SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2001
|_| Transition report under
Section 13 or 15(d) of the Exchange Act.
For the transition period from ______________ to ______________
Commission file number 000-28411
Manhattan Scientifics, Inc.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 850460639
-------- ---------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
641 Fifth Avenue, Suite 36F, New York, New York 10022
----------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(212) 752-0505
--------------
Issuer's telephone number, including area code
(Former name, former address and formal fiscal year, if changed since last
report)
Indicate by check 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 /X/ NO /_/
The number of shares outstanding of each of the issuer's classes of common
equity as of June 30, 2001 was as follows: 112,090,179 shares of Common Stock,
118,499 shares of Series B Preferred Stock, and 10,000 shares of Series C
Preferred Stock.
Transitional Small Business Disclosure Format: YES /_/ NO /X/
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
PART I
Item 1. Financial Statements
Consolidated Balance Sheet
June 30, 2001
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 194,000
Prepaid expenses 173,000
------------
Total current assets 367,000
------------
Property and equipment, net 136,000
Investments 544,000
Intangible assets, net 751,000
Patents, net 1,789,000
Security deposit 7,000
------------
$ 3,594,000
============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 220,000
Note payable to stockholder 275,000
Note payable - other 293,000
------------
Total current liabilities 788,000
------------
Commitments
STOCKHOLDERS' EQUITY
Capital stock $.001 par value
Preferred, authorized 1,000,000 shares
Series A convertible, redeemable, 10 percent cumulative, authorized 182,525
Shares; issued and outstanding - none
Series B convertible, authorized 250,000 shares; 118,499 shares issued and
outstanding
Series C convertible, redeemable, authorized 14,000 shares; 10,000
shares issued and outstanding
Common, authorized 250,000,000 shares, 112,090,179 shares issued,
and outstanding, 158,257 shares issuable 111,000
Additional paid-in capital 38,166,000
Deferred compensation (270,000)
Deficit accumulated during the development stage (35,201,000)
------------
Total stockholders' equity 2,806,000
------------
$ 3,594,000
============
The accompanying notes are an integral part of these financial statements
2
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Operations
(Unaudited)
Period From
Three Months Ended Six Months Ended Inception
June 30, June 30, July 31, 1992
--------------------------- ------------------------------- Through
2001 2000 2001 2000 June 30, 2001
------------ ------------ ------------ ---------------- -------------
Revenues $ 250,000
------------
Operating costs and expenses:
Salaries and employee benefits $ 7,000 $ 10,000 4,439,000
Consulting fees 621,000 824,000 7,136,000
Materials and supplies 987,000
General and administrative 1,313,000 $ 265,000 2,154,000 $ 611,000 14,260,000
Rent and utilities 19,000 15,000 33,000 19,000 610,000
Research and development 405,000 775,000 1,378,000 1,419,000 6,094,000
------------ ------------ ------------ ---------------- ------------
Total operating costs and expenses 2,365,000 1,055,000 4,399,000 2,049,000 33,526,000
------------ ------------ ------------ ---------------- ------------
Loss from operations before other income
and expenses (2,365,000) (1,055,000) (4,399,000) (2,049,000) (33,276,000)
Other income and (expenses):
Contract revenue 3,602,000
Interest and other expense (8,000) (5,000) (18,000) (8,000) (586,000)
Interest income 2,000 6,000 14,000 22,000 165,000
Loss of equity investees (100,000)
------------ ------------ ------------ ---------------- ------------
Net loss/comprehensive loss $ (2,371,000) $ (1,054,000) $ (4,403,000) $ (2,035,000) $(30,195,000)
============ ============ ============
Dividends on Series C preferred stock
beneficial conversion feature (1,400,000) (1,400,000)
------------ ----------------
Net loss attributable to common shareholders $ (2,371,000) $ (2,454,000) $ (4,403,000) $ (3,435,000)
============ ============ ============ ================
Basic and diluted loss per share:
Weighted average number of common shares
outstanding 107,897,000 101,793,000 107,897,000 101,793,000
============ ============ ============ ================
Basic and diluted loss per share $(.02) $(.02) $(.04) $(.03)
===== ===== ===== =====
The accompanying notes are an integral part of these financial statements
3
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (Capital Deficiency)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2001
(Unaudited)
Preferred Stock
$.001 Par Value
--------------------------- Common Stock
Series A Series B $.001 Par Value
Preferred --------------------------- -----------------------------
Stock Shares Amount Shares Amount
------------ ------------ ------------ ---------- ------------
Initial issuance of shares to founders on contribution
of intangible assets at historic cost basis 14,391,627 $ 14,500
Additional founders' contribution
Issuance of 1,037,000 shares of Series A preferred
Stock, net of issuance costs $ 10,000
Net loss
------------ ---------- ------------
Balance, March 31, 1993 10,000 14,391,627 14,500
Issuance of shares to investor at approximately
$.21 per share 14,391,627 14,500
Issuance of shares on exercise of options 479,720 1,000
Services performed in exchange for Series A
Preferred stock issued in fiscal 1993
Net loss
------------ ---------- ------------
Balance, March 31, 1994 10,000 29,262,974 30,000
Services performed for Series A preferred stock
issued in fiscal 1993
Issuance of shares at approximately $.52 per share 345,399
Net loss
------------ ---------- ------------
Balance, December 31, 1994 10,000 29,608,373 30,000
Issuance of 163,000 shares of Series A
Preferred stock 2,000
Write-off of amounts receivable from stockholders
Net loss
------------ ---------- ------------
Balance, December 31, 1995 12,000 29,608,373 30,000
Issuance of shares upon exercise of option for
$15,000 14,391,627 14,000
Net loss
------------ ---------- ------------
Balance, December 31, 1996 12,000 44,000,000 44,000
Purchase and retirement of 1,200,000 shares of
Series A preferred stock (12,000)
Purchase of 7,195,814 treasury shares of common
stock for $15,000
Net loss/comprehensive loss
------------ ------------ ------------ ---------- ------------
Balance, December 31, 1997 (carried forward) 0 0 0 44,000,000 44,000
Deficit
Amounts Accumulated
Additional Receivable During the
Paid-in From Development Treasury
Capital Stockholders Stage Stock Total
------------ -------------- ------------- ----------- -----------
Initial issuance of shares to founders on contribution
of intangible assets at historic cost basis $ 500 $ 15,000
Additional founders' contribution 40,000 (40,000) 0
Issuance of 1,037,000 shares of Series A preferred
Stock, net of issuance costs 1,020,000 (286,000) 744,000
Net loss $ (543,000) (543,000)
------------ -------------- ------------- ----------- -----------
Balance, March 31, 1993 1,060,500 (326,000) (543,000) 216,000
Issuance of shares to investor at approximately
$.21 per share 2,985,500 3,000,000
Issuance of shares on exercise of options 49,000 50,000
Services performed in exchange for Series A
Preferred stock issued in fiscal 1993 127,000 127,000
Net loss (2,292,000) (2,292,000)
------------ -------------- ------------- ----------- -----------
Balance, March 31, 1994 4,095,000 (199,000) (2,835,000) 1,101,000
Services performed for Series A preferred stock
issued in fiscal 1993 159,000 159,000
Issuance of shares at approximately $.52 per share 182,000 182,000
Net loss (2,250,000) (2,250,000)
------------ -------------- ------------- ----------- -----------
Balance, December 31, 1994 4,277,000 (40,000) (5,085,000) (808,000)
Issuance of 163,000 shares of Series A
Preferred stock 161,000 163,000
Write-off of amounts receivable from stockholders (40,000) 40,000 0
Net loss (972,000) (972,000)
------------ -------------- ------------- ----------- -----------
Balance, December 31, 1995 4,398,000 0 (6,057,000) (1,617,000)
Issuance of shares upon exercise of option for
$15,000 1,000 15,000
Net loss (284,000) (284,000)
------------ -------------- ------------- ----------- -----------
Balance, December 31, 1996 4,399,000 0 (6,341,000) (1,886,000)
Purchase and retirement of 1,200,000 shares of
Series A preferred stock (58,000) (70,000)
Purchase of 7,195,814 treasury shares of common
stock for $15,000 $ (15,000) (15,000)
Net loss/comprehensive loss (335,000) (335,000)
------------ -------------- ------------- ----------- -----------
Balance, December 31, 1997 (carried forward) 4,341,000 0 (6,676,000) (15,000) (2,306,000)
The accompanying notes are an integral part of these financial statements
4
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (Capital Deficiency) (continued)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2001
(continued)
(Unaudited)
Preferred Stock
$.001 Par Value
----------------------- Common Stock
Series A Series B $.001 Par Value
Preferred ----------------------- ------------------------
Stock Shares Amount Shares Amount
--------- -------- -------- ---------- -----------
Balance, December 31, 1997 (brought forward) 0 0 0 44,000,000 $ 44,000
Purchase of 7,195,813 treasury shares of common
stock for $15,000
Special distribution of 14,391,627 shares of
common stock to Projectavision, Inc.
