UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-27282
MANHATTAN PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-3898269
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
787 Seventh Avenue, 48th Floor, New York, New York 10019
(Address of principal executive offices)
(212) 554-4525
(Issuer's telephone number)
(Former Name, Former Address and Former Fiscal
Year, if Changed Since Last Report)
Check whether the issuer: (1) 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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
As of August 8, 2003 there were 116,811,980 shares of the issuer's common stock,
$.001 par value, outstanding.
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements........................................ 3
Unaudited Condensed Consolidated Balance Sheets.............................................. 3
Unaudited Condensed Consolidated Statements of Operations.................................... 4
Unaudited Condensed Consolidated Statement of Stockholders' Equity........................... 5
Unaudited Condensed Consolidated Statements of Cash Flows.................................... 6
Notes to Unaudited Condensed Consolidated Financial Statements............................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 12
Item 3. Controls and Procedures...................................................................... 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 17
Item 5. Other Information........................................................................... 17
Item 6. Exhibits and Reports on Form 8-K............................................................ 18
Signatures.................................................................................. 19
Forward-Looking Statements
The statements contained in this Quarterly Report on Form 10-QSB that are
not historical are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding the
expectations, beliefs, intentions or strategies regarding the future. We intend
that all forward-looking statements be subject to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. In particular, the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section in Part I, Item 2 of this quarterly report include
forward-looking statements that reflect our current views with respect to future
events and financial performance. We use words such as we "expect,"
"anticipate," "believe," and "intend" and similar expressions to identify
forward-looking statements. A number of important factors could, individually
or in the aggregate, cause actual results to differ materially from those
expressed or implied in any forward-looking statements. Such factors include,
but are not limited to, the following: our lack of significant revenues and
profitability; our need for additional capital; our ability to successfully
commercialize our technologies; our ability to obtain various regulatory
approvals; the illiquidity and volatility of our common stock, and the other
"Risk Factors" identified in our Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2002.
2
MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
PART I--FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
(Unaudited)
JUNE 30, DECEMBER 31,
--------------------- --------------------
ASSETS 2003 2002
--------------------- --------------------
Current assets:
Cash and cash equivalents $ 477,863 $ 1,721,123
Prepaid expenses 34,438 -
--------------------- ---------------------
Total current assets 512,301 1,721,123
Property and equipment, net 10,415 -
Deposits 19,938 -
Intangible assets, net 3,061,607 -
--------------------- ---------------------
Total assets $ 3,604,261 $ 1,721,123
===================== =====================
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable $ 573,978 $ 164,899
Accrued expenses 410,396 15,973
Note payable to bank - 600,000
Notes payable to stockholder 70,000 206,000
Due affiliate - 96,328
--------------------- ---------------------
Total liabilities 1,054,374 1,083,200
--------------------- ---------------------
Commitments and Contingencies
Stockholders equity:
Common stock, $.001 par value. Authorized 150,000,000
shares; 116,811,980 and 78,765,040 shares issued and outstanding
at June 30, 2003 and December 31, 2002, respectively 116,812 78,765
Additional paid-in capital 4,733,028 1,691,142
Unearned consulting costs (7,574) (37,868)
Deficit accumulated during development stage (2,292,379) (1,094,116)
--------------------- ---------------------
Total stockholders equity 2,549,887 637,923
--------------------- ---------------------
Total liabilities and stockholders' equity $ 3,604,261 $ 1,721,123
===================== =====================
See accompanying notes to unaudited condensed consolidated financial statements.
3
MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statements of Operations EDGAR PEOPLE:
(Unaudited)
CUMULATIVE
PERIOD FROM
AUGUST 6, 2001
(INCEPTION) TO
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, JUNE 30,
------------------------------ -------------------------------
2003 2002 2003 2002 2003
-------------- --------------- --------------- --------------- ------------------
Revenue $ -- $ -- -- -- $ --
-------------- --------------- --------------- --------------- ------------------
Costs and expenses:
Research and development 313,176 198,855 356,531 452,252 1,081,928
General and administrative 463,844 49,944 842,716 50,341 1,192,297
-------------- --------------- --------------- -------------- ------------------
Total operating expenses 777,020 248,799 1,199,247 502,593 2,274,225
-------------- --------------- --------------- -------------- ------------------
Operating loss (777,020) (248,799) (1,199,247) (502,593) (2,274,225)
-------------- --------------- --------------- -------------- ------------------
Other (income) expense:
Interest and other income (1,625) (4,140) (4,140)
Interest expense 923 3,768 3,156 5,814 22,294
-------------- --------------- --------------- -------------- ------------------
Total other (income) expense (702) 3,768 (984) 5,814 18,154
-------------- --------------- --------------- -------------- ------------------
Net loss $ (776,318) $ (252,567) $ (1,198,263) $ (508,407) $ (2,292,379)
============== =============== =============== ============== ===--=============
Net loss per common share:
Basic and diluted $ (0.01) $ (0.00) $ (0.01) $ (0.01)
============== =============== =============== ==============
Weighted average shares of common
stock outstanding:
Basic and diluted 116,811,980 63,548,380 107,004,963 60,318,297
============== =============== =============== ==============
See accompanying notes to unaudited condensed consolidated financial statements.
