UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______.

MANHATTAN SCIENTIFICS, INC.
(Name of small business issuer in its charter)

 

 

 

Delaware

000-28411

85-0460639

(State of Incorporation)

(Commission File Number)

(IRS Employer Identification No.)


405 Lexington Avenue, 32nd Floor, New York, New York, 10174

(Address of principal executive offices) (Zip code)


Issuer's telephone number: (212) 551-0577

Securities registered pursuant to Section 12(b) of the Act: None


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

Common Stock, $0.001 par value
(Title of Class)


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x


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


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  o   No ¨

 

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

 

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company x


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


The aggregate market value of the voting and non-voting common equity held by non-affiliates of the issuer as of June 30, 2009 was $12,153,730.  For purposes of this computation, all executive officers, directors and 10% shareholders were deemed affiliates. Such a determination should not be construed as an admission that such 10% shareholders are affiliates.


As of March 31, 2010 there were 397,452,926 shares of common stock of the issuer issued and outstanding.



TABLE OF CONTENTS

       
PART I
    PAGE
ITEM 1.
           
DESCRIPTION OF BUSINESS
         1   
ITEM 1A.
           
RISK FACTORS
         5   
ITEM 1B.
           
UNRESOLVED STAFF COMMENTS
         7   
ITEM 2.
           
DESCRIPTION OF PROPERTIES
         7    
ITEM 3.
           
LEGAL PROCEEDINGS
         7    
ITEM 4.
           
RESERVED
         7    
 
 
           
PART II
              
 
ITEM 5.
           
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
         8   
ITEM 6
           
SELECTED FINANCIAL DATA
         11   
ITEM 7
           
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
         12   
ITEM7A
           
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
         16   
ITEM 8.
           
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
         F-1   
ITEM 9.
           
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
         17   
ITEM 9A(T)
           
CONTROLS AND PROCEDURES
         17   
ITEM 9B.
           
OTHER INFORMATION
         17   
 
 
           
PART III
              
 
ITEM 10.
           
DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
         19   
ITEM 11.
           
EXECUTIVE COMPENSATION
         20   
ITEM 12.
           
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
         22   
ITEM 13.
           
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
         24   
ITEM 14.
           
PRINCIPAL ACCOUNTANT FEES AND SERVICES
         23   
ITEM 15.
           
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
         24   
 
           
SIGNATURES
               
 
           
EXHIBIT INDEX
               
 

PART I

Forward Looking Statements

This Form 10-K contains "forward-looking" statements including statements regarding our expectations of our future operations. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate," or "continue" or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include, but are not limited to, economic conditions generally and in the industries in which we may participate, competition within our chosen industry, including competition from much larger competitors, technological advances, and the failure by us to successfully develop business relationships. In addition, these forward-looking statements are subject, among other things, to our successful completion of the research and development of our technologies; successful commercialization and mass production of, among other things, the micro fuel cell, mid-range fuel cell, and haptics Internet applications; successful protection of our patents; and effective significant industry competition from various entities whose research and development, financial, sales and marketing and other capabilities far exceeds ours. In light of these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to announce publicly revisions we make to these forward-looking statements to reflect the effect of events or circumstances that may arise after the date of this report. All written and oral forward-looking statements made subsequent to the date of this report and attributable to us or persons acting on our behalf are expressly qualified in their entirety by this section.

ITEM 1. DESCRIPTION OF BUSINESS

COMPANY HISTORY


Manhattan Scientifics, Inc., a Delaware corporation (formerly Grand Enterprises, Inc) (“Grand”) was established on July 31, 1992 and has three wholly-owned subsidiaries: Metallicum, Inc., (“Metallicum”), Tamarack Storage Devices, Inc. (“Tamarack”) and Teneo Computing, Inc. (“Teneo”) (collectively “the Company”), a development stage enterprise.  Currently, Metallicum is the only operating subsidiary; and Tamarack and Teneo are dormant.  On June 12, 2008, the Company acquired Metallicum, Inc, for 15,000,000 shares of Company’s common stock, (See Note 12).

Manhattan Scientifics, Inc., operates as a technology incubator that seeks to acquire, develop and commercialize life-enhancing technologies in various fields, with emphasis in the areas of nanomedicine, and nanomaterials. In this capacity, the Company continues to identify emerging technologies through strategic alliances with scientific laboratories, educational institutions, scientists and leaders in industry and government.  The Company has a long standing relationship with Los Alamos Laboratories in New Mexico. During 2008, the Company refocused its efforts from the development of its fuel cell technologies to its current focus on the development of nanomaterials through the acquisition of Metallicum.

Metallicum is a nanotechnology start-up company located in Santa Fe, New Mexico. Metallicum Inc. has focused on the development and manufacture of nanostructured metals for medical implants and other applications.  Metallicum intends to establish manufacturing partner relationships with major Fortune 500 metals companies and strategic partnering with significant customers in the medical device & prosthetics industries as well as in auto, truck, & aircraft manufacturing industries. Metallicum’s initial products include noaostructured bulk metals and alloys in the form of rod, bar, wire and foil.  The Company conducts its operations primarily in the United States.

In September 2009, the Company entered into a technology transfer agreement a sale with Carpenter Technology Corporation, (“Carpenter”) wherein Carpenter will fully develop, manufacture and market a new class of high strength metals under an exclusive agreement with Manhattan Scientifics. The proprietary process will enable super-strength metals and alloys to make products that weigh far less than in the past and without significant cost premiums. Prior to September 2009, the Company had been considered a development stage company. As a result of the September 2009 with the sale of technology to Carpenter, the Company has fully commenced its planned operations and generation of significant revenues.

On February 8, 2010, the Company entered into an Acquisition Option Agreement with Senior Scientific LLC (“Senior Scientific”), Edward R. Flynn, Ph.D. ("Dr. Flynn") and Scientific Nanomedicine, Inc. (“Scientific Nanomedicine”).  The agreement transfers the commercial rights to technology and intellectual property with respect to the early detection of diseases using nano technologies owned by Scientific Nanomedicine.  The technology and intellectual property owned by Scientific Nanomedicine was developed by Senior Scientific and its President and Chief Executive Officer Dr. Edward R. Flynn.



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The agreement gives the Company the future exclusive right to acquire Scientific Nanomedicine and its technology.  The Company can complete the acquisition by payment of a purchase price comprising cash and shares of the Company’s common stock.  The Company intends to pursue its established business model to work in close cooperation with pharmaceutical companies and medical device manufacturers to commercialize this technology.

The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.

In the recent past, we have worked to develop and commercialize three technologies:

·

Micro fuel cell technology, which is designed to become an ultra efficient miniature electricity generator that converts hydrogen into electricity by chemical means, for portable electronic devices, including cellular telephones, as a substitute for lithium ion and other batteries in common use today.

·

Mid-range fuel cell technology, which is an ultra efficient medium-size electricity generating device that converts hydrogen into electricity, with potential applications including personal transportation, cordless appliances, power tools, wheelchairs, bicycles, boats, emergency home generators, military field communications and laptop computers.

·

Haptics "Touch and Feel" computer applications, which is a technology that allows computer users to be able to touch and feel any objects they see on their computer screen with the aid of special "mouse." Detailed texture, object-weight, stickiness, viscosity and object density can be "felt" or sensed. Management believes this haptics technology may positively impact the way computers are used everywhere by introducing the ability to "touch." (Please see Haptics "Touch and Feel" Internet Applications and Investment in Novint Technologies, Inc.”

We are not presently using our resources to develop these three technologies but concentrating on nanometals and nanomedicine technology transfer and commercialization.

We are also seeking to develop corporate opportunities to benefit our shareholders; however, other than as set forth in this document, we have not executed agreements or finalized arrangements for any other technologies or opportunities as of the date of this Form 10-K

OUR DEVELOPMENT MODEL

Our goal has been to influence the future through the development of potentially disruptive or sea-change technologies. Our business model has previously been to: (i) identify significant technologies, (ii) acquire them or the rights to them, (iii) secure the services of inventors, engineers or other staff who were instrumental in their creation, (iv) provide or contract for suitable work facilities, laboratories, and other aids where appropriate, (v) prototype the technologies to demonstrate "proof of principle" feasibility, (vi) secure patent and or other intellectual property protection, (vii) secure early customers for product trials where feasible and appropriate, and (viii) commercialize through licenses, sales or cooperative efforts with other manufacturing and distribution firms.

Since our technologies are still in their development phase, we have generated only limited revenues. As such, the need for operating and acquisition capital is a continuous concern requiring the ongoing efforts of our management. We are not a large capital-user but have raised since our reverse merger in January 1998 approximately $18 million in capital from notes payable to stockholders, proceeds from convertible notes and net proceeds from common stock and preferred stock.  Our management intends to work diligently to raise capital on an as needed basis through private placements, registered public offerings, debt, and/or other financing vehicles.  During April 2008 through January 2009, we sold approximately $1,100,000 from a private placement offering.  The private placement originally provided for the offer and sale of up to 50,000,000 unregistered shares of our common stock at a price of $0.02 per share, for an aggregate offering price of $1,000,000, and allowed us to accept or reject any oversubscription.

We utilize the intellectual property sale/licensing model, and not a production model, though management is opportunistic and is open to explore all methods leading to commercializing our technologies. We intend to consider all appropriate avenues for the commercialization of our technologies.





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ACQUISITION OF ADVANCED MATERIALS (METALLICUM, INC.)

In June 2008, we acquired Metallicum, Inc. (“Metallicum”) and its licensed patented technology.  We entered into a stock purchase agreement with Metallicum, Inc. to acquire all of the outstanding capital in exchange for 15,000,000 shares of our common stock.  An additional 15,000,000 shares of our common stock will be payable to Metallicum in the event of meeting certain milestones. At December 31, 2009, one milestone was met.  Metallicum was granted an exclusive license by The Los Alamos National Laboratory on  patents related to nanostructured materials.  

Metallicum is a nanotechnology start-up company located in Santa Fe, New Mexico. Metallicum has focused on the development and manufacture of nanostructured metals for medical implants and other applications.  Metallicum intends to establish manufacturing partner relationships with major Fortune 500 metals companies and strategic partnering with significant customers in the medical device & prosthetics industries as well as in auto, truck, & aircraft manufacturing industries. Metallicum’s initial products include nanostructured bulk metals and alloys in the form of rod, bar, wire and foil.  

We purchased Metallicum to acquire its licensed rights to patented technology.  The technology is comprised of three US Patents (US Patent numbers 7152448, 6197129 and 6399215) for which Metallicum (subsequently, Manhattan) had been assigned an exclusive license rights by Los Alamos National Security LLC (LANL).  Under the license rights, Metallicum had all rights, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements on the patents or trade secrets whether or not patentable or registerable under copyright or similar laws.

ADVANCED MATERIALS

Our business model is based on licensing its technology to customers such as metals manufacturers. Although competing commercial products are provided by existing specialty metals companies, the only competing processes for creating nanostructured metals are either limited or cannot be economically scaled.  Metallicum does not yet face direct competition, but expects competition will emerge by 2010.

In January 2009, we entered into a patent license agreement with Los Alamos National Security, LLC for the exclusive licensing use of certain technology relating to the manufacture and application of nanostructuring metals and alloys. Pursuant to such agreement we provided a non-refundable fee and 2,000,000 shares of our common stock with a fair market value of $33.000. Additionally, we are required to pay an annual license fee of $10,000 starting in February 2010 and royalties on future net sales.

The technology is expected to trim thousands of pounds from airplanes and hundreds of pounds from cars without sacrificing structural strength or adding significant cost.  The nanostructured metals also have wide implications for use in the medical device and prosthetics industries including dental implants, replacements for hips, shoulders, knees and cardio vascular stents.  In December 2008, a manufacturing joint venture partner in Albuquerque, N.M. received U.S. Food and Drug Administration 510(k) clearance to market nanostructued titanium metal dental implants using our technology. This clearance positions us closer to our goal of commercializing our technology for nanostructured metals.  We are in talks with many of the key manufacturers of dental implants and have signed material testing agreements with several manufacturers.

In September 2009, the Company entered into a technology transfer agreement with Carpenter wherein Carpenter will fully develop, manufacture and market a new class of high strength metals under an exclusive license from Manhattan Scientifics and the Los Alamos National Laboratory.  Until we sign contracts with other manufacturers, nearly all of our revenue will be generated from our sale of the technology to Carpenter.

INTELLECTUAL PROPERTY / RESEARCH AND DEVELOPMENT

Our ability to compete depends in part on the protection of and our ability to defend our proprietary technology and on the goodwill associated with our trade names, service marks and other proprietary rights. However, we do not know if current laws will provide us with sufficient enough protection that others will not develop technologies similar or superior to ours, or that third parties will not copy or otherwise obtain or use our technologies without our authorization.

The success of our business will depend, in part, to identify technology, obtain patents, protect and enforce patents once issued and operate without infringing on the proprietary rights of others. Our success will also depend on our ability to maintain exclusive rights to trade secrets and proprietary technology we own, are currently developing and will develop. We can give no assurance that any issued patents will provide us with competitive advantages or will not be challenged by others, or that the patents of others will not restrict our ability to conduct business.

In addition, we rely on certain technology licensed from third parties, including the Los Alamos National Laboratory and the Sandia National Laboratory and may be required to license additional technologies in the future. We do not know if these third-party licenses



3


will be available or will continue to be available to us on acceptable commercial terms or at all. The inability to enter into and maintain any of these licenses could have a material adverse effect on our business, financial condition or results of our operations.

Policing unauthorized use of our proprietary technology and other intellectual property rights could entail significant expense. In addition, we do not know if third parties will bring claims of copyright or trademark infringement against us or claim that our use of certain technologies violates a patent or other intellectual property. Any claims of infringement, with or without merit, could be time consuming and expensive to defend, result in costly litigation, divert management attention, require us to enter into costly royalty or licensing arrangements or prevent us from using important technologies or methods, any of which could have a material adverse effect on our business, financial condition or results of our operations.

SALES AND MARKETING

Although our technologies presently are in the development stage, we are engaged in an early commercialization program intended to facilitate the transition from development to licensing, manufacturing and/or sale. This program consists of preliminary dialogues with potential strategic partners, investors, manufacturers, potential licensees and/or purchasers.  

COMPETITION

As a result of our licensed technology, we do not have any direct competitors in our advanced materials operations.  We may, however, face competition from leading researchers and manufacturers worldwide that develop competing technology.   Competitors may successfully challenge our licensed technology, produce similar products that do not infringe our licensed technology or produce products  in countries where we have not applied for intellectual property protection.  Many of these competitors may have longer operating histories and significantly greater financial, marketing and other resources than we have. Furthermore, competitors may introduce new products that address our potential markets. Competition could have a material adverse effect on our business, financial condition and results of our operations.

The markets in which we compete are highly competitive and constantly evolving.  We believe that the principal competitive factors in our technology markets include without limitation:

·  capitalization;

·  cost of product;

·  first to market with product in market segment;

·  strong intellectual portfolio;

·  product reliability;

·  strong customer base; and

·  strong manufacturing and supplier relationships.

EMPLOYEES

As of December 31, 2009, we had one full-time employee in general management. We do not expect any significant change in the total number of employees in the near future. Most of our research and development work has been performed by employees of our various research and development independent contractors (see below). We have historically indirectly funded the salaries of these individuals through our contract research and development payments to their employers. Although not technically our employees, we have considered these individuals to be an integral part of our research and development team.   None of our employees or contractors is members of any union or collective bargaining organization. We consider our relationships with our employee and our independent contractor employees to be good.

As noted above, a significant portion of our research and development has been performed by independent contractors from whom we acquired or licensed certain technologies, and their various employees.  Our independent contractors utilize a number of their own various employees to satisfy their research and development obligations to us, and their employees are considered to be part of our research and development team.



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ITEM 1A. RISK FACTORS

An investment in the Common Stock involves a high degree of risk. In addition to the other information in this Report, the following risk factors should be considered carefully in evaluating the Company and our business. If you decide to buy our securities, you should be able to afford a complete loss of your investment.

WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE OUR NEW TECHNOLOGIES WHICH WOULD RESULT IN CONTINUED LOSSES.

We are currently developing new technologies and a commercial product. We have generated our first revenues but we are unable to project when we will achieve profitability, if at all. As is the case with any new technology, we expect the development process to continue. We cannot assure that our resources will be able to develop our technology fast enough to meet market requirements. We can also not assure that our technology will gain market acceptance and that we will be able to successfully commercialize the technologies. The failure to successfully develop and commercialize the technologies would result in continued losses and may require us to curtail operations.

BECAUSE WE HAVE EARNED VERY LITTLE IN REVENUES, THE SUCCESS OF OUR BUSINESS REQUIRES CONTINUED FUNDING. IF WE CANNONT RAISE THE MONEY WE NEED TO SUPPORT OUR OPERATIONS UNTIL WE EARN SIGNIFICANT REVENUES, WE MAY BE REQUIRED TO CURTAIL OR TO CEASE OUR OPERATIONS AND YOU COULD LOSE YOUR ENTIRE INVESTMENT.

Our ability to develop our business depends upon our receipt of money to continue our operations while we introduce our products and a market for them develops. If this funding is not received as needed, it is unlikely that we could continue our business, in which case you would lose your entire investment. Our ability to access the capital markets has been hindered generally by the general difficult economic climate, beginning in 2008, for small technology concept companies, without significant revenues or earnings.

To the extent that we need additional funding, we cannot assure you that such financing will be available to us when needed, on commercially reasonable terms, or at all. If we are unable to obtain additional financing, we may be required to curtail the commercialization of our products and possibly cease our operations.

OUR ABILITY TO EFFECTUATE OUR BUSINESS MODEL MAY BE LIMITED, WHICH WOULD ADVERSELY EFFECT OUR BUSINESS AND FINANCIAL CONDITIONS.

Our future performance will depend to a substantial degree upon our ability to effectuate and generate revenues from our licensing and royalty business model. As a result, we may continue to incur substantial operating losses until such time as we are able to generate revenues from the sale or license of our products. There can be no assurance that businesses and customers will adopt our technology and products, or that businesses and prospective customers will agree to pay for or license our products. In the event that we are not able to significantly increase the number of customers that purchase or license our products, or if we are unable to charge the necessary prices or license fees, our financial condition and results of operations will be materially and adversely affected.

WE MAY FACE STRONG COMPETITION FROM LARGER, ESTABLISHED COMPANIES.

We likely will face intense competition from other companies, both globally and within the United States, in the development of haptics and fuel cell technologies, virtually all of which can be expected to have longer operating histories, greater name recognition, larger installed customer bases and significantly more financial resources and research and development facilities than Manhattan Scientifics. There can be no assurance that developments by our current or potential competitors will not render our proposed products obsolete.

WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY OR WE COULD BECOME INVOLVED IN LITIGATION WITH OTHERS REGARDING OUR INTELLECTUAL PROPERTY. EITHER OF THESE EVENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

We rely on a combination of intellectual property law, nondisclosure, trade secret and other contractual and technical measures to protect our proprietary right. Our success will depend, in part, on our technology’s commercial viability and on the strength of our intellectual property rights. However, we cannot assure you that these provisions will be adequate to protect our intellectual property. In addition, the laws of certain foreign countries do not protect intellectual property rights to the same extent as the laws of the United States.

Although we believe that our intellectual property does not infringe upon the proprietary rights of third parties, competitors may claim that we have infringed on their products.



5


We could incur substantial costs in defending ourselves in suits brought against us for alleged infringement of another party’s intellectual property rights as well as in enforcing our rights against others, and if we are found to infringe, the manufacture, sale and use of our or our customers’ or partners’ products could be enjoined. Any claims against us, with or without merit, would likely be time-consuming, requiring our management team to dedicate substantial time to addressing the issues presented. Furthermore, the parties bringing claims may have greater resources than we do.

OUR MANAGEMENT IS ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER ALL MATTERS REQUIRING SHAREHOLDER APPROVAL.

Our existing directors and executive officers are the beneficial owners of approximately 28% of the outstanding shares of common stock, excluding stock options. As a result, our existing directors, executive officers, principal shareholders and their respective affiliates, if acting together, would be able to exercise significant influence over all matters requiring shareholder approval, including the election of directors and the approval of significant corporate transactions. Such concentration of ownership may also have the effect of delaying or preventing a change in control of our company.

THE TRADING PRICE OF OUR COMMON STOCK MAY DECREASE DUE TO FACTORS BEYOND OUR CONTROL.

The trading price of our common stock is subject to significant fluctuations in response to numerous factors, including without limitation:

· variations in anticipated or actual results of operations;

· announcements of new products or technological innovations by us or our competitors;

· changes in earnings estimates of operational results by analysts;

· inability of market makers to combat short positions on the stock;

· an overall downturn in the financial markets and stock markets;

· the use of stock to pay employees and consultants if sufficient working capital is not available;

· inability of the market to absorb large blocks of stock sold into the market; and

· developments or disputes concerning our intellectual property.

Moreover, the stock market from time-to-time has experienced extreme price and volume fluctuations, which have particularly affected the market prices for small technology companies without significant revenues. These broad market fluctuations may adversely affect the market price of our Common Stock. If our shareholders sell substantial amounts of their common stock in the public market, the price of our common stock could fall. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a price we deem appropriate.

WE HAVE NOT PAID CASH DIVIDENDS AND IT IS UNLIKELY THAT WE WILL PAY CASH DIVIDENDS IN THE FORESEEABLE FUTURE.

We plan to use all of our earnings, to the extent we have significant earnings, to fund our operations. We do not plan to pay any cash dividends in the foreseeable future. We cannot guarantee that we will, at any time, generate sufficient surplus cash that would be available for distribution as a dividend to the holders of our Common Stock. You should not expect to receive cash dividends on our Common Stock.

WE MAY NOT HAVE SUFFICIENT CAPITAL TO RUN OUR OPERATIONS.


If we are unable to obtain further financing, it may jeopardize our ability to continue our operations. To the extent that additional capital is raised through the sale of equity and/or convertible debt securities, the issuance of such securities could result in dilution to our shareholders and/or increased debt service commitments. If adequate funds are not available, we may be unable to sufficiently develop or maintain our existing operations.

WE HAVE THE ABILITY TO ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK WITHOUT ASKING FOR SHAREHOLDER APPROVAL, WHICH COULD CAUSE YOUR INVESTMENT TO BE DILUTED.

Our Certificate of Incorporation currently authorizes the Board of Directors to issue up to 500,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. The power of the Board of Directors to issue shares of Common Stock or warrants or options to purchase shares of Common Stock is generally not subject to shareholder approval. Accordingly, any additional issuance of our Common Stock may have the effect of further diluting your investment.



6


We require substantial working capital to fund our business. If we raise additional funds through the issuance of equity, equity-related or convertible debt securities, those securities may have rights, preferences or privileges senior to those of the holders of our Common Stock. The issuance of additional Common Stock or securities convertible into Common Stock by our management will also have the effect of further diluting the proportionate equity interest and voting power of holders of our Common Stock.

WE MAY RUN OUT OF AUTHORIZED CAPITAL PRIOR TO RECEIVING SHAREHOLDER APPROVAL TO AMEND OUR CERTIFICATE OF INCORPORATION TO INCREASE OUR AUTHORIZED CAPITAL.

As of December 31, 2009, our certificate of incorporation, as amended, authorizes us to issue 500,000,000 shares of common stock. If we are not able to increase our authorized capital, we may not be able to raise additional funds or pay service providers which could be harmful to our business or cause us to cease operations altogether.

LIMITED PUBLIC MARKET FOR OUR COMMON STOCK MAY AFFECT OUR SHAREHOLDERS' ABILITY TO SELL OUR COMMON STOCK.

Our Common Stock currently is quoted on the Over-The-Counter Bulletin Board, which is generally considered to be a less efficient market than national exchanges. Consequently, the liquidity of our securities could be impaired, not only in the number of securities which could be bought and sold, but also through SEC regulations, delays in the timing of transactions, difficulties in obtaining price quotations, reduction in security analysts' and the new media's coverage of us, if any, and lower prices for our securities than might otherwise be attained. This circumstance could have an adverse effect on the ability of an investor to sell any shares of our common stock as well as on the selling price for such shares. In addition, the market price of our common stock may be significantly affected by various additional factors, including, but not limited to, our business performance, industry dynamics or changes in general economic conditions.

APPLICABILITY OF "PENNY STOCK RULES" TO BROKER-DEALER SALES OF OUR COMMON STOCK COULD HAVE A NEGATIVE EFFECT ON THE LIQUIDITY AND MAREKT PRICE OF OUR COMMON STOCK.

A penny stock is generally a stock that is not listed on national securities exchange and is quoted on the "pink sheets" or on the OTC Bulletin Board, has a price per share of less than $5.00 and is issued by a company with net tangible assets less than $5 million.

The penny stock trading rules impose additional duties and responsibilities upon broker-dealers and salespersons effecting purchase and sale transactions in Common Stock and other equity securities, including determination of the purchaser's investment suitability, delivery of certain information and disclosures to the purchaser, and receipt of a specific purchase agreement before effecting the purchase transaction.

Many broker-dealers will not effect transactions in penny stocks, except on an unsolicited basis, in order to avoid compliance with the penny stock trading rules. When our Common Stock is subject to the penny stock trading rules, such rules may materially limit or restrict the ability to resell our Common Stock, and the liquidity typically associated with other publicly traded equity securities may not exist.

ITEM 1B. UNRESOLVED STAFF COMMENTS

We recently received comments from the U.S. Securities and Exchange Commission on our recently filed periodic reports. We are in the process of responding to the comments which may affect our revenue recognition policies.

ITEM 2. DESCRIPTION OF PROPERTIES

Our principal executive office is at 405 Lexington Avenue, 32 nd Floor, New York, New York, 10174. We lease approximately 300 square feet of office space on a month-to-month basis. The aggregate annual rent for this office space was $3,000 in 2009.  We believe our facilities are adequate for our current and planned business operations.

ITEM 3. LEGAL PROCEEDINGS

We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of December 31, 2009, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements other than the litigation described above which was subsequently settled.

ITEM 4. RESERVED



7


PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Beginning on July 8, 2009, our Common Stock began quotations, and is currently being quoted, on the OTC Bulletin Board under the symbol MHTX.OB.  From May 2007 to July 2009, our common stock was quoted on the OTC Pink Sheets under the symbol “MHTX.PK” after being removed from trading on NASDAQ's Over-The-Counter Bulletin Board.  The following table sets forth for the periods indicated, the high and low per share bid information for our common stock for the fiscal years ended December 31, 2009 and December 31, 2008, as reported by www.pinksheets.com. Such high and low bid information reflects inter-dealer quotes, without retail mark-ups, mark-downs or commissions and may not represent actual transactions.

2008
        High     Low
First Quarter
              $ 0.064          $ 0.030   
Second Quarter
              $ 0.053          $ 0.030   
Third Quarter
              $ 0.090          $ 0.022   
Fourth Quarter
              $ 0.063          $ 0.025   
 
                                     
2009
                                     
First Quarter
              $ 0.060          $ 0.032   
Second Quarter
              $ 0.050          $ 0.029   
Third Quarter
              $ 0.195          $ 0.030   
Fourth Quarter
              $ 0.180          $ 0.097   
 

As of December 31, 2009, we had 648 registered shareholders and 397,452,926 shares of Common Stock issued and outstanding.

DIVIDENDS.

We have never paid any cash dividends. We presently intend to reinvest earnings, if any, to fund the development and expansion of our business and, therefore, do not anticipate paying cash dividends on our common stock in the foreseeable future. The declaration of cash dividends will be at the discretion of our board of directors and will depend upon our earnings, capital requirements, financial position, general economic conditions and other pertinent factors.

RECENT SALES OF UNREGISTERED SECURITIES    

During the past two years, we have issued unregistered securities in the following transactions in reliance on an exemption from registration pursuant to Section 4(2) of the Securities Act of 1933:

2009

In February 2009, the Company issued 2,000,000 shares of common stock for securing a licensing agreement with Los Alamos National Security LLC for the exclusive use of certain technology relating to the manufacture and application of nanstructuring metals and alloys for a total fair value of $33,000.

