weighted average vesting term of 0.9 year.

 

 

6.	Loss Per Share

 

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 debt, convertible preferred stock, options and warrants.

 

Diluted loss per common share for the nine-month periods ended September 30, 2019 and 2018 excludes the effects of 1,490,531 and 930,909 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, 15,000 and 5,000 shares of unvested restricted stock for the nine-month periods ended September 30, 2019 and 2018, respectively, were excluded in determining basic and diluted loss per share from continuing operations because such inclusion would be anti-dilutive.

 

 

 

7.	Investment in Macrophage Therapeutics, Inc.

 

In August 2018, the Company entered into an Agreement (the “Agreement”) with Dr. Michael Goldberg related to his resignation from his positions as an executive officer and a director of Navidea.  Among other things, the Agreement provided that Dr. Goldberg would become Chief Executive Officer of MT, and that MT would redeem all of Dr. Goldberg’s MT preferred stock and issue to Dr. Goldberg MT super voting common stock equal to 5% of the outstanding shares of MT, subject to execution of one or more additional definitive agreements (the “Definitive Agreements”).  As of the date of filing of this Quarterly Report on Form 10-Q, Definitive Agreements have not yet been signed.

 

On February 11, 2019, Dr. Goldberg represented to the MT Board that he had, without MT Board or shareholder approval, created a subsidiary of MT, transferred all of the assets of MT into the subsidiary, and then issued himself stock in the subsidiary.  On February 19, 2019, Navidea notified MT that it was terminating the sublicense effective March 1, 2019 because MT became insolvent pursuant to the sublicense agreement.  On February 20, 2019, the Board of Directors of MT removed Dr. Goldberg as President and Chief Executive Officer of MT and from any other office of MT to which he may have been appointed or in which he was serving. Dr. Goldberg remains a member of the MT Board, together with Michael Rice and Dr. Claudine Bruck.  Mr. Rice and Dr. Bruck remain members of the board of directors of Navidea.  The MT Board then appointed Mr. Latkin to serve as President and Chief Executive Officer of MT. 

 

On February 20, 2019, Navidea filed a complaint against Dr. Goldberg in the United States District Court for the Southern District of New York (the “New York Court”), alleging breach of the 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 Agreement is excused and that Navidea is entitled to terminate the 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 Agreement, wrongful termination, injunctive relief, and quantum meruit. Dr. Goldberg also filed a motion to dismiss Navidea’s breach of fiduciary duty claim and for an order granting Dr. Goldberg advancement of defense costs, attorneys’ fees and sanctions. Navidea has opposed the motion. On July 5, 2019, Navidea and MT moved to dismiss certain of Dr. Goldberg’s claims. Dr. Goldberg has opposed the motion. The motions have not been ruled upon.

 

Also 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, Vice Chancellor Joseph Slights of 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.  MT’s claims for breach of fiduciary duty and conversion against Dr. Goldberg remain pending.  As a result of the Delaware Court’s ruling and Navidea’s prior termination of the sub-license between itself and MT, all of the intellectual property related to the Manocept platform is now directly controlled by Navidea. 

 

On July 26, 2019, Dr. Goldberg also served shareholder demands on the Boards of Navidea and MT repeating many of the claims made in the above lawsuits. The respective boards will respond to Dr. Goldberg’s demands as appropriate. See Note 11.

 

 

8.	Accounts Payable, Accrued Liabilities and Other

 

Accounts payable at September 30, 2019 includes an aggregate of $65,000 due to related parties for director fees. Accrued liabilities and other at September 30, 2019 and December 31, 2018 includes an aggregate of $317,000 and $1.6 million, respectively, due to related parties for accrued termination costs, bonuses and director fees.

 

 

9.	Notes Payable

 

Platinum-Montaur Life Sciences LLC

 

In July 2012, we entered into an agreement with Platinum-Montaur to provide us with a credit facility of up to $50 million (the “Platinum Loan Agreement”).  In March 2017, the Company repaid to PPCO an aggregate of approximately $7.7 million in partial satisfaction of the Company’s liabilities, obligations and indebtedness under the Platinum Loan Agreement between the Company and Platinum-Montaur, which were transferred by Platinum-Montaur to PPCO.  In November 2018, the Company issued 925,000 shares of our Common Stock to Dr. Goldberg, of which approximately 817,857 shares valued at $3.2 million were applied as payment of the Platinum debt, including principal and accrued interest of $2.2 million and loss on extinguishment of debt of $1.0 million.  See Note 11.

