<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000
/ / Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from ______________ to ______________
Commission file number 000-28411
Manhattan Scientifics, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 850460639
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
641 Fifth Avenue, Suite 36F, New York, New York 10022
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 752-0505
--------------------------------------------------------------------------------
Issuer's telephone number, including area code
--------------------------------------------------------------------------------
(Former name, former address and formal fiscal year, if changed since
last report)
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
The number of shares outstanding of each of the issuer's classes of
common equity as of August 9, 2000 was as follows: 102,399,472 shares of Common
Stock, and 245,165 shares of Series B Preferred Stock. In addition, as of the
date of this Form 10-QSB, there are 650,000 shares of Common Stock and 14,000
shares of Series C Preferred Stock which Manhattan Scientifics is obligated to
issue but has not yet been issued to the appropriate recipients.
Transitional Small Business Disclosure Format: YES / / NO /X/
<PAGE>
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Balance Sheet
(UNAUDITED)
June 30, 2000
ASSETS
Current assets:
Cash and cash equivalents $ 703,000
Stock subscription receivable (collected $250,000 in each
month July and August 2000) 500,000
Note receivable 10,000
Prepaid expenses 40,000
----------
Total current assets 1,253,000
----------
Property and equipment, net 78,000
Patents, net 2,033,000
Security deposit 7,000
----------
$3,371,000
==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 107,000
Note payable to stockholder 275,000
----------
Total current liabilities 382,000
----------
Commitments
STOCKHOLDERS' EQUITY
Capital stock $.001 par value
Preferred, authorized 1,000,000 shares
Series A convertible, redeemable, 10 percent cumulative,
authorized 182,525 Shares; issued and outstanding - none
Series B convertible, authorized 250,000 shares; 245,165
shares issued and outstanding
Series C convertible, redeemable, authorized 14,000 shares;
14,000 shares issuable
Common, authorized 150,000,000 shares, 102,388,639
shares issued,
And outstanding, 655,833 shares issuable 102,000
Additional paid-in capital 30,984,000
Deficit accumulated during the development stage (28,097,000)
-----------
Total stockholders' equity 2,989,000
----------
$3,371,000
==========
The accompanying notes are an integral part of these financial statements
2
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended June 30 Ended June 30
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 0 $ 0
------------- ------------- ------------- -------------
Operating costs and expenses:
Salaries and employee benefits
Consulting fees
Materials and supplies
General and administrative 265,000 6,364,000 611,000 6,475,000
Rent and utilities 15,000 5,000 19,000 10,000
Research and development 775,000 189,000 1,419,000 361,000
------------- ------------- ------------- -------------
Total operating costs and expenses 1,055,000 6,558,000 2,049,000 6,846,000
------------- ------------- ------------- -------------
Loss from operations before other income and expenses (1,055,000) (6,558,000) (2,049,000) (6,846,000)
Other income and expenses:
Contract revenue
Interest and other expense (5,000) (8,000)
Interest income 6,000 5,000 22,000 10,000
Loss of equity investee
------------- ------------- ------------- -------------
Net loss/comprehensive loss 1,054,000 $ ( 6,553,000) 2,035,000 $ (6,836,000)
------------- ============= ------------- =============
Dividends on Series C preferred stock
beneficial conversion feature (1,400,000) (1,400,000)
------------- -------------
Net loss attributable to common shareholders $ (2,454,000) $ (3,435,000)
============= =============
Basic and diluted loss per share:
Weighted average number of common shares outstanding 101,793,000 98,250,000 101,793,000 98,250,000
============= ============= ============= =============
Basic and diluted loss per share $(.02) $(.07) $(.03) $(.07)
====== ====== ====== ======
<CAPTION>
Period From
Inception
(July 31,1992)
Through
June 30, 2000
-------------
<S> <C>
Revenues $ 0
-------------
Operating costs and expenses:
Salaries and employee benefits 4,429,000
Consulting fees 6,197,000
Materials and supplies 987,000
General and administrative 10,952,000
Rent and utilities 561,000
Research and development 3,042,000
-------------
Total operating costs and expenses 26,168,000
-------------
Loss from operations before other income and expenses (26,168,000)
Other income and expenses:
Contract revenue 3,602,000
Interest and other expense (550,000)
Interest income 125,000
Loss of equity investee (100,000)
-------------
Net loss/comprehensive loss $ (23,091,000)
=============
Dividends on Series C preferred stock
beneficial conversion feature
Net loss attributable to common shareholders
Basic and diluted loss per share:
Weighted average number of common shares outstanding
Basic and diluted loss per share
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
Consolidated Statements of Stockholders' Equity (Capital Deficiency)
(UNAUDITED)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2000
<TABLE>
<CAPTION>
Preferred Stock
----------------------------------
$.001 Par Value
Series A Series B
Preferred ----------------------------------
Stock Shares Amount
--------------- --------------- ---------------
<S> <C> <C> <C>
Initial issuance of shares to founders on contribution
of intangible assets at historic cost basis
Additional founders' contribution
Issuance of 1,037,000 shares of Series A preferred
Stock, net of issuance costs $ 10,000
Net loss
---------------
Balance, March 31, 1993 10,000
Issuance of shares to investor at approximately
$.21 per share
Issuance of shares on exercise of options
Services performed in exchange for Series A
Preferred stock issued in fiscal 1993
Net loss
---------------
Balance, March 31, 1994 10,000
Services performed for Series A preferred stock
issued in fiscal 1993
Issuance of shares at approximately $.52 per share
Net loss
---------------
Balance, December 31, 1994 10,000
Issuance of 163,000 shares of Series A
Preferred stock 2,000
Write-off of amounts receivable from stockholders
Net loss
---------------
Balance, December 31, 1995 12,000
Issuance of shares upon exercise of option for
$15,000
Net loss
---------------
Balance, December 31, 1996 12,000
Purchase and retirement of 1,200,000 shares of
Series A preferred stock (12,000)
Purchase of 7,195,814 treasury shares of common
stock for $15,000
Net loss/comprehensive loss
---------------
Balance, December 31, 1997 (carried forward) 0
<CAPTION>
Common Stock
$.001 Par Value Additional
---------------------------------- Paid-in
Shares Amount Capital
--------------- --------------- ---------------
<S> <C> <C> <C>
Initial issuance of shares to founders on contribution
of intangible assets at historic cost basis 14,391,627 $ 14,500 $ 500
Additional founders' contribution 40,000
Issuance of 1,037,000 shares of Series A preferred
Stock, net of issuance costs 1,020,000
Net loss
--------------- --------------- ---------------
Balance, March 31, 1993 14,391,627 14,500 1,060,500
Issuance of shares to investor at approximately
$.21 per share 14,391,627 14,500 2,985,500
Issuance of shares on exercise of options 479,720 1,000 49,000
Services performed in exchange for Series A
Preferred stock issued in fiscal 1993
Net loss
--------------- --------------- ---------------
Balance, March 31, 1994 29,262,974 30,000 4,095,000
Services performed for Series A preferred stock
issued in fiscal 1993
Issuance of shares at approximately $.52 per share 345,399 182,000
Net loss
--------------- --------------- ---------------
Balance, December 31, 1994 29,608,373 30,000 4,277,000
Issuance of 163,000 shares of Series A
Preferred stock 161,000
Write-off of amounts receivable from stockholders (40,000)
Net loss
--------------- --------------- ---------------
Balance, December 31, 1995 29,608,373 30,000 4,398,000
Issuance of shares upon exercise of option for
$15,000 14,391,627 14,000 1,000
Net loss
--------------- --------------- ---------------
Balance, December 31, 1996 44,000,000 44,000 4,399,000
Purchase and retirement of 1,200,000 shares of
Series A preferred stock (58,000)
Purchase of 7,195,814 treasury shares of common
stock for $15,000
Net loss/comprehensive loss
--------------- --------------- ---------------
Balance, December 31, 1997 (carried forward) 44,000,000 44,000 4,341,000
<CAPTION>
Deficit
Amounts Accumulated
Receivable During the
From Development Treasury
Stockholders Stage Stock Total
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Initial issuance of shares to founders on contribution
of intangible assets at historic cost basis $ 15,000
Additional founders' contribution $ (40,000)
Issuance of 1,037,000 shares of Series A preferred
Stock, net of issuance costs (286,000) 744,000
Net loss $ (543,000) (543,000)
--------------- --------------- --------------- ---------------
Balance, March 31, 1993 (326,000) (543,000) 216,000
Issuance of shares to investor at approximately
$.21 per share 3,000,000
Issuance of shares on exercise of options 50,000
Services performed in exchange for Series A
Preferred stock issued in fiscal 1993 127,000 127,000
Net loss (2,292,000) (2,292,000)
--------------- --------------- --------------- ---------------
Balance, March 31, 1994 (199,000) (2,835,000) 1,101,000
Services performed for Series A preferred stock
issued in fiscal 1993 159,000 159,000
Issuance of shares at approximately $.52 per share 182,000
Net loss (2,250,000) (2,250,000)
--------------- --------------- --------------- ---------------
Balance, December 31, 1994 (40,000) (5,085,000) (808,000)
Issuance of 163,000 shares of Series A
Preferred stock 163,000
Write-off of amounts receivable from stockholders 40,000 0
Net loss (972,000) (972,000)
--------------- --------------- --------------- ---------------
Balance, December 31, 1995 0 (6,057,000) (1,617,000)
Issuance of shares upon exercise of option for
$15,000 15,000
Net loss (284,000) (284,000)
--------------- --------------- --------------- ---------------
Balance, December 31, 1996 0 (6,341,000) (1,886,000)
Purchase and retirement of 1,200,000 shares of
Series A preferred stock (70,000)
Purchase of 7,195,814 treasury shares of common
stock for $15,000 $ (15,000) (15,000)
Net loss/comprehensive loss (335,000) (335,000)
--------------- --------------- --------------- ---------------
Balance, December 31, 1997 (carried forward) 0 (6,676,000) (15,000) (2,306,000)
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
Consolidated Statements of Stockholders' Equity (Capital Deficiency)(continued)
(UNAUDITED)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2000
(continued)
<TABLE>
<CAPTION>
Preferred Stock
$.001 Par Value Common Stock
------------------- ---------------------
Series A Series B $.001 Par Value
Preferred ------------------- ---------------------
Stock Shares Amount Shares Amount
--------- ------ ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 (brought forward) 0 0 0 44,000,000 $ 44,000
Purchase of 7,195,813 treasury shares of
common stock for $15,000
Special distribution of 14,391,627 shares
of common stock to Projectavision, Inc.
