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, 2000
/ / Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from ______________ to ______________
Commission file number 000-28411
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
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 August 9, 2000 was as follows: 102,399,472 shares of Common Stock, and 245,165 shares of Series B Preferred Stock. In addition, as of the date of this Form 10-QSB, there are 650,000 shares of Common Stock and 14,000 shares of Series C Preferred Stock which Manhattan Scientifics is obligated to issue but has not yet been issued to the appropriate recipients.
Transitional Small Business Disclosure Format: YES / / NO /X/
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Balance Sheet
(UNAUDITED)
June 30, 2000
ASSETS
Current assets:
Cash and cash equivalents $ 703,000
Stock subscription receivable (collected $250,000 in each
month July and August 2000) 500,000
Note receivable 10,000
Prepaid expenses 40,000
----------
Total current assets 1,253,000
----------
Property and equipment, net 78,000
Patents, net 2,033,000
Security deposit 7,000
----------
$3,371,000
==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 107,000
Note payable to stockholder 275,000
----------
Total current liabilities 382,000
----------
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; 245,165
shares issued and outstanding
Series C convertible, redeemable, authorized 14,000 shares;
14,000 shares issuable
Common, authorized 150,000,000 shares, 102,388,639
shares issued,
And outstanding, 655,833 shares issuable 102,000
Additional paid-in capital 30,984,000
Deficit accumulated during the development stage (28,097,000)
-----------
Total stockholders' equity 2,989,000
----------
$3,371,000
==========
|
The accompanying notes are an integral part of these financial statements
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Operations
(UNAUDITED)
Three Months Six Months Ended
Ended June 30 Ended June 30
2000 1999 2000 1999
------------- ------------- ------------- -------------
Revenues $ 0 $ 0 $ 0 $ 0
------------- ------------- ------------- -------------
Operating costs and expenses:
Salaries and employee benefits
Consulting fees
Materials and supplies
General and administrative 265,000 6,364,000 611,000 6,475,000
Rent and utilities 15,000 5,000 19,000 10,000
Research and development 775,000 189,000 1,419,000 361,000
------------- ------------- ------------- -------------
Total operating costs and expenses 1,055,000 6,558,000 2,049,000 6,846,000
------------- ------------- ------------- -------------
Loss from operations before other income and expenses (1,055,000) (6,558,000) (2,049,000) (6,846,000)
Other income and expenses:
Contract revenue
Interest and other expense (5,000) (8,000)
Interest income 6,000 5,000 22,000 10,000
Loss of equity investee
------------- ------------- ------------- -------------
Net loss/comprehensive loss 1,054,000 $ ( 6,553,000) 2,035,000 $ (6,836,000)
------------- ============= ------------- =============
Dividends on Series C preferred stock
beneficial conversion feature (1,400,000) (1,400,000)
------------- -------------
Net loss attributable to common shareholders $ (2,454,000) $ (3,435,000)
============= =============
Basic and diluted loss per share:
Weighted average number of common shares outstanding 101,793,000 98,250,000 101,793,000 98,250,000
============= ============= ============= =============
Basic and diluted loss per share $(.02) $(.07) $(.03) $(.07)
====== ====== ====== ======
Period From
Inception
(July 31,1992)
Through
June 30, 2000
-------------
Revenues $ 0
-------------
Operating costs and expenses:
Salaries and employee benefits 4,429,000
Consulting fees 6,197,000
Materials and supplies 987,000
General and administrative 10,952,000
Rent and utilities 561,000
Research and development 3,042,000
-------------
Total operating costs and expenses 26,168,000
-------------
Loss from operations before other income and expenses (26,168,000)
Other income and expenses:
Contract revenue 3,602,000
Interest and other expense (550,000)
Interest income 125,000
Loss of equity investee (100,000)
-------------
Net loss/comprehensive loss $ (23,091,000)
=============
Dividends on Series C preferred stock
beneficial conversion feature
Net loss attributable to common shareholders
Basic and diluted loss per share:
Weighted average number of common shares outstanding
Basic and diluted loss per share
|
The accompanying notes are an integral part of these financial statements
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
Consolidated Statements of Stockholders' Equity (Capital Deficiency)
(UNAUDITED)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2000
Preferred Stock
----------------------------------
$.001 Par Value
Series A Series B
Preferred ----------------------------------
Stock Shares Amount
--------------- --------------- ---------------
Initial issuance of shares to founders on contribution
of intangible assets at historic cost basis
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
Issuance of shares to investor at approximately
$.21 per share
Issuance of shares on exercise of options
Services performed in exchange for Series A
Preferred stock issued in fiscal 1993
Net loss
---------------
Balance, March 31, 1994 10,000
Services performed for Series A preferred stock
issued in fiscal 1993
Issuance of shares at approximately $.52 per share
Net loss
---------------
Balance, December 31, 1994 10,000
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
Issuance of shares upon exercise of option for
$15,000
Net loss
---------------
Balance, December 31, 1996 12,000
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
Common Stock
$.001 Par Value Additional
---------------------------------- Paid-in
Shares Amount Capital
--------------- --------------- ---------------
Initial issuance of shares to founders on contribution
of intangible assets at historic cost basis 14,391,627 $ 14,500 $ 500
Additional founders' contribution 40,000
Issuance of 1,037,000 shares of Series A preferred
Stock, net of issuance costs 1,020,000
Net loss
--------------- --------------- ---------------
Balance, March 31, 1993 14,391,627 14,500 1,060,500
Issuance of shares to investor at approximately
$.21 per share 14,391,627 14,500 2,985,500
Issuance of shares on exercise of options 479,720 1,000 49,000
Services performed in exchange for Series A
Preferred stock issued in fiscal 1993
Net loss
--------------- --------------- ---------------
Balance, March 31, 1994 29,262,974 30,000 4,095,000
Services performed for Series A preferred stock
issued in fiscal 1993
Issuance of shares at approximately $.52 per share 345,399 182,000
Net loss
--------------- --------------- ---------------
Balance, December 31, 1994 29,608,373 30,000 4,277,000
Issuance of 163,000 shares of Series A
Preferred stock 161,000
Write-off of amounts receivable from stockholders (40,000)
Net loss
--------------- --------------- ---------------
Balance, December 31, 1995 29,608,373 30,000 4,398,000
Issuance of shares upon exercise of option for
$15,000 14,391,627 14,000 1,000
Net loss
--------------- --------------- ---------------
Balance, December 31, 1996 44,000,000 44,000 4,399,000
Purchase and retirement of 1,200,000 shares of
Series A preferred stock (58,000)
Purchase of 7,195,814 treasury shares of common
stock for $15,000
Net loss/comprehensive loss
--------------- --------------- ---------------
Balance, December 31, 1997 (carried forward) 44,000,000 44,000 4,341,000
Deficit
Amounts Accumulated
Receivable During the
From Development Treasury
Stockholders Stage Stock Total
--------------- --------------- --------------- ---------------
Initial issuance of shares to founders on contribution
of intangible assets at historic cost basis $ 15,000
Additional founders' contribution $ (40,000)
Issuance of 1,037,000 shares of Series A preferred