 

 

During the nine-month period ended September 30, 2018, $129,000 of interest was compounded and added to the balance of the Platinum Note.

 

IPFS Corporation

 

In November 2017, we prepaid $396,000 of insurance premiums through the issuance of a note payable to IPFS Corporation (“IPFS”) with an interest rate of 4.0%. The note was payable in ten monthly installments of $40,000, with the final payment made in August 2018. In November 2018, we prepaid $393,000 of insurance premiums through the issuance of a note payable to IPFS with an interest rate of 5.1%. The note was payable in ten monthly installments of $40,000, with the final payment made in August 2019.

 

Interest expense related to the IPFS notes payable totaled $6,000 and $5,000 during the nine-month periods ended September 30, 2019 and 2018, respectively. The balance of the IPFS note was approximately $0 and $316,000 as of September 30, 2019 and December 31, 2018, respectively, and was included in notes payable, current in the consolidated balance sheets.

 

Summary

 

During the three-month periods ended September 30, 2019 and 2018, we recorded interest expense of $1,000 and $45,000, respectively, related to our notes payable. Of these amounts, $0 and $44,000 was compounded and added to the balance of our notes payable during the three-month periods ended September 30, 2019 and 2018, respectively. During the nine-month periods ended September 30, 2019 and 2018, we recorded interest expense of $6,000 and $134,000, respectively, related to our notes payable. Of these amounts, $0 and $129,000 was compounded and added to the balance of our notes payable during the nine-month periods ended September 30, 2019 and 2018, respectively.

 

 

10.

Leases

 

We currently lease approximately 5,000 square feet of office space at 4995 Bradenton Avenue, Dublin, Ohio, as our principal offices. The current least term expires in June 2020 and provides for a monthly base rent of approximately $3,000. We also leased approximately 2,000 square feet of office space at 560 Sylvan Avenue, Englewood Cliffs, New Jersey, at a monthly base rent of approximately $3,000. The lease for the New Jersey office space expired on March 31, 2019 and we did not renew.

 

In addition, we currently lease approximately 25,000 square feet of office space at 5600 Blazer Parkway, Dublin, Ohio, formerly our principal offices. The current lease term expires in October 2022, at a monthly base rent of approximately $26,000 during 2019. In June 2017, the Company executed a sublease arrangement for the Blazer space, providing for monthly sublease payments to Navidea of approximately $39,000 through October 2022.

 

We also currently lease a vehicle. The lease term expires in September 2021, at a monthly payment of approximately $300.

 

We adopted ASU 2016-02, Leases (Topic 842) effective January 1, 2019. The following table summarizes the impact of the adoption of ASU 2016-02 on our balance sheet.

 

 

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. Short-term operating leases which have an initial term of 12 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, and is included in selling, general and administrative expenses on our consolidated statements of operations. Total operating lease expense was $54,000 and $176,000 for the three-month and nine-month periods ended September 30, 2019, respectively. Sublease income was $94,000 and $283,000 for the three-month and nine-month periods ended September 30, 2019, and was recorded in selling, general and administrative expenses.

 

 

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, 2019.

 

 

 

 

An initial right-of-use lease asset of $407,000 was recognized as a non-cash asset addition with the adoption of ASU 2016-02. Cash paid for amounts included in the present value of operating lease liabilities was $249,000 during the nine-month period ended September 30, 2019 and is included in operating cash flows.

 

 

11.	Commitments and Contingencies

 

We are subject to legal proceedings and claims that arise in the ordinary course of business.

 

CRG Litigation

 

As disclosed in the Company’s Annual Report on Form 10-K and other filings, 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 “Lenders”), in the District Court of Harris County, Texas (the “Texas Court”) relating to CRG’s claims of default under the terms the CRG Loan Agreement. Following a trial in December 2017, the Texas Court ruled that the Company’s total obligation to CRG was in excess of $66.0 million, limited to $66.0 million under the Global Settlement Agreement. The Texas Court acknowledged only the $59.0 million payment made in March 2017, concluding that the Company owed CRG another $7.0 million, however the Texas Court did not expressly take the Company’s June 2016 payment of $4.1 million into account and awarded, as part of the $66.0 million, amounts that had already been paid as part of the $4.1 million. The Company believes that this $4.1 million should be credited against the $7.0 million and has appealed the Texas Court’s judgment. The Court of Appeals dismissed the Company’s appeal without reaching the merits due to a contractual waiver of appeal.