4
MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
--------------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE
--------------- ----------- ----------------- ------------------
Balance at January 1, 2003 78,765,040 $ 78,765 $ 1,691,142 $ (1,094,116)
Common Stock Issued, net of expenses 6,609,032 6,609 737,082
Effect of reverse acquisition 31,437,908 31,438 2,304,804
Amortization of unearned consulting costs
Net loss (1,198,263)
--------------- ----------- ----------------- ------------------
Balance at June 30, 2003 116,811,980 $ 116,812 $ 4,733,028 $ (2,292,379)
=============== =========== ================= ==================
TOTAL
UNEARNED STOCK-
CONSULTING HOLDERS'
COSTS EQUITY
-------------- -----------------
Balance at January 1, 2003 $ (37,868) $ 637,923
Common Stock Issued, net of expenses 743,691
Effect of reverse acquisition 2,336,242
Amortization of unearned consulting costs 30,294 30,294
Net loss (1,198,263)
-------------- -----------------
Balance at June 30, 2003 $ (7,574) $ 2,549,887
============== =================
See accompanying notes to condensed consolidated financial statements.
5
MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
CUMULATIVE
PERIOD FROM
AUGUST 1, 2001
(INCEPTION) TO
SIX MONTHS ENDED JUNE 30, JUNE 30,
----------------------------------- --------------------
2003 2002 2003
---------------- ---------------- --------------------
Cash flows from operating activities:
Net loss $ (1,198,263) $ (508,407) $ (2,292,379)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Common stock issued for license rights 1,000
Amortization of unearned consulting services 30,294 53,015
Amortization of intangible assets 105,571 105,571
Depreciation 2,334 2,334
Changes in operating assets and liabilities,
net of acquisition:
Decrease in prepaid expenses 3,869 3,869
Increase in deferred offering costs (2,392)
Increase in accounts payable 85,344 63,590 250,243
Decrease in accrued expenses (145,898) (56,796) (129,925)
Decrease in due affiliate (96,328)
----------------- --------------- -------------------
Net cash used in operating activities (1,213,077) (504,005) (2,006,272)
----------------- --------------- -------------------
Cash flows from investing activities:
Purchase of property and equipment (5,066) (5,066)
Cash paid in connection with acquisition (32,808) (32,808)
----------------- --------------- -------------------
Net cash used in investing activities (37,874) (37,874)
----------------- --------------- -------------------
Cash flows from financing activities:
Proceeds from issuances of notes payable to stockholders 233,500
Repayments of notes payable to stockholders (136,000) (163,500)
Proceeds from issuance of note payable to bank 600,000 600,000
Repayment of note payable to bank (600,000) (600,000)
Proceeds from subscriptions receivable 4,000
Proceeds from sale of common stock, net 743,691 2,448,009
----------------- --------------- -------------------
Net cash provided by financing activities 7,691 600,000 2,522,009
----------------- --------------- -------------------
Net increase (decrease) in cash and
cash equivalents (1,243,260) 95,995 477,863
Cash and cash equivalents at beginning of period 1,721,123
----------------- --------------- -------------------
Cash and cash equivalents at end of period $ 477,863 $ 95,995 $ 477,863
================= =============== ==================
Supplemental disclosure of noncash financing activities:
Interest paid $ 502 $ $ 16,167
================= ================ ==-================
Supplemental disclosure of noncash investing and \
financing activities:
Stock options issued for consulting services -- -- $ 60,589
Issuance of common stock for acquisition $ 2,336,242 $ -- $ 2,336,242
================= ================ ===-===============
See accompanying notes to unaudited condensed consolidated financial statements.
6
MANHATTAN PHARMACEUTICALS, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information. Accordingly,
the financial statements do not include all information and footnotes required
by accounting principles generally accepted in the United States of America for
complete annual financial statements. In the opinion of management, the
accompanying condensed consolidated financial statements reflect all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation. Interim operating results are not necessarily
indicative of results that may be expected for the year ending December 31, 2003
or for any subsequent period. These consolidated financial statements should be
read in conjunction with the Annual Report on Form 10-KSB of Manhattan
Pharmaceuticals, Inc. and its subsidiaries ("Manhattan" or the "Company") as of
and for the year ended December 31, 2002 and the Form 8-K/A of Manhattan
Pharmaceuticals, Inc. filed on May 9, 2003 containing the financial statements
of Manhattan Research Development, Inc.
(2) LIQUIDITY
The Company has reported a net loss of $1,037,320 for the year ended
December 31, 2002. The Company has reported a net loss of $1,198,263 for the six
months ended June 30, 2003. The net loss from date of inception, August 6, 2001,
to June 30, 2003 amounts to $2,292,379. As discussed in Note 6, on February 21,
2003 the Company completed a reverse acquisition of privately held Manhattan
Research Development, Inc. Based on the resources available at June 30, 2003 of
the combined Company, management believes that the combined Company will
continue to incur net losses through at least June 30, 2004 and will need
additional equity or debt financing or will need to generate revenues through
licensing its products or entering into strategic alliances to be able to
sustain its operations until it can achieve profitability, if ever. These
matters raise substantial doubt about the Company's ability to continue as a
going concern.