Stock, net of issuance costs (286,000) 744,000
Net loss $ (543,000) (543,000)
--------------- --------------- --------------- ---------------
Balance, March 31, 1993 (326,000) (543,000) 216,000
Issuance of shares to investor at approximately
$.21 per share 3,000,000
Issuance of shares on exercise of options 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 (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
Net loss (2,250,000) (2,250,000)
--------------- --------------- --------------- ---------------
Balance, December 31, 1994 (40,000) (5,085,000) (808,000)
Issuance of 163,000 shares of Series A
Preferred stock 163,000
Write-off of amounts receivable from stockholders 40,000 0
Net loss (972,000) (972,000)
--------------- --------------- --------------- ---------------
Balance, December 31, 1995 0 (6,057,000) (1,617,000)
Issuance of shares upon exercise of option for
$15,000 15,000
Net loss (284,000) (284,000)
--------------- --------------- --------------- ---------------
Balance, December 31, 1996 0 (6,341,000) (1,886,000)
Purchase and retirement of 1,200,000 shares of
Series A preferred stock (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) 0 (6,676,000) (15,000) (2,306,000)
|
The accompanying notes are an integral part of these financial statements
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
Consolidated Statements of Stockholders' Equity (Capital Deficiency)(continued)
(UNAUDITED)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2000
(continued)
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 7,200,000 7,000
assets
Issuance of shares at $.58 per share for
Consulting services 1,000,000 1,000
Issuance of warrants to purchase
2,000,000 shares of common stock
exercisable at $.75 per share at fair
value for services
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) $ $(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) 0
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 1,440,000
assets 1,433,000
Issuance of shares at $.58 per share for
Consulting services 579,000 580,000
Issuance of warrants to purchase
2,000,000 shares of common stock
exercisable at $.75 per share
at fair value for services 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) 0
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
|
The accompanying notes are an integral part of these financial statements
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
Consolidated Statements of Stockholders' Equity (Capital Deficiency)(continued)
(UNAUDITED)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2000
(continued)
Preferred Stock
$.001 Par Value Common Stock
------------------- --------------------
Series A Series B $.001 Par Value
Preferred ------------------- --------------------
Stock Shares Amount Shares Amount
----- ------ ------ ------ ------
Balance, December 31, 1998
(brought forward) 0 0 $ 0 98,250,000 $ 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
Immediately exercisable
At fair value for services
Issuance of warrants to purchase
2,000,000 shares of common
Stock exercisable at $.75 per
Share for consulting services
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 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
------- ------------ ----- ----- -----
Balance, December 31, 1998
(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
Immediately exercisable
At fair value for services 6,572,000 6,572,000
Issuance of warrants to purchase
2,000,000 shares of common
Stock exercisable at $.75 per
Share for consulting services 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 26,669,000 0 (23,547,000) $ 0 3,222,000
|
The accompanying notes are an integral part of these financial statements
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
(carried forward)
Consolidated Statements of Stockholder's Equity (Capital Deficiency)(continued)
(UNAUDITED)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2000
(continued)
Preferred Stock Preferred 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 service
Issuance of common stock to Equilink, LLC on
Exercise of cashless warrants
Shares issuable of Series C convertible preferred
shares
At $100.00 per share including deemed dividend
In connection with beneficial conversion feature
Of preferred stock
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
Shares issuable at market price for services
Net loss/comprehensive loss
---------- --------- ---------- ------------ ----------
Balance, June 30, 2000 0 245,165 $ 0 0 $ 0
========== ========= ========= ============ ==========
Deficit
Common Stock Amounts Accumulated
$.001 Par Value Additional Receivable During the
-------------------- Paid-in From Development
Shares Amount Capital Stockholders Stage
------ ------ ------- ------------ -----
Balance, December 31, 1999
(brought forward) 100,090,274 $ 100,000 $ 26,669,000 $ 0 $ (23,547,000)
Issuance of shares at $.75 per share 515,000 1,000 385,000
Issuance of shares at market price for service 4,942 8,000
Issuance of common stock to Equilink, LLC on
Exercise of cashless warrants 1,076,923
Shares issuable 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 (1,400,000)
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 (1,115,000)
Issuance of shares at market price for services 1,500
Shares issuable at market price for services 8,000
Net loss/comprehensive loss (2,035,000)
------------ ---------- ------------ ------------ -------------
Balance, June 30, 2000 102,388,639 $ 102,000 $ 30,984,000 0 $ (28,097,000)
============ ========== ============ ============ =============
Treasury
Stock Total
----- -----
Balance, December 31, 1999
(brought forward) $ 0 $ 3,222,000
Issuance of shares at $.75 per share 386,000
Issuance of shares at market price for service 8,000
Issuance of common stock to Equilink, LLC on
Exercise of cashless warrants
Shares issuable of Series C convertible preferred
shares
At $100.00 per share including deemed dividend
In connection with beneficial conversion feature
Of preferred stock 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
Issuance of shares at market price for services
Shares issuable at market price for services 8,000
Net loss/comprehensive loss (2,035,000)
----------- -----------
Balance, June 30, 2000 $ 0 $ 2,989,000
=========== ===========
|
The accompanying notes are an integral part of these financial statements
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
(Consolidated Statements of Cash Flows)
(UNAUDITED)
Three Months Six Months
June 30, June 30,
---------------------------- ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Cash flows from operating activities:
Net loss $(1,054,000) $(6,553,000) $(2,035,000) $(6,836,000)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Common stock issued for services 8,000 35,000 16,000 35,000
Preferred stock issued for services
Stock options issued for services 6,160,000 6,160,000
Warrants issued for services
Financing costs payable with common stock
Loss of equity investee
Depreciation and amortization 66,000 39,000 131,000 79,000
Changes in:
Prepaid expenses 15,000 5,000 (40,000) 5,000
Accounts payable and accrued expenses (79,000) 50,000 (126,000) (2,000)
Note receivable
----------- ----------- ----------- -----------
Net cash used in operating activities (1,044,000) (264,000) (2,054,000) (559,000)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of equipment (11,000) (22,000)
Purchase of investment (70,000) (70,000)
Proceeds from sale of equipment
----------- ----------- ----------- -----------
Net cash used in investing activities (11,000) (70,000) (22,000) (70,000)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Purchase of treasury stock
Proceeds from note payable to stockholders
Net proceeds from issuance of preferred stock 900,000 900,000
Net proceeds from issuance of common stock 711,000 250,000
Loan repayment to preferred stockholder
Capital lease payments
Security deposit paid