 

On April 9, 2018, CRG drew approximately $7.1 million on the Cardinal Health 414, LLC (“Cardinal Health 414”) letter of credit.  These were funds to which Navidea would otherwise have been entitled. This was in addition to the $4.1 million and the $59.0 million that Navidea had previously paid to CRG.

 

The Company has also been engaged in ongoing litigation with CRG in the Court of Common Pleas of Franklin County, Ohio (the “Ohio Court”) related to Navidea’s claims that the Lenders fraudulently induced Navidea to enter into a settlement agreement and breached the terms of the same through certain actions taken by the Lenders in connection with the Global Settlement Agreement reached in 2017, pursuant to which Navidea agreed to pay up to $66.0 million to Lenders, as well as through actions and misrepresentations by CRG after the Global Settlement Agreement was executed.  The currently pending claims in that suit are for breach of contract, conversion and unjust enrichment against the Lenders for their collection of more than $66.0 million, the maximum permitted under the Global Settlement Agreement, and their double recovery of amounts paid as part of the $4.1 million paid in June 2016 and recovered again as part of the $66.0 million. CRG’s double recovery and recovery of more than $66.0 million are due to CRG drawing the entire $7.1 million on the Cardinal Health 414 letter of credit. The Lenders sought a Writ of Prohibition in the Ohio Supreme Court to prevent this case from moving forward, which was denied, and proceedings have resumed in front of the Ohio Court. Following an unsuccessful mediation on May 7, 2019, Navidea moved for Summary Judgment on June 28, 2019.  It is anticipated that the Ohio Court will take the Summary Judgment matter under advisement shortly with a written decision to be issued in the future.

 

 

CRG filed another lawsuit in the Texas Court in April 2018. This suit seeks a declaratory judgment that CRG did not breach the Global Settlement Agreement by drawing the entire $7.1 million on the Cardinal Health 414 letter of Credit. CRG also alleges that the Company breached the Global Settlement Agreement by appealing the Texas Court’s judgment and by filing the suit in Franklin County, Ohio. The Company moved to dismiss CRG’s claims under the Texas Citizens’ Participation Act. The Texas Court denied the motion to dismiss. The Company filed an interlocutory appeal of the denial of its motion to dismiss. That appeal is fully briefed, and the parties await the court of appeals’ ruling. Proceedings in the Texas Court are stayed pending resolution of that appeal. See Note 2.

 

Platinum Litigation

 

In November 2017, Platinum-Montaur commenced an action against the Company in the Supreme Court of the State of New York, County of New York, seeking damages of approximately $1.9 million purportedly due as of March 3, 2017, plus interest accruing thereafter.  The claims asserted were for breach of contract and unjust enrichment in connection with funds received by the Company under the Platinum Loan Agreement.  The action was subsequently removed to the United States District Court for the Southern District of New York (the “District Court”).  On October 31, 2018, the District Court granted judgment for Navidea and dismissed all claims in the case.  The District Court stated that Platinum-Montaur had no standing to assert any contractual interest in funds that might be due under the Platinum Loan Agreement.  The District Court also disagreed with Platinum-Montaur’s claim of unjust enrichment on similar grounds and found that Platinum-Montaur lacked any sufficient personal stake to maintain claims against Navidea.  The claims against Navidea were dismissed without prejudice on the grounds of lack of standing to pursue the claims asserted.

 

On November 30, 2018, Platinum-Montaur filed a notice of appeal with the Second Circuit claiming that the District Court erred in dismissing Platinum-Montaur’s claims for breach of contract and unjust enrichment. On January 22, 2019, Platinum-Montaur filed its brief in the Second Circuit, asking the Second Circuit to reverse the District Court and remand the case to the District Court for further proceedings. On February 26, 2019, the Company filed its brief in the Second Circuit. Oral argument on the appeal was held before the Second Circuit on September 5, 2019 and the court will issue its decision in the near future. See Note 9.