In February 2009, the Company issued 12,250,000 shares of common stock for approximately $201,000 from a private placement offering. The private placement originally provided for the offer and sale of up to 50,000,000 unregistered shares of the Company’s common stock at a price of $0.02 per share, for an aggregate of $1,000,000 and allowed the Company to accept or reject any oversubscription. As of March 31, 2009, the Company has sold a total of 53,657,000 shares of common stock related to the private placement for total proceeds of $1,073,000 and incurred offering costs approximating $46,000 of which $27,000 was paid in cash and 750,000 shares of common stock were issued for the balance.

In May 2009, the Company issued 2,025,000 shares of common stock related to stock options exercised on a cashless basis. Shares exercisable under the stock option agreement totaled 3,000,000 at an exercise price of $0.013 per share. The closing stock price on the date of exercise was $0.04 per share resulting in 975,000 shares as the portion of the stock option agreement being retained as the cost for the 3,000,000 shares having been exercised on a cashless basis.

In May 2009, the Company issued 1,000,000 shares of common stock for legal services with a fair value of $30,000.



8


 In July 2009, the Company granted options for 500,000 shares of common stock with an exercise price of $0.05 per share to two consultants.  The value of these options totaled $15,000 which was valued using the Black-Scholes option pricing model.

In September 2009, the Company entered into an agreement with a consultant and issued 600,000 shares of common stock with a fair value of $35,000.  The consulting agreement is for a twelve month period.  For the year ended December 31, 2009, the Company expensed $12,000 of the value of this consulting agreement and recorded a prepaid expense totaling $23,000 at December 31, 2009.  Additionally, the Company granted warrants for 1,000,000 shares of common stock related to this consulting agreement with exercise prices ranging $0.10 to $0.25 per share.  The value of these warrants approximated $43,000 which was valued using the Black-Scholes option pricing model.  The Company recognized a total of $14,000 of expense related to the value of the warrants for the year ended December 31, 2009.

In November 2009, the Company entered into an agreement with a consultant and issued 600,000 shares of common stock with a fair value of $72,000.  The consulting agreement is for a twelve month period.  For the year ended December 31, 2009, the Company expensed $12,000 of the value of this consulting agreement and recorded a prepaid expense totaling $60,000 at December 31, 2009.  Additionally, the Company granted warrants for 1,000,000 shares of common stock related to this consulting agreement with exercise prices ranging $0.15 to $0.30 per share.  The value of these warrants approximated $95,000 which was valued using the Black-Scholes option pricing model.  The Company recognized a total of $16,000 of expense related to the value of the warrants for the year ended December 31, 2009.

2008

During the year ended December 31, 2008, the Company issued 1,125,926 shares of common stock for past services for a total value of $45,000

In January 2008, the Company granted options for 18,000,000 shares of common stock with an exercise price of $0.013 to the Company’s former CEO and a consultant.  These options were fully vested at issuance and replaced 16,000,000 options previously granted with an exercise price of $0.05 per share.  The value of these options approximated $1,034,000 which was valued using the Black-Scholes option pricing model.

During the year ended December 31, 2008, the Company issued 1,600,000 shares of common stock for services for a total value of $57,000.

During April 2008 through December 2008, the Company sold 42,707,000 shares of common stock for approximately $850,000 from a private placement offering.  The private placement originally provided for the offer and sale of up to 50,000,000 unregistered shares of the Company’s common stock at a price of $0.02 per share, for an aggregate offering price of $1,000,000, and allowed the Company to accept or reject any oversubscription.   The Company incurred offering costs totaling approximately $46,000 of which $27,000 paid in cash and 750,000 common shares were issued.  

In June 2008, the Company issued 15,000,000 shares of common stock for the acquisition of Metallicum, Inc. for a total value of $300,000 or $0.02 per share. See Note 12.

2007

In May 2007, we issued 35,350,317 shares of common stock to various individuals for services with values totaling $707,006 based upon the fair value of the shares issued.

In May 2007, we issued 14,200,106 shares of common stock for settlement of debts totaling $71,000.

In October 2007, we issued 4,200,000 shares of common stock for services to an individual with a value of $60,900 based upon the fair value of the shares issued.

In October 2007, we issued 106,000,000 shares of common stock related to the conversion of convertible debt previously issued during 2007.  The convertible debt converted totaled $1,060,000 at which time the entire debt discount of $1,361,000 had been expensed.

In November 2007, we issued 1,000,000 shares of common stock to an individual for services with a value of $30,000 based upon the fair value of the shares issued.  In November 2007, we also issued 1,000,000 shares of common stock to an individual for services to be provided with a value of $30,000 based upon the fair value of the shares issued.



9


Securities Authorized for Issuance under Equity Incentive Plans

In 2000, our Board of Directors adopted the 2000 Equity Incentive Plan (the "2000 Plan"). The 2000 Plan authorizes the issuance of options, right to purchase Common Stock and stock bonuses to officers, employees, directors and consultants. We reserved 30,000,000 shares of our Common Stock for awards to be made under the 2000 Plan and registered the following:


·   September 14, 2001, we filed a registration statement on Form S-8 to register 900,000 of these shares.

·   November 19, 2001, we registered 550,000 shares of our common stock for issuance under the 2000 Plan.

·   January 30, 2002, we registered an additional 975,000 shares of our common stock for issuance under the 2000 Plan.

·   March 22, 2002, we registered an additional 925,000 shares of our common stock for issuance under the 2000 Plan.

·   July 12, 2002, we registered an additional 990,000 shares of our common stock for issuance under the 2000 Plan.

·   January 17, 2003, we registered an additional 8,000,000 of our common stock for issuance under the 2000 Plan.


The 2000 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The 2000 Plan allows for the issuance of incentive stock options (which, pursuant to Section 422 of the Internal Revenue Code, can only be granted to employees), non-qualified stock options, stock appreciation rights, stock awards, or stock bonuses. The committee, or the Board of Directors if there is no committee, determines the type of option granted, the exercise price, the option term, which may be no more than ten years, terms and conditions of exercisability and methods of exercise. Options must vest within ten-years. Under the 2000 Plan, the exercise price may not be less than fair market value on the date of grant for the incentive stock options. The 2000 Plan also allows for the granting of Stock Appreciation Rights. No Stock Appreciation Rights have been granted. The number of shares under the 2000 Plan available for grant at December 31, 2008 was 25,281,000.  

In November 2004, our Board of Directors adopted the 2004 Consultant Stock Plan (the "2004 Plan"). The purpose of this 2004 Consultant Stock Plan is to advance our interests by helping us obtain and retain the services of persons providing consulting services upon whose judgment, initiative, efforts and/or services we are substantially dependent, by offering to or providing those persons with incentives or inducements affording such persons an opportunity to become owners of our capital stock. We reserved 2,000,000 shares of our Common Stock for awards to be made under the 2004 Plan. We filed a registration statement on Form S-8 with the SEC on November 26, 2004 to register the shares underlying the 2004 plan. The 2004 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The committee, or the Board of Directors if there is no committee, determines who is eligible to receive awards under the plan, grant awards and interpret the 2004 Plan. The number of shares under the 2004 Plan available for grant at December 31, 2008 was 500,000.

On May 9, 2005, our Board of Directors adopted the 2005 Equity Compensation Plan (the "2005 Plan"). The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to our success, by offering them an opportunity to participate in the our future performance through awards of Options, the right to purchase Common Stock and Stock Bonuses. We reserved 10,000,000 shares of our Common Stock for awards to be made under the 2005 Plan. The 2005 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The committee, or the Board of Directors if there is no committee, determines who is eligible to receive awards under the plan, grant awards and interpret the 2005 Plan. We filed a registration statement on Form S-8 with the SEC on June 8, 2005 to register the shares underlying the 2005 plan. The number of shares under the 2005 Plan available for grant at December 31, 2008 was 4,868,763.

Set forth in the table below is information regarding awards made through compensation plans or arrangements through December 31, 2009 the most recently completed fiscal year.

Equity Compensation Plan Information  
Plan category         Number of securities to be issued
upon exercise of outstanding
options, warrants and rights
(a)
    Weighted-average
exercise price of
outstanding options,
warrants and rights
    Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a))
Equity compensation plans approved by security holders
                                              
Equity compensation plans not approved by security holders
                                           30,649,763   
Total
                                           30,649,763   
 

10


Exercise prices and weighted-average contractual lives of stock options outstanding as of December 31, 2009 are as follows:

            Options Outstanding     Options Exercisable    
Exercise Price         Number
Outstanding
    Weighted
Average
Remaining
Contractual
Life
    Weighted
Average
Exercise
Price
    Number
Exercisable
    Weighted
Average
Exercise
Price
 
$0.01                  25,000,000             7.68             0.01             25,000,000             0.01   
0.02                  3,000,000             3.32             0.02             3,000,000             0.02   
0.05                  1,500,000             3.79             0.05             1,500,000             0.05   
0.06                  1,200,000             5.38             0.06             1,200,000             0.06   
0.39                  250,000             1.73             0.39             250,000             0.39   
2.25                  110,000             0.53             2.25             110,000             2.25   
2.40                  500,000             0.66             2.40             500,000             2.40   
$0.01                  25,000,000             7.68             0.01             25,000,000             0.01   
 

As of December 31, 2009, the following assumptions were used: (i) no expected dividends; (ii) a risk-free interest rate of 4.5% (iii) expected volatility 144%, and (iv) 5 year term. The fair value was determined using the Black-Scholes option-pricing model.  No options were issued during 2009.

All options we issued through December 31, 2009 vested within ninety days from the date of grant and expire at various dates during 2008 through 2018.  


The Company issued the following warrants at the corresponding weighted average exercise price as of December 31, 2009.

        Warrants     Weighted average
Exercise Price
Outstanding as of December 31, 2007
                 13,250,000          $ 0.15   
Issued/Vested
                 0                    
Cancelled/Expired
                 (9,250,000 )            0.20   
 
Outstanding as of December 31, 2008
                 4,000,000             0.01   
Issued/Vested
                 477,000             0.19   
Cancelled/Expired
                 0                    
 
Outstanding as of December 31, 2009
                 4,477,000             0.03   


Date         Number of
Warrants
    Exercise Price     Contractual Life     Number of Shares
Exercisable
October 11, 2007
                 3,200,000             .01              9 years            3,200,000   
November 9, 2007
                 800,000             .01              9 years            800,000   
September 8, 2009
                 312,000             .18              3 years            312,000   
November 1, 2009
                 165,000             .23              3 years            165,000   
 
                 4,477,000                                           4,477,000   
 


As of December 31, 2009, the following assumptions were used: (i) no expected dividends; (ii) a risk-free interest rate of 2.5% (iii) expected volatility ranging from 137% to 138%, and (iv) 4 year term. The fair value was determined using the Black-Scholes option-pricing model.  No warrants were issued during 2008.

ITEM 6. SELECTED FINANCIAL DATA

N/A



11


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes appearing elsewhere in this Form 10-K.


OVERVIEW


We have been acquiring and licensing technologies, directing, supervising and coordinating our research and development efforts, raising capital, and initiating commercialization activities and dialogue with potential customers.


As of December 31, 2009, we had an accumulated deficit, of $53,089,000. Included in this accumulated loss are charges amounting to approximately $22,513,000 relating to the issuance of equity instruments for services. We expect operating losses to continue for the foreseeable future because we will be continuing to fund research and development efforts as well as general and administrative expenses.


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.


YEAR ENDED DECEMBER 31, 2009 COMPARED TO YEAR ENDED DECEMBER 31, 2008.


REVENUES. For the year ended December 31, 2009, we had revenue from our sale of technology to Carpenter Technology Corporation related to the Company’s technology ($600,000) and miscellaneous revenue from the sale of sample materials ($33,000).

EXPENSES:  The following chart summarizes our operating expenses and other income and expenses as described below:

        Year ended December 31,
   
        2009
    2008
Common stock issued for services
                 54,000             57,000   
Options issued for services
                 45,000             1,034,000   
Other G&A expenses
                 906,000             861,000   
Total G&A expenses
                 1,005,000             1,952,000   
Research and development
                 25,000             198,000   
Operating costs and expenses
                 1,030,000             2,150,000   
 
Gain on sale of Novint common stock
                              (50,000 )  
 
Net interest expense
                 49,000             42,000   
 

GENERAL AND ADMINISTRATIVE. General and administrative expenses were $1,005,000 for the year ended December 31, 2009 versus general and administrative expenses of $1,952,000 for the year ended December 31, 2008, an overall decrease of $947,000.  


General and administrative expenses were affected by options issued for services.  Excluding options issued for services, general and administrative expenses, consisting of expenses for consultants, accounting and legal services, travel and miscellaneous expenses, remained stable, increasing to $45,000 to $906,000 for the year ended December 31, 2009.  We expect these general and administrative expenses to remain stable in 2010.

 

In the first quarter of 2008, general and administrative expenses included a grant of options for 18,000,000 shares of common stock with an exercise price of $0.013 to our former CEO and a consultant.  These options replaced 16,000,000 options previously granted with an exercise price of $0.05 per share.  The value of these options totaled $1,034,000 which was valued using the Black-Scholes option pricing model based upon the following assumptions: stock price of $0.06 at grant date; 5 year term; volatility of 144%; and discount rate of 3.18%.  We do not expect that large grants of options, similar to this grant made in 2008, will be made in the near future.



12


NET LOSS. We reported a net loss of $446,000 for the year ended December 31, 2009 versus a net loss of $2,142,000 for the year ended December 31, 2008, an overall decrease in net loss of $1,696,000, principally resulting from a combination of revenues from our technology transfer agreement in 2009 and the 2008 expense of options issued for services discussed above partially offset by $50,000 in gains in 2008 on distribution of common stock we held in Novint Technologies, Inc. (“Novint”).  


For the year ended December 31, 2008, we issued 53,191 shares of Novint as payment of accrued liabilities and related to convertible promissory notes issued during 2007 and recorded a gain on sale of those shares of $50,000.


LIQUIDITY AND PLAN OF OPERATIONS


Prior to September 2009, the Company had been considered a development stage company. As a result of the September 2009 technology transfer agreement and sale of technology to Carpenter, the Company has fully commenced its planned operations and generation of significant revenues.  Accordingly, we have relied primarily upon private placements and subscription sales of stock to fund our continuing activities and acquisitions. To a limited extent, we have also relied upon borrowing from our officers.  


Stockholders’ equity totaled a deficit of $848,000 on December 31, 2009 and the working capital was a deficit of $1,142,000 on such date.  Although, we anticipate we may sell additional common stock and issue shares and/or options in exchange for services, we anticipate that in 2010 revenues from our technology transfer agreements will cover our entire overhead and the cost of our operations.


At December 31, 2009, our significant assets include our portfolio of intellectual property relating to the various technologies, our contracts with third parties pertaining to technology development, acquisition, and licensing, and 1,075,648 shares of common stock of Novint; our cash on hand; and our strategic alliances with various scientific laboratories, educational institutions, scientists and leaders in industry and government.


We had a decrease of $205,000 in cash and cash equivalents for the year ended December 31, 2009, as a result of lower proceeds from the issuance of common stock ($607,000), partially offset by lower cash used in operating activities ($294,000).  


For the year ended December 31, 2009, cash used in operating activities was $406,000 compared to $700,000 used in operating activities for the year ended December 31, 2008, the decrease in cash used, equal to $294,000, primarily as a result of a lower net loss in 2009 compared to 2008 ($1,696,000) partially offset by more cash used to pay for working capital items ($315,000).  Our net cash loss (net loss less non-cash expenses) was $283,000 in 2009 compared to a net cash loss of $892,000 in 2008.  Non-cash expenses in 2009 were common stock issued for services ($54,000), options issued for services ($45,000), amortization of our technology license ($35,000) and impairment of assets ($29,000).


We do not expect any significant change in the total number of employees in the near future. We intend to continue to identify and target appropriate technologies for possible acquisition or licensing over the next 12 months, although we have no agreements regarding any such technologies as of the date hereof.


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 December 31, 2009, we had $362,000 in cash. We intend to satisfy our capital requirements for the next 12 months from our technology transfer agreements will cover our entire overhead and the cost of our operations..  


During April 2008 through December 2008, we sold 42,707,000 shares of common stock for approximately $850,000 from a private placement offering.  The private placement originally provided for the offer and sale of up to 50,000,000 unregistered shares of our common stock at a price of $0.02 per share, for an aggregate offering price of $1,000,000, and allowed us to accept or reject any oversubscription.   We incurred offering costs totaling approximately $46,000 which was paid in cash.  Additionally, we issued 750,000 shares of common stock for legal services rendered as part of the private placement with a total value of approximately $16,000.


GOING CONCERN


Our independent registered public accounting firms have stated in their audit report on our December 31, 2009 and 2008 consolidated financial statements, that we have experienced recurring losses and have working capital deficit. The conditions, among others, raise substantial doubt about our ability to continue as a going concern.




13


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. A significant estimate includes the carrying value of our patents, fair value of our common stock, assumptions used in calculating the value of stock options, depreciation and amortization.

Impairment of Long-Lived Assets:

We assess the impairment of our long-lived assets periodically in accordance with Financial Accounting Standards Board ("FAS") Accounting Standard Codification (“ASC”) Topic 10. Whenever events or changes in circumstances indicate that the carrying amounts of long-lived assets may not be recoverable, we will compare undiscounted net cash flows estimated to be generated by those assets to the carrying amount of those assets. When these undiscounted cash flows are less than the carrying amounts of the assets, we will record impairment losses to write the asset down to fair value, measured by the discounted estimated net future cash flows expected to be generated from the assets. To date there has been no impairment.

License Agreements

In 2008,  we obtained licenses to the rights of certain patents regarding nano-structured materials developed by another company as a result of the acquisition of Metallicum. The purchase price paid for these licenses was $305,000, which represents its fair value.  We obtained an exclusive license on two patents and a non-exclusive license on the third patent. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. At December 31, 2009 and 2008, accumulated amortization was $45,000 and $15,000, respectively. Under the terms of the agreement, we may be required to pay royalties, as defined, to the licensors.  

In 2009, the Company entered into a patent license agreement with Los Alamos National Security LLC for the exclusive use of certain technology relating to the manufacture and application of nanostructuring metals and alloys.  The purchase price paid for this license agreement was $33,000 based on the fair market value of 2,000,000 shares of common stock issued.  The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. At December 31, 2009, accumulated amortization was $3,000. Under the terms of the agreement, the Company may be required to pay royalties, as defined, to the licensors.

Revenue Recognition

Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.

Investments: Available-for-Sale Investments

Investments that we designate as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). We determine the cost of the investment sold based on the specific identification method. Our available-for-sale investments include Marketable equity securities.  We acquire these equity investments for the promotion of business and strategic objectives. We record  the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net

Stock-Based Compensation:

The Company follows the provision of FASB ASC Topic 718 for the measurement and recognition of compensation expense for all share-based payment awards to employees, directors and non-employees. Additionally, the Company follows the SEC’s Staff Accounting Bulletin No. 107 “Share-Based Payment” (“SAB 107”), as amended by Staff Accounting Bulletin No. 110 (“SAB 110”), which provides supplemental application guidance based on the views of the SEC. The Company estimates the expected term, which represents the period of time from the grant date that the Company expects its stock options to remain outstanding, using the simplified method as permitted by SAB 107 and SAB 110. Under this method, the expected term is estimated as the mid-point



14


between the time the options vest and their contractual terms. The Company continues to apply the simplified method because it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected terms due to the limited period of time its equity shares have been publicly traded and the limited number of its options which have so far vested and become eligible for exercise.

The estimated fair value of grants of stock options and warrants to our nonemployees is charged to expense, if applicable, in the financial statements. These options vest in the same manner as the employee options granted under each of the option plans as described above. As of December 31, 2009 and 2008, we recorded compensation/service expense of $99,000 and $1,034,000, respectively.

OFF BALANCE SHEET ARRANGEMENTS

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations liquidity, capital expenditures or capital resources and would be considered material to investors.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

N/A



15


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                 F-2    
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008
                 F-3    
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
                 F-4    
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
                 F-5    
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2009 AND 2008
                 F-6    
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 F-7    
 





F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and

Stockholders of Manhattan Scientifics, Inc.

We have audited the accompanying consolidated balance sheets of Manhattan Scientifics, Inc.  (“the Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Manhattan Scientifics, Inc. at December 31, 2009 and 2008, and the results of its operations, stockholders’ equity and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As described in Note 2 to the consolidated financial statements, the Company has an accumulated deficit from operations and a net deficiency in working capital that raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

PMB Helin Donovan, LLP

Spokane, Washington

April 8, 2010







 



F-2


MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS
        December 31, 2009
    December 31, 2008
Current assets:
                                       
Cash and cash equivalents
              $ 362,000          $ 567,000   
Investments-available for sale
                 151,000             129,000   
Prepaid expenses and other assets
                 83,000                
 
Total current assets
                 596,000             696,000   
 
Investments
                 2,000             2,000   
Intellectual property, net
                 290,000             290,000   
Other asset
                 2,000             31,000   
 
TOTAL ASSETS
              $ 890,000          $ 1,019,000   
 
LIABILITIES
                                     
Current liabilities
                                       
Accounts payable and accrued expenses
              $ 219,000          $ 281,000   
Accrued interest and expenses — related parties
                 491,000             552,000   
Note payable to related party
                 545,000             545,000   
Note payable to former officers
                 450,000             450,000   
Convertible note payable — other
                 33,000             33,000   
 
Total current liabilities
                 1,738,000             1,861,000   
 
Commitments and Contingencies:
                                 
 
STOCKHOLDER’S DEFICIT
                                     
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; 49,999 shares issued and outstanding
                                 
Series C convertible, redeemable, authorized 14,000 shares; issued and outstanding — none
                                 
Common, authorized 500,000,000 shares, 397,452,926 and 378,997,926 shares issued, and outstanding, respectively
                 398,000             380,000   
Additional paid-in-capital
                 51,692,000             51,292,000   
Other accumulated comprehensive income
                 151,000             129,000   
Accumulative deficit
                 (53,089,000 )            (52,643,000 )  
 
Total Stockholder’s deficit
                 (848,000 )            (842,000 )  
 
TOTAL LIABILITIES AND STOCKHOLDER’S DEFICIT
              $ 890,000          $ 1,019,000   
 


The accompanying notes are an integral part of these consolidated financial statements.


F-3



MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

        YEAR ENDED DECEMBER 31,    
        2009
    2008
Revenue
              $ 633,000          $    
 
Operating costs and expenses:
                                       
General and administrative
                 1,005,000             1,952,000   
Research and development
                 25,000             198,000   
 
Total operating costs and expenses
                 1,030,000             2,150,000   
 
Loss from operations before other income and expenses
                 (397,000 )            (2,150,000 )  
 
Other income and expenses:
                                       
Gain from sale of Novint Technologies Inc. common stock
                              50,000   
Interest and other expenses
                 (50,000 )            (50,000 )  
Interest income
                 1,000             8,000   
 
NET LOSS
                 (446,000 )            (2,142,000 )  
 
Other comprehensive income
                                       
Unrealized gain on available for sale investments
                 22,000             129,000   
 
OTHER COMPREHENSIVE LOSS
              $ (424,000 )         $ (2,013,000 )  
 
BASIC AND DILUTED LOSS PER COMMON SHARE:
                                       
Weighted average number of common shares outstanding
                 393,155,118             328,469,378   
 
Basic and diluted loss per common share
              $ (0.00 )         $ (0.01 )  
 


The accompanying notes are an integral part of these consolidated financial statements.




F-4


MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Deficit
For The Years Ended December 31, 2009 And 2008

        Preferred Stock    
        $.001 Par Value
    Common Stock
                   
        Series B
    $.001 Par Value
   
        Shares
    Amount
    Shares
    Amount
    Additional
Paid-in
Capital
    Other
Comprehensive
Income
    Accumulated
Deficit
    Total
Balance December 31, 2007
                 49,999          $           $ 318,545,000          $ 319,000          $ 49,109,000                         $ (50,501,000 )         $ (1,073,000 )  
 
Issuance of shares at market price for services rendered
                                               1,600,000             2,000             55,000                                           57,000   
Issuance of shares in satisfaction of accrued expenses
                                               1,125,926             1,000             44,000                                           45,000   
Issuance of shares related to acquisition of Metallicum, Inc.
                                               15,000,000             15,000             285,000                                           300,000   
Issuance of shares for cash, net of offering costs of $42,000
                                               42,707,000             43,000             765,000                                           808,000   
Issuance of stock options
                                                                             1,034,000                                           1,034,000   
Other comprehensive income
                                                                                            129,000                            129,000   
Net loss
                                                                                                           (2,142,000 )            (2,142,000 )  
 
Balance December 31, 2008
                 49,999                          378,977,926             380,000             51,292,000             129,000             (52,643,000 )            (842,000 )  
Issuance of shares for cash
                                               12,250,000             12,000             189,000                                           201,000   
Issuance of shares related to licensing agreement
                                               2,000,000             2,000             31,000                                           33,000   
Issuance of shares for services
                                               2,200,000             2,000             135,000                                           137,000   
Exercise of stock options on a cashless basis
                                               2,025,000             2,000                                                          2,000   
Issuance of stock options
                                                                             15,000                                           15,000   
Vesting of stock warrants
                                                                             30,000                                           30,000   
Comprehensive income
                                                                                            22,000                            22,000   
Net loss
                                                                                                           (446,000 )            (446,000 )  
 
Balance December 31, 2009
                 49,999          $              397,452,926          $ 398,000          $ 51,692,000          $ 151,000          $ (53,089,000 )         $ (848,000 )  
 


The accompanying notes are an integral part of these consolidated financial statements.



F-5


MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


        YEAR ENDED DECEMBER 31,    
        2009
    2008
CASH FLOWS FROM OPERATING ACTIVITIES:
                                     
Net loss
              $ (446,000 )         $ (2,142,000 )  
Adjustments to reconcile net loss to net cash used in operating activities:
                                       
Gain on sale of investments
                              (50,000 )  
Common stock issued for services
                 54,000             57,000   
Stock options issued for services
                 45,000             1,034,000   
Amortization of technology license
                 35,000             15,000   
Amortization of patents and intellectual property
                              194,000   
Impairment of assets
                 29,000                
Changes in:
                                       
Prepaid expenses and other assets
                              44,000   
Accounts payable and accrued expenses
                 (62,000 )            (1,000 )  
Accrued interest and expenses—related parties
                 (61,000 )            149,000   
 
Net cash provided by (used in) operating activities;
                 (406,000 )            (700,000 )  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
                                       
 
Cash acquired from purchase of Metallicum, Inc.
                              7,000   
 
Net cash provided by (used in) investing activities
                              7,000   
 
CASH FLOWS FROM FINANCING ACTIVITIES:
                                       
Proceeds from issuance of common stock, net of offering costs
                 201,000             808,000   
 
Net cash provided by (used in) financing activities
                 201,000             808,000   
 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                 (205,000 )            115,000   
Cash and cash equivalents, beginning of period
                 567,000             452,000   
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
              $ 362,000          $ 567,000   
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                                       
Interest paid
              $           $    
 
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS:
                                       
Issuance of 15,000,000 common shares for acquisition of Metallicum, Inc.
              $           $ 300,000   
Issuance of 1,125,926 common shares in satisfaction of accrued expenses
              $           $ 45,000   
Issuance of 2,000,000 common shares related to licensing agreement
              $ 33,000          $    
Issuance of shares for prepaid expenses
              $ 137,000          $    
Exercise of options on a cashless basis
              $ 2,000          $    
 


The accompanying notes are an integral part of these consolidated financial statements.





F-6


MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008


NOTE 1 – ORGANIZATION AND OPERATIONS

Manhattan Scientifics, Inc., a Delaware corporation (formerly Grand Enterprises, Inc) (“Grand”) was established on July 31, 1992 and has three wholly-owned subsidiaries: Metallicum, Inc., (“Metallicum”), Tamarack Storage Devices, Inc. (“Tamarack”) and Teneo Computing, Inc. (“Teneo”) (collectively “the Company”), a development stage enterprise.  Currently, Metallicum is the only operating subsidiary; and Tamarack and Teneo are dormant.  On June 12, 2008, the Company acquired Metallicum, Inc, for 15,000,000 shares of Company’s common stock, (See Note 12).