Shares deemed issued in connection
with reverse merger 11,000,000 11,000
Issuance of 182,525 shares of Series A
preferred stock and warrants exercisable
into 750,000 shares of common stock at an
exercise price of $.10 per share in
exchange for note payable of $1,500,000
and accrued interest of $330,000 including
deemed dividend in connection with
Beneficial conversion feature of
preferred stock
Issuance of shares at $.20 per share, net
of Issuance costs 5,000,000 5,000
Issuance of shares to purchase intangible 7,200,000 7,000
assets
Issuance of shares at $.58 per share for
Consulting services 1,000,000 1,000
Issuance of warrants to purchase
2,000,000 shares of common stock
exercisable at $.75 per share at fair
value for services
Issuance of shares at $.18 per share 275,000
Issuance of shares on conversion of
182,525 shares
of Series A preferred stock 9,435,405 10,000
Issuance of shares at $.05 per share 20,340,000 20,000
Issuance of stock options and warrants at
fair value
for services
Net loss/comprehensive loss
--------- ------ ------ ---------- ---------
Balance, December 31, 1998
(carried forward) 0 0 0 98,250,405 98,000
<CAPTION>
Deficit
Amounts Accumulated
Additional Receivable During the
Paid-in From Development Treasury
Capital Stockholders Stage Stock Total
------- ------------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 (brought
forward) $ 4,341,000 $ 0 $ (6,676,000) $ $(2,306,000)
Purchase of 7,195,813 treasury shares of
common stock for $15,000 (15,000) (15,000)
Special distribution of 14,391,627 shares
of common stock to Projectavision, Inc. 346,000 30,000 376,000
Shares deemed issued in connection
with reverse merger (11,000) 0
Issuance of 182,525 shares of Series A
preferred stock and warrants exercisable
into 750,000 shares of common stock at
an exercise price of $.10 per share in
exchange for note payable of $1,500,000
and accrued interest of $330,000
including deemed dividend in connection
with Beneficial conversion feature of
preferred stock 2,850,000 (1,020,000) 1,830,000
Issuance of shares at $.20 per share, net
of Issuance costs 970,000 975,000
Issuance of shares to purchase intangible 1,440,000
assets 1,433,000
Issuance of shares at $.58 per share for
Consulting services 579,000 580,000
Issuance of warrants to purchase
2,000,000 shares of common stock
exercisable at $.75 per share
at fair value for services 660,000 660,000
Issuance of shares at $.18 per share 50,000 50,000
Issuance of shares on conversion of
182,525 shares of Series A preferred
stock (10,000) 0
Issuance of shares at $.05 per share 997,000 1,017,000
Issuance of stock options and warrants at
fair value for services 2,165,000 2,165,000
Net loss/comprehensive loss (4,580,000) (4,580,000)
----------- --------------- ------------ ---------- -----------
Balance, December 31, 1998
(carried forward) 14,370,000 0 (12,276,000) 0 2,192,000
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
Consolidated Statements of Stockholders' Equity (Capital Deficiency)(continued)
(UNAUDITED)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2000
(continued)
<TABLE>
<CAPTION>
Preferred Stock
$.001 Par Value Common Stock
------------------- --------------------
Series A Series B $.001 Par Value
Preferred ------------------- --------------------
Stock Shares Amount Shares Amount
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998
(brought forward) 0 0 $ 0 98,250,000 $ 98,000
Issuance of shares in
satisfaction
Of accrued expenses 78,000
Issuance of shares at $.49 per
Share for consulting services 10,000
Issuance of shares at $.49 per
Share to purchase furniture
And fixtures 100,000
Issuance of shares at market
Prices as consulting
Services were performed 17,269
Issuance of shares to purchase
Intangible assets 1,000,000 1,000
Issuance of shares at $1.25 per
Share for services 1,600
Issuance of stock options
Immediately exercisable
At fair value for services
Issuance of warrants to purchase
2,000,000 shares of common
Stock exercisable at $.75 per
Share for consulting services
Shares issuable at $1.27 per
Share in connection with note
Payable
Issuance of shares on exercise
Of 100,000 options at $.20
per Share 100,000
Issuance of Series B convertible
Preferred shares at $6.00 per
Share including deemed
Dividend in connection with
Beneficial conversion feature
Of preferred stock 245,165
Issuance of shares at $.75
Per share 533,000 1,000
Net loss/comprehensive loss
----------- ---------- ---------- ------------ ----------
Balance, December 31, 1999 0 245,165 0 100,090,274 100,000
<CAPTION>
Deficit
Amounts Accumulated
Additional Receivable During the
Paid-in From Development Treasury
Capital Stockholders Stage Stock Total
------- ------------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998
(brought forward) $ 14,370,000 $ 0 $(12,276,000) $ 0 $ 2,192,000
Issuance of shares in
satisfaction
Of accrued expenses 15,000 15,000
Issuance of shares at $.49 per
Share for consulting services 5,000 5,000
Issuance of shares at $.49 per
Share to purchase furniture
And fixtures 49,000 49,000
Issuance of shares at market
Prices as consulting
services were performed 15,000 15,000
Issuance of shares to purchase
Intangible assets 999,000 1,000,000
Issuance of shares at $1.25 per
Share for services 2,000 2,000
Issuance of stock options
Immediately exercisable
At fair value for services 6,572,000 6,572,000
Issuance of warrants to purchase
2,000,000 shares of common
Stock exercisable at $.75 per
Share for consulting services 1,090,000 1,090,000
Shares issuable at $1.27 per
Share in connection with note
Payable 191,000 191,000
Issuance of shares on exercise
Of 100,000 options at $.20
per Share 20,000 20,000
Issuance of Series B convertible
Preferred shares at $6.00 per
Share including deemed
Dividend in connection with
Beneficial conversion feature
Of preferred stock 2,942,000 (1,471,000) 1,471,000
Issuance of shares at $.75
Per share 399,000 400,000
Net loss/comprehensive loss (9,800,000) (9,800,000)
------------ -------------- ------------- ----------- -----------
Balance, December 31, 1999 26,669,000 0 (23,547,000) $ 0 3,222,000
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
(carried forward)
Consolidated Statements of Stockholder's Equity (Capital Deficiency)(continued)
(UNAUDITED)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through June 30, 2000
(continued)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock
$.001 Par Value $.001 Par Value
------------------ ---------------------
Series A Series B Series C
Preferred ------------------ ---------------------
Stock Shares Amount Shares Amount
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999
(brought forward) 0 245,165 $ 0 0 $ 0
Issuance of shares at $.75 per share
Issuance of shares at market price for service
Issuance of common stock to Equilink, LLC on
Exercise of cashless warrants
Shares issuable of Series C convertible preferred
shares
At $100.00 per share including deemed dividend
In connection with beneficial conversion feature
Of preferred stock
Issuance of shares in connection with Series C
Preferred stock private placement investment
Shares issuable at $2.23 per share in connection
with research and development and license
Agreement
Issuance of shares at market price for services
Shares issuable at market price for services
Net loss/comprehensive loss
---------- --------- ---------- ------------ ----------
Balance, June 30, 2000 0 245,165 $ 0 0 $ 0
========== ========= ========= ============ ==========
<CAPTION>
Deficit
Common Stock Amounts Accumulated
$.001 Par Value Additional Receivable During the
-------------------- Paid-in From Development
Shares Amount Capital Stockholders Stage
------ ------ ------- ------------ -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999
(brought forward) 100,090,274 $ 100,000 $ 26,669,000 $ 0 $ (23,547,000)
Issuance of shares at $.75 per share 515,000 1,000 385,000
Issuance of shares at market price for service 4,942 8,000
Issuance of common stock to Equilink, LLC on
Exercise of cashless warrants 1,076,923
Shares issuable of Series C convertible preferred
shares
At $100.00 per share including deemed dividend
In connection with beneficial conversion feature
Of preferred stock 2,199,000 (1,400,000)
Issuance of shares in connection with Series C
Preferred stock private placement investment 700,000 1,000 600,000
Shares issuable at $2.23 per share in connection
with research and development and license
Agreement 1,115,000 (1,115,000)
Issuance of shares at market price for services 1,500
Shares issuable at market price for services 8,000
Net loss/comprehensive loss (2,035,000)
------------ ---------- ------------ ------------ -------------
Balance, June 30, 2000 102,388,639 $ 102,000 $ 30,984,000 0 $ (28,097,000)
============ ========== ============ ============ =============
<CAPTION>
Treasury
Stock Total
----- -----
<S> <C> <C>
Balance, December 31, 1999
(brought forward) $ 0 $ 3,222,000
Issuance of shares at $.75 per share 386,000
Issuance of shares at market price for service 8,000