----------- ----------- ----------- -----------
Net cash provided by financing activities 900,000 1,611,000 250,000
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (155,000) (334,000) (465,000) (379,000)
Cash and cash equivalents, beginning of period 858,000 620,000 1,168,000 665,000
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period $ 703,000 $ 286,000 $ 703,000 $ 286,000
============ =========== =========== ===========
Supplemental disclosure of cash flow information:
Interest paid
Supplemental disclosures of noncash investing and
Financing activities:
Fixed assets contributed to the Company in
exchange for Series A preferred stock
Issuance of 14,391,627 common shares to
Acquire intangible assets
Special distribution of 14,391,627 shares of
common stock to Stockholder in settlement of
stockholder advances
Issuance of 7,200,000 common shares to acquire
Intangible assets
Issuance of Series A preferred stock and warrants
in settlement of note payable and accrued
interest
Issuance of 1,000,000 common shares to acquire
intangible assets Issuance of 100,000 common
shares to acquire furniture and Fixtures
Issuance of 78,000 common shares in satisfaction
of accrued Expenses
Period From
Inception
(July 31, 1992)
Through
June 30, 2000
------------------
Cash flows from operating activities:
Net loss (23,091,000)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Common stock issued for services 618,000
Preferred stock issued for services 598,000
Stock options issued for services 8,737,000
Warrants issued for services 1,750,000
Financing costs payable with common stock 191,000
Loss of equity investee 100,000
Depreciation and amortization 806,000
Changes in:
Prepaid expenses (40,000)
Accounts payable and accrued expenses 462,000
Note receivable (10,000)
Net cash used in operating activities (9,879,000)
Cash flows from investing activities:
Purchase of equipment (377,000)
Purchase of investment (100,000)
Proceeds from sale of equipment 14,000
----------
Net cash used in investing activities (463,000)
----------
Cash flows from financing activities:
Purchase of treasury stock (100,000)
Proceeds from note payable to stockholders 2,149,000
Net proceeds from issuance of preferred stock 3,069,000
Net proceeds from issuance of common stock 6,095,000
Loan repayment to preferred stockholder (148,000)
Capital lease payments (13,000)
Security deposit paid (7,000)
----------
Net cash provided by financing activities 11,045,000
----------
Net increase (decrease) in cash and cash equivalents 703,000
Cash and cash equivalents, beginning of period
----------
Cash and cash equivalents, end of period $ 703,000
==========
Supplemental disclosure of cash flow information:
Interest paid $ 7,000
==========
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
==========
|
The accompanying notes are an integral part of these financial statements
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE A - ORGANIZATION AND OPERATIONS
(UNAUDITED)
Manhattan Scientifics, Inc. (formerly Grand Enterprises, Inc. ("Grand")), and its wholly-owned subsidiary Tamarack Storage Devices, Inc. (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, 2000, the Lauer Entities claim beneficial ownership of approximately 45 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 of 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 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).
Since its inception, Tamarack, and more recently the Company, has been engaged primarily in directing, supervising and coordinating research and development efforts and raising funds. The Company conducts its operations primarily in the United States.
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 15, 2001 upon reasonable terms and conditions to be agreed.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(UNAUDITED)
[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 subsidiary. 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 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.
[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 $8,000, $7,000, and $29,000 for the six months ended June 30, 2000, 1999 and for the cumulative period July 31, 1992 (inception) through June 30, 2000.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(CONTINUED)
(UNAUDITED)
[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.
[10] Investment - NMXS, com, Inc.:
The Company initially recorded its investment in NMXS.com, Inc. at cost and uses the equity method of accounting to record its share of income or loss.
[11] Revenue recognition:
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 further reimbursements. 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] Interim financial statements:
Financial statements as of June 30, 2000 and the six months ended June 30, 2000 and 1999 and 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.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment as of June 30, 2000 consists of the following:
Useful Lives
In Years
--------
Furniture and fixtures 5 $57,000
Computers 5 49,000
Equipment 5 124,000
-------
230,000
Less accumulated depreciation 152,000
-------
$78,000
=======
|
NOTE D - INVESTMENT - 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 in June 1999 and $30,000 in July 1999) for 5,416,300 shares of
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE D - INVESTMENT - NMXS.COM, INC. (CONTINUED)
(UNAUDITED)
common stock. As a result of this investment, the Company owns approximately 28% of NMXS.com, Inc. As a result of losses incurred by NMXS through June 30, 2000, the Company reduced its investment cost in NMXS to zero. The Company will not record any of the future earnings associated with NMXS.com, Inc. until all the cumulative losses have been recovered. The cumulative losses in excess of the amount invested amounted to $490,000 as of June 30, 2000. 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 provided to NMXS.com, Inc.
On June 24, 2000, in connection with a private placement offering, the Company issued 100,000 shares of NMXS.com to the acquiror. In addition, the Company delivered an option to purchase an additional 100,000 shares of the Company's shareholdings in NMXS.com for an exercise price of $1 per share. The gain realized from the transfer of these shares of approximately $33,000 has been offset against the cumulative losses to date under the equity method of accounting for this investment (See the "Preferred Stock" section under Note F).
NOTE E - NOTES PAYABLE
In August 1999, the Company borrowed $275,000 from its Chief Operating Officer. The loan bears interest at the rate of 5.5% per annum and is due upon the earlier of February 7, 2001 or the date of a private placement raising at least $1,500,000. The loan may be prepaid at any time. The Chief Operating Officer had originally paid the Company $275,000 to exercise options to purchase shares of 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.
In August 1999, a stockholder loaned the Company $500,000 at an interest rate of 13.5% per annum. The loan was repaid in October 1999 with a subsequent borrowing from another stockholder as described below.
In October 1999, the Company obtained a $500,000 loan from a stockholder (the Peters Corporation) with interest at prime plus 1%. The loan was paid in full in December 1999 plus interest amounting to $7,000. In connection with this loan, the Company arranged to have 150,000 shares of common stock of the Company delivered to the Peters Corporation from another stockholder. The fair market value of the Company's stock was approximately $1.27 per share at the date of the transaction. Subsequently, the Company agreed to issue to the Peters Corporation 150,000 common shares in replacement of shares provided by the third party. The Company recognized a charge in 1999 of $191,000 for the value of the shares deliverable with a corresponding credit to additional paid-in capital.