Shares deemed issued in connection
with reverse merger 11,000,000 11,000
Issuance of 182,525 shares of Series A preferred
stock and warrants exercisable into 750,000 shares
of common stock at an exercise price of $.10 per
share in exchange for note payable of $1,500,000
and accrued interest of $330,000 including deemed
dividend in connection with Beneficial conversion
feature of preferred stock
Issuance of shares at $.20 per share, net of Issuance
costs 5,000,000 5,000
Issuance of shares to purchase intangible assets 7,200,000 7,000
Issuance of shares at $.58 per share for
Consulting services 1,000,000 1,000
Issuance of warrants on February 10, 1998 to
purchase 2,000,000 shares of common stock
exercisable at $.75 per share at fair value for
services resulting from cashless exercise feature
Issuance of shares at $.18 per share 275,000
Issuance of shares on conversion of 182,525 shares
of Series A preferred stock 9,435,405 10,000
Issuance of shares at $.05 per share 20,340,000 20,000
Issuance of stock options and warrants at fair value for
services
Net loss/comprehensive loss
--------- -------- -------- ---------- -----------
Balance, December 31, 1998
(carried forward) 0 0 0 98,250,405 98,000
Deficit
Amounts Accumulated
Additional Receivable During the
Paid-in From Development Treasury
Capital Stockholders Stage Stock Total
----------- ------------ ----------- ----------- -----------
Balance, December 31, 1997 (brought forward) $ 4,341,000 $ 0 $(6,676,000) $ (15,000) $(2,306,000)
Purchase of 7,195,813 treasury shares of common
stock for $15,000 (15,000) (15,000)
Special distribution of 14,391,627 shares of
common stock to Projectavision, Inc. 346,000 30,000 376,000
Shares deemed issued in connection
with reverse merger (11,000)
Issuance of 182,525 shares of Series A preferred
stock and warrants exercisable into 750,000 shares
of common stock at an exercise price of $.10 per
share in exchange for note payable of $1,500,000
and accrued interest of $330,000 including deemed
dividend in connection with Beneficial conversion
feature of preferred stock 2,850,000 (1,020,000) 1,830,000
Issuance of shares at $.20 per share, net of Issuance
costs 970,000 975,000
Issuance of shares to purchase intangible assets 1,433,000 1,440,000
Issuance of shares at $.58 per share for
Consulting services 579,000 580,000
Issuance of warrants on February 10, 1998 to
purchase 2,000,000 shares of common stock
exercisable at $.75 per share at fair value for
services resulting from cashless exercise feature 660,000 660,000
Issuance of shares at $.18 per share 50,000 50,000
Issuance of shares on conversion of 182,525 shares
of Series A preferred stock (10,000)
Issuance of shares at $.05 per share 997,000 1,017,000
Issuance of stock options and warrants at fair value for
services 2,165,000 2,165,000
Net loss/comprehensive loss (4,580,000) (4,580,000)
--------- -------- -------- ---------- -----------
Balance, December 31, 1998
(carried forward) 14,370,000 0 (12,276,000) 0 2,192,000
5
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (Capital Deficiency)(continued)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2001
(continued)
(Unaudited)
Preferred Stock
$.001 Par Value
----------------------- Common Stock
Series A Series B $.001 Par Value
Preferred ----------------------- -------------------------
Stock Shares Amount Shares Amount
--------- -------- -------- ----------- -----------
(brought forward) 0 0 $ 0 98,250,405 $ 98,000
Issuance of shares in satisfaction
Of accrued expenses 78,000
Issuance of shares at $.49 per
Share for consulting services 10,000
Issuance of shares at $.49 per
Share to purchase furniture
and fixtures 100,000
Issuance of shares at market
Prices as consulting services
were performed 17,269
Issuance of shares to purchase
Intangible assets 1,000,000 1,000
Issuance of shares at $1.25 per
Share for services 1,600
Issuance of stock options
at fair value for services
Issuance of warrants on February 10,
1998 to purchase 2,000,000
shares of common stock
exercisable at $.75 per share
for consulting services
resulting from notification of
warrant holder of intent to
exercise
Shares issuable at $1.27 per
Share in connection with note
payable
Issuance of shares on exercise
Of 100,000 options at $.20 per
share 100,000
Issuance of Series B convertible
Preferred shares at $6.00 per
share including deemed dividend
in connection with beneficial
conversion feature of preferred
stock 245,165
Issuance of shares at $.75 per share 533,000 1,000
Net loss/comprehensive loss
--------- -------- -------- ----------- -----------
Balance, December 31, 1999
(carried forward) 0 245,165 0 100,090,274 100,000
Deficit
Amounts Accumulated
Additional Receivable During the
Paid-in From Development Treasury
Capital Stockholders Stage Stock Total
----------- ------------ ------------ ----------- -----------
(brought forward) $14,370,000 $ 0 $(12,276,000) $ 0 $ 2,192,000
Issuance of shares in satisfaction
Of accrued expenses 15,000 15,000
Issuance of shares at $.49 per
Share for consulting services 5,000 5,000
Issuance of shares at $.49 per
Share to purchase furniture
and fixtures 49,000 49,000
Issuance of shares at market
Prices as consulting services
were performed 15,000 15,000
Issuance of shares to purchase
Intangible assets 999,000 1,000,000
Issuance of shares at $1.25 per
Share for services 2,000 2,000
Issuance of stock options
at fair value for services 6,572,000 6,572,000
Issuance of warrants on February 10,
1998 to purchase 2,000,000
shares of common stock
exercisable at $.75 per share
for consulting services
resulting from notification of
warrant holder of intent to
exercise 1,090,000 1,090,000
Shares issuable at $1.27 per
Share in connection with note
payable 191,000 191,000
Issuance of shares on exercise
Of 100,000 options at $.20 per
share 20,000 20,000
Issuance of Series B convertible
Preferred shares at $6.00 per
share including deemed dividend
in connection with beneficial
conversion feature of preferred
stock 2,942,000 (1,471,000) 1,471,000
Issuance of shares at $.75 per share 399,000 400,000
Net loss/comprehensive loss (9,800,000) (9,800,000)
----------- ------------ ------------ ----------- -----------
Balance, December 31, 1999
(carried forward) 26,669,000 0 (23,547,000) 0 3,222,000
6
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (Capital Deficiency)
(Notes A and F) (continued)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2001
(Unaudited)
Preferred Stock Common Stock
$.001 Par Value $.001 Par Value
----------------------- ------------------------
Series A Series B Series C
Preferred ----------------------- ------------------------
Stock Shares Amount Shares Amount
--------- -------- -------- ---------- -----------
Balance, December 31, 1999 (brought forward) 0 245,165 $ 0 0 $ 0
Issuance of shares at $.75 per share
Issuance of shares at market price for services
Issuance of common stock to Equilink, LLC on
exercise of cashless warrants
Sharesissued of Series C convertible preferred
shares at $100.00 per share including
deemed dividend In connection with
beneficial conversion feature of preferred
stock 14,000
Issuance of shares in connection with Series C
Preferred stock private placement investment
Shares issuable at $2.23 per share in connection
with research and development and license
Agreement
Issuance of shares at market price for services
Issuance of options at market value for services
Issuance of options to purchase 100,000 shares @$.40
per share for services
Amortization of deferred compensation costs
Issuance of shares to purchase furniture and fixtures
Issuance of shares in connection with Series C
Preferred stock private placement
Issuance of shares at $1.25 per share
Conversion of Series B preferred stock to common (60,000)
Issuance of shares at market price for services
Shares issuable at market price for services
Net loss/comprehensive loss
--------- -------- -------- ---------- -----------
Balance, December 31, 2000 (carried forward) 0 185,165 $ 0 14,000 $ 0
Common Stock Amounts
$.001 Par Value Additional Receivable
------------------------ Paid-in Deferred From
Shares Amount Capital Compensation Stockholders
---------- ----------- ----------- ------------ ------------
Balance, December 31, 1999 (brought forward) 100,090,274 $ 100,000 $ 26,669,000 $ 0
Issuance of shares at $.75 per share 515,000 1,000 385,000
Issuance of shares at market price for services 4,942
Issuance of common stock to Equilink, LLC on
exercise of cashless warrants 1,076,923 1,000 (1,000)
Sharesissued of Series C convertible preferred
shares at $100.00 per share including
deemed dividend In connection with
beneficial conversion feature of preferred
stock 2,199,000
Issuance of shares in connection with Series C
Preferred stock private placement investment 700,000 1,000 600,000
Shares issuable at $2.23 per share in connection
with research and development and license
Agreement 1,115,000
Issuance of shares at market price for services 11,083 24,000
Issuance of options at market value for services 229,000
Issuance of options to purchase 100,000 shares @$.40
per share for services 425,000 $ (425,000)
Amortization of deferred compensation costs 113,000
Issuance of shares to purchase furniture and fixtures 10,500 40,000
Issuance of shares in connection with Series C
Preferred stock private placement 10,000
Issuance of shares at $1.25 per share 1,600,050 2,000 1,998,000
Conversion of Series B preferred stock to common 600,000
Issuance of shares at market price for services 51,000 102,000
Shares issuable at market price for services 88,000
Net loss/comprehensive loss
---------- ----------- ----------- ------------ ------------
Balance, December 31, 2000 (carried forward) 104,669,772 105,000 33,873,000 (312,000) 0
Deficit
Accumulated
During the
Development Treasury
Stage Stock Total
------------ ----------- -----------
Balance, December 31, 1999 (brought forward) $(23,547,000) $ 0 $ 3,222,000
Issuance of shares at $.75 per share 386,000
Issuance of shares at market price for services
Issuance of common stock to Equilink, LLC on
exercise of cashless warrants
Sharesissued of Series C convertible preferred
shares at $100.00 per share including
deemed dividend In connection with
beneficial conversion feature of preferred
stock (1,400,000) 799,000
Issuance of shares in connection with Series C
Preferred stock private placement investment 601,000
Shares issuable at $2.23 per share in connection
with research and development and license
Agreement (1,115,000)
Issuance of shares at market price for services 24,000
Issuance of options at market value for services 229,000
Issuance of options to purchase 100,000 shares @$.40
per share for services 113,000
Amortization of deferred compensation costs
Issuance of shares to purchase furniture and fixtures 40,000
Issuance of shares in connection with Series C
Preferred stock private placement
Issuance of shares at $1.25 per share 2,000,000
Conversion of Series B preferred stock to common
Issuance of shares at market price for services 102,000
Shares issuable at market price for services 88,000
Net loss/comprehensive loss (4,736,000) (4,736,000)
------------ ----------- -----------
Balance, December 31, 2000 (carried forward) (30,798,000) 0 2,868,000
7
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (Capital Deficiency)
(Notes A and F) (continued)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2001
(Unaudited)
Preferred Stock Common Stock
$.001 Par Value $.001 Par Value
----------------------- ------------------------
Series A Series B Series C
Preferred ----------------------- ------------------------
Stock Shares Amount Shares Amount
--------- -------- -------- ---------- -----------
Balance, December 31, 2000 (brought forward) 0 185,165 $ 0 14,000 $ 0
Issuance of options at fair value for services
Issuance of common shares at market price for services
Conversion of Series B preferred stock to common (66,666)
Issuance of common shares on exercise of 75,000
options on a cashless basis
Issuance of common shares in exchange for warrants
Issuance of common shares for services