Issuance of common stock to Equilink, LLC on
Exercise of cashless warrants
Shares issuable of Series C convertible preferred
shares
At $100.00 per share including deemed dividend
In connection with beneficial conversion feature
Of preferred stock 799,000
Issuance of shares in connection with Series C
Preferred stock private placement investment 601,000
Shares issuable at $2.23 per share in connection
with research and development and license
Agreement
Issuance of shares at market price for services
Shares issuable at market price for services 8,000
Net loss/comprehensive loss (2,035,000)
----------- -----------
Balance, June 30, 2000 $ 0 $ 2,989,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
7
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
(Consolidated Statements of Cash Flows)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
June 30, June 30,
---------------------------- ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,054,000) $(6,553,000) $(2,035,000) $(6,836,000)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Common stock issued for services 8,000 35,000 16,000 35,000
Preferred stock issued for services
Stock options issued for services 6,160,000 6,160,000
Warrants issued for services
Financing costs payable with common stock
Loss of equity investee
Depreciation and amortization 66,000 39,000 131,000 79,000
Changes in:
Prepaid expenses 15,000 5,000 (40,000) 5,000
Accounts payable and accrued expenses (79,000) 50,000 (126,000) (2,000)
Note receivable
----------- ----------- ----------- -----------
Net cash used in operating activities (1,044,000) (264,000) (2,054,000) (559,000)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of equipment (11,000) (22,000)
Purchase of investment (70,000) (70,000)
Proceeds from sale of equipment
----------- ----------- ----------- -----------
Net cash used in investing activities (11,000) (70,000) (22,000) (70,000)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Purchase of treasury stock
Proceeds from note payable to stockholders
Net proceeds from issuance of preferred stock 900,000 900,000
Net proceeds from issuance of common stock 711,000 250,000
Loan repayment to preferred stockholder
Capital lease payments
Security deposit paid
----------- ----------- ----------- -----------
Net cash provided by financing activities 900,000 1,611,000 250,000
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (155,000) (334,000) (465,000) (379,000)
Cash and cash equivalents, beginning of period 858,000 620,000 1,168,000 665,000
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period $ 703,000 $ 286,000 $ 703,000 $ 286,000
============ =========== =========== ===========
Supplemental disclosure of cash flow information:
Interest paid
Supplemental disclosures of noncash investing and
Financing activities:
Fixed assets contributed to the Company in
exchange for Series A preferred stock
Issuance of 14,391,627 common shares to
Acquire intangible assets
Special distribution of 14,391,627 shares of
common stock to Stockholder in settlement of
stockholder advances
Issuance of 7,200,000 common shares to acquire
Intangible assets
Issuance of Series A preferred stock and warrants
in settlement of note payable and accrued
interest
Issuance of 1,000,000 common shares to acquire
intangible assets Issuance of 100,000 common
shares to acquire furniture and Fixtures
Issuance of 78,000 common shares in satisfaction
of accrued Expenses
<CAPTION>
Period From
Inception
(July 31, 1992)
Through
June 30, 2000
------------------
<S> <C>
Cash flows from operating activities:
Net loss (23,091,000)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Common stock issued for services 618,000
Preferred stock issued for services 598,000
Stock options issued for services 8,737,000
Warrants issued for services 1,750,000
Financing costs payable with common stock 191,000
Loss of equity investee 100,000
Depreciation and amortization 806,000
Changes in:
Prepaid expenses (40,000)
Accounts payable and accrued expenses 462,000
Note receivable (10,000)
Net cash used in operating activities (9,879,000)
Cash flows from investing activities:
Purchase of equipment (377,000)
Purchase of investment (100,000)
Proceeds from sale of equipment 14,000
----------
Net cash used in investing activities (463,000)
----------
Cash flows from financing activities:
Purchase of treasury stock (100,000)
Proceeds from note payable to stockholders 2,149,000
Net proceeds from issuance of preferred stock 3,069,000
Net proceeds from issuance of common stock 6,095,000
Loan repayment to preferred stockholder (148,000)
Capital lease payments (13,000)
Security deposit paid (7,000)
----------
Net cash provided by financing activities 11,045,000
----------
Net increase (decrease) in cash and cash equivalents 703,000
Cash and cash equivalents, beginning of period
----------
Cash and cash equivalents, end of period $ 703,000
==========
Supplemental disclosure of cash flow information:
Interest paid $ 7,000
==========
Supplemental disclosures of noncash investing and
Financing activities:
Fixed assets contributed to the Company in
exchange for Series A preferred stock $ 45,000
==========
Issuance of 14,391,627 common shares to
Acquire intangible assets $ 15,000
==========
Special distribution of 14,391,627 shares of
common stock to Stockholder in settlement of
stockholder advances $ 376,000
==========
Issuance of 7,200,000 common shares to acquire
Intangible assets $1,440,000
==========
Issuance of Series A preferred stock and warrants
in settlement of note payable and
accrued interest $1,830,000
==========
Issuance of 1,000,000 common shares to acquire
intangible assets $1,000,000
==========
Issuance of 100,000 common shares to acquire
furniture and Fixtures $ 49,000
==========
Issuance of 78,000 common shares in satisfaction
of accrued Expenses $ 15,000
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
8
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE A - ORGANIZATION AND OPERATIONS
(UNAUDITED)
Manhattan Scientifics, Inc. (formerly Grand Enterprises, Inc. ("Grand")), and
its wholly-owned subsidiary Tamarack Storage Devices, Inc. (collectively "the
Company"), a development stage enterprise, operates in a single business segment
as a technology incubator that seeks to acquire, develop and bring to market
technologies in fields with an emphasis in the area of consumer and commercial
electronics. At June 30, 2000, the Lauer Entities claim beneficial ownership of
approximately 45 percent of the Company's common stock (see Note F).
In January 1998, Manhattan Scientifics, Inc., then a non-operating public
corporation with nominal net assets, acquired all of the outstanding common
stock of Tamarack Storage Devices, Inc. ("Tamarack") by issuing 44 million
shares of its common stock, including approximately 43,120,000 shares issued to
Projectavision, a public company which gave the stockholders of Tamarack actual
control of the combined company. In addition, Manhattan Scientifics, Inc. issued
182,525 shares of Series A preferred stock and a warrant to purchase 750,000
shares of its common stock at an exercise price of 10 cents per share in
exchange for a note payable of $1.5 million plus accrued interest of $330,000
due to Projectavision from Tamarack. In connection with this transaction,
Tamarack became a wholly-owned subsidiary of Manhattan Scientifics, Inc. For
accounting purposes, the acquisition was treated as a recapitalization of
Tamarack rather than a business combination. Tamarack, as the accounting
acquiror of the public shell, did not record goodwill or any other intangible
asset for this "Reverse Acquisition". The historical financial statements are
those of Tamarack. Tamarack, a development stage enterprise, was a Texas
corporation formed in July 1992. Since inception, Tamarack has been, and
continues to be, involved in the research and development of products based on
holographic data storage technology. Loss per share has been restated for all
periods prior to the acquisition to include the number of equivalent shares
received by Tamarack's stockholders in the Reverse Acquisition.
Prior to this transaction, Projectavision owned approximately 98% of Tamarack.
Projectavision, through cash investments, acquired approximately 65% of Tamarack
through December 31, 1996. During late 1997 and early 1998, as a result of a
treasury stock transaction between Tamarack and its two founding stockholders,
Projectavision came to own approximately 97% of the outstanding shares of
Tamarack. In lieu of repayment of certain advances made by Projectavision
amounting to approximately $376,000, Tamarack made a special dividend
distribution to Projectavision of the 14,391,627 treasury shares increasing
Projectavision's ownership of Tamarack to 98%. The value ascribed to this
transaction amounted to a reduction of the treasury stock at historical cost and
a contribution to additional paid-in capital of $346,000 as part of the reverse
acquisition.