The combined Company's continued operations will depend on its ability
to raise additional funds through various potential sources such as equity and
debt financing, collaborative agreements, strategic alliances and its ability to
realize the full potential of its technology in development. Additional funds
are currently not available on acceptable terms and may not become available,
and there can be no assurance that any additional funding that the combined
Company does obtain will be sufficient to meet the combined Company's needs in
the short and long term. Through June 30, 2003, a significant portion of the
Company's financing has been through private placements of common stock and
warrants and debt financing. Until and unless the combined Company's operations
generate significant revenues, the combined Company will attempt to continue to
fund operations from cash on hand and through the sources of capital previously
described.
The Company's common stock was delisted from the NASDAQ SmallCap Market
effective at the close of business August 23, 2001 for failing to meet the
minimum bid price requirements set forth in the NASD Marketplace Rules. Since
August 23, 2001, the Company's common stock trades on the Over-the-Counter
Bulletin Board (the "OTCBB"). The Company's ticker symbol is currently
"MHTP.OB." The de-listing of the Company's common stock from the NASDAQ SmallCap
Market could have a material adverse effect on the Company's ability to raise
additional capital.
7
MANHATTAN PHARMACEUTICALS, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
(3) COMPUTATION OF NET LOSS PER COMMON SHARE
Basic net loss per common share is calculated by dividing net loss
applicable to common shares by the weighted-average number of common shares
outstanding for the period. Diluted net loss per common share equals basic net
loss per common share, since common stock equivalents from stock options, stock
warrants, stock subscriptions and convertible preferred stock would have an anti
dilutive effect because the Company incurred a net loss during each period
presented. The common stock equivalents from stock options, stock warrants,
stock subscriptions, and convertible preferred stock, which have not been
included in the diluted calculations since their effect is antidilutive, was
20,559,674 as of June 30, 2003.
(4) ISSUANCE OF STOCK, STOCK OPTIONS AND WARRANTS
On February 24, 2003, the Company granted employees an aggregate of
4,380,450 options outside of the Company's 1995 Stock Option Plan. 2,920,300 of
these options vest on the first anniversary of the grant date and 1,460,150 of
these options vest in two equal installments on each of the first and second
anniversaries of the grant date, provided the optionee continues in service. The
options were granted at the stock price on the day of issuance and are
exercisable for a period of ten years regardless of whether the grantee
continues to be employed by the Company.
Had compensation costs been determined in accordance with the fair
value method prescribed by SFAS No. 123 for all options issued to employees, the
Company's net loss applicable to common shares and net loss per common share
(basic and diluted) for plan options would have been increased to the pro forma
amounts indicated below. There were no options granted during the second quarter
of 2003. There were no options granted or outstanding in the 2002 periods.
THREE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
2003 2003
----------------- ----------------
Net loss applicable to common shares:
As reported $ (776,318) $ (1,198,263)
Pro forma (873,201) (1,351,710)
Net loss per common share --basic
As reported $ (0.01) $ (0.01)
Pro forma (0.01) (0.01)
(5) PRIVATE PLACEMENT OF COMMON SHARES
During 2002, the Company's subsidiary, Manhattan Research Development,
Inc. (Manhattan Research) commenced a private placement and sold 1,197,250
shares of common stock at $1.60 ($0.13
8
MANHATTAN PHARMACEUTICALS, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
post merger) per share and received proceeds of $1,704,318, net of expenses of
$211,281. These shares converted into 15,216,660 shares of the Company's common
stock when the Company completed a reverse acquisition of Manhattan Research as
described below. In addition, each investor received warrants equal to 10% of
the number of shares of common stock purchased and, accordingly, Manhattan
Research issued warrants to purchase 119,725 shares of common stock in 2002 in
connection with the private placement. Upon the merger, these converted into
warrants to purchase 1,521,666 shares of the Company's common stock. Each
warrant had an exercise price of $1.60 per share, which post merger converted to
approximately $0.13. These warrants expire in 2007.
During January and February 2003, Manhattan Research sold an additional
520,000 shares of common stock at $1.60 ($0.13, post merger) per share and
warrants to purchase 52,000 shares of common stock exercisable at $1.60 ($0.13
post merger) through the private placement and received net proceeds of
$743,691. These shares converted into 6,609,032 shares of the Company's common
stock when the Company completed its reverse acquisition of Manhattan Research.
The warrants to purchase 52,000 shares of common stock converted into warrants
to purchase 660,903 common shares of the combined Company.
In addition, in connection with the private placement, Manhattan
Research issued to Joseph Stevens & Co., Inc., a NASD-member broker-dealer,
warrants to purchase 652,555 shares of its common stock that are exercisable at
$1.60 ($0.13 post merger) per share and expire in 2008. Upon the merger, these
warrants converted into warrants to purchase 8,293,763 shares of common stock of
the combined Company.