Issuance of common shares at $.67 per share - net of
issuance cost
Issuance of common shares at $.72 per share - net of
issuance cost
Issuance of common shares for consulting services
Shares issuable at market price for services
Amortization of deferred compensation costs
Issuance of common shares at market prices for services
Issuance of common shares at market price for services
Issuance of shares at $.62 per share, net of issuance
costs
Conversion of Series C preferred stock to common (4,000)
Issuance of shares at $.60 per share, net of issuance
costs
Issuance of shares at $.80 per share, net of issuance
costs
Issuance of common shares at market price for services
Issuance of common stock to a stockholder on exercise
of warrants
Common Stock Amounts
$.001 Par Value Additional Receivable
------------------------ Paid-in Deferred From
Shares Amount Capital Compensation Stockholders
---------- ----------- ----------- ------------ ------------
Balance, December 31, 2000 (brought forward) 104,669,772 $ 105,000 $33,873,000 $ (312,000) $ 0
Issuance of options at fair value for services 332,000
Issuance of common shares at market price for services 47,762
Conversion of Series B preferred stock to common 666,660
Issuance of common shares on exercise of 75,000
options on a cashless basis 73,064
Issuance of common shares in exchange for warrants 150,000 225,000
(225,000)
Issuance of common shares for services 6,000 6,000
Issuance of common shares at $.67 per share - net of
issuance cost 150,000 96,000
Issuance of common shares at $.72 per share - net of
issuance cost 200,000 138,000
Issuance of common shares for consulting services 405,000 396,000
Shares issuable at market price for services 8,000
Amortization of deferred compensation costs
21,000
Issuance of common shares at market prices for services 6,890
Issuance of common shares at market price for services 97,500 60,000
Issuance of shares at $.62 per share, net of issuance
costs 112,500 66,000
Conversion of Series C preferred stock to common 800,000 (1,000)
Issuance of shares at $.60 per share, net of issuance
costs 200,000 115,000
Issuance of shares at $.80 per share, net of issuance
costs 100,000 76,000
Issuance of common shares at market price for services 195,000 1,000 137,000
Issuance of common stock to a stockholder on exercise
of warrants 942,281 1,000 781,000
Deficit
Accumulated
During the
Development Treasury
Stage Stock Total
------------ ----------- -----------
Balance, December 31, 2000 (brought forward) $(30,798,000) $ 0 $ 2,868,000
Issuance of options at fair value for services 332,000
Issuance of common shares at market price for services
Conversion of Series B preferred stock to common
Issuance of common shares on exercise of 75,000
options on a cashless basis
Issuance of common shares in exchange for warrants 225,000
(225,000)
Issuance of common shares for services 6,000
Issuance of common shares at $.67 per share - net of
issuance cost 96,000
Issuance of common shares at $.72 per share - net of
issuance cost 138,000
Issuance of common shares for consulting services 396,000
Shares issuable at market price for services 8,000
Amortization of deferred compensation costs 21,000
Issuance of common shares at market prices for services
Issuance of common shares at market price for services 60,000
Issuance of shares at $.62 per share, net of issuance
costs 66,000
Conversion of Series C preferred stock to common (1,000)
Issuance of shares at $.60 per share, net of issuance
costs 115,000
Issuance of shares at $.80 per share, net of issuance
costs 76,000
Issuance of common shares at market price for services 138,000
Issuance of common stock to a stockholder on exercise
of warrants 782,000
8
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (Capital Deficiency)
(Notes A and F) (continued)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2001
(Unaudited)
Preferred Stock Preferred Stock
$.001 Par Value $.001 Par Value
Series A Series B Series C
Preferred ------------------------- --------------------------------
Stock Shares Amount Shares Amount
---------- ---------- ------------ -------------- --------------
Issuance of shares to purchase stock of Teneo
Computing, Inc.
Issuance of shares to purchase 40,672 shares of
common stock of Novint Technologies, Inc.
Issuance of shares at $.72 per share, net of issuance
costs
Issuance of shares on exercise of 15,000 options at $.20
per share
Issuance of common shares at market price for services
Issuances of common shares at market prices for
consulting services
Shares issuable at market price for services
Amortization of deferred compensation costs
Net loss/comprehensive loss
---------- ---------- ------------ -------------- --------------
Balance, June 30, 2001 $ 0 118,499 $ 0 10,000 $ 0
========== ========== ============ ============== ==============
Common Stock
$.001 Par Value Additional Receivable
----------------------------- Paid-in Deferred
Shares Amount Capital Compensation
------------- -------------- ------------ ---------------
Issuance of shares to purchase stock of Teneo
Computing, Inc. 1,400,000 $ 2,000 $ 782,000
Issuance of shares to purchase 40,672 shares of
common stock of Novint Technologies, Inc. 1,000,000 1,000 559,000
Issuance of shares at $.72 per share, net of issuance
costs 135,000 94,000
Issuance of shares on exercise of 15,000 options at $.20
per share 15,000 3,000
Issuance of common shares at market price for services 102,750 74,000
Issuances of common shares at market prices for
consulting services 615,000 1,000 564,000
Shares issuable at market price for services 7,000
Amortization of deferred compensation costs $ 21,000
Net loss/comprehensive loss
------------- -------------- ------------ ---------------
Balance, June 30, 2001 112,090,179 $ 111,000 $ 38,166,000 $ (270,000)
============= ============== ============ ================
Amounts Deficit
During the Accumulated
From Development Treasury
Stockholders Stage Stock Total
--------------- ------------------ --------------- ------------
Issuance of shares to purchase stock of Teneo
Computing, Inc. $ 784,000
Issuance of shares to purchase 40,672 shares of
common stock of Novint Technologies, Inc. 560,000
Issuance of shares at $.72 per share, net of issuance
costs 94,000
Issuance of shares on exercise of 15,000 options at $.20
per share 3,000
Issuance of common shares at market price for services 74,000
Issuances of common shares at market prices for
consulting services 565,000
Shares issuable at market price for services 7,000
Amortization of deferred compensation costs 21,000
Net loss/comprehensive loss $ (4,403,000) (4,403,000)
--------------- ------------------ --------------- ------------
Balance, June 30, 2001 $ 0 $ (35,201,000) $ 0 $ 2,806,000
=============== ================== =============== ============
The accompanying notes are an integral part of these financial statements
9
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows
(Unaudited)
Period From
Three Months Ended Six Months Ended Inception
June 30, June 30, July 31, 1992
------------------------- ------------------------- Through
2001 2000 2001 2000 June 30, 2001
----------- ------------ ----------- ----------- -------------
Cash flows from operating activities:
Net loss $(2,371,000) $(1,054,000) $(4,403,000) $(2,035,000) $ (30,195,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Common stock issued for services 917,000 8,000 1,099,000 16,000 1,915,000
Preferred stock issued for services 598,000
Stock options issued for services 21,000 374,000 9,453,000
Warrants issued for services 1,750,000
Financing costs payable with common stock 773,000 773,000 964,000
Loss of equity investees 100,000
Depreciation and amortization 117,000 66,000 184,000 131,000 1,126,000
Changes in:
Prepaid expenses (6,000) 15,000 6,000 (40,000) (6,000)
Accounts payable and accrued expenses (169,000) (79,000) (21,000) (126,000) 575,000
Accounts receivable 87,000 87,000
----------- ------------ ----------- ----------- -------------
Net cash used in operating activities (631,000) (1,044,000) (1,901,000) (2,054,000) (13,720,000)
------------ ------------ ----------- ----------- -------------
Cash flows from investing activities;
Purchase of equipment (11,000) (3,000) (22,000) (423,000)
Purchase of investment (100,000)
Proceeds from sale of equipment 14,000
----------- ------------ ----------- ----------- -------------
Net cash used in investing activities 0 (11,000) (3,000) (22,000) (509,000)
----------- ------------ ----------- ----------- -------------
Cash flows from financing activities:
Purchase of treasury stock (100,000)
Proceeds from note payable to stockholders 2,149,000
Repayment of note payable - other (3,000) (7,000) 293,000
Net proceeds from issuance of preferred stock 900,000 900,000 3,569,000
Net proceeds from issuance of common stock 351,000 585,000 711,000 8,680,000
Loan repayment to preferred stockholder (148,000)
Capital lease payments (13,000)
Security deposit paid (7,000)
------------ ------------ ------------ ------------ -------------
Net cash provided by financing activities 348,000 900,000 578,000 1,611,000 14,423,000
------------ ------------ ------------ ------------ -------------
Net (decrease) increase in cash and cash equivalents (283,000) (155,000) (1,326,000) (465,000) 194,000
Cash and cash equivalents, beginning of period 477,000 858,000 1,520,000 1,168,000
------------ ------------ ------------ ------------ -------------
Cash and cash equivalents, end of period $ 194,000 $ 703,000 $ 194,000 $ 703,000 $ 194,000
============ ============ ============ ============ =============
The accompanying notes are an integral part of these financial statements
10
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows (continued)
(Unaudited)
Period From
Three Months Ended Six Months Ended Inception
June 30, June 30, July 31, 1992
------------------- ---------------------- Through
2001 2000 2001 2000 June 30, 2001
---------- ------- ------- ------- --------------
Supplemental disclosure of cash flow information:
Interest paid $ 5,000 $ 11,000 $ 25,000
========= ========== =============
Supplemental disclosures of noncash investing and
Financing activities:
Fixed assets contributed to the Company in exchange for
Series A preferred stock $ 45,000
=============
Issuance of 14,391,627 common shares to
acquire intangible assets $ 15,000
=============
Special distribution of 14,391,627 shares of common stock
to stockholder in settlement of stockholder advances $ 376,000
=============
Issuance of 7,200,000 common shares to acquire
intangible assets $ 1,440,000
=============
Issuance of Series A preferred stock and warrants in
settlement of note payable and accrued interest $ 1,830,000
=============
Issuance of 1,000,000 common shares to acquire
intangible assets $ 1,000,000
=============
Issuance of 100,000 common shares to acquire furniture
and fixtures $ 49,000
=============
Issuance of 78,000 common shares in satisfaction of
accrued expenses $ 15,000
=============
Issuance of 10,500 shares to acquire furniture and
fixtures $ 41,000
=============
Issuance of 1,400,000 common shares to acquire
Teneo Computing, Inc. $784,000 $ 784,000 $ 784,000
========= ========== ==============
Issuance of 1,000,000 common shares to purchase
common stock of Novint Technologies, Inc. $560,000 $ 560,000 $ 560,000
========= ========== =============
The accompanying notes are an integral part of these financial statements
11
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE A - ORGANIZATION AND OPERATIONS
Manhattan Scientifics, Inc. (formerly Grand Enterprises, Inc. ("Grand")), and
its wholly-owned subsidiaries Tamarack Storage Devices, Inc. and Teneo
Computing, Inc. and equity investments (collectively "the Company"), a
development stage enterprise, operates in a single business segment as a
technology incubator that seeks to acquire, develop and bring to market
technologies in fields with an emphasis in the area of consumer and commercial
electronics. At June 30, 2001, the Lauer Entities claim beneficial ownership of
approximately 41 percent of the Company's common stock (see Note F).