Concurrently with the Reverse Acquisition, Tamarack merged with DKY, Inc., a
newly formed company. In connection with this transaction, Tamarack, as the
surviving entity, obtained certain license/intellectual property assignment
rights held by DKY, Inc. In addition, the Company issued 7,200,000 common shares
to acquire certain intangible assets from DKY, Inc.'s stockholder valued at $1.4
million (see Note F).
Since its inception, Tamarack, and more recently the Company, has been engaged
primarily in directing, supervising and coordinating research and development
efforts and raising funds. The Company conducts its operations primarily in the
United States.
There is no assurance that the Company's research and development and marketing
efforts will be successful, that the Company will ever have commercially
accepted products, or that the Company will achieve significant sales of any
such products. The Company has incurred net losses and negative cash flows from
operations since its inception. In addition, the Company operates in an
environment of rapid change in technology and is dependent upon the services of
its employees and its consultants. If the Company is unable to successfully
bring its technologies to commercialization, it is unlikely that the Company
could continue its business. The Company has obtained a commitment from a major
stockholder to provide sufficient funds if needed to support the Company's
normal operations through December 15, 2001 upon reasonable terms and conditions
to be agreed.
9
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(UNAUDITED)
[1] Cash and cash equivalents:
The Company maintains cash and cash equivalents with various financial
institutions. The Company performs periodic evaluations of the relative
credit standing of the financial institutions which is considered in the
Company's investment strategy.
[2] Principles of consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All material intercompany accounts and
transactions have been eliminated.
[3] Property and equipment:
Property and equipment are recorded at cost. The cost of maintenance and
repairs is charged against results of operations as incurred. Depreciation
is charged against results of operations using the straight-line method
over the estimated economic useful life.
[4] Patents:
Patents are recorded at cost. Amortization is charged against results of
operations using the straight-line method over the estimated economic
useful life. Patents related to the micro fuel cell and solar fuel cell
technologies are estimated to have an economic useful life of 10 years.
[5] Income taxes:
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined on the basis of the differences between the tax basis
of assets and liabilities and their respective financial reporting amounts
("temporary differences") at enacted tax rates in effect for the years in
which the differences are expected to reverse.
[6] Per share data:
The basic and diluted per share data has been computed on the basis of the
net loss available to common stockholders for the period divided by the
historic weighted average number of shares of common stock outstanding. All
potentially dilutive securities (see Note F) have been excluded from the
computations since they would be antidilutive.
[7] Research and development expenses:
Costs of research and development activities are expensed as incurred.
[8] Advertising expenses:
The Company expenses advertising costs which consist primarily of
promotional items and print media, as incurred. Advertising expenses
amounted to $8,000, $7,000, and $29,000 for the six months ended June 30,
2000, 1999 and for the cumulative period July 31, 1992 (inception) through
June 30, 2000.
10
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(CONTINUED)
(UNAUDITED)
[9] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period.
[10] Investment - NMXS, com, Inc.:
The Company initially recorded its investment in NMXS.com, Inc. at cost and
uses the equity method of accounting to record its share of income or loss.
[11] Revenue recognition:
Contract revenues represent primarily reimbursed expenditures incurred in
connection with a government research contract. The significant aspects of
this contract were completed in 1997 and the Company does not expect any
further reimbursements. Amounts reimbursed represent miscellaneous
other income. The Company expects to earn revenues from the sale or
licensing of its products and such revenue will be recognized in accordance
with the terms of the underlying agreements at the time such transactions
are consummated.
[12] Interim financial statements:
Financial statements as of June 30, 2000 and the six months ended June 30,
2000 and 1999 and the period from inception (July 31, 1992) are unaudited
but in the opinion of management the financial statements include all
adjustments consisting of normal recurring accruals necessary for a fair
presentation of the comparative financial position and results of
operations. Results of operations for interim periods are not necessarily
indicative of those to be achieved or expected for the entire year.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment as of June 30, 2000 consists of the following:
Useful Lives
In Years
--------
Furniture and fixtures 5 $57,000
Computers 5 49,000
Equipment 5 124,000
-------
230,000
Less accumulated depreciation 152,000
-------
$78,000
=======
NOTE D - INVESTMENT - NMXS.COM, INC.
On June 3, 1999, the Company entered into an agreement with NMXS.com, Inc.
(formerly New Mexico Software, Inc., a public company) and invested $100,000
($70,000 in June 1999 and $30,000 in July 1999) for 5,416,300 shares of
11
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE D - INVESTMENT - NMXS.COM, INC. (CONTINUED)
(UNAUDITED)
common stock. As a result of this investment, the Company owns approximately 28%
of NMXS.com, Inc. As a result of losses incurred by NMXS through June 30, 2000,
the Company reduced its investment cost in NMXS to zero. The Company will not
record any of the future earnings associated with NMXS.com, Inc. until all the
cumulative losses have been recovered. The cumulative losses in excess of the
amount invested amounted to $490,000 as of June 30, 2000. In addition, per the
stock purchase agreement with NMXS.com, Manhattan Scientifics provided NMXS.com
with business and management advice through August 1999 without remuneration.
Also, our CEO received a salary of $60,000 and a leased car from NMXS.com, Inc.
as consideration for his services provided to NMXS.com, Inc.
On June 24, 2000, in connection with a private placement offering, the Company
issued 100,000 shares of NMXS.com to the acquiror. In addition, the Company
delivered an option to purchase an additional 100,000 shares of the Company's
shareholdings in NMXS.com for an exercise price of $1 per share. The gain
realized from the transfer of these shares of approximately $33,000 has been
offset against the cumulative losses to date under the equity method of
accounting for this investment (See the "Preferred Stock" section under Note F).
NOTE E - NOTES PAYABLE
In August 1999, the Company borrowed $275,000 from its Chief Operating Officer.
The loan bears interest at the rate of 5.5% per annum and is due upon the
earlier of February 7, 2001 or the date of a private placement raising at least
$1,500,000. The loan may be prepaid at any time. The Chief Operating Officer had
originally paid the Company $275,000 to exercise options to purchase shares of
common stock but such exercise was rescinded and the options have been treated
as if not exercised. No shares were delivered as a result of this transaction.
In August 1999, a stockholder loaned the Company $500,000 at an interest rate of
13.5% per annum. The loan was repaid in October 1999 with a subsequent borrowing
from another stockholder as described below.
In October 1999, the Company obtained a $500,000 loan from a stockholder (the
Peters Corporation) with interest at prime plus 1%. The loan was paid in full in
December 1999 plus interest amounting to $7,000. In connection with this loan,
the Company arranged to have 150,000 shares of common stock of the Company
delivered to the Peters Corporation from another stockholder. The fair market
value of the Company's stock was approximately $1.27 per share at the date of
the transaction. Subsequently, the Company agreed to issue to the Peters
Corporation 150,000 common shares in replacement of shares provided by the third
party. The Company recognized a charge in 1999 of $191,000 for the value of the
shares deliverable with a corresponding credit to additional paid-in capital.
NOTE F - CAPITAL TRANSACTIONS
Common Stock:
The following common stock transactions include the effects of restating of
stockholders' equity for the shares received in the recapitalization/merger as a
result of the reverse acquisition. The exchange rate of such shares was 9.59
shares of the Company's common stock for each Tamarack share of common stock.
Accordingly, the Company's financial statement presentation indicates that there
were 44,000,000 shares of common stock outstanding immediately prior to
consummating the reverse merger.
Effective July 31, 1992, the Company issued 14,391,627 shares of common stock to
the founders for certain intangible assets.
During 1994, the Company effected the following stock transactions:
12
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
(UNAUDITED)
Issued 14,391,627 shares of common stock to Projectavision, Inc. at
approximately $.21 per share in accordance with a stock purchase agreement.
Issued 479,720 shares of common stock on exercise of options at a price of
approximately $.10 per share.
Issued 345,399 shares of common stock at a price of approximately $.52 per
share.
During 1996, the Company issued 14,391,627 shares of common stock for $15,000.
During 1997, the Company repurchased 7,195,814 shares of its common stock for
$15,000.
During 1998, the Company effected the following transactions:
In January 1998, repurchased 7,195,813 shares of common stock for $15,000.
In January 1998, the Company made a special distribution to Projectavision,
Inc. of 14,391,627 shares of common stock held in treasury.
In January 1998, in accounting for the reverse merger transaction, the Company
was deemed to have issued 11 million shares of common stock for the net
monetary assets of Grand which was nominal.
In January 1998, issued 5,000,000 shares of common stock for $.20 per share in
a private placement offering.
In January 1998, issued 7,200,000 shares of common stock at $.20 per share to
acquire certain intangible assets.