(6) MERGER
On February 21, 2003, the Company (formerly known as "Atlantic
Technology Ventures, Inc.") completed a reverse acquisition of privately held
Manhattan Research Development, Inc. (formerly Manhattan Pharmaceuticals, Inc.),
a Delaware corporation. The merger was effected pursuant to an Agreement and
Plan of Merger dated December 17, 2002 (the "Merger Agreement") by and among the
Company, Manhattan Research and Manhattan Pharmaceuticals Acquisition Corp, the
Company's wholly owned subsidiary ("MPAC"). In accordance with the terms of the
Merger Agreement, MPAC merged with and into Manhattan Research, with Manhattan
Research remaining as the surviving corporation and a wholly owned subsidiary of
the Company. Pursuant to the Merger Agreement, upon the effective time of the
merger, the outstanding shares of common stock of Manhattan Research
automatically converted into an aggregate of 93,449,584 shares of the Company's
common stock, which represented 80 percent of the Company's outstanding voting
stock after giving effect to the merger. In addition, immediately prior to the
merger Manhattan Research had outstanding options and warrants to purchase an
aggregate of 864,280 shares of its common stock, which, in accordance with the
terms of the merger, automatically converted into options and warrants to
purchase an aggregate of 10,984,719 shares of the Company's common stock. Since
the stockholders of Manhattan Research received the majority of the voting
shares of the Company, the merger is being accounted for as a reverse
acquisition whereby Manhattan Research is the accounting acquirer (legal
acquiree) and the Company is the accounting acquiree (legal acquirer). Based on
the five-day average price of the Company's common stock of $0.10 per share, the
purchase price approximates $2,336,000, plus approximately $33,000 of
acquisition costs, which represents 20 percent of the market value of the
combined Company's post-merger total outstanding shares of 116,811,980. In
connection with the merger, the Company changed its name from "Atlantic
Technology Ventures, Inc." to "Manhattan Pharmaceuticals, Inc." Based on the
preliminary
9
MANHATTAN PHARMACEUTICALS, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
information currently available, Manhattan Research expects to recognize patents
and licenses for substantially all of the purchase price. Upon completion of a
formal purchase price allocation there may be a decrease in the amount assigned
to intangible assets and a corresponding increase in in-process research and
development. As a result of acquiring Manhattan Research, the Company receives
new technologies.
A summary of the preliminary purchase price allocation is as follows:
Common stock issued $ 2,336,242
Acquisition costs paid 32,808
-----------
Total purchase price 2,369,050
Net liabilities assumed in acquisition 798,128
-----------
Excess purchase price (preliminarily allocated to
intangible assets) $ 3,167,178
===========
Assets purchased:
Prepaid expenses $ 38,307
Property and equipment 7,683
Deposits 19,938
-----------
65,928
-----------
Liabilities assumed:
Accounts payable 323,735
Accrued expenses 540,321
-----------
864,056
-----------
Net liabilities assumed $ (798,128)
===========
The following pro forma financial information presents the combined
results of operations of Manhattan Pharmaceuticals and Manhattan Research as if
the acquisition had occurred as of January 1, 2003 and 2002, after giving effect
to certain adjustments, including the issuance of Manhattan Pharmaceuticals
common stock as part of the purchase price. For the purpose of this pro forma
presentation, both Manhattan Pharmaceuticals' and Manhattan Research's financial
information is presented for the three and six months ended June 30, 2003 and
2002, respectively. The pro forma condensed consolidated financial information
does not necessarily reflect the results of operations that would have occurred
had Manhattan Pharmaceuticals and Manhattan Research been a single entity during
such periods.
10
MANHATTAN PHARMACEUTICALS, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2002 2003 2002
-------------------------- --------------------- -----------------
Revenues $ -- $ -- $ --
Net loss $ (297,512) $ (1,239,453) $ (1,256,605)
Weighted-average shares of common
stock outstanding: Basic 110,202,948 116,036,848 110,202,948
Loss per share $ (0.00) $ (0.01) $ (0.01)
(7) LICENSE AND DEVELOPMENT AGREEMENT
In April 2003, the Company entered into a license and development
agreement with NovaDel Pharma, Inc., under which the Company received certain
worldwide, exclusive rights to develop and commercialize products related to
NovaDel's proprietary lingual spray technology for delivering propofol for
pre-procedural sedation. Under the terms of this agreement, the Company agreed
to use its commercially reasonable efforts to develop and commercialize the
licensed products, to obtain necessary regulatory approvals and to thereafter
exploit the licensed products. The agreement also provides that NovaDel will
undertake to perform, at the Company's expense, a substantial portion of the
development activities, including without limitation, preparation and filing of
various applications with applicable regulatory authorities.
In consideration of the license, upon the occurrence of certain
development and regulatory events, the Company is obligated to make payments to
NovaDel upon the occurrence of certain milestones, including filing a New Drug
Application or "NDA" that is accepted for review by the FDA for a licensed
product, filing a European Marketing Application for a licensed product, having
a filed NDA approved by the FDA, having a European Marketing Application
accepted for review within the European Union, receiving commercial approval in
Japan, Canada, Australia and South Africa, and upon receiving regulatory
approval in certain other countries. The aggregate amount of the milestone
payments is significant in light of the Company's currently available resources.