In January 1998, Manhattan Scientifics, Inc., then a non-operating public
corporation with nominal net assets acquired all of the outstanding common stock
of Tamarack Storage Devices, Inc. ("Tamarack") by issuing 44 million shares of
its common stock including approximately 43,120,000 shares issued to
Projectavision, a public company which gave the stockholders of Tamarack actual
control of the combined company. In addition, Manhattan Scientifics, Inc. issued
182,525 shares Series A preferred stock and a warrant to purchase 750,000 shares
of its common stock at an exercise price of 10 cents per share in exchange for a
note payable of $1.5 million plus accrued interest of $330,000 due to
Projectavision from Tamarack. In connection with the legal form of this
transaction, Tamarack became a wholly-owned subsidiary of Manhattan Scientifics,
Inc. For accounting purposes, the acquisition was treated as a recapitalization
of Tamarack rather than a business combination. Tamarack as the accounting
acquiror of the public shell did not record goodwill or any other intangible
asset for this "Reverse Acquisition". The historical financial statements are
those of Tamarack. Tamarack, a development stage enterprise, was a Texas
corporation formed in July 1992. Since inception, Tamarack has been, and
continues to be, involved in the research and development of products based on
holographic data storage technology. Loss per share has been restated for all
periods prior to the acquisition to include the number of equivalent shares
received by Tamarack's stockholders in the Reverse Acquisition.
Prior to this transaction, Projectavision owned approximately 98% of Tamarack.
Projectavision through cash investments acquired approximately 65% of Tamarack
through December 31, 1996. During late 1997 and early 1998, as a result of a
treasury stock transaction between Tamarack and its two founding stockholders,
Projectavision came to own approximately 97% of the outstanding shares of
Tamarack. In lieu of repayment of certain advances made by Projectavision
amounting to approximately $376,000, Tamarack made a special dividend
distribution to Projectavision of the 14,391,627 treasury shares increasing
Projectavision's ownership of Tamarack to 98%. The value ascribed to this
transaction amounted to a reduction of the treasury stock at historical cost and
a contribution to additional paid-in capital of $346,000 as part of the reverse
acquisition.
Concurrently with the Reverse Acquisition, Tamarack merged with DKY, Inc., a
newly formed company. In connection with this transaction, Tamarack, as the
surviving entity, obtained certain license/intellectual property assignment
rights held by DKY, Inc. In addition, the Company issued 7,200,000 common shares
to acquire certain intangible assets from DKY, Inc.'s stockholder valued at $1.4
million, (see Note F).
In May 2001 as part of a series of transactions between Company and Novint
Technologies, Inc. ("Novint") modifying an earlier agreement, the Company
acquired all of the outstanding common stock of Teneo Computing, Inc. ("Teneo")
by issuing 1,400,000 common shares to the stockholders of Teneo valued at
$784,000. Teneo, a development stage enterprise, is a Delaware corporation.
Teneo has been involved in research and development of proprietary technologies
and products in the area of haptics. (See Note H[1]).
The Company has been engaged primarily in directing, supervising and
coordinating research and development efforts in the continuing development of
its products, raising funds and working to bring products to market. The Company
conducts its operations primarily in the United States.
12
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE A - ORGANIZATION AND OPERATIONS (CONTINUED)
There is no assurance that the Company's research and development and marketing
efforts will be successful, that the Company will ever have commercially
accepted products, or that the Company will achieve significant sales of any
such products. The Company has incurred net losses and negative cash flows from
operations since its inception. In addition, the Company operates in an
environment of rapid change in technology and is dependent upon the services of
its employees and its consultants. If the Company is unable to successfully
bring its technologies to commercialization, it is unlikely that the Company
could continue its business. The Company has obtained a commitment from a major
stockholder to provide sufficient funds if needed to support the Company's
normal operations through December 31, 2003.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
[1] Cash and cash equivalents:
The Company maintains cash and cash equivalents with various financial
institutions. The Company performs periodic evaluations of the relative
credit standing of the financial institutions which is considered in
the Company's investment strategy.
[2] Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
[3] Property and equipment:
Property and equipment are recorded at cost. The cost of maintenance
and repairs is charged against results of operations as incurred.
Depreciation is charged against results of operations using the
straight-line method over the estimated economic useful life.
[4] Patents:
Patents are recorded at cost. Amortization is charged against results
of operations using the straight-line method over the estimated
economic useful life. Patents related to the mid range fuel cell, micro
fuel cell and solar fuel cell technologies are estimated to have an
economic useful life of 10 years.
[5] Income taxes:
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined on the basis of the
differences between the tax basis of assets and liabilities and their
respective financial reporting amounts ("temporary differences") at
enacted tax rates in effect for the years in which the differences are
expected to reverse.
[6] Per share data:
The basic and diluted per share data has been computed on the basis of
the net loss available to common stockholders for the period divided by
the historic weighted average number of shares of common stock
outstanding. All potentially dilutive securities (see Note F) have been
excluded from the computations since they would be antidilutive.
13
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
RELATED MATTERS (CONTINUED)
[7] Research and development expenses:
Costs of research and development activities are expensed as incurred.
[8] Advertising expenses:
The Company expenses advertising costs which consist primarily of
promotional items and print media, as incurred. Advertising expenses
amounted to $3,000, $8,000, and $59,000 for the six months ended June
30, 2001, 2000 and for the cumulative period July 31, 1992 (inception)
through June 30, 2001.
[9] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
[10] Investments:
The Company initially recorded its investments in NMXS.com, Inc. and
Novint Technologies, Inc. at cost and uses the equity method of
accounting to record its share of income or loss. (See Note D).
[11] Revenue recognition:
Revenue is recognized upon delivery of the order. Contract revenues
represent primarily reimbursed expenditures incurred in connection with
a government research contract. The significant aspects of this
contract were completed in 1997 and the Company does not expect any
reimbursements beyond 1997. Amounts reimbursed represent miscellaneous
other income. The Company expects to earn revenues from the sale or
licensing of its products and such revenue will be recognized in
accordance with the terms of the underlying agreements at the time such
transactions are consummated.
[12] Valuation of long-lived assets:
The Company evaluates the carrying value of long-lived assets to be
held and used on a periodic basis. Management utilizes anticipated net
cash flows to determine if impairment has occurred. Based upon these
evaluations, there were no adjustments to the carrying value of
long-lived assets during the three months ended June 30, 2001.
[13] Interim financial statements:
Financial statements as of June 30, 2001 and the six months ended June
20, 2001 and 2000 and the respective amounts included in the period
from inception July 31,1992 are unaudited but in the opinion of
management, the financial statements include all adjustments consisting
of normal recurring accruals necessary for a fair presentation of the
comparative financial position and results of operations. Results of
operations for interim periods are not necessarily indicative of those
to be achieved or expected for the entire year.
14
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment as of June 30, 2001 consists of the following:
Useful Lives
In Years
--------
Furniture and fixtures 5 $ 98,000
Computers 5 44,000
Equipment 5 174,000
--------
316,000
Less accumulated depreciation 180,000
--------
$136,000
========
NOTE D - INVESTMENTS
NMXS.COM, INC.
On June 3, 1999, the Company entered into an agreement with NMXS.com, Inc.
(formerly New Mexico Software, Inc., a public company) and invested $100,000
($70,000 June 1999, $30,000 July 1999) for 5,416,300 shares of common stock
which resulted in the Company owning approximately 49% of NMXS. The initial
investment amount exceeded the underlying net equity by approximately $63,000.
The Company treated such excess as an expense to fund the development of
software.
During 1999, in connection with NMXS' transactions in its own common stock, the
Company's ownership was first reduced to 31% and then in August 1999, the
Company realized gains amounting to approximately $532,000 and its ownership
percentage was further diluted to 28% when NMXS became a public company through
a reverse merger. The Company's equity in the net losses of NMXS during 1999
exceeded such gains. As a result of net losses through December 31, 1999,
amounting to $632,000, including the above transactions, the Company's
investment in NMXS was reduced to zero.
Similarly during 2000, the Company realized gains amounting to approximately
$305,000 resulting from NMXS' capital transactions which diluted the Company's
ownership interest to 26%. The Company's equity in the net losses of NMXS during
2000 exceeded such gain.
On June 24, 2000 in connection with a private placement offering, the Company
delivered 100,000 shares of NMXS.com to the stockholder. The Company recognized
a gain of approximately $169,000 from the transaction. Such gains were offset by
operating losses amounting to $481,000 during 2000. In addition, the Company
delivered an option to purchase an additional 100,000 shares of the Company's
shareholdings in NMXS.com for a purchase price of $1 per share.
On July 27, 2000 the Company exchanged 5,000 shares of NMXS.com Inc. stock for
the purchase of furniture and fixtures.
During the quarter ended June 30, 2001, the Company realized gains amounting to
approximately $29,000 resulting from NMXS' capital transactions. The Company's
equity in the net losses of NMXS during the quarter ended June 30, 2001 exceeded
such gain.
As of June 30, 2001, the Company owns approximately 25% of NMXS.com, Inc.
15
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE D - INVESTMENTS (CONTINUED)
The Company will not record any earnings associated with NMXS.com, Inc. until
the losses not recognized during the period the equity method was suspended have
been recovered. The cumulative losses in excess of the amount invested amounted
to $436,000 as of June 30, 2001. In addition, per the stock purchase agreement
with NMXS.com, Manhattan Scientifics provided NMXS.com with business and
management advice through August 1999 without remuneration. Also, our CEO
received a salary of $60,000 and a leased car from NMXS.com, Inc. as
consideration for his services, including board membership, provided to
NMXS.com, Inc. through December 2000. At the present time the CEO is not
receiving any compensation.