In February 1998, issued 1,000,000 shares of common stock with a market value
of $.58 per share for consulting services.
In April 1998, issued 275,000 shares of common stock at $.18 per share to an
accredited investor in a private placement offering.
In July 1998, issued 9,435,405 shares of common stock on conversion of 182,525
shares of Series A convertible preferred stock, and included 309,155 of common
shares representing payment in satisfaction of accumulated dividend of
approximately $100,000 at date of conversion.
In July 1998, as part of the private placement transaction described below,
the Company issued 10 million common stock purchase warrants at an exercise
price of $.05 per share to the "Lauer Entities". In addition, the Company
arranged for this third party to purchase 43,170,512 shares of the Company's
common stock from Projectavision, Inc. Furthermore, the Company agreed to
issue 20 million shares of common stock to this third party at a price of $.05
per share, together with rights to assign such shares to certain other third
parties. Such rights were assigned to the certain other third parties as noted
directly below.
From August 1998 through December 1998, issued 20,340,000 shares of common
stock at $.05 per share in a private placement offering.
During 1999, the Company effected the following transactions:
In August 1999, issued 1,000,000 shares of common stock for $1.00 per
share to acquire certain intangible assets.
In October 1999, issued 78,000 shares in satisfaction of accrued expenses.
13
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
(UNAUDITED)
In October 1999, issued 100,000 shares at $.49 per share to acquire
furniture and fixtures that were issuable in May.
In October 1999, issued 10,000 shares at $.49 per share for consulting
services that were issuable in May.
In October 1999 issued 17,269 shares at market prices from April through
September as consulting services were performed.
In October 1999, exercised 100,000 options into 100,000 shares of common
stock at $.20 per share.
In December 1999, issued 1,600 shares of its common stock at $1.25 per
share for services rendered.
In December 1999, issued 533,000 shares of common stock at $.75 per share
in a private placement offering.
During 2000, the Company effected the following transactions:
In January 2000, issued 515,000 shares of common stock at $.75 per share
in a private placement offering.
In January 2000, issued 4,942 shares of common stock, at market price, for
consulting services performed.
In January 2000, issued 1,076,923 shares of common stock, pursuant to the
July 28, 1999 exercise of warrants by Equilink, LLC.
In April 2000, issued 1,500 shares of common stock, at market price, for
consulting services performed.
In June 2000, issued 700,000 shares of common stock in connection with a
private placement offering 14,000 shares of Series C preferred stock.
Preferred Stock:
During 1993, in accordance with a Share Purchase Agreement, the Company issued
1,037,000 shares of its Series A preferred stock in exchange for consideration
of $1,037,000 in cash, goods and services provided to the Company by an
unrelated third party.
During 1995, the Company issued an additional 163,000 shares of its Series A
preferred stock in settlement of all amounts due to the above mentioned third
party in exchange for services valued at $163,000.
During 1997, the Company repurchased all outstanding shares of its Series A
preferred stock from the above mentioned third party for $70,000. In conjunction
with this transaction, the Board of Directors canceled and retired the then
existing Series A preferred stock.
On January 8, 1998, the Board of Directors of the Company authorized 1,000,000
shares of preferred stock having a par value of $.001 per share to be issued in
such series and to have such rights, preferences and designations as determined
by the Board of Directors.
On January 8, 1998, the Board of Directors of the Company authorized 182,525
shares of Series A convertible redeemable preferred stock having a par value of
$.001. Dividends, which are cumulative, are paid semi-annually in cash or common
stock at the Company's option at a rate of ten percent per share based on a
liquidation value
14
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
(UNAUDITED)
of $10 per share. The Series A shares are convertible at the rate of fifty
shares of the Company's common stock for each Series A preferred share, are
redeemable at the option of the Company at $15 per share, have preference in
case of liquidation, and have voting rights equal to fifty votes per share.
On January 8, 1998, in connection with the reverse merger transaction, the
Company issued 182,525 shares of its Series A convertible redeemable preferred
stock and a warrant to purchase 750,000 shares of the Company's common stock at
a price of $.10 per share in settlement of a note payable due to Projectavision,
Inc. in the amount of $1,500,000 plus accrued interest of $330,000. The note
required interest at 6% per annum. Interest expense related to this note payable
for 1997 amounted to $90,000. The Company recorded a deemed dividend of
$1,020,000 in accordance with EITF D-60 as a result of the beneficial conversion
feature of such preferred shares at the date of issuance with a corresponding
increase to additional paid-in capital. The amount of the deemed dividend was
computed based upon the excess of the market value of equivalent common shares
which approximated $2,737,000 plus the fair value of the warrant of $113,000,
over the deemed proceeds in the exchange for the settlement of the obligation
with Projectavision. The warrant was valued using the Black-Scholes option
pricing model. The following assumptions were used computing the fair value of
the warrant; weighted risk free interest rate of 5.49%; zero dividend yield;
volatility of Company common stock of 43% and an expected life of the warrant of
ten years.
On July 28, 1998, the holder of the Series A convertible redeemable preferred
stock converted their shares into 9,435,405 shares of the Company's common
stock.
In December 1999, the Company issued 245,165 shares of Series B convertible
preferred stock at $6.00 per share in a private placement offering. The shares
are convertible at a rate of ten shares of common stock for each preferred
share. These shares have voting rights and dividend rights as if each share had
been converted to common stock.
The 1999 financial statements reflect the deemed dividend on the Series B
preferred stock of $1,471,000 in accordance with EITF 98-5 resulting from the
calculation of the beneficial conversion feature based on the quoted market
price of the common stock. The amount of the deemed dividend was computed based
upon the excess of the market value of equivalent common shares deemed issued
over the proceeds received from the sale of the convertible preferred stock. The
amount of the deemed dividend has been limited to the offering proceeds.
In June 2000, the Company authorized 14,000 shares of Series C convertible,
redeemable preferred stock with a stated value of $100 per share. The Series C
shares are convertible into shares of common stock after 180 days from the date
of the initial issuance of such shares. Such conversion is based upon a formula
as determined by dividing (i) the product of $100 and the number of shares of
Series C preferred stock to be converted on the date of conversion by (ii) the
average closing price. The average closing price shall be the product of $.50
and the average closing bid price of the Company's common stock as reported by
the quotation system on which the common stock is quoted, for the ten trading
days immediately preceding the date that notice of conversion of the shares is
furnished to the Company. In no event shall the Series C preferred stock be
converted into more than an aggregate of 2,800,000 shares of common stock or
less than an aggregate of 933,334 shares of common stock. For the purposes of
determining the conversion ratio, the average closing price shall not be less
than $.50 or greater than $1.50. The Series C shares are redeemable for the
stated value of the stock at the option of the Company from time to time on or
prior to 180 days from June 21, 2000, any or all of the outstanding shares. In
connection with this transaction, the Company transferred 100,000 shares of
common stock of NMXS.com, Inc. and issued an option for an additional 100,000
shares of common stock of NMXS.com, Inc. to the investors (See Note D).
The 2000 financial statements reflect the deemed dividend on the Series C
preferred stock of $1,400,000 in accordance with EITF 98-5 resulting from the
calculation of the beneficial conversion feature based on the quoted market
price of the common stock. The amount of the deemed dividend was computed based
upon the excess of the market value of equivalent common shares deemed issued
over the proceeds received from the sale of the convertible preferred stock. The
amount of the deemed dividend has been limited to the offering proceeds.
15
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
(UNAUDITED)
Stock Options:
The Company has elected to account for its employee stock options in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB No. 25"). Under APB No. 25, generally, no compensation expense
is recognized in the accompanying financial statements in connection with the
awarding of stock option grants to employees provided that, as of the grant
date, all terms associated with the award are fixed and the quoted market price
of the Company's stock, as of the grant date, is not more than the amount an
employee must pay to acquire the stock as defined; however, to the extent that
stock options are granted to non employees, for goods or services, the fair
value of these options are included in operating results as an expense.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
Weighted Number of
Number of Exercise Average Common
Common Price Per Exercise Shares
Shares Share Price Exercisable
------ ----- ----- -----------
<S> <C> <C> <C> <C>
Outstanding as of December 31,
1997 0 0
Granted 21,325,000 $.20 $.20 21,325,000
Canceled (15,000,000) $.20 $.20 (15,000,000)
---------- -----------
Outstanding as of December 31,
1998 6,325,000 $.20 $.20 6,325,000
Granted 16,250,000 $.05 and $.20 $.05 16,250,000
Exercised (100,000) (100,000)
Canceled 0 0
---------- -----------
Outstanding as of December 31,
1999 22,475,000 22,475,000
Granted 0 0
Canceled 0 0
---------- -----------
Outstanding as of June 30, 2000 22,475,000 22,475,000
========== ===========
</TABLE>
All options issued during 1999 and 1998 vested immediately and expire at various
dates during 2008 and 2009.
Tamarack Storage Devices, Inc. 1992 Stock Option Plan was terminated in
connection with the reverse merger transaction. All options outstanding were
canceled at that time.