In addition, the Company is obligated to pay to NovaDel an annual royalty based
on a fixed rate of net sales of licensed products, or if greater, the annual
royalty is based on the Company's net profits from the sale of licensed products
at a rate that is twice the net sales rate. In the event the Company sublicenses
the licensed product to a third party, the Company is obligated to pay royalties
based on a fixed rate of fees or royalties received from the sublicensee until
such time as the Company recovers its out-of-pocket costs, and thereafter the
royalty rate doubles. Because of the continuing development efforts required of
NovaDel under the agreement, the royalty rates are substantially higher than
customary for the industry. The Company is also required to pay an up-front fee
in installments contingent on whether the Company receives certain amounts
through financings, revenues or otherwise. To date, the Company has paid and
expensed $125,000 of such up-front fee.
NovaDel may terminate the agreement (i) upon 10 days' notice if the
Company fails to make any required milestone or royalty payments, (ii) if the
Company fails to obtain financing of at least $5,000,000 by March 31, 2004, or
(iii) if the Company becomes bankrupt or if a petition in bankruptcy or
insolvency is filed and not dismissed within 60 days or if the Company becomes
subject to a receiver or trustee for the benefit of creditors. Each party may
terminate the agreement upon 30 days' written notice and an opportunity to cure
in the event the other party committed a material breach or default. The Company
may also terminate the agreement for any reason upon 90 days' notice to NovaDel.
(8) SUBSEQUENT EVENTS
In May 2003, the Company's stockholders authorized an amendment to the
Company's certificate of incorporation that would have combined the Company's
outstanding common stock on a 2-for-3 basis. The proposed 2-for-3 combination
was never effected, however, and the Company's board of directors has since
determined to abandon the proposed 2-for-3 combination in lieu of a larger stock
combination. On July 25, 2003, the board of directors adopted a resolution
authorizing an amendment to the certificate of incorporation providing for a
1-for-5 combination. A resolution approving the 1-for-5 combination has since
been consented to in writing by holders of a majority of the Company's
outstanding common stock. An effective date for the proposed 1-for-5 combination
has not yet been established, however, and the board may determine to abandon
this proposal.
On August 8, 2003, Bausch & Lomb informed the Company that it had
elected not to pursue its development of the Avantix technology effective August
11, 2003. According to the terms of Company's agreement with Bausch & Lomb, the
Company may re-acquire the technology from Bausch & Lomb and sell or re-license
the technology to a third party. The price to re-acquire the technology from
Bausch & Lomb is 50 percent of the proceeds from a third party sale to a maximum
of $3 million. The Company has no further obligation under the agreement.
11
MANHATTAN PHARMACEUTICALS, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
YOU SHOULD READ THE FOLLOWING DISCUSSION OF OUR RESULTS OF OPERATIONS
AND FINANCIAL CONDITION IN CONJUNCTION WITH OUR ANNUAL REPORT ON FORM 10-KSB FOR
THE YEAR ENDED DECEMBER 31, 2002 AND THE FORM 8-K/A OF MANHATTAN
PHARMACEUTICALS, INC. FILED ON MAY 9, 2003 CONTAINING THE FINANCIAL STATEMENTS
OF MANHATTAN RESEARCH DEVELOPMENT, INC. THIS DISCUSSION INCLUDES
"FORWARD-LOOKING" STATEMENTS THAT REFLECT OUR CURRENT VIEWS WITH RESPECT TO
FUTURE EVENTS AND FINANCIAL PERFORMANCE. WE USE WORDS SUCH AS WE "EXPECT,"
"ANTICIPATE," "BELIEVE," AND "INTEND" AND SIMILAR EXPRESSIONS TO IDENTIFY
FORWARD-LOOKING STATEMENTS. INVESTORS SHOULD BE AWARE THAT ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM OUR EXPRESSED EXPECTATIONS BECAUSE OF RISKS AND
UNCERTAINTIES INHERENT IN FUTURE EVENTS, PARTICULARLY THOSE RISKS IDENTIFIED IN
THE "RISK FACTORS" SECTION OF OUR MOST RECENT ANNUAL REPORT ON FORM 10-KSB, AND
SHOULD NOT UNDULY RELY ON THESE FORWARD LOOKING STATEMENTS.
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED JUNE 30, 2003 VS. 2002
During the quarters ended June 30, 2003 and 2002, we had no revenue. We
do not expect to have significant revenues relating to our technologies within
the next twelve months.
For the quarter ended June 30, 2003, research and development expense
was $313,176 as compared to $198,855 for the second quarter of 2002. The
increase is due primarily to license fees paid to NovaDel Pharma, Inc. of
$125,000 during the quarter.
For the quarter ended June 30, 2003, general and administrative expense
was $463,844 as compared to $49,944 for the quarter ended June 30, 2002. The
increase is due primarily to expenses associated with hiring full time employees
and consultants of approximately $147,000 and $43,000, respectively. In
addition, we had increases in legal and accounting fees of approximately $84,000
associated with the Company becoming a publicly traded company through the
Atlantic Technology Ventures, Inc. - Manhattan Research Development Corp. merger
in February 2003. Rent and insurance expenses increased by approximately $35,000
and $54,000, respectively, partially offset by a decrease of $29,000 in other
expenses. Finally, in 2003, we had amortization of intangible assets of
approximately $80,000.