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 shares of the Company's common stock for each Tamarack share of common stock. Accordingly, the Company's financial statement presentation indicates that there were 44,000,000 shares of common stock 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.
During 1994, the Company effected the following stock transactions:
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
(UNAUDITED)
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 its 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, Inc. of 14,391,627 shares of common stock held in treasury.
In January 1998, in accounting for the reverse merger transaction, the Company was deemed to have issued 11 million shares of common stock 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 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.
In October 1999, issued 78,000 shares in satisfaction of accrued expenses.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
(UNAUDITED)
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 a private placement offering 14,000 shares of Series C preferred stock.
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 valued 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
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
(UNAUDITED)
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.
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 shares of common stock for each preferred share. These shares have voting rights and dividend rights as if each share had been converted to common stock.
The 1999 financial statements reflect the deemed dividend on the Series B preferred stock of $1,471,000 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.
In June 2000, the Company authorized 14,000 shares of Series C convertible, redeemable preferred stock with a stated value of $100 per share. The Series C shares are convertible into shares of common stock after 180 days from the date of the initial issuance of such shares. Such conversion is based upon a formula as determined by dividing (i) the product of $100 and the number of shares of Series C preferred stock to be converted on the date of conversion by (ii) the average closing price. The average closing price shall be 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 are 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 connection with this transaction, the Company transferred 100,000 shares of common stock of NMXS.com, Inc. and issued an option for an additional 100,000 shares of common stock of NMXS.com, Inc. to the investors (See Note D).
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.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
(UNAUDITED)
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.
A summary of the Company's stock option activity and related information is as follows:
Weighted Number of
Number of Exercise Average Common
Common Price Per Exercise Shares
Shares Share Price Exercisable
------ ----- ----- -----------
Outstanding as of December 31,
1997 0 0
Granted 21,325,000 $.20 $.20 21,325,000
Canceled (15,000,000) $.20 $.20 (15,000,000)
---------- -----------
Outstanding as of December 31,
1998 6,325,000 $.20 $.20 6,325,000
Granted 16,250,000 $.05 and $.20 $.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 0 0
Canceled 0 0
---------- -----------
Outstanding as of June 30, 2000 22,475,000 22,475,000
========== ===========
|
All options issued during 1999 and 1998 vested immediately and expire at various dates during 2008 and 2009.
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.
On January 8, 1998, the Company adopted its 1998 Stock Option Plan (the "Plan"). Under the Plan, incentive and non-qualified stock options 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 100% 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
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
(UNAUDITED)
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.
On July 28, 1998 in connection with a private placement transaction, the holders of 15 million options relinquished those options. Ten million of such options were recast as warrants to purchase shares of the Company's common stock at an exercise price of $.05 per share and given to a third party as a portion of the consideration for the private placement. No value such was ascribed to the 10 million warrants as they have deemed to be issued in connection with the private placement. The remaining 5 million options were also recast as warrants to purchase shares of the Company's common stock at an exercise price of $.05 per share and given to the original option holders. The in the money feature of such options amounted to $1,100,000 and was recorded as compensation and was classified in general and administrative expense in the statements of operations for the year ended December 31, 1998. The incremental fair value associated with those warrants was computed using the Black-Scholes method which approximated $115,000. On May 6, 1999, 500,000 options were repriced to $.05 which were previously granted at $.20 on January 8, 1998 to a director of the Company. The in the money feature of such options amounted to $220,000 and was recorded as compensation and was classified in general and administrative expense in the statement of operations for the year ended December 31, 1999.
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, 2000 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 16,200,000 8.7 $.05 16,200,000 $.05
$.20 6,275,000 8.0 $.20 6,275,000 $.20
|
Warrants:
The Company issued the following warrants as of June 30, 2000:
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
========== ==========
|
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
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.
On May 6, 1999, 2,500,000 warrants held by the Chief Executive Officer were converted into 2,500,000 options.
NOTE G - INCOME TAXES
(UNAUDITED)
There is no provision for federal, state or local income taxes for the periods ended June 30, 2000 and 1999, since the Company has incurred net operating losses.
The Company's deferred tax asset as of June 30, 2000 represents benefits from equity related compensation charges and net operating loss carryforwards of approximately $3,453,000 and $1,849,000, respectively, which is reduced by a valuation allowance of approximately $5,302,000 since the future realization of such tax benefit is not presently determinable.
As of June 30, 2000, the Company has a net operating loss carryforward of $14,336,000 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 $4,687,000 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, 2000 and 1999 is summarized as follows:
Three Months Six Months
Ended Ended
June 30, June 30,
---------------- -----------------
2000 1999 2000 1999
------ ------ ------ -------
Statutory federal income
tax rate 34.0% 34.0% 34.0% 34.0%
Increase in valuation
allowance (34.0)% (34.0)% (34.0)% (34.0)%
0.0% 0.0% 0.0% 0.0%
==== ==== ==== ====
|
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 shall have the first option to retain title to any subject inventions made by its employees during the work under this agreement. The agreement provides 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 six months ended June 30, 2000 and 1999 and for the cumulative period July 31, 1992 through June 30, 2000 amounted to $0, $29,000 and $83,000, respectively.
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
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE H - COMMITMENTS (CONTINUED)
(UNAUDITED)
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, 2000, 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, 2000, the Company has funded an additional $380,000.
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 grants the Company an exclusive option to negotiate an exclusive world-wide license under the University's patent rights. The initial term expired on February 29, 2000 and was extended for a second term to February 28, 2001. Upon exercise of the agreement, the Company paid to the University a fee of $10,000. On February 28, 2000 the agreement was extended to a second term and the Company paid an additional $10,000 fee.
On March 7, 2000, the Company entered into a license option agreement with a third party for nanoporous polymer molecular filter technologies. The agreement grants the Company an exclusive option to negotiate an exclusive world-wide license under the third party's patent rights. The initial term will expire on September 15, 2000 with an option for an additional six month term. The Company paid $10,000 to execute the license option agreement and if extended to a second term will require an additional $10,000 fee.
In June 2000, the Company entered into agreements with a third party 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. To date, the Company has funded $300,000 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 securities exchanged in connection with this transaction have been initially valued at $1,115,000, and reflected as a component of shareholders' equity. Because the securities are subject to certain return provisions relating to funding of research and development activities, they will be valued at each balance sheet date in accordance with such return provisions. 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.
[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.