On January 8, 1998, the Company adopted its 1998 Stock Option Plan (the "Plan").
Under the Plan, incentive and non-qualified stock options may be granted to key
employees and consultants at the discretion of the Board of Directors. Any
incentive option granted under the Plan will have an exercise price of not less
than 100% of the fair market value of the shares on the date on which such
option is granted. With respect to an incentive option granted to a participant
who owns more than 10% of the total combined voting stock of the Company or of
any parent or subsidiary of the Company, the exercise price for such option must
be at least 110% of the fair market value of the shares subject to the option on
the date on which the option is granted. A non-qualified option granted under
the Plan (i.e., an option to purchase the common stock that does not meet the
Internal Revenue
16
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
(UNAUDITED)
Code's requirements for incentive options) must have an exercise price of not
less than 100% of the fair market value of the stock on the date of grant. The
directors determine the vesting of the options under the Plan at the date of
grant. A maximum of 30,000,000 options can be awarded under the Plan. The terms
of grant permit a noncash exercise.
On July 28, 1998 in connection with a private placement transaction, the holders
of 15 million options relinquished those options. Ten million of such options
were recast as warrants to purchase shares of the Company's common stock at an
exercise price of $.05 per share and given to a third party as a portion of the
consideration for the private placement. No value such was ascribed to the 10
million warrants as they have deemed to be issued in connection with the private
placement. The remaining 5 million options were also recast as warrants to
purchase shares of the Company's common stock at an exercise price of $.05 per
share and given to the original option holders. The in the money feature of such
options amounted to $1,100,000 and was recorded as compensation and was
classified in general and administrative expense in the statements of operations
for the year ended December 31, 1998. The incremental fair value associated with
those warrants was computed using the Black-Scholes method which approximated
$115,000. On May 6, 1999, 500,000 options were repriced to $.05 which were
previously granted at $.20 on January 8, 1998 to a director of the Company. The
in the money feature of such options amounted to $220,000 and was recorded as
compensation and was classified in general and administrative expense in the
statement of operations for the year ended December 31, 1999.
Disclosures required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), including pro forma
operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation are shown below.
Exercise prices and weighted-average contractual lives of stock options
outstanding as of June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
----- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$.05 16,200,000 8.7 $.05 16,200,000 $.05
$.20 6,275,000 8.0 $.20 6,275,000 $.20
</TABLE>
Warrants:
The Company issued the following warrants as of June 30, 2000:
<TABLE>
<CAPTION>
Number of Exercise Contractual Number of Shares
Date Warrants Price Life Exercisable
---- -------- ----- ---- -----------
<S> <C> <C> <C> <C>
January 8, 1998 750,000 $.10 10 years 750,000
July 28, 1998 12,500,000 $.05 10 years 12,500,000
---------- ----------
13,250,000 13,250,000
========== ==========
</TABLE>
17
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
In January 2000, the Company issued 1,076,923 shares of common stock, pursuant
to the July 28, 1999 exercise of warrants by Equilink, LLC.
On May 6, 1999, 2,500,000 warrants held by the Chief Executive Officer were
converted into 2,500,000 options.
NOTE G - INCOME TAXES
(UNAUDITED)
There is no provision for federal, state or local income taxes for the periods
ended June 30, 2000 and 1999, since the Company has incurred net operating
losses.
The Company's deferred tax asset as of June 30, 2000 represents benefits from
equity related compensation charges and net operating loss carryforwards of
approximately $3,453,000 and $1,849,000, respectively, which is reduced by a
valuation allowance of approximately $5,302,000 since the future realization of
such tax benefit is not presently determinable.
As of June 30, 2000, the Company has a net operating loss carryforward of
$14,336,000 expiring in 2008 through 2020 for federal income tax purposes and
2004 for state income tax purposes. As a result of ownership changes, internal
revenue code Section 382 limits the amount of such net operating loss
carryforward available to offset future taxable income to approximately
$4,687,000 in the aggregate.
The difference between the statutory federal income tax rate applied to the
Company's net loss and the Company's effective income tax rate for the six
months ended June 30, 2000 and 1999 is summarized as follows:
Three Months Six Months
Ended Ended
June 30, June 30,
---------------- -----------------
2000 1999 2000 1999
------ ------ ------ -------
Statutory federal income
tax rate 34.0% 34.0% 34.0% 34.0%
Increase in valuation
allowance (34.0)% (34.0)% (34.0)% (34.0)%
0.0% 0.0% 0.0% 0.0%
==== ==== ==== ====
NOTE H - COMMITMENTS
[1] License and development agreements:
In March 1997, the Company entered into a Cooperative Research and
Development Agreement (the "CRADA Agreement") with the Regents of the
University of California to develop a polymeric based recording media that
will satisfy all of the requirements for a holographic media storage
device. The work was to be completed within 25 months from the original
date of execution. Each party shall have the first option to retain title
to any subject inventions made by its employees during the work under this
agreement. The agreement provides that the Company's contribution to
funding will be $264,000. The CRADA research and development expenses
charged to the statement of operations for the six months ended June 30,
2000 and 1999 and for the cumulative period July 31, 1992 through June 30,
2000 amounted to $0, $29,000 and $83,000, respectively.
On January 11, 1998, the Company entered into a research and development
agreement with Energy Related Devices, Inc. ("ERDI"). The term of the
agreement is for the later of three years from the commencement date as
defined in the agreement or the delivery of a prototype suitable for
commercial sale or license regarding the fuel cell product defined in the
agreement. The Company is obligated to fund up to $1 million in accordance
with certain milestones as defined in the agreement. Upon the delivery of a
prototype suitable for commercial sale or license regarding the fuel cell
product, the Company's obligation
18
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE H - COMMITMENTS (CONTINUED)
(UNAUDITED)
will be to pay ERDI $10,000 per month until the Company funds or
determines not to fund the research and development of ERDI's solar
cell invention. Through June 30, 2000, the Company has provided
$1,000,000 to ERDI for research and development activities. In
addition, the Company is providing for key-man life insurance coverage
on the primary stockholder of ERDI. In May 1999, the Company committed
to additional funding of ERDI. As of June 30, 2000, the Company has
funded an additional $380,000.
In August 1999, the Company entered into a license option agreement with
the Regents with the University of California for Cyclodextrin Polymer
Separation materials. The agreement grants the Company an exclusive option
to negotiate an exclusive world-wide license under the University's patent
rights. The initial term expired on February 29, 2000 and was extended for
a second term to February 28, 2001. Upon exercise of the agreement, the
Company paid to the University a fee of $10,000. On February 28, 2000 the
agreement was extended to a second term and the Company paid an additional
$10,000 fee.
On March 7, 2000, the Company entered into a license option agreement with
a third party for nanoporous polymer molecular filter technologies. The
agreement grants the Company an exclusive option to negotiate an exclusive
world-wide license under the third party's patent rights. The initial term
will expire on September 15, 2000 with an option for an additional six
month term. The Company paid $10,000 to execute the license option
agreement and if extended to a second term will require an additional
$10,000 fee.
In June 2000, the Company entered into agreements with a third party to
exclusively and perpetually license a development stage computer software
technology on a worldwide basis, to fund the continuing research and
development of such technology, and to exchange certain securities (subject
to return provisions), among other things. To date, the Company has funded
$300,000 of an initial commitment of $1.5 million toward research and
development of the technology, pursuant to a milestone timetable. It is
intended that additional research and development not covered by the
initial $1.5 million commitment, if any, will be funded primarily out of
certain royalties payable by the Company to the third party, or, to the
extent that such royalties are insufficient, from additional financings by
the Company. The securities exchanged in connection with this transaction
have been initially valued at $1,115,000, and reflected as a component of
shareholders' equity. Because the securities are subject to certain return
provisions relating to funding of research and development activities, they
will be valued at each balance sheet date in accordance with such return
provisions. The Company believes that it is premature to offer any
assessment as to the ultimate commercial viability of any products that
might be derived from this technology should it be successfully developed.
[2] Consulting agreements:
During 1998, the Company entered into a consulting agreement (the
"Agreement") with a former stockholder of Tamarack to provide research
related activities. In connection with the Agreement, the consultant
receives approximately $2,300 per month for such services and is eligible
for a lump sum payment of $50,000 upon the attainment of a revenue
milestone as defined in the Agreement. In accordance with the Agreement,
the Company issued stock options to purchase 250,000 shares of the
Company's common stock at $.20 per share.
Two hundred thousand of such options are subject to conditional vesting and
are not currently exercisable. The vesting of these options is based upon
the attainment of certain milestones as follows; 50,000 options upon
successful testing and acceptance by a third party of the holographic
storage media; 50,000 options upon commencement of commercial production of
devices incorporating holographic storage media; 100,000 options upon
attainment of $250,000 of gross revenues resulting from sales of devices
incorporating the holographic storage media. These options are subject to
variable plan accounting treatment in accordance with APB No. 25 and as
such, the Company will record a charge to operations if the criteria for
vesting are attained. The measurement date will be determined based upon
the vesting.