Net loss for the quarter ended June 30, 2003, was $776,318 as compared
to $252,567 for the quarter ended June 30, 2002. This increase in net loss is
attributable primarily to an increase in general and administrative expenses of
$413,900 primarily as a result of our hiring employees and management and
becoming a public company. In addition we had an increase in research and
development expenses of $114,321.
SIX-MONTH PERIOD ENDED JUNE 30, 2003 VS. 2002
During the six months ended June 30, 2003 and 2002, we had no revenue.
For the six months ended June 30, 2003, research and development
expense was $356,531 as compared to $452,252 for the six months ended June 30,
2002. The decrease is primarily a result of the
12
MANHATTAN PHARMACEUTICALS, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
fact that we paid license fees of $176,000 to Oleoyl-estrone Developments, Inc
(OED) in 2002 but paid only $125,000 of license fees to NovaDel Pharma, Inc. in
2003. We also had approximately $38,000 in patent related fees in 2002, which we
did not have in 2003.
For the six months ended June 30, 2003, general and administrative
expense was $842,716 as compared to $50,341 for the six months ended June 30,
2002. The increase is due primarily to expenses associated with hiring full time
employees and consultants of approximately $228,000 and $142,000, respectively.
In addition, we had increases in legal and accounting fees of approximately
$151,000 associated with the Company becoming a publicly traded company through
the Atlantic Technology Ventures, Inc. - Manhattan Research Development Corp.
merger in February 2003. Rent, directors fees, insurance and other expenses
increased by approximately $62,000, $29,000, $67,000 and $7,000, respectively.
Finally, in 2003, we had amortization of intangible assets of approximately
$106,000.
Net loss for the six months ended June 30, 2003, was $1,198,263 as
compared to $508,407 for the six months ended June 30, 2002. This increase in
net loss is attributable primarily to an increase in general and administrative
expenses of $792,375 primarily as a result of our hiring employees and
management and becoming a public company. The increase in net loss is partially
offset by a decrease in research and development expenses of $95,721.
LIQUIDITY AND CAPITAL RESOURCES
From inception to June 30, 2003, we incurred an accumulated deficit of
$2,292,379, and we expect to continue to incur additional losses through the
year ending June 30, 2004 and for the foreseeable future. This loss has been
incurred through a combination of research and development activities related to
the various technologies under our control and expenses supporting those
activities.
During 2002, our subsidiary, Manhattan Research Development, Inc.
(Manhattan Research) commenced a private placement and sold 1,197,250 shares of
common stock at $1.60 ($0.13 post merger) per share and received proceeds of
$1,704,318, net of expenses of $211,181. These shares converted into 15,216,660
shares of our common stock when we completed a reverse acquisition of Manhattan
Research as described below. In addition, each investor received warrants equal
to 10% of the number of shares of common stock purchased and, accordingly,
Manhattan Research issued warrants to purchase 119,725 shares of common stock in
2002 in connection with the private placement. Upon the merger, these converted
into warrants to purchase 1,521,666 shares of our common stock. Each warrant had
an exercise price of $1.60 per share, which post merger converted to $0.13.
These warrants expire in 2007.
During January and February 2003, Manhattan Research sold an additional
520,000 shares of common stock at $1.60 ($0.13, post merger) per share and
warrants to purchase 52,000 shares of common stock exercisable at $1.60 ($0.13
post merger) through the private placement and received net proceeds of
$743,691. These shares converted into 6,609,032 shares of our common stock when
we completed our reverse acquisition of Manhattan Research. The warrants to
purchase 52,000 shares of common stock converted into warrants to purchase
660,903 common shares of the combined Company.
In addition, in connection with the private placement, Manhattan
Research issued to Joseph Stevens & Co., Inc., a NASD-member broker-dealer,
warrants to purchase 652,555 shares of its common stock that are exercisable at
$1.60 ($0.13 post merger) per share and expire in 2008. Upon the merger,
13
MANHATTAN PHARMACEUTICALS, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
these warrants converted into warrants to purchase 8,293,763 shares of common
stock of the combined Company.
We have financed our operations since inception primarily through
equity and debt financing and our licensing of CT-3 to Indevus. During the six
months ended June 30, 2003, we had a net decrease in cash and cash equivalents
of $1,243,260. This decrease primarily resulted from net cash used in operating
activities for the six months ended June 30, 2003 of $1,213,077. Total cash
resources as of June 30, 2003 were $477,863 compared to $1,721,123 at December
31, 2002.
Our available working capital and capital requirements will depend upon
numerous factors, including progress of our research and development programs,
our progress in and the cost of ongoing and planned pre-clinical and clinical
testing, the timing and cost of obtaining regulatory approvals, the cost of
filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
changes in our existing collaborative and licensing relationships, the resources
that we devote to developing manufacturing and commercializing capabilities,
technological advances, the status of our competitors, our ability to establish
collaborative arrangements with other organizations and our need to purchase
additional capital equipment.