Manhattan Scientifics, Inc. operates as a technology incubator that seeks to acquire, develop and commercialize life-enhancing technologies in various fields, with emphasis in the areas of alternative energy, and consumer and commercial electronics. In this capacity, the Company continues to identify emerging technologies through strategic alliances with scientific laboratories, educational institutions, and scientists and leaders in industry and government.  The Company has a long standing relationship with Los Alamos Laboratories in New Mexico. During 2008, the Company refocused its efforts from the development of its fuel cell technologies to its current focus on the development of nano-materials through the acquisition of Metallicum.

Metallicum is a nanotechnology start-up company located in Santa Fe, New Mexico. Metallicum Inc. has focused on the development and manufacture of nanostructured metals for medical implants and other applications.  Metallicum intends to establish manufacturing partner relationships with major Fortune 500 metals companies and strategic partnering with significant customers in the medical device & prosthetics industries as well as in auto, truck, & aircraft manufacturing industries. Metallicum’s initial products include noaostructured bulk metals and alloys in the form of rod, bar, wire and foil.  The Company conducts its operations primarily in the United States.

In September 2009, the Company entered into a technology transfer agreement with Carpenter Technology Corporation, (“Carpenter”) wherein Carpenter will fully develop, manufacture and market a new class of high strength metals under an exclusive license from Manhattan Scientifics and the Los Alamos National Laboratory ( see Note 11 for additional discussion) . The proprietary process will enable super-strength metals and alloys to make products that weigh far less than in the past and without significant cost premiums. Prior to September 2009, the Company had been considered a development stage company. As a result of the September 2009 technology transfer agreement with Carpenter, the Company has fully commenced its planned operations and generation of significant revenues.

The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.

Prior to September 2009, the Company had been considered a development stage company. As a result of the September 2009 technology transfer agreement with Carpenter, the Company has fully commenced its planned operations and generation of significant revenues.  Accordingly, we have relied primarily upon private placements and subscription sales of stock to fund our continuing activities and acquisitions.


NOTE 2 - GOING CONCERN UNCERTAINTY

These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred recurring losses and at December 31, 2009, had an accumulated deficit of $53,089,000. For the year ended December 31, 2009, the Company sustained a net loss of $446,000. These factors, among others, indicate that the Company may be unable to continue as a going concern for a reasonable period of time. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is contingent upon its ability to obtain additional financing, and to generate revenue and cash flow to meet its obligations on a timely basis.  Accordingly, the Company’s management will seek to raise capital financing either through debt or equity financing.  



F-7


MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS

BASIS OF CONSOLIDATION:

The consolidated financial statements include the accounts of Manhattan Scientific, Inc. and its wholly owned subsidiaries Tamarack, Teneo and Metallicum. All significant intercompany balances and transactions have been eliminated. The accompanying consolidated financial statements include the operating activities of Metallicum, Inc. for the years ended December 31, 2009 and 2008.

The fiscal year end of the Company is December 31.

USE OF ESTIMATES:

The preparation of consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.

Management makes estimates that affect, carrying value of the Company’s patents, deferred income tax assets, estimated useful lives of property and equipment, useful lives of intangible assets,  accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the year in which such adjustments are determined.

CASH AND CASH EQUIVALENTS:

The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents for the purposes of the statement of cash flows.

CASH CONCENTRATION:

The Company, at times, maintains cash balances in excess of the federally insured limit of $250,000 per institution.  The Company has approximately $161,000 in excess of the federally insured limit at December 31, 2009.

PROPERTY AND EQUIPMENT:

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes.

At December 31, 2009, the Company’s fixed assets were fully depreciated.

IMPAIRMENT OF LONG-LIVED ASSETS:

The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10, Property, Plant and Equipment, where applicable to all long lived assets. FASB ASC 360-10 addresses accounting and reporting for impairment and disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with FASB ASC 360-10. FASB ASC 360-10 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.



F-8


MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS (Continued)

INTANGIBLE ASSETS:

License Agreements

In 2008, the Company obtained licenses to the rights of certain patents regarding nano-structured materials developed by another company as a result of the acquisition of Metallicum. The purchase price paid for these licenses was $305,000, which represents its fair value.  The Company obtained an exclusive license on two patents and a non-exclusive license on the third patent. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. At December 31, 2009 and 2008, accumulated amortization was $45,000 and $15,000. Under the terms of the agreement, the Company may be required to pay royalties, as defined, to the licensors.  

In 2009, the Company entered into a patent license agreement with Los Alamos National Security LLC for the exclusive use of certain technology relating to the manufacture and application of nanostructuring metals and alloys.  The purchase price paid for this license agreement was $33,000 based on the fair market value of 2,000,000 shares of common stock issued.  The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. At December 31, 2009, accumulated amortization was $3,000. Under the terms of the agreement the Company is required to pay an annual license fee of $10,000 starting in February 2101 and, may be required to pay royalties, as defined, to the licensors.

INCOME TAXES

The Company accounts for income taxes under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Company’s consolidated balance sheets in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The Company must assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent the Company believes that recovery is not likely, the Company must establish a valuation allowance. Changes in the Company’s valuation allowance in a period are recorded through the income tax provision on the consolidated statements of operations.

On January 1, 2007, the Company adopted ASC 740-10 (formerly known as FIN No. 48, Accounting for Uncertainty in Income Taxes). ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation of ASC 740-10, the Company recognized no material adjustment in the liability for unrecognized income tax benefits.

BASIC AND DILUTED LOSS PER SHARE

In accordance with FASB ASC 260, “Earnings Per Share,” the basic loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Basic net loss per share excludes the dilutive effect of stock options or warrants and convertible notes Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and warrants. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.



F-9


MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS (Continued)

RESEARCH AND DEVELOPMENT:

Research and development costs are expensed as incurred and amounted to $25,000 and $198,000 for the years ended December 31, 2009 and 2008.

INVESTMENTS:

Available-for-Sale Investments

Investments that the Company designates as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). The Company determines the cost of the investment sold based on the specific identification method. The Company’s available-for-sale investments include:

 

• 

Marketable equity securities The Company acquires these equity investments for the promotion of business and strategic objectives. The Company records  the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net.

Non-Marketable and Other Equity Investments

The Company accounts  for non-marketable and other equity investments under either the cost or equity method and includes them in other long-term assets. The non-marketable and other equity investments include:

 

• 

Non-marketable cost method investments when the equity method does not apply. The Company records the realized gains or losses on the sale of non-marketable cost method investments in gains (losses) on other equity investments, net.

REVENUE RECOGNITION:

To date the only revenue generated is from the sale of technology and exclusive license agreements related to the Company’s technology and sample materials, (See Note 11).

Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.

STOCK-BASED COMPENSATION:

 The Company accounts for stock-based compensation based on the fair value of all option grants or stock issuances made to employees or directors on or after its implementation date (the beginning of fiscal 2006), as well as a portion of the fair value of each option and stock grant made to employees or directors prior to the implementation date that represents the unvested portion of these share-based awards as of such implementation date, to be recognized as an expense, as codified in ASC 718. The Company calculates stock option-based compensation by estimating the fair value of each option as of its date of grant using the Black-Scholes option pricing model.  These amounts are expensed over the respective vesting periods of each award using the straight-line attribution method. Compensation expense is recognized only for those awards that are expected to vest, and as such, amounts have been reduced by estimated forfeitures.  The Company has historically issued stock options and vested and no vested stock grants to employees and outside directors whose only condition for vesting has been continued employment or service during the related vesting or restriction period.



F-10


MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS (Continued)

FAIR VALUE OF FINANCIAL INSTRUMENTS:

Effective January 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures, Pre Codification SFAS No. 157, “Fair Value Measurements”, which provides a framework for measuring fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands disclosures about instruments measured at fair value and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices for identical assets and liabilities in active markets;

Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The Company designates cash equivalents (consisting of money market funds) and investments in securities of publicly traded companies as Level 1. The total amount of the Company’s investment classified as Level 3 is de minimis.

The fair value of the Company’s debt as of December 31, 2009 and 2008, approximated fair value at those times.

Fair value of financial instruments: The carrying amounts of financial instruments, including cash and cash equivalents, short-term investments, accounts payable, accrued expenses and notes payables approximated fair value as of December 31, 2009 and 2008 because of the relative short term nature of these instruments. At December 31, 2009 and 2008, the fair value of the Company’s debt approximates carrying value. The fair value of the Company’s available for sale securities was $151,000 at December 31, 2009 and these securities are classified as Level 1.

RECENT ACCOUNTING PRONOUNCEMENTS

 In February 2008, the FASB issued an accounting standard update that delayed the effective date of fair value measurements accounting for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of 2009. The Company adopted this accounting standard update effective January 1, 2009. The adoption of this update to non-financial assets and liabilities, as codified in ASC 820-10, did not have any impact on the Company’s consolidated financial statements.  The Company’s non-financial assets, such as goodwill, intangible assets, and property, plant and equipment, are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized. No impairment indicators were present during the year ended December 31, 2009.   When impairment indicators are present, the Company utilizes various methods to determine the fair value of its non-financial assets.  For example, to value property plant and equipment, the Company would use the cost method for determining fair value; for goodwill the Company would use a combination of analyzing the Company’s market capitalization based on the market price of the Company’s common stock and a determination of discounted cash flows of the Company’s operations.

Effective January 1, 2009, the Company adopted an accounting standard that requires unvested share-based payments that entitle employees to receive nonrefundable dividends to also be considered participating securities, as codified in ASC 260. The adoption of this accounting standard had no impact on the calculation of the Company’s earnings per share because the Company has not issued participating securities.



F-11


MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS (Continued)

Effective April 1, 2009, the Company adopted three accounting standard updates which were intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. They also provide additional guidelines for estimating fair value in accordance with fair value accounting. The first update, as codified in ASC 820-10-65, provides additional guidelines for estimating fair value in accordance with fair value accounting. The second accounting update, as codified in ASC 320-10-65, changes accounting requirements for other-than-temporary-impairment for debt securities by replacing the current requirement that a holder have the positive intent and ability to hold an impaired security to recovery in order to conclude an impairment was temporary with a requirement that an entity conclude it does not intend to sell an impaired security and it will not be required to sell the security before the recovery of its amortized cost basis. The third accounting update, as codified in ASC 825-10-65, increases the frequency of fair value disclosures. These updates were effective for fiscal years and interim periods ended after June 15, 2009. The adoption of these accounting updates did not have any impact on the Company’s consolidated financial statements.

Effective April 1, 2009, the Company adopted a new accounting standard for subsequent events, as codified in ASC 855-10. The update modifies the names of the two types of subsequent events either as recognized subsequent events (previously referred to in practice as Type I subsequent events) or non-recognized subsequent events (previously referred to in practice as Type II subsequent events). In addition, the standard modifies the definition of subsequent events to refer to events or transactions that occur after the balance sheet date, but before the financial statements are issued (for public entities) or available to be issued (for nonpublic entities).. The update did not result in significant changes in the practice of subsequent event disclosures, and therefore the adoption did not have any impact on the Company’s consolidated financial statements.

Effective July 1, 2009, the Company adopted the “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles (“ASC 105”). This standard establishes only two levels of U.S. GAAP, authoritative and no authoritative. The FASB Accounting Standards Codification (the “Codification”) became the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification became no authoritative. The Company began using the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of 2009. As the Codification was not intended to change or alter existing GAAP, it did not have any impact on the Company’s consolidated financial statements.

In October 2009, the FASB issued Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”). It updates the existing multiple-element revenue arrangements guidance currently included under ASC 605-25, which originated primarily from the guidance in EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. The Company is currently assessing the future impact of this new accounting update to its consolidated financial statements.

In October 2009, the FASB issued Update No. 2009-14, “Certain Revenue Arrangements that Include Software Elements—a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-14”).  ASU 2009-14 amends the scope of pre-existing software revenue guidance by removing from the guidance non-software components of tangible products and certain software components of tangible products. ASU 2009-14  will be effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption.. The Company believes this will not have any future impact to its consolidated financial statements.



F-12


MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS (Continued)

Transfers of Financial Assets: In December 2009, the FASB issued ASU No. 2009-16, Transfers and Servicing (Topic 860)—Accounting for Transfers of Financial Assets (“ASU 2009-16”). ASU 2009-16 codifies SFAS No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140 (“SFAS 166”), issued in June 2009. The guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The guidance is effective as of the beginning of the first annual reporting period that begins after November 15, 2009. Earlier adoption is prohibited. The Company will adopt the guidance in the first quarter of fiscal 2010. The Company does not anticipate this adoption will have a material impact on its consolidated financial statements.

Amendments to Accounting Standards Codification: In February 2010, the FASB issued ASU No. 2010-08, Technical Corrections to Various Topics (“ASU 2010-08”). ASU 2010-08 makes various non-substantive amendments to the FASB Codification that does not fundamentally change existing GAAP; however, certain amendments could alter the application of GAAP relating to embedded derivatives and the income tax aspects of reorganization. The amended guidance is effective beginning in the first interim or annual period beginning after the release of the ASU, except for certain amendments. The Company will adopt the guidance in the second quarter of 2010. The Company does not anticipate this adoption will have a material impact on its consolidated financial statements.

Subsequent Events: On February 24, 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855)—Amendments to Certain Recognition and Disclosure Requirements (“ASU 2010-09”). ASU 2010-09 removes the requirement that SEC filers disclose the date through which subsequent events have been evaluated. This amendment alleviates potential conflicts between Subtopic 855-10 and the SEC’s requirements. The guidance became effective with the issuance of ASU 2010-09 and the Company adopted this guidance upon its issuance.

Other recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants ("AICPA"), and the SEC did not or are not believed by management to have a material impact on the Company's present condensed consolidated financial statements.

NOTE 4 – INVESTMENTS

The Company made an investment in Novint Technologies Inc. (“Novint”) in 2001. The Company initially recorded its investment using the equity method of accounting and wrote down the investment to $-0- in 2004 as it recorded its proportionate share of Novint's net loss.  For the year ended December 31, 2008, the Company gave 53,191 shares of Novint stock as payment of accrued liabilities and notes payable, related party and recorded a gain on the exchange of those shares of $50,000 based on the fair market value of the stock on the date of exchange.

In prior years, the Company had significant control of Novint because of Mr. Maslow's position as a shareholder and board member of both the Company and Novint. Mr. Maslow resigned from the board of the Company in October 2007 and therefore the Company no longer has significant control of Novint. As of December 31, 2009 and 2008, the Company owned 1,075,648 shares of Novint common stock or approximately 3% and modified its accounting for the ownership position in accordance with FASB ASC 820. The fair value of the Novint shares was $151,000 as of December 31, 2009.

The Company has an additional investment in Aprils, Inc. which is accounted for at a cost of $2,000.

NOTE 5 – RELATED PARTY AND FORMER OFFICERS NOTES PAYABLE

In December 2007, the former Chief Operating Officer and former Chief Executive Officer collectively forgave $1,416,500 of their outstanding accrued salaries ($1,387,500) and note payable ($29,000) balances.  The amount forgiven has been accounted for as contributed capital.  Additionally, the Company repaid $5,000 of the former Chief Executive Officer’s note payable balance.  The remaining unpaid notes payable balances totaling $995,000 at December 31, 2009 and 2008 comprised of loans payable of $450,000 and $545,000 to its former Chief Operating Officer and Chief Executive Officer, respectively.

The loans bore interest at 5.5% per annum and were initially due December 31, 2002 and have been mutually extended.  Under the terms of the note extensions dated December 12, 2007, the loans bear interest at 5% per annum and are now due.  The Company has recorded interest expense for notes payable to these former officers of approximately $50,000 and $50,000 for the years ended December 31, 2009 and 2008, respectively.  Accrued interest related to these notes payable approximated $332,000 and $282,000 as of December 31, 2009 and 2008, respectively and is included in accrued liabilities, related parties.

F-13


NOTE 6 –NOTE PAYABLE – OTHER

During the years ended December 31, 2005 and December 31, 2004, the Company issued convertible notes in the amount of $33,000. The notes had a one year maturity date, are noninterest bearing and upon maturity convertible at the current per share price. These notes have not been paid and are currently in default.

NOTE 7 – CAPITAL TRANSACTIONS

Preferred Stock

The Company has a total of 1,000,000 shares of authorized preferred shares which are segregated into three classes of preferred stock.

The Company has 182,525 authorized shares of convertible, redeemable, 10 percent cumulative, Class A, Preferred Stock with $0.001 par value. One Class A, Preferred share is convertible into 50 restricted common share and will be entitled to the number of votes equal to the number of shares of common stock into which such holder’s shares of Series A Preferred stock could be converted at the time of the vote. Class A, Preferred Stock is redeemable by the Company at $15 per share.  Upon liquidation the holders of Series A Preferred stock will be entitled to be paid out of the assets available for distribution of the corporation an amount equal to $10 per share, before any payment will be made to the common shareholders.  As of December 31, 2009 and 2008, no shares of Preferred Stock were issued and outstanding.

The Company has 250,000 authorized shares of Class B, Preferred Stock with $0.001 par value.  As of December 31, 2009 and 2008, 49,999 shares of Preferred Stock were issued and outstanding.  Series B preferred shares are convertible at a rate of 1 Series B preferred share to 10 common shares.

The Company has 14,000 authorized shares of redeemable, convertible, Class C, Preferred Stock with $100 stated value.  Class C, Preferred Stock is not entitled to receive dividends unless dividends are paid on common stock.  Upon liquidation Class C, Preferred Stock shall be treated as if it were converted to common stock prior to liquidation. Class C, Preferred Stock is convertible at $100 divided by the 10 day average closing price of common stock.  The Class C, Preferred Stock is redeemable by the Company at the stated value. As of December 31, 2009 and 2008, no shares of Preferred Stock were issued and outstanding.

The Company has 553,475 undesignated blank check preferred stock, $0.001 par value, authorized, none outstanding.  The preferred shares are to be issued in such series and to have such rights, preferences, and designation as determine by the Board of Directors of the Company.

Common Stock

The Company has a total of 500,000,000 shares of authorized common shares.  As of December 31, 2009 and 2008, 397,452,926 and 378,997,926 shares of common stock were issued and outstanding, respectively.

Stocks issued during 2009

In February 2009, the Company issued 2,000,000 shares of common stock for securing a licensing agreement with Los Alamos National Security LLC for the exclusive use of certain technology relating to the manufacture and application of nanstructuring metals and alloys for a total fair value of $33,000.

In February 2009, the Company issued 12,250,000 shares of common stock for approximately $201,000 from a private placement offering. The private placement originally provided for the offer and sale of up to 50,000,000 unregistered shares of the Company’s common stock at a price of $0.02 per share, for an aggregate of $1,000,000 and allowed the Company to accept or reject any oversubscription. As of March 31, 2009, the Company had sold a total of 53,657,000 shares of common stock related to the private placement for total proceeds of $1,073,000 and incurred offering costs approximating $46,000 of which $27,000 was paid in cash and 750,000 shares of common stock were issued for the balance.



F-14


MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008


NOTE 7 – CAPITAL TRANSACTIONS (Continued)

In May 2009, the Company issued 2,025,000 shares of common stock related to stock options exercised on a cashless basis. Shares exercisable under the stock option agreement totaled 3,000,000 at an exercise price of $0.013 per share. The closing stock price on the date of exercise was $0.04 per share resulting in 975,000 shares as the portion of the stock option agreement being retained as the cost for the 3,000,000 shares having been exercised on a cashless basis.

In May 2009, the Company issued 1,000,000 shares of common stock for legal services with a fair value of $30,000.

In July 2009, the Company granted options for 500,000 shares of common stock with an exercise price of $0.05 per share to two consultants.  The value of these options totaled $15,000 which was valued using the Black-Scholes option pricing model.

In September 2009, the Company entered into an agreement with a consultant and issued 600,000 shares of common stock with a fair value of $35,000.  The consulting agreement is for a twelve month period.  For the year ended December 31, 2009, the Company expensed $12,000 of the value of this consulting agreement and recorded a prepaid expense totaling $23,000 at December 31, 2009.  Additionally, the Company granted warrants for 1,000,000 shares of common stock related to this consulting agreement with exercise prices ranging $0.10 to $0.25 per share, a one year vesting period and expire three years after vesting.  The value of these warrants approximated $43,000 which was valued using the Black-Scholes option pricing model.  The Company recognized a total of $14,000 of expense related to the value of the vested warrants for the year ended December 31, 2009.

In November 2009, the Company entered into an agreement with a consultant and issued 600,000 shares of common stock with a fair value of $72,000.  The consulting agreement is for a twelve month period.  For the year ended December 31, 2009, the Company expensed $12,000 of the value of this consulting agreement and recorded a prepaid expense totaling $60,000 at December 31, 2009.  Additionally, the Company granted warrants for 1,000,000 shares of common stock related to this consulting agreement with exercise prices ranging $0.15 to $0.30 per share, , a one year vesting period and expire three years after vesting.  .  The value of these warrants approximated $95,000 which was valued using the Black-Scholes option pricing model.  The Company recognized a total of $16,000 of expense related to the value of the vested warrants for the year ended December 31, 2009.

Stocks issued during 2008

During the year ended December 31, 2008, the Company issued 1,125,926 shares of common stock for past services for a total value of $45,000

In January 2008, the Company granted options for 18,000,000 shares of common stock with an exercise price of $0.013 to the Company’s former CEO and a consultant.  These options were fully vested at issuance and replaced 16,000,000 options previously granted with an exercise price of $0.05 per share.  The value of these options approximated $1,034,000 which was valued using the Black-Scholes option pricing model.

During the year ended December 31, 2008, the Company issued 1,600,000 shares of common stock for services for a total value of $57,000.

During April 2008 through December 2008, the Company sold 42,707,000 shares of common stock for approximately $850,000 from a private placement offering.  The private placement originally provided for the offer and sale of up to 50,000,000 unregistered shares of the Company’s common stock at a price of $0.02 per share, for an aggregate offering price of $1,000,000, and allowed the Company to accept or reject any oversubscription.    In June 2008, the Company issued 15,000,000 shares of common stock for the acquisition of Metallicum, Inc. for a total value of $300,000 or $0.02 per share. See Note 12.



F-15


MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008


NOTE 7 – CAPITAL TRANSACTIONS (Continued)

Options

In 2000, the Company’s Board of Directors adopted the 2000 Equity Incentive Plan (the "2000 Plan"). The 2000 Plan authorizes the issuance of options, right to purchase Common Stock and stock bonuses to officers, employees, directors and consultants. The Company reserved 30,000,000 shares of common Stock for awards to be made under the 2000 Plan.

On September 14, 2001, the Company filed a registration statement on Form S-8 to register 900,000 of these shares. On November 19, 2001, an additional 550,000 shares of common stock were registered for issuance under the 2000 Plan. On January 30, 2002, an additional 975,000 shares of common stock were registered for issuance under the 2000 Plan. On March 22, 2002, an additional 925,000 shares of common stock were registered for issuance under the 2000 Plan. On July 12, 2002, an additional 990,000 shares of common stock were registered for issuance under the 2000 Plan. On January 17, 2003, the Company registered an additional 8,000,000 of common stock for issuance under the 2000 Plan.

The 2000 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The 2000 Plan allows for the issuance of incentive stock options (which, pursuant to Section 422 of the Internal Revenue Code, can only be granted to employees), non-qualified stock options, stock appreciation rights, stock awards, or stock bonuses. The committee, or the Board of Directors if there is no committee, determines the type of option granted, the exercise price, the option term, which may be no more than ten years, terms and conditions of exercisability and methods of exercise. Options must vest within ten-years. Under the 2000 Plan, the exercise price may not be less than fair market value on the date of grant for the incentive stock options. The 2000 Plan also allows for the granting of Stock Appreciation Rights. No Stock Appreciation Rights have been granted. The number of shares under the 2000 Plan available for grant at December 31, 2008 was 25,281,000.

In November 2004, the Company’s Board of Directors adopted the 2004 Consultant Stock Plan (the "2004 Plan"). The purpose of this 2004 Consultant Stock Plan is to advance the Company’s interests by helping the Company obtain and retain the services of persons providing consulting services upon whose judgment, initiative, efforts and/or services we are substantially dependent, by offering to or providing those persons with incentives or inducements affording such persons an opportunity to become owners of our capital stock.

The Company reserved 2,000,000 shares of Common Stock for awards to be made under the 2004 Plan. A registration statement on Form S-8 was filed with the SEC on November 26, 2004 to register the shares underlying the 2004 plan. The 2004 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The committee or the Board of Directors if there is no committee, determines who is eligible to receive awards under the plan, grant awards and interpret the 2004 Plan. The number of shares under the 2004 Plan available for grant at December 31, 2009 was 500,000.

On May 9, 2005, the Company’s Board of Directors adopted the 2005 Equity Compensation Plan (the "2005 Plan"). The purpose of this Plan is to provide incentives to attract,, retain and motivate eligible persons whose present and potential contributions are important to our success, by offering them an opportunity to participate in the Company’s future performance through awards of Options, the right to purchase Common Stock and Stock Bonuses. The Company reserved 10,000,000 shares of Common Stock for awards to be made under the 2005 Plan. The 2005 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The committee or the Board of Directors if there is no committee, determines who is eligible to receive awards under the plan, grant awards and interpret the 2005 Plan. A registration statement on Form S-8 was filed with the SEC on June 8, 2005 to register the shares underlying the 2005 plan. The number of shares under the 2005 Plan available for grant at December 31, 2009 was 4,868,763.



F-16


MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008


NOTE 7 – CAPITAL TRANSACTIONS (Continued)

Set forth in the table below is information regarding awards made through compensation plans or arrangements through December 31, 2009, the most recently completed fiscal year.

Equity Compensation Plan Information  
Plan category         Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
    Weighted-average
exercise price of
outstanding options,
warrants and rights
    Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
Equity compensation plans approved by security holders
                                              
Equity compensation plans not approved by security holders
                                           30,649,763   
Total
                                           30,649,763   
 


A summary of the Company’s stock option activity and related information is as follows:


        Number
of Options
    Exercise Price
Per Share
    Weighted
Average
Exercise Price
    Number
of Options
Exercisable
Outstanding as of December 31, 2007
                 38,245,000                                           38,245,000   
Granted/Vested
                 18,000,000             0.013             0.013             18,000,000   
Canceled/Expired
                 (21,710,000 )            0.05-0.20              0.090             (21,710,000 )  
 
Outstanding as of December 31, 2008
                 34,535,000             0.05                            34,535,000   
Granted
                 500,000             0.05-0.20              0.05             500,000   
Canceled/Expired
                 (475,000 )            0.01             0.07             (475,000 )  
Exercised
                 (3,000,000 )                           0.01             (3,000,000 )  
 
Outstanding as of December 31, 2009
                 31,560,000                                           31,560,000   
 


At December 31, 2009, the 31,560,000 outstanding options had an aggregate intrinsic value of $2,938,000.


F-17


MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008


NOTE 7 – CAPITAL TRANSACTIONS (Continued)

Exercise prices and weighted-average contractual lives of 31,560,000 stock options outstanding as of December 31, 2009 are as follows:

            Options Outstanding     Options Exercisable    
Exercise Price         Number
Outstanding
    Weighted
Average
Remaining
Contractual Life
    Weighted
Average
Exercise
Price
    Number
Exercisable
    Weighted
Average
Exercise
Price
 
$0.01                  25,000,000             7.68             0.01             25,000,000             0.01   
0.02                  3,000,000             3.32             0.02             3,000,000             0.02   
0.05                  1,500,000             3.79             0.05             1,500,000             0.05   
0.06                  1,200,000             5.38             0.06             1,200,000             0.06   
0.39                  250,000             1.73             0.39             250,000             0.39   
2.25                  110,000             0.53             2.25             110,000             2.25   
2.40                  500,000             0.66             2.40             500,000             2.40   
 

The fair value for options granted were determined using the Black-Scholes option-pricing model.  As of December 31, 2008, the following assumptions were used: (i) no expected dividends; (ii) a risk-free interest rate of 4.5% (iii) expected volatility 144%, and (iv) 5 year term. As of December 31, 2009, the following assumptions were used: (i) no expected dividends; (ii) a risk-free interest rate of 2.5% (iii) expected volatility 137%, and (iv) 5 year term.