19
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
NOTE H - COMMITMENTS (CONTINUED)
(UNAUDITED)
[3] Employment agreement:
On August 30, 1999, the Company entered into an employment and
noncompetition agreement with an individual to provide research related
activities. The term of the agreement is for one year commencing on
September 1, 1999. The agreement allows for two one year renewal options
unless terminated by either party. Base salary is $90,000 per annum with
available additional cash compensation as defined in the agreement. In
addition, the employee is eligible to receive stock options to purchase
500,000 shares of common stock at $.40 per share.
[4] Intangible asset acquisition:
On August 6, 1999, the Company entered into an agreement with Novars
Gesellschaft Furneve Technologies mbh ("Novars") to acquire all of the
intellectual property rights of Novars. As compensation, the Company issued
1,000,000 shares of its common stock. Five hundred thousand of such shares
were treated as if issuable and will be held in escrow pending
administrative issuance of certain patents as defined in the agreement. The
initial purchase price was estimated at $1,000,000 based upon the value of
the shares of common stock issued at the date of the transaction as
determined by management. However, the eventual purchase price can not be
determined until such time the shares held in escrow have been released to
the third party. In addition, the Company is obligated to pay a three
percent royalty in perpetuity on the revenues earned by the Company as
defined in the agreement.
In conjunction with the above, the Company entered into a three year
research and development agreement with Novars with automatic one year
renewals unless terminated by either party. In accordance with this
agreement, the Company advanced $200,000 in August 1999, $150,000 January
2000 and $150,000 March 2000. The Company has amended the research and
development agreement to provide for additional funding based on a
milestone timetable. As of June 30, 2000 the Company has funded an
additional $230,000.
[5] Leases:
The Company is obligated under two separate operating leases for office
space located in Los Alamos, New Mexico and New York City. Both leases
expire in 2001. The Company received reimubrsement of $39,000 against rent
charges for the six months ended June 30, 2000 from a related party. Rent
expense charged to operations was approximately $19,000 for the six months
ended June 30, 2000 and $10,000 for the six months ended June 30, 1999.
Minimum future rental payments under these leases are as follows:
Twelve Months
Ending
June 30,
--------
2000 $105,000
2001 35,000
NOTE I - RELATED PARTY TRANSACTIONS
The law firm of one director received $98,000 compensation for legal services
rendered to the Company during the six months ended June 30, 2000.
20
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
(UNAUDITED)
The accounting firm of one of our directors received $71,000 compensation for
accounting services rendered to the Company during the six months ended June 30,
2000.
In September 1999, the partners of one director received an aggregate of 200,000
options to purchase Company common stock at $.05 per share as consideration for
the director's reduced availability which options were valued at $330,000 and
expensed to attend to partnership duties as a result of his activities on behalf
of the Company.
NMXS.com, Inc. pays the Company's CEO a yearly salary of $60,000 and leases a
car for him as consideration for his services.
During 1998, the Company entered into a research and development agreement with
Energy Related Devices, Inc. ("ERDI"). ERDI is majority-owned by a shareholder
of the Company (see Note H[1]).
NOTE J- SUBSEQUENT EVENTS
(UNAUDITED)
Other:
On May 2, 2000, the Company entered into a contract with the U.S. Army to design
and build a fuel cell power source to be used in an army test program. The
contract price is $75,000. In late July 2000 the Company delivered the fuel cell
power source for evaluation by the U.S. Army.
21
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain statements in this Report constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Factors
that might cause such a difference include, among others, uncertainties relating
to general economic and business conditions; industry trends; announcements or
changes in our pricing policies or those of our competitors; unanticipated
delays in the development, market acceptance or installation of products;
availability of management and other key personnel; availability, terms and
deployment of capital; relationships with third-parties; and worldwide political
stability and economic growth. The words "believe", "expect", "anticipate",
"intend" and "plan" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date the statement was made.
The following discussion and analysis should be read in conjunction
with our financial statements and accompanying notes appearing elsewhere in this
Form 10-QSB.
Overview
In January 1998, Manhattan Scientifics, Inc., then a non-operating
public corporation with nominal net assets, acquired all of the outstanding
common stock of Tamarack Storage Devices, Inc. by issuing 44 million shares of
its common stock, including approximately 43,120,000 shares issued to
Projectavision, Inc., a public company, which gave the stockholders of Tamarack
actual control of the combined company. In addition, we issued 182,525 shares of
Series A preferred stock and a warrant to purchase 750,000 shares of our common
stock at an exercise price of 10 cents per share in exchange for a note payable
of $1.5 million plus accrued interest of $330,000 due to Projectavision from
Tamarack. In connection with this transaction, Tamarack became our wholly-owned
subsidiary. For accounting purposes, the acquisition was treated as a
recapitalization of Tamarack rather than a business combination. Tamarack, as
the accounting acquiror of the public shell, did not record goodwill or any
other intangible asset for this "Reverse Acquisition". All financial statements
prior to January 1998 are those of Tamarack. Tamarack, a development stage
enterprise, is a Texas corporation formed in July 1992. Since inception,
Tamarack has been, and continues to be, involved in the research and development
of products based on holographic data storage technology.
Since the reverse merger, we have been acquiring and licensing
technologies from third parties, directing, supervising and coordinating our
research and development efforts, raising capital, and initiating marketing
activities and dialogue with potential customers.
We have not received any revenues since the reverse merger and we
have continued to incur losses.
At June 30, 2000, we had an accumulated loss since inception (July
1992) of $23,091,000. Of this accumulated loss, approximately $9,800,000 was
derived from non-cash charges that were required by generally accepted
accounting principles and approximately $6,800,000 from Tamarack prior to our
acquisition of Tamarack. We expect operating losses to continue for the
foreseeable future because we will continue to fund research and development
efforts and to incur general and administrative expenses prior to receiving any
revenues from our technologies.
We do not know if our research and development and marketing efforts
will be successful, that we will ever have commercially acceptable products, or
that we will achieve significant sales of any such products. We operate in an
environment of rapid change in technology and we are dependent upon the services
of our employees, consultants and independent contractors. If we are unable to
successfully bring our technologies to commercialization, we would likely have
to significantly alter our business plan and may cease operations.
22
<PAGE>
Results of Operations
Comparison of three months ended June 30, 2000 to three months ended
June 30, 1999.
Net Loss. We reported a net loss of $1,054,000, or $0.02 per common
share, basic and diluted, for operations for the three months ended June 30,
2000 versus a net loss of $6,553,000, or $0.07 per common share, basic and
diluted, for the three months ended June 30, 1999. The decrease of $5,499,000,
or 84%, is primarily a result of the fact that, in 1999, we recorded a charge of
$6,160,000 for the issuance of options with an exercise price below fair market
value on the date of grant, whereas in the fiscal 2000 period, we did not issue
any options.
Revenues. We had no revenues during the three months ended June 30,
2000 and had no revenues during the three months ended June 30, 1999.
Operating Costs and Expenses. Operating costs and expenses for the
three months ended June 30, 2000 totaled $1,055,000, a decrease of $5,503,000,
or 84%, versus costs and expenses of $6,558,000 for the three months ended June
30, 1999. These costs and expenses are detailed below.
Salaries and Employee Benefits. Salaries related to research and
development and employee benefits were approximately $32,000 for the three
months ended June 30, 2000, which consisted of salary to our Chief Polymer
Scientist, which is included in Research and Development for such period, versus
salaries and employee benefits of $0 for the three months ended June 30, 1999.
We anticipate an increase in these costs as we intend to enter into employment
agreements with our currently uncompensated executive officers and implement
certain employee benefit plans, including a healthcare plan.
General and Administrative. General expenses were $280,000 for the
three months ended June 30, 2000, which consisted of accounting, legal, travel,
rent, telephone and other day to day operating expenses, versus general and
administrative expenses of $6,369,000 for the three months ended June 30, 1999.
This decrease of $6,089,000, or 96%, is primarily a result of the fact that, in
1999, we recorded a charge for the issuance of options with an exercise price
below fair market value on the date of grant, whereas in the fiscal 2000 period,
we did not issue any options. We anticipate no significant change in general and
administrative expenses in the near future.
Research and Development. Research and development expenses were
$775,000 for the three months ended June 30, 2000, which consisted of payments
on research and development agreements with various contractors, amortization of
patents, nanoporous polymer license option payments, and salary to our Chief
Polymer Scientist. Research and development expenses amounted to $189,000 for
the three months ended June 30, 1999. This increase of $586,000, or 310%,
resulted from increased research and development payments to various third party
contractors.
We expect research and development costs to increase as we develop
our existing technologies and acquire or license new ones. In June 2000,
we entered into agreements with a third party to exclusively and perpetually
license a development stage computer software technology on a worldwide basis,
to fund the continuing research and development of such technology, and to
exchange certain securities (subject to return provisions), among other things.