 

Goldberg Agreement and Litigation

 

In August 2018, Dr. Michael 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 the Agreement, with the intent of entering into one or more additional Definitive Agreements, which set forth the terms of the separation from service.  Among other things, the Agreement provided that Dr. Goldberg would be entitled to 1,175,000 shares of our Common Stock, representing in part payment of accrued bonuses and payment of the balance of the Platinum Note.  A portion of the 1,175,000 shares to be issued to Dr. Goldberg will be held in escrow for up to 18 months in order to reimburse Navidea in the event that Navidea is obligated to pay any portion of the Platinum Note to a party other than Dr. Goldberg.  Further, the Agreement provided that the Company’s subsidiary, MT, would redeem all of Dr. Goldberg’s preferred stock and issue to Dr. Goldberg super voting common stock equal to 5% of the outstanding shares of MT.  In November 2018, the Company issued 925,000 shares of our Common Stock to Dr. Goldberg, 250,000 of which were placed in escrow in accordance with the Agreement.  As of the date of filing this Quarterly Report on Form 10-Q, Definitive Agreements have not been signed.

 

On February 11, 2019, Dr. Goldberg represented to the MT Board that he had, without MT Board or shareholder approval, created a subsidiary of MT, transferred all of the assets of MT into the subsidiary, and then issued himself stock in the subsidiary.  On February 19, 2019, Navidea notified MT that it was terminating the sublicense effective March 1, 2019 because MT became insolvent pursuant to the sublicense agreement.  On February 20, 2019, the Board of Directors of MT removed Dr. Goldberg as President and Chief Executive Officer of MT and from any other office of MT to which he may have been appointed or in which he was serving. Dr. Goldberg remains a member of the MT Board, together with Michael Rice and Dr. Claudine Bruck.  Mr. Rice and Dr. Bruck remain members of the board of directors of Navidea.  The MT Board then appointed Mr. Latkin to serve as President and Chief Executive Officer of MT. 

 

On February 20, 2019, Navidea filed a complaint against Dr. Goldberg in the New York Court, alleging breach of the 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 Agreement is excused and that Navidea is entitled to terminate the 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 Agreement, wrongful termination, injunctive relief, and quantum meruit. Dr. Goldberg also filed a motion to dismiss Navidea’s breach of fiduciary duty claim and for an order granting Dr. Goldberg advancement of defense costs, attorneys’ fees and sanctions. Navidea has opposed the motion. On July 5, 2019, Navidea and MT moved to dismiss certain of Dr. Goldberg’s claims. Dr. Goldberg has opposed the motion. The motions have not been ruled upon.

 

 

Also on February 20, 2019, MT initiated a suit against Dr. Goldberg in 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, Vice Chancellor Joseph Slights of 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.  MT’s claims for breach of fiduciary duty and conversion against Dr. Goldberg remain pending.  As a result of the Delaware Court’s ruling and Navidea’s prior termination of the sub-license between itself and MT, all of the intellectual property related to the Manocept platform is now directly controlled by Navidea. 

 

On July 26, 2019, Dr. Goldberg also served shareholder demands on the Boards of Navidea and MT repeating many of the claims made in the above lawsuits. The respective boards will respond to Dr. Goldberg’s demands as appropriate.  See Note 7.

 

NYSE American Continued Listing Standards

 

On August 14, 2018, the Company received a notification (the “Deficiency Letter”) from the NYSE American stating that Navidea was not in compliance with certain NYSE American continued listing standards relating to stockholders’ equity. Specifically, the Deficiency Letter stated that Navidea is not in compliance with Section 1003(a)(ii) of the NYSE American Company Guide, which requires an issuer to have stockholders’ equity of $4.0 million or more if it has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years. The Deficiency Letter noted that Navidea had stockholders’ equity of $2.1 million as of June 30, 2018, and had reported net losses in four of its five most recent fiscal years ended December 31, 2017.

 

In addition, the Deficiency Letter stated that the Staff determined that the Company’s securities have been selling for a low price per share for a substantial period of time and, pursuant to Section 1003(f)(v) of the NYSE American Company Guide, Navidea’s continued listing was predicated on it effecting a reverse stock split of our Common Stock or otherwise demonstrating sustained price improvement within a reasonable period of time. 

 

Navidea was required to submit a plan to the NYSE American by September 14, 2018 advising of actions it has taken or will take to regain compliance with the continued listing standards by February 14, 2020. Navidea submitted a plan by the deadline.