Two hundred thousand 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.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE H - COMMITMENTS (CONTINUED)
(UNAUDITED)
[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 is for one year commencing on September 1, 1999. The agreement allows for two one year renewal options unless terminated by either party. Base salary is $90,000 per annum with available additional cash compensation as defined in the agreement. In addition, the employee is eligible to receive stock options to purchase 500,000 shares of common stock at $.40 per share.
[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. Five hundred thousand 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 shares of common stock 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.
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, $150,000 January 2000 and $150,000 March 2000. The Company has amended the research and development agreement to provide for additional funding based on a milestone timetable. As of June 30, 2000 the Company has funded an additional $230,000.
[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 2001. The Company received reimubrsement of $39,000 against rent charges for the six months ended June 30, 2000 from a related party. Rent expense charged to operations was approximately $19,000 for the six months ended June 30, 2000 and $10,000 for the six months ended June 30, 1999.
Minimum future rental payments under these leases are as follows:
Twelve Months Ending June 30, -------- 2000 $105,000 2001 35,000 |
NOTE I - RELATED PARTY TRANSACTIONS
The law firm of one director received $98,000 compensation for legal services rendered to the Company during the six months ended June 30, 2000.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
The accounting firm of one of our directors received $71,000 compensation for accounting services rendered to the Company during the six months ended June 30, 2000.
In September 1999, the partners of one director received an aggregate of 200,000 options to purchase Company common stock at $.05 per share as consideration for the director's reduced availability which options were valued at $330,000 and expensed to attend to partnership duties as a result of his activities on behalf of the Company.
NMXS.com, Inc. pays the Company's CEO a yearly salary of $60,000 and leases a car for him as consideration for his services.
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]).
NOTE J- SUBSEQUENT EVENTS
(UNAUDITED)
Other:
On May 2, 2000, the Company entered into a contract with the U.S. Army to design and build a fuel cell power source to be used in an army test program. The contract price is $75,000. In late July 2000 the Company delivered the fuel cell power source for evaluation by the U.S. Army.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain statements in this Report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; industry trends; announcements or changes in our pricing policies or those of our competitors; unanticipated delays in the development, market acceptance or installation of products; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-parties; and worldwide political stability and economic growth. The words "believe", "expect", "anticipate", "intend" and "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.
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, Inc., a public company, which gave the stockholders of Tamarack actual control of the combined company. In addition, we issued 182,525 shares of Series A preferred stock and a warrant to purchase 750,000 shares of our 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 this transaction, Tamarack became our wholly-owned subsidiary. 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". All financial statements prior to January 1998 are those of Tamarack. Tamarack, a development stage enterprise, is 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.
Since the reverse merger, we have been acquiring and licensing technologies from third parties, directing, supervising and coordinating our research and development efforts, raising capital, and initiating marketing activities and dialogue with potential customers.
We have not received any revenues since the reverse merger and we have continued to incur losses.
At June 30, 2000, we had an accumulated loss since inception (July 1992) of $23,091,000. Of this accumulated loss, approximately $9,800,000 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. We expect operating losses to continue for the foreseeable future because we will continue to fund research and development efforts and to incur general and administrative expenses prior to receiving any 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, 2000 to three months ended June 30, 1999.
Net Loss. We reported a net loss of $1,054,000, or $0.02 per common share, basic and diluted, for operations for the three months ended June 30, 2000 versus a net loss of $6,553,000, or $0.07 per common share, basic and diluted, for the three months ended June 30, 1999. The decrease of $5,499,000, or 84%, is primarily a result of the fact that, in 1999, we recorded a charge of $6,160,000 for the issuance of options with an exercise price below fair market value on the date of grant, whereas in the fiscal 2000 period, we did not issue any options.
Revenues. We had no revenues during the three months ended June 30, 2000 and had no revenues during the three months ended June 30, 1999.
Operating Costs and Expenses. Operating costs and expenses for the three months ended June 30, 2000 totaled $1,055,000, a decrease of $5,503,000, or 84%, versus costs and expenses of $6,558,000 for the three months ended June 30, 1999. These costs and expenses are detailed below.
Salaries and Employee Benefits. Salaries related to research and development and employee benefits were approximately $32,000 for the three months ended June 30, 2000, which consisted of salary to our Chief Polymer Scientist, which is included in Research and Development for such period, versus salaries and employee benefits of $0 for the three months ended June 30, 1999. 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 $280,000 for the three months ended June 30, 2000, which consisted of accounting, legal, travel, rent, telephone and other day to day operating expenses, versus general and administrative expenses of $6,369,000 for the three months ended June 30, 1999. This decrease of $6,089,000, or 96%, is primarily a result of the fact that, in 1999, we recorded a charge for the issuance of options with an exercise price below fair market value on the date of grant, whereas in the fiscal 2000 period, we did not issue any options. We anticipate no significant change in general and administrative expenses in the near future.
Research and Development. Research and development expenses were $775,000 for the three months ended June 30, 2000, which consisted of payments on research and development agreements with various contractors, amortization of patents, nanoporous polymer license option payments, and salary to our Chief Polymer Scientist. Research and development expenses amounted to $189,000 for the three months ended June 30, 1999. This increase of $586,000, or 310%, resulted from increased 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. In June 2000, we entered into agreements with a third party 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. To date, we funded $300,000 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 costs not covered by the initial $1.5 million commitment, if any, will be funded primarily out of certain royalties we anticipate paying to the third party, or, to the extent that such royalties are insufficient, from additional financings we consummate. We believe 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.
Comparison of six months ended June 30, 2000 to six months ended June 30, 1999.
Net Loss. We reported a net loss of $2,035,000, or $0.03 per common share, basic and diluted, for the six months ended June 30, 2000, versus a net loss of $6,836,000, or $0.07 per common share, basic and diluted, for the six months ended June 30, 1999. The decrease of $4,801,000, or 70%, is primarily a result of the fact that, in 1999, we recorded a charge for the issuance of options with an exercise price below fair market value on the date of grant, whereas in the fiscal 2000 period, we did not issue any options.
Revenues. We had no revenues for the six months ended June 30, 2000 and no revenues for the six months ended June 30, 1999.
Operating Costs and Expenses. Operating costs and expenses for the six months ended June 30, 2000 totaled $2,049,000, a decrease of $4,797,000, or 70%, versus costs and expenses of $6,846,000 for the six months ended June 30, 1999. These costs and expenses are detailed below.