On February 20, 2001, the Company entered into a stock swap agreement with
NMXS.com, Inc. The agreement provides for the exchange of cashless assignable
warrants to purchase 1,500,000 shares of NMXS.com, Inc.'s common stock at an
exercise price of $.50 per share for 150,000 restricted shares of the Company's
common stock. The transaction was recorded as an investment valued at $225,000,
which represents the market value of the Company's common stock exchanged on the
date of the agreement.
The following is a summary of financial data regarding financial position and
results of operations of NMXS.com, Inc. as of June 30, 2001 and for the six
months ended June 30, 2001:
Current assets (including cash of $45,000) $ 621,000
Furniture and equipment 364,000
Goodwill 112,000
Other assets 9,000
-----------
$ 1,106,000
===========
Liabilities $ 780,000
Stockholders' equity 326,000
-----------
$ 1,106,000
===========
Revenue $ 591,000
===========
Net loss $(1,397,000)
===========
Novint Technologies, Inc.
In June 2000 the Company entered into agreement with Novint Technologies, Inc.
("Novint") to exclusively license a development stage computer software
technology on a worldwide basis, to fund research and development of such
technology, and to exchange certain securities, among other things. On May 16,
2001, the Company entered into a series of transactions with Novint and others
through which, among other things, the earlier agreements were modified and the
Company acquired the stock of a third-party developer of the software
technology. As of June 30, 2001 the Company has funded $1,385,000 of a
commitment of $1.5 million toward research and development of the technology.
The Company believes that it is premature to offer any assessment as to the
ultimate commercial viability of any products that might be derived from this
technology should it be successfully developed.
The initial investment amount of $560,000 exceeded the underlying net equity by
approximately $377,000. The Company treated such excess as an expense to fund
the research and development activities of Novint.
16
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE D - INVESTMENTS (CONTINUED)
The following is a summary of financial data regarding financial position and
results of operations of Novint Technologies, Inc. as of June 30, 2001 and for
the period May 16, 2001 (date of acquisition) to June 30, 2001:
Cash $ 57,000
Equipment and software 163,000
Patent 89,000
Other assets 74,000
---------
$ 383,000
=========
Liabilities $ 10,000
Stockholders' equity 373,000
---------
$ 383,000
=========
Revenue $ 52,000
=========
Net loss $(133,000)
=========
NOTE E - NOTES PAYABLE
In August 2000, the Company obtained a line of credit from a financial
institution in the amount of $300,000. This line of credit bears interest at a
rate of the 30 day Dealer Commercial paper rate plus 2.60% (6.33% at June 30,
2001). The line of credit will terminate on July 31, 2002. As of June 30, 2001,
the Company was indebted in the amount of $293,000 which includes interest for
the month of June 2001. This line of credit is guaranteed by the CEO of the
Company. Interest expense for the six months ended June 30, 2001 amounted to
$12,000.
In August 1999, the Company borrowed $275,000 from the Chief Operating Officer.
The loan bears interest at the rate of 5.5% per annum and is due upon the
earlier of 18 months or the date of a private placement raising at least
$1,500,000. Repayment of the loan was extended for a three month term until
September 30, 2001. The loan may be prepaid at any time. The Chief Operating
Officer had originally delivered to the Company $275,000 to exercise options
each exercisable to purchase common stock but such exercise was rescinded and
the options have been treated as if not exercised. No shares were delivered as a
result of this transaction. Interest expense for the six months ended June 30,
2001 amounted to $6,000.
NOTE F - CAPITAL TRANSACTIONS
Common Stock:
The following common stock transactions include the effects of restating of
stockholders' equity for the shares received in the recapitalization/merger as a
result of the reverse acquisition. The exchange rate of such shares was 9.59
Manhattan Scientifics, Inc. common shares for each Tamarack common share.
Accordingly, the Company's financial statement presentation indicates that there
were 44,000,000 common shares outstanding immediately prior to consummating the
reverse merger.
Effective July 31, 1992, the Company issued 14,391,627 shares of common stock to
the founders for certain intangible assets.
17
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
During 1994, the Company effected the following stock transactions:
Issued 14,391,627 shares of common stock to Projectavision, Inc. at
approximately $.21 per share in accordance with a stock purchase agreement.
Issued 479,720 shares of common stock on exercise of options at a price of
approximately $.10 per share.
Issued 345,399 shares of common stock at a price of approximately $.52 per
share.
During 1996, the Company issued 14,391,627 shares of common stock for $15,000.
During 1997, the Company repurchased 7,195,814 shares of common stock for
$15,000.
During 1998, the Company effected the following transactions:
In January 1998, repurchased 7,195,813 shares of common stock for $15,000.
In January 1998, the Company made a special distribution to Projectavision
of 14,391,627 common shares held in treasury.
In January 1998, in accounting for the reverse merger transaction, the
Company was deemed to have issued 11 million common shares for the net
monetary assets of Grand which was nominal.
In January 1998, issued 5,000,000 shares of common stock for $.20 per share
in a private placement offering.
In January 1998, issued 7,200,000 shares of common stock at $.20 per share
to acquire certain intangible assets.
In February 1998, issued 1,000,000 shares of common stock with a market
value of $.58 per share for consulting services.
In April 1998, issued 275,000 shares of common stock at $.18 per share to an
accredited investor in a private placement offering.
In July 1998, issued 9,435,405 shares of common stock on conversion of
182,525 shares of Series A convertible preferred stock, and included 309,155
of common shares representing payment in satisfaction of accumulated
dividend of approximately $100,000 at date of conversion.
In July 1998, as part of the private placement transaction described below,
the Company issued 10 million common stock purchase warrants at an exercise
price of $.05 per share to the "Lauer Entities". In addition, the Company
arranged for this third party to purchase 43,170,512 shares of the Company's
common stock from Projectavision, Inc. Furthermore, the Company agreed to
issue 20 million shares of common stock to this third party at a price of
$.05 per share, together with rights to assign such shares to certain other
third parties. Such rights were assigned to the certain other third parties
as noted directly below.
From August 1998 through December 1998, issued 20,340,000 shares of its
common stock at $.05 per share in a private placement offering.
During 1999, the Company effected the following transactions:
In August 1999, issued 1,000,000 shares of common stock for $1.00 per
share to acquire certain intangible assets.
18
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
In October 1999, issued 78,000 shares in satisfaction of accrued
expenses.
In October 1999, issued 100,000 shares at $.49 per share to acquire
furniture and fixtures that were issuable in May.
In October 1999, issued 10,000 shares at $.49 per share for
consulting services that were issuable in May.
In October 1999 issued 17,269 shares at market prices from April
through September as consulting services were performed.
In October 1999, exercised 100,000 options into 100,000 shares of
common stock at $.20 per share.
In December 1999, issued 1,600 shares of its common stock at $1.25
per share for services rendered.
In December 1999, issued 533,000 shares of common stock at $.75 per
share in a private placement offering.
During 2000, the Company effected the following transactions:
In January 2000, issued 515,000 shares of common stock at $.75 per
share in a private placement offering.
In January 2000, issued 4,942 shares of common stock, at market
price, for consulting services performed.
In January 2000, issued 1,076,923 shares of common stock, pursuant to
the July 28, 1999 exercise of warrants by Equilink, LLC.
In April 2000, issued 1,500 shares of common stock, at market price,
for consulting services performed.
In June 2000, issued 700,000 shares of common stock in connection
with the private placement offering of Series C preferred shares.
In July 2000 issued 5,833 shares of common stock, at market price,
for consulting services performed.
In July 2000 issued 5,000 shares of common stock, at market price, to
acquire furniture and fixtures.
In August 2000 issued 10,000 shares of common stock in connection
with the private placement offering of Series C preferred shares
(completed June 2000).
In August 2000, the Company issued 100,000 options to purchase stock
at $.40 per share for services rendered.
In September 2000 issued 5,500 shares of its common stock to acquire
furniture and fixtures.
In October 2000, issued 3,750 shares of common stock, at market
price, for services rendered.
In October 2000, issued 1,000 shares of common stock, at market
price, for services rendered.
On October 20, 2000, the Board of Directors of the Company authorized
to increase the total number of authorized shares of common stock
from 150,000,000 to 250,000,000.
19
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
In November 2000, issued 800,050 shares of common stock at $1.25 per
share in a private placement offering.
In December 2000, issued 600,000 shares of common stock in connection
with the conversion of Series B preferred shares at a rate of 1
Series B preferred share to 10 common shares.
In December 2000, issued 50,000 shares of common stock, at market
price, for services rendered.
In December 2000, issued 800,000 shares of common stock at $1.25 per
share in a private placement offering.
During 2001, the Company effected the following transactions:
In January 2001, issued 47,762 shares of common stock at market price
for services rendered.
In January 2001, issued 666,660 shares of common stock in connection
with the conversion of Series B preferred shares at a rate of 1
Series B preferred share to 10 common shares.
In January 2001, 75,000 options were exercised for 73,064 shares of
common stock on cashless basis.
In February 2001, issued 150,000 shares of common stock in exchange
for 1,500,000 warrants of NXMS.com (see Note D)
In March 2001, issued 6,000 shares of common stock at market price
for services rendered.
In March 2001, issued 150,000 shares of common stock at $.67 per
share in a private placement offering.
In March 2001, issued 200,000 of common stock at $.72 per share in a
private placement offering.
In March 2001, issued 405,000 shares of common stock at market price
for consulting services performed.
In April 2001, issued 97,500 shares of common stock at market price
for services rendered.
In April 2001, issued 112,500 shares of common stock at $.62 per
share to one accredited investor in a private placement offering.
In May 2001, issued 800,000 shares of common stock in connection with
the conversion of Series C preferred shares at a rate of 200 Series C
preferred to one common share.
In May 2001, issued 200,000 shares of common stock at $.60 per share
to one accredited investor in a private placement offering.
In May 2001, issued 100,000 shares of common stock at $.80 per share
to one accredited investor in a private placement offering.
In May 2001, issued 195,000 shares of common stock at market price
for services rendered.
In May 2001, issued 942,281 shares of common stock upon exercise of
warrants by a stockholder.