Warrants:

The Company issued the following warrants at the corresponding weighted average exercise price as of December 31, 2009.

        Warrants     Weighted average
Exercise Price
 
Outstanding as of December 31, 2007
                 13,250,000          $ 0.15   
Issued/Vested
                 0                    
Cancelled/Expired
                 (9,250,000 )            0.20   
Outstanding as of December 31, 2008
                 4,000,000             0.01   
Issued/Vested
                 477,000             0.19   
Cancelled/Expired
                 0                    
Outstanding as of December 31, 2009
                 4,477,000             0.03   
 
Date         Number of
Warrants
    Exercise Price     Contractual Life     Number of Shares
Exercisable
October 11, 2007
                 3,200,000             .01              9  years            3,200,000   
November 9, 2007
                 800,000             .01              9  years            800,000   
September 8, 2009
                 312,000             .10-.25              3  years            312,000   
November 1, 2009
                 165,000             .15-.30              3  years            165,000   
 
                 4,477,000                                           4,477,000   
 


The fair value for warrants granted were determined using the Black-Scholes option-pricing model.  As of December 31, 2009, the following assumptions were used: (i) no expected dividends; (ii) a risk-free interest rate of 2.5% (iii) expected volatility ranging from 137% to 138%, and (iv) 4 year term. No warrants were issued during 2008.  At December 31, 2009, vested warrants of 4,477,000 had an aggregate intrinsic value of $401,000.  Non-vested warrants of 1,523,000 had an aggregate intrinsic value of $2,000.


F-18



NOTE 8 – INCOME TAXES

The provision for income taxes on the statements of operations consists of $-0- and $-0- for the years ended December 31, 2009 and 2008, respectively.

Deferred tax assets are comprised of the following at December 31:

        2009
    2008
Net operating loss carryforward
              $ 8,913,000          $ 8,697,000   
Temporary differences
                 4,873,000             4,855,000   
Less valuation allowance
                 (13,786,000 )            (13,552,000 )  
 

Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes.  At December 31, 2009 and 2008, management determined that realization of these benefits is not assured and has provided a valuation allowance for the entire amount of such benefits.  At December 31, 2009 and 2008, net operating loss carryforwards were approximately $35,098,000 and $34,663,000, respectively, for federal tax purposes that expire at various dates from 2009 through 2028 and for state tax purposes expire in 2010 through 2019.

Utilization of net operating loss carryforwards may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state regulations.  The annual limitation may result in the expiration of substantial net operating loss carryforwards before utilization.

For December 31, 2009 and 2008, the provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (34% in 2009 and 2008) to income taxes as follows:

        2009
    2008
Tax benefit computed at 34%
              $ 216,000          $ 415,000   
Change in valuation allowance
                 (234,000 )            (828,000 )  
Change in carryovers and tax attributes
                 18,000             414,000   
 

NOTE 9 – RELATED PARTY TRANSACTIONS

The accounting firm of one of the Company’s former directors received approximately $48,000 of compensation for accounting services rendered to the Company during the year ended December 31, 2008.

NOTE 10 – COMMITMENTS

Operating Leases

The Company’s principal executive offices in New York are leased on a month to month basis for $500 per month.  As of December 31, 2009 and 2008, rent expense was $6,000, and $6,000 respectively.

Litigation

The Company is subject from time to time to litigation, claims and suits arising in the ordinary course of business.  As of December 31, 2009 and 2008, the Company was not party to any material litigation, claims or suit whose outcome could have material effect to the financial statements.

License Agreement

As discussed  in Note 3, the Company entered into a patent license agreement with Los Alamos National Security LLC for the exclusive use of certain technology relating to the manufacture and application of nanostructuring metals and alloys.  Under the terms of the agreement, the Company may be required to pay royalties, as defined, to the licensors.  The license rights also require the Company to meet certain milestones.  Twelve months from the effective date of the license rights agreement Manhattan will initiate negotiations with at least five companies regarding manufacture and distribution of licensed products.  Within twenty-four months Manhattan will establish capability for manufacturing a licensed product in New Mexico and within thirty-six months Manhattan will either manufacture a licensed product or close a sublicense agreement, or initiate a request for required government approval for a licensed product.



F-19


NOTE 11 – TECHNOLOGY TRANSFER AGREEMENT

On September 12, 2009, the Company entered into a perpetual technology transfer and sale agreement relating to its nanostructured metal technology with Carpenter Technology Corporation . The agreement provides that Carpenter Technology Corporation will bring to market products derived from the Company’s technology. The Company was paid upon execution of the agreement and will be entitled to annual payments thereafter including certain royalties provided that Manhattan has fully performed its obligation to Carpenter. As of December 31, 2009, the Company received $600,000 and recorded such amount as revenue for the year ended December 31, 2009. The Company has no ongoing technology development requirements but will  facilitate the purchase of a current generation ECAP-C production machine, by Carpenter. The sale of technology, licenses, fees, royalties and other provisions of this agreement shall be perpetual unless terminated by mutual agreement of both parties.  

NOTE 12 – ACQUISITION OF METALLICUM, INC.

In June 2008, the Company completed the purchase of Metallicum, Inc., a privately held research and development company of nano-structured materials, by acquiring all of the outstanding capital stock of Metallicum, Inc. for a total purchase price of $305,000. Metallicum, Inc.’s results of operations have been included in the consolidated financial statements since the date of acquisition. As a result of the acquisition, the Company is expected to be a leading provider of nano-structured materials and uses of these materials.

The aggregate purchase price of $305,000 consisted of common stock valued at $300,000 and the assumption of net liabilities of $5,000. The value of the 15 million common shares issued was determined based on the price of the Company’s common shares sold in a private placement offering to various accredited investors in 2008. The number of shares sold in the private placement is a greater indicator of fair value of the common stock since the Company’s stock is very thinly-traded on the NASDAQ OTCBB.  

The following table presents the allocation of the acquisition cost to the assets acquired and liabilities assumed, based on their fair values:

Cash and cash equivalents
              $ 7,000   
Other current assets
                 1,000   
Intangible assets
                 305,000   
Total assets acquired
                 313,000   
Accounts payable and other current liabilities
                 (13,000 )  
Total liabilities assumed
                 (13,000 )  
Net assets acquired
              $ 300,000   
 

The purchase price exceeded the fair values of the net assets acquired by $305,000, and this total amount was assigned to “License Agreements,” which are being amortized on the straight-line method over the estimated remaining lives of ten years.

In connection with the Metallicum acquisition, the Company has agreed to pay additional consideration in future periods, based upon the attainment by the acquired entity of defined operating objectives. In accordance with FASB ASC 805, the Company does not accrue contingent consideration obligations prior to the attainment of the objectives. At December 31, 2009, maximum potential future consideration pursuant to such arrangements, to be resolved over the following years, is the potential issuance of 15 million restricted shares of the Company’s common stock having a current approximate value of $300,000. Any such payments would result in increases in intangible assets.


F-20


MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008


NOTE 12 – ACQUISITION OF METALLICUM, INC. (Continued)

The required milestones for the issuance of these contingent shares are as follows:  

1.

Metallicum is granted an exclusive license by The Los Alamos National Laboratory (LANL) on patent numbers U.S.7152448, U.S.6399215 and U.S. 6197129 related to nanostructured materials.

2.

Metallicum sells nanostructured titanium to a partner or customer company which manufactures and sells in the United States a nonostructured titanium product which receives, if required, FDA approval.

3.

Metallicum, with purchaser’s cooperation, develops and submits U.S. patent applications to protect the current titanium nanostructuring technology for dental implants and additional medical device applications

4.

Metallicum secures commercial contracts for, in purchaser’s reasonable good faith judgment, material sales of nanostructured metal with at least two customers.

5.

The nanostructured metals enterprise is functioning on June 30, 2010.

Upon achieving milestones 1 and 2 Metallicum will receive 6,000,000 shares of common stock. Upon achieving each milestone 3, 4 and 5 Metallicum shareholders will receive 3,000,000 shares of common stock for each milestone reached.

 In January 2009, the Company did reach milestone 1.

License Rights

The Company purchased Metallicum to acquire its licensed rights to patented technology.  The technology is comprised of three US Patents (US Patent numbers 7152448, 6197129 and 6399215) for which Metallicum (subsequently, Manhattan) had been assigned an exclusive license rights by Los Alamos National Security LLC (LANL).  Under the license rights, Metallicum had all rights, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements on the patents or trade secrets whether or not patentable or registerable under copyright or similar laws.

Joint Venture

Metallicum has a joint venture agreement with Danlin Products Inc, (“Danlin”) and BASIC Dental Inc., (“BASIC”),  Danlin and BASIC own patents to which Metallicum has right of use.  Danlin and BASIC own machinery and equipment to which Metallicum has rights of use under the joint venture agreement. Metallicum, through its joint venture has co-developed and manufactured nano-titanium dental implants based upon Metallicum’s proprietary technology for nanostructuring metals and alloys. In January 2009, Danlin and BASIC received FDA approval to market the Company’s nano-titanium dental implants.

Metallicum will receive revenue from the transfer of nanostructured metal from Metallicum to Danlin equal to 10% of the revenue from the sales of BASIC dental implants that are made from the supplied nanostructured metal. As of December 31, 2009, Metallicum has not received any income related to the sales of BASIC dental implants.

Revenue from sales of nanostructured titanium for all other purposes other than the implants will go to the joint venture to be paid to Metallicum.

Any techniques, know-how, improvements, or modification to the existing inventions, intellectual property and technologies that are developed by the joint venture will be the sole and exclusive property of Metallicum.


F-21


MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008


NOTE 13 – SUBSEQUENT EVENTS

The Company evaluates events that occur subsequent to the balance sheet date of periodic reports, but before financial statements are issued for periods ending on such balance sheet dates, for possible adjustment to such financial statements or other disclosure. This evaluation generally occurs through the date at which the Company’s financial statements are electronically prepared for filing with the SEC. For the financial statements as of and for the periods ending December 31, 2009.

On February 8, 2010, the Company entered into an Acquisition Option Agreement with Senior Scientific LLC (“Senior Scientific”), Edward R. Flynn, Ph.D. ("Dr. Flynn") and Scientific Nanomedicine, Inc. (“Scientific Nanomedicine”).  The agreement transfers the commercial rights to technology and intellectual property with respect to the early detection of diseases using nano technologies owned by Scientific Nanomedicine.  The technology and intellectual property owned by Scientific Nanomedicine was developed by Senior Scientific and its President and Chief Executive Officer Dr. Edward R. Flynn.

The agreement gives the Company the future exclusive right to acquire Scientific Nanomedicine and its technology.  The Company can complete the acquisition by payment of a purchase price comprising cash and shares of the Company’s common stock.  The Company intends to pursue its established business model to work in close cooperation with pharmaceutical companies and medical device manufacturers to commercialize this technology.


F-22


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS


None


ITEM 9AT. CONTROLS AND PROCEDURES


(a) Evaluation of Disclosure Controls and Procedures


Our principal executive and principal financial officers have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.


Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.


Management’s Report on Internal Control Over Financial Reporting


Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:


 

1.

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

2.

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance  with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

 

3.

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. Based on this assessment, management concluded that the Company did not maintain effective internal controls over financial reporting as a result of the identified material weakness in our internal control over financial reporting described below. In making this assessment, management used the framework set forth in the report entitled Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.

 

Identified Material Weakness


A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.


17



Management identified the following material weakness during its assessment of internal controls over financial reporting as of December 31, 2009:


Resources : As of December 31, 2009, we had one full-time employee in general management and no full-time employees with the requisite expertise in the key functional areas of finance and accounting.  As a result, there is a lack of proper segregation of duties necessary to insure that all transactions are accounted for accurately and in a timely manner.

 

Written Policies & Procedures : We need to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review and submit SEC filings in a timely manner.

 

Audit Committee : We do not have, and are not required, to have an audit committee.  An audit committee would improve oversight in the establishment and monitoring of required internal controls and procedures.


Management’s Remediation Initiatives


During the year ended December 31, 2009, we generated revenue and are no longer a development stage company.  As our resources allow, we will add financial personnel to our management team.  We plan to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions.  We will also create an audit committee made up of our independent directors.


(b)

Changes In Internal Control Over Financial Reporting


We prepared written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions.  .


ITEM 9B. OTHER INFORMATION


None.


18


PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The names, ages and biographical information of each of our directors and executive officers as of December 31, 2008 are set forth below. There are no existing family relationships between or among any of our executive officers or directors.


NAME
        AGE
    POSITION
Emmanuel Tsoupanarias
           
57
   
Chairman of the Board, President and Chief Executive Officer
Leonard Friedman
           
72
   
Secretary and Director
Frank Georgiou
           
59
   
Director
Chris Theoharis
           
57
   
Director
 

There are no family relationships among any of our directors or officers.

Members of the Board serve until the next annual meeting of stockholders and until their successors are elected and qualified. Officers are appointed by and serve at the discretion of the Board.

None of our directors or executive officers has, during the past five years:

· been convicted in a criminal proceeding and none of our directors or executive officers is subject to a pending criminal proceeding,

· been subject to any order, judgment, or decree not subsequently reversed, suspended or vacated of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities, or

· been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

EMMANUEL TSOUPANARIAS has served as our chief executive officer and chairman of the Board since November 1, 2007.  Mr. Tsoupanarias is the president, founder and editor of FuelCellsWorks.com, a weekly trade publication that has become the voice of the fuel cell industry. He is internationally recognized as an expert in fuel cell development.  Prior to his tenure at FuelCellsWorks.com. Mr. Tsoupanarias was an executive in the power generation manufacturing sector. From 1992 to 2007 Mr. Tsoupanarias has served as a Project Manager in the power generation sector and from 2000 has served as a consultant in the fuel cell industry.


LEONARD FRIEDMAN has served as a director since October 2007.  Mr. Friedman is an honors graduate of Hunter College with a B.S. degree in economics and a minor in accounting.  He is also a graduate of Brooklyn Law School.  Mr. Friedman was a founder and partner in the law firm of Anes, Friedman, Leventhal & Rubin from which he retired in 2000.  Until 2002, he was CEO of Fiasco of New York, Inc., a restaurant and real estate corporation that owned and operated eight restaurants in New York and California.  


FRANK GEORGIOU has served as a director since October 2007.  Since 1993, Mr. Georgiou has been the President of Three Diamond Diner Corp., a private company that owns and operates the Mount Kisco Coach Diner.  He is the former President of the Upper New York Pangregorian, a consortium of restaurant owners.


CHRIS THEOHARIS has served as a director since October 2007.   Since 2003, Mr. Theoharis has worked as a consultant, both advising companies on small business acquisitions and business practices in the retail industry.  He currently works as a consultant for Maximum Quality Foods Inc., a northeast regional food distribution business which serves the independent retail industry as well as the institutional portion of the food industry.  Mr. Theoharis has also served as a consultant to Vested Business Brokers.  Prior to his work in the consulting industry, he worked as a stockbroker and financial advisor for Morgan Stanley from 1996 to 2003, leaving Morgan Stanley as an Associate Vice President status.  Mr. Theoharis has also worked for a public accounting firm and owned his own food distribution business.  He graduated from Adelphi University in 1970 with a Bachelors of Business Administration in Accounting (B.B.A.).


19




SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who own more than ten percent of our common stock to file reports of ownership and change in ownership with the Securities and Exchange Commission and the exchange on which the common stock is listed for trading. Executive officers, directors and more than ten percent stockholders are required by regulations promulgated under the Exchange Act to furnish us with copies of all Section 16(a) reports filed. Based solely on our review of copies of the Section 16(a) reports filed for the fiscal year ended December 31, 2008, we believe that our executive officers, directors and ten percent stockholders complied with all reporting requirements applicable to them.

CODE OF ETHICS

On March 31, 2005, we adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  A copy of the Company’s Code of Ethics can be viewed on the Company’s website at www.mhtx.com or obtained free of charge by sending a written request to the attention of the Company’s Chief Executive Officer, Emmanuel Tsoupanarias at 405 Lexington Avenue, 32nd Floor, New York, New York, 10174.

ITEM 11. EXECUTIVE COMPENSATION

The following tables set forth all compensation awarded by us to our executive officers for the fiscal years ended December 31, 2006, 2007 and 2008.  We do not have employment agreements with any of our officers.


Name


  
Year
  
Salary
($)
  
Bonus
($)
  
Stock
Awards
($)
  
Option
Awards
($)
  
Non-Equity
Incentive
Plan
Compensation ($)
  
Changes in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
  
All Other
Compensation ($)
  
Total
($)
Emmanuel Tsoupanarias CEO and Chairman
                 2007                                              
(1) 49,768
                             
(2)  284,002
         333,770   
 
                 2008              100,000                                                                                           100,000   
 
                 2009              100,000                                                                                           100,000   
 

(1)In November 2007, a warrant for 800,000 shares of common stock with an exercise price of $0.013 was granted.  The value of this option totaled $49,768 which was valued using the Black-Scholes option pricing model.

(2)In May 2007, 14,200,106 shares of common stock were issued for services rendered before appointment as a director and officer.


The Board of Directors serves as the Compensation Committee.  The Company’s Board of Directors relies on its independent judgment in determining the compensation to be paid to the Company’s executive officer.  Mr. Emmanuel Tsoupanarias, our Chief Executive Officer, does not have an employment agreement.  His salary, set at $100,000 was set by the Board of Directors in 2007.  He has not received any compensation from any equity compensation plans.  In November 2007, he received, along with each director, a warrant for 800,000 shares of common stock with an exercise price of $0.013.


Director Compensation

The following table sets forth a summary of the compensation earned by our non-employee directors in 2009:

Director Compensation Table (2009)  
Name
        Fees Earned
or paid in
cash
Stock
awards
    Option
Awards
    Non-equity
Deferred
comp.
earnings
    Nonqualified
Deferred
comp.
earnings
    All other
    Total
   
Frank Georgiou
              $ 6,000   
$—
   
$—
   
$—
   
$—
   
$—
   
$6,000
   
Leonard Friedman
                 6,000   
   
   
   
   
   
  6,000
   
Chris Theoharis
                 6,000   
   
   
   
   
   
  6,000
   
 


Emmanuel Tsoupanarias did not receive any compensation for his board participation.  His compensation is set forth above in the Executive Compensation Table:


20


Compensation Committee Interlocks and Insider Participation

Our entire board currently acts as our compensation committee. Emmanuel Tsoupanarias is the sole executive officer of our company. No member of the compensation committee is employed by or serving as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of our compensation committee.


OUTSTANDING EQUITY AWARDS

        Warrant Awards
   
Name
        Grant Date
    Number of
Securities
Underlying
Unexercised
Warrants (#)
Exercisable
    Equity Incentive
Plan Awards:
Number of
Securities Underlying
Unexercised Unearned
Warrants (#)
    Number of
Securities Underlying
Unexercised
Warrants (#)
Unexercisable (1)
    Warrant
Exercise
Price
($)
    Warrant
Expiration
Date
Emmanuel Tsoupanarias, Chairman and CEO
                 11/9/2007             800,000                                    $ 0.013             11/9/2017   
Leonard Friedman, Director
                 10/11/2007             800,000                                    $ 0.013             10/11/2017   
Frank Georgiou, Director
                 10/11/2007             800,000                                    $ 0.013             10/11/2017   
Chris Theoharis, Director
                 10/11/2007             800,000                                    $ 0.013             10/11/2017   
 


Grant of Plan Based Awards


No plan-based awards were made during the fiscal year ended December 31, 2009.


21


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of December 31, 2008, the names, addresses and number of shares of common stock beneficially owned by (i) all persons known to us to be the beneficial owners of more than 5% of the outstanding shares of common stock, (ii) each of our directors, (iii) each of our executive officers, and (iv) all of our directors and executive officers as a group. Except as indicated, each beneficial owner listed exercises sole voting power and sole dispositive power over the shares beneficially owned. Share ownership in each case includes shares issuable upon exercise of options exercisable within 60 days of the date of this Annual Report that would be required to be reported pursuant to Rule 13d-3 of the Securities Exchange Act of 1934 for purposes of computing the percentage of common stock owned by such person but not for purposes of computing the percentage owned by any other person. Unless otherwise indicated, the address of the below-listed persons is our address, 405 Lexington Avenue, 32 nd Floor, New York, New York 10174.

Name and Address of Beneficial Owner
        Number of Shares
Beneficially Owned
    Percent of Class(1)
Emmanuel Tsoupanarias (2)
                 15,250,106             3.8 %  
Leonard C. Friedman (3)
                 7,500,000             1.9 %  
Frank Georgiou (4)
                 22,500,106             5.7 %  
Chris Theoharis (5)
                 5,000,105             1.3 %  
Directors and Executive Officers as a group (4 persons)
                 52,750,317             13.2 %  
 
Marvin Maslow (6)
                 55,867,606             13.2 %  
 

(1)This tabular information is intended to conform with Rule 13d-3 promulgated under the Securities Exchange Act of 1934 relating to the determination of beneficial ownership of securities.  The percent of class is based on 397,452,926 shares and, for each beneficial owner, gives effect to the exercise of warrants or options exercisable within 60 days of the date of this table owned, in each case, by the person or group whose percentage ownership is set forth herein.

(2)Includes 14,200,106 owned by Saraklis Inc, a corporation controlled by Mr. Tsoupanarias and a warrant to purchase 800,000 shares at a price of $0.013 per share.

(3)Includes a warrant to purchase 800,000 shares at a price of $0.013 per share.

(4)Includes a warrant to purchase 800,000 shares at a price of $0.013 per share.

(5)Includes a warrant to purchase 800,000 shares at a price of $0.013 per share.

(6)Includes 28,947,606 shares of Common Stock, options to purchase 25,000,000 shares of Common Stock, a warrant to purchase 800,000 shares of Common Stock and 1,120,000 shares of Common Stock owned by Mr. Maslow's wife.


22


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

As of December 31, 2008, we have loans payable of $450,000 and $545,000 payable to our former Chief Operating Officer Jack Harrod and former Chief Executive Officer Marvin Maslow.  Neither Mr. Harrod or Mr. Maslow are officers or directors of the Company.  Mr. Harrod resigned April 1, 2006.  Mr. Maslow resigned November 1, 2007.  The loans bore interest at 5.5% per annum and were initially due December 31, 2002 and have been mutually extended and settled.  Under the terms of the settlement, dated December 12, 2007, the loans bear interest at 5% per annum and are now fully due.  We have recorded interest expense for notes payable to these former officers of approximately $50,000 and $61,000 for the years ended December 31, 2008 and 2007, respectively.  Accrued interest related to these notes payable approximated $281,750 and $232,000 as of December 31, 2008 and 2007, respectively.  In May 2007, we issued 14,200,106 shares of common stock to its former Chief Executive Officer for settlement of debt totaling $71,000.  As part of the settlement in December 2007, the former Chief Operating Officer and former Chief Executive Officer collectively forgave $1,416,500 of their outstanding accrued salaries ($1,387,500) and note payable ($29,000) balances.  The amount forgiven has been accounted for as contributed capital.  Additionally, we repaid $5,000 of the former Chief Executive Officer’s note payable balance.  The remaining unpaid note payable balances totaling $995,000 at December 31, 2008 are unsecured and accrue interest at five percent (5%) per annum.

Teich, Beim & Moro, P.C., an accounting firm in which David Teich, our former treasurer and a director, is a principal, received approximately $34,500 and $48,000 of compensation for accounting services rendered to us during the years ended December 31, 2009 and December 31, 2008, respectively.  Mr. Teich resigned effective December 31, 2008.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES


INDEPENDENT AUDITOR FEES


The following is a summary of the fees billed to us by our independent auditors for the fiscal year ended December 31, 2009 and December 31, 2008:

 

Fee Category
        Fiscal 2009
    Fiscal 2008
Audit fees
              $ 63,000          $ 50,000   
Tax fees
                                 
Other fees
                                 
Total fees
              $ 63,000          $ 50,000   
 


Audit Fees. Consists of aggregate fees billed for professional services rendered for the audit of our consolidated financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by our auditors in connection with statutory and regulatory filings or engagements.


Tax Fees. Consists of aggregate fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal and state tax compliance.


Other Fees. Consists of fees for products and services other than the services reported above. There were no management consulting services provided in fiscal 2007 or 2006.


We do not currently have an Audit Committee. Our full Board of Directors considers whether the provision of these services is compatible with maintaining the auditor's independence, and has determined such services for fiscal 2005 and 2006 were compatible.


BOARD OF DIRECTORS POLICY ON PRE-APPROVAL OF SERVICES OF INDEPENDENT AUDITORS


The Board of Directors’ policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors on a case-by-case basis. These services may include audit services, audit-related services, tax services and other services.


23


ITEM 15. EXHIBITS


(a) EXHIBITS


Exhibit
Number
           
Description of Exhibit
2.1
           
Agreement and Plan of Reorganization (1)
2.2
           
Agreement and Plan of Merger (1)
3.1
           
Certificate of Incorporation (1)
3.2
           
Amendment to Certificate of Incorporation (1)
3.3
           
Bylaws (1)
4.1
           
Amended Certificate of Designation, Preferences and Rights of Series C Preferred Stock (2)
10.1
           
License/Assignment Agreement with Robert Glenn Hockaday, and DKY, Inc. (1)
10.2
           
Research and Development Agreement with Energy Related Devices, Inc. (1)
10.3
           
Letter Agreement with Energy Related Devices, Inc. and Robert Glenn Hockaday (1)
10.4
           
Intellectual Property Assignment and Research and Development Agreement with Novars Gesellschaft fur neue Technologien GmbH (1)
10.5
           
License Option Agreement with The Regents of the University of California (1)
10.6
           
Manhattan Scientifics, Inc. 1998 Stock Option Plan (1)
10.1
           
Stock Purchase Agreement between Manhattan Scientifics, Inc., Projectavision, Inc., and Lancer Partners, L.P. (3)
10.1
           
License Option Agreement with Mr. Edward Vanzo (4)
10.12
           
Manhattan Scientifics, Inc. 2000 Equity Incentive Plan (5)
10.13
           
2004 Consultant Stock Plan (6)
10.14
           
Loan Agreement with Oro Valley Associates, LLC (7)
10.15
           
Warrant Agreement with Oro Valley Associates, LLC (7)
10.16
           
Manhattan Scientifics 2005 Equity Incentive Plan (8)
10.17
           
Stock Purchase Agreement, dated as of June 12, 2008, among Manhattan Scientifics, Inc., Metallicum, Inc., and the shareholders of Metallicum (9)
10.18
           
Acquisition Option Agreement by and among Senior Scientific LLC, Edward R. Flynn, Ph.D., Scientific Nanomedicine, Inc. and Manhattan Scientifics, Inc. (8) )
10.19
           
Stock Purchase Agreement, dated as of June 12, 2008, among Manhattan Scientifics, Inc., Metallicum, Inc., and the shareholders of Metallicum (9)
10.20
           
Settlement and Memorandum of Agreement among Marvin Maslow, Jack B. Harrod and Manhattan Scientifics, Inc. (9)
10.21
           
Patent License Agreement Between Los Alamos National Security, LLC and Manhattan Scientifics, Inc. (9)
14
           
Code of Ethics (9)
21
           
List of Subsidiaries (9)
31.1
           
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and 15d- 14(a) (9)
31.2
           
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and 15d- 14(a) (9)
32.1
           
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (9)
32.1
           
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (9)
 

(1) Incorporated by reference to the registrant's Form 10-SB filed with the Commission on December 8, 1999.

(2) Reserved

(3) Incorporated by reference as Amendment No. 2 to the registrant's Form 10-SB filed with Commission on February 9, 2000.

(4) Incorporated by reference to Amendment No. 3 to the registrant's Form 10-SB filed with the Commission on March 29, 2000.