Salaries and Employee Benefits. Salaries related to research and development and employee benefits were approximately $63,000 for the six months ended June 30, 2000, which consisted of salary to our Chief Polymer Scientist, which is included in Research and Development for such period, versus salaries and employee benefits of $0 for the six months ended June 30, 1999. 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 $630,000 for the six months ended June 30, 2000, which consisted of accounting, legal, travel, rent, telephone and other day to day operating expenses, versus general and administrative expenses of $6,485,000 for the six months ended June 30, 1999. This decrease of $5,855,000, or 90%, is primarily a result of the fact that, in 1999, we recorded a charge for the issuance of options with an exercise price below fair market value on the date of grant, whereas in the fiscal 2000 period, we did not issue any options. We anticipate no significant change in general and administrative expenses in the near future.
Research and Development. Research and development expenses were $1,419,000 for the six months ended June 30, 2000, which consisted of payments on research and development agreements with various contractors, amortization of patents, nanoporous polymer license option payments, and salary to our Chief Polymer Scientist. Research and development expenses amounted to $361,000 for the six months ended June 30, 1999. This increase of $1,058,000, or 293%, resulted from increased 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.
Liquidity and Plan of Operations
We are a development stage company and are in the technology acquisition and development phase of our operations. Accordingly, we have relied primarily upon private placements 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 our shareholders. 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 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.
Stockholders' equity totaled $2,989,000 on June 30, 2000 and working capital was $871,000 on such date.
Commencing with the reverse merger transaction in January 1998, there have been six groups of private placements intended to raise capital for us. These have consisted of the following:
1. In January 1998, in connection with the reverse merger transaction described above, we raised $1,000,000 through the sale of 5 million shares of common stock to 40 investors at a price of 20 cents per share.
2. On April 16, 1998, we raised $50,000 through the sale of 275,000 shares of common stock to a single individual, Mr. Stephen Guarino, at 18.18 cents per share.
3. From July 28, 1998 through December 31, 1998, we raised $1,017,000 through the sale of 20,340,000 shares of common stock to 51 individuals and entities at 5 cents per share. The right to purchase these shares was originally granted to one entity (Lancer Partners, L.P.) on July 28, 1998, together with the right to assign the right to purchase such shares. That entity effectively assigned its rights to the 51 individuals and entities between July 28, 1998 and December 31, 1998. Finders fees aggregating $25,000 were paid to one entity.
4. In December 1999, we raised $1,470,990 through the sale of 245,165 shares of Series B Preferred Stock to 10 accredited investors at $6.00 per share.
5. In December 1999, we raised $786,000 through the sale of 1,048,000 shares of common stock to nine accredited investors at 75 cents per share.
6. In June 2000, we raised $1,400,000 through the sale of 14,000 shares of Series C Preferred Stock to two accredited investors at $100.00 per share.
The Company became eligible for resales of its restricted securities by its shareholders under SEC Rule 144 on or about May 8, 2000.
In addition to the foregoing private placements, we received additional capital through the exercise of options by one of our option holders. On or about October 14, 1999, we received $20,000 from Mr. Donald Sandstrom, who has served us from time to time as a scientific advisor, in connection with his exercise of 100,000 options at 20 cents per share.
In October 1999, we borrowed $500,000 from the Peters Corporation of Santa Fe, New Mexico. The loan required interest at the rate of Citicorp prime plus 1% and matured on December 19, 1999. The Peters Corporation is a shareholder of ours. The proceeds of the loan were used to retire a bridge loan in the same amount that had been made by the Orbiter Fund in August 1999. We repaid this loan in full plus interest on December 15, 1999 with proceeds from a private placement. Among other things, interest on the Orbiter loan had been payable at the rate of 13.5%, and Orbiter had the right to convert the loan into 2,000,000 shares of common stock if unpaid by May 18, 2000. The Orbiter Fund is a shareholder of ours and an affiliate of our largest shareholder.
We borrowed $275,000 from Jack Harrod, our Chief Operating Officer, effective as of August 8, 1999. The loan bears interest at the annual rate of 5.5% and matures upon the earlier of (i) February 7, 2001 or
(ii) the date we complete a private placement of a class of our securities aggregating at least $1,500,000. We may prepay the loan at any time, in whole or in part, without penalty.
We do not presently maintain a line of credit with any financial institution.
On April 11, 2000, Lancer Management Group, LLC, one of our stockholders, expressed its willingness to advance us funds as needed to continue our operations through December 15, 2001, upon reasonable terms and conditions to be agreed.
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 twelve months, although we have no agreements regarding any such technologies as of the date of this Form 10-QSB.
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, 2000, we had $703,000 in cash. As of December 31, 1999 we had $1,168,000 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, use of 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.
Recently Issued Accounting Standards
We do not believe any recently issued accounting standards have had or will have a material impact on our operations.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
In June, 2000, the Company agreed to issue (i) 14,000 shares of
Series C convertible, redeemable preferred stock and (ii) 700,000 shares of
common stock to two accredited investors pursuant to an exemption provided by
Section 4(2) of the Securities Act of 1933, as amended, for an aggregate
purchase price of $1.4 million. The proceeds thereof are being used for working
capital purposes.
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
Exhibit
Number Description of Exhibit
------- ----------------------
2.1 Amended Certificate of Designation, Preferences and Rights of
Series C Preferred Stock
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
27
|
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, 2000 By: /s/ Marvin Maslow
------------------------ ---------------------------------
Marvin Maslow
President, Chief Executive
Officer, and Chairman of
the Board
|
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------- ----------------------
2.1 Amended Certificate of Designation, Preferences and Rights of
Series C Preferred Stock
27.1 Financial Data Schedule
|
AMENDED CERTIFICATE
OF
DESIGNATION, PREFERENCES AND RIGHTS
OF
SERIES C PREFERRED STOCK
OF
MANHATTAN SCIENTIFICS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Manhattan Scientifics, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies that, pursuant to authority vested in the Board of Directors of the Corporation by the Certificate of Incorporation of the Corporation, the following resolution was adopted as of June 27, 2000 by the Board of Directors of the Corporation pursuant to Section 141 of the Delaware General Corporation Law:
RESOLVED, that, pursuant to authority vested in the Board of Directors of the Corporation by Article 1 of the Corporation's Certificate of Incorporation, the Certificate of Designation, Preferences and Rights of Series C Preferred Stock of the Corporation, dated June 21, 2000, is hereby amended to increase the total authorized number of Series C Preferred Stock (hereinafter called the "Series C Preferred Stock") from 10,000 shares of Series C Preferred Stock to 14,000 shares of Series C Preferred Stock. The shares of Series C Preferred Stock shall have the voting powers, designations, preferences and other special rights, and qualifications, limitations and restrictions thereof set forth below:
1. Dividends. The holders of Series C Preferred Stock shall not be entitled to receive dividends in any fixed amount, provided, however, that in the event that the Corporation shall at any time pay a dividend on the Corporation's Common Stock (as defined herein), it shall, at the same time, pay to each holder of Series C Preferred Stock a dividend equal to the dividend that would have been payable to such holder if the shares of Series C Preferred Stock held by such holder had been converted into Common Stock on the date of determination of holders of Common Stock entitled to receive such dividends.
2. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the shares of Series C Preferred Stock shall be treated in such a manner as if the holder had converted the shares of Series C Preferred Stock into shares of Common Stock immediately before such liquidation, dissolution
or winding up of the Company. Written notice of such liquidation, dissolution or winding up, stating a payment date, the amount of the liquidation payment and the place where said sums shall be payable shall be given by mail, postage prepaid, not less than 30 or more than 60 days prior to the payment date stated therein, to the holders of record of the Series C Preferred Stock and the Common Stock, such notice to be addressed to each shareholder at his post office address as shown by the records of the Corporation. A consolidation or merger of the Corporation into or with any other entity or entities, or the sale or transfer by the Corporation of all or substantially all of its assets shall not be deemed to be a liquidation within the meaning of this Section 2.
3. Conversion.
3A. Right to Convert. Subject to the terms and conditions of
this paragraph 3, the holder of any share or shares of Series C Preferred Stock
shall have the right, exercisable 180 days after the date of the Corporation's
initial issuance of shares of Series C Preferred Stock (the "Issuance Date"), to
convert any such shares of Series C Preferred Stock into such number of fully
paid and nonassessable whole shares of Common Stock as determined by dividing
(i) the product of (A) the stated value of the Series C Preferred Stock, which
shall be one hundred dollars ($100) per share (the "Stated Value") and (B) the
number of shares of Series C Preferred Stock to be converted on the date of
conversion by (ii) the Average Closing Price (the "Conversion Ratio"). For
purposes of this Amended Certificate of Designation, the "Average Closing Price"
shall be the product of (i) .50 and (ii) the average closing bid price of the
Company's Common Stock, as reported by the OTC Bulletin Board, or if not so
quoted, as reported by any other recognized quotation system on which the Common
Stock is quoted, for the ten (10) trading days immediately preceding the date
that notice of conversion of the shares of Series C Preferred Stock is furnished
to the Corporation pursuant to the terms hereof; provided, however, that 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 (in each case subject to adjustment pursuant to
subparagraph 3B), it being understood that for purposes of determining the
Conversion Ration, the Average Closing Price shall not be less than $.50 or
greater than $1.50 (in each case subject to adjustment pursuant to subparagraph
3B). Such rights of conversion shall be exercised by the holder thereof by
giving written notice that the holder elects to convert a stated number of
shares of Series C Preferred Stock into Common Stock and by surrender of a
certificate or certificates for the shares to be so converted to the Corporation
at its principal office (or such other office or agency of the Corporation as
the Corporation may designate by notice in writing to the holder or holders of
the Series C Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name or names
(with address), subject to compliance with applicable laws to the extent such
designation shall involve a transfer, in which the certificate or certificates
for shares of Common Stock shall be issued.
3B. Adjustment to Conversion Ratio. The Conversion Ratio shall be adjusted from time to time as follows:
In case the Corporation shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares or shall deduct or pay a dividend on its
outstanding shares of Common Stock payable in shares of Common Stock, the Conversion Ratio in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Corporation shall be combined into a small number of shares, the Conversion Ratio in effect immediately prior to such combination shall be proportionately increased.
Except as set forth in this Amended Certificate of
Designation, the Conversion Ratio will not be adjusted upon the occurrence of
(a) the Company issuing additional if shares of its Common or Preferred Stock,
(b) the issuance of options, whether or not the exercise price is at fair market
value on the date of grant, (c) the issuance of warrants, or (d) the payment of
any cash or stock dividends.
3C. Issuance of Certificates; Time Conversion Effected. Promptly after the receipt by the Corporation of the written notice referred to in subparagraph 3A and surrender of the certificate or certificates for the share or shares of the Series C Preferred Stock to be converted, the Corporation shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, subject to compliance with applicable laws to the extent such designation shall involve a transfer, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Series C Preferred Stock. To the extent permitted by law, such conversion shall be deemed to have been effected and the Conversion Ratio shall be determined as of the close of business on the date on which such written notice shall have been received by the Corporation and the certificate or certificates for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Series C Preferred Stock shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby.
3D. Fractional Shares; Dividends; Partial Conversion. No fractional shares shall be issued upon conversion of the Series C Preferred Stock into Common Stock and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share, and no payment or adjustment shall be made upon any conversion on account of any cash dividends on the Series C Preferred Stock so converted or the Common Stock issued upon such conversion. In case the number of shares of Series C Preferred Stock represented by the certificate or certificates surrendered pursuant to subparagraph 3A exceeds the number of shares converted, the Corporation shall upon such conversion, execute and deliver to the holder thereof, at the expense of the Corporation, a new certificate or certificates for the number of shares of Series C Preferred Stock represented by the certificate or certificates surrendered which are not to be converted.
3E. Reorganization or Reclassification. If any capital reorganization or reclassification of the capital stock of the Corporation shall be effected in such a way (including, without limitation, by way of consolidation or merger) that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provision shall be made whereby each holder of a share or shares of Series C Preferred Stock shall
thereafter have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Corporation immediately theretofore receivable upon the conversion of such share or shares of the Series C Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such of stock immediately theretofore so receivable had such reorganization or reclassification not taken place and in any such case appropriate provision shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Conversion Ratio) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights. The Corporation will not effect any such consolidation or merger, or any sale of all or substantially all its assets and properties, unless prior to the consummation thereof the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and mailed or delivered to each holder of shares of Series C Preferred Stock, at the last address of such holder appearing on the books of the Corporation, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive.
3F. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock;
(2) the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights;
(3) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or a consolidation or merger of the Corporation with, or a sale of all or substantially all its assets to, another corporation; or
(4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first class mail, postage prepaid, addressed to each holder of any shares of Series C Preferred Stock at the address of such holder as shown on the books of the Corporation, (a) at least 15 days prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 15 days prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be.
3G. Stock to be Reserved. The Corporation will at all times reserve and keep available out of its authorized but unissued Common Stock solely for the purpose of issuance upon the conversion of the Series C Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series C Preferred Stock. All shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges arising out of or by reason of the issue thereof and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be required to assure that the par value per share of the Common Stock is at all times equal to or less than the effective Conversion Ratio. The Corporation will take all such action within its control as may be necessary on its part to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock may be listed. The Corporation will not take any action which results in any adjustment of the Conversion Ratio if after such action the total number of shares of Common Stock issued and outstanding and thereafter issuable upon exercise of all options and conversion of convertible securities, including upon conversion of the Series C Preferred Stock, would exceed the total number of shares of Common Stock then authorized by the Corporation's Certificate of Incorporation.