 

On October 25, 2018, the Company received a notification (the “Acceptance Letter”) from the NYSE American that the Company’s plan to regain compliance was accepted. The Acceptance Letter also stated that the NYSE American had inadvertently omitted an additional deficiency from the Deficiency Letter. Specifically, the Deficiency Letter should have stated that Navidea is not in compliance with Section 1003(a)(iii) of the NYSE American Company Guide, which requires 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. The Acceptance Letter noted that Navidea had stockholders’ equity of $2.1 million as of June 30, 2018, and had reported losses from continuing operations and/or net losses in its five most recent fiscal years ended December 31, 2017.

 

The Company is required to provide quarterly updates to the NYSE American staff (the “Staff”) concurrent with its interim/annual SEC filings. If Navidea fails to regain compliance with the stockholders’ equity standards by February 14, 2020, the NYSE American would commence delisting procedures.

 

On April 2, 2019, the Company received a notification (the “NYSE Letter”) from the NYSE American stating that Navidea was not in compliance with Section 1003(a)(i) of the NYSE American Company Guide, which requires an issuer to have stockholders’ equity of $2.0 million or more if it has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years. The NYSE Letter noted that Navidea’s most recent Form 10-K reported stockholders’ equity of $1.7 million as of December 31, 2018, and that Navidea has reported losses from continuing operations and/or net losses in its five most recent fiscal years ended December 31, 2018.

 

The NYSE Letter also required the Company to regain compliance with the price standard in order to be considered for continued trading through its equity plan period end date of February 14, 2020, subject to periodic review of progress consistent with the equity plan. Accordingly, the Company effected a one-for-twenty reverse split of its issued and outstanding Common Stock on April 26, 2019.

 

On April 30, 2019, the Company received a notification (the “Price Compliance Letter”) from the NYSE American that the reverse stock split successfully brought the Company back in compliance with the continued listing standards with respect to low selling price as described in Section 1003(f)(v). The Price Compliance Letter also noted that the Company continues to be below compliance with Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii), and that if the Company fails to regain compliance with the stockholders’ equity standards by February 14, 2020, the NYSE American will commence delisting procedures.

 

 

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. Although the outcome of any litigation is uncertain, in our opinion, the amount of ultimate liability, if any, with respect to these actions, will not materially affect our financial position.

 

 

12.

Equity

 

On March 22, 2019, the Company entered into a Stock Purchase Agreement with the Investor, pursuant to which the Company was to issue to the Investor in a private placement (the “Private Placement”) up to $3.0 million in shares (the “Securities”) of Common Stock. The Private Placement was to occur in multiple tranches. The initial closing occurred on March 22, 2019 (the “Initial Closing”), at which the Investor purchased $50,000 worth of the Securities at a per share price of $2.80, which was the closing price of a share of Common Stock reported on the NYSE American market for the business day immediately before the Initial Closing Date. The remainder of the Securities were to be purchased by the Investor from time to time, on such date or dates to be determined by the Company and the Investor, which date was not to be later than June 15, 2019.  No additional shares were purchased by the Investor prior to the June 15, 2019 expiration of the Stock Purchase Agreement.

 

On June 18, 2019, the Company completed an underwritten public offering of 8,000,000 Shares of Common Stock pursuant to the Underwriting Agreement at a price to the public of $0.75 per share.  Of the 8,000,000 total Shares, 4,000,000 shares were placed with the Investor at a price of $0.75 per share. Pursuant to the Underwriting Agreement, the Underwriter purchased the remaining 4,000,000 Shares from the Company at a price of $0.69375 per share.  Under the terms of the Underwriting Agreement, the Company granted the Underwriter an option (the “Underwriter Option”), exercisable for 30 days, to purchase up to an additional 1,200,000 shares of Common Stock at a price per share of $0.69375. The Underwriter Option was not exercised. 

 

The Company paid the Underwriter (a) a management fee equal to 1.0% of the gross proceeds raised in the offering, (b) $50,000 for non-accountable expenses, (c) $100,000 for fees and expenses of legal counsel to the Underwriter and other out-of-pocket expenses, and (d) $10,000 for clearing expenses. After underwriting discounts, commissions, fees and expenses paid to the Underwriter, the Company received net proceeds from the offering of $5,555,000.  The Company intends to use the net proceeds from the offering to fund its research and development programs, including continuing to advance its Phase 2b and Phase 3 clinical trials of Tc99m tilmanocept in patients with rheumatoid arthritis, and for general working capital purposes and other operating expenses.