To date, we funded $300,000 of an initial commitment of $1.5 million toward
research and development of the technology, pursuant to a milestone timetable.
It is intended that additional research and development costs not covered by the
initial $1.5 million commitment, if any, will be funded primarily out of certain
royalties we anticipate paying to the third party, or, to the extent
that such royalties are insufficient, from additional financings we consummate.
We believe that it is premature to offer any assessment as to the ultimate
commercial viability of any products that might be derived from this technology
should it be successfully developed.
23
<PAGE>
Comparison of six months ended June 30, 2000 to six months ended
June 30, 1999.
Net Loss. We reported a net loss of $2,035,000, or $0.03 per common
share, basic and diluted, for the six months ended June 30, 2000, versus a net
loss of $6,836,000, or $0.07 per common share, basic and diluted, for the six
months ended June 30, 1999. The decrease of $4,801,000, or 70%, is primarily a
result of the fact that, in 1999, we recorded a charge for the issuance of
options with an exercise price below fair market value on the date of grant,
whereas in the fiscal 2000 period, we did not issue any options.
Revenues. We had no revenues for the six months ended June 30, 2000
and no revenues for the six months ended June 30, 1999.
Operating Costs and Expenses. Operating costs and expenses for the
six months ended June 30, 2000 totaled $2,049,000, a decrease of $4,797,000, or
70%, versus costs and expenses of $6,846,000 for the six months ended June 30,
1999. These costs and expenses are detailed below.
Salaries and Employee Benefits. Salaries related to research and
development and employee benefits were approximately $63,000 for the six months
ended June 30, 2000, which consisted of salary to our Chief Polymer Scientist,
which is included in Research and Development for such period, versus salaries
and employee benefits of $0 for the six months ended June 30, 1999. We
anticipate an increase in these costs as we intend to enter into employment
agreements with our currently uncompensated executive officers and implement
certain employee benefit plans, including a healthcare plan.
General and Administrative. General expenses were $630,000 for the
six months ended June 30, 2000, which consisted of accounting, legal, travel,
rent, telephone and other day to day operating expenses, versus general and
administrative expenses of $6,485,000 for the six months ended June 30, 1999.
This decrease of $5,855,000, or 90%, is primarily a result of the fact that, in
1999, we recorded a charge for the issuance of options with an exercise price
below fair market value on the date of grant, whereas in the fiscal 2000 period,
we did not issue any options. We anticipate no significant change in general and
administrative expenses in the near future.
Research and Development. Research and development expenses were
$1,419,000 for the six months ended June 30, 2000, which consisted of payments
on research and development agreements with various contractors, amortization
of patents, nanoporous polymer license option payments, and salary to our Chief
Polymer Scientist. Research and development expenses amounted to $361,000 for
the six months ended June 30, 1999. This increase of $1,058,000, or 293%,
resulted from increased research and development payments to various third party
contractors. We expect research and development costs to increase as we develop
our existing technologies and acquire or license new ones.
Liquidity and Plan of Operations
We are a development stage company and are in the technology
acquisition and development phase of our operations. Accordingly, we have relied
primarily upon private placements and subscription sales of stock to fund our
continuing activities and acquisitions. To a limited extent, and as described
below, we have also relied upon borrowing from non-traditional lenders who are
also our shareholders. Until we generate revenue from sales and licensing of
technology, or receive a large infusion of cash from a potential strategic
partner, we intend to continue to rely upon these methods of funding our
operations during the next year.
Our significant assets include our portfolio of intellectual
property relating to various technologies, our contracts with third parties
pertaining to technology development, acquisition and
24
<PAGE>
licensing, our holdings of approximately 5.2 million shares of common stock in
NMXS.Com, Inc., our cash on hand, and our strategic alliances with various
scientific laboratories, educational institutions, scientists and leaders in
industry and government.
Stockholders' equity totaled $2,989,000 on June 30, 2000 and working
capital was $871,000 on such date.
Commencing with the reverse merger transaction in January 1998,
there have been six groups of private placements intended to raise capital for
us. These have consisted of the following:
1. In January 1998, in connection with the reverse merger transaction
described above, we raised $1,000,000 through the sale of 5 million shares
of common stock to 40 investors at a price of 20 cents per share.
2. On April 16, 1998, we raised $50,000 through the sale of 275,000 shares of
common stock to a single individual, Mr. Stephen Guarino, at 18.18 cents
per share.
3. From July 28, 1998 through December 31, 1998, we raised $1,017,000 through
the sale of 20,340,000 shares of common stock to 51 individuals and
entities at 5 cents per share. The right to purchase these shares was
originally granted to one entity (Lancer Partners, L.P.) on July 28, 1998,
together with the right to assign the right to purchase such shares. That
entity effectively assigned its rights to the 51 individuals and entities
between July 28, 1998 and December 31, 1998. Finders fees aggregating
$25,000 were paid to one entity.
4. In December 1999, we raised $1,470,990 through the sale of 245,165 shares
of Series B Preferred Stock to 10 accredited investors at $6.00 per share.
5. In December 1999, we raised $786,000 through the sale of 1,048,000 shares
of common stock to nine accredited investors at 75 cents per share.
6. In June 2000, we raised $1,400,000 through the sale of 14,000 shares of
Series C Preferred Stock to two accredited investors at $100.00 per share.
The Company became eligible for resales of its restricted securities
by its shareholders under SEC Rule 144 on or about May 8, 2000.
In addition to the foregoing private placements, we received
additional capital through the exercise of options by one of our option holders.
On or about October 14, 1999, we received $20,000 from Mr. Donald Sandstrom, who
has served us from time to time as a scientific advisor, in connection with his
exercise of 100,000 options at 20 cents per share.
In October 1999, we borrowed $500,000 from the Peters Corporation of
Santa Fe, New Mexico. The loan required interest at the rate of Citicorp prime
plus 1% and matured on December 19, 1999. The Peters Corporation is a
shareholder of ours. The proceeds of the loan were used to retire a bridge loan
in the same amount that had been made by the Orbiter Fund in August 1999. We
repaid this loan in full plus interest on December 15, 1999 with proceeds from a
private placement. Among other things, interest on the Orbiter loan had been
payable at the rate of 13.5%, and Orbiter had the right to convert the loan into
2,000,000 shares of common stock if unpaid by May 18, 2000. The Orbiter Fund is
a shareholder of ours and an affiliate of our largest shareholder.
We borrowed $275,000 from Jack Harrod, our Chief Operating Officer,
effective as of August 8, 1999. The loan bears interest at the annual rate of
5.5% and matures upon the earlier of (i) February 7, 2001 or
25
<PAGE>
(ii) the date we complete a private placement of a class of our securities
aggregating at least $1,500,000. We may prepay the loan at any time, in whole or
in part, without penalty.
We do not presently maintain a line of credit with any financial
institution.
On April 11, 2000, Lancer Management Group, LLC, one of our
stockholders, expressed its willingness to advance us funds as needed to
continue our operations through December 15, 2001, upon reasonable terms and
conditions to be agreed.
We do not expect any significant change in the total number of
employees in the near future. We intend to continue to identify and target
appropriate technologies for possible acquisition or licensing over the next
twelve months, although we have no agreements regarding any such technologies as
of the date of this Form 10-QSB.
Based upon current projections, our principal cash requirements for
the next 12 months consists of (1) fixed expenses, including rent, payroll,
investor relations services, public relations services, bookkeeping services,
graphic design services, consultant services, and reimbursed expenses; and (2)
variable expenses, including technology research and development, milestone
payments, intellectual property protection, utilities and telephone, office
supplies, additional consultants, legal and accounting. As of June 30, 2000, we
had $703,000 in cash. As of December 31, 1999 we had $1,168,000 in cash. We
intend to satisfy our capital requirements for the next 12 months by our cash on
hand, continuing to pursue private placements to raise capital, use of our
common stock as payment for services in lieu of cash where appropriate, and
borrowing as appropriate. However, we do not know if those resources will be
adequate to cover our capital requirements.
Recently Issued Accounting Standards
We do not believe any recently issued accounting standards have had
or will have a material impact on our operations.
26
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
In June, 2000, the Company agreed to issue (i) 14,000 shares of
Series C convertible, redeemable preferred stock and (ii) 700,000 shares of
common stock to two accredited investors pursuant to an exemption provided by
Section 4(2) of the Securities Act of 1933, as amended, for an aggregate
purchase price of $1.4 million. The proceeds thereof are being used for working
capital purposes.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description of Exhibit
------- ----------------------
2.1 Amended Certificate of Designation, Preferences and Rights of
Series C Preferred Stock
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
27
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MANHATTAN SCIENTIFICS, INC.
Dated: August 14, 2000 By: /s/ Marvin Maslow
------------------------ ---------------------------------
Marvin Maslow
President, Chief Executive
Officer, and Chairman of
the Board
28
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------- ----------------------
2.1 Amended Certificate of Designation, Preferences and Rights of
Series C Preferred Stock
27.1 Financial Data Schedule
29