(5) Incorporated by reference to the registrant's registration statement filed on Form S-8 filed with the Commission on September 14, 2001.

(6) Incorporated by reference to the registrant's registration statement filed on Form S-8 filed with the Commission on November 26, 2004.

(7) Incorporated by reference to the registrant's Form 10-KSB filed with the Commission on April 15, 2005.

(8) Incorporated by reference to the registrant's registration statement filed on Form S-8 filed with the Commission on June 8, 2005.

(9) Filed herewith.


24


SIGNATURES


In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 6 th day ofApril 2010.

 

 

 

 

 

 

MANHATTAN SCIENTIFIC, INC.

 

 

 

 

 

 

By:

/s/  Emmanuel Tsoupanarias

 

 

 

Emmanuel Tsoupanarias

 

 

 

Chief Executive Officer

 

 

 

 

 

 

In accordance with the Exchange Act, this report has been signed below by the following persons on April 9, 2010, on behalf of the registrant and in the capacities indicated.



 

 

Signature

Title

  

  

/s/ Emmanuel Tsoupanarias

Chief Executive Officer,

Emmanuel Tsoupanarias

President, Chairman of the Board

(Principal Executive Officer)

  

  

/s/ Leonard Friedman

Secretary and Director

Leonard Friedman

 

  

  

/s/ Frank Georgiou

Director

Frank Georgiou


 

  

  

/s/ Chris Theoharis

Treasurer and Director (Principal Financial Officer)

Chris Theoharis


 


25


 

 

STOCK PURCHASE AGREEMENT

AMONG

MANHATTAN SCIENTIFICS, INC.,

METALLICUM, INC.

AND

THE SHAREHOLDERS OF METALLICUM, INC.

 

 

Dated June o , 2008

 

 


TABLE OF CONTENTS

Section             Page
Article I SALE AND PURCHASE OF SHARES
     1   
1.1
           
Sale and Purchase of Shares.
         1    
Article II PURCHASE PRICE AND PAYMENT
     1   
2.1
           
Amount and Payment of Purchase Price.
         1    
Article III CLOSING AND TERMINATION
     3   
3.1
           
Closing Date.
         3    
3.2
           
Termination of Agreement.
         3    
Article IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS
     3   
4.1
           
Organization and Good Standing of Metallicum.
         3    
4.2
           
Authority.
         3    
4.3
           
Shares.
         4    
4.4
           
Basic Corporate Records.
         4    
4.5
           
Subsidiaries and Affiliates.
         5    
4.6
           
Consents.
         5    
4.7
           
Financial Statements.
         5    
4.8
           
Taxes.
         5    
4.9
           
Real Property Matters.
         6    
4.10
           
Patents, Software, Trademarks, Etc.
         6    
4.11
           
Machinery and Equipment.
         7    
4.12
           
Lists of Contracts, Etc.
         7    
4.13
           
Compliance With the Law.
         8    
4.14
           
Litigation.
         8    
4.15
           
Absence of Certain Changes or Events.
         8    
4.16
           
Absence of Certain Commercial Practices.
         9    
4.17
           
Environmental Matters.
         9    
4.18
           
Investment Intent.
         9    
4.19
           
Investment Experience; Suitability.
         10    
4.20
           
Accreditation.
         10    
Article V REPRESENTATIONS AND WARRANTIES OF PURCHASER
     10   
5.1
           
Organization and Good Standing of the Purchaser.
         10    
5.2
           
Authority.
         10    
5.3
           
Consents.
         10    
5.4
           
Litigation.
         11    

 

i



Section             Page
5.5
           
Investment Intent.
         11    
5.6
           
Due Authorization of Purchaser Shares.
         11    
Article VI COVENANTS
     11   
6.1
           
Access to Information.
         11    
6.2
           
Conduct of the Business Pending the Closing.
         12    
6.3
           
Other Actions.
         13    
6.4
           
Use of Name.
         13    
6.5
           
Employment Agreements.
         13    
6.6
           
Tax Election.
         13    
6.7
           
Tax Matters.
         14    
6.8
           
Non-Competition.
         14    
Article VII CONDITIONS TO CLOSING
     15   
7.1
           
Conditions Precedent to Obligations of Purchaser.
         15    
7.2
           
Conditions Precedent to Obligations of the Sellers.
         15    
Article VIII DOCUMENTS TO BE DELIVERED
     16   
8.1
           
Documents to be Delivered by the Sellers.
         16    
8.2
           
Documents to be Delivered by the Purchaser.
         16    
Article IX INDEMNIFICATION
     16   
9.1
           
Indemnification.
         16    
9.2
           
Limitations on Indemnification for Breaches of Representations and Warranties.
         17    
Article X MISCELLANEOUS
     18   
10.1
           
Survival of Representations and Warranties.
         18    
10.2
           
Expenses.
         18    
10.3
           
Further Assurances.
         18    
10.4
           
Governing Law; Submission to Jurisdiction.
         18    
10.5
           
Entire Agreement; Amendments and Waivers.
         18    
10.6
           
Counterparts.
         19    
10.7
           
Notices.
         19    
10.8
           
Binding Effect; Assignment; Severability
         20    

 

ii


STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT is made as of June [•], 2008 (the “ Agreement ”), among Manhattan Scientifics, Inc., a corporation existing under the laws of Delaware (the “ Purchaser ”), Metallicum, Inc., a corporation existing under the laws of New Mexico (“Metallicum”), and the shareholders of Metallicum listed on Schedule 1 hereof (collectively the “ Sellers ”).

W I T N E S S E T H:

WHEREAS, the Sellers own an aggregate of 2,000 shares of common stock, no par value per share (the “ Shares ”), of Metallicum, which Shares constitute all of the issued and outstanding shares of capital stock of Metallicum; and

WHEREAS, the Sellers desire to sell to Purchaser, and the Purchaser desires to purchase from the Sellers, the upon the terms and conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter contained, the parties hereby agree as follows:

ARTICLE I SALE AND PURCHASE OF SHARES

 

1.1

Sale and Purchase of Shares.

Upon the terms and subject to the conditions contained herein, on the Closing Date each Seller shall sell, assign, transfer, convey and deliver to the Purchaser, and the Purchaser shall purchase from each Seller, all Shares of Metallicum owned by such Seller set forth opposite such Seller's name on Schedule 1 attached hereto.

ARTICLE II PURCHASE PRICE AND PAYMENT

 

2.1

Amount and Payment of Purchase Price.  

 

(a)

On the Closing Date, the Purchaser shall issue 15,000,000 shares of Purchaser’s common stock (the “ Common Stock ”) to the Sellers based on the percentages set forth on Schedule 1 .

 

(b)

After the Closing Date, an additional 15,000,000 shares of Common Stock will be payable to the Sellers in the event:

 

(i)

Metallicum is granted an exclusive license by The Los Alamos National Laboratory on patents US7152448 and US6399215 related to nanostructured materials;

 

(ii)

Metallicum manufactures and sells in the United States a nanostructured titanium dental implant product and receives, if required, Food and Drug Administration approval;

 


 

(iii)

Metallicum, with Purchaser’s cooperation, develops and submits U.S. patent applications to protect the current titanium nanostructuring technology for dental implant and additional medical device applications;

 

(iv)

Metallicum secures commercial contracts for, in Purchaser’s reasonable good faith judgment, material sales of nanostructured metal with at least two customers; provided that any commercial contract for the sale of nanostructured metal;

 

(v)

Metallicum is a subsidiary of the Purchaser on May 30, 2010; provided that Terry C. Lowe is employed by Metallicum on such date.

Upon achieving both milestones listed in (i) and (ii) above, the Sellers will receive 6,000,000 shares of Common Stock based on the percentages set forth on Schedule 1. Upon achieving each of the milestones listed in (iii), (iv) and (v) above, the Sellers will receive 3,000,000 shares of Common Stock based on the percentages set forth on Schedule 1; provided, that both of the milestones listed in (i) and (ii) above have been achieved. If the Purchaser sells Metallicum, prior to May 30, 2010, all milestones shall be considered achieved and the Purchase will deliver the shares of Common Stock to the Sellers for all milestones.

If, one year from the Closing Date, Metallicum has not achieved the milestones described in subsection (b)(i) and (b)(ii) of this Section 2.1, Purchaser shall have the ability, by sending a notice to the shareholders of Metallicum, to rescind the purchase of Metallicum by Purchaser. As a result of such rescission, the Purchaser shall exchange the Shares of Metallicum received on the Closing Date for the shares of the Purchaser’s Common Stock issued to the shareholders of Metallicum on and after the Closing Date.

Purchaser agrees and acknowledges that it shall be required to support Metallicum and provide resources, in its good faith judgment, to Metallicum to achieve the above milestones.

 

(c)

If, one year from the Closing Date, Purchaser is not current in its periodic reporting obligations under the Securities Exchange Act of 1934, Metallicum’s shareholders shall have the ability, by sending a notice to the Purchaser, to rescind the purchase of Metallicum by Purchaser. As a result of such rescission, the shareholders of Metallicum will exchange any shares of the Purchaser’s Common Stock received on and from the Closing Date for the number of Metallicum Shares owned by such stockholder on the Closing Date.

 

(d)

The shareholders of Metallicum shall not sell shares of the Purchaser’s Common Stock until after the one-year anniversary of the Closing Date; provided , however , after six months from the Closing Date, the shareholders of Metallicum may sell shares in accordance with the provisions in subsection (e) hereof after any 20 consecutive trading day period when (i) the average daily trading volume is 10 times the 20-day trading period immediately preceding the Closing Date and (ii) the daily closing price during such trading period shall have increased on each consecutive day during the trading period.

 

2

 


 

(e)

Notwithstanding anything herein to the contrary, after the one-year anniversary of the Closing Date, each shareholder of Metallicum may sell in any three-month period up to 25% of the average weekly trading volume of the security for the four calendar weeks prior to the sale.

ARTICLE III CLOSING AND TERMINATION

3.1

Closing Date.  

Subject to the satisfaction of the conditions set forth in Sections 7.1 and 7.2 hereof (or the waiver thereof by the party entitled to waive that condition), the closing of the sale and purchase of the Shares provided for in Section 2 hereof (the “ Closing ”) shall take place at the offices of Sichenzia Ross Friedman Ference LLP, 61 Broadway, New York, NY 10006 (or at such other place as the parties may designate in writing) on such date as the Sellers and the Purchaser may designate. The Closing may also take place through the delivery of documents in electronic or telefaxed format or through courier delivery of actual signatures to counsel for the parties.

 

3.2

Termination of Agreement.

This Agreement may be terminated prior to the Closing by either (a) mutual written consent of the Sellers and the Purchaser or (b) the failure to complete the Closing by June 30. In the event that this Agreement is validly terminated as provided herein, then each of the parties shall be relieved of their duties and obligations arising under this Agreement after the date of such termination and such termination shall be without liability to the Purchaser, Metallicum or any Seller; provided , however , that nothing in this Section 3.2 shall relieve the Purchaser or any Seller of any liability for a breach of this Agreement.

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS

For purposes of this Agreement, any statement made to the knowledge of Metallicum shall mean the knowledge of the Sellers. A Seller shall be deemed to have “knowledge” of a particular fact or other matter if such Seller is actually aware of such fact or other matter, or should, by reason of his or her position as an owner, director or executive officer of Metallicum, reasonably be expected to be aware of such fact or other matter.

The Sellers hereby jointly and severally represent and warrant to the Purchaser that:

 

4.1

Organization and Good Standing of Metallicum.  

Metallicum is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation as set forth above.

 

4.2

Authority.

 

(a)

Metallicum has full power and authority (corporate and otherwise) to carry on its business and has all permits and licenses that are necessary to the conduct of its business or to the ownership, lease or operation of its properties and assets, except

 

3

 


where the failure to have such permits and licenses would not have a Material Adverse Effect.

 

(b)

The execution of this Agreement and the delivery hereof to the Purchaser and the sale contemplated herein have been, or will be prior to Closing, duly authorized by Metallicum’s Board of Directors and by Metallicum’s stockholders having full power and authority to authorize such actions.

 

(c)

Neither the execution and delivery of this Agreement, the consummation of the transactions herein contemplated, nor compliance with the terms of this Agreement will violate, conflict with, result in a breach of, or constitute a default under any statute, regulation or other agreement to which Metallicum or any Seller is a party or by which it or any of them is bound, any charter, regulation, or bylaw provision of Metallicum, or any decree, order, or rule of any court or governmental authority or arbitrator that is binding on Metallicum or any Seller in any way, except where such would not have a Material Adverse Effect.

4.3

Shares.

 

(a)

Metallicum’s authorized capital stock consists of 2,000 shares of Common Stock, no par value per share, of which 2,000 shares have been issued to Sellers and constitute the Shares as defined above. All of the Shares are duly authorized, validly issued, fully paid and non-assessable.

 

(b)

The Sellers are the lawful record and beneficial owners of all the Shares, free and clear of any liens, pledges, encumbrances, charges, claims or restrictions of any kind and have, or will have on the Closing Date, the absolute, unilateral right, power, authority and capacity to enter into and perform this Agreement without any other or further authorization, action or proceeding, except as specified herein.

 

(c)

There are no authorized or outstanding subscriptions, options, warrants, calls, contracts, demands, commitments, convertible securities or other agreements or arrangements of any character or nature whatever under which any Seller or Metallicum are or may become obligated to issue, assign or transfer any shares of capital stock of Metallicum. Upon the delivery to Purchaser on the Closing Date of the certificate(s) representing the Shares, Purchaser will have good, legal, valid, marketable and indefeasible title to all the then issued and outstanding shares of capital stock of Metallicum, free and clear of any liens, pledges, encumbrances, charges, agreements, options, claims or other arrangements or restrictions of any kind.

 

4.4

Basic Corporate Records.  

The copies of the Articles of Incorporation of Metallicum (certified by the Secretary of State or other authorized official of the jurisdiction of incorporation), and the Bylaws of Metallicum, all of which have been delivered to the Purchaser, are true, correct and complete as of the date of this Agreement.

 

4

 

 


The minute books of Metallicum, which shall be exhibited to the Purchaser between the date hereof and the Closing Date, each contain true, correct and complete minutes and records of all meetings, proceedings and other actions of the shareholders and Board of Directors of Metallicum, except where such would not have a Material Adverse Effect and, on the Closing Date, will, to the best of Sellers’ knowledge, contain true, correct and complete minutes and records of any meetings, proceedings and other actions of the shareholders and the Board of Directors of Metallicum.

 

4.5

Subsidiaries and Affiliates.  

Any and all businesses, entities, enterprises and organizations in which Metallicum has any ownership, voting or profit and loss sharing percentage interest (the “ Subsidiaries ”) are identified in Schedule 4.5 hereto, together with Metallicum’s interest therein.

 

4.6

Consents.  

No consents or approvals of any public body or authority and no consents or waivers from other parties to leases, licenses, franchises, permits, indentures, agreements or other instruments are (i) required for the lawful consummation of the transactions contemplated hereby, or (ii) necessary in order that the business currently conducted by Metallicum can be conducted by the Purchaser in the same manner after the Closing as heretofore conducted by Metallicum, nor will the consummation of the transactions contemplated hereby result in creating, accelerating or increasing any liability of Metallicum, except where the failure of any of the foregoing would not have a Material Adverse Effect.

 

4.7

Financial Statements.  

The Sellers have delivered, or will deliver prior to Closing, to the Purchaser copies of the financial statements dated December 31, 2007 and the period then ended, all of which are true, complete and correct, have been prepared from the books and records of Metallicum. The records and books of the Company reflect all material assets, liabilities and accruals.

There are no liabilities or obligations of Metallicum of any kind whatsoever exceeding $10,000, individually or in the aggregate, whether accrued, fixed, absolute, contingent, determined or determinable, except as identified in Schedule 4.14.

 

4.8

Taxes.  

 

For purposes of this Agreement, “ Tax ” or “ Taxes ” refers to any and all federal taxes, assessments and other governmental charges, duties, impositions and liabilities relating to taxes, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes and escheatment payments, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity.

 

5

 

 


Metallicum has timely filed all federal returns, estimates, information statements and reports (“ Tax Returns ”) relating to Taxes required to be filed by Metallicum with any Tax authority effective through the Closing Date. All such Returns are true, correct and complete in all respects, except for immaterial amounts where such would not have a Material Adverse Effect.

Metallicum has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding or assessed against Metallicum. Metallicum has not executed any unexpired waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax.

 

4.9

Real Property Matters.  

Metallicum does not own any real property as of the date hereof and has not owned any real property during the three years preceding the date hereof.

 

4.10

Patents, Software, Trademarks, Etc.  

Metallicum owns, or possesses adequate licenses or other rights to use, all patents, software, trademarks, service marks, trade names and copyrights and trade secrets, if any, necessary to conduct its Business as now operated by it. The patents, software, trademarks, service marks, copyrights, trade names and trade secrets, if any, registered in the name of or owned or used by or licensed to Metallicum and applications for any thereof (hereinafter the “ Intangibles ”) are described or referenced in Schedule 4.10 . Sellers hereby specifically acknowledge that all right, title and interest in and to all patents and software listed on Schedule 4.10 as patents owned by Metallicum are owned by Metallicum or Metallicum has a right to use same and that the ownership of such patents and software will be transferred as part of Metallicum to Purchaser as part of the transaction contemplated hereby. No officer, director, shareholder or employee of Metallicum or any relative or spouse of any such person owns any patents or patent applications or any inventions, software, secret formulae or processes, trade secrets or other similar rights, nor is any of them a party to any license agreement, used by or useful to Metallicum or related to its business except as listed in Schedule 4.10 .

All of said Intangibles are valid and in good standing to the best of Sellers’ knowledge, and are free and clear of all liens, security interests, charges, restrictions and encumbrances of any kind whatsoever, and have not been licensed to any third party except as described in Schedule 4.10 . Metallicum has not been charged with, nor to Sellers’ knowledge has it infringed or is it threatened to be charged with infringement of, any patent, proprietary rights or trade secrets of others in the conduct of its business, and, to the date hereof, neither the Sellers nor Metallicum has received any notice of conflict with or violation of the asserted rights in intangibles or trade secrets of others. Metallicum is not now manufacturing any goods under a present permit, franchise or license, except as set forth in said Schedule 4.10 . The consummation of the transactions contemplated hereby will not alter or impair any rights of Metallicum in any such Intangibles or in any such permit, franchise or license, except as described in Schedule 4.10 . The Intangibles and Metallicum’s tooling, manufacturing and engineering drawings, process sheets, specifications, bills of material and other like information and data are in such form and of such quality and will be maintained in such a manner that

 

6

 

 


Metallicum can, following the Closing, design, produce, manufacture, assemble and sell the products and provide the services heretofore provided by it so that such products and services meet applicable specifications and conform with the standards of quality and cost of production standards heretofore met by it. To Sellers’ knowledge, Metallicum has the sole and exclusive right to use its corporate and trade names in the jurisdictions where it transacts business.

 

4.11

Machinery and Equipment.

Except for items disposed of in the ordinary course of business, all machinery, tools, furniture, fixtures, equipment, vehicles, leasehold improvements and all other tangible personal property (hereinafter “ Fixed Assets ”) of the Company currently being used in the conduct of its business (the “ Business ”), together with any machinery or equipment that is leased or operated by the Company, are in fully serviceable working condition and repair. Schedule 4.11 describes all Fixed Assets owned by Metallicum. All Fixed Assets owned, used or held by the Company are situated at its business premises and are currently used in its Business.

 

4.12

Lists of Contracts, Etc.  

There is included in Schedule 4.12 a list of the following items (whether written or oral) relating to Metallicum, which list identifies and fairly summarizes each item (collectively, “ Contracts ”):

 

(a)

All joint venture contracts of Metallicum or affiliates relating to the Business;

 

(b)

All contracts of Metallicum relating to (a) obligations for borrowed money and (b) obligations under capital leases, (e) debt of others secured by a lien on any asset of Metallicum, and (f) debts of others guaranteed by Metallicum;

 

(c)

All agreements of Metallicum relating to the supply of raw materials for and the distribution of the products of its business, including without limitation all sales agreements, manufacturer’s representative agreements and distribution agreements of whatever magnitude and nature, and any commitments therefor;

 

(d)

All contracts that individually provide for aggregate future payments to or from Metallicum of $50,000 or more, to the extent not included in (a) through (c) above;

 

(e)

All contracts of Metallicum that have a term exceeding one year and that may not be cancelled without any liability, penalty or premium, to the extent not included in (a) through (d) above;

 

(f)

All contracts, agreements and commitments of Metallicum set forth in Schedule 4.12 are valid, binding and in full force and effect, and (ii) neither Metallicum nor, to the best of Sellers’ knowledge, any other party to any such contract, agreement, or commitment has materially breached any provision thereof or is in default thereunder. Immediately after the Closing, each such contract, agreement or commitment will continue in full force and effect without

 

7

 

 


the imposition or acceleration of any burdensome condition or other obligation on Metallicum resulting from the sale of the Shares by the Sellers.

 

4.13

Compliance With the Law.  

Metallicum is not in violation of any applicable federal, state, local or foreign law, regulation or order or any other, decree or requirement of any governmental, regulatory or administrative agency or authority or court or other tribunal (including, but not limited to, any law, regulation order or requirement relating to securities, properties, business, products, manufacturing processes, advertising, sales or employment practices, terms and conditions of employment, occupational safety, health and welfare, conditions of occupied premises, product safety and liability, civil rights, or environmental protection, including, but not limited to, those related to waste management, air pollution control, waste water treatment or noise abatement), except where such would not have a Material Adverse Effect. Metallicum has not been and is not now charged with, or to the best knowledge of the Sellers or Metallicum under investigation with respect to, any violation of any applicable law, regulation, order or requirement relating to any of the foregoing, nor, to the best knowledge of any Seller or Metallicum after due inquiry, are there any circumstances that would or might give rise to any such violation. Metallicum has filed all reports required to be filed with any governmental, regulatory or administrative agency or authority, except where the failure to file such would not have a Material Adverse Effect.

 

4.14

Litigation.  

Except as specifically identified on the Balance Sheet or footnotes thereto or set forth in Schedule 4.14 :

 

(a)

There are no legal, administrative, arbitration or other proceedings or governmental investigations pending or, to the best knowledge of Sellers or Metallicum, threatened, against the Sellers or Metallicum, relating to its Business or Metallicum or its properties (including leased property), or the transactions contemplated by this Agreement, nor is there any basis known to Metallicum or any Seller for any such action.

 

(b)

There are no judgments, decrees or orders of any court, or any governmental department, commission, board, agency or instrumentality binding upon Sellers or Metallicum relating to its Business or Metallicum the effect of which is to prohibit any business practice or the acquisition of any property or the conduct of any business by Metallicum or which limit or control or otherwise would have a Material Adverse Affect on its method or manner of doing business.

 

4.15

Absence of Certain Changes or Events.  

Metallicum has not, since December 31, 2008:

 

(a)

Incurred any material obligation or liability (absolute, accrued, contingent or otherwise), except in the ordinary course of its business consistent with past practice or in connection with the performance of this Agreement;

 

8

 


 

(b)

Disposed of or permitted to lapse any patents or trademarks or any patent or trademark applications material to the operation of its Business; or

 

(c)

Issued any stocks, bonds, or other corporate securities, or made any declaration or payment of any dividend or any distribution in respect of its capital stock.

 

4.16

Absence of Certain Commercial Practices.  

Metallicum nor any Seller has made any payment (directly or by secret commissions, discounts, compensation or other payments) or given any gifts to another business concern, to an agent or employee of another business concern or of any governmental entity (domestic or foreign) or to a political party or candidate for political office (domestic or foreign), to obtain or retain business for Metallicum or to receive favorable or preferential treatment, except for gifts and entertainment given to representatives of customers or potential customers of sufficiently limited value and in a form (other than cash) that would not be construed as a bribe or payoff.

 

4.17

Environmental Matters.  

The operations of Metallicum, to the best knowledge of Sellers, are in compliance with all applicable laws promulgated by any governmental entity which prohibit, regulate or control any hazardous material or any hazardous material activity (“ Environmental Laws ”) and all permits issued pursuant to Environmental Laws or otherwise except for where noncompliance or the absence of such permits would not, individually or in the aggregate, have a Material Adverse Effect;

Metallicum has obtained all permits required under all applicable Environmental Laws necessary to operate its business, except for any failures of such which would not have a Material Adverse Effect;

Metallicum is not the subject of any outstanding written order or Contract with any governmental authority or person respecting Environmental Laws or any violation or potential violations thereof; and

Metallicum has not received any written communication alleging either or both that Metallicum may be in violation of any Environmental Law, or any permit issued pursuant to Environmental Law, or may have any liability under any Environmental Law.

 

4.18

Investment Intent.

The Purchaser Shares are being acquired hereunder by the Sellers for investment purposes only, for their own account, not as a nominee or agent and not with a view to the distribution thereof. The Sellers have no present intention to sell or otherwise dispose of the Purchaser Shares and they will not do so except in compliance with the provisions of the Securities Act of 1933, as amended, and applicable law. The Sellers understand that the Purchaser Shares which may be acquired hereunder must be held by them indefinitely unless a subsequent disposition or transfer of any of said shares is registered under the Securities Act of 1933, as amended, or is exempt from registration therefrom. The Sellers further understand that the exemption from registration afforded by Rule 144 (the provisions of which are known to

 

9

 

 


such Seller) promulgated under the Securities Act of 1933, as amended, depends on the satisfaction of various conditions, and that, if and when applicable, Rule 144 may afford the basis for sales only in limited amounts.

 

4.19

Investment Experience; Suitability.

The Sellers are each sophisticated investors familiar with the type of risks inherent in the acquisition of securities such as the Purchaser Shares and the Sellers’ financial position is such that the Sellers can afford to retain the shares of Purchaser Shares for an indefinite period of time without realizing any direct or indirect cash return on its investment.

 

4.20

Accreditation.

[•] are “accredited investors” within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended. The Sellers understand that the Purchaser Shares are being offered to them in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Purchaser is relying upon the truth and accuracy of, and the Sellers’ compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Sellers set forth herein in order to determine the availability of such exemptions and the eligibility of the Sellers to acquire the Purchaser Shares.

ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

5.1

Organization and Good Standing of the Purchaser.

The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.

 

5.2

Authority.

(a)       The execution and delivery of this Agreement and the consummation of the transactions contemplated herein have been, or will prior to Closing be, duly and validly approved and acknowledged by all necessary corporate action on the part of the Purchaser.

(b)       The execution of this Agreement and the delivery hereof to the Sellers and the purchase contemplated herein have been, or will be prior to Closing, duly authorized by the Purchaser’s Board of Directors having full power and authority to authorize such actions.

 

5.3

Consents.  

 

(a)

The execution and delivery of this Agreement, the acquisition of the Shares by Purchaser and the consummation of the transactions herein contemplated, and the compliance with the provisions and terms of this Agreement, are not prohibited by the Articles of Incorporation or Bylaws of the Purchaser and will not violate, conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any court order, indenture, mortgage, loan agreement,

 

10

 

 


or other agreement or instrument to which the Purchaser is a party or by which it is bound.

 

(b)

No consent, waiver, approval, order, permit or authorization of, or declaration or filing with, or notification to, any person or governmental body is required on the part of the Purchaser in connection with the execution and delivery of this Agreement or any other agreement referenced herein or the compliance by Purchaser with any of the provisions hereof or thereof.

 

5.4

Litigation.

There are no legal proceedings pending or, to the best knowledge of the Purchaser, threatened that are reasonably likely to prohibit or restrain the ability of the Purchaser to enter into this Agreement or consummate the transactions contemplated hereby.

 

5.5

Investment Intent.

The Purchaser is acquiring the Shares for its own account, for investment purposes only and not with a view to the distribution (as such term is used in Section 2(11) of the Securities Act of 1933, as amended (the “ Securities Act ”)) thereof. Purchaser understands that the Shares have not been registered under the Securities Act and cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available.

 

5.6

Due Authorization of Purchaser Shares.  