 

During the nine-month period ended September 30, 2018, we issued 55,938 shares of Common Stock valued at $317,000 to our employees as payment in lieu of cash for their 2017 bonuses.

 

During the nine-month periods ended September 30, 2019 and 2018, we issued 8,128 and 4,734 shares of Common Stock as matching contributions to our 401(k) Plan which were valued at $20,000 and $36,000, respectively.

 

 

13.	Stock Warrants

 

Pursuant to the Underwriting Agreement related to the June 18, 2019 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 “Underwriter Warrants”). The Underwriter Warrants are exercisable at any time and from time to time, in whole or in part, following the date of issuance and ending five years from the date of the execution of the Underwriting Agreement, at a price per share equal to $0.9375 (125% of the offering price to the public per Share). The Underwriter 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 Underwriter Warrants included volatility of 88.6%, a risk-free rate of 1.8% and expected dividends of $0.

 

At September 30, 2019, there are warrants outstanding to purchase 1.4 million shares of Common Stock.  The warrants are exercisable at prices ranging from $0.20 to $50.00 per share with a weighted average exercise price of $13.46 per share.  The warrants have remaining outstanding terms ranging from one month to 15.9 years.

 

In addition, at September 30, 2019, there are 300 warrants outstanding to purchase MT common stock.  The warrants are exercisable at $2,000 per share.

 

 

14.	Income Taxes

 

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 at September 30, 2019 and December 31, 2018, except the alternative minimum tax (“AMT”) credit carryforward amount described below.

 

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), projected future taxable income, and tax-planning strategies 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, 2019 except for the AMT credit carryforward.

 

The Tax Cuts and Jobs Act was signed into law on December 22, 2017. The Tax Act reduced the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018. The Tax Act repeals the AMT for corporations, and permits any existing AMT credit carryforwards to be used to reduce the regular tax obligation in 2018, 2019 and 2020. Companies may continue using AMT credits to offset any regular income tax liability in years 2018 through 2020, with 50% of remaining AMT credits refunded in each of the 2018, 2019 and 2020 tax years, and all remaining credits refunded in tax year 2021. This results in full realization of an existing AMT credit carryforward irrespective of future taxable income. As of December 31, 2018, the first 50% of the $1.2 million AMT credit carryforwards was included in prepaid and other current assets, and the remaining AMT credit carryforwards were included in noncurrent assets in the consolidated balance sheets. The Company received a refund of $621,000 in September 2019. Due to the uncertainty of timing of the next refund, the remaining $621,000 of AMT credit carryforwards are included in noncurrent assets as of September 30, 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, no liability for uncertain tax positions was recorded as of September 30, 2019 or December 31, 2018 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, 2019, tax years 2015-2018 remained subject to examination by federal and state tax authorities.

 

As of September 30, 2019, we had approximately $130.9 million of federal and $20.3 million of state net operating loss carryforwards, as well as approximately $8.7 million of federal Research and Development (“R&D”) credit carryforwards.

 

 

15.

Segments

 

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 Tc 99m tilmanocept and other diagnostic applications of our Manocept platform, and NAV4694 (sublicensed in April 2018), 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.

 

 

 

 

 

 

(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 MT.

(2)

Depreciation and amortization is reflected in selling, general and administrative expenses ($34,289 and $37,590 for the three-month periods ended September 30, 2019 and 2018, and $107,794 and $113,088 for the nine-month periods ended September 30, 2019 and 2018, 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 MT.

(4)

Amounts consist primarily of losses on debt extinguishment, interest income and interest expense, which are not currently allocated to our individual reportable segments.

 

 

 

16.	Supplemental Disclosure for Statements of Cash Flows

 

During the nine-month periods ended September 30, 2019 and 2018, we paid interest aggregating $6,000 and $8,000, respectively.  During the nine-month periods ended September 30, 2019 and 2018, we issued 8,128 and 4,734 shares of our Common Stock as matching contributions to our 401(k) Plan which were valued at $20,000 and $36,000, respectively.

 

 

17.	Subsequent Events

 

The Company has evaluated events and transactions subsequent to September 30, 2019 and through the date these consolidated financial statements were issued in this Quarterly Report on Form 10-Q and filed with the SEC.

 

 

 

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