In May 2001, issued 1,400,000 shares valued at $784,000 to acquire
the stock of Teneo Computing, Inc.
20
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
In May 2001, issued 1,000,000 shares valued at $560,000 to acquire
40,672 shares of common stock of Novint Technologies, Inc.
In June 2001, issued 135,000 shares of common stock at $.72 per share
to one accredited investor in a private placement offering.
In June 2001, exercised 15,000 options into 15,000 shares of common
stock at $.20 per share.
In June 2001, issued 102,750 shares of common stock at market price
for services rendered.
In June 2001, issued 615,000 shares of common stock at market prices
for services rendered.
Preferred Stock:
During 1993, in accordance with a Share Purchase Agreement, the Company issued
1,037,000 shares of its Series A preferred stock in exchange for consideration
of $1,037,000 in cash, goods and services provided to the Company by an
unrelated third party.
During 1995, the Company issued an additional 163,000 shares of its Series A
preferred stock in settlement of all amounts due to the above mentioned third
party in exchange for services value at $163,000.
During 1997, the Company repurchased all outstanding shares of its Series A
preferred stock from the above mentioned third party for $70,000. In conjunction
with this transaction, the Board of Directors canceled and retired the then
existing Series A preferred stock.
On January 8, 1998, the Board of Directors of the Company authorized 1,000,000
shares of preferred stock having a par value of $.001 per share to be issued in
such series and to have such rights, preferences and designations as determined
by the Board of Directors.
On January 8, 1998, the Board of Directors of the Company authorized 182,525
shares of Series A convertible redeemable preferred stock having a par value of
$.001. Dividends, which are cumulative, are paid semi-annually in cash or common
stock at the Company's option at a rate of ten percent per share based on a
liquidation value of $10 per share. The Series A shares are convertible at the
rate of fifty shares of the Company's common stock for each Series A preferred
share, are redeemable at the option of the Company at $15 per share, have
preference in case of liquidation, and have voting rights equal to fifty votes
per share.
On January 8, 1998, in connection with the reverse merger transaction, the
Company issued 182,525 shares of its Series A convertible redeemable preferred
stock and a warrant to purchase 750,000 shares of the Company's common stock at
a price of $.10 per share in settlement of a note payable due to Projectavision,
Inc. in the amount of $1,500,000 plus accrued interest of $330,000. The note
required interest at 6% per annum. Interest expense related to this note payable
for 1997 amounted to $90,000. The Company recorded a deemed dividend of
$1,020,000 in accordance with EITF D-60 as a result of the beneficial conversion
feature of such preferred shares at the date of issuance with a corresponding
increase to additional paid-in capital. The amount of the deemed dividend was
computed based upon the excess of the market value of equivalent common shares
which approximated $2,737,000 plus the fair value of the warrant of $113,000,
over the deemed proceeds in the exchange for the settlement of the obligation
with Projectavision. The warrant was valued using the Black-Scholes option
pricing model. The following assumptions were used computing the fair value of
the warrant; weighted risk free interest rate of 5.49%; zero dividend yield;
volatility of Company common stock of 43% and an expected life of the warrant of
ten years.
On July 28, 1998, the holder of the Series A convertible redeemable preferred
stock converted their shares into 9,435,405 shares of the Company's common
stock.
21
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
In December 1999, the Company issued 245,165 shares of Series B convertible
preferred stock at $6.00 per share in a private placement offering. The shares
are convertible at a rate of ten common shares for each preferred share. These
shares have voting rights and dividend rights as if each share had been
converted to common stock.
In June 2000, the Company authorized 14,000 shares of Series C convertible,
redeemable preferred stock at $100 per share. The Series C shares are
convertible into common shares after 180 days, such conversion is based upon a
formula dividing the product of the stated value of the preferred stock by the
number of shares of Series C preferred stock to be converted on the date of
conversion by the average closing price. The average closing price is the
product of $.50 and the average closing bid price of the Company's common stock
as reported by the quotation system on which the common stock is quoted, for the
ten trading days immediately preceding the date that notice of conversion of the
shares is furnished to the Company. In no event shall the Series C preferred
stock be converted into more than an aggregate of 2,800,000 shares of common
stock or less than an aggregate of 933,334 shares of common stock. For the
purposes of determining the conversion ratio, the average closing price shall
not be less than $.50 or greater than $1.50. The Series C shares were redeemable
for the stated value of the stock at the option of the Company from time to time
on or prior to 180 days from June 21, 2000, any or all of the outstanding
shares.
In May 2001, a holder of 10,000 shares of Series C convertible, redeemable
preferred stock converted their shares into 800,000 shares of the Company's
common stock.
The 2000 financial statements reflect the deemed dividend on the Series C
preferred stock of $1,400,000 in accordance with EITF 98-5 resulting from the
calculation of the beneficial conversion feature based on the quoted market
price of the common stock. The amount of the deemed dividend was computed based
upon the excess of the market value of equivalent common shares deemed issued
over the proceeds received from the sale of the convertible preferred stock. The
amount of the deemed dividend has been limited to the offering proceeds.
Stock Options:
The Company has elected to account for its employee stock options in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB No. 25"). Under APB No. 25, generally, no compensation expense
is recognized in the accompanying financial statements in connection with the
awarding of stock option grants to employees provided that, as of the grant
date, all terms associated with the award are fixed and the quoted market price
of the Company's stock, as of the grant date, is not more than the amount an
employee must pay to acquire the stock as defined; however, to the extent that
stock options are granted to non employees, for goods or services, the fair
value of these options are included in operating results as an expense.
22
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
A summary of the Company's stock option activity and related information is as
follows:
Weighted Number of
Number of Average Common
Common Exercise Shares
Shares Price Exercisable
----------- ----------- -----------
Outstanding as of December 31, 1997 0 0
Granted 21,325,000 $ .20 21,325,000
Canceled (15,000,000) $ .20 (15,000,000)
----------- -----------
Outstanding as of December 31, 1998 6,325,000 $ .20 6,325,000
Granted 16,250,000 $ .05 16,250,000
Exercised (100,000) (100,000)
Canceled 0 0
----------- -----------
Outstanding as of December 31, 1999 22,475,000 22,475,000
Granted 610,000 $ .73 210,000
Canceled 0 0
----------- -----------
Outstanding as of December 31, 2000 23,085,000 22,685,000
Granted 200,000 $ 1.25 200,000
Exercised (90,000) (90,000)
Canceled 0 0
----------- -----------
Outstanding as of June 30, 2001 23,195,000 22,795,000
=========== ===========
All options issued during 2001, 2000 and 1999 and 1998 vested after 90 days,
except for options granted in connection with an employment agreement (see Note
H[3]) and expire at various dates from 2008 through 2011.
Tamarack Storage Devices, Inc. 1992 Stock Option Plan was terminated in
connection with the reverse merger transaction. All options outstanding were
canceled at that time.
In 2000, the Company adopted its 2000 Stock Option Plan (the "Plan"). Under the
Plan, incentive and non-qualified stock options, SAR's and restricted stock may
be granted to key employees and consultants at the discretion of the Board of
Directors. Any incentive option granted under the Plan will have an exercise
price of not less than 110% of the fair market value of the shares on the date
on which such option is granted. With respect to an incentive option granted to
a Participant who owns more than 10% of the total combined voting stock of the
Company or of any parent or subsidiary of the Company, the exercise price for
such option must be at least 110% of the fair market value of the shares subject
to the option on the date on which the option is granted. A non-qualified option
granted under the Plan (i.e., an option to purchase the common stock that does
not meet the Internal Revenue Code's requirements for incentive options) must
have an exercise price of not less than 100% of the fair market value of the
stock on the date of grant. The directors determine the vesting of the options
under the Plan at the date of grant. A maximum of 30,000,000 options can be
awarded under the Plan. The terms of grant permit a noncash exercise.
23
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
SAR's entitle a participant to receive a cash payment equal to the difference
between the fair market value of a share of common stock on the exercise date
and the exercise price of the SAR. The terms of the SAR are determined by the
board of directors at the date of grant.
Awards of restricted stock are grants of shares of common stock that are subject
to a restricted period during which such shares may not be sold, assigned,
transferred or gifted.
Disclosures required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), including pro forma
operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation are shown below.
Exercise prices and weighted-average contractual lives of stock options
outstanding as of June 30, 2001 are as follows:
Options Outstanding Options Exercisable
------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
$ .05 16,125,000 7.8 $ .05 16,125,000 $ .05
$ .20 6,260,000 7.2 $ .20 6,260,000 $ .20
$ .40 500,000 9.2 $ .40 100,000 $ .40
$ 2.25 110,000 5.9 $ 2.25 110,000 $ 2.25
$ 1.25 200,000 9.5 $ 1.25 200,000 $ 1.25
Warrants:
The Company issued the following warrants at the corresponding weighted average
exercise price as of June 30, 2001:
Outstanding as of December 31, 1997 0
Issued 17,750,000 $ .16
----------
Outstanding as of December 31, 1998 17,750,000
Converted into stock options (2,500,000) $ .05
----------
Outstanding as of December 31, 1999 15,250,000
Converted into common stock (2,000,000) $ .75
----------
Outstanding as of December 31, 2000 13,250,000
Issued 942,281
Converted into common stock (942,281) $ .83
----------
Outstanding as of June 30, 2001 13,250,000
==========
24
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Number of Exercise Contractual Number of Shares
Date Warrants Price Life Exercisable
---- --------- -------- ----------- ----------------
January 8, 1998 750,000 $ .10 10 years 750,000
July 28, 1998 12,500,000 $ .05 10 years 12,500,000
---------- ----------
13,250,000 13,250,000
========== ==========
In January 2000, the Company issued 1,076,923 shares of common stock, pursuant
to the July 28, 1999 exercise of warrants by Equilink, LLC.
In March 2001, the Company executed a warrant agreement with an existing
stockholder. The agreement allows the stockholder to purchase a variable
quantity of common stock (between 200,000 and 1,000,000 shares) at a variable
strike price (between $.01 and $1.25) based upon market share price formula at
time of exercise. The fair value associated with a minimum exercise of 200,000
warrants was computed using the Black-Scholes option pricing model which
approximated $150,000, which is included as a charge for financing costs in the
statement of operations for the three months ended March 31, 2001. In May 2001,
the Company issued 942,281 shares of common stock at a market price of $.83 per
share pursuant to the May 15, 2001 exercise of warrants by the stockholder. A
charge of $773,000 for financing costs is included in the statement of
operations for the six months ended June 30, 2001 of which $623,000 is included
in the statement of operations for the three months ended June 30, 2001.