The shares of Purchaser Common Stock, when delivered to the Sellers, shall be validly issued and outstanding as fully paid and non-assessable, free and clear of any liens, pledges, encumbrances, charges, agreements, options, claims or other arrangements or restrictions of any kind.

ARTICLE VI COVENANTS

 

6.1

Access to Information.

Metallicum agrees that, prior to the Closing Date, the Purchaser shall be entitled, through its officers, employees and representatives (including, without limitation, its legal advisors and accountants), to make such investigation of the properties, businesses and operations of Metallicum and such examination of the books, records and financial condition of Metallicum and its Subsidiaries as it reasonably requests and to make extracts and copies of such books and records.

Purchaser agrees that, prior to the Closing Date, Metallicum shall be entitled, through its officers, employees and representatives (including, without limitation, its legal advisors and accountants), to make such investigation of the properties, businesses and operations of the Purchaser and such examination of the books, records and financial condition of the Purchaser as it reasonably requests and to make extracts and copies of such books and records.

 

11

 

 


No investigation prior to or after the date of this Agreement shall diminish or obviate any of the representations, warranties, covenants or agreements contained in this Agreement or any other agreement referenced herein.

 

6.2

Conduct of the Business Pending the Closing.

 

(a)

Except as otherwise expressly contemplated by this Agreement or with the prior written consent of the Purchaser, prior to the Closing the Sellers shall, and shall cause Metallicum to:

 

(i)

Conduct the respective businesses of Metallicum only in the ordinary course consistent with past practice;

 

(ii)

Use its best efforts to (A) preserve its present business operations, organization (including, without limitation, management and the sales force) and goodwill of Metallicum and (B) preserve its present relationship with parties having business dealings with Metallicum; and

 

(iii)

Comply in all material respects with applicable laws.

 

(b)

Except as otherwise expressly contemplated by this Agreement or with the prior written consent of the Purchaser, prior to the Closing the Sellers shall not, and shall cause Metallicum not to:

 

(i)

Transfer, issue, sell or dispose of any shares of capital stock or other securities of Metallicum or grant options, warrants, calls or other rights to purchase or otherwise acquire shares of the capital stock or other securities of Metallicum;

 

(ii)

Amend the Articles of Incorporation or Bylaws of Metallicum;

 

(iii)

Subject to any lien (except for leases that do not materially impair the use of the property subject thereto in their respective businesses as presently conducted), any of the properties or assets (whether tangible or intangible) of Metallicum;

 

(iv)

Acquire any material properties or assets or sell, assign, transfer, convey, lease or otherwise dispose of any of the material properties or assets (except for fair consideration in the ordinary course of business consistent with past practice) of Metallicum;

 

(v)

Enter into any commitment for capital expenditures out of the ordinary course;

 

(vi)

Permit Metallicum to enter into any transaction or to make or enter into any Contract which by reason of its size or otherwise is not in the ordinary course of business consistent with past practice;

 

12

 


 

(vii)

Permit Metallicum to enter into or agree to enter into any merger or consolidation with any corporation or other entity, and not engage in any new business or invest in, make a loan, advance or capital contribution to or otherwise acquire the securities of any other party;

 

(viii)

Agree to do anything prohibited by this Section 6.2 or anything which would make any of the representations and warranties of the Sellers in this Agreement or any other agreement referenced herein untrue or incorrect in any material respect as of any time through and including the Closing.

 

6.3

Other Actions.

Each of the Sellers and the Purchaser shall use its best efforts to (i) take all actions necessary or appropriate to consummate the transactions contemplated by this Agreement, and (ii) cause the fulfillment at the earliest practicable date of all of the conditions to their respective obligations to consummate the transactions contemplated by this Agreement.

 

6.4

Use of Name.  

The Sellers hereby agree that upon the consummation of the transactions contemplated hereby, the Purchaser and Metallicum shall have the sole right to the use of the name “Metallicum, Inc.” and the Sellers shall not, and shall not cause or permit any affiliate to, use such name or any variation or simulation thereof.

 

6.5

Employment Agreements.  

Terry Lowe shall enter into an employment agreement with Metallicum or the Purchaser as soon as possible after Closing, contingent on approval from Los Alamos National Security LLC, including terms or restriction imposed under Los Alamos National Laboratory’s conflict of interest management policy.

 

6.6

Tax Election.  

At the sole discretion of the Purchaser, the Sellers agree to make a timely election under Internal Revenue Code Section 338(h)(10) (“ 338(h)(10) election ”), and Purchaser shall indemnify and hold harmless Sellers from and against any Tax liabilities imposed on Sellers as a result of having made any such 338(h)(10) election to the extent that such Tax liabilities exceed the Tax liabilities that the Sellers would incur in the absence of such election (the “ Purchaser Tax Payments ”). In the event that the Sellers incur any Tax obligations as a result of the 338(h)(10) election which are in excess of amounts due had the transactions set forth herein been taxed as a stock sale, then the amount that the Purchaser shall be required to reimburse Sellers under this paragraph (1) shall be grossed up to assure that Sellers do not incur any Tax cost as a result of the 338(h)(10) election and the reimbursement payments under this paragraph and (2) shall take into account the highest marginal income tax rate applicable to payments of this type at the applicable times as applies to any of the Sellers. Any Purchaser Tax Payments shall be treated by the parties as additional Purchase Price and shall be paid to Sellers not less than seven (7) days prior to the time Sellers are required to pay such amounts with a Federal tax return or

 

13

 


estimate. Any amounts payable hereunder to the Sellers shall be paid in cash unless otherwise agreed to in writing by the Sellers.

 

6.7

Tax Matters.  

 

 

(a)

Tax Periods Ending on or Before the Closing Date.

 

The Sellers shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for Metallicum for all periods ending on or prior to the Closing Date which are filed after the Closing Date as soon as practicable and prior to the date due (including any proper extensions thereof).

 

(b)

Tax Periods Beginning Before and Ending After the Closing Date.

Metallicum or the Purchaser shall prepare or cause to be prepared and file or cause to be filed any Tax Returns of Metallicum for Tax periods that begin before the Closing Date and end after the Closing Date.

 

6.8

Non-Competition.  

For a period of two years after the later of the Closing Date or the termination of Terry Lowe’s employment by Metallicum, Terry Lowe agrees not to engage in any of the following competitive activities: (a) engaging directly or indirectly in any business or activity substantially similar to any business or activity engaged in (or scheduled to be engaged) by Metallicum or the Purchaser in any areas where Metallicum or the Purchaser engage in business; (b) engaging directly or indirectly in any business or activity competitive with any business or activity engaged in (or scheduled to be engaged) by Metallicum or the Purchaser in any areas where Metallicum or the Purchaser engage in business; (c) soliciting or taking away any employee, agent, representative, contractor, supplier, vendor, customer, franchisee, lender or investor of Metallicum or the Purchaser, or attempting to so solicit or take away; (d) interfering with any contractual or other relationship between Metallicum or the Purchaser and any employee, agent, representative, contractor, supplier, vendor, customer, franchisee, lender or investor; or (e) using, for the benefit of any person or entity other than Metallicum, any confidential information of Metallicum or the Purchaser. Nothing in this Section 6.9 shall be deemed, however, to prevent Terry Lowe from owning securities of any publicly-owned corporation engaged in any such business, provided that the total amount of securities of each class owned by such individual in such publicly-owned corporation (other than Purchaser) does not exceed two percent (2%) of the outstanding securities of such class. In addition, no Seller shall make any negative statement of any kind concerning Metallicum, the Purchaser or their affiliates, or their directors, officers or agents, except as such may be compelled by legal proceeding or governmental action or authority.

 

14

 

 


ARTICLE VII CONDITIONS TO CLOSING

 

7.1

Conditions Precedent to Obligations of Purchaser.  

The obligation of the Purchaser to consummate the transactions contemplated by this Agreement is subject to the fulfillment, on or prior to the Closing Date, of each of the following conditions (any or all of which may be waived by the Purchaser in whole or in part to the extent permitted by applicable law):

 

(a)

all representations and warranties of the Sellers contained herein shall be true and correct as of the date hereof;

 

(b)

the Sellers shall have performed and complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing Date;

 

(c)

the Sellers shall have obtained all consents and waivers with respect to the transactions contemplated by this Agreement;

 

(d)

no legal proceedings shall have been instituted or threatened or claim or demand made against the Sellers, Metallicum, or the Purchaser seeking to restrain or prohibit or to obtain substantial damages with respect to the consummation of the transactions contemplated hereby, and there shall not be in effect any order by a governmental body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby;

 

(e)

the Purchaser shall have received the written resignations of each director of Metallicum.

Metallicum may provide the Purchaser with information required by Article IV of this Agreement within thirty days after the Closing Date. The Purchaser shall consummate the transaction on the Closing Date without receiving that information.

 

 

7.2

Conditions Precedent to Obligations of the Sellers.  

The obligations of the Sellers to consummate the transactions contemplated by this Agreement are subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions (any or all of which may be waived by the Sellers in whole or in part to the extent permitted by applicable law):

 

(a)

all representations and warranties of the Purchaser contained herein shall be true and correct as of the date hereof;

 

(b)

the Purchaser shall have performed and complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by Purchaser on or prior to the Closing Date; and

 

15

 


 

(c)

no legal proceedings shall have been instituted or threatened or claim or demand made against the Sellers, Metallicum, or the Purchaser seeking to restrain or prohibit or to obtain substantial damages with respect to the consummation of the transactions contemplated hereby, and there shall not be in effect any order by a governmental body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby.

ARTICLE VIII DOCUMENTS TO BE DELIVERED

 

8.1

Documents to be Delivered by the Sellers.  

At the Closing, the Sellers shall deliver, or cause to be delivered, to the Purchaser the following:

 

(a)

stock certificates representing the Shares referred to in Section 7.1(c) hereof, duly endorsed in blank or accompanied by stock transfer powers and with all requisite stock transfer tax stamps attached;

 

(b)

written resignations of each of the directors of Metallicum;

 

(c)

certificate of good standing with respect to Metallicum issued by the Secretary of State of the State of incorporation, and for each state, if any, in which Metallicum is qualified to do business as a foreign corporation; and

 

(d)

such other documents as the Purchaser shall reasonably request.

 

8.2

Documents to be Delivered by the Purchaser.  

At the Closing, the Purchaser shall deliver to the Sellers the following:

 

(a)

The shares to be delivered pursuant to 2.1(a) are delivered to the Sellers; and

 

(b)

such other documents as the Sellers shall reasonably request.

 

ARTICLE IX INDEMNIFICATION

 

9.1

Indemnification.

 

(a)

Terry Lowe hereby agrees to indemnify and hold the Purchaser, Metallicum, and their respective directors, officers, employees, affiliates, agents, successors and assigns (collectively, the “ Purchaser Indemnified Parties ”) harmless from and against:

 

(i)

any and all liabilities of Metallicum of every kind, nature and description, absolute or contingent, existing as against Metallicum prior to and including the Closing Date or thereafter coming into being or arising by reason of any state of facts existing, or any transaction entered into, on or

 

16

 


prior to the Closing Date, except to the extent that the same have been disclosed in this Agreement, fully provided for in the Balance Sheet, or disclosed in the notes thereto or were incurred in the ordinary course of business between the Balance Sheet Date and the Closing Date;

 

(ii)

any and all losses, liabilities, obligations, damages, costs and expenses based upon, attributable to or resulting from the failure of any representation or warranty of the Sellers set forth in Section 4 hereof to be true and correct in all respects as of the date made; and

 

(iii)

any and all Expenses incident to the foregoing.

 

(b)

Purchaser hereby agrees to indemnify and hold the Sellers and their respective affiliates, agents, successors and assigns (collectively, the “ Seller Indemnified Parties ”) harmless from and against:

 

(i)

any and all Losses based upon, attributable to or resulting from the failure of any representation or warranty of the Purchaser set forth in Section 5 hereof to be true and correct as of the date made;

 

(ii)

any and all Losses based upon, attributable to or resulting from the breach of any covenant or other agreement on the part of the Purchaser under this Agreement or arising from the ownership or operation of Metallicum from and after the Closing Date, unless such claim is for a pre-Closing matter; and

 

(iii)

any and all losses, liabilities, obligations, damages, costs and expenses based upon, attributable to or resulting from the breach of any covenant or other agreement on the part of the Sellers under this Agreement;

 

(iv)

any and all notices, actions, suits, proceedings, claims, demands, assessments, judgments, costs, penalties and expenses, including reasonable attorneys' and other professionals' fees and disbursements (collectively, “Expenses”) incident to any and all losses, liabilities, obligations, damages, costs and expenses with respect to which indemnification is provided hereunder (collectively, “Losses”).

 

9.2

Limitations on Indemnification for Breaches of Representations and Warranties.

Notwithstanding anything else contained herein, the maximum liability Terry Lowe shall be required to pay hereunder, in the aggregate, shall be the monetary value of the aggregate amount of shares of the Purchaser paid or delivered to Terry Lowe on the Closing Date (the “ Cap ”). In addition, if any Loss or Expense of Purchaser is covered by insurance, Terry Lowe shall not be required to indemnify Purchaser for the amount of such Losses or Expenses to the extent of such insurance proceeds and Terry Lowe shall only pay Purchaser the excess of the Losses and Expenses, if any, over such insurance proceeds, subject to the Cap. Following the Closing, other than in cases of fraud, this Article 9 shall be the sole and exclusive remedy of the

 

17

 


parties hereto and their successors and assigns with respect to any and all claims for Losses and Expenses sustained or incurred arising out of this Agreement.

ARTICLE X MISCELLANEOUS

 

10.1

Survival of Representations and Warranties.  

The parties hereto hereby agree that the representations and warranties contained in this Agreement or in any certificate, document or instrument delivered in connection herewith, shall survive the execution and delivery of this Agreement, and the Closing hereunder, regardless of any investigation made by the parties hereto.

 

10.2

Expenses.  

Except as otherwise provided in this Agreement, the Sellers and the Purchaser shall each bear its own expenses incurred in connection with the negotiation and execution of this Agreement and each other agreement, document and instrument contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby, it being understood that in no event shall Metallicum bear any of such costs and expenses.

All sales, use, transfer, intangible, recordation, documentary stamp or similar Taxes or charges, of any nature whatsoever, applicable to, or resulting from, the transactions contemplated by this Agreement shall be borne by the Sellers.

 

10.3

Further Assurances.  

The Sellers and the Purchaser each agrees to execute and deliver such other documents or agreements and to take such other action as may be reasonably necessary or desirable for the implementation of this Agreement and the consummation of the transactions contemplated hereby.

 

10.4

Governing Law; Submission to Jurisdiction.

This Agreement shall be governed by and construed in accordance with the laws of the United States of America and the State of New York, both substantive and remedial, without regard to New York conflicts of law principles. Any judicial proceeding brought against either of the parties to this Agreement or any dispute arising out of this Agreement or any matter related hereto shall be brought in the courts of the State of New York, New York County, or in the United States District Court for the Southern District of New York and, by its execution and delivery of this Agreement, each party to this Agreement accepts the jurisdiction of such courts. The foregoing consent to jurisdiction shall not be deemed to confer rights on any person other than the parties to this Agreement

 

10.5

Entire Agreement; Amendments and Waivers.  

This Agreement represents the entire understanding and agreement between the parties hereto with respect to the subject matter hereof and can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to

 

18

 

 


this Agreement signed by the party against whom enforcement of any such amendment, supplement, modification or waiver is sought. No action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach. No failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law.

 

10.6

Counterparts.  

This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

 

10.7

Notices.  

All notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally, mailed by certified mail, return receipt requested, or via recognized overnight courier service with all charges prepaid or billed to the account of the sender to the parties (and shall also be transmitted by facsimile to the parties receiving copies thereof) at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision):

 

 

(a)

Purchaser:

Manhattan Scientifics, Inc.

Chrysler Building

405 Lexington Avenue

New York, NY 10174

Phone: (212) 752-0505

Facsimile: (212) 752-0077

 

Copy to:

 

Gregory Sichenzia, Esq.

Sichenzia Ross Friedman Ference LLP

61 Broadway

New York, New York 10006

 

19

 

 


Phone: (212) 930-9700

Facsimile: (212) 930-9725

 

 

(b)

Sellers:

Metallicum, Inc.

1207 Callejon Arias

Santa Fe, NM 87501

Attn: Terry Lowe

Phone: 505-670-8755

Facsimile: 505.989.9955

 

 

10.8

Binding Effect; Assignment; Severability

This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any person or entity not a party to this Agreement except as provided below. No assignment of this Agreement or of any rights or obligations hereunder may be made by either the Sellers or the Purchaser (by operation of law or otherwise) without the prior written consent of the other parties hereto and any attempted assignment without the required consents shall be void.

If any provision of this Agreement is invalid or unenforceable, the balance of this Agreement shall remain in effect.

 

[intentionally blank]

 

20

 

 


IN WITNESS WHEREOF, the parties hereto have executed or caused to be duly executed this Stock Purchase Agreement as of the date first set forth above.

 

MANHATTAN SCIENTIFICS, INC.

 

 

By:

________________________________

 

Emmanuel Tsoupanarias,

 

Chief Executive Officer

 

METALLICUM, INC.

 

By:________________________________

 

Terry Lowe,

 

Chief Executive Officer and President

 

21

 


 

SELLER

 

By:________________________________

 

Name:_____________________________

 

22

 


SETTLEMENT — MEMORANDUM OF AGREEMENT

 

Debtor Party:

Manhattan Scientifics, Inc. ("MHTX")

 

Creditor Parties:

Marvin Maslow ("MM")

 

Jack B. Harrod ("JBH")

 

Gross Amount of "Soft Debt" as of 12/31/06*:

MM = $1,375,000.

 

JBH = $ 1,112,500.

 

Settlement Amount(s) at 40%:

MM = $550,000

JBH = $445,000.

 

Propo rt ionate payments will be made to MM (55%) & JBH (45%) plus Interest on Settlement Amount(s) of 5% per annum on unpaid sums.

Payment format:

(a)        Monthly based upon net proceeds of sales of shares of Novint ("NVNT") stock owned by Debtor on the following basis: MHTX will sell shares of NVNT common stock on a weekly basis at the rate of 5% of the prior week's total trading volume over the course of each week with minimum sales of at least 2,000 shares. For example: If the prior week's trading volume is an aggregate of 70,000 shares, then MHTX will sell 5% or 3,500 shares (say 700 shares/day) during the next week. All net proceeds will be paid out 55% to MM and 45% to JBH by the 10th of each month for the prior month's sales (monthly payments shall be applied first to accrued interest and then to princip al ), and

(b) In the event that MHTX sells any other of its assets, i.e., Novint adult rights, or patent portfolio interests, 50% of the net proceeds of such sale shall be promptly paid out 55/45 to MM and JBH to accelerate the repayment of the subject debt. The Company shall retain the other 50% of the net proceeds for corporate purposes.

NOTE: This format allows MHTX to potentially realize some appreciation from its ownership of NVNT shares which was the original stated purpose to incubate NVNT. MHTX shareholders might otherwise complain that the Company was not allowed by "insiders" to realize the object of its NVNT investment.

Conditions:

Approval by counsel

 

Marvin Maslow

Manhattan Scientifics, Inc.

By :/s/ Marvin Maslow

By: Emmanuel Tsoupanarias

 

December 12, 2007

December 12, 2007

 

Jack B. Harrod

By :/s/ Jack B. Harrod

 

December 12, 2007

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

 

 

 

 

EXCLUSIVE FIELD-OF-USE

 

PATENT LICENSE AGREEMENT

 

BETWEEN

 

LOS ALAMOS NATIONAL SECURITY, LLC

 

AND

 

Manhattan Scientifics, Inc.

 

 

 

 

 

OFFICIAL USE ONLY

May be exempt from public release under the Freedom of Information Act

(5 U.S.C. 552), exemption number and category:

[Exemption # 4, Commercial / Proprietary]

Department of Energy review required before public release

Name/Org: Robert Dye / TT Division                 Date: November 4, 2008

Guidance (if applicable): [DOE M 471.3-1]

 

 

 

 

 

 

OFFICIAL USE ONLY

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

 

TABLE OF CONTENTS

 

1. DEFINITIONS

3

2. GRANT

5

3. SUBLICENSES

6

4. FEES AND ROYALTIES

8

5. DILIGENCE

8

6. REPORTS

9

7. BOOKS AND RECORDS

9

8. TERM OF THE LICENSE AGREEMENT

10

9. TERMINATION BY THE LICENSOR

10

10. TERMINATION BY THE LICENSEE

10

11. PATENT PROSECUTION, MAINTENANCE AND DISCLAIMER

11

12. USE OF NAMES, TRADENAMES AND TRADEMARKS AND NON-DISCLOSURE OF AGREEMENT TERMS

11

13. WARRANTY AND LIMITATION OF WARRANTY

12

14. INFRINGEMENT

13

15. WAIVER

15

16. ASSIGNMENT AND CONTROLLING INTEREST

15

17. INDEMNIFICATION

15

18. LATE PAYMENTS

17

19. NOTICES

17

20. FORCE MAJEURE

18

21. COMPLIANCE WITH LAWS

18

22. PREFERENCE FOR UNITED STATES INDUSTRY

18

23. DISPUTE RESOLUTION

19

24. GOVERNING LAW AND VENUE

21

25. PATENT MARKING

22

26. SURVIVAL

22

27. GOVERNMENT APPROVAL OR REGISTRATION

22

28. DISPOSITION OF LICENSED PRODUCTS UPON TERMINATION

23

29. PROTECTION OF PROPRIETARY INFORMATION

23

30. MISCELLANEOUS

24

APPENDIX A - PATENT RIGHTS

27

APPENDIX B - FEES, ROYALTIES AND REIMBURSEMENT OF COSTS

28

APPENDIX C - MILESTONES

30

APPENDIX D - PROGRESS REPORT FORMAT

31

APPENDIX E - ROYALTY REPORT FORMAT

32

 

OFFICIAL USE ONLY

2

 

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

EXCLUSIVE FIELD-OF-USE PATENT LICENSE AGREEMENT

 

This license agreement (“License Agreement”) is entered into by and between LOS ALAMOS NATIONAL SECURITY, LLC, a Delaware company having its principal place of business at P.O. Box 1663, Los Alamos, NM 87545, hereinafter referred to as the “ Licensor ,” and Manhattan Scientifics, Inc., (MSI) a Delaware corporation having offices at The Chrysler Building; 32nd Floor; 405 Lexington Avenue; New York, NY 10174, hereinafter referred to as the “ Licensee ,” the parties to this License Agreement being referred to individually as a “ Party ,” and collectively as “ Parties .”

 

The Licensor conducts research and development at Los Alamos National Laboratory for the U.S. Government under Contract No. DE-AC52-06NA25396, hereinafter referred to as the “Contract,” with the U. S. Department of Energy, National Nuclear Security Administration.

 

Rights in inventions and technical data made in the course of the Licensor’s research and development at Los Alamos National Laboratory are governed by the terms and conditions of the Contract.

 

Certain Technology relating to the manufacture and application of nanostructured metals and alloys has been developed in the course of the Licensor’s research and development at Los Alamos National Laboratory. The Technology is comprised of a suite of three U.S. patents. Licensor is the exclusive assignee of one of these patents; Licensor is an assignee of the other two patents and other parties may also have been assigned rights in those other two patents.

 

The Licensor desires that such Technology be developed and utilized to the fullest extent possible so as to enhance the accrual of economic and technological benefits to the U.S. domestic economy, and is therefore willing to grant to the Licensee a license to the Licensor’s interest in Patent Rights that protect the Technology.

 

The Licensee desires to obtain from the Licensor these exclusive rights for the commercial development, manufacture, use, and sale of the Technology.

 

Now, therefore, the Parties agree as follows:

 

1. DEFINITIONS

 

As used in this License Agreement, the following terms, whether used in the singular or plural, shall have the following meanings:

 

1.1        "Affiliate" of the Licensee means any entity that, directly or indirectly, Controls the Licensee, is Controlled by the Licensee, or is under common Control with the Licensee.

 

1.2        "Control" means (i) having the actual, present capacity to elect a majority of the directors of an entity, (ii) having the power to direct at least forty percent (40%) of the voting rights entitled to elect directors, or (iii) in any country where the local law will not permit foreign equity participation of a majority, ownership or control, directly or indirectly, of the maximum percentage of such outstanding stock or voting rights

 

OFFICIAL USE ONLY

3

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

permitted by local law. “Controls” and “Controlled” have the same meaning. “Controlling Interest” means having Control of an entity.

 

1.3        “Effective Date” means the date upon which this License Agreement becomes effective, and is the date of full execution by the Parties or the date upon which the Licensor receives the License Issue Fee specified in Appendix B (Fees, Royalties and Reimbursement of Costs), whichever comes later.

 

 

1.4

RESERVED

 

1.5        "Joint Venture" means any separate entity established pursuant to an agreement between a third party and the Licensee and/or a sublicensee to constitute a vehicle for a joint venture, in which the separate entity manufactures, uses, purchases, Sells, or acquires Licensed Products or Licensed Services from the Licensee.

 

 

1.6

“Licensed Invention” means any Licensed Product, Licensed Method or Licensed Service.

 

1.7        "Licensed Method" means any process or method the use or practice of which, but for the license granted in this License Agreement, would infringe or contribute to or induce the infringement of any Patent Rights at the time of the infringing activity.

 

1.8        "Licensed Product" means any composition of matter, article of manufacture, and product the manufacture, use, Sale, offer for Sale, or import of which, but for the license granted in this License Agreement, would infringe, or contribute to or induce the infringement of any Patent Rights at the time of the infringing activity, or would require the performance of the Licensed Method.

 

 

1.9

"Licensed Service" means the use of the Licensed Method to provide a service.

 

 

1.10

“Net Sales Price” means:

 

 

1.10.a

for Licensed Inventions sold, leased, distributed, or transferred in an arm’s length commercial transaction between the Licensee and a party that is not an Affiliate or Joint Venture: the gross sales price of Licensed Inventions charged to Licensee’s customers without any deductions other than (1) prompt payment and other trade discounts; (2) credits, rebates, and allowances for return of defective shipments; (3) transportation and packaging charges; (4) sales and excise taxes, duties, and other governmental charges; and (5) transportation insurance, to the extent that such items are separately stated in invoices or appear as items of allowance in the records of the Licensee; or

 

 

1.10.b

for Licensed Inventions sold, leased, distributed, or transferred either in a transaction between the Licensee and an Affiliate or Joint Venture or other party that is not an arm’s length commercial transaction: the gross sales price of the same quantity of similar or substantially similar Licensed Inventions sold in an arm’s length commercial transaction, or, if similar or substantially similar Licensed Inventions are not sold, then the fair market value thereof, without any deductions other than (1) prompt payment and other trade discounts; (2) credits, rebates, and allowances for return of defective shipments; (3) transportation and packaging charges; (4) sales and excise taxes, duties, and other governmental charges; and (5) transportation insurance, to the

 

OFFICIAL USE ONLY

4

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

extent that such items are separately stated in invoices or appear as items of allowance in the records of the Licensee.

 

1.11      “Sublicense Consideration” means value, whether in the form of cash or a cash equivalent, received by the Licensee for the grant of sublicense rights to another party, including but not limited to, consideration for the granting of a sublicense, such as sublicense issue fees and sublicense annual fees and sublicense royalties.

 

1.12      "Patent Rights" means the Valid Claims of, to the extent assigned to or otherwise obtained by the Licensor, the United States patent and any reissues, continuations, divisions, and continuation-in-part applications (but only those Valid Claims in the continuation-in-part applications that are entirely supported in the specification and entitled to the priority date of the parent application) thereof, listed in Appendix A (Patent Rights).

 

1.13      "Sale" means the act of selling, leasing or otherwise transferring, providing, or furnishing for use for any consideration. Correspondingly, "Sell" means to make or cause to be made a Sale, and "Sold" means to have made or caused to be made a Sale.

 

1.14      “Sublicensee” means a third party or Joint Venture partner to whom the Licensee grants all or a portion of the rights granted to Licensee hereunder.