Our continued operations will depend on whether we are able to raise
additional funds through various potential sources, such as equity and debt
financing, other collaborative agreements, strategic alliances, and our ability
to realize the full potential of our technology in development. Such additional
funds are currently not available on acceptable terms and may not become
available. There can be no assurance that any additional funding that the
combined Company does obtain will be sufficient to meet the combined Company's
needs in the short and long term. Through June 30, 2003, a significant portion
of our financing has been through private placements of common stock and
warrants and debt financing. Unless our operations generate significant
revenues, we will continue to fund operations from cash on hand and through the
similar sources of capital previously described. We can give no assurances that
any additional capital that we are able to obtain will be sufficient to meet our
needs.
On February 21, 2003, we completed a reverse acquisition of privately
held Manhattan Research Development, Inc., (formerly Manhattan Pharmaceuticals,
Inc.) (Manhattan Research) a Delaware corporation. The merger was effected
pursuant to an Agreement and Plan of Merger dated December 17, 2002 (the "Merger
Agreement") by and among the Company, Manhattan Research and Manhattan
Pharmaceuticals Acquisition Corp, the Company's wholly owned subsidiary
("MPAC"). In accordance with the terms of the Merger Agreement, MPAC merged with
and into Manhattan Research, with Manhattan Research remaining as the surviving
corporation and our wholly owned subsidiary. Pursuant to the Merger Agreement,
upon the effective time of the merger, the outstanding shares of common stock of
Manhattan Research automatically converted into an aggregate of 93,449,584
shares of our common stock, which represented 80 percent of our outstanding
voting stock after giving effect to the merger. In addition, immediately prior
to the merger Manhattan Research had outstanding options and warrants to
purchase an aggregate of 864,280 shares of its common stock, which, in
accordance with the terms of the merger, automatically converted into options
and warrants to purchase an aggregate of 10,984,719 shares of our common stock.
Since the stockholders of Manhattan Research received the majority of our voting
shares, the merger is being accounted for as a reverse acquisition whereby
Manhattan Research is the accounting acquirer (legal acquiree) and we are the
accounting acquiree (legal acquirer). Based on the five-day average price of our
common stock of $0.10 per share, the purchase price approximates $2,336,000,
which represents 20 percent of the market value of the combined Company's
post-merger
14
MANHATTAN PHARMACEUTICALS, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
total outstanding shares of 116,811,980. In connection with the merger, we
changed our name from "Atlantic Technology Ventures, Inc." to "Manhattan
Pharmaceuticals, Inc." Based on the preliminary information currently available,
Manhattan Research expects to recognize patents and licenses for substantially
all of the purchase price. Upon completion of a formal purchase price allocation
there may be a decrease in the amount assigned to intangible assets and a
corresponding increase in in-process research and development. As a result of
acquiring Manhattan Research, the Company receives new technologies. We expect
the formal purchase price allocation to be completed prior to the end of 2003.
In April 2003, we entered into a license and development agreement with
NovaDel Pharma, Inc., under which we received certain worldwide, exclusive
rights to develop and commercialize products related to NovaDel's proprietary
lingual spray technology for delivering propofol for pre-procedural sedation.
Under the terms of this agreement, we agreed to use our commercially reasonable
efforts to develop and commercialize the licensed products, to obtain necessary
regulatory approvals and to thereafter exploit the licensed products. The
agreement also provides that NovaDel will undertake to perform, at our expense,
a substantial portion of the development activities, including without
limitation, preparation and filing of various applications with applicable
regulatory authorities.
In consideration of the license, upon the occurrence of certain
development and regulatory events, we are obligated to make payments to NovaDel
upon the occurrence of certain milestones, including filing a New Drug
Application or "NDA" that is accepted for review by the FDA for a licensed
product, filing a European Marketing Application for a licensed product, having
a filed NDA approved by the FDA, having a European Marketing Application
accepted for review within the European Union, receiving commercial approval in
Japan, Canada, Australia and South Africa, and upon receiving regulatory
approval in certain other countries. The aggregate amount of the milestone
payments is significant in light of our currently available resources. In
addition, we are obligated to pay to NovaDel an annual royalty based on a fixed
rate of net sales of licensed products, or if greater, the annual royalty is
based on our net profits from the sale of licensed products at a rate that is
twice the net sales rate. In the event we sublicense the licensed product to a
third party, we are obligated to pay royalties based on a fixed rate of fees or
royalties received from the sublicensee until such time as we recover our
out-of-pocket costs, and thereafter the royalty rate doubles. Because of the
continuing development efforts required of NovaDel under the agreement, the
royalty rates are substantially higher than customary for the industry. We are
also required to pay an up-front fee in installments contingent on whether we
receive certain amounts through financings, revenues or otherwise. To date, we
have paid and expensed $125,000 of such up-front fee.