NOTE G - INCOME TAXES
There is no provision for federal, state or local income taxes for the periods
ended June 30, 2001 and 2000, since the Company has incurred net operating
losses.
The Company's deferred tax asset as of June 30, 2001 represents benefits from
equity related compensation charges and net operating loss carryforwards of
approximately $4,375,000 and $7,172,000, respectively which is reduced by a
valuation allowance of approximately $11,547,000 since the future realization of
such tax benefit is not presently determinable.
As of June 30, 2001, the Company has a net operating loss carryforward of
approximately $21,645,000 expiring in 2008 through 2020 for federal income tax
purposes and 2004 for state income tax purposes. As a result of ownership
changes, internal revenue code Section 382 limits the amount of such net
operating loss carryforward available to offset future taxable income to
approximately $11,996,000 in the aggregate.
The difference between the statutory federal income tax rate applied to the
Company's net loss and the Company's effective income tax rate for the six
months ended June 30, 2001 and 2000 is summarized as follows:
Six Months
Ended
June 30,
-----------------------
2001 2000
---- ----
Statutory federal income tax rate 34.0 % 34.0 %
Increase in valuation allowance (34.0)% (34.0)%
----- -----
0.0 % 0.0 %
===== ====
25
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE H - COMMITMENTS
[1] License and development agreements:
In March 1997, the Company entered into a Cooperative Research and
Development Agreement (the "CRADA Agreement") with the Regents of the
University of California to develop a polymeric based recording media
that will satisfy all of the requirements for a holographic media
storage device. The work was to be completed within 25 months from the
original date of execution. Each party had the first option to retain
title to any subject inventions made by its employees during the work
under this agreement. The agreement provided that the Company's
contribution to funding will be $264,000. The CRADA research and
development expenses charged to the statement of operations for the
year ended December 31, 1999 and for the cumulative period July 31,
1992 through June 30, 2001 amounted to $29,000 and $83,000,
respectively. The work was completed and the agreement was terminated
in 1999.
On January 11, 1998, the Company entered into a research and
development agreement with Energy Related Devices, Inc. ("ERDI"). The
term of the agreement is for the later of three years from the
commencement date as defined in the agreement or the delivery of a
prototype suitable for commercial sale or license regarding the fuel
cell product defined in the agreement. The Company is obligated to fund
up to $1 million in accordance with certain milestones as defined in
the agreement. Upon the delivery of a prototype suitable for commercial
sale or license regarding the fuel cell product, the Company's
obligation will be to pay ERDI $10,000 per month until the Company
funds or determines not to fund the research and development of ERDI's
solar cell invention. Through June 30, 2001, the Company has provided
$1,000,000 to ERDI for research and development activities. In
addition, the Company is providing for key-man life insurance coverage
on the primary stockholder of ERDI. In May 1999, the Company committed
to additional funding of ERDI. As of June 30, 2001, the Company has
funded an additional $805,000.
In August 1999, the Company entered into a license option agreement
with the Regents with the University of California for Cyclodextrin
Polymer Separation materials. The agreement granted the Company an
exclusive option to negotiate an exclusive world-wide license under
University's patent rights. The initial term expired on February 29,
2000 and was extended for a second term to February 28, 2001. The
Company decided not to renew the license option agreement beyond
February 28, 2001. The Company paid $10,000 in 1999 and 2000.
On March 7, 2000, the Company entered into a license option agreement
with a third party for nanoporous polymer molecular filter
technologies. The agreement granted the Company an exclusive option to
negotiate an exclusive world-wide license under the third party's
patent rights. The initial term expired on September 15, 2000 and was
renewed for an additional six months. The Company paid $10,000 to
execute the license option agreement and another $10,000 for its
renewal. The Company has decided not to renew the agreement.
In June 2000, the Company entered into agreements with a third party
(Novint Technologies, Inc.) to exclusively and perpetually license a
development stage computer software technology on a worldwide basis, to
fund the continuing research and development of such technology, and to
exchange certain securities (subject to return provisions), among other
things. As of June 30, 2001, the Company has funded $1,385,000 of an
initial commitment of $1.5 million toward research and development of
the technology, pursuant to a milestone timetable. It is intended that
additional research and development not covered by the initial $1.5
million commitment, if any, will be funded primarily out of certain
royalties payable by the Company to the third party, or, to the extent
that such royalties are insufficient, from additional financings by the
Company. The Company believes that it is premature to offer any
assessment as to the ultimate commercial viability of any products that
might be derived from this technology should it be successfully
developed. (See Note D)
26
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE H - COMMITMENTS (CONTINUED)
[2] Consulting agreements:
During 1998, the Company entered into a consulting agreement (the
"Agreement") with a former stockholder of Tamarack to provide research
related activities. In connection with the Agreement, the consultant
receives approximately $2,300 per month for such services and is
eligible for a lump sum payment of $50,000 upon the attainment of a
revenue milestone as defined in the Agreement. In accordance with the
Agreement, the Company issued stock options to purchase 250,000 shares
of the Company's common stock at $.20 per share.
200,000 of such options are subject to conditional vesting and are not
currently exercisable. The vesting of these options is based upon the
attainment of certain milestones as follows; 50,000 options upon
successful testing and acceptance by a third party of the holographic
storage media; 50,000 options upon commencement of commercial
production of devices incorporating holographic storage media; 100,000
options upon attainment of $250,000 of gross revenues resulting from
sales of devices incorporating the holographic storage media. These
options are subject to variable plan accounting treatment in accordance
with APB No. 25 and as such, the Company will record a charge to
operations if the criteria for vesting are attained. The measurement
date will be determined based upon the vesting.
In February 2001, the Company entered into a marketing and management
consulting agreement. In connection with the agreement, among other
things, the consulting firm will receive a fee payable in stock. The
term of the agreement is for one year plus a one year automatic
renewal. In March 2001, the Company issued 200,000 shares of common
stock to the consulting firm as compensation for services rendered and
to be rendered. The market value on the date of issuance was $1.25 per
share. This is reflected in prepaid expenses and is being amortized
over the initial term of the agreement. In addition, through June 30,
2001, the Company issued 600,000 additional shares valued at $418,000
for services rendered.
[3] Employment agreement:
On August 30, 1999, the Company entered into an employment and
noncompetition agreement with an individual to provide research related
activities. The term of the agreement was for one year commencing on
September 1, 1999 and was renewed. The agreement allows for four one
year renewal options unless terminated by either party. The employment
agreement was renewed for an additional year effective September 1,
2000. Base salary is $90,000 per annum with available additional cash
compensation as defined in the agreement. In addition, the employee
received stock options to purchase 500,000 shares of common stock at
$.40 per share. The market price of the Company's common shares was
$1.25 per share on the date of grant. The total intrinsic value of such
options approximated $425,000. In accordance with the agreement,
100,000 options vest each year on the anniversary date. The charge for
the 100,000 options that vested during 2000 approximated $113,000. The
charge for the six months ended June 30, 2001 approximated $42,000.
27
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE H - COMMITMENTS (CONTINUED)
[4] Intangible asset acquisition:
On August 6, 1999, the Company entered into an agreement with Novars
Gesellschaft Furneve Technologies mbh ("Novars") to acquire all of the
intellectual property rights of Novars. As compensation, the Company
issued 1,000,000 shares of its common stock. 500,000 of such shares
were treated as if issuable and will be held in escrow pending
administrative issuance of certain patents as defined in the agreement.
The initial purchase price was estimated at $1,000,000 based upon the
value of the common shares issued at the date of the transaction as
determined by management. However, the eventual purchase price can not
be determined until such time the shares held in escrow have been
released to the third party. In addition, the Company is obligated to
pay a three percent royalty in perpetuity on the revenues earned by the
Company as defined in the agreement. Subsequent to June 30, the Company
agreed to release the 500,000 shares and will adjust the net book value
of the intangible property with a corresponding adjustment to paid in
capital.
In conjunction with the above, the Company entered into a three year
research and development agreement with Novars with automatic one year
renewals unless terminated by either party. In accordance with this
agreement, the Company advanced $200,000 in August 1999. The Company
has amended the research and development agreement to provide for
additional funding based on a milestone timetable. As of June 30, 2001,
the Company has funded an additional $1,570,000.
[5] Leases:
The Company is obligated under two separate operating leases for office
space located in Los Alamos, New Mexico and New York City. Both leases
expire in December 2001. Rent expense charged to operations was
approximately $52,000 and $52,000 for the six months ended June 30,
2001 and 2000, respectively. Reimbursements from related parties
amounted to $19,000 and $33,000 for the six months ended June 30, 2001
and 2000, respectively.
[6] Commitment:
In April 2001, the Company entered into a consulting agreement to
develop the necessary infrastructure for the commercialization of
several of its products for a term of one year. In connection with the
agreement, the consulting firm will receive monthly fees and warrants
based upon performance.
NOTE I - RELATED PARTY TRANSACTIONS
The law firm of one director received $80,000 and $98,000 in compensation for
legal services rendered to the Company during the six months ended June 30 2001
and 2000.
The accounting firm of one of our directors received $53,000 and $71,000
compensation for accounting services rendered to the Company during the six
months ended June 30, 2001 and 2000.
NMXS.com, Inc. pays our CEO a yearly salary of $60,000 and leases a car for our
CEO as consideration for his services. At the present time the CEO is not
receiving any compensation.
During 1998, the Company entered into a research and development agreement with
Energy Related Devices, Inc. ("ERDI"), ERDI is majority-owned by a shareholder
of the Company (see Note H[1]).
28
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE J - SUBSEQUENT EVENTS
Related Party:
In August 2001, the Company's Chief Operating Officer advanced the Company
$250,000 for working capital purposes on a short-term basis.
Common Stock:
In July 2001, the Company has issued 211,257 shares of common stock for
consulting services at the corresponding per share prices.
In July 2001, a stockholder converted 10,000 shares of Series C preferred stock
into 2,000,000 shares of common stock.