 

1.15      “Technology” means technical information, know-how, data and Patent Rights owned or controlled by the Licensor and relating to nanostructured metals and alloys that possess significantly enhanced mechanical properties.

 

1.16      "Valid Claim" means a claim of a patent that (i) has not expired; (ii) has not been disclaimed; (iii) has not been cancelled, or if cancelled has been reinstated; and (iv) has not been revoked, held invalid, or otherwise declared unenforceable or not allowable by a tribunal or patent authority of competent jurisdiction over such claim from which no further appeal has or may be taken.

 

2. GRANT

 

2.1       The Licensor grants to the Licensee, subject to the provisions of this Article 2, an exclusive United States license to make, have made, use, import, sell, offer to sell, and have sold Licensed Inventions under the Patent Rights, with the right to sublicense to others under the terms of Article 3 (Sublicenses).

 

2.1.a    For purposes of removal of doubt, Licensee acknowledges that other parties may also have ownership interests in U.S. Patent 7152448 and U.S. Patent 6399215, and that Licensor is only granting a license to the Licensor’s right, title and interest in, U.S. Patent 7152448 and U.S. Patent 6399215. If the Licensee wishes to have full exclusive rights to this patent, the Licensee must seek rights from other assignees (if any) of those patents.

 

 

2.1.b

The Licensor will grant no further licenses in U.S. Patent 7152448 and U.S. Patent 6399215.

 

 

2.2

Rights not expressly granted to the Licensee herein are expressly reserved to the Licensor.

 

 

OFFICIAL USE ONLY

5

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

2.3       The Licensor expressly reserves the right to use the Technology, including the right to make, have made, use and have used Licensed Inventions for any purpose permitted under the Contract, including, but not limited to, Cooperative Research and Development Agreements, Work for Others Agreements, User Facility Agreements, research and education.

 

2.4       The U.S. Government has a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced throughout the world, for or on behalf of the U.S. Government, inventions covered by the Patent Rights, and has certain other rights under 35 U.S.C. 200-212 and applicable implementing regulations.

 

2.5       Under 35 U.S.C. 203 the U.S. Department of Energy has the right to require the Licensee to grant a nonexclusive, partially exclusive or exclusive license under the Patent Rights in any field-of-use to a responsible applicant or applicants in accordance with 48 CFR 27.304-1 (g). The terms of such license shall be as required by DOE notwithstanding anything else in this Agreement.

 

2.6       Nothing in this License Agreement will be deemed to limit the right of the Licensor to publish any and all technical data resulting from any research performed by the Licensor, provided that such publication shall be delayed as necessary to preserve both United States of America and foreign Patent Rights.

 

2.7       As between Licensor and Licensee, Licensee shall own all rights, title, and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which Licensee may conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, including without limitation improvements on the Patent Rights, hereunder.

 

3. SUBLICENSES

 

3.1       The Licensor also grants to the Licensee, so long as it retains exclusive rights under this License Agreement, the right to issue sublicenses under the rights and licenses granted to Licensee in Article 2 (Grant) where the Licensor may lawfully grant such licenses. For the avoidance of doubt, Affiliates and Joint Ventures shall have no licenses under the Patent Rights unless such Affiliates and Joint Ventures are granted a sublicense.

 

3.1.a    For purposes of removal of doubt, Licensee acknowledges that other parties may also have ownership interests in U.S. Patent 7152448 and U.S. Patent 6399215, and that Licensor is only granting a license to the Licensor’s right, title and interest in, U.S. Patent 7152448 and U.S. Patent 6399215. If the Licensee wishes to have full exclusive rights to this patent, the Licensee must seek rights from other assignees (if any) of those patents

 

3.2       All sublicenses will require the performance of, all the obligations due to the Licensor and the United States Government under this License Agreement other than those rights and obligations specified in Articles 4 (Fees and Royalties), 5 (Diligence), and 11 (Patent Prosecution, Maintenance, and Disclaimer) and understanding that the insurance requirements of sections 17.2-17.5 will apply to such sublicensee with insurance amounts determined based on such sublicensee’s activities only.

.

 

OFFICIAL USE ONLY

6

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

3.3       All sublicenses also will contain a provision that will require the payment of royalties by the sublicensees to the Licensee in an amount sufficient to allow the Licensee to meet its royalty obligations to the Licensor pursuant to Article 4 (Fees and Royalties).

 

3.4       The Licensee also will pay to the Licensor the percentage, specified in Appendix B (Fees, Royalties and Reimbursement of Costs), Section 3, of any cash or the cash equivalent of Sublicense Consideration the Licensee receives for the grant of rights under each sublicense agreement pursuant to this Article 3.

 

3.5       For the purposes of this License Agreement, the operations of all sublicensees related to sublicenses granted to pursuant to this Article 3 shall be deemed to be the operations of the Licensee, for which the Licensee shall be responsible (except that sales by sublicensees shall be treated as sales by a sublicensee and not also as sales by Licensee for purposes of calculating royalties).

 

3.6       The Licensee will not grant its sublicensees the right to license the Technology to others without the express written permission of the Licensor.

 

3.7       Sublicensees will be required to carry the insurance requirements specified under Article 17 (Indemnification) with insurance amounts determined based on sublicensee’s activities only.

.

3.8       The Licensee will notify the Licensor of each sublicense granted hereunder and provide the Licensor with a complete copy of each sublicense within thirty (30) days of issuance of the sublicense. Consideration owed to the Licensor under this Article 3 and Article 4 (Fees and Royalties) will be paid to the Licensor on or before the due date of the royalty report applicable to the semi-annual period in which consideration was due and owed to the Licensee under the sublicense. The Licensee will collect from the sublicensees and pay to the Licensor all fees, royalties, cash, and the cash equivalent of consideration due the Licensor as set forth in Articles 3 and 4. The Licensee will guarantee all monies and Other Consideration due the Licensor from the sublicensees. The Licensee will require sublicensees to provide it with copies of all progress reports and royalty reports in accordance with the provisions herein, and the Licensee will collect and deliver to the Licensor all such reports due from sublicensees.

 

3.9       Upon termination of this License Agreement for any reason, the Licensor, at its sole discretion, will determine whether any or all sublicenses will be canceled or assigned to the Licensor. In the event of termination of this License Agreement and if the Licensor accepts assignment of any sublicense, the Licensor will not be bound by any grant of rights broader than nor will be required to perform any obligation other than those rights and obligations contained in this License Agreement. Moreover, the Licensor will have the sole right to modify each such assigned sublicense to include all of the rights of the Licensor (and, if applicable, the United States Government) that are contained in this License Agreement, including the payment directly to the Licensor of royalties and other fees in accordance with Article 4 (Fees and Royalties) and patent prosecution costs in accordance with Article 11 (Patent Prosecution, Maintenance and Disclaimer).

 

4. FEES AND ROYALTIES

 

4.1       In consideration for the rights, privileges and license granted under this License Agreement, the Licensee must pay to the Licensor the fees and royalties and/or equity payments specified in Appendix B (Fees,

 

OFFICIAL USE ONLY

7

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

Royalties and Reimbursement of Costs).

 

4.2       Royalty payments are to be calculated based on Net Sales during the semiannual periods extending from January 1 through June 30 (first half) and July 1 through December 31 (second half) of each year, for as long as this License Agreement remains in effect. The first royalty payment due under this License Agreement is based on Net Sales from the Effective Date to the end of the semiannual period which includes the Effective Date. Subsequent royalty payments are due concurrently with the royalty reports, pursuant to Article 6 (Reports), on the following dates:

 

 

August 31 for the calendar half beginning January 1 and ending June 30.

 

February 28 for the calendar half beginning July 1 and ending December 31.

 

4.3       All payments due the Licensor must be paid in U.S. currency at the address set forth in Article 19 (Notices). The Licensee must convert Net Sales invoiced in foreign currency into equivalent U.S. currency at the exchange rate for the foreign currency prevailing as of the last day of the reporting period, as reported in the Wall Street Journal ®.

 

 

4.4

RESERVED.

 

4.5       No royalty as provided in this Article 4 will be collected or paid hereunder to the Licensor on Licensed Inventions Sold to, or otherwise exploited for, the account of the United States Government.

 

4.6       Unless specifically stated elsewhere in this License Agreement, the fees set forth in this Article 4, whether paid in cash or equity, are not refundable, nor creditable, nor an advance against any royalties or other payments required under this License Agreement.

 

5. DILIGENCE

 

5.1       The Licensee, upon execution of this License Agreement, will proceed with the development, manufacture, and Sale of Licensed Inventions and will make reasonable commercial efforts to market the same.

 

5.2       Subject to Section 20 herein, to be in compliance with this Article 5, the Licensee must meet the Milestones set out in Appendix C (Milestones).

 

5.3       Article 5 is a material term of this License Agreement, without which the license grant under Article 2 (Grant) would not have been made. If the Licensee is unable to perform in accordance with this Article 5, Licensor will have the right and option to terminate this License Agreement in accordance with Article 9 (Termination by Licensor) which option must be elected not later than sixty (60) days after the date on which the missed Milestone was due.

 

6. REPORTS

 

 

6.1

Progress Reports. The Licensee will submit to the Licensor a semiannual progress report

 

OFFICIAL USE ONLY

8

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

covering activities by the Licensee related to the development and testing of all Licensed Inventions and obtaining government approvals necessary for marketing them. These progress reports will be provided to the Licensor to cover the progress of the research, development and commercialization activities, until Net Sales exceed One Million Dollars ($1,000,000). Progress reports shall comply with the report format shown in Appendix D (Progress Reports). Progress reports will be treated by the Licensor as Licensee’s Proprietary Information.

 

Progress Reports are due on the following dates:

 

 

August 31 for the calendar half beginning January 1 and ending June 30

 

February 28 for the calendar half beginning July 1 and ending December 31

 

6.2        Royalty Reports. After the first Sale or other exploitation of a Licensed Product or Licensed Service, the Licensee must submit semiannual royalty reports. Royalty reports shall comply with the report format shown in Appendix E (Royalty Report) and shall include reports on Sales by sublicensees. Royalty reports will be treated by the Licensor as Licensee’s Proprietary Information.

 

If no sale, sublicense or use of Licensed Inventions has been made during a reporting period, a statement to this effect must be sent to Licensor.

 

Royalty Reports are due on the following dates:

 

 

August 31 for the calendar half beginning January 1 and ending June 30

 

February 28 for the calendar half beginning July 1 and ending December 31

 

7. BOOKS AND RECORDS

 

7.1       The Licensee will keep books and records accurately showing all Licensed Inventions manufactured, used, offered for Sale, imported, Sold, and/or otherwise exploited, all payments received by Licensee for the same, and all payments due the Licensor. Such books and records will be preserved for at least three (3) years after the date of the payment to which they pertain and will be open to examination by representatives or agents of the Licensor, upon no less than ten (10) business days notice and at reasonable times, but not more than once in any 12 month period to determine their accuracy and assess the Licensee’s compliance with the terms of this License Agreement.

 

7.2       The fees and expenses of the Licensor’s representatives performing the inspection and audit will be borne by the Licensor. However, if the audit discloses an error in royalties owed the Licensor more than the greater of (a) $5,000 and (b) of more than five percent (5%) of royalties paid to the Licensor, then the Licensee will pay the fees and expenses of said representatives within thirty (30) days after receipt of invoice.

 

8. TERM OF THE LICENSE AGREEMENT

 

 

8.1

This License Agreement is in full force and effect from the Effective Date and remains in effect

 

OFFICIAL USE ONLY

9

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

until the expiration of the last Valid Claim to expire of the patents included within the Licensor’s Patent Rights, unless sooner terminated by operation of law or by acts of either of the Parties in accordance with the terms of this License Agreement.

 

9. TERMINATION BY THE LICENSOR

 

9.1       If the Licensee fails to deliver to the Licensor any report when due, or fails to pay any royalty or fee when due, or if the Licensee breaches any other material term of this License Agreement, including, but not limited to, Article 5 (Diligence) the Licensor may exercise its right to terminate this License Agreement. To exercise its rights, the Licensor must give written notice of default to the Licensee pursuant to Article 19 (Notices). If the Licensee fails to cure the default, and provide written tangible evidence satisfactory to the Licensor that the deficiency has been cured, within thirty (30) days from the effective date of notification to the Licensee, the Licensor may, at its option, terminate this License Agreement immediately.

 

9.2       Termination pursuant to this Article 9 does not relieve the Licensee of its obligation to pay any royalty or license fees due or owing at the time of termination and does not impair any accrued right of the Licensor.

 

9.3       The License Agreement will terminate automatically on the date of filing a voluntary petition in bankruptcy by the Licensee or an involuntary petition in bankruptcy by the Licensee which petition is not dismissed within 90 days.

 

10. TERMINATION BY THE LICENSEE

 

10.1     If the Licensor breaches any material term of this License Agreement, the Licensee may exercise its right to terminate this License Agreement. To exercise its rights, the Licensee must give written notice of default to the Licensor pursuant to Article 19 (Notices). If the Licensor fails to cure the default, and provide written tangible evidence satisfactory to the Licensee that the deficiency has been cured, within thirty (30) days from the effective date of notification to the Licensor, the Licensee may, at its option, terminate this License Agreement immediately.

 

10.1     The Licensee may terminate this License Agreement for convenience by giving written notice to the Licensor. Such termination will be effective ninety (90) days from the date of delivery of the notice, and all the Licensee’s rights under this License Agreement will cease as of that date.

 

10.2     Termination pursuant to this Article 10 does not relieve the Licensee of any obligation or liability accrued by the Licensee prior to the effective date of termination or affect any rights of the Licensor arising under this License Agreement prior to termination.

 

11. PATENT PROSECUTION, MAINTENANCE AND DISCLAIMER

 

11.1     The Licensor will maintain the U.S. patents identified in Appendix A, using counsel of its choice. Licensor has disclosed to the Licensee, copies of documents relating to patent prosecution of the

 

OFFICIAL USE ONLY

10

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

Licensed Patents that are in possession of Licensor, and copies of documents between Licensor and other parties to the extent such documents affect the title to or rights in the Licensed Patents. The Licensor represents that it has made commercially reasonable efforts to locate such documents, and represents that to the best of its knowledge such documents are true and correct and unaltered. Such documents will be protected as the proprietary information of Licensor subject to the exclusions of section 29.4.

 

 

11.2

RESERVED

 

 

11.3

RESERVED

 

 

11.4

RESERVED

 

 

11.5

RESERVED

 

 

11.6

RESERVED

 

 

12. USE OF NAMES, TRADENAMES AND TRADEMARKS AND NON-DISCLOSURE OF AGREEMENT TERMS

 

12.1     With the exception of the statements listed below, this License Agreement does not confer any right to use in advertising, publicity, or other promotional activities any name, tradename, trademark, or other designation of the Department of Energy, Los Alamos National Security, LLC, or Los Alamos National Laboratory (including any contraction, abbreviation, or simulation of any of the foregoing) without prior written approval pursuant to Article 19 (Notices).

 

 

12.1.a

“The technology, originally developed at Los Alamos National Laboratory,.......”

 

 

12.1.b

“The technology, licensed from Los Alamos National Security,.....”

 

 

12.1.c

“COMPANY was founded upon technology created at Los Alamos National Laboratory.”

 

 

12.1.d

“COMPANY has exclusively licensed technology/intellectual property from Los Alamos National Security.”

 

12.2     Licensee will not use names Department of Energy, Los Alamos National Security, LLC, or Los Alamos National Laboratory (including any contraction, abbreviation, or simulation of any of the foregoing) to endorse Licensee’s products or services.

 

12.3     The Licensor may disclose to third parties the existence of this License Agreement and the extent of the grant in Article 2 (Grant), but will not disclose royalty or fee obligations or rates, or other information identified as proprietary by the Licensee herein, if any, except where the Licensor is required to release information under applicable law, and Licensor has informed Licensee of such requirement and given Licensee reasonable opportunity to contest such agreement or seek protective provisions relating to such disclosure.

 

 

12.4

The Licensee may disclose to third parties the existence of this License Agreement and the terms

 

OFFICIAL USE ONLY

11

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

and conditions to the extent determined appropriate by the Licensee.

 

13. WARRANTY AND LIMITATION OF WARRANTY

 

13.1     The Licensor warrants that it is the lawful owner of the Patent Rights and has the right to grant the licenses granted herein.

.

13.2     Except as expressly set forth in this License Agreement, the licenses and the associated Technology, Patent Rights, Licensed Products, Licensed Services, and Licensed Methods are provided by the Licensor AS IS , WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. THE LICENSOR AND THE U. S. GOVERNMENT MAKE NO EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY THAT THE LICENSED PRODUCTS, LICENSED SERVICES, OR LICENSED METHODS WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPRIETARY RIGHT.

 

 

13.3

Nothing in this License Agreement will be construed as:

 

 

a.

a warranty or representation by the Licensor or the U. S. Government as to the validity or scope of the Licensor’s Patent Rights;

 

 

b.

an obligation to bring or prosecute actions or suits against third parties for patent infringement, except as provided in Article 14 (Infringement);

 

 

c.

conferring by implication, estoppel, or otherwise any license or rights under any patents of the Licensor or the U. S. Government other than the Licensor’s Patent Rights; or

 

 

d.

an obligation by the Licensor or the U. S. Government to furnish any know-how, technical assistance, or technical data other than as stated in Article 2 (Grant) .

 

13.4      NEITHER THE LICENSOR NOR THE U.S. GOVERNMENT WILL BE LIABLE FOR ANY LOST PROFITS, COSTS OF PROCURING SUBSTITUTE GOODS OR SERVICES, LOST BUSINESS, ENHANCED DAMAGES FOR INTELLECTUAL PROPERTY INFRINGEMENT, OR FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, PUNITIVE, OR OTHER SPECIAL DAMAGES SUFFERED BY LICENSEE, ITS SUBLICENSEES, JOINT VENTURES, OR AFFILIATES ARISING OUT OF OR RELATED TO THIS AGREEMENT FOR ALL CAUSES OF ACTION OF ANY KIND (INCLUDING TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY AND BREACH OF WARRANTY) EVEN IF THE LICENSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

 

14. INFRINGEMENT

 

 

14.1

In the event that the Licensor or the Licensee learns of infringement of

commercial significance of Patent Rights licensed under this License Agreement, the knowledgeable Party will provide the other Party with (i) written notice of such infringement and (ii) any evidence of such infringement

 

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The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

reasonably available to it. During the period in which, and in the jurisdiction where, the Licensee has exclusive rights under this License Agreement, neither the Licensor nor the Licensee will notify an infringer of infringement or put such infringer on notice of the existence of any Patent Rights without first obtaining consent of the other. If the Licensee puts such infringer on notice (‘Infringement Notice”) of the existence of any Patent Rights with respect to such infringement without first obtaining the written consent of the Licensor and if a declaratory judgment action is filed by such infringer against the Licensor, then Licensee’s right to initiate a suit against such infringer for infringement under Paragraph 14.2 below will terminate immediately without the obligation of the Licensor to provide notice to the Licensee. If the Licensor puts such infringer on notice of the existence of any Patent Rights with respect to such infringement without first obtaining the written consent of the Licensee and if a declaratory judgment action is filed by such infringer against the Licensor, then Licensor’s right to any recovery from a suit against such infringer for infringement shall be limited to Licensor’s actual costs of participating in such litigation, if any. Both the Licensor and the Licensee will use their diligent efforts to cooperate with each other to terminate such infringement without litigation.

 

14.2     If infringing activity of commercial significance by the infringer has not been abated within ninety (90) days following the date the Infringement Notice takes effect (or a greater or lesser time if both Licensor and Licensee approve, with such approval not to be unreasonably withheld), the Licensee may institute suit for patent infringement against the infringer. The Licensor may voluntarily join such suit at its own expense, but may not otherwise commence suit against the infringer for the acts of infringement that are the subject of the Licensee’s suit or any judgment rendered in that suit. The Licensee may not join the Licensor as a party in a suit initiated by the Licensee without the Licensor’s prior written consent. If in a suit initiated by the Licensee, the Licensor is involuntarily joined other than by the Licensee, the Licensee will pay any costs incurred by the Licensor arising out of such suit, including but not limited to, any legal fees of counsel that the Licensor selects and retains to represent it in the suit.

 

14.3     If, within one hundred and eighty (180) days following the date the Infringement Notice takes effect, (or a greater or lesser time if both Licensor and Licensee approve, with such approval not to be unreasonably withheld) infringing activity of commercial significance by the infringer has not been abated and if the Licensee has not brought suit against the infringer, the Licensor may institute suit for patent infringement against the infringer. If the Licensor institutes such suit, the Licensee may not join or be joined in such suit without the consent of both the Licensor and the Licensee, and may not otherwise commence suit against the infringer for the acts of infringement that are the subject of the Licensor’s suit or any judgment rendered in that suit.

 

14.4     Any recovery or settlement, whether compensatory or punitive, received in connection with any suit will first be shared by the Licensor and the Licensee equally to cover the litigation costs each incurred and next shall be paid to the Licensor or the Licensee to cover any litigation costs it incurred in excess of the litigation costs of the other. For the avoidance of doubt, litigation costs of Licensor reimbursed by Licensee shall be considered incurred by Licensor for the purposes of this paragraph.

 

14.5     In any suit initiated by the Licensee, any recovery of damages in excess of litigation costs (hereinafter referred to as “Excess Recovery”) will be shared as follows, regardless of whether the infringement was found to be willful.

 

 

14.5.a

The Licensor will receive twenty-five percent (25%) of the Excess Recovery if the Licensor was

 

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The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

not a party to the suit.

 

 

14.5.b

The Licensor will receive fifty percent (50%) of the Excess Recovery if the Licensor was a party to the suit, whether joined voluntarily or involuntarily.

 

14.6     In any suit initiated by the Licensor, any recovery in excess of litigation costs will belong to the Licensor unless Licensee was joined as a party to the suit in which case Licensor and Licensee shall share equally any recovery in excess of litigation costs.

 

14.7     The Licensor and the Licensee agree to be bound by all determinations of patent infringement, validity, and enforceability (but no other issue) resolved by any adjudicated judgment in a suit brought in compliance with this Article 14, unless otherwise agreed by the Parties.

 

14.8     Any agreement made by the Licensee that settles an infringement by granting a sublicense shall comply with the requirements of Article 3 (Sublicenses) of this License Agreement.

 

14.9     Each Party will cooperate with the other in litigation proceedings instituted hereunder but at the expense of the Party who initiated the suit (unless such suit is being jointly prosecuted by the Parties).

 

14.10   Any litigation proceedings will be controlled by the Party bringing the suit, except that the Licensor may be represented by counsel of its choice in any suit brought by the Licensee.

 

15. WAIVER

 

15.1     No waiver by either Party of any breach or default of any of the covenants or terms of this License Agreement will be deemed a waiver as to any prior, subsequent and/or similar breach or default.

 

16. ASSIGNMENT AND CONTROLLING INTEREST

 

16.1     This License Agreement is binding upon and will inure to the benefit of the Licensor and Licensee, and their successors and assigns. The Licensee may not assign or transfer this License Agreement to a foreign owned or controlled entity without the Licensor’s prior written consent, which shall not be unreasonably withheld. Such determination by the Licensor will be provided to the Licensee within forty-five (45) days of receipt of a request from the Licensee.

 

16.2     For all other assignments of this License Agreement, the Licensee or its successor will notify the Licensor within thirty (30) days of such assignment.

 

17. INDEMNIFICATION

 

17.1     The Licensee will, and will require its sublicensees to, indemnify, hold harmless, and defend the Licensor, the sponsors of the research that led to the Technology; the inventors of any invention claimed in

 

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The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

patents or patent applications under Patent Rights (including the Licensed Products, Licensed Services, and Licensed Methods contemplated thereunder); their employers; and the officers, employees, and agents of any of the foregoing (each an “ Indemnitee ”), against any and all claims, suits, losses, damages, costs, fees, and expenses resulting from, or arising out of, the exercise of this License Agreement or any sublicense, except for any negligent acts or omissions or willful misconduct of an Indemnitee and except for claims or suits brought by an Indemnitee against another Indemnitee. This indemnification will include, but will not be limited to, any product liability.

 

17.2     The Licensee, at its sole cost and expense, will insure its activities in connection with the work under this License Agreement and obtain, keep in force, and maintain insurance or an equivalent program of self insurance as follows:

 

 

17.2.a

While the Technology is in a research and development, engineering and prototype stage, up to, but not including any Sales:

 

 

i.

Comprehensive or Commercial Form General Liability Insurance (contractual liability included) with limits as follows:

 

 

Each Occurrence

$1,000,000

 

Personal and Advertising Injury

$1,000,000

 

General Aggregate (commercial form only)

$2,000,000

 

 

17.2.b

When the Technology is in a Sales stage and Sales are less than or equal to $3,000,000:

 

 

i.

Comprehensive or Commercial Form General Liability Insurance (contractual liability included) with minimum limits as follows:

 

 

Each Occurrence

$3,000,000

 

Products/Completed Operations Aggregate

$3,000,000

 

Personal and Advertising Injury

$3,000,000

 

General Aggregate (commercial form only)

$3,000,000

 

 

17.2.c

When Sales exceed $3,000,000:

 

 

i.

Comprehensive or Commercial Form General Liability Insurance (contractual liability included) with limits as follows:

 

 

Each Occurrence

$5,000,000

 

Products/Completed Operations Aggregate

$5,000,000

 

Personal and Advertising Injury

$5,000,000

 

General Aggregate (commercial form only)

$5,000,000

 

17.3     It should be expressly understood, however, that the coverages and limits referred to under Paragraph 17.2 will not in any way limit the liability of the Licensee. Within thirty (30) days of receiving a written request from the Licensor, the Licensee will furnish the Licensor with certificates of insurance or evidence of self-insurance documenting compliance with all requirements. Such certificates will:

 

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The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

 

 

17.3.a

Provide for thirty (30) day advance written notice to the Licensor of any modification;

 

 

17.3.b

Indicate that the Licensor has been endorsed as an additional insured under the coverages referred to under the above; and

 

 

17.3.c

Include a provision that the coverages will be primary and will not participate with or be excess over any valid and collectable insurance or program of self-insurance carried or maintained by the Licensor.

 

17.4     Failure of the Licensee to provide certificates of insurance pursuant to Paragraph 17.3 will be a material breach of this License Agreement and the Licensor may immediately terminate this License Agreement without the obligation to provide notice pursuant to Article 9 (Termination by Licensor).

 

17.5     The Licensor will promptly notify the Licensee in writing of any claim or suit brought against the Licensor for which the Licensor intends to invoke the provisions of this Article 17. The Licensee will keep the Licensor informed of its defense of any claims pursuant to this Article 17.

 

17.6     If the Licensor, in its reasonable discretion, believes that there will be a conflict of interest or it will not otherwise be adequately represented by counsel chosen by the Licensee to defend the Licensor in accordance with this Article 17, then the Licensor may retain counsel of its choice to represent it, and the Licensee will pay all expenses for such representation.

 

18. LATE PAYMENTS

 

18.1     In the event royalty payments or fees are not received by the Licensor when due, the Licensee will pay to the Licensor the amount due plus simple interest calculated at the prime rate, as given in The Wall Street Journal on the date the payment was due, plus four percent (4%).

 

19. NOTICES

 

19.1     Any notice or payment required to be given to either Party will be deemed to have been properly given and to be effective on the date of

 

 

19.1.a

delivery, if delivered in person;

 

19.1.b

three (3) days after mailing, if mailed by first-class certified mail; or

 

19.1.c

three (3) days after mailing, if mailed by any global express carrier service that requires the recipient to sign the documents demonstrating the delivery of such notice or payment;

 

to the respective addresses given below, or to another address as designated in writing as specified herein by the Party changing its address.

 

 

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The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

 

In the case of the Licensee:

 

Manhattan Scientifics, Inc.