NovaDel may terminate the agreement (i) upon 10 days' notice if we fail
to make any required milestone or royalty payments, (ii) if we fail to obtain
financing of at least $5,000,000 by March 31, 2004, or (iii) if we become
bankrupt or if a petition in bankruptcy or insolvency is filed and not dismissed
within 60 days or if we become subject to a receiver or trustee for the benefit
of creditors. Each party may terminate the agreement upon 30 days' written
notice and an opportunity to cure in the event the other party committed a
material breach or default. We may also terminate the agreement for any reason
upon 90 days' notice to NovaDel.
Management believes that we will continue to incur net losses through
at least June 30, 2004. Based on our current resources, we will need additional
equity or debt financing or we will need to generate revenues through licensing
our products or entering into strategic alliances to be able to sustain our
operations until we can achieve profitability, if ever. These matters raise
substantial doubt as to our ability to continue as a going concern.
The report of our independent auditors on our 2002 consolidated
financial statements includes an explanatory paragraph, which states that our
recurring losses, and limited liquid resources raise substantial doubt about our
ability to continue as a going concern. Our condensed consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Subsequent to an oral hearing before a NASDAQ Listing Qualifications
Panel, on August 23, 2001, our securities were delisted from the NASDAQ Stock
Market for failing to meet the minimum bid price requirements set forth in the
NASD Marketplace Rules, as our common stock had traded for less than $1.00 for
more than 30 consecutive business days. Our common stock trades now on the OTC
Bulletin Board under the symbol "MHTP.OB". Delisting our common stock from
NASDAQ could have a material adverse effect on our ability to raise additional
capital, our stockholders' liquidity and the price of our common stock.
CRITICAL ACCOUNTING POLICIES
In December 2001, the SEC requested that all registrants discuss their
most "critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. Our
significant accounting policies are described in Note 1 to our consolidated
financial statements included in this annual report; however, we believe that
none of them is considered to be critical.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS No.146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force ("EITF") issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit and Activity." SFAS No. 146 requires that liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. This statement also established that fair value is the objective
for initial
15
MANHATTAN PHARMACEUTICALS, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
measurement of the liability. The provisions of SFAS No. 146 are effective for
exit or disposal activities that initiated after December 31, 2002. The Company
does not expect that the adoption of SFAS No. 146 will have a material impact on
its consolidated financial statements.
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation- Transition and Disclosure an Amendment of SFAS No. 123." SFAS No.
148 amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock- based
employee compensation and the effect of the method used on reported results. The
Company adopted the disclosure provisions of SFAS No. 148, effective January 1,
2003.
ITEM 3. CONTROLS AND PROCEDURES
As of June 30, 2003, we carried out an evaluation, under the
supervision and with the participation of our chief executive and chief
financial officers, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
of the Securities Exchange Act of 1934). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in alerting them on a timely basis to
material information required to be disclosed in our periodic reports to the
Securities and Exchange Commission. There have been no significant changes in
our internal controls or in other factors, which could significantly affect
internal controls subsequent to such evaluation.
16
MANHATTAN PHARMACEUTICALS, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments to the arbitration proceeding
between the Company and Summer Burstein described in the Company's Quarterly
Report on Form 10-QSB/A for the quarter ended March 31, 2003, as amended. The
Company is not a party to any other material legal proceedings and is not aware
of any threatened litigation that would have a material adverse effect on its
business.
ITEM 5. OTHER INFORMATION
On August 8, 2003, Bausch & Lomb informed the Company that it had
elected not to pursue its development of the Avantix technology effective August
11, 2003. According to the terms of Company's agreement with Bausch & Lomb, the
Company may re-acquire the technology from Bausch & Lomb and sell or re-license
the technology to a third party. The price to re-acquire the technology from
Bausch & Lomb is 50 percent of the proceeds from a third party sale to a maximum
of $3 million. The Company has no further obligation under the agreement.
17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
- ---------- ------------
10.1 License Agreement dated April 4, 2003 between the Registrant
and NovaDel Pharma, Inc.
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certifications of Chief Executive and Chief Financial Officer
pursuant to Section 906 of the Sarbanes - Oxley act of 2002.
(b) Reports on Form 8-K
On March 5, 2003, we filed a Current Report on Form 8-K dated February
21, 2003 disclosing under Item 2 thereof our merger transaction with Manhattan
Research Development, Inc. On May 9, 2003, we amended the current report to
include financial statements and pro forma information, as required by Item 7 of
Form 8-K.
18
MANHATTAN PHARMACEUTICALS, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MANHATTAN PHARMACEUTICALS, INC.
Date: August 14, 2003 By: /s/ Leonard Firestone
---------------------------------------------------
Leonard Firestone
President and Chief Executive Officer
Date: August 14, 2003 By: /s/ Nicholas J. Rossettos
---------------------------------------------------
Nicholas J. Rossettos
Chief Financial Officer and Chief Operating Officer
19
MANHATTAN PHARMACEUTICALS, INC. and SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
EXHIBIT INDEX
Exhibit No. Description
- --------- -----------
10.1 License Agreement dated April 4, 2003 between the
Registrant and NovaDel Pharma, Inc.
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certifications of Chief Executive and Chief Financial Officer
pursuant to Section 906 of the Sarbanes - Oxley act of 2002.
20