29
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Financial Statements
June 30, 2001
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial condition and
Results of Operations.
The following discussion and analysis should be read in conjunction
with our financial statements and accompanying notes appearing elsewhere in this
Form 10-QSB.
Overview
In January 1998, Manhattan Scientifics, Inc. then a non-operating
public corporation with nominal net assets acquired all of the outstanding
common stock of Tamarack Storage Devices, Inc. by issuing 44 million shares of
its common stock including approximately 43,120,000 shares issued to
Projectavision, a public company which gave the stockholders of Tamarack actual
control of the combined company. In addition, Manhattan Scientifics, Inc. issued
182,525 shares Series A preferred stock and a warrant to purchase 750,000 shares
of its common stock at an exercise price of 10 cents per share in exchange for a
note payable of $1.5 million plus accrued interest of $330,000 due to
Projectavision from Tamarack. In connection with the legal form of this
transaction, Tamarack became a wholly-owned subsidiary of Manhattan Scientifics,
Inc. For accounting purposes, the acquisition was treated as a recapitalization
of Tamarack rather than a business combination. Tamarack as the accounting
acquiror of the public shell did not record goodwill or any other intangible
asset for this "Reverse Acquisition". The historical financial statements are
those of Tamarack. Tamarack, a development stage enterprise, was a Texas
corporation formed in July 1992. Since inception, Tamarack has been, and
continues to be, involved in the research and development of products based on
holographic data storage technology. Loss per share has been restated for all
periods prior to the acquisition to include the number of equivalent shares
received by Tamarack's stockholders in the Reverse Acquisition.
Since the reverse merger we have been acquiring and licensing
technologies, directing, supervising and coordinating our research and
development efforts, raising capital, and initiating marketing activities and
dialogue with potential customers.
As of June 30, 2001, we had an accumulated loss since inception,
1992, of $30,195,000. Of this accumulated loss, approximately $14,800,000 was
derived from non-cash charges that were required by generally accepted
accounting principles and approximately $6,800,000 from Tamarack prior to our
acquisition of Tamarack. Accordingly cash losses from inception to June 30, 2001
were approximately $8,595,000. We expect operating losses to continue for the
foreseeable future because we will be continuing to fund research and
development efforts as well as general and administrative expenses prior to
receiving significant revenues from our technologies.
We do not know if our research and development and marketing efforts
will be successful, that we will ever have commercially acceptable products, or
that we will achieve significant sales of any such products. We operate in an
environment of rapid change in technology and we are dependent upon the services
of our employees, consultants and independent contractors. If we are unable to
successfully bring our technologies to commercialization, we would likely have
to significantly alter our business plan and may cease operations.
Results of Operations
Comparison of three months ended June 30, 2001 to three months ended
June 30, 2000.
Net Loss. We reported a net loss of $2,371,000 or $.02 per common
share, basic and diluted, for operations for the three months ended June 30,
2001 versus a net loss of $1,054,000, or $0.02 per common share, basic and
diluted, for the three months ended June 30, 2000. The increase of $1,317,000 or
125% is primarily a result of our recording, in 2001, for the issuance of stock
and stock options for services and financing costs.
Revenues. We had no revenues for the three months ended June 30,
2001 and no revenues during the three months ended June 30, 2000.
Operating Costs and Expenses. Operating costs and expenses for the
three months ended June 30, 2001 totaled $2,365,000, an increase of $1,310,000
or 124%, versus costs and expenses of $1,055,000 for the three months ended June
30, 2000. These costs and expenses are detailed below.
30
Salaries and Employee Benefits. Salaries related to research and
development and employee benefits were approximately $52,000 for the three
months ended June 30, 2001 consisting of salary and a compensation charge of
$21,000 for stock options to our Chief Polymer Scientist, which is included in
research and development for such period, versus salaries and employee benefits
of $32,000 for the three months ended June 30, 2000. We anticipate an increase
in these costs as we intend to enter into an employment agreement with our
currently uncompensated executive officer and implement certain employee benefit
plans, including a healthcare plan.
General and Administrative. General and administrative expenses were
$1,313,000 for the three months ended June 30, 2001, which consisted of
accounting, travel, legal, rent, telephone and other day to day operating
expenses, versus general and administrative expenses of $265,000 for the three
months ended June 30, 2000. This increase of $1,048,000, or 395%, was primarily
a result of issuance of stock and stock options for services and stock for
financing costs. We anticipate no significant change in general and
administrative expenses in the near future.
Research and Development. Research and development expenses were
$405,000 for the three months ended June 30, 2001, which consisted of payments
under research and development agreements with various contractors, amortization
of patents, and salary to our Chief Polymer Scientist. Research and development
expenses amounted to $775,000 for the three months ended June 30, 2000. This
decrease of $370,000, or 47% resulted from decreased research and development
payments to various third party contractors. We do, however, expect research and
development costs to increase as we continue to develop our existing
technologies and acquire or license new technologies.
Comparison of six months ended June 30, 2001 to six months ended
June 30, 2000.
Net Loss. We reported a new loss of $4,403,000, or $0.04 per common
share, basic and diluted, for the six months ended June 30, 2001, versus a net
loss of $2,035,000, or $0.02 per common share, basic and diluted, for the six
months ended June 30, 2000. The increase of $2,368,000, or 116%, is primarily a
result of the fact that, in 2001, we recorded a charge for the issuance of
options, stock for services and financing costs, whereas in the fiscal 2000
period, we did not issue any options and a minimal amount of stock for services.
Revenues. We had no revenues for the six months ended June 30, 2001
and no revenues for the six months ended June 30, 2000.
Operating Costs and Expenses. Operating costs and expenses for the
six months ended June 30, 2001 totaled $4,399,000, an increase of $2,350,000, or
115%, versus costs and expenses of $2,049,000 for the six months ended June 30,
2000. These costs and expenses are detailed below.
Salaries and Employee Benefits. Salaries related to research and
development and employee benefits were approximately $109,000 for the six months
ended June 30, 2001, which consisted of salary and a compensation charge of
$42,000 for stock options to our Chief Polymer Scientist, which is included in
Research and Development for such period, versus salaries and employee benefits
of $63,000 for the six months ended June 30, 2000. We anticipate an increase in
these costs as we intend to enter into employment agreements with our currently
uncompensated executive officers and implement certain employee benefit plans,
including a healthcare plan.
General and Administrative. General expenses were $2,154,000 for the
six months ended June 30, 2001, which consisted of accounting, legal, travel,
rent, telephone and other day to day operating expenses, versus general and
administrative expenses of $611,000 for the six months ended June 30, 2000. This
increase of $1,543,000, or 252%, is primarily a result of the fact that, in
2001, we recorded a charge for the issuance of options, stock for services and
financing costs, whereas in the fiscal 2000 period, we did not issue any options
and a minimal amount of stock for services. We anticipate no significant change
in general and administrative expenses in the near future.
Research and Development. Research and development expenses were
$1,378,000 for the six months ended June 30, 2001, which consisted of payments
on research and development agreements with various contractors, amortization of
patents, nanoporous polymer license options payments, and salary to our Chief
Polymer Scientist. Research and development expenses amounted to $1,419,000 for
the six months ended June 30, 2000. This decrease of $41,000, or 3% resulted
from a steady stream of research and development payments to various third party
contractors. We expect research and development costs to increase as we develop
our existing technologies and acquire or license new ones.
31
Liquidity and Plan of Operations
We are a development stage company and are in the technology
acquisition, licensing and development phase of its operations. Accordingly, we
have relied primarily upon private placements, licensing and subscription sales
of stock to fund our continuing activities and acquisitions. To a limited
extent, and as described below, we have also relied upon borrowing from
non-traditional lenders who are also shareholders of ours, among other lenders.
Until we generate revenue from sales and licensing of technology, or receive a
large infusion of cash from a potential strategic partner, we intend to continue
to rely upon these methods of funding our operations during the next year.
Our significant assets include our portfolio of intellectual
property relating to the various technologies, our contracts with third parties
pertaining to technology development, acquisition, and licensing, our holdings
of approximately 5.2 million shares of common stock in NMXS.Com, Inc.; our cash
on hand; and our strategic alliances with various scientific laboratories,
educational institutions, scientists and leaders in industry and government. In
June 2000, the Company entered into agreements with Novint Technologies, Inc. to
exclusively license a development stage computer software technology on a
worldwide basis, to fund research and development of such technology, and to
exchange certain securities, among other things. On May 16, 2001, the Company
entered into a series of transactions with Novint and others through which,
among other things, the earlier agreements were modified and Company acquired
the stock of a third party developer of the software technology.
Stockholders' equity totaled $2,806,000 on June 30, 2001 and the
working capital was a deficit of $421,000 on such date.
In August 2001, the Company's CEO made a loan to the Company in the
amount of $250,000.
We do not expect any significant change in the total number of
employees in the near future. We intend to continue to identify and target
appropriate technologies for possible acquisition or licensing over the next 12
months, although we have no agreements regarding any such technologies as of the
date of this Report.
Based upon current projections, our principal cash requirements for
the next 12 months consists of (1) fixed expenses, including rent, payroll,
investor relations services, public relations services, bookkeeping services,
graphic design services, consultant services, and reimbursed expenses; and (2)
variable expenses, including technology research and development, milestone
payments, intellectual property protection, utilities and telephone, office
supplies, additional consultants, legal and accounting. As of June 30, 2001, we
had $194,000 in cash. As of June 30, 2000, we had $703,000 in cash. We intend to
satisfy our capital requirements for the next 12 months by our cash on hand,
continuing to pursue private placements to raise capital, using our common stock
as payment for services in lieu of cash where appropriate, and borrowing as
appropriate. However, we do not know if those resources will be adequate to
cover our capital requirements. The Company has obtained a commitment from a
major stockholder to provide sufficient funds if needed to support the Company's
normal operations through December 31, 2003.
Recently Issued Accounting Standards
We do not believe any recently issued accounting standards have had or will have
a material impact on our operations.
32
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None.
33
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MANHATTAN SCIENTIFICS, INC.
Dated: August 14, 2001 By: /s/ Marvin Maslow
---------------------
Marvin Maslow
President, Chief Executive
Officer, and Chairman of
the Board
34