Attention: Dan Blacklock

 

3321 Columbia Dr. N.E.

Albuquerque, NM 87107

County: Bernalillo

Phone: 505-884-1922

Cell: 505-350-9754

Fax: 505-884-1923

 

In the case of the Licensor :

 

Los Alamos National Laboratory

Technology Transfer Division

P.O. Box 1663, Mail Stop C334

Los Alamos, New Mexico 87545

Attention: License Compliance Officer

Telephone: (505) 665-9091

Facsimile: (505) 665-0154

Email address: tt-cmt@lanl.gov

 

For Courier Service to the Licensor :

 

Los Alamos National Laboratory

Technology Transfer Division

Bikini Atoll Road, Bldg. SM-30

Los Alamos, NM 87545

Attention: License Compliance Officer

Telephone: (505) 665-9091

For payments due the Licensor:

Los Alamos National Laboratory
Technology Transfer Division
P.O. Box 1663, Mail Stop P245
Los Alamos, NM  87544
Attention:  License Compliance Officer

 

 

19.2     Telephone numbers, fax numbers, and email addresses are given above for purposes of convenience of communication only. Official notices must be sent pursuant to Paragraph 19.1.

 

20. FORCE MAJEURE

 

20.1     The Parties shall not be responsible for any failure to perform due to the occurrence of any events beyond their reasonable control which render their performance impossible or onerous, including, but not limited to biological or nuclear incidents; earthquakes; fires; floods; governmental acts, orders or restrictions; permit requirements; inability to obtain suitable and sufficient labor, transportation, fuel, equipment or materials; local, national, or state emergency; power failure and power outages; acts of terrorism; strike; and war.

 

20.2     Either Party to this License Agreement, however, will have the right to terminate this License Agreement without penalty upon thirty (30) days' prior written notice if either Party is unable to fulfill its obligations under this License Agreement due to any of the causes specified in Paragraph 20.1 for a period of one (1) year.

 

21. COMPLIANCE WITH LAWS

 

21.1     The Licensee will observe all applicable United States laws with respect to the transfer of Licensed Products and Licensed Methods and related technical data and the provision of Licensed Services to foreign countries, including, without limitation, the International Traffic in Arms Regulations (ITAR) and the

 

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The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

Export Administration Regulations. Failure of Licensee to comply with this requirement is a material breach of this License Agreement.

 

21.2     The Licensee shall comply with all applicable international, national, state, regional, and local laws and regulations in performing its obligations hereunder and in its use, manufacture, Sale, or import of the Licensed Products, Licensed Services, or practice of the Licensed Method.

 

22. PREFERENCE FOR UNITED STATES INDUSTRY

 

22.1     In accordance with 35 U.S.C. 204, Licensed Products or products produced through the use of Licensed Methods sold in the United States must be manufactured substantially in the United States.

 

23. DISPUTE RESOLUTION

 

 

23.1

The individuals designated in Paragraph 19 agree to exert their best efforts to resolve disputes arising from this License Agreement. In the event that any dispute arising out of this License Agreement cannot be resolved by the aforestated individuals or their successors, the matter will immediately be referred to the respective management of each Party for resolution. In the event the managements of the Parties fail to resolve the matter within thirty (30) days of referral of the matter to them, either Party may give the other Party notice of its intention to seek other recourse.

 

23.2 Definitions. For purposes of this clause:

 

23.2.a     “ Board ” means the General Services Administration, Civilian Board of Contract Appeals or such successor Board as may be established by law.

 

23.2.b     “ Arbitration decision ” means a decision of the Board in an arbitration pursuant to this clause.

 

23.2.c     “ Claim ” means a written demand or written assertion by either contracting party seeking as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of a license term, or other relief arising under or relating to this license. A voucher, invoice, or other request for payment or equitable adjustment under the terms of the license that is not in dispute when submitted is not a claim. The Licensee may convert such submission into a claim if it is disputed either as to liability or amount, or is not acted upon in a reasonable time, by demanding a decision by the Contract Administrator.

 

23.2.d     “ Counterclaim ” means a claim asserted in a pleading filed with the Board in an arbitration proceeding pursuant to this clause which arises from the same occurrence or transaction that is the subject matter of the opposing party’s claim. Counterclaims do not need to be submitted to the Licensor Contract Administrator for decision.

 

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The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

23.2.e     “ Rules of the Board ” means the Board’s rules promulgated at 41 CFR Part 6101 and 6102 or as promulgated by a successor Board.

 

23.3 Nature of the License. This license is not a Government contract and, therefore, is not subject to the Contract Disputes Act of 1978 (41 U.S.C. §§601-613). However, this license is a subcontract executed under the authority of prime contract DE-AC52-06NA25396. The Licensee acknowledges that DOE is not a party to the license and, for purposes of the license, LANS is not an agent of DOE. Consequently, the provision for arbitration by the Board, as provided for in this clause, does not create or imply the existence of privity of contract between the Licensee and DOE.

 

23.4 Scope of Clause. The rights and procedures set forth in this clause are the exclusive rights and procedures for resolution of all claims and disputes arising under, or relating to, this license, and no action based upon any claim or dispute arising under, or relating to, this license shall be brought in any court except as provided in this clause. The parties shall be bound by any arbitration decision rendered pursuant to this clause, which shall be vacated, modified, or corrected only as provided in the Federal Arbitration Act (9 U.S.C. §§1-16). An arbitration decision may only be enforced in any court of competent jurisdiction in the State of New Mexico.

 

23.5 Filing a Claim/Licensor Contract Administrator’s Decision.

 

23.5.a      Unless otherwise provided in this License, the Licensee must file any claim against LANS within 60 Days after the Licensee knew or should have known the facts giving rise to the claim. Failure to file a claim within the period prescribed by this paragraph shall constitute a waiver of the Licensee’s right, if any, to an equitable adjustment under the License.

 

23.5.b      The Licensee shall submit any claim in writing to the Contract Administrator who shall issue a decision on the matter within 60 Days of receipt of the claim. If the Contract Administrator fails to issue a decision within 60 Days, the Licensee may request mediation or demand for arbitration as provided in paragraphs (e) and (f) of this clause.

 

23.5.c     LANS may, at any time prior to license expiration file a claim against the Licensee by issuing a written decision by the Contract Administrator asserting such a claim.

 

23.5.d     The decision of the Contract Administrator shall be final and conclusive unless the Licensee requests mediation or demands arbitration in accordance with the terms of this clause.

 

23.6 Request for Mediation.

 

23.6.a     If the decision of the Contract Administrator is not satisfactory to the Licensee or the Contract Administrator has failed to timely issue a decision in accordance with subparagraph (d) 2) of this provision and the Licensee desires to pursue further action, the Licensee may request that the matter be scheduled for mediation. The request for mediation must be made within 45 Days after receipt of the Contract Administrator’s decision.

 

23.6.b     If the Contract Administrator believes that mediation of the dispute is likely to lead to a satisfactory resolution, he or she will so inform the Licensee and the matter will be scheduled for

 

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The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

mediation. The parties will agree on the format of the mediation and will jointly select the mediator. The cost of the mediator and related expenses shall be divided evenly between the parties.

 

23.6.c     If the Contract Administrator decides that mediation is not likely to lead to a satisfactory resolution of the claim, or that a mediation undertaken pursuant to this clause has been unsuccessful, he or she will so inform the Licensee in writing.

 

23.7 Demand for Arbitration.             If the decision of the Contract Administrator is not satisfactory to the Licensee, or if the Licensee’s request for mediation has been denied, or a mediation undertaken pursuant to Section 23.6 of this clause has been unsuccessful, or the Contract Administrator has failed to timely issue a decision in accordance with subparagraph 23.5.b of this provision and the Licensee desires to pursue further action, the Licensee must submit to the Board a written demand for arbitration of the claim within 45 Days after receipt of the Contract Administrator’s decision, or within 45 Days after the Contract Administrator notifies the Licensee that its request for mediation has been denied or that the mediation undertaken pursuant to paragraph (e) has been unsuccessful, whichever is later.

 

23.8 Arbitration Procedures/Costs. The Board shall arbitrate the claim and any counterclaims in accordance with the Rules of the Board. All claims for $100,000 or less shall be arbitrated under the Board’s Small Claims (Expedited) Procedure (Rule 202). All other claims, regardless of dollar amount, shall be arbitrated under the Board’s Accelerated Procedure (Rule 203). Both parties shall be afforded an opportunity to be heard and to present evidence in accordance with the Rules of the Board. Unless the Board orders otherwise, each party shall pay its own costs of prosecuting or defending an arbitration before the Board.

 

23.9 Review of Arbitration Decision. An arbitration decision shall be final and conclusive unless a party files a timely action to vacate, modify, or correct the decision pursuant to the Federal Arbitration Act.

 

23.10 Licensee Performance Pending Claim Resolution. The Licensee shall proceed diligently with performance of the license and shall comply with any decision of the Contract Administrator pending final resolution of any claim or dispute arising under, or relating to, the license.

 

23.11 Choice of Law. The license shall be governed by federal law as provided in this paragraph. Irrespective of the place of award, execution, or performance, the license shall be construed and interpreted, and its validity determined, according to the federal law of intellectual property and federal common law of government contracts as enunciated and applied to prime government contracts by the federal boards of contract appeals and federal courts having appellate jurisdiction over their decisions rendered pursuant to the Contract Disputes Act of 1978. The Federal Arbitration Act, other federal statutes, and federal rules shall govern as applicable. To the extent that federal common law of government contracts is not dispositive, the laws of the State of New Mexico shall apply.

 

23.12 Interest. Interest on amounts adjudicated due and unpaid by a party shall be paid from the date the complaining party files a demand for arbitration with the Board. Interest on claims shall be paid at the rate established by the Secretary of the Treasury of the United States pursuant to Public Law 92-41 (85 Stat. 97).

 

24. GOVERNING LAW AND VENUE

 

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24.1     THIS LICENSE AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW MEXICO, excluding any choice of law rules that would direct the application of the laws of another jurisdiction, but the scope and validity of any patent or patent application will be governed by the applicable laws of the country of such patent or patent application.

 

24.2     Any legal action brought by the Parties hereto relating to this License Agreement will be conducted in New Mexico.

 

25. PATENT MARKING

 

25.1     The Licensee agrees to mark, in accordance with the applicable patent marking statute, all Licensed Products, and their containers, which have been made, used, sold or otherwise transferred to a third party, under the terms of this License Agreement.

 

26. SURVIVAL

 

26.1     When this License Agreement expires or is terminated in accordance with the terms hereof, the following Articles will survive any expiration or termination:

 

 

Article    1

Definitions

 

Article

3

Sublicenses

 

Article

4

Fees and Royalties

 

Article

7

Books And Records

 

Article

11

Patent Prosecution, Maintenance And Disclaimer

 

Article

12

Use Of Names, Tradenames, And Trademarks

 

Article

13

Warranty and Limitation of Warranty

 

Article

17

Indemnification

 

Article

18

Late Payments

 

Article

19

Notices

 

Article

24

Governing Law and Venue

 

Article

26

Survival

 

Article

28

Disposition of Licensed Products Upon Termination

 

Article    29

Protection of Proprietary Information

 

Article    30

Miscellaneous

 

 

27. GOVERNMENT APPROVAL OR REGISTRATION

 

27.1     If this License Agreement or any associated transaction is required by the law of any nation to be either approved, permitted or registered with any governmental agency, the Licensee will assume all legal obligations to do so. The Licensee will notify the Licensor if the Licensee becomes aware that this License Agreement is subject to a U.S. or foreign government reporting, permitting, or approval requirement. The Licensee will make all necessary findings and pay all costs including fees, penalties and all other out-of-pocket

 

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The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

costs associated with such reporting, permitting or approval process. This provision does not apply to any requirement arising out of LANS’s contract or relationship with federal, state, and local governments.

 

28. DISPOSITION OF LICENSED PRODUCTS UPON TERMINATION

 

28.1     Upon termination of this License Agreement, the Licensee will have one hundred eighty (180) days to Sell all previously made or partially made Licensed Products, and the license granted in Section 2.1 (Grant) shall be extended accordingly. The Sale of such Licensed Products will be subject to the terms of this License Agreement including, but not limited to, the payment of royalties pursuant to Article 4 (Fees and Royalties).

 

29. PROTECTION OF PROPRIETARY INFORMATION

 

29.1     The Licensee and the Licensor will treat and maintain the other Party’s proprietary business, patent prosecution, software, engineering drawings, process and technical information, and other proprietary information, including the negotiated terms of this License Agreement and any progress and royalty reports, and any sublicense agreement issued pursuant to this License Agreement ("Proprietary Information") in confidence using at least the same degree of care as the receiving Party uses to protect its own proprietary information of a like nature from the date of disclosure until five (5) years after the termination or expiration of this License Agreement.

 

29.2     The Licensee and the Licensor may use and disclose Proprietary Information to their employees, agents, consultants, contractors, and, in the case of the Licensee, its sublicensees, provided that such parties are bound by a like duty of confidentiality as that found in this Article 29. Notwithstanding anything to the contrary contained in this License Agreement, the Licensor may release this License Agreement or any sublicense, including any terms thereof, and information regarding royalty payments or other income received in connection with this License Agreement to the inventors and senior administrative officials employed by the Licensor. If such release is made, the Licensor will ensure that such terms be kept in confidence in accordance with the provisions of this Article 29.

 

29.3     All written Proprietary Information not expressly so designated herein will be labeled or marked confidential or proprietary. If the Proprietary Information is orally disclosed and not expressly so designated herein, it will be reduced to writing or some other physically tangible form, marked and labeled as confidential or proprietary by the disclosing Party and delivered to the receiving Party within thirty (30) days after the oral disclosure.

 

29.4     Nothing contained herein will restrict or impair in any way the right of the Licensee or the Licensor to use or disclose any Proprietary Information:

 

 

29.4.a

that recipient can demonstrate by written records was known to it prior to its disclosure by the disclosing Party;

 

29.4.b

that recipient can demonstrate by written records is now, or becomes in the future, public knowledge other than through acts or omissions of recipient;

 

29.4.c

that recipient can demonstrate by written records was obtained lawfully and without restrictions

 

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The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

on the recipient from sources independent of the disclosing Party;

 

29.4.d

that the recipient can demonstrate it has developed independently of Proprietary Information received from the disclosing Party; or

 

29.4.e

that the recipient is required to disclose under applicable law, subject to the following paragraph.

 

The Licensee or the Licensor may disclose Proprietary Information that is required to be disclosed (i) to a governmental entity or agency in connection with seeking any governmental or regulatory approval, governmental audit, or other governmental requirement or (ii) by law, provided that the recipient uses reasonable efforts to give the Party owning the Proprietary Information sufficient notice of such required disclosure to allow the Party owning the Proprietary Information reasonable opportunity to object to, and to take legal action to prevent such disclosure. The Licensor also may disclose the existence of this License Agreement and the extent of the grant in Article 2 (Grant) and Article 3 (Sublicenses) to a third party that inquires whether a license to the Patent Rights is available, but the Licensor will not disclose the name of the Licensee, unless Licensee has already made such disclosure publicly.

 

29.5     Upon termination of this License Agreement, the Licensee and the Licensor will destroy or return any of the disclosing Party’s Proprietary Information in its possession within fifteen (15) days following the termination of this License Agreement. The Licensee and the Licensor will provide each other, within thirty (30) days following termination, with written notice that such Proprietary Information has been returned or destroyed. Each Party may, however, retain one copy of such Proprietary Information for archival purposes in non-working files.

 

29.6     Nothing in this License Agreement will relieve either Party of any obligation under a separate nondisclosure or confidentiality agreement.

 

30. MISCELLANEOUS

 

30.1     The headings of the several sections of this License Agreement are included for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this License Agreement.

 

30.2     No amendment or modification of this License Agreement is binding on the Parties unless made in a writing executed by duly authorized representatives of the Parties.

 

30.3     This License Agreement, with the attached appendices, contains all of the terms and conditions agreed upon by the Parties relating to the subject matter of the License Agreement and supersedes all prior agreements, negotiations, correspondence, undertakings and communications of the Parties, whether oral or written, respecting that subject matter.

 

30.4     In the event any one or more of the provisions of this License Agreement is held to be invalid, illegal, or unenforceable in any respect, the provision will be replaced with the valid provision that most clearly expresses the Parties’ intent and the invalidity, illegality, or unenforceability will not affect any other provisions hereof, and this License Agreement will be construed as if such invalid or illegal or unenforceable provisions had never been part of this License Agreement.

 

OFFICIAL USE ONLY

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The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

30.5     This License Agreement has been negotiated and prepared jointly by both Parties and shall not be construed for or against any Party.

 

30.6     This License Agreement may be executed in counterparts, including by facsimile or email attachment.

 

OFFICIAL USE ONLY

24

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

IN WITNESS WHEREOF, both the Licensor and the Licensee have executed this License Agreement, in duplicate originals, by their respective officers on the day and year hereinafter written.

 

LOS ALAMOS NATIONAL SECURITY, LLC:

 

By:

__________________________________

 

Michael R. Anastasio

Director, Los Alamos National Laboratory

President, Los Alamos National Security, LLC

 

Date:

__________________________________

 

 

MANHATTAN SCIENTIFICS, INC .

 

By:

__________________________________

 

Manny Tsoupanarias

Chief Executive Officer

MANHATTAN SCIENTIFICS, INC.:

 

Date:

__________________________________

 

 

OFFICIAL USE ONLY

25

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

APPENDIX A

PATENT RIGHTS

 

1.

U.S. Patent Rights:

 

 

 

a.

DOE S# 100,665 entitled "CONTINUOUS EQUAL CHANNEL ANGULAR PRESSING" by Raab, Georgy J., Valiev, Ruslan, Zhu, Yuntian Theodore and Lowe, Terry Curtis, US Patent Number 7,152,448 issued 12/26/2006.

 

 

b.

DOE S# 94, 639 entitled "METHOD FOR PRODUCING ULTRAFINE-GRAINED MATERIALS  USING REPETITIVE CORRUGATION AND STRAIGHTENING" by Lowe, Terry Curtis, Jiang, Honggang, Huang, Jianyu and Zhu, Yuntian Theodore, US Patent Number 6,197,129 issued 3/6/2001.

 

 

c.

DOE S# 91,713 entitled "ULTRAFINE-GRAINED TITANIUM FOR MEDICAL IMPLANTS" by Valiev, Ruslan Z., Zhu, Yuntian Theodore, Lowe, Terry Curtis, Latysh, Vladimir V., Raab, Georgy J. and Stolyarov, Vladimir V., US Patent Number 6,399,215 issued 6/4/2002.

 

For purposes of removal of doubt, Licensee acknowledges that other parties may also have ownership interests in U.S. Patent 7152448 and U.S. Patent 6399215, and that Licensor is only granting a license to the Licensor’s right, title and interest in, U.S. Patent 7152448 and U.S. Patent 6399215. If the Licensee wishes to have full exclusive rights to this patent, the Licensee must seek rights from other assignees (if any) of those patents

 

OFFICIAL USE ONLY

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The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

APPENDIX B

FEES, ROYALTIES AND REIMBURSEMENT OF COSTS

 

1.

Issue and Annual Fees

 

 

a.

A non-refundable License Issue Fee of [***].

 

 

b.

Annual License Fees , as cash payments, are due and payable on February 28 of each year, according to the following schedule:

[***]

 

The Licensor will credit the Annual License Fee for a particular calendar year against any royalties earned during that same year. After the royalties accumulated during a given year equals the Annual License Fee previously paid to the Licensor on February 28 th of that same year, Licensee shall consider such credit as having been fully applied and shall begin paying actual royalties earned for the remainder of that same calendar year.

 

 

c.

As partial consideration for this License Agreement, Licensee will issue to Licensor [***]. In order to make a properly informed decision in accordance with the Licensor’s procedures for accepting equity in licensing transactions, final acceptance by the Licensor of said equity is conditioned upon receipt and acceptance of Licensee shareholders’ agreement, capitalization table, articles of incorporation, or the equivalent.

 

d.

Upon final acceptance of said equity, the Licensor reserves the right and sole discretion to direct Licensee to distribute such shares directly to the respective inventors or to the Licensor’s Office of the Treasurer that is responsible for managing Licensor equity transactions. In the case that the Licensor is unable to accept said equity, the Licensor and Licensee shall renegotiate in good faith for a substitution of similar value for consideration of this License Agreement.

 

 

e.

Upon receipt of approval for Licensor to accept equity from the Licensee,, Licensee shall issue to the Licensor a stock certificate for all common stock, which shall be issued in the Licensor’s name, Los Alamos National Security LLC.

 

 

f.

If Licensee fails to issue the shares provided for herein within ninety (90) days from execution of this License Agreement, the Licensor may immediately terminate this License Agreement without recourse to the notification procedure specified in Article 9.

 

 

g.

If the Issue Value (equaling the closing price per share on the date of stock issuance times 2,000,000) exceeds [***], then the Excess Value (equaling the [***]) shall be credited against future royalty payments due to Licensor under this License Agreement.

 

2.

Earned Royalties

 

 

OFFICIAL USE ONLY

27

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

The Licensee will pay the Licensor an earned royalty on the Net Sales Price of Licensed Inventions that incorporate the Patent Rights during the term of this License Agreement according to the following schedule:

 

 

a.

Net Sales by Licensee. The Licensee will pay the Licensor a royalty of [***] of Net Sales by Licensee.

 

Amounts received from a customer of a Joint Venture partner by either the Joint Venture partner or Licensee shall trigger royalties in accordance with Section 2 herein; provided, however, that if consideration is received by both the Joint Venture partner and the Licensee, then only the greater of the two amounts (and not both) shall trigger payments to the extent due pursuant to Section 2 of this Appendix B.

 

3.

Sublicense Consideration

 

Licensee will pay to Licensor a percentage of Sublicense Consideration received from each sublicense granted by the Licensee, as specified below. If Sublicense Consideration is in the form of publicly traded stock, Licensee will pay to Licensor cash based on the price of the stock on the date such stock is actually received by Licensee from the Sublicensee. If Sublicense Consideration is in the form of privately traded stock, Licensee must obtain Licensor’s and the third party's consent to pay Licensor in shares of stock. Otherwise, Licensee will pay Licensor in cash based on the price of such privately traded stock.

 

Sublicense Consideration Due From Third-Party Sublicenses:

 

Licensee will pay to Licensor [***] of Sublicense Consideration received from third-party (non-Joint Venture) sublicensees.

 

Sublicense Consideration Due From Joint Venture Sublicenses:

 

Licensee will pay to Licensor [***] of Sublicense Consideration received from Joint Venture sublicensees.

 

4.

Assignment Fee

 

Licensee or its successor will pay the Licensor an Assignment Fee of twenty thousand U.S. Dollars [***]in consequence of a merger, acquisition or other change in controlling interest where Licensee is not the surviving entity.                             

 

 

OFFICIAL USE ONLY

28

 


The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

APPENDIX C

MILESTONES

 

 

Due Date

Milestone

12 months from Effective Date

MSI will initiate negotiations with at least 5 companies regarding manufacture or distribution of licensed products, within 12 months of license execution.

24 months from Effective Date

MSI will establish capability for manufacturing licensed product in New Mexico within 24 months of license execution

36 months from Effective Date

MSI will either manufacture a licensed product, or close a sublicense agreement, or initiate request for required government approval for Licensed Product (e.g. FDA or FAA) within 36 months of license execution.

 

OFFICIAL USE ONLY

29

 


 

The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 406 under the Securities Act of 1933, and Rule 24b-2, under the Securities Exchange Act of 1934, Redacted portions of this exhibit are marked by an [***].

 

APPENDIX D

PROGRESS REPORT FORMAT

 

Date of Report:

Reporting Period:

o

January 1 – June 30

 

o

July 1 – December 31

 

 

1.

Development:

 

Progress towards commercialization and milestones (Appendix C)

 

Problems encountered

 

2.

Commercialization:

 

First commercial sale in the U.S.

 

Sales, production or other royalty-generating activity

 

Royalty calculations and royalties due

 

Sublicenses

 

4.

Of General Interest:

 

Promotional material, news releases, etc.

 

Company annual reports

 

Scientific publications

 

Any feedback, positive or negative

 

Suggestions

 

5.

Statement of Insurance

 

Name of insurance company

 

Policy number

 

Coverage

 

 

OFFICIAL USE ONLY

30

 


EXHIBIT 14

 

MANHATTAN SCIENTIFICS, INC.

CODE OF ETHICS

FOR CHIEF EXECUTIVE OFFICER AND SENIOR FINANCE OFFICERS

Manhattan Scientifics, Inc. (the “Company”) is committed to conducting its business in accordance with applicable laws, rules and regulations and to full and accurate financial disclosure in compliance with applicable law. This Code of Ethics, applicable to the Company’s Chief Executive Officer, Chief Financial Officer and Controller, or persons performing similar functions, (collectively, “Senior Officers”), sets forth specific policies related to the performance by the Senior Officers of their duties.

A Senior Officer must not only comply with applicable law but also engage in and promote honest and ethical conduct and abide by this Code of Ethics and any other Company policies and procedures that govern the conduct of the Company’s business.

Senior Officers will:  

Act with honesty and integrity, avoiding conflicts of interest in their personal and professional relationships.

Provide shareholders with information that is accurate, complete, objective, fair, relevant, timely and understandable, including in our filings with and other submissions to the U.S. Securities and Exchange Commission.

Comply with rules and regulations of federal, state, provincial and local governments, and other appropriate private and public regulatory agencies.

Treat confidential information acquired in the course of one’s work as such and not use it for personal advantage.

Not unduly or fraudulently influence, coerce, manipulate, or mislead any authorized audit or interfere with any auditor engaged in the performance of an internal or independent audit of the Company’s financial statements or accounting books and records.

Achieve responsible use, control, and stewardship over all Company assets and resources that are employed or entrusted to us.

Proactively promote and be an example of ethical behavior as a responsible partner among peers, in the work environment and the community.

If a Senior Officer knows of or suspects a violation of applicable laws, rules or regulations or this Code of Ethics, such Senior Officer must immediately report that information to the Chief Executive Officer or any member of the Board of Directors. No one will be subject to retaliation because of a good faith report of a suspected violation.

Violations of this Code of Ethics may result in disciplinary action, up to and including discharge. The Board of Directors shall determine, or shall designate appropriate persons to determine, appropriate action in response to violations of this Code.

If a Senior Officer seeks a waiver of the Code of Ethics, such Senior Officer must make full disclosure of his particular circumstances to the Chief Executive Officer and the Board of Directors. Amendments to and waivers of this Code of Ethics will be publicly disclosed if and as required by applicable laws and regulations.




EXHIBIT 21

 

Subsidiaries of the Registrant Listing the Jurisdiction of Organization

 

SUBSIDIARY

  

JURISDICTION

  

  

  

Metallicum, Inc.  

  

New Mexico

  

  

  

  

Omitted from the table are those subsidiaries which are not significant subsidiaries (as defined in rule 1-02(w) of Regulation S-X of the Securities Exchange Act of 1934, as amended) and in the aggregate would not constitute a significant subsidiary.


Exhibit 31.1

Certifications

I, Emmanuel Tsoupanarias, certify that:

 

1.

I have reviewed this annual report on Form 10-K of Manhattan Scientifics, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 9, 2010

 

 

/s/ Emmanuel Tsoupanarias                
Emmanuel Tsoupanarias
Chief Executive Officer
(Principal Executive Officer)



Exhibit 31.2

Certifications

I, Chris Theoharis, certify that:

 

1.

I have reviewed this annual report on Form 10-K of Manhattan Scientifics, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 9, 2010

 

 

/s/ Chris Theoharis                
Chris Theoharis
Chief Financial Officer
(Principal Financial Officer)





Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Manhattan Scientifics, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Emmanuel Tsoupanarias, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 9, 2010

 

 

/s/ Emmanuel Tsoupanarias

Emmanuel Tsoupanarias

Chief Executive Officer (Principal Executive Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Manhattan Scientifics, Inc. and will be retained by Manhattan Scientifics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request .





Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Manhattan Scientifics, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chris Theoharis, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 9, 2010

 

/s/ Chris Theoharis

Chris Theoharis

Chief Financial Officer (Principal Financial Officer)

 

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Manhattan Scientifics, Inc. and will be retained by Manhattan Scientifics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request .