3H. No Reissuance of Series C Preferred Stock. Shares of Series C Preferred Stock that are converted into shares of Common Stock as provided herein shall not be reissued.
3I. Tax Issue. The issuance of certificates for shares of Common Stock upon conversion of the Series C Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Series C Preferred Stock which is being converted.
3J. Closing of Books. The Corporation will at no time close its transfer books against the transfer of any Series C Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series C Preferred Stock in any manner which interferes with the timely conversion of such Series C Preferred Stock.
3K. Definition of Common Stock. As used in this paragraph 3, the term "Common Stock" shall mean and include the Corporation's authorized common stock as constituted on the date of filing of this Amended Certificate of Designation and shall also include any capital stock of any class of the Corporation thereafter authorized that shall not be limited to a fixed sum in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; provided, however, that such term, when used to describe the securities receivable upon conversion of shares of the Series C Preferred Stock shall include only shares
designated as common stock of the Corporation on the date of filing of this Amended Certificate of Designation, any shares resulting from any combination or subdivision thereof referred to in paragraph 3, or in case of any reorganization or reclassification of the outstanding shares thereof, the stock, securities or assets provided for in subparagraph 3.
4. Voting - Series C Preferred Stock. Except as otherwise provided by law, the Corporation's Certificate of Incorporation and this Amended Certificate of Designation, the holders of Series C Preferred Stock shall vote together with the holders of Common Stock on all matters to be voted on by the shareholders of the Corporation, and each holder of Series C Preferred Stock shall be entitled to one vote for each share of Common Stock that would be issuable to such holder upon the conversion of all the shares of Series C Preferred Stock held by such holder on the record date for the determination of shareholders entitled to vote.
5. Redemption by the Corporation. The Corporation shall have the right, in its sole discretion, to redeem ("Redemption At Corporation's Election"), from time to time on or prior to 180 days from June 21, 2000, any or all of the outstanding shares of Series C Preferred Stock; provided, that the Corporation shall first provide ten (10) days advance written notice thereof to each holder of shares of Series C Preferred Stock to be redeemed.
(a) Redemption Price At Corporation's Election. The "Redemption Price At Corporation's Election" shall be calculated as the Stated Value of the shares of Series C Preferred Stock that are being redeemed by the Corporation.
(b) Mechanics of Redemption At Corporation's
Election. The Corporation shall effect each such redemption by
giving at least ten (10) days prior written notice ("Notice of
Redemption At Corporation's Election") to (A) the holders of
the Series C Preferred Stock selected for redemption at the
address and facsimile number, if any, of such holder appearing
in the Corporation's Series C Preferred Stock register. Such
Notice of Redemption At Corporation's Election shall indicate
(i) the number of shares of Series C Preferred Stock that have
been selected for redemption, (ii) the date which such
redemption is to become effective (the "Date of Redemption At
Corporation's Election") and (iii) the applicable Redemption
Price At Corporation's Election.
(c) Payment of Redemption Price. Each holder whose shares of Series C Preferred Stock are being redeemed under this Section shall send its Series C Preferred Stock certificates to be redeemed to the Corporation, and the Corporation shall pay the applicable redemption price to that holder within five (5) business days of the Date of Redemption At Corporation's Election.
6. No Waiver. Except as otherwise modified or provided for herein, the holders of Series C Preferred Stock shall also be entitled to, and shall not be deemed to have waived, any other applicable rights granted to such holders under the Delaware General Corporation Law.
7. No Impairment. The Corporation will not, through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all time in good faith assist in the carrying out of all the provisions of this Amended Certificate of Designation and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights and liquidation preferences granted hereunder of the holders of the Series C Preferred Stock against impairment.
8. Reservation of Rights. The Board of the Directors of the Corporation reserves the right by subsequent amendment of this resolution from time to time to decrease the number of shares which constitute the Series C Preferred Stock (but not below the number of shares thereof then outstanding) and in other respects to amend this Amended Certificate of Designation within the limitations provided by law, this Amended Certificate of Designation and the Certificate of Incorporation.
IN WITNESS WHERFOF, this Amended Certificate of Designation has been executed by the Corporation by its Directors as of this 27th day of June, 2000.
MANHATTAN SCIENTIFICS, INC.
By: /s/ Marvin Maslow
-------------------------------
Name: Marvin Maslow
Title: President, Chief Executive Officer
and Chairman
By: /s/ David Teich
-------------------------------
Name: David Teich
Title: Director
By: /s/ Scott L. Bach
-------------------------------
Name: Scott L. Bach
Title: Secretary and Director
|
| ARTICLE 5 |
| PERIOD TYPE | 6 MOS | 6 MOS |
| FISCAL YEAR END | DEC 31 1999 | DEC 31 2000 |
| PERIOD START | JAN 01 1999 | JAN 01 2000 |
| PERIOD END | JUN 30 1999 | JUN 30 2000 |
| CASH | 286,000 | 703,000 |
| SECURITIES | 0 | 0 |
| RECEIVABLES | 10,000 | 510,000 |
| ALLOWANCES | 0 | 0 |
| INVENTORY | 0 | 0 |
| CURRENT ASSETS | 296,000 | 1,253,000 |
| PP&E | 202,000 | 230,000 |
| DEPRECIATION | (139,000) | (152,000) |
| TOTAL ASSETS | 1,696,000 | 3,371,000 |
| CURRENT LIABILITIES | 97,000 | 382,000 |
| BONDS | 0 | 0 |
| PREFERRED MANDATORY | 0 | 0 |
| PREFERRED | 0 | 0 |
| COMMON | 20,713,000 | 31,086,000 |
| OTHER SE | 0 | 0 |
| TOTAL LIABILITY AND EQUITY | 1,600,000 | 2,989,000 |
| SALES | 0 | 0 |
| TOTAL REVENUES | 0 | 0 |
| CGS | 0 | 0 |
| TOTAL COSTS | 6,864,000 | 2,049,000 |
| OTHER EXPENSES | 0 | 0 |
| LOSS PROVISION | 0 | 0 |
| INTEREST EXPENSE | 0 | 8,000 |
| INCOME PRETAX | 0 | 0 |
| INCOME TAX | 0 | 0 |
| INCOME CONTINUING | (6,836,000) | (2,035,000) |
| DISCONTINUED | 0 | 0 |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | (6,836,000) | (2,035,000) |
| EPS BASIC | (.07) | (.03) |
| EPS DILUTED | (.07) | (